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Diplomacy in Action

2011 INCSR: Countries/Jurisdictions of Primary Concern - Guatemala through Mexico


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

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Guatemala

Guatemala is not considered a regional financial center. It continues to be a transshipment route for South American cocaine and heroin destined for the United States and for returning cash to South America. Open source reports suggest that the narcotics trade is increasingly linked to arms trafficking.

Historically weak law enforcement and judiciary systems coupled with endemic corruption and increasing organized crime activity contribute to a favorable climate for significant money laundering in Guatemala. According to law enforcement agencies, narcotics trafficking and corruption are the primary sources of money laundered in Guatemala; however, the laundering of proceeds from other illicit activities, such as human trafficking, contraband, kidnapping, tax evasion, and vehicle theft, is substantial. There is no indication of terrorist financing activities.

Guatemala’s geographic location makes it an ideal haven for transnational organized crime groups, including human and drug trafficking organizations. The Central America Four Agreement between El Salvador, Guatemala, Honduras, and Nicaragua allows for free movement of the citizens of these countries across their respective borders without passing through immigration or customs inspection. As such, the agreement represents a vulnerability to each country for the cross-border movement of contraband and illicit proceeds of crime.

There are free trade zones operating in the country. There are no reported hawala or other similar alternative remittance systems operating in Guatemala. A significant number of remittances are transferred through banks and appear to pose little risk for money laundering.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: YES

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Banks; finance and leasing companies; credit card cooperatives, issuers, or payment agents; stock brokers; insurance companies; money remitters and exchanges; pawnbrokers; notaries and accountants; tax advisors and lawyers; casinos, raffles and games of chance; dealers in motor vehicles, precious metals and stones, and art and antiquities; and real estate agents

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks; finance and leasing companies; credit card cooperatives, issuers, or payment agents; stock brokers; insurance companies; money remitters and exchanges; pawnbrokers; notaries and accountants; tax advisors and lawyers; casinos, raffles and games of chance; dealers in motor vehicles, precious metals and stones, and art and antiquities; and real estate agents

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

Money laundering criminal prosecutions/convictions:

Prosecutions: 13 in 2009

Convictions: 11 in 2009

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Guatemala is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.cfatf-gafic.org/downloadables/mer/Guatemala_3rd_Round_MER_(Final)_English.pdf

Enforcement and implementation issues and comments:

There are relatively few convictions for money laundering, most of which are for the illegal transport of cash. The number of staff at the FIU and the capacity of law enforcement officials may hamper the ability of the authorities to prosecute more cases.

Former President Alfonso Portillo was indicted in the United States in December 2009 with one count of conspiracy to commit money laundering. Both a Guatemalan trial and appellate court have approved his extradition to the United States and the case is currently on appeal before the Guatemalan Supreme Court.

Law enforcement agencies report that money laundering has increased during the year, especially by groups of air travelers heading to countries such as Panama with slightly less than the amount of the Guatemalan reporting requirement ($10,000), and a large number of small deposits in banks along the Guatemalan border with Mexico. A new law regarding asset seizures, passed by Congress in December 2010, will take effect in June 2011 and allows Guatemalan authorities to seize cash in structuring transactions and transfer it to the state without first having to obtain a criminal conviction against the courier. The same law will also prevent new businesses from issuing bearer shares of stock. The law requires any existing business with bearer shares to convert the shares to nominative by June 2013, but it is not clear what the consequences will be for failure to do so.

In October, Guatemalan monetary authorities approved a regulation to establish limits for cash transactions in foreign currency to reduce money laundering and terrorism financing risks. The law states that deposits totaling over $3,000 in any given month will be subject to additional requirements.

Casinos are not legal in Guatemala, however, a number of casinos, games of chance and video lotteries operate, both onshore and offshore. There is no regulatory oversight or legal framework for casino operation, although they are listed as covered entities under the AML law. Attempts by the government to enforce requirements are not successful. Lotteries and raffles are subject to local jurisdiction licensing but are not subject to AML/CFT supervision. Unsupervised gaming activity represents a significant money laundering risk.


Guernsey

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

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: no

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

UN lists of designated terrorists or terrorist entities distributed to financial institutions: YES

Know-your-customer rules:

Covered entities: All financial services businesses; lawyers, accountants and estate agents; and eGambling services

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: All businesses

Number of STRs received and time frame: 673 in 2010

Number of CTRs received and time frame: 105 in 2010

Money laundering criminal prosecutions/convictions:

Prosecutions: Two

Convictions: Two in 2010

Assets forfeited: criminally: $1,567,265 civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

The IMF’s December 2010 “Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism” for the Bailiwick of Guernsey can be found at: http://www.imf.org/external/pubs/ft/scr/2011/cr1112.pdf

Enforcement and implementation issues and comments:

The Bailiwick has been actively involved in the provision of formal mutual legal assistance for many years. The authorities consider themselves able to provide assistance without the need to enter into mutual legal assistance treaties, and this has enabled compliance with requests from a wide range of jurisdictions, including the US, using the full range of investigatory powers in the law.

Guernsey’s comprehensive AML/CFT legal framework provides a sound basis for an effective AML/CFT regime, and most shortcomings are technical in nature. Money laundering and the financing of terrorism are criminalized fully in line with the FATF standard and the legal framework provides an ability to freeze and confiscate assets in appropriate circumstances. While no shortcomings have been identified in the legal framework, concerns remain with respect to the implementation of the money laundering provisions. Given the size of the Bailiwick’s financial sector and its status as an international financial center, the modest number of cases involving money laundering by financial sector participants and the small number of money laundering cases resulting in convictions raises questions concerning the effective application of money laundering provisions.

Guernsey is a Crown Dependency and cannot sign or ratify international conventions in its own right unless entrusted to do so. Rather, the UK is responsible for the Bailiwick’s international affairs and, at Guernsey’s request, may arrange for the ratification of any Convention to be extended to the Bailiwick. The UK’s ratification of the 1988 UN Drug Convention was extended to include the Bailiwick on April 3, 2002; its ratification of the UN Convention against Corruption was extended to include Guernsey on November 9, 2009; and its ratification of the International Convention for the Suppression of the Financing of Terrorism was extended to Guernsey on September 25, 2008. The UK has not extended the UN Convention against Transnational Organized Crime to the Bailiwick


Guinea-Bissau

The Government of Guinea-Bissau is not in full compliance with international conventions against money laundering and terrorist financing because of inadequate resources, weak border controls, and competing national priorities. Of all West African countries, none has been so thoroughly penetrated and corrupted by Latin American drug cartels as Guinea-Bissau. Drug barons from Latin America and their collaborators from the region and other parts of the world have taken advantage of the extreme poverty, unemployment, political instability, lack of effective customs and law enforcement, and general insecurity to make the country a major transit point for cocaine destined to consumer markets, mainly in Europe. One of the poorest countries in the world, the value of the illicit narcotics trade in Guinea-Bissau is much greater than its national income. Using threats and bribes, drug traffickers infiltrate state structures and operate with impunity.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All crimes approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

UN lists of designated terrorists or terrorist entities distributed to financial institutions: YES

Know-your-customer rules:

Covered entities: Financial institutions, microfinance institutions, exchange houses, securities firms, insurance companies, casinos, brokerages, charities, nongovernmental organizations (NGOs), and intermediaries such as lawyers, accountants, notaries and broker/dealers

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Financial institutions, microfinance institutions, exchange houses, securities firms, insurance companies, casinos, brokerages, charities, nongovernmental organizations (NGOs), and intermediaries such as lawyers, accountants, notaries and broker/dealers

Number of STRs received and time frame: 0 in 2009

Number of CTRs received and time frame: 0 in 2009

Money laundering criminal prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: NO

With other governments/jurisdictions: NO

Guinea Bissau is a member of the Intergovernmental Action Group against Money Laundering in West Africa (GIABA), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.giaba.org/

Enforcement and implementation issues and comments:

In April, 2010, the United States Treasury froze the assets of two top Guinea-Bissau military officers and designated them as major drug kingpins.

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

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

The Government of Guinea-Bissau (GOGB) should continue to work with its partners in GIABA, the Economic Community of West African States (ECOWAS) and others to establish and implement an effective anti-money laundering/counter-terrorist financing (AML/CFT) regime. The government needs urgent help to restore sovereignty, administer justice and regain control of its borders. The GOGB should ensure the sectors covered by its AML law have implementing regulations and competent authorities to ensure compliance with the law’s requirements. It should also amend its terrorist financing law to comport with international standards. The GOGB should establish, staff and train its FIU, and ensure that resources are available to sustain its capacity. It should work to improve the training and capacity of its police and judiciary to combat financial crimes. Guinea-Bissau should undertake efforts to eradicate systemic corruption. The GOGB should become a party to the UN Convention for the Suppression of the Financing of Terrorism, and the UN Conventions against Corruption and Transnational Organized Crime.


Haiti

International donors reacted to the Haitian earthquake, tropical storms and cholera epidemic of 2010 by pumping much-needed currency and investments for disaster relief and reconstruction into the country. The earthquake impacted all aspects of Haitian life including ripple effects in the banking, commercial and criminal justice institutions. Despite improving financial intelligence and enforcement capacity, the weakness of the Haitian judicial system and prosecutorial mechanism continues to leave the country vulnerable to corruption and money laundering. Haitian organized crime groups are engaged in drug trafficking and other criminal and fraudulent activity, but do not appear to be involved in terrorist financing. Haiti is the poorest country in the Western Hemisphere and relies heavily on remittances from the large expatriate Haitian community.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: NO

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: NO

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

Know-your-customer rules:

Covered entities: Banks and non-bank financial institutions including casinos and money remittance institutions

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Banks

Number of STRs received and time frame: Nine in an unknown time frame

Number of CTRs received and time frame: 146,627 in 2010

Money laundering criminal prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Assets forfeited: criminally: 14 houses confiscated and slated for sale; five houses confiscated and donated to GOH law enforcement agencies; $2,000,000 currency seized civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Haiti suffered a devastating earthquake on January 12, 2010 which destroyed 28 of 29 Haitian ministry buildings and the Presidential Palace. In addition, an outbreak of cholera, floods and a contested Presidential election were all contributing factors slowing, but not stopping, the activities of the key institutions involved in financial intelligence, anti-money laundering enforcement, and asset forfeiture and seizure.

The Government of Haiti (GOH) remains hampered by ineffectual and outdated criminal and criminal procedural codes, and by the inability of judges and courts to address cases referred for prosecution. A Presidential commission has drafted new criminal and criminal procedural codes that require parliamentary approval. The anti-terrorist legislation drafted and submitted to Parliament is also awaiting Parliamentary approval.

Following the January 2010 earthquake, banks, with the exception of the Central Bank, could not transmit reports to UCREF. The UCREF also lost office space as a result of the earthquake and, together with a few other law enforcement agencies, has relocated to a building confiscated from a Colombian drug dealer. The UCREF is making plans to review casino operations in Haiti and ensure that casinos are properly licensed and are made aware of their responsibilities as defined in the GOH anti-money laundering legislation.

BAFE, a unit within the Haitian National Police continues to work closely with the DEA to seize and confiscate properties owned by convicted drug traffickers serving prison sentences in the United States.

Haiti is not a party to the International Convention for the Suppression of the Financing of Terrorism or the UN Convention against Transnational Organized Crime.


Hong Kong

Hong Kong, a Special Administrative Region of the People’s Republic of China, is a major international financial and trading center. As of December 2010, Hong Kong’s stock market was the world’s seventh largest and Asia’s third largest with total market capitalization of $2.71 trillion. Already the world’s 15th largest banking center and sixth largest foreign exchange trading center, Hong Kong continued its expansion as an offshore Renminbi (RMB) financing center, accumulating in 2010 over $48 billion in RMB-denominated deposits at authorized institutions. Hong Kong does not differentiate between offshore and onshore entities for licensing and supervisory purposes.

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

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.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: NO

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Banks, securities and insurance entities, and money exchangers

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: All persons, irrespective of entity or amount of transaction involved

Number of STRs received and time frame: 19,690 in 2010

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: 332 in 2010

Convictions: 279 in 2010

Assets forfeited: Criminally: As of December 2010, $9.33 million was under a court confiscation order but not yet paid to the government Civilly: Not applicable

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

U.S. government agencies enjoy excellent working relationships with Hong Kong’s law enforcement personnel and financial regulators. Cooperation includes joint investigative efforts, information exchange, training, and extraditions.

In October 2010, the Government of Hong Kong introduced to the legislature a draft bill that, if passed, would provide statutory backing to existing financial regulatory guidelines, provide for administrative and criminal sanctions authority, and establish a regulatory regime for money changers.

In April 2010, the Government of Hong Kong initiated a study to evaluate the implementation of a cross-border currency reporting system. The government’s work plan calls for an evaluation of the feasibility of tracking and monitoring currency movements in/out of its borders, including necessary legislative and resource requirements.

Hong Kong still needs to institute mandatory oversight for designated non-financial businesses and professions, and implement mandatory cross-border currency reporting requirements, both potential loopholes for money launderers and terrorist financiers. Hong Kong should also establish threshold reporting requirements for currency transactions and put in place “structuring” provisions to counter evasion efforts. As a major trading hub, Hong Kong should also closely examine trade-based money laundering.


India

India’s economic and demographic expansion makes it both a regional financial center and an increasingly significant target for money launderers and terrorist groups. India’s extensive informal economy and remittance systems, porous borders, strategic location, persistent corruption, and historically onerous tax administration contribute to its vulnerability to financial and terrorist-related crimes.

Tax avoidance and the proceeds of economic crimes (including fraud, cyber crime and identity theft) are still the mainstay of money launderers in India, but laundered funds are also derived from human and narcotics trafficking, transnational organized crime, illegal trade, particularly in endangered wildlife and illegal gems (principally diamonds), and corruption. India also faces an increasing inflow of high-quality counterfeit currency, which is produced primarily in Pakistan but smuggled to India through multiple international routes. Criminal networks exchange counterfeit currency for genuine notes, which not only facilitates money laundering, but also represents a threat to the Indian economy.

India’s location between heroin producing countries in the Golden Triangle and Golden Crescent, along with its porous borders, make it a frequent transit point for drug trafficking. Additionally, India is a major producer of licit acetic anhydride, the precursor chemical required to convert morphine base into heroin, making producers susceptible to abuse by illicit networks. India is also a significant target for terrorist groups, both external and domestic. Most terrorist activities are conducted by international terrorist groups and entities linked to the global jihad, with the support of both state and non-state external actors. In addition, several domestic separatist and insurgent groups are active. Terrorist groups often use counterfeit currency and hawaladars, as well as physical cross-border currency smuggling, to move funds from external sources to finance their activities in India.

India licenses seven offshore banking units (OBUs) to operate in the Special Economic Zones (SEZ). The OBUs are prohibited from engaging in cash transactions and are restricted to lending to the SEZ wholesale commercial sector. Although located in India, OBUs essentially function like foreign branches of Indian banks, but with defined physical boundaries and functional limits. As such, they are subject to the same anti-money laundering/counter-terrorist financing (AML/CFT) provisions as the domestic sector. SEZs were established to promote export-oriented commercial businesses, including manufacturing, trading and services (mostly information technology), and access is controlled by Customs officers. As of December 2010, about 122 SEZs were operating and more than 575 SEZs had been formally approved throughout India.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: No

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: List approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Banks and merchant banks; insurance companies; housing and non-banking finance companies; casinos; payment system operators; authorized money changers and remitters; chit fund companies; charitable trusts that include temples, churches and non-profit organizations; intermediaries; stock brokers; sub-brokers; share transfer agents; trustees, underwriters, portfolio managers and custodians; investment advisors; depositories and depository participants; foreign institutional investors; credit rating agencies; venture capital funds; collective schemes including mutual funds; and the post office

Enhanced due diligence procedures PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks and merchant banks; insurance companies; housing and non-banking finance companies; casinos; payment system operators; authorized money changers and remitters; chit fund companies; charitable trusts that include temples, churches and non-profit organizations; intermediaries; stock brokers; sub-brokers; share transfer agents; trustees, underwriters, portfolio managers and custodians; investment advisors; depositories and depository participants; foreign institutional investors; credit rating agencies; venture capital funds; collective schemes including mutual funds; and the post office

Number of STRs received & time frame: 10,067 (April 2009 - March 2010)

Number of CTRs received & time frame: 6,690,000 (April 2009 - March 2010)

Money laundering criminal prosecutions/convictions:

Prosecutions: Six (April 2006 - December 2009)

Convictions: Zero

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

India is a member of the Financial Action Task Force (FATF) and two FATF-style regional bodies: the Asia/Pacific Group on Money Laundering (APG) and the Eurasian Group on Combating Money Laundering and Terrorist Financing (EAG). Its most recent mutual evaluation is available here:

http://www.fatf-gafi.org/dataoecd/60/56/45746143.pdf

Enforcement and implementation issues and comments:

India’s low number of money laundering convictions and the financial sector’s low number of terrorism-related suspicious transaction reports (STRs) are not commensurate with the size of India’s economy or its threat profile. Additionally, the lack of severe penalties imposed by regulators against banks and financial institutions, coupled with the low statistics, may indicate a lack of appropriate due diligence procedures and/or weaknesses in the transaction monitoring systems. The Government of India (GOI) should ensure reporting entities fully implement appropriate due diligence procedures, to include both computerized tracking systems and active engagement by trained frontline personnel. The GOI should also emphasize the importance of human intervention and analysis in terrorist financing cases, as the varied profiles of these cases may not trigger an automated report.

The GOI issued circulars requiring financial institutions to examine more closely transactions involving higher risk jurisdictions. The circular requires that written reports be available to competent authorities and auditors. As of December 31, 2010, the AML/CFT Regulatory Framework Assessment Committee finished its evaluation of the institutional framework and began drafting a report on appropriate countermeasures for countries that do not conform to the FATF Recommendations.

The GOI has taken action against certain hawala activities, but its successes generally stem from prosecuting legitimate businesses that conduct hawala transactions on the side. Hawaladars operating entirely outside of the formal economy are difficult to trace, and provide money launderers and terrorist organizations ready access to an extensive but unmonitored network in India. The GOI’s liberalization of the foreign exchange regime has helped otherwise legitimate actors move out of hawala and into the formal sector. However, the GOI no longer criminalizes operating a money transfer business without a license. The remaining administrative penalties do not serve as a sufficient deterrent to those engaged in criminal activity. The GOI should re-criminalize operating without a license.

The GOI should also facilitate the development of alternative money transfer services, including mobile banking. This expansion of legitimate, accessible services would allow broader financial inclusion of legitimate individuals and entities, and reduce AML/CFT vulnerabilities by shrinking the informal network.

The GOI should press for presidential approval to implement the Foreign Contribution (Regulation) Act 1976, which would extend foreign contribution reporting requirements to any non-profit organization that has a political, cultural, economic, educational or social focus and automate notification of suspicious transactions to the FIU. The GOI should also extend the Prevention of Money Laundering Act to include gem and precious-metals dealers, real estate agents, lawyers, notaries, other independent legal professionals, accountants, and commodity futures brokers and to clearly add a safe harbor provision for those filing STRs in good faith.


Indonesia

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

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: Combination approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: NO

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

Know-your-customer rules:

Covered entities: Banks, finance companies, insurance companies and insurance brokerage companies, pension fund financial institutions, securities companies, investment managers, providers of money remittance and foreign currency traders

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks, financing companies, insurance companies and insurance brokerage companies, pension fund financial institutions, securities companies, investment managers, custodians, trustees, postal services as providers of fund transfer services, foreign currency changers (money traders), providers of instruments of payment using cards, providers of e-money or e-wallet, cooperatives doing business as savings and loans, pawnshops, companies doing business in commodity futures trading, and providers of money remittance. Property companies, property agents, car dealers, dealers of precious stones and jewelry/precious metals, art and antique dealers, and auction houses became subject to STR reporting in 2010

Number of STRs received and time frame: 17,348 in 2010

Number of CTRs received and time frame: 1,461,883 in 2010

Money laundering criminal prosecutions/convictions:

Prosecutions: Not available

Convictions: 36 - January through November 2010

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdiction: YES

Indonesia is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.apgml.org/documents/docs/17/Indonesia%20MER2_FINAL.pdf

Enforcement and implementation issues and comments:

On October 22, the president signed Law No. 8 of 2010 on the Prevention and Eradication of the Crime of Money Laundering. This law expands the list of agencies permitted to conduct money laundering investigations; increases the ability of the independent Financial Intelligence Unit (PPATK) to examine suspicious financial transactions; expands institutions authorized to obtain results of PPATK analysis or examination of transactions; creates a streamlined mechanism to seize and freeze criminal assets; expands the entities which must file reports with PPATK and increases some criminal penalties for money laundering offenses. The law designates non-financial businesses, in addition to Indonesian banks and providers of financial services, which are required to report suspicious transactions to PPATK.

The Central Bank issued new regulations, effective December 1, 2010, applying to rural banks and rural Shariah banks, which contain more extensive requirements for customer due diligence, enhanced due diligence for high-risk customers and politically exposed persons, and checks against the Central Bank’s Terrorist List, as part of Indonesia’s AML/CFT program.

Indonesia continues to lack an effective mechanism to implement UNSCR 1267 and 1373, though it recently passed AML legislation that will provide for the freezing of terrorist assets linked to the UN List of designated terrorists and terrorist organizations. The government also appointed a drafting team to prepare draft terrorist financing legislation that would expand criminal liability, create a better mechanism to freeze and seize terrorist assets and subject non-governmental organizations (NGOs) to PPATK regulation. This draft legislation is expected to be submitted to the legislature in 2011.

In 2010, Indonesian prosecutors brought their first terrorism case based solely on terrorist financing grounds. The Saudi national defendant charged with financing the July 17, 2009 twin Jakarta hotel bombings was acquitted of the terrorist finance charge on June 28, 2010, but found guilty of immigration violations and sentenced to 18 months’ imprisonment. In addition, as of mid-December 2010, there are three indictments under Article 11 of the 2003 Anti-Terrorism law, which proscribes intentionally providing or collecting funds to be used partly or wholly for acts of terrorism.

On July 7, 2010, the Government of Indonesia completed a domestic review of its non-profit sector and the Coordinating Ministry of Politics, Law and Security Affairs is expected to submit to the President recommendations regarding NGO section supervision.

Indonesia has mutual legal assistance treaties with several countries but not the U.S. It shares law enforcement information with the U.S. through memoranda of understanding.


Iran

Iran is not a regional financial center. Its economy is marked by a bloated and inefficient state sector and over-reliance on the petroleum industry. A combination of price controls and subsidies continue to weigh down the economy, although the Iranian government began a broad subsidy reform in 2010. Widespread corruption has also undermined the potential for private sector-led growth. The United States lists Iran as a state-sponsor of terrorism and the Financial Action Task Force (FATF) has repeatedly warned of Iran's failure to address the risks of terrorist financing, urging jurisdictions around the world to impose effective countermeasures to protect their financial sectors from the dangers of illicit finance emanating from Iran. Iran has a large underground economy, spurred by restrictive taxation, widespread smuggling, currency exchange controls, capital flight, and a large Iranian expatriate community.

Iran has established an international banking network, with many large state-owned banks that have foreign branches and subsidiaries in Europe, the Middle East, Asia, and the Western Hemisphere. In 1994, Iran authorized the creation of private credit institutions; licenses for these banks were first granted in 2001. In a number of cases, Iran has used its state-owned banks to channel funds to terrorist organizations and finance its nuclear and ballistic missile programs. The United States has designated a total of 20 Iranian-linked banks and subsidiaries under its counter-proliferation and terrorism authorities.

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.: Unknown

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All crimes approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing :

Ability to freeze terrorist assets without delay: NO

UN lists of designated terrorists or terrorist entities distributed to financial institutions:

Not available

Know-your-customer rules :

Covered entities: The Central Bank, banks, financial and credit institutions, insurance companies (including the state regulator and reinsurance provider), interest-free funds, charity organizations and institutions, municipalities, notaries, lawyers, accountants, auditors, authorized specialists of the Justice Ministry, and official inspectors

Enhanced due diligence procedures for PEPs: Foreign: Unknown Domestic: Unknown

Suspicious transaction reporting requirements:

Covered entities: The Central Bank, banks, financial and credit institutions, insurance companies (including the state regulator and reinsurance provider), interest-free funds, charity organizations and institutions, municipalities, notaries, lawyers, accountants, auditors, authorized specialists of the Justice Ministry, and official inspectors

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

Money laundering criminal prosecutions/convictions :

Prosecutions: Not available

Convictions: None

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: NO

With other governments/jurisdictions: Unknown

Iran is not a member of any Financial Action Task Force (FATF)-style regional body.

Enforcement and implementation issues and comments:

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

Since 2006, the U.S. has taken a number of targeted financial actions against key Iranian financial institutions, entities, and individuals under non-proliferation, counter-terrorism, human rights, and Iraq-related authorities, i.e., Executive Order 13382, Executive Order 13224, Executive Order 13553, and Executive Order 13438, respectively. To date, the Departments of the Treasury and State have designated over 240 Iranian entities and individuals for proliferation-related activity under Executive Order 13382.

The following are some examples of notable designations under Executive Orders: Twenty Iranian-linked banks (including Bank Sepah, Bank Melli, Bank Mellat, and Export Development Bank of Iran, plus Post Bank, Ansar Bank, Mehr Bank, and Europaisch-Iranische Handelsbank in 2010), located in Iran and overseas, have been designated in connection with Iran's proliferation activities. One state-owned Iranian bank (Bank Saderat and its foreign operations) was designated for funneling money to terrorist organizations. The Qods Force, a branch of the Iranian Revolutionary Guard Corps (IRGC), was designated for providing material support to the Taliban, Lebanese Hizballah, and Palestinian Islamic Jihad. The Martyrs Foundation (also known as Bonyad Shahid), an Iranian parastatal organization that channels financial support from Iran to several terrorist organizations in the Levant, including Hizballah, Hamas, and the Palestinian Islamic Jihad (PIJ), has been designated along with Lebanon- and U.S.-based affiliates. Another Iranian parastatal, Bonyad Taavon Sepah, was designated in 2010 for its ties to the IRGC. The United States also designated the Islamic Republic of Iran Shipping Lines (IRISL) as a proliferator in 2008 and Iran's Moallem Insurance Company in 2010 for providing marine insurance to vessels owned by IRISL.

Since July 2006, the United Nations Security Council (UNSC) has passed six related resolutions (UNSCRs), four of which imposed financial sanctions on Iran. The most recent of these, UNSCR 1929, was adopted by the UNSC in June 2010.

In October 2007, the Financial Action Task Force (FATF) issued its first public statement expressing concern that Iran's lack of a comprehensive framework to counter money laundering and terrorist financing represents a significant vulnerability to the international financial system. In February 2009, the FATF urged all jurisdictions to apply effective countermeasures to protect their financial sectors from the money laundering/terrorist financing risks emanating from Iran and also stated that jurisdictions should protect against correspondent relationships being used to bypass or evade countermeasures or risk mitigation practices. The FATF reiterated its call for countermeasures most recently in October 2010. The FATF urges Iran to immediately and meaningfully address its anti-money laundering/counter the financing of terrorism (AML/CFT) deficiencies, in particular by criminalizing terrorist financing and effectively implementing suspicious transaction reporting requirements.

Since February 2007, the European Union (EU) has also adopted numerous measures to implement the UNSCRs on Iran and further protect the EU from Iranian risks. For example, in 2010, the EU adopted significant new measures against Iran, including new sanctions on several Iranian banks, the IRGC, and IRISL; enhanced vigilance by way of additional reporting and prior authorization for any funds transfers to and from an Iranian person, entity, or body above a certain threshold amount; a prohibition on the establishment of new Iranian bank branches, subsidiaries, joint ventures, and correspondent accounts; and other restrictions on insurance, bonds, energy, and trade.

Numerous countries around the world have also restricted their financial and business dealings with Iran in response to both the UNSC measures on Iran as well as the FATF statements on Iran's lack of adequate AML/CFT controls. A growing number of governments have moved to designate Iranian banks, and many of the world's leading financial institutions have voluntarily chosen to reduce or cut ties with Iranian banks. South Korea, Japan, Australia, Canada, Norway, India and others undertook extensive additional listings of Iranian entities and individuals and implemented new systemic measures in 2010.

Iran is ranked 146 out of 178 countries listed in Transparency International's 2010 Corruption Perception Index. There is pervasive corruption within the ruling and religious elite, government ministries, and government-controlled business enterprises.

In Iran and elsewhere in the region, proceeds from narcotics sales are sometimes exchanged for trade goods via value transfer. Illicit proceeds from narcotics trafficking are used to purchase goods in the domestic Iranian market; those goods are often exported and sold in Dubai. Iran's merchant community makes active use of hawala and moneylenders. Counter-valuation in hawala transactions is often accomplished via trade, thus trade-based money laundering is likely a prevalent form of money laundering. Many hawaladars and traditional bazaari are linked directly to the regional hawala hub in Dubai. Over 300,000 Iranians reside in Dubai, with approximately 8,200 Iranian-owned companies based there.

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

In 2010, the Government of the Islamic Republic of Iran teamed with United Nations Office on Drugs and Crime to establish a financial intelligence unit (FIU) that will analyze suspicious financial transactions, particularly those dealing with illicit narcotics proceeds. However, no independent assessment has been conducted to assess if the FIU meets international standards.


Iraq

Iraq's economy is primarily cash-based, and there is little data available on the extent of money laundering in the country. Smuggling is endemic, involving consumer goods, cigarettes, and petroleum products. There is a large market in Iraq for stolen automobiles from Europe and the United States. Bulk cash smuggling, counterfeit currency, trafficking in persons, and intellectual property rights violations are also major problems. Ransoms from kidnappings and extortion are often used to finance terrorist networks. There are credible reports of counterfeiting. Trade-based money laundering, customs fraud, and value transfer are found in the underground economy. Hawala networks, both licensed and unlicensed, are widely used for legitimate and illicit purposes. Regulation and supervision of the formal and informal financial sectors is still quite limited and enforcement is subject to political constraints, resulting in weak private sector controls. Corruption is a major challenge and is exacerbated by weak financial controls in the banking sector and weak links to the international law enforcement community. Transparency International's 2010 International Corruption Perception index ranked Iraq as 175 out of 178 countries, demonstrating a slight decline from the previous year.

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

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: YES

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: NO

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules :

Covered entities: Banks; investment funds managers; life insurance companies and those which offer or distribute shares in investment funds; securities dealers; money transmitters, hawaladars, and issuers or managers of credit cards and travelers checks; foreign currency exchange houses; asset managers, transfer agents, investment advisers, securities dealers; and, dealers in precious metals and stones

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Banks; investment funds managers; life insurance companies and those which offer or distribute shares in investment funds; securities dealers; money transmitters, hawaladars, and issuers or managers of credit cards and travelers checks; foreign currency exchange houses; asset managers, transfer agents, investment advisers, securities dealers; and, dealers in precious metals and stones

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

Money laundering criminal prosecutions/convictions:

Prosecutions: None

Convictions: None

Assets forfeited: criminally: None civilly: None

Records exchange mechanism:

With U.S.: NO

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

CPA Law 93, AML Act of 2004, the only anti-money laundering statute in Iraq, takes an “all serious crimes” approach although the statute itself references “proceeds of some form of unlawful activity….” Although the statute seems to broaden itself even beyond serious crime, the criminalization under CPA Law 93 is that of a misdemeanor. Thus, Iraq will not prosecute cases under this law because the law does not effectively criminalize money laundering. Iraq should become a party to the UN Convention for the Suppression of the Financing of Terrorism.

Iraq's legal framework needs to be strengthened, either by amendment or redrafting of new AML/CFT legislation. Until the parliamentarians change the law and adequately criminalize money laundering, there will be a lack of political will in enforcing it. In addition, Iraqi ministries need to support a viable AML/CFT regime with cooperation across ministries. The lack of implementation of legislation and weak enforcement by the Money Laundering Reporting Office (MLRO) housed in the Central Bank of Iraq undermine its ability to be a stalwart counterforce to terrorist financing and money-laundering. The MLRO does not appear to take action to gather financial intelligence on suspected criminal activity to shore up law enforcement efforts or assist in obtaining relevant information to support ongoing investigations from foreign jurisdictions. The Government of Iraq should ensure the MLRO has the capacity, resources and authorities to serve as the central point for collection, analysis and dissemination of financial intelligence to law enforcement and to provide international assistance.

Investigators, prosecutors and judges all need support from their principals to move farther with pursuing AML/CFT cases. Prosecutors and investigators are frustrated because their cases are not pursued by judges; similarly, judges claim the cases they receive are of poor quality and not prosecutable. Senior level support and increased capacity for all parties are necessary to ensure AML/CFT cases can be successfully prosecuted in Iraq.

In practice, despite customer due diligence requirements, most banks open accounts based on the referral of existing customers and/or verification of a person's employment. Actual application of the rules varies widely across Iraq's 39 state-owned and private banks. Also, rather than file STRs in accordance with the law, most banks either do internal investigations or contact the FIU, which does an account review to resolve any questionable transactions. In practice, very few STRs are filed. US dollars are widely accepted and are used for many payments made by the US military, and assistance agencies and their contractors.

Banks do receive the UNSCR 1267 Committee list of designated terrorists and terrorist organizations, although the current process for distribution is very inefficient and inconsistent.


Isle of Man

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

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: List approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

UN lists of designated terrorists or terrorist entities distributed to financial institutions: YES

Know-your-customer rules:

Covered entities: Banks; building societies; credit issuers; financial leasing companies; money exchanges and remitters; issuers of checks, traveler’s checks, money orders, electronic money, or payment cards; guarantors; securities and commodities futures brokers; safekeeping, portfolio and asset managers; estate agents; auditors, accountants, lawyers and notaries; insurance companies and intermediaries; casinos and bookmakers; high-value goods dealers and auctioneers

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks; building societies; credit issuers; financial leasing companies; money exchanges and remitters; issuers of checks, traveler’s checks, money orders, electronic money, or payment cards; guarantors; securities and commodities futures brokers; safekeeping, portfolio and asset managers; estate agents; auditors, accountants, lawyers and notaries; insurance brokers and companies and intermediaries; casinos and bookmakers; high-value goods dealers and auctioneers

Number of STRs received and time frame: 1,435

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: 15 in 2010

Convictions: 13 in 2010

Assets forfeited: criminally: $510,381 civilly: $94,903

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

IOM legislation provides powers to constables, including customs officers, to investigate whether a person has benefited from any criminal conduct. These powers allow information to be obtained about that person’s financial affairs. These powers can be used to assist in criminal investigations abroad as well as in the IOM. In 2003, the U.S. and the UK agreed to extend to the IOM the U.S.-UK Treaty on Mutual Legal Assistance in Criminal Matters.

The Terrorism (Finance) Act 2009 allows the IOM authorities to compile their own list of suspects subject to sanctions when appropriate.

IOM is a Crown Dependency and cannot sign or ratify international conventions in its own right unless entrusted to do so. Rather, the UK is responsible for IOM’s international affairs and, at IOM’s request, may arrange for the ratification of any Convention to be extended to the Isle of Man. The UK’s ratification of the 1988 UN Drug Convention was extended to include IOM on December 2, 1993; its ratification of the UN Convention against Corruption was extended to include the IOM on November 9, 2009; and its ratification of the International Convention for the Suppression of the Financing of Terrorism was extended to IOM on September 25, 2008. The UK has not extended the UN Convention against Transnational Organized Crime to the IOM.


Israel

Israel is not regarded as a regional financial center. It primarily conducts financial activity with the markets of the United States and Europe, and to a lesser extent with the Far East. Criminal groups in Israel, either home-grown or with ties to the former Soviet Union, United States, and European Union often utilize a maze of offshore shell companies and bearer shares to obscure beneficial owners. The Minister of Public Security recently announced that domestic revenue from the drug trade is in the billions of dollars. Seizures by the police have increased dramatically over 2009, with increased manpower and cooperation at key border points. Human trafficking is considered the crime-for-profit with the greatest human toll in Israel, and public corruption the crime with the greatest social toll.

Black market penetration in Israel remains low and is comparable in scale to that of Western, industrialized nations. With the exception of a few isolated incidents involving the sales of drugs in the United States by Israeli organized crime, Israel’s illicit drug trade is regionally-focused, with Israel as more of a transit country than a stand-alone significant market. Concern from the authorities is growing relative to illegal pharmaceuticals sales, some retail businesses which are suspected money-laundering enterprises, and corruption accusations against some public officials which may or may not be politically-motivated. Bilateral cooperation between United States and Israeli law-enforcement authorities is very high, including joint repatriations, training exercises and sharing of information where relevant.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: List approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Banks

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Banks, members of the Tel Aviv Stock Exchange, portfolio managers, insurers and insurance agents, provident funds and the companies who manage them, providers of currency services, money services businesses and the Postal Bank

Number of STRs received and time frame: 27,332 (January – November 2010)

Number of CTRs received and time frame: 960,316 (January – November 2010)

Money laundering criminal prosecutions/convictions:

Prosecutions: 19 (January – August 2009)

Convictions: 13 (January – August 2009)

Assets forfeited: criminally: civilly:

Combined total assets forfeited (criminally and civilly): 1,927,000 NIS (approximately $550,571) January – August 2010

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Israel has observer status with MONEYVAL (the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism). Its most recent mutual evaluation can be found here: www.coe.int/moneyval.

Enforcement and implementation issues and comments:

A scathing report by the State Comptroller to the Knesset in May 2009 cited Israel’s failure to effectively organize and fight the scourge of organized crime. While the police did get credit for pursuing and arresting many leading mafia figures despite lack of resources, the report pointed out that the State would have to do a better job of targeting and weakening the financial foundation of organized crime, and there was considerable lack of cooperation, coordination of activity, and sharing of information among relevant agencies, and ineffective leveraging of current legislation, including anti-money laundering laws. With an established director of the Israeli Money Laundering Authority in September 2010, the hope is that a key source of internal lack of coordination which has plagued some sensitive operations will be reduced.

In July 2009, the Ministry of Finance announced that a special unit would be established alongside the Tax Authority to coordinate the economic side of the fight against organized crime, including better tracking of money laundering. As of November 2010, this unit still has not been established. The Israeli National Police established the Lahav 433 special unit to target organized crime, which had many notable successes in arresting senior members of crime families. While significant resources and attention exist within the GOI to fight terrorist-related money laundering, the lack of resource allocation and follow-through on non-terror related financial crimes still lags significantly versus the scope of the problem. Organized crime has existed in Israel for many years, although it is only within the last couple of years that there has been formal acknowledgement by the authorities of the scope of the problem, or existence of crime families. The State of Israel convicted a businessman and former mayoral candidate in Jerusalem for laundering over 650 million shekels (approximately $183.8 million).

Israel’s “right of return” laws for citizenship have meant that crime figures can and have continued to operate in their home countries while having easy access into and out of the country. Israeli citizenship for those “making aliyah” does not require strong ties to Israel such as proof of continuous residency. Therefore it is not uncommon for some crime figures suspected of money laundering to hold passports in a home country, a third country for business, and Israel without necessarily having established ties here.

U.S. law enforcement has a robust relationship with the Israel Tax Authority’s (ITA’s) Anti Drug and Money Laundering Unit. A customs mutual assistance agreement between the U.S. and Israel allows for the exchange of information between Customs services in support of joint financial investigations, and the U.S. and ITA routinely coordinate to target illicit finance and bulk cash smuggling between the two countries. In addition, U.S. and Israeli law enforcement officials cooperate on extradition requests for individuals accused of crimes such as money laundering. For example, Itzhak Abergil, a U.S.-designated Consolidated Priority Organization Target (CPOT), and several other Israeli nationals recently lost their appeal fighting extradition to the United States, where they now face a host of charges including money laundering, and drug trafficking.


Italy

Italy is fully integrated into the European Union (EU) single market for financial services. Money laundering is a concern because of the prevalence of homegrown organized crime groups as well as criminal organizations from abroad, especially from Albania, Bulgaria, China, Israel, Romania and Russia. Italy is both a consumer country and a major transit point for heroin coming from South Asia through the Balkans en route to Western/Central Europe and, to a lesser extent, the United States. The heavy involvement of organized crime groups in narcotics trafficking complicates narcotics-related anti-money laundering (AML) activities because of the sophistication of the laundering methods used by these groups. Italian and ethnic Albanian criminal organizations work together to funnel drugs to Italy and, in many cases, on to third countries. Additional important trafficking groups include Balkan organized crime entities, as well as Nigerian, Colombian, and other South American trafficking groups. In addition to the narcotics trade, laundered money originates from myriad criminal activities, such as alien smuggling, contraband cigarette smuggling, counterfeit goods, extortion, human trafficking, and usury. Financial crimes not directly linked to money laundering, such as credit card fraud, Internet fraud, and phishing have increased over the past year. Phishing more than tripled from 2008 to 2009 (from 791 to 2,687 instances) for an overall amount increase from 3 to 8 million euros (approximately $3.9 to $10.4 million). Italy’s financial intelligence unit (FIU) also reported a reduction among suspicious cash transactions, but an increase in wire transactions and money transfers.

Money laundering occurs to some extent in both the regular banking sector and the nonbank financial system, including casinos, money transfer houses, and the gold market. There is a substantial black market for smuggled goods in the country, but it is not believed to be funded significantly by narcotics proceeds. Italy’s underground economy is an estimated 15-17 percent of Italian GDP, totaling about 233 to 264 billion euros (approximately $304 billion to $344 billion), though a substantial fraction of this total is related to tax evasion of otherwise legitimate commerce.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crime

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Banks, Italian postal services, electronic money institutions, investment firms, asset management companies, insurance companies, agencies providing tax collection services, stock brokers, financial intermediaries, trust companies, lawyers, accountants, auditors, and casinos

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Banks, Italian postal services, electronic money institutions, investment firms, asset management companies, insurance companies, agencies providing tax collection services, stock brokers, financial intermediaries, trust companies, lawyers, accountants, auditors, and casinos

Number of STRs received and time frame: 37,114 in 2010

Number of CTRs received and time frame: Not available

Money laundering criminal prosecutions/convictions:

Prosecutions: Not available

Convictions: Not available

Assets forfeited: criminally: Not available civilly: Not applicable

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Italy 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/52/29/36221355.pdf.

Enforcement and implementation issues and comments:

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


Japan

Although the Japanese government continues to strengthen legal institutions to permit more effective enforcement of anti-money laundering/counter-terrorist financing (AML/CFT) laws, Japan still faces substantial risk of money laundering by organized crime (including Boryokudan, Japan’s organized crime groups, and Iranian drug trafficking organizations), extremist religious groups, and other domestic and international criminal elements. The major sources of money laundering proceeds include drug trafficking, fraud, loan-sharking (illegal money lending), remittance frauds, the black market economy, prostitution, and illicit gambling. In the past year, there has been an increase in financial crimes by citizens of West African countries, such as Nigeria and Ghana, who are resident in Japan. There is not a significant black market for smuggled goods, and the existence of alternative remittance systems is believed to be very limited in Japan.

Japan is not an offshore financial center. It has one free-trade zone, the Okinawa Special Free Trade Zone, established in 1999 in Naha, to promote industry and trade in Okinawa. The zone is regulated by the Department of Okinawa Affairs in the Cabinet Office. Japan also has two free ports, Nagasaki and Niigata. Customs authorities allow the bonding of warehousing and processing facilities adjacent to these ports on a case-by-case basis.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: NO

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

Know-your-customer rules:

Covered entities: Financial institutions, real estate agents and professionals, precious metals and stones dealers, antique dealers, postal service providers, lawyers, judicial scriveners, certified administrative procedures specialists, certified public accountants, certified public tax accountants, trust companies

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Financial institutions, real estate agents and professionals, precious metals and stones dealers

Number of STRs received and time frame: 268,582 for January-November 2010

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: Not available

Convictions: Not available

Assets forfeited: criminally: approximately ¥2.7 billion (approximately $33 million) January 1-December 31, 2009 civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Enforcement and implementation issues and comments:

Japan’s compliance with international standards is notably deficient on recommendations specific to financial institutions. While Japan has legal requirements for customer due diligence (CDD) programs in its institutions, the CDD provisions are severely lacking, and there is no requirement for financial institutions to gather information on the purpose and intended nature of the business relationship or to conduct ongoing due diligence on these relationships. Japan should strengthen its CDD provisions to include specific requirements for due diligence by financial institutions and to require financial institutions to collect information about business accounts and transactions.

The Government of Japan (GOJ) has not implemented a risk-based approach to AML/CFT, and there is no mandate for enhanced due diligence for higher-risk customers, business relationships, and transactions. The current regulations do not authorize simplified due diligence, though there are exemptions to the identification obligation on the grounds that the customer or transaction poses no or little risk of money laundering or terrorist financing. Japan should implement a risk-based approach to its AML/CFT regime.

The GOJ’s number of investigations, prosecutions, and convictions for money laundering in relation to the number of drug and other predicate offenses is low, despite the GOJ’s many legal tools and programs to combat these crimes. The National Police Agency (NPA) provides very limited cooperation with other GOJ agencies, and most foreign governments, on nearly all criminal, terrorism, or counter-intelligence-related matters. The NPA’s minimal level of cooperation has caused the law enforcement offices of nearly all other industrialized countries to either leave Japan or significantly reduce their presence. The GOJ should develop a robust program to investigate and prosecute money laundering offenses, and require enhanced cooperation by the NPA with its counterparts in the GOJ and foreign missions.

The GOJ’s system does not allow the freezing of terrorist assets without delay, and in practice the Ministry of Finance has never actually frozen or confiscated any terrorist assets. Japan’s system does not cover assets raised by a non-terrorist for use by a terrorist or terrorist organization, and reaches only funds, not other kinds of assets. The GOJ should enact legislation to allow terrorist assets to be frozen without delay, and to expand the scope of assets to include non-financial holdings.

Japan should provide more training and investigatory resources for AML/CFT law enforcement authorities, establish an effective CDD regime, and consider implementing a system to report large currency transactions. As Japan is a major trading power, the GOJ should take steps to identify and combat trade-based money laundering. Japan should also become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption, and should fully implement the freezing obligations for terrorist funds, according to the UN Convention for the Suppression of the Financing of Terrorism.


Jersey

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

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

UN lists of designated terrorists or terrorist entities distributed to financial institutions: NO

Know-your-customer rules:

Covered entities: Banks; money exchanges and foreign exchange dealers; financial leasing companies; issuers of credit and debit cards, travelers’ checks, money orders and electronic money; securities brokers and dealers; safekeeping, trust, and portfolio managers; insurance companies and brokers; fund products and fund operators; casinos; company service providers; real estate agents; dealers in precious metals and stones and other high-value goods; notaries, accountants, lawyers and legal professionals

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Banks; money exchanges and foreign exchange dealers; financial leasing companies; issuers of credit and debit cards, travelers’ checks, money orders and electronic money; securities brokers and dealers; safekeeping, trust, and portfolio managers; insurance companies and brokers; fund products and fund operators; casinos; company service providers; real estate agents; dealers in precious metals and stones and other high-value goods; notaries, accountants, lawyers and legal professionals

Number of STRs received and time frame: 1,854 in 2009

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: One prosecuted to judgment in 2010

Convictions: One in 2010

Assets forfeited: criminally: £7,454,250 (approximately $11,299,600) in 2010 civilly: Not applicable

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Although not yet used in practice, Jersey has an ability to designate persons and freeze their assets in conformity with UNSCR 1373. No formal procedure is in place to receive and assess requirements based on a foreign request, as required by UNSCR 1373. Additionally, the definition of “funds” subject to freezing does not expressly refer to assets “jointly” or “indirectly” owned or controlled by designated or listed persons.

The Jersey Financial Services Commission (JFSC) website contains a link to the United Kingdom Consolidated List of asset freeze targets, as designated by the United Nations, European Union and United Kingdom. It does not use other means to distribute UN lists of designated terrorists or terrorist entities.

Jersey does not enter into bilateral mutual legal assistance treaties. Instead it is able to provide mutual legal assistance to any jurisdiction, including the US, in accordance with the Criminal Justice (International Co-operation) (Jersey) Law 2001 and the Civil Asset Recovery (International Co-operation (Jersey) Law 2007. Jersey has granted U.S. requests for assistance in criminal matters. Jersey signed a Tax Information Exchange Agreement with the United States in 2002. In 2009, the JFSC signed a statement of cooperation with the Board of Governors of the Federal Reserve System, Office of the Comptroller of Currency, Federal Deposit Insurance Corporation, and Office of Thrift Supervision. This statement is in addition to existing memoranda of understanding with the Securities and Exchange Commission and Commodity Futures Trading Commission.

Jersey is a Crown Dependency and cannot sign or ratify international conventions in its own right unless entrusted to do so, as is the case with tax information exchange agreements. Rather, the UK is responsible for Jersey’s international affairs and, at Jersey’s request, may arrange for the ratification of any Convention to be extended to Jersey. The UK’s ratification of the 1988 UN Drug Convention was extended to include Jersey in July 1998; its ratification of the UN Convention against Corruption was extended to include Jersey in November 2009; and its ratification of the International Convention for the Suppression of the Financing of Terrorism was extended to Jersey on September 25, 2008. The UK has not extended the UN Convention against Transnational Organized Crime to Jersey.

Jersey authorities have a continuing concern regarding the increasing incidence of domestic drug related crimes. The customs and law enforcement authorities devote considerable resources to countering drug-related crime. Jersey should continue to maintain and enhance its level of compliance with international standards to assist those efforts. The Financial Services Commission should ensure its AML Unit has enough resources to continue to function effectively, and to provide outreach and guidance to the sectors it regulates, especially the newest entities required to file reports. The Commission also should distribute the UN lists of designated terrorists and terrorist organizations to the obligated entities and not expect the entities to stay current through their own Internet research.


Kenya

Kenya is a major money laundering country. Kenya’s use as a transit point for international drug traffickers continues to increase. The laundering of funds related to Somali piracy, corruption, smuggling, the misuse of casinos and other assorted crimes is a substantial problem. Reportedly, Kenya’s financial system may be laundering over $100 million each year, including an undetermined amount of narcotics proceeds and Somali piracy-related funds. As a regional financial and trade center for Eastern, Central, and Southern Africa, Kenya’s economy has large formal and informal sectors. Although banks, wire services, and other formal channels execute funds transfers, there are also thriving, unregulated informal networks of hawala and other alternative remittance systems using cash-based, unreported transfers that the Government of Kenya (GOK) cannot track. Expatriates, in particular the large Somali refugee population, primarily use hawala to send and receive remittances internationally.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: YES

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: NO

UN lists of designated terrorists or terrorist entities distributed to financial institutions: NO

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

Know-your-customer rules:

Covered entities: Financial and non-bank financial institutions engaging in one or more of the following: accepting deposits; lending; financial leasing; transferring funds or value; issuing and managing means of payment; financial guarantees and commitments; trading in money market instruments, foreign exchange, exchange, interest rate and index funds, transferable securities, and commodity futures; participation in securities issues; individual and collective portfolio or fund management; safekeeping and asset administration; underwriting and sales of life insurance and other investment related insurance; and/or money and currency changing; also, casinos; real estate agencies; accountants; and dealers in precious metals or stones

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Financial and non-bank financial institutions engaging in one or more of the following: accepting deposits; lending; financial leasing; transferring funds or value; issuing and managing means of payment; financial guarantees and commitments; trading in money market instruments, foreign exchange, exchange, interest rate and index funds, transferable securities, and commodity futures trading; participation in securities issues; individual and collective portfolio management; safekeeping and administering cash or liquid assets on behalf of other persons; investing, administering, or managing funds on behalf of other persons; underwriting and placement of life insurance and other investment related insurance; and/or money and currency changing; also, casinos; real estate agencies; accountants; and dealers in precious metals or stones

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

Money laundering criminal prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Assets forfeited: criminally: 0 civilly: 0

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Kenya is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a Financial Action Task Force-style regional body. No mutual evaluation report is available at this time.

Enforcement and implementation issues and comments:

The Proceeds of Crime and Anti-Money Laundering Act (PCAMLA), which came into force in June 2010, has a number of deficiencies. While the PCAMLA does take an “all crimes” approach to money laundering predicate offenses, the Act has never been used to prosecute any crimes. Kenya’s criminal justice system remains open to interference and corruption and combating money laundering has not been given priority. The PCAMLA contains sanctions that are proportionate and meet the international standard but have not yet been operationalized with implementing regulations. The PCAMLA does not mention or criminalize terrorism or terrorist financing. The legislation does not explicitly authorize the seizure of legitimate businesses used to launder money. A number of amendments to the law appear to have made the PCAMLA less powerful than earlier drafts. The Central Bank of Kenya (CBK) is relying on the future Financial Intelligence Centre (FIC), the financial intelligence unit, for implementation, as the police lack institutional capacity to handle complex financial crimes analysis and investigation. Although authorized under the PCAMLA, the FIC has not yet been established.

The GOK did not report any money laundering or terrorist financing arrests, prosecutions, or convictions from 2007 through 2010. Kenya lacks the institutional capacity, investigative skill, and equipment to conduct complex investigations independently. There is also insufficient political will to address these crimes. Kenya ranks 154 out of 178 countries on the 2010 Transparency International Corruption Perceptions Index.

There is a black market for smuggled goods in Kenya, which serves as the major transit country for Uganda, Tanzania, Rwanda, Burundi, northern Democratic Republic of Congo (DRC), and Southern Sudan. While goods marked for transit avoid Kenyan customs duties, authorities acknowledge these goods are often sold in Kenya. Many entities in Kenya are involved in exporting and importing goods, including nonprofit entities. Trade-based money laundering is a serious problem in Kenya. Trade goods are often used to provide counter-valuation in regional hawala networks.

Kenya has no straightforward legal mechanism to freeze or seize criminal or terrorist accounts. To demand bank account records or to seize an account, the police must present evidence linking the deposits to a criminal violation and obtain a court warrant. Because of corruption and leaks, the confidentiality of this process is difficult to maintain. The Central Bank does not distribute UN lists to financial institutions. Instead, it refers all banks to the public lists posted on the Internet. Two times per year, each bank is required to confirm to the Central Bank that they have ensures none of their clients are on any of the lists.


Latvia

Latvia is a regional financial center that has a large number of commercial banks with a sizeable nonresident deposit base. Latvia is among the European economies most affected by the global financial turmoil. To ease the situation, the Government of Latvia (GOL) sought external financial support and agreed to an international stabilization program. Despite the on-going economic crisis in Latvia, total bank deposits have increased in the past year.

Authorities report that the largest sources of money laundered in Latvia are tax evasion and other forms of financial fraud. Lesser sources include smuggling (primarily cigarettes) and public corruption. Local officials do not consider proceeds from illegal narcotics to be a major source of laundered funds in Latvia. According to regulators and law enforcement officials, most of the laundered funds derived from financial fraud - and a sizeable portion of the funds derived from tax evasion - originate outside of Latvia. Reportedly, Russian and Latvian organized crime groups are active in Latvia, and authorities believe that a significant portion of all criminal proceeds originating domestically is generated by these groups. Although Latvian regulatory agencies closely monitor financial transactions to identify instances of terrorist financing, no prosecutions or penalties have been initiated based on this monitoring in recent memory.

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

Latvian officials maintain that the country is experiencing an overall decrease in financial crimes. While acknowledging that the total amount of assets seized and frozen declined in 2010 (compared to prior years), they observe that transactions tend to be smaller, which they claim is largely attributable to the economic crisis. Meanwhile, statistics for investigations initiated, transactions reports received, and convictions all trended upward in 2010, despite resource limitations which affected all regulatory and law enforcement agencies. GOL officials note that Latvia’s updated “Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing” (amended December 2009) provides a more robust statute for those investigating, interdicting and prosecuting financial crimes.

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.: No

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All crimes approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Financial institutions, including credit institutions, life insurance companies and brokers, private pension fund administrators, investment brokerage firms and management companies, currency exchange offices, money transmission or remittance offices; tax advisors, external accountants, sworn auditors, sworn notaries, advocates, and other independent legal professionals; real estate agents or intermediaries; organizers of lotteries or other gaming activities; persons providing money collection services; and other legal or natural persons involved in trading real estate, transport vehicles, items of culture, precious metals, precious stones and articles thereof, or as intermediaries in such transactions

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Financial institutions, including credit institutions, life insurance companies and brokers, private pension fund administrators, investment brokerage firms and management companies, currency exchange offices, money transmission or remittance offices; tax advisors, external accountants, sworn auditors, sworn notaries, advocates, and other independent legal professionals; real estate agents or intermediaries; organizers of lotteries or other gaming activities; persons providing money collection services; and other legal or natural persons involved in trading real estate, transport vehicles, items of culture, precious metals, and precious stones

Number of STRs received and time frame: 19,907 from January through November 2010

Number of CTRs received and time frame: 8,354 from January through November 2010

Money laundering criminal prosecutions/convictions:

Prosecutions: 26 persons (involving 62 separate charges) from January through November 2010

Convictions: Seven (involving 14 individuals) from January through November 2010

Assets forfeited: criminally: Approximately $2.46 million from January 1 through November 30, 2010 civilly: None

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Latvia is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation report can be found here:

http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Latvia_en.asp

Enforcement and implementation issues and comments:

Current laws do not require enhanced due diligence procedures for domestic PEPs, however, they allow discretion to any institution or professional covered by KYC rules to apply enhanced due diligence, based on its risk assessment for a particular customer.

Approximately $2.1 million was frozen by the FIU through November 30, 2010. Additionally, approximately $472,000 in assets was seized by law enforcement officials during the same time period.

In April 2005, the United States outlined concerns in a Notice of Proposed Rulemaking against VEF Banka, under Section 311 of the USA PATRIOT Act. The bank was found to lack adequate AML/CFT controls and was used by criminal elements to facilitate money laundering, particularly through shell companies. In August 2006, the United States issued a final rule imposing a special measure against the VEF Banka, as a financial institution of primary money laundering concern. This measure is still in effect. Following the Latvian authorities’ revocation of the bank’s license in May 2010, a lawsuit was filed asserting this action was not legal; that suit was resolved in the Government of Latvia’s favor on November 15, 2010. According to Latvian authorities, this resolution means the bank’s license cannot be reactivated.

In January 2010, legislative amendments establishing mechanisms for sharing assets with non-EU countries and regarding the application of the EU Framework Decision on the application of mutual recognition of confiscation orders took effect. Latvian officials have cooperated with USG law enforcement agencies to investigate numerous financial narcotics-related crimes. The Latvian Financial and Capital Market Commission regularly exchanges information with the U.S. Securities and Exchange Commission. More broadly, officials in Latvia are also able to provide assistance outside of the formal mutual legal assistance process in accordance with current AML/CFT laws.

Law enforcement and regulatory agencies have a heavy workload and their budgets, salaries, and in some cases, personnel have been reduced due to the severe economic crisis. Despite these constraints, the Latvian FIU referred a total of 256 cases to other investigative agencies in 2010 (through November 30), roughly 80% more than in all of 2009. Of this total, approximately half were related to cases involving tax evasion. In one notable recent case, the Latvian Financial Police - a subordinate agency of the State Revenue Service - performed more than 60 searches in one day in investigating a series of real estate deals allegedly involving Latvian and Russian criminal groups and officials at Latvian credit institutions. This investigation is reportedly tied to approximately $3.76 million in unpaid taxes and led to the freezing of 60 separate bank accounts. Authorities note increased activity by regulators and law enforcement officials over the past year. They observe that questionable transactions tend to be smaller and conclude that the overall monetary value of money laundering may be decreasing due to the economic crisis.


Lebanon

Lebanon is a financial hub for banking activities in the Middle East and eastern Mediterranean and has one of the more sophisticated banking sectors in the region. Lebanon faces significant money laundering and terrorist financing challenges. For example, Lebanon has a substantial influx of remittances from expatriate workers and family members, estimated by the World Bank at $8.2 billion per year. It has been reported that a number of Lebanese abroad are involved in underground finance and trade-based money laundering (TBML) activities.

Laundered criminal proceeds come primarily from foreign criminal activity and organized crime. There is some smuggling of cigarettes and pirated software, but the sale of these goods does not generate large amounts of funds that are then laundered through the formal banking system. There is a black market for stolen cars, counterfeit goods and pirated software, CDs, and DVDs. The domestic illicit narcotics trade is not a principal source of money laundering proceeds.

Although offshore banking, trust and insurance companies are not permitted in Lebanon, the government has provisions regarding activities of offshore companies and transactions conducted outside Lebanon or in the Lebanese Customs Free Zone. Offshore companies can issue bearer shares. There are also two free trade zones (FTZ) operating in Lebanon: the Port of Beirut and the Port of Tripoli. FTZs fall under the supervision of the Customs Authority.

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.: No

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: List approach

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

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

Know-your-customer rules:

Covered entities: Bank; money exchanges; private couriers who transfer currency for money service businesses such as Western Union and Money Gram; and charitable and nonprofit organizations

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: financial institutions, exchange offices, financial intermediation companies, leasing companies, mutual funds, insurance companies, companies promoting and selling real estate and construction, and dealers and companies engaged in transactions for high-value items (i.e., precious metals, antiquities, etc.)

Number of STRs received and time frame: 179 from January through November 2010

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: 11 as of November 2010

Convictions: One between January and November 2010

Assets forfeited: criminally: 0 civilly: 0

Records exchange mechanism:

With U.S.: NO

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Lebanon’s financial intelligence unit (FIU), the Special Investigations Commission (SIC) is seeking to finalize amendments to Central Bank Circular 83. One amendment would enhance due diligence procedures for foreign PEPs. In the first 11 months of 2010, the SIC investigated 179 allegations of money laundering and terrorist financing activities, a sharp rise from 116 cases during all of 2009. Although the number of filed STRs and subsequent money laundering investigations coordinated by the SIC have steadily increased, prosecutions and convictions are still lacking.

Customs is required to inform the FIU of suspected TBML or terrorist financing; however, high levels of corruption within Customs create vulnerabilities for TBML and other threats.

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

The Government of Lebanon (GOL) should encourage more efficient cooperation between financial investigators and other relevant agencies such as Customs and the Internal Security Force. Lebanon should increase efforts to disrupt and dismantle terrorist financing efforts, including those carried out by Hizballah, which the GOL does not consider a terrorist group. The GOL should consider amending its legislation to allow a greater ability to provide forfeiture cooperation internationally and also provide authority for the return of fraudulent proceeds. The GOL should pass legislation to mandate and enforce cross-border currency reporting. The trading of bearer shares of unlisted companies remains a vulnerability, and the GOL should take action to immobilize those shares as well as to criminalize “tipping off’.

In addition, there should be more emphasis on linking predicate offenses to money laundering and not an over-reliance on suspicious transaction reports (STRs) filed by financial institutions to initiate investigations. Existing safeguards do not address the issue of the laundering of diamonds and value transfer through Lebanon directly or by Lebanese buying agents in Africa. Lebanese law enforcement authorities should examine domestic ties to the international network of Lebanese brokers and traders who are commonly found in underground finance, trade fraud, and TBML.

Finally, the GOL should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.


Liechtenstein

The Principality of Liechtenstein has a well-developed offshore financial services sector, liberal incorporation and corporate governance rules, relatively low tax rates, and a tradition of strict bank secrecy. All of these conditions significantly contribute to the ability of financial intermediaries in Liechtenstein to attract both licit and illicit funds from abroad. Liechtenstein’s financial services sector includes 16 banks, 102 asset management companies, 41 insurance companies and 70 insurance intermediaries, 33 pension schemes and five pension funds, 395 trust companies and 27 fund management companies with approximately 411 investment undertakings (funds), and 1,448 other financial intermediaries. The three largest banks control 85 percent of the market.

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

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: No

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

UN lists of designated terrorists or terrorist entities distributed to financial institutions: YES

Know-your-customer rules:

Covered entities: Banks, securities and insurance brokers; money exchangers or remitters; financial management firms and investment and real estate companies; dealers in high value goods; insurance companies; lawyers; money exchangers or remitters; casinos; the Liechtenstein Post Ltd.; or individuals acting as intermediaries in bank lending, money transactions, trading of currencies or dealing in matters of wealth management and investment advice

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks, securities and insurance brokers, money exchangers or remitters, financial management firms, investment companies, real estate companies, dealers in high valued goods, insurance companies, lawyers, money exchangers or remitters, casinos, the Liechtenstein Post Ltd.; or individuals acting as intermediaries in bank lending, money transactions, trading of currencies or dealing in matters of wealth management and investment advice

Number of STRs received and time frame: 235 in 2009

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: Seven between September 1, 2008 and October 18, 2010

Convictions: Two between September 1, 2008 and October 18, 2010

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Liechtenstein is a member of Moneyval, a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Liechtenstein_en.asp

Enforcement and implementation issues and comments:

Liechtenstein has shown an important effort to improve deficiencies in money laundering. The 2009 reporting year saw a new record high number of suspicious activity reports (SARs) at 235, an increase of 24.3% compared to 189 SARs in 2008: 57.9% of the SARs were based on fraud; 11.5% on money laundering; and 30.6% on the other enumerated offense categories. No SARs were submitted for suspected terrorist financing. In 2009, 74% of Liechtenstein’s SARs were forwarded to the Office of the Public Prosecutor (in 2010, so far 82% have found their way to the Office of the Public Prosecutor).

In practice, many of the customer characteristics considered high-risk in the international standards, including non-resident and trust or asset management accounts, are considered routine, subject only to normal customer due diligence procedures. Liechtenstein also decided not to include entities with bearer shares, trusts and foundations, or entities registered in privately-held databases in the high-risk category. The present SAR reporting requirements do not clearly indicate whether “attempted transactions” relating to funds used in connection with terrorism are covered.

There are reportedly no abuses of non-profit organizations, alternative remittance systems, offshore sectors, free trade zones, bearer shares, or other specific sectors.


Luxembourg

Despite its standing as the second-smallest member of the European Union (EU), Luxembourg is one of the largest financial centers in the world. It also operates as an offshore financial center. Although there are a handful of domestic banks operating in the country, the majority of banks registered in Luxembourg are foreign subsidiaries of banks in Germany, Belgium, France, Italy, and Switzerland. While Luxembourg is not a major hub for illicit narcotics distribution, the size and sophistication of its financial sector create opportunities for money laundering, tax evasion, and other financial crimes.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: No

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: Combination

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: YES

UN lists of designated terrorists or terrorist entities distributed to financial institutions: YES

Know-your-customer rules:

Covered entities: Banks, pension funds, insurance brokers, undertakings for collective investment (UCIs), management companies, external auditors, accountants, notaries, lawyers, casinos, gaming establishments, real estate agents, tax and economic advisors, domiciliary agents, and insurance providers

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO

Suspicious transaction reporting requirements:

Covered entities: Banks, pension funds, insurance brokers, UCIs, management companies, external auditors, accountants, notaries, lawyers, casinos, gaming establishments, real estate agents, tax and economic advisors, domiciliary agents, and insurance providers

Number of STRs received and time frame: 4,866

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: 107

Convictions: 51

Assets forfeited: criminally: 26.8 million EUR (approximately $36 million) civilly: None

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: Not available

Luxembourg is a member of the Financial Action Task Force. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/40/7/44655591.pdf

Enforcement and implementation issues and comments:

The Law of 3 March 2010 introduces the criminal liability of legal persons into the Penal Code and into the Code of Criminal Procedure,

A Grand-Ducal Decree from February 2010 sets out several provisions concerning inter alia a) prohibition of accounts opened in fictitious names and specifications on numbered accounts; b) the verification of the powers of the natural person purporting to act on behalf of the customer; c) the identification of the beneficial owner; d) the determination of whether the customer is acting on behalf of another person; e) the scope of simplified due diligence; f) the regime of enhanced due diligence by specifying the measures and the risk management applicable to non face-to-face clients and transactions, correspondent banking and politically exposed persons; and, g) the specification of the obligation to report suspicious transactions.

The horizontal Law of 27 October 2010 entered into force on November 7, 2010. The Law introduces a considerable number of changes to the existing AML/CFT provisions and proposes to bring changes to as many as 20 existing Laws. The Law strengthens the existing AML/CFT provisions by extending the coverage of the money laundering and terrorist financing offenses and the asset forfeiture regime; clarifying and enhancing know-your-customer procedures; increasing sanctions and penalties; providing a supervisory regime for real estate agents, dealers in high-value goods, and trust and company service provider; establishing a cross-border currency declaration system; and strengthening the authority and access to information of the FIU.


Macau

Macau, a Special Administrative Region (SAR) of the People’s Republic of China (PRC), is not a significant regional financial center. Banks and insurance companies mainly offer traditional products and services to the local population. However, as the world’s biggest gambling market by revenue, benefiting from millions of visitors - mostly from nearby mainland China - Macau is vulnerable to becoming a hub for the laundering of criminal proceeds. Reported annual gaming revenues for 2010 were over $23.5 billion, although observers note that the amount of unreported illegal side-betting could be as much as ten times reported revenues. In addition to the existence of casinos, close proximity border with PRC and Macau’s open economy, including lack of controls on cross border physical movement of cash, are factors that create a risk of money laundering and terrorist financing activities. The primary sources of criminal proceeds in Macau are drug-related crimes, organized crime, and illegal gambling. Networks spanning across Macau’s boundary with mainland China account for much of the criminal activity.

Loosely-regulated gaming promoters, known as junket operators, profit from sourcing the majority of Macau’s VIP players who contribute to over 80 percent of gaming revenues. They finance gamblers while in Macau, assuming credit risk and mingling customer funds in a consolidated junket account, and supply them to the casinos on commission. Junkets are increasingly popular among gamblers seeking anonymity and among casinos aiming to reduce credit default risk. This inherent conflict of interest, together with anonymity provided through use of the junket operator to transfer funds, presents significant challenges to anti-money laundering measures in the gaming sector.

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.: NO

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: NO

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay:: YES

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

Know-your-customer rules:

Covered entities: Banks, credit and insurance entities, casinos, gaming intermediaries, remittance agents and money changers, cash couriers, trust and company service providers, realty services, pawn shops, traders in high-value goods (e.g., jewels, precious metals, vehicles, etc.), notaries, registrars, commercial offshore service institutions, lawyers, auditors, accountants, and tax consultants

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: All persons, irrespective of entity or amount of transaction

Number of STRs received and time frame: 1,220 in2010

Number of CTRs received and time frame: Not applicable

Money laundering criminal prosecutions/convictions:

Prosecutions: Two (January to September 2010)

Convictions: 0

Assets forfeited: criminally: $806,000* (January to November 2010) civilly: Not applicable

* Forfeited assets credited to Macau Government in 2010 from a 2008 conviction.

Records exchange mechanism:

With U.S.: NO

With other governments/jurisdictions: YES

Macau 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: http://www.apgml.org/documents/docs/17/Macao%20ME2%20-%20FINAL.pdf

Enforcement and implementation issues and comments:

Although Macau has no formal law enforcement cooperation agreements with the United States, informal cooperation between the two routinely takes place. U.S. government agencies work closely with Macau counterparts in capacity building measures, information exchange, and investigations. Macau’s Financial Intelligence Unit (FIU) has been an essential component in coordinating AML/CFT efforts. The Government of Macau (GOM) established the FIU in 2006 as a non-permanent government entity in order to avoid having to seek legislative approval. The FIU’s current term expires in August 2012. The GOM should permanently institutionalize it without term limits, given the FIU’s crucial role in sustaining a long-term AML/CFT infrastructure.

The AML law does not require currency transaction reporting (CTR). However, gaming entities are subject to threshold reporting under the supplementary guidelines of the Gaming Inspection and Coordination Bureau (GICB). Currently, the GICB only shares statistical data on CTR filings with the Financial Intelligence Unit (FIU). To enhance the FIU’s ability to detect and deter illicit activity, the FIU should have full access to CTR reports collected by GICB.

Under current regulatory guidelines, financial institutions are obligated and do identify and freeze suspect bank accounts or transactions. However, the GOM cannot provide mutual legal assistance on AML/CFT under existing legislation. Macau should enhance its ability to support international efforts by developing its legal framework to facilitate the freezing and seizure of assets. The GOM can provide mutual legal assistance on criminal matters, even without a formal agreement, and cooperation between the GOM and the United States routinely takes place.

Macau continues making considerable efforts to develop an AML/CFT framework that meets international standards. It should continue to strengthen interagency coordination to prevent money laundering in the gaming industry, especially by introducing robust oversight of junket operators. It also should implement mandatory cross-border currency reporting requirements.


Mexico

Mexico is a major drug-producing and drug-transit country. Proceeds from the illicit drug trade leaving the United States are the principal source of funds laundered through the Mexican financial system. Other significant sources of illegal proceeds being laundered include corruption, kidnapping, and trafficking in firearms and persons. Sophisticated and well-organized drug trafficking organizations based in Mexico take advantage of the extensive U.S.-Mexico border and the large flow of legitimate remittances to Mexico. The smuggling of bulk shipments of U.S. currency into Mexico and the repatriation of the funds into the United States via couriers, armored vehicles, and wire transfers remain favored methods for laundering drug proceeds. The combination of a sophisticated financial sector, a large cash-based informal sector, and insufficiently implemented regulatory controls further complicates the problem. According to US authorities, drug trafficking organizations send between $19 and $29 billion annually to Mexico from the United States. Mexico has seized over $457.5 million in bulk currency shipments since 2002. In 2010, bulk-cash seizures amounted to $32.4 million in U.S. dollars and 87.3 million (approximately $7 million) in pesos.

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: YES

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All crimes

Legal persons covered: criminally: NO civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: NO

UN lists of designated terrorists or terrorist entities distributed to financial institutions:

YES

Know-your-customer rules:

Covered entities: Banks and other financial institutions, including mutual savings companies, insurance companies, securities brokers, retirement and investment funds, financial leasing and factoring funds, casas de cambio, and centros cambiarios (unlicensed foreign exchange centers)

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks and other financial institutions, including mutual savings companies, insurance companies, securities brokers, retirement and investment funds, financial leasing and factoring funds, casas de cambio, and centros cambiarios.

Number of STRs received and time frame: 34,511 January through September 2010

Number of CTRs received and time frame: 3.2 million January through September 2010

Money laundering criminal prosecutions/convictions:

Prosecutions: 162 from September 2009 to July 2010

Convictions: 17 (37 individuals) from September 2009 to July 2010

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: YES

With other governments/jurisdictions: YES

Mexico is a member of the Financial Action Task Force (FATF), of which Mexico currently holds the presidency (until July 2011), and the Financial Action Task Force for South America (GAFISUD), a FATF-style regional body. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/document/20/0,3343,en_32250379_32236963_41911956_1_1_1_1,00.html

Enforcement and implementation issues and comments:

The number of casas de cambio has declined due to actions the Mexican authorities have taken against those with serious AML/CFT violations and the closure of correspondent accounts in the United States. Unlike regulated casas de cambio – of which there are only nine – there are over 4000 centros cambiarios, which are largely unregulated, and approximately 1200 registered money transmitters. Commercial banks, foreign exchange companies, and general commercial establishments also may offer money exchange services. The Government Secretariat issues temporary licenses for national lotteries, casinos, horse races, and sport pools, but these operations as well as lawyers, accountants, real estate agents, dealers of precious metals and stones, and couriers are currently not subject to AML reporting requirements. Legislation to regulate these non-financial entities has been proposed and remains pending in Congress.

The Government of Mexico (GOM) has made fighting money laundering and drug trafficking one of its top priorities, and has made progress in combating these crimes over the course of 2010. Mexico has adopted a national anti-money laundering strategy, increased the capacity of law enforcement and supervisors, and established a vetted police unit. The Mexican government works very closely with U.S. law enforcement on transnational cases. From September 2009 to July 2010, Mexican judges convicted 37 individuals on money laundering charges. Given that from 2004 to 2007, only 17 criminals were convicted of money laundering, this is a notable improvement.

However, Mexico continues to face challenges with respect to its AML/CFT regime, particularly with its ability to prosecute and convict money launderers. The GOM should amend its legislation to ensure that legal persons can be held criminally liable for money laundering and terrorist financing. Mexico should also amend its terrorist financing legislation to fully comport with the UN Convention for the Suppression of the Financing of Terrorism; and enact legislation and procedures to freeze without delay terrorist assets of those designated by the UN 1267 Sanctions Committee. To create a more effective AML/CFT regime, Mexico should fully implement and improve its mechanisms for asset forfeiture, control the bulk smuggling of currency across its borders, monitor remittance systems for possible exploitation, improve the regulation and supervision of money transmitters, unlicensed currency exchange centers, centros cambiarios and gambling centers, and extend AML/CFT requirements to designated non-financial businesses and professions. While some of these issues are addressed in pending AML legislation, the fate of some of the proposals is uncertain as they must pass an opposition-dominated Congress.

On June 15, 2010 the Finance Ministry announced new regulations imposing limits on U.S. dollar (USD) transactions in Mexico. The caps, which were eased on December 3 for border areas, are applicable to cash transactions from dollars to pesos, including deposits, credit payments, and service fees. In addition to limiting transaction amounts for individuals, all USD transactions are prohibited by the regulation for corporate entities and trusts (including account and non-account holding entities), except for those which are account-holders located in border or tourist areas, for which transactions are limited.

On August 26, 2010 the GOM stepped up its AML efforts and announced the National Strategy for the Prevention and Elimination of Money Laundering and Financing for Terrorism along with a package of bills currently pending in Congress. The package includes nine reforms and three modifications to federal codes, as well as the creation of the Law to Prevent and Identify Operations with Illegal Origins and Terrorism Financing.

 

Go to Countries/Jurisdictions of Primary Concern - Netherlands through Zimbabwe



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