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2013 International Narcotics Control Strategy Report (INCSR)--Volume II: Money Laundering and Financial Crimes Country Database--Indonesia through Mongolia


Report
Bureau of International Narcotics and Law Enforcement Affairs
July 1, 2013

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Indonesia

While Indonesia is neither a regional financial center nor an offshore financial haven, the country remains vulnerable to money laundering and terrorist financing due to gaps in financial system legislation and regulation, a cash-based economy, weak rule of law and ineffective law enforcement institutions. Additionally, major indigenous terrorist groups, such as Jemaah Islamiyah (JI), a loose network of JI spin-off groups, and Jemaah Anshorut Tauhid (JAT), which obtain financial support from both domestic and foreign sources, are present in the country.

Most money laundering in Indonesia 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 of illicit goods and bulk cash, facilitated by thousands of miles of unpatrolled coastline, sporadic law enforcement, and poor customs infrastructure. Proceeds from illicit activities are easily moved offshore and repatriated as needed for commercial and personal use. While Indonesia has made some progress in combating official corruption via a strong yet embattled Corruption Eradication Commission, endemic corruption remains a significant concern and poses a challenge for anti-money laundering/counter-terrorist financing (AML/CFT) regime implementation.

In October 2012, the Financial Action Task Force (FATF) placed Indonesia on its Public Statement due to Indonesia’s failure make sufficient progress in implementing its AML/CFT action plan. According to the FATF announcement, Indonesia should adequately criminalize terrorist financing; establish and implement adequate procedures to identify and freeze terrorist assets; and amend and implement laws or other instruments to fully implement the International Convention for the Suppression of the Financing of Terrorism.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

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

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 14,383: January 1 to July 31, 2012

Number of CTRs received and time frame: 1,350,643: January 1 to July 31, 2012

STR covered entities: Banks and financing companies; insurance companies and brokers; pension fund financial institutions; securities companies, investment managers, custodians, and trustees; postal services as providers of fund transfer services, money remitters and foreign currency changers (money traders); providers payment cards, e-money and e-wallet services; cooperatives doing business as savings and loans institutions; pawnshops; commodities futures traders; property companies and real estate agents; car dealers; dealers of precious stones, jewelry, precious metals, art and antiques; and auction houses

money laundering criminal Prosecutions/convictions:

Prosecutions: 5: January 1 to July 31, 2012

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Indonesia 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/Indonesia%20MER2_FINAL.pdf

Enforcement and implementation issues and comments:

Although Indonesia’s AML legislation provides for the freezing of terrorist assets linked to the UN list of designated terrorists and terrorist organizations, Indonesia continues to lack an effective mechanism to implement UNSCRs 1267 and 1373. Indonesia made little progress in freezing assets of JAT and three of its individual members after they were placed on the UNSCR 1267 list in March and May, 2012. Draft terrorism finance legislation that may address some of the noted deficiencies continues to move forward through the Indonesian legislative process, but progress has been slow and it is uncertain if and when the draft law will be enacted. Prosecution of terrorism finance cases also remains problematic, as prosecutors and police need additional training to be able to convincingly follow and explain the money trail in a court of law. Judges also need training on money laundering and financial crimes. Corruption, particularly within the police ranks, also impedes effective investigations and prosecutions.

Indonesia’s financial intelligence unit (PPATK) works closely with the Central Bank to oversee and implement Indonesia’s AML regime. The October 2010 AML legislation, however, has taxed the institution’s capacity, and PPATK needs a significant increase in staff to meet its responsibilities under the AML law. In an effort to place some of the legal burden on industry and bank partners, PPATK and the Central Bank work closely with educational institutions throughout Indonesia to develop financial expertise and responsibility among banking and industry in Indonesia.

Iran

Although not considered a financial hub, Iran has a large underground economy, spurred by restrictive taxation, widespread smuggling, currency exchange controls, capital flight, and a large Iranian expatriate community. Iran is a major transit route for opiates smuggled from Afghanistan through Pakistan to the Persian Gulf, Turkey, Russia, and Europe. At least 40 percent of opiates leaving Afghanistan enter or transit Iran for domestic consumption or for consumers in Russia and Europe. 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 money and value transfer systems, including hawala and moneylenders. Counter-valuation in hawala transactions is often accomplished via trade, thus trade-based transactions are 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. There are reports that billions of dollars in Iranian capital have been invested in the United Arab Emirates, particularly in Dubai real estate. Iran’s real estate market also is used to launder money. Iran is ranked 133 out of 174 countries listed in Transparency International’s 2012 Corruption Perception Index. There is pervasive corruption within the ruling and religious elite, government ministries, and government-controlled business enterprises.

On November 21, 2011, the U.S. Government identified Iran as a state of primary money laundering concern pursuant to section 311 of the USA PATRIOT Act. Widespread corruption and economic sanctions, as well as evasion of those sanctions, have undermined the potential for private sector growth and facilitated money laundering. The Financial Action Task Force (FATF) has repeatedly warned of Iran’s failure to address the risks of terrorist financing. In October 2012, the FATF again urged jurisdictions around the world to impose countermeasures to protect their financial sectors from illicit finance emanating from Iran.

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, Lebanese Hizballah, and the Palestinian Islamic Jihad (PIJ) maintain representative offices in Tehran, in part to help coordinate Iranian financing and training.

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. Presently, Iranian banks have a diminishing international presence in these regions as a growing number of governments move to sanction Iranian financial institutions in response to UN, U.S., and autonomous sanctions regimes as well as the FATF statements on Iran’s lack of adequate anti-money laundering/counter-terrorist financing (AML/CFT) controls. Iran is known to use its state-owned banks to channel funds to terrorist organizations and finance its nuclear and ballistic missile programs. Many of the world’s leading financial institutions have voluntarily chosen to reduce or cut ties with Iranian banks; and, in March 2012, some Iranian financial institutions were disconnected from the SWIFT international network to curtail their ability to send and receive international wires due to European Union (EU) sanction violations. The United States has designated at least 20 banks and subsidiaries under counter-proliferation and terrorism authorities.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/index.htm

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.: not available

criminalizATION OF money laundering:

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

Enhanced due diligence procedures for PEPs: Foreign: not available Domestic: not available

KYC covered entities: All legal entities, including but not limited to the Central Bank, banks, financial and credit institutions, insurance companies, state regulator and reinsurance provider, the Central Insurance, interest-free funds, charity foundations and institutions as well as municipalities, notaries, lawyers, auditors, accountants, official experts of the Ministry of Justice and legal inspectors

REPORTING REQUIREMENTS:

Number of STRs received and time frame: not available

Number of CTRs received and time frame: not available

STR covered entities: All legal entities, including but not limited to the Central Bank, banks, financial and credit institutions, insurance companies, state regulator and reinsurance provider, the Central Insurance, interest-free funds, charity foundations and institutions as well as municipalities, notaries, lawyers, auditors, accountants, official experts of the Ministry of Justice and legal inspectors

money laundering criminal Prosecutions/convictions:

Prosecutions: not available

Convictions: not available

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: not available

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

Enforcement and implementation issues and comments:

For nearly two decades the United States has undertaken targeted financial actions against key Iranian financial institutions, entities, and individuals drawing on non-proliferation, counter-terrorism, human rights, and Iraq-related authorities that include legislation and more than a dozen Executive Orders (E.O.). To date, the Departments of State and Treasury have designated over 300 Iranian entities and individuals for proliferation-related activity, support for terrorism, and human rights abuses. Noteworthy actions taken against Iran under E.O.s include: 20 Iranian-linked banks, located in Iran and overseas, designated in connection with Iran’s proliferation activities (E.O. 13382); one state-owned Iranian bank (Bank Saderat and its foreign operations) designated for funneling money to terrorist organizations (E.O. 13224); the Qods Force, a branch of Iran’s Islamic Revolutionary Guard Corps (IRGC), designated for providing material support to the Taliban, Lebanese Hizballah, and PIJ (E.O. 13224); and 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 PIJ, designated along with Lebanon- and U.S.-based affiliates (E.O. 13224).

Additionally, Iran has been the subject of several United Nations Security Council resolutions (UNSCR) and International Atomic Energy Agency resolutions for its failure to comply with its international nuclear obligations. UNSCR 1929 recognizes the potential connection between Iran’s revenues derived from its energy sector and the funding of its proliferation sensitive nuclear activities. The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 amending the Iran Sanctions Act of 1996, makes sanctionable certain activities in Iran’s energy sector, including the provision of refined petroleum or goods and services for Iran’s refined petroleum sector.

On December 31, 2011, the National Defense Authorization Act for Fiscal Year 2012 was signed into law. Under Section 1245 of the Act, foreign financial institutions that knowingly facilitate significant financial transactions with the Central Bank of Iran or with U.S.-designated Iranian financial institutions risk being cut off from direct access to the U.S. financial system. On August 10, 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012 was enacted, expanding sanctions on Iran’s energy sector and against human rights violators. These build upon the sanctions from previous U.S. legislation and UNSCRs.

In February 2009, the FATF first 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. In October 2012, the FATF reiterated its call for countermeasures, urging all members and jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions. The FATF urges Iran to immediately and meaningfully address its AML/CFT deficiencies, in particular by criminalizing terrorist financing and effectively implementing suspicious transaction reporting requirements.

The EU also has adopted numerous measures to implement the UNSCRs on Iran and further protect the EU from Iranian threats. For example, in 2010, the EU adopted several measures, including sanctions on several Iranian banks and the IRGC; enhanced vigilance by way of additional reporting and prior authorization for any funds transfers 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. In October 2012, the EU approved legislation placing further restrictions on financial transactions with Iran, and strengthening prohibitions on the export of dual-use items and technologies, and the import of Iranian gas.

Iraq

Iraq’s economy is primarily cash-based, and there is little data available on the extent of money laundering in the country. Narcotics trafficking and narcotics-based money laundering are not major problems. However, smuggling is endemic, often involving consumer goods, cigarettes, and petroleum products. Bulk cash smuggling, trafficking in persons, and intellectual property rights violations have also been reported. Ransoms from kidnappings and extortion are often used to finance terrorist and criminal networks. Credible reports of counterfeiting exist. Trade-based money laundering, customs fraud, and other forms of value transfer allow criminal organizations the opportunity to earn, move and store supporting funds and illicit proceeds under the guise of legitimate trade. Hawala networks, both licensed and unlicensed, are widely used for legitimate as well as illicit purposes. Corruption is a major challenge and is exacerbated by capacity constraints in public institutions, weak financial controls in the banking sector, and weak links to the international law enforcement community. U.S. dollars are widely accepted and are used for many payments made by the U.S. government, as well as foreign assistance agencies and their contractors.

Iraq has four free trade zones (FTZs): the Basra/Khor al-Zubair seaport; Ninewa/Falafel area; Sulaymaniyah; and al-Qaim, located in western Al Anbar province. Under the Free Trade Zone Authority Law, goods imported or exported from the FTZs 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 FTZs are exempt from taxes and fees throughout the life of the project, including the foundation and construction phases. Trade-based money laundering is a significant problem in Iraq and the surrounding region. Iraq is investigating the application of a new customs tariff regime.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: NO

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks; investment fund 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; and, dealers in precious metals and stones

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 43 in 2011

Number of CTRs received and time frame: 1,320 in 2011

STR covered entities: Banks; investment fund 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; and, dealers in precious metals and stones

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Iraq is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force (FATF)-style regional body. Its mutual evaluation can be found here: http://www.menafatf.org/images/UploadFiles/Final_Iraq_MER_En_31_12.pdf

Enforcement and implementation issues and comments:

Although the only anti-money laundering (AML) statute in Iraq, the AML Act of 2004 issued under Coalition Provisional Authority Order 93, is broad enough to reach even beyond serious crime, the criminalization under the 2004 law is only that of a misdemeanor. Iraq does not prosecute cases under this law because the law does not effectively criminalize money laundering. New draft anti-money laundering/countering the financing of terrorism (AML/CFT) legislation is currently under review by Iraq’s Shura Council, Council of Ministers and some members of the Iraqi Parliament.

Some advancement has been made regarding the Iraqi government’s support of a viable AML/CFT regime, with the formation in late October 2012 of the Financial Crimes Task Force, a multi-agency body to coordinate investigations of suspected large-scale money laundering and terrorist financing. Senior-level support and increased capacity for all parties are necessary to ensure AML/CFT cases can be successfully investigated and prosecuted. Investigators are frustrated when judges do not pursue their cases; similarly, judges claim the cases they receive are of poor quality and not prosecutable. In addition, the current lack of implementing legislation, weak compliance enforcement by the Central Bank of Iraq (CBI), and the lack of support to the CBI’s Anti-Money Laundering Unit (AMLU) all undermine Iraq’s ability to counter terrorist financing and money laundering.

The CBI generally does not provide sufficient financial or political support to the AMLU. The AMLU has inadequate staffing and lacks sufficient training, computer equipment, and software to receive, store, retrieve, and analyze data from the reporting institutions. Without a database, the AMLU staff must process the data received manually as is common in other Iraqi government institutions. The AMLU is empowered to exchange information with other Iraqi and foreign government agencies. Historically the AMLU received little support from Iraqi law enforcement, but that changed in 2011 when the AMLU demonstrated its added value to many of the government’s investigations. The Government of Iraq should ensure the AMLU 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 serve as a platform for international cooperation.

Regulation and supervision of the financial sector are still quite limited, and enforcement is subject to political constraints. 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 45 state-owned and private banks. Also, rather than file STRs in accordance with the law, most banks either conduct internal investigations or contact the AMLU, which executes an account review to resolve any questionable transactions. In practice, very few STRs are filed.

Iraq should become a party to the UN Convention for the Suppression of the Financing of Terrorism. Iraq also should ensure adequate political and resource support for the Financial Crimes Task Force and the FIU to allow them to do their work effectively.

Ireland

Ireland is an increasingly significant European financial hub, with a number of international banks having set up offices in Dublin. Irish authorities consider most money laundering in the country to be of domestic origin, with the primary sources of illicit funds being prostitution, cigarette smuggling, drug trafficking, fuel laundering, domestic tax violations, and welfare fraud. According to Irish law enforcement, money is most commonly laundered through the purchase of high value goods for cash; the transfer of funds from overseas through Irish credit institutions; the filtering of funds via complex company structures; and the purchase in Ireland of Irish and foreign real property.

Organized criminal groups, often with foreign connections, are active in Ireland. Legacy republican dissident activity has been linked with organized crime.

Customs authorities have intercepted cash being smuggled out of Ireland; a number of such interceptions occurred at Dublin International Airport. Many of these seizures are from outbound passengers and, according to authorities, the currency is intended for the purchase of drugs and/or illegal cigarettes.

While gambling and casinos are officially illegal, open source accounts allege that many Irish cities operate de facto casinos under the guise of “private members’ clubs.” There is one large free trade zone in Shannon, managed by a government agency. There are no reports of illegal activity arising from its operation.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, building societies, the Post Office, stock brokers, credit unions, bureaux de change, life insurance companies, and insurance brokers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 11,168 in 2011

Number of CTRs received and time frame: Not available

STR covered entities: Banks, building societies, the Post Office, stock brokers, credit unions, bureaux de change, life insurance companies, and insurance brokers

money laundering criminal Prosecutions/convictions:

Prosecutions: 7 in 2011

Convictions: 5 in 2011

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Ireland is a member of the Financial Action Task Force. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/63/29/36336845.pdf

Enforcement and implementation issues and comments:

The international banks are considered well regulated by the Central Bank of Ireland and are not a source of money laundering concern.

Up to 80 percent of the reported suspicious transactions involve domestic tax violations and social welfare fraud. Schemes involving remittance companies, solicitors, accountants, and secondhand car dealerships were also observed.

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, and 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 originate from fraud schemes and narcotics trafficking in other jurisdictions, including the UK. Additionally, identity theft and internet abuse are growing segments of financial crime activity.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC 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

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 2,334 in 2011

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, accountants, building societies, company service providers, financial advisors, investment/fund managers, life assurance/insurance companies, money service businesses, online gaming entities, post office, stockbrokers, and trust companies

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: 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 also allow information to be obtained about that person’s financial affairs, and can be used to assist in criminal investigations abroad. The Terrorism (Finance) Act 2009 allows IOM authorities to compile their own list of suspects subject to sanctions as appropriate.

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.

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; its ratification of the International Convention for the Suppression of the Financing of Terrorism was extended to IOM on September 25, 2008; and its ratification of the UN Convention against Transnational Organized Crime was extended to the IOM on June 1, 2012.

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 an increasing extent, with Asia. 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. Israel’s illicit drug trade is regionally focused, with Israel more of a transit country than a market destination. The majority of money laundered originates from criminal activities abroad, including “carousel fraud,” which takes advantage of international value added tax loopholes. Proceeds from domestic criminal activity also continue to contribute to money laundering activity. Electronic goods, liquor, cigarettes, cell phones, and pharmaceuticals, especially Viagra and Cialis, have all been seized in recent smuggling operations. Officials continue to be concerned about money laundering in the diamond industry, illegal online gambling rings, retail businesses suspected as money laundering enterprises, and public corruption—including the recent indictment of the former chairman of a major national bank on fraud and money laundering charges.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banking corporations, credit card companies, trust companies, stock exchange members, portfolio managers, and the Postal Bank

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 34, 548 (33,874 related to money-laundering and 674 related to terrorism financing): January 1 - October 16, 2012

Number of CTRs received and time frame: 839,550: January 1 - October 16, 2012

STR covered entities: Banking corporations, credit card companies, trust companies, 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

money laundering criminal Prosecutions/convictions:

Prosecutions: 55: January - September 2012

Convictions: 23: January - September 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Israel has observer status with the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here:

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

Enforcement and implementation issues and comments:

Israel’s “right of return” citizenship laws mean that criminal figures find it easy to obtain an Israeli passport without meeting long residence requirements. It is not uncommon for criminal figures suspected of money laundering to hold passports in a home country, a third country for business, and Israel.

Israel’s Financial Intelligence Unit, under the Ministry of Justice’s Israel Money Laundering Prohibition Authority, cooperates closely with the two bodies responsible for enforcement: the Israel Tax Authority’s (ITA) Anti-Drug and Money Laundering Unit and the Israeli National Police.

The ITA also is the responsible agency for bulk cash smuggling interdiction, and a March 2012 bulk cash smuggling interdiction operation seized more than $200,000 in undeclared currency. Israel also cooperates on extradition requests.

Italy

Italy’s economy is large both in the European and global context. Its financial and industrial sectors are significant. The proceeds of domestic organized crime groups (especially the Camorra, the ‘Ndrangheta, and the Mafia) operating across numerous economic sectors in Italy and abroad compose the main source of laundered funds. Numerous reports by Italian non-governmental organizations identify domestic organized crime as Italy’s largest enterprise.

Drug trafficking is a primary source of income for Italy’s organized crime groups, which benefit from Italy’s geographic position and links to foreign criminal organizations in Eastern Europe, South America, and Africa. Other major sources of laundered money are proceeds from tax crimes, smuggling and sale of counterfeit goods, extortion, and usury. Based on limited evidence, the major sources of money for financing terrorism seem to be petty crime, document counterfeiting, and smuggling and sale of various legal and contraband goods. Italy’s total black market is estimated to generate as much as 15 percent of GDP ($330 billion). A sizeable portion of this black market is for smuggled goods, with smuggled tobacco a major component. However, the largest use of this black market is for tax evasion by otherwise legitimate commerce. Money laundering and terrorist financing in Italy occurs in both the formal and the informal financial systems, as well as offshore.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks; the post office; electronic money transfer institutions; agents in financial instruments and services; investment firms; asset management companies; insurance companies; agencies providing tax collection services; stock brokers; financial intermediaries; lawyers; notaries; accountants; auditors; insurance intermediaries; loan brokers and collection agents; commercial advisors; trusts and company service providers; real estate brokers; entities that transport cash, securities, or valuables; entities that offer games and betting with cash prizes; and casinos

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 34,458: January 1 - June 30, 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks; the post office; electronic money transfer institutions; agents in financial instruments and services; investment firms; asset management companies; insurance companies; agencies providing tax collection services; stock brokers; financial intermediaries; lawyers; notaries; accountants; auditors; insurance intermediaries; loan brokers and collection agents; commercial advisors; trusts and company service providers; real estate brokers; entities that transport cash, securities, or valuables; auctioneers and dealers of precious metals, stones, antiques, and art; entities that offer games and betting with cash prizes; and casinos

money laundering criminal Prosecutions/convictions:

Prosecutions: 499: January 1 - October 31, 2012

Convictions: 9 in 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Italy is a member of the Financial Action Task Force. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/countries/d-i/italy/documents/mutualevaluationofitaly.html

Enforcement and implementation issues and comments:

Italy continues to combat the sources of money laundering and terrorist financing. The current government has undertaken a number of reforms to curb tax evasion and strengthen anti-corruption measures, and the government’s fight against organized crime is ongoing.

In 2012, Italy made the following key legal, regulatory, and policy changes related to money laundering and terrorist financing: Italy’s financial intelligence unit, the Financial Information Unit (FIU), drafted and distributed to KYC- and STR-covered entities guidance for detecting and reporting on unusual practices related to the use of anomalous payment cards for cash withdrawals, international tax evasion and fraud in invoicing and factoring.

In an effort to increase the quantity of STRs reported and the quality and timeliness of the data reported by STR-covered entities, in 2012 the FIU set up a new automated infrastructure for reporting and receiving STRs, issued guidance on the data and information to be included in the reports, and began outreach to STR-covered entities to train them on the new reporting system. The FIU claims the new system has improved the quality of in-depth financial analysis and the timeliness of information flows. Italy should continue its efforts to improve the quality of its STRs.

Although several of the actions taken in 2011 and 2012 were intended to increase the number of STRs filed by non-financial businesses and professions, since these entities continue to file less than one percent of the STRs, Italy must continue to implement measures that will significantly increase the number of STRs from selected categories of these entities, especially from lawyers. Italy also should work to ensure domestic PEPs are subject to enhanced due diligence requirements. Italy requires large transactions be reported only in the aggregate.

As in previous years, in 2012 the Guardia di Finanza, the primary Italian law enforcement agency responsible for combating financial crime and smuggling, cooperated on a number of occasions with various U.S. authorities in investigations of money laundering, bankruptcy crimes, and terrorist financing. The Direzione Centrale per i Servizi Antidroga, a task force comprised of the Guardia di Finanza, Carabinieri, and the Italian National Police, also plays a central role in these efforts.

Jamaica

Money laundering in Jamaica is primarily related to proceeds from illegal narcotics and financial scams, and is largely controlled by organized criminal groups. Jamaica has experienced an increase in financial crimes related to advance fee fraud (lottery scams) and cybercrime.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, credit unions, and merchant banks; exchange bureaus; wire transfer and remittance companies; mortgage companies; insurance companies; securities brokers, dealers, and other intermediaries; and investment advisors

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 334,344 in 2012

Number of CTRs received and time frame: 138,243 in 2012

STR covered entities: Banks, credit unions, and merchant banks; exchange bureaus and remittance companies; mortgage companies; insurance companies; securities brokers, dealers, and other intermediaries; and investment advisors

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Jamaica is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: https://www.cfatf-gafic.org/index.php?option=com_docman&Itemid=418&lang=en

Enforcement and implementation issues and comments:

Lengthy delays in processing judicial orders hinder the effectiveness of the Jamaican court system; the Government of Jamaica (GOJ) should establish a financial crimes court to streamline the prosecutorial process specifically related to money laundering and other financial crimes, Proceeds Of Crime Act cases, and terrorist financing cases.

The GOJ’s Financial Investigation Division was not accepted for membership in the Egmont Group of Financial Intelligence Units because it could not meet the standards for membership. The GOJ should take steps to remedy all noted deficiencies and re-apply for membership.

Japan

Japan is a regional financial center but not an offshore financial center. It has one free-trade zone, the Okinawa Special Free Trade Zone, established 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.

Japan continues to face substantial risk of money laundering by organized crime including Boryokudan, Japan’s organized crime groups, 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. Bulk cash smuggling also is of concern.

In the past several years, there has been an increase in financial crimes by citizens of West African countries, such as Nigeria and Ghana, who reside in Japan. There is not a significant black market for smuggled goods, and the use of alternative remittance systems is believed to be limited.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks; credit, agricultural and fishery cooperatives; insurance companies; securities firms; 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; and trust companies

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 337,341 in 2011

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks; credit, agricultural and fishery cooperatives; insurance companies; securities firms; trust companies; real estate agents and professionals; precious metals and stones dealers

money laundering criminal Prosecutions/convictions:

Prosecutions: 156 in 2011

Convictions: Not available

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Japan 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/media/fatf/documents/reports/mer/MER%20Japan%20full.pdf

Enforcement and implementation issues and comments:

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’s compliance with international standards specific to financial institutions is notably deficient. In April 2011, Japan amended its basic AML law, the Criminal Proceeds Act, to improve customer due diligence requirements, including requiring financial institutions to identify the customer’s name, address, and date of birth, and to verify the purpose of transaction, business activities, and beneficial owners. However, while the government is in the process of finalizing the subordinate decrees, these requirements do not come into effect until April 28, 2013.

The Government of Japan (GOJ) has not implemented a risk-based approach to AML/CFT, and there is currently no mandate for enhanced due diligence for higher-risk customers, business relationships, and transactions. While April 2011 amendments to the Criminal Proceeds Act call for financial institutions to verify a customer’s assets and income in certain higher risk situations, the Act delineates those situations as being instances where the use of false identity is suspected, rather than those presented by such factors as business type, customer location, or type of transaction. The current regulations also do not authorize simplified due diligence, though there are exemptions to the identification obligation for customers or transactions believed to pose no or little risk for 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 limited cooperation to other GOJ agencies, and most foreign governments, on nearly all criminal, terrorism, or counter-intelligence related matters. 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 jurisdictions.

The GOJ’s system does not allow the freezing of terrorist assets without delay, and in practice the Ministry of Finance has frozen terrorist assets in only a few cases. Japan’s system does not cover funds raised by a non-terrorist for use by a terrorist or terrorist organization, reaches only funds, not other kinds of assets, and is limited in its applicability to domestic transactions that do not involve foreign currency. The GOJ should move quickly to 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. As Japan is a major trading power, the GOJ should take steps to identify and combat trade-based money laundering.

Japan should become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.

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 regulate its own financial service sector and to negotiate and sign tax information exchange agreements directly with other jurisdictions.

The financial services industry is a key sector, with banking, investment services, and trust and company services accounting for approximately half of Jersey’s total economic activity. As a substantial proportion of customer relationships are with nonresidents, adherence to know-your-customer rules is an area of focus for efforts to limit illicit money from foreign criminal activity. Jersey also requires beneficial ownership information to be obtained and held by its company registrar. Island authorities undertake efforts to protect the financial services industry against the laundering of the proceeds of foreign political corruption.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

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

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,847 in 2011

Number of CTRs received and time frame: Not applicable

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

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2011

Convictions: 0 in 2011

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: NO

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:

The Terrorist Asset Freezing (Jersey) Law 2011 came into force in April 2011 and replaced previous provisions on the freezing of terrorist assets. Under this law, a person designated by the UN or the UK for terrorist purposes is automatically designated in Jersey, and any funds or economic resources of the designated persons are subject to asset freezes. The Jersey Financial Services Commission website contains a link to the United Kingdom Consolidated List of asset freeze targets, which covers all designations by the UN, the European Union and the UK. Registered persons in Jersey are also encouraged to sign up to an email alert system coordinated by Her Majesty’s Treasury in the UK, which alerts people to changes in the asset freeze designations.

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 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 in September 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 these crimes.

Jersey requires an obliged entity to obtain all necessary customer due diligence (CDD) information from an introducer immediately at the beginning of a relationship. However, such information may not be required for an intermediary that is considered to present a lower risk. Jersey authorities should explicitly require that all obliged entities obtain all necessary CDD information from the intermediary or introducer at the beginning of a relationship and should consider requiring relevant persons to perform spot-testing of an intermediary or introducer’s performance of CDD obligations.

Some concerns have been raised about relatively recent changes to the law on foundations which appear to increase risks for secrecy and tax evasion. Authorities should ensure due diligence and public reporting requirements are strengthened for foundations.

Jordan

Although the Hashemite Kingdom of Jordan is not a regional or offshore financial center, it has a well-developed financial sector with significant banking relationships in the Middle East. Jordan’s long and remote desert borders and proximity to Iraq, Syria, Saudi Arabia, and Israel and the West Bank make it susceptible to the smuggling of bulk cash, gold, fuel, narcotics, cigarettes, counterfeit goods, and other contraband. Incidents of reported money laundering are rare, and recent cases involve individual foreign and Jordanian actors laundering funds while in public office or employed by publicly-owned companies.

Smuggled goods remain a small but well-known part of daily transactions. Black market cigarettes are widely available, and there is little government effort to curb sales. Jordan Customs sometimes captures at the border drivers carrying cheaper gasoline from Saudi Arabia in false tanks. Smuggling endeavors tend to be small scale, and there is no discernible connection between black market goods and large scale crime such as terrorism. Anecdotal reports also indicate Jordan’s real estate sector has often been used to launder illicit funds.

There are six public free trade zones (FTZs) in Jordan: the Zarqa Free Zone, the Sahab Free Zone, the Queen Alia International Airport Free Zone, the Al-Karak Free Zone, the Al-Karama Free Zone, and the Aqaba Special Economic Zone (ASEZ). With the exception of Aqaba, these FTZs list their activities merely as trade. There are many designated private FTZs, a number of which are related to the aviation or chemical and mining industries. FTZ activities vary from industrial, agricultural, pharmaceutical, or vocational to multi-purpose. With the exception of ASEZ, all FTZs are regulated by the Jordan Free Zones Corporation Law and are monitored by the Ministry of Finance. The Aqaba Special Economic Zone Authority, a ministerial level authority, controls the port city of Aqaba.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, exchange companies and money transfer companies; securities brokers and investment and asset managers; credit and financial leasing companies; insurance companies, brokers and intermediaries; financial management companies, postal services, and real estate and development entities; and traders of precious metals and stones

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 140: January 1 – November 30, 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, exchange companies and money transfer companies; securities brokers and investment and asset managers; credit and financial leasing companies; insurance companies, brokers and intermediaries; financial management companies, postal services, and real estate and development entities; and traders of precious metals and stones

money laundering criminal Prosecutions/convictions:

Prosecutions: 2 in 2012

Convictions: 3 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Jordan is a member of the Middle East and North Africa Financial Action Task Force, a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.menafatf.org/images/UploadFiles/MER_Hashemite_Kingdom_of_Jordan.pdf

Enforcement and implementation issues and comments:

Jordan’s financial intelligence unit, the Anti-Money Laundering and Counter-Terrorist Financing Unit (AMLU/CFT) is a relatively young entity and is still developing its capacity to address money laundering and terrorist financing. The AMLU/CFT is currently moving into a larger upgraded facility and anticipates hiring more staff upon completion of the move into its new offices. In 2012, it became a member of the Egmont Group of Financial Intelligence Units.

Prosecution of money laundering cases takes place in public courts. Prosecutions and convictions for money laundering in 2012 involved both the formal and informal financial sectors. One of the three convictions obtained in 2012 was based on a 2012 referral; two related to 2011 referrals. Convictions in the last year include a highly publicized case involving an official with the Greater Amman Municipality who oversaw Amman’s mass transit system and trash removal body. Public perception that corruption exists at high levels in the government continues to build, and the AMLU/CFT expects a heightened responsiveness to this pressure in the coming year.

Kazakhstan

While not a regional financial center, the Republic of Kazakhstan has the most developed economy and financial system in Central Asia. Governmental corruption, an organized crime presence and a large shadow economy make the country vulnerable to money laundering and terrorist finance. A significant part of Kazakhstan’s mineral wealth is held in offshore accounts with little public scrutiny or accounting. The major sources of laundered proceeds are abuse of public office, tax evasion and fraudulent financial activity, particularly transactions using shell companies.

A recent series of terrorist acts confirmed there is an illicit turnover of arms and explosives of unknown origin. The funding source is unclear, as is the destination of the proceeds. In addition, smuggling of contraband goods and fraudulent invoicing of imports and exports by Kazakhstani businessmen is still a relatively common practice.

Casinos and slot machine parlors are only located in selected territories. The regulation of the gaming sector is within the mandate of the Agency for Sport and Physical Culture which also issues licenses to gaming businesses. Seventy-one licenses were issued for gaming activities from 2007 to May 2012 (19 for casinos, ten for slot machine parlors, 30 for betting offices and 12 for sweepstakes). The vulnerabilities of these businesses to money laundering and government oversight capacity are not known.

Outbound cross-border remittances have increased significantly over the past decade. According to World Bank research, outbound cross-border remittances from Kazakhstan were more than $3 billion in 2010, ten times larger than the size of inbound remittances. The volume of cross-border remittance flows is expected to continue to increase. Informal channels, such as cross-border physical transportation of cash and hawala systems, are used by migrant workers who do not necessarily have identification documentation required by financial institutions, as well as by individuals and businesses that wish to avoid payment of taxes and duties. It is not known whether the formal and informal remittance systems are used to launder money.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: NO civilly: NO

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, insurance companies and brokers, pension funds, exchange offices, auditors, notaries and lawyers, gaming centers, professional participants in the securities market

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 57,714: January 1 – November 30, 2012

Number of CTRs received and time frame: 816,808: January 1 – November 30, 2012

STRcovered entities: Banks and organizations that conduct banking transactions; stock exchanges; insurance and re-insurance companies and brokers; pension funds; professional participants in the securities market; central depositories; exchange offices and post operators that deal with fund transfers; lawyers and independent legal advisors; commodity stock exchanges; auditors and organizers of gaming businesses

money laundering criminal Prosecutions/convictions:

Prosecutions: 20: January 1 to September 30, 2012

Convictions: 3: January 1 to September 30, 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Kazakhstan’s anti-money laundering/counter-terrorist financing (AML/CFT) law does not cover pawnshops, micro-credit organizations, leasing organizations, entities dealing with jewelry and precious metals, financial management firms, travel agencies or dealers of art, antiques, and other high-value consumer goods. These entities are not required to maintain customer information or report suspicious activity. The Government of Kazakhstan (GOK) should ensure due diligence and reporting requirements are applied to these entities.

All reporting entities subject to the AML/CFT law are inspected by their respective regulatory agencies, rather than by the financial intelligence unit (FIU). Most of those agencies, however, lack the resources and expertise to inspect reporting entities in terms of AML/CFT compliance. The National Bank adopted the AML/CFT Inspection Manual covering its reporting entities.

Strict segregation of duties among law enforcement agencies hampers the government’s ability to detect, investigate and prosecute money laundering crimes related to serious criminal offenses, including drug trafficking and trafficking in persons. The Financial Police is the only agency responsible for the investigation of money laundering crimes. The Ministry of Interior investigates a wide range of predicate offenses, but does not typically examine the financial aspects of crimes. Kazakhstani law enforcement agencies have recognized the need for a more integrated and coordinated approach to the investigation of money laundering related to serious criminal offenses, perhaps through interagency investigative groups. However, during the first 11 months of 2012 the Financial Police did not conduct any joint money laundering investigations.

The GOK requires more resources to ensure the proper enforcement of its financial crimes regulations. It also should educate local institutions and personnel on further implementation of the AML/CFT law. Additionally, the GOK should criminalize tipping off.

The Criminal Code provides for the mandatory seizure, in part or in whole, of property of any person convicted for miscellaneous predicate offenses as defined in the Code. In an effort to evade such forfeiture, criminals often register their assets in the names of straw owners or relatives. Since the burden of proof lies with law enforcement and can be difficult to meet, law enforcement agencies frequently do not attempt to determine the origin of assets during the initial stage of an investigation.

The legislation does not address the seizure of property of corresponding value or indirect benefits from the proceeds of a crime. During the first nine months of 2012, police were able to recover $108,000 from suspects in 20 criminal cases accused of laundering approximately $655,000 of illegal criminal proceeds. Kazakhstan has no legal framework to allow the government to freeze terrorist assets in a timely manner; all asset freeze orders must have prior court approval. Kazakhstan also lacks a mechanism to share with other countries assets seized through joint or trans-border operations.

Kenya

Kenya is the largest financial center in East Africa, and its banking and financial sectors are growing in sophistication. It remains vulnerable to money laundering and other financial fraud.

Money laundering/terrorist financing activity derives from both domestic and foreign criminal activity. Kenya is a transit point for international drug traffickers. Trade-based money laundering is a problem in Kenya, though the Kenya Revenue Authority has made recent strides in increasing its internal monitoring and collection procedures. There is a black market for smuggled goods in Kenya, which serves as a major transit country for Uganda, Somalia, Tanzania, Rwanda, Burundi, eastern Democratic Republic of Congo, and South Sudan. Goods marked for transit to these northern corridor countries avoid Kenyan customs duties, but authorities acknowledge they often are sold in Kenya. Many entities in Kenya are involved in exporting and importing goods, including nonprofit entities. Trade goods often are used to provide counter-valuation in regional hawala networks.

The laundering of funds derived from corruption, smuggling, illicit trade in counterfeit goods, drugs, wildlife trafficking and other financial crimes is a substantial problem. Its proximity to Somalia makes Kenya an attractive and likely destination for the laundering of piracy-related proceeds and a financial facilitation hub for al-Shabaab. As a regional financial and trade center for Eastern, Central, and the Horn of 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. Foreign nationals, in particular the large Somali refugee population, primarily use hawala to send and receive remittances internationally. Mobile money, using telecom networks for cash transfers, is increasingly important and makes tracking and investigating suspicious transactions more difficult. Kenya ranks 139 out of 176 countries on the 2012 Transparency International Corruption Perceptions Index.

Kenya is included in the October 19, 2012 Financial Action Task Force (FATF) Public Statement because it has not made sufficient progress in implementing its action plan and continues to have certain strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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 approach

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks and institutions accepting deposits from the public; lending institutions, factors, and commercial financiers; financial leasing firms; transferors of funds or value by any means, including both formal and informal channels; issuers and managers of credit and debit cards, checks, traveler’s checks, money orders, banker’s drafts, and electronic money; financial guarantors; traders of money market instruments, including derivatives, foreign exchange, currency exchange, interest rate and index funds, transferable securities, and commodity futures; securities underwriters and intermediaries; portfolio managers and custodians; life insurance and other investment-related insurance underwriters and intermediaries; casinos; real estate agencies; accountants; and dealers in precious metals and stones

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 85 in 2012

Number of CTRs received and time frame: 0

STR covered entities: Banks and institutions accepting deposits from the public; lending institutions, factors, and commercial financiers; financial leasing firms; transferors of funds or value by any means, including both formal and informal channels; issuers and managers of credit and debit cards, checks, traveler’s checks, money orders, banker’s drafts, and electronic money; financial guarantors; traders of money market instruments, including derivatives, foreign exchange, currency exchange, interest rate and index funds, transferable securities, and commodity futures; securities underwriters and intermediaries; portfolio managers and custodians; life insurance and other investment-related insurance underwriters and intermediaries; casinos; real estate agencies; accountants; and dealers in precious metals and stones

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Kenya is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. Kenya’s most recent mutual evaluation report can be found here: www.esaamlg.org

Enforcement and implementation issues and comments:

The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) and its amendment provide a comprehensive framework to address AML issues and contain appropriate sanctions. The POCAMLA has never been used to prosecute any crimes. The POCAMLA allows for enhanced regulations to evaluate politically exposed persons (PEPs). With Kenya’s new constitution, there are now increased vetting procedures in place for PEPs, who are now subject, for the first time, to financial disclosure requirements. Key implementing structures called for in the POCAMLA, like the financial intelligence unit (FIU) and the Assets Recovery Unit, are established and are in the process of becoming fully operational.

The GOK established its FIU, the Financial Reporting Center (FRC), in April 2012 and named an interim director. The FRC has obtained its own office space and is seeking permanent staff but still needs an automated system to analyze suspicious transaction reports (STRs). The FRC issued guidance notes to commercial banks, non-bank financial institutions, and mortgage finance companies regarding their reporting responsibilities and began receiving STRs in October 2012. While currency transaction reports (CTRs) for currency transactions in excess of $10,000 are required, entities are not actively filing.

The Central Bank of Kenya (CBK) has closed down several foreign exchange bureaus for failing to comply with new, more stringent AML standards. The CBK circulates UN lists it receives and the current CBK Guidelines require financial institutions to check the list against their databases and submit status reports quarterly to the CBK. Although the FRC receives STRs from some alternative remittance system (ARS) entities, the GOK cannot consistently track transactions by ARS entities. The lack of regulation/supervision of this sector, coupled with a lack of reporting from the obliged entities, contribute to the vulnerability posed by this sector. Tracking, reporting, and investigating suspicious transactions related to the ARS are more difficult for the Kenyan authorities than for those using the formal financial sector.

Kenyan law enforcement authorities lack the institutional capacity, investigative skill, and resources to conduct complex financial investigations, and a number of bureaucratic impediments present challenges. To demand bank account records or to seize an account, the police must present evidence linking the deposits to a criminal violation and obtain a court warrant. The confidentiality of this process is difficult to maintain, and because of leaks, account holders are tipped off about the investigations and then move their accounts or contest the warrants. The Office of the Public Prosecutor is organizing a special unit to address financial crimes and is collaborating with the Ethics and Anti-Corruption Commission to investigate illicit financial flows. Kenya’s criminal justice system is being completely overhauled, including the establishment of a new Supreme Court. The GOK, especially the police, must allocate appropriate resources and enhance its institutional capacity and investigative skill to conduct complex investigations independently. It also must address the bureaucratic impediments that are preventing it from addressing these crimes.

In September 2012, Kenya passed the Prevention of Terrorism Act (PTA), which criminalizes material support provided to commit a terrorist act; however, the implementing regulations have not yet been issued. While the PTA criminalizes the financing of terrorist acts, it does not criminalize the financing of terrorist organizations or the financing of an individual terrorist in the absence of a link to a terrorist act.

POCAMLA provides for legal mechanisms to freeze or seize criminal accounts; however, the law has not yet been used to do this. Kenya does have a mechanism to seize accounts used for terrorist financing, but the PTA does not explicitly provide for freezing terrorist assets. This provision may be added to the Act’s regulations, yet to be published. The Prevention of Organized Crimes Act also provides for seizure of cash and property used by organized criminals to commit an illegal act. The Mutual Legal Assistance Act of 2011 provides for greater law enforcement cooperation in obtaining and sharing evidence or information with foreign states or international entities, without the need for an MLAT.

Korea, Democratic Republic of

The Democratic People’s Republic of Korea (DPRK or North Korea) has a history of involvement in currency counterfeiting, drug trafficking, and the laundering of related proceeds, as well as the use of deceptive financial practices in the international financial system. The DPRK regime continues to present a range of challenges for the international community, such as the pursuit of nuclear weapons, weapons trafficking and proliferation, and human rights abuses. As a result, the DPRK is one of the most sanctioned countries in the world.

Access to current information on the financial and other dealings of the DPRK is hampered by the extremely closed nature of its society. The economic practice of juche, a constitutionally enshrined ideology in North Korea characterized by the goals of independence and self-reliance, has contributed to minimizing transparency and international trade relations and discouraging foreign investment.

In October 2012, the Financial Action Task Force (FATF) again stated its concerns about the DPRK’s failure to address the significant deficiencies in its anti-money laundering/combating the financing of terrorism (AML/CFT) regime and reiterated the serious threat this poses to the integrity of the international financial system. The FATF reaffirmed its February 2011 call upon its members to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies and financial institutions. In addition to enhanced scrutiny, the FATF called upon its members to apply effective countermeasures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from the DPRK, and to take into account ML/FT risks when considering requests by DPRK financial institutions to open branches and subsidiaries in their jurisdictions. The FATF also urged the DPRK to immediately and meaningfully address its AML/CFT deficiencies.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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: Not available

Are legal persons covered: criminally: Not available civilly: Not available

Know-your-customer (KYC) rules:

Enhanced due diligence procedures for PEPs: Foreign: Not available Domestic: Not available

KYC covered entities: Not available

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

STR covered entities: Not available

money laundering criminal Prosecutions/convictions:

Prosecutions: Not available

Convictions: Not available

Records exchange mechanism:

With U.S.: MLAT: NO Other: NO

With other governments/jurisdictions: NO

The Democratic People’s Republic of Korea is not a member of a FATF-style regional body.

Enforcement and implementation issues and comments:

There is little available information on the DPRK’s financial system. The DPRK has never undertaken a review of its AML/CFT regime based on the international standards, and calls for the DPRK government to be involved in the mutual evaluation process have been unsuccessful. Therefore, a serious deficiency lies in the lack of detailed information on the DPRK’s AML/CFT regime as well as mechanisms to verify the extent to which the DPRK’s AML/CFT regime meets international standards.

In 2006, the DPRK adopted the Law on the Prevention of Money Laundering which states that the DPRK has a “consistent policy to prohibit money laundering”. However, it is impossible to determine what standing this law has in the DPRK. The law is significantly deficient in most respects, and there is no evidence of an AML/CFT infrastructure in the DPRK capable of implementing the law. Lacking any type of sufficient AML/CFT regulatory authority, the DPRK cannot effectively supervise its financial institutions and enforce AML/CFT practices. Moreover, although the law mentions effective monitoring and supervisory mechanisms, including powers to sanction financial institutions and other businesses and professions that do not comply with AML/CFT requirements, there is neither explanation for how this is achieved nor evidence of any framework established to implement sanctions.

The DPRK is party to a number of international conventions, including the 1988 UN Drug Convention. There is no evidence, however, that the DPRK has taken sufficient steps to properly implement provisions contained in the conventions. The DPRK has signed, but not ratified, the UN Convention for the Suppression of the Financing of Terrorism, and there is no evidence of efforts to ratify the agreement or implement the UN resolutions relating to the prevention and suppression of the financing of terrorist acts, particularly UNSCR 1373.

Korea, Republic of

The Republic of Korea (South Korea) has an advanced economy that is dominated by large industrial companies. It is not an offshore banking center. While organized crime does not have a large profile, there are reports that Korean criminals tried to connect with counterparts in the Japanese yakuza, Chinese triads, and Nigerian gangs. In 2012 there was a case where Nigerian criminals had laundered illicit proceeds through Korean banks. Most money laundering in South Korea is associated with domestic criminals and official corruption.

South Korean officials have uncovered numerous underground banking systems being used by South Korean nationals, North Korean defectors, and foreign national workers from China and Southeast Asian and Middle Eastern countries. During a typical South Korean underground banking transaction, funds are deposited in the Republic of Korea and the same amount is picked up in the United States or elsewhere without any reporting or physical transfer of the money. Reports indicate North Korean defectors living in South Korea are sending more than $10 million per year to family members in North Korea through illegal banking systems between South Korea and China.

Gambling is legal but highly regulated and limited to non-citizens. The country has six free economic zones (FEZs), with Incheon International Airport wholly incorporated into one of the zones. While companies operating in FEZs enjoy certain tax privileges, they are subject to the same general laws on financial transactions as companies operating elsewhere. Korea mandates extensive entrance screening to determine companies’ eligibility to participate in FEZ areas, and firms are subject to standard disclosure rules and criminal laws.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings banks, finance companies, credit unions, credit cooperatives, trust companies, and securities companies

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 290,000 in 2012

Number of CTRs received and time frame: 10.3 million in 2012

STR covered entities: Banks, exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings banks, finance companies, credit unions, credit cooperatives, trust companies, and securities companies

money laundering criminal Prosecutions/convictions:

Prosecutions: Not available

Convictions: Not available

Records exchange mechanism:

With U.S.: MLAT: YES Other: YES

With other governments/jurisdiction: YES

The Republic of Korea 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.apgml.org/documents/docs/17/Korea%20MER%202009.pdf

Enforcement and implementation issues and comments:

The Korea Financial Intelligence Unit (KoFIU) is the primary agency responsible for implementing actions to stop money laundering and to combat the financing of terrorism. Presently, the KoFIU is concentrating on corporate and political fraud, but has started to look at organized crimes including narcotics-related money laundering.

On September 16, 2012, the KoFIU strengthened the Enforcement Decree of the Prohibition of Financing for Offenses of Public Intimidation Act, which is Korea’s counter-terrorist financing legislation, to cover real property and some liquid assets that were not previously encompassed. The term “financing for offenses of public intimidation” is used instead of “terrorist financing,” because there is no legal definition of terrorism in South Korea.

The Government of the Republic of Korea should expand its active participation in international anti-money laundering/counter-terrorist financing efforts by becoming a party to the UN Convention against Transnational Organized Crime.

Kosovo

Kosovo is not considered a regional financial or offshore center. The country has porous borders which facilitate an active black market for smuggled consumer goods, especially fuels, cigarettes and pirated products, largely along the Kosovo - Serbian border. According to the Customs Service, significant amounts of cigarettes and fuel are smuggled into the country. Kosovo is a transit point for illicit drugs, not a destination point. Proceeds of drug trafficking do not fund the black market of smuggled and pirated items.

Illegal proceeds from domestic and foreign criminal activity are generated from official corruption, tax evasion, customs fraud, organized crime, contraband, and other types of financial crimes. Official corruption is believed to be a significant problem. Most of the proceeds from smuggling activity are believed to be laundered directly into the economy in areas such as construction and real estate, retail and commercial stores, banks, financial services, casinos and trading companies. Smaller amounts are thought to be laundered through the financial system. There is a large informal economy in Kosovo.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks; money exchangers and remitters; securities brokers and service providers, portfolio and fund managers; insurance companies; issuers of traveler’s checks, money orders, e-money, and payment cards; political parties; casinos; attorneys, accountants, notaries, and auditors; real estate agents; high value goods dealers; non-governmental organizations (NGOs); and microfinance institutions

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 164: January 1 - November 15, 2012

Number of CTRs received and time frame: 1,588: January 1 - November 15, 2012

STR covered entities: Banks; money exchangers and remitters; securities brokers and service providers, portfolio and fund managers; insurance companies; issuers of traveler’s checks, money orders, e-money, and payment cards; NGOs; political parties; casinos; attorneys, accountants, notaries, and auditors; real estate agents; and high value goods dealers

money laundering criminal Prosecutions/convictions:

Prosecutions: 3: January 1 - November 30, 2012

Convictions: 1: January 1 - November 30, 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

The Government of Kosovo (GOK) adopted a National Anti-Money Laundering/Counter-Terrorist Financing (AML/CFT) Strategy and Action Plan in September 2012. Kosovo law restricts all money laundering investigations in Kosovo to a relatively small unit in the prosecutor’s office which focuses mostly on organized crime and corruption. As a result, none of the other prosecutors (or the investigators assigned to assist them from narcotics, fraud, human trafficking, customs, tax or gaming units) have any authority to follow the money trail, identify assets or charge money laundering violations. The GOK should make changes to legislation and instill a more results-oriented culture of accountability to make enforcement more effective; however, the European Commission is opposed to changing the legislation before establishing a date for starting a Stabilization and Association Agreement. Draft amendments to the legislation to correct numerous deficiencies should be adopted as soon as possible.

The definition of politically exposed person (PEP) in Kosovo law is not clear or comprehensive, largely covering only members of political parties. This law should be expanded to include other classes of domestic PEPs and foreign PEPs.

The European Union Rule of Law Mission in Kosovo turned over management of the financial intelligence unit (FIU) to the GOK in June, 2012. The FIU operates with full-time liaisons assigned from all major law enforcement agencies and regularly refers intelligence products to the enforcement community. In addition, Central Bank staff supervises all “financial institutions,” as defined by Kosovar law. Each of these institutions faces legislative and operational challenges to comply with international AML/CFT standards.

Kosovo’s lack of UN membership, stemming from political disagreements with Serbia, is a limiting factor to the country’s participation in regional and international organizations, and makes Kosovo unable to become a party to any UN treaty or convention.

Kuwait

Financial crimes, such as money laundering, remain concerns in Kuwait. Financial support to terrorist groups, both by charities and by individuals, also continues to be a major concern.

As of December 2012, the Central Bank of Kuwait reported total banking sector assets of $173 billion. Currently 21 banks operate in Kuwait: five commercial banks, five Islamic banks, ten branches of foreign banks, and the Central Bank of Kuwait. There was little change in Kuwait’s anti-money laundering/counter-terrorist financing (AML/CFT) policy framework in 2012.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Commercial and Islamic banks; insurance agents, brokers and companies; investment companies; money and foreign exchange bureaus; jewelry establishments, including gold, metal, and precious commodity traders; real estate agents/establishments; lawyers and auditing firms

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

STR covered entities: Commercial and Islamic banks; insurance agents, brokers, and companies; investment companies; money and foreign exchange bureaus; jewelry establishments, including gold, metal, and precious commodity traders; real estate agents/establishments; lawyers and auditing firms

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: YES

Kuwait 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 mutual evaluation report can be found here: http://www.menafatf.org/images/UploadFiles/Mutual_Evaluation_Report_of_Kuwait.pdf

Enforcement and implementation issues and comments:

New legislation was drafted to replace Kuwait’s current anti-money laundering (AML) law, Law No. 35, enacted in 2002. Kuwait has had difficulty implementing Law No. 35, due in part to structural inconsistencies within the law itself. Implementation of the draft legislation is expected to initiate resolutions to the challenges Kuwait has struggled with.

As of yearend 2012, Kuwait does not have specific legislation to target terrorist financing. Law No. 35 does not specifically cite terrorist financing as a crime; terrorist financing criminal cases are treated as crimes against the state. Proposed legislation is under review and enactment is expected soon.

The lack of clear roles and responsibilities for the financial intelligence unit (FIU), Central Bank of Kuwait (CBK), and the Office of Public Prosecution (OPP) has hindered the overall effectiveness of Kuwait’s AML/CFT regime. Kuwait’s FIU does not meet the minimum criteria for membership in the Egmont Group of FIUs. The FIU operates under the authority of the CBK and is not an independent, autonomous authority. Law No. 35 requires banks to file suspicious transaction reports (STRs) with the OPP, which, in accordance with a memorandum of understanding with the CBK, will in turn refer the STRs to the FIU for analysis. The FIU conducts analysis and reports any findings to the OPP for the initiation of a criminal case. The FIU is further limited by its inability to share information about STRs with relevant authorities without prior approval from the OPP. This restriction also applies to international sharing of information with its counterparts. The FIU should be made the national authority for the receipt, analysis and dissemination of STRs and other reports, and given true operational independence.

Covered entities do not demonstrate a common understanding of what comprises a suspicious transaction; and the GOK’s financial crimes enforcement and investigative capacity are weak, as demonstrated by the lack of prosecutions and convictions. Kuwait State Security is responsible for investigating money laundering crimes. Kuwaiti customs, police and prosecutors should be made aware of money laundering methodologies and should initiate inquiries and investigations without waiting for the filing and dissemination of a STR.

Although Law No. 35 requires travelers to disclose to customs authorities upon entry if they are carrying any national or foreign currency, gold bullion, or other precious materials, the law does not require a universal written declaration when carrying cash or precious metals upon exiting Kuwait. Despite the criminalization of currency smuggling into Kuwait, cash reporting requirements are not uniformly enforced at ports of entry other than at Kuwait International Airport and the Al-Abdali point of entry. The last case of currency smuggling on record was reportedly in 2008 and was not prosecuted. The GOK should take steps to implement and enforce a uniform cash declaration policy for both inbound and outbound travelers at all its points of entry.

The GOK monitors and regulates funds transfers by authorized charities abroad, using a coupon tracking system as well as electronic bank transfers to create a formal paper trail for all donations. The GOK reports that, despite increased regulations, the amount of donations continues to rise in Kuwait.

In October 2012, the GOK began working with an international donor on a year-long technical assistance program to address deficiencies in its AML/CFT regime. It is important for the GOK to enact its proposed legislation to reform its AML law and criminalize terrorist financing, and to ratify and implement fully the UN International Convention for the Suppression of the Financing of Terrorism.

Kyrgyz Republic

The Kyrgyz Republic has a small banking center and is not a regional financial center. In 2012, remittances from Kyrgyzstani workers abroad totaled nearly 30 percent of the gross domestic product (GDP), posing a money laundering vulnerability. A large shadow economy, corruption, and the presence of organized crime and narco-trafficking also make the country vulnerable to financial crime. Narco-trafficking is the main source of criminal income as the Kyrgyz Republic is a transit route from Afghanistan. In addition, the smuggling of consumer goods, tax and tariff evasion, and official corruption continue as major sources of illegal proceeds. Money laundering also allegedly occurs through trade-based fraud, bulk cash couriers, and money/value transfer systems. The lack of political will, resource constraints, inefficient financial systems, and, especially, corruption all serve to stifle efforts to effectively combat money laundering.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: NO civilly: NO

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, credit institutions, stock brokerages, foreign exchange offices, casinos, insurance companies, notaries, attorneys, regulators, tax consultants/auditors, realtors, the state’s property agency, trustees, jewelry stores and dealers, and customs officers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

STR covered entities: Banks, credit institutions, stock brokerages, foreign exchange offices, casinos, insurance companies, notaries, attorneys, regulators, tax consultants/auditors, realtors, the state’s property agency, trustees, jewelry stores and dealers, and customs officers

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Although the Government of the Kyrgyz Republic (GOK) adopted an anti-money laundering (AML) statute in 2006, significant gaps still exist in enforcement and implementation. The AML statute established the Financial Intelligence Service (FIS), yet the procedures for investigation and enforcement are still underdeveloped, and there are no significant results for financial investigations and criminal prosecutions. The Kyrgyz Republic’s underdeveloped financial system and corruption hamper efforts to combat effectively money laundering and terrorist financing. Local institutions and personnel lack the training and capacity to fully enforce the law and its attendant regulations. The FIS is not recognized by other government entities as a legitimate investigative agency, resulting in a lack of cooperation and information sharing across agency lines. The Kyrgyz banking sector is at risk for money laundering as oversight of the banking sector is relatively weak, and Kyrgyz law enforcement agencies lack the expertise and resources to monitor and investigate financial irregularities.

As of January 1, 2012, the government banned casinos, removing one opportunity for money launderers to hide and disperse assets under the cover of a legitimate business operation. Auto dealers and real estate developers are not included in the list of entities required to report large dollar transactions. The threshold for mandatory reporting is $25,000, a figure far too high for the average income of Kyrgyz citizens, precluding effective enforcement. Two additional serious deficiencies include the lack of a tipping off law to prohibit the disclosure of the reporting of suspicious activity to an individual who is the subject of such a report, or to a third party; and the lack of a safe harbor defense for banks and/or other covered entities and their employees who provide otherwise confidential data to authorities in pursuit of authorized investigations.

There have been no criminal convictions for money laundering since the law was instituted. Current laws do not address the issue of asset forfeiture. Kyrgyz law enforcement is not adequately empowered to identify and find property subject to confiscation, or property suspected of being the proceeds of a crime.

The GOK should continue to strengthen legislation as it relates to money laundering and financial crimes that support terrorist organizations. The GOK also should criminalize terrorist financing and institute a system to freeze suspected terrorist assets without delay. In addition, the GOK must increase and enhance training in money laundering and terrorist financing investigative techniques.

Laos

The Lao Peoples Democratic Republic is not a regional or offshore financial center. However, its position at the crossroads of mainland Southeast Asia’s drug trade, high rate of economic growth, and weak legal and regulatory frameworks make it vulnerable to money laundering activities. Annual illicit drug proceeds in Laos were estimated at over $750 million in July, 2011.

In 2012, the combination of foreign investment, growing government revenues, and development assistance from donors has led to unprecedented levels of public and private funds in the country. With corruption endemic, there are concerns a large amount of these funds are being stolen and later laundered. Bulk cash smuggling to Thailand, China, and Vietnam is occurring.

The financial sector in Laos is expanding rapidly and remains under-regulated, presenting an attractive target for money launderers. Domestic credit in Laos has grown by over 30 percent in each of the last five years and a securities exchange opened in 2010.

The gaming industry, primarily driven by Chinese tourists visiting casinos in Special Economic Zones near the border, continues to present money laundering opportunities outside of the formal financial sector.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: NO civilly: NO

Know-your-customer (KYC) rules:

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

KYC covered entities: None

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 23: January 1 – November 30, 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Commercial banks, microfinance entities, insurance companies, casinos, finance companies, loan institutions, and cash transfer companies

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: YES

Laos 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/Lao%20PDR%20ME1.pdf

Enforcement and implementation issues and comments:

The Government of Laos (GOL) does not enforce existing anti-money laundering (AML) laws and decrees. The GOL has no law or regulation requiring customer due diligence or KYC programs. Decree 55, which nominally requires these procedures, provides no sanctions for noncompliance and is not considered an enforceable means under the international standards. Furthermore, articles in Decree 55 defining “reporting entities” conflict and do not appear to cover Lao legal persons. The Decree, therefore, could be interpreted to only apply to Lao individuals and foreign entities. Some banks comply voluntarily.

Other than banks, most entities designated by the AML Decree as required to report suspected money laundering remain unsupervised. Although Lao law directs the gaming industry to report suspicious transactions, the GOL has received no such reports. The Anti-Money Laundering Intelligence Unit (AMLIU) in the Bank of Laos (BOL) and banks have the means to detect and refer money laundering cases, but GOL leadership appears uninterested in actively pursuing investigations. Coordination among the BOL, Ministry of Finance, law enforcement, and the banking industry should be improved. The GOL should enforce the reporting requirements for vulnerable sectors such as casinos.

Financial institutions, law enforcement, the AMLIU, and justice system personnel appear to have no high-level political mandate to combat money laundering effectively. There has never been a money laundering investigation or prosecution in Laos. Corruption permeates commerce and government. Laos is ranked 160 out of 176 countries surveyed in Transparency International’s 2012 Corruption Perception Index. The government should urgently work to address these problems.

Terrorist financing is not criminalized. It is unknown if terrorist financing occurs in Laos; in any case, the GOL lacks the legal means to address it. There is no protection against liability for individuals reporting money laundering or terror financing activity, nor is tipping off suspects criminalized. The GOL should develop and implement safe harbor protection rules and criminalize tipping off.

The GOL lacks a clear legal and procedural framework for the seizure of assets. The Lao criminal code and drug laws refer to the right of the state to seize assets of convicted drug traffickers, but the legal and procedural processes are not specific. The GOL should implement an asset forfeiture regime that includes a system for accounting for forfeited assets and for ensuring they are disposed of in accordance with the law.

Latvia

Latvia is a regional financial center with a large number of commercial banks and a sizeable non-resident deposit base. Total bank deposits have increased in the past year, with non-residential deposits increasing by 19.7 percent and comprising 49.5 percent of total bank deposits (as of November 2012). The scope of the “shadow” (untaxed) economy (estimated at around 30 percent of the overall economy), geographic location, and public corruption make it challenging to combat money laundering.

Local officials do not consider proceeds from illegal narcotics to be a major source of laundered funds in Latvia. Authorities report that the primary sources of money laundered in Latvia are tax evasion; organized criminal activities, such as prostitution, tax evasion, and fraud, perpetrated by Russian and Latvian groups; as well as other forms of financial fraud. Officials also report that questionable transactions and the overall value of laundered money have remained below pre-financial crisis levels. Latvian regulatory agencies closely monitor financial transactions to identify instances of terrorist financing. Public corruption remains a problem in Latvia.

There is a black market for smuggled goods, primarily cigarettes, alcohol, and gasoline; however, contraband smuggling does not generate significant funds that are laundered through the financial system.

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. The zones are covered by the same regulatory oversight and enterprise registration regulations that exist for other areas.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, credit institutions, life insurance companies, intermediaries, private pension fund administrators, investment brokerage firms and management companies, currency exchange offices, payment service providers or other money transmission or remittance offices, and e-money institutions; tax advisors, external accountants, and sworn auditors; sworn notaries, lawyers, and other independent legal professionals; trust and company service providers; real estate agents or intermediaries; organizers of lotteries or other gaming activities; persons providing money collection services; European Union-owned entities; and any merchant, intermediary or service provider, where payment for goods or services is accepted in cash in an amount equivalent to or exceeding 15,000 EUR (approximately $20,000)

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 16,379: January 1 - October 31, 2012

Number of CTRs received and time frame: 12,925: January 1 - October 31, 2012

STR covered entities: Banks, credit institutions, life insurance companies, intermediaries, private pension fund administrators, investment brokerage firms and management companies, currency exchange offices, payment service providers or other money transmission or remittance offices, and e-money institutions; tax advisors, external accountants, and sworn auditors; sworn notaries, lawyers, and other independent legal professionals; trust and company service providers; real estate agents or intermediaries; organizers of lotteries or other gaming activities; persons providing money collection services; any merchant, intermediary or service provider, where payment for goods or services is accepted in cash in an amount equivalent to or exceeding 15,000 EUR (approximately $20,000); and public institutions

money laundering criminal Prosecutions/convictions:

Prosecutions: 35: January 1 - October 31, 2012

Convictions: 10: January 1 - October 31, 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

In 2012, Latvia adopted amendments to the regulations on enhanced customer due diligence (CDD) to include a requirement for payment service providers and e-money institutions to apply enhanced CDD measures. The Latvian Financial and Capital Market Commission (FCMC) has prepared amendments to the law to eliminate exemptions from CDD. Under Latvian law, foreign politically exposed persons (PEPs) are always subject to enhanced due diligence procedures but domestic PEPs are not. The Latvian government should adopt the proposed legislation to change this.

In 2011, the State Revenue Service uncovered the largest fraud case in the history of the Riga Free Port; the criminal investigation into tax evasion and smuggling is ongoing. In September 2012, the Corruption Prevention and Combating Bureau asked the Prosecutor General to initiate criminal prosecutions against four former officials and 13 other individuals from the state-owned electrical company Latvenergo. The charges allege the misuse of official positions for the purposes of acquiring property, bribery, and the laundering of criminally acquired assets from 2006 to 2010. In October 2012, the Prosecutor’s Office reversed the decision of the state police not to investigate whether Latvian banks helped launder at least $63 million from Russia in connection with the alleged Hermitage Capital tax fraud case. The chief prosecutor responsible for organized crime told journalists that having studied the evidence from Latvian banks, he has determined the state police’s decision not to start a criminal investigation was contrary to law and unjustified. He has returned the evidence to the police for re-investigation.

Latvian law enforcement officials and regulators are making progress. FCMC reports that Latvian banks continue to substantially invest in their IT systems to develop further programs for identifying suspicious activities, especially with regard to high-risk clients. FCMC should continue its work to strengthen its capacity by increasing its human and financial resources, specifically for anti-money laundering purposes.

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 approximately $7.6 billion annually in the last three years. Reports suggest that a number of Lebanese abroad are involved in underground finance and trade-based money laundering (TBML) activities. In 2011, Lebanese Canadian Bank (LCB) was designated as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act.

Laundered proceeds come primarily from foreign criminal activity and organized crime, and Hizballah, which the United States has designated as a terrorist organization, though the Government of Lebanon (GOL) does not recognize this designation. Domestically, there is a black market for cigarettes; cars; counterfeit consumer goods; and pirated software, CDs and DVDs. However, the sale of these goods does not generate significant proceeds that are laundered through the formal banking system. In addition, the domestic illicit narcotics trade is not a principal source of laundered proceeds.

Lebanese expatriates in Africa and South America have established financial systems outside the formal financial sector, and some are reportedly involved in TBML schemes. Lebanese diamond brokers and purchasing agents are reportedly part of an international network of traders who participate in underground activities including the trafficking of conflict diamonds, diamond trade fraud (circumventing the Kimberly process) and TBML.

Exchange houses are reportedly used to facilitate money laundering and terrorism financing, including by Hizballah. Although offshore banking and 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.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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: List approach

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, lending institutions, money dealers, financial brokerage firms, leasing companies, mutual funds, insurance companies, real estate developers, promotion and sale companies, high-value goods merchants (jewelry, precious stones, gold, works of art, archeological artifacts)

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 136: January 1 - October 31, 2012

Number of CTRs received and time frame: 20: January 1 - October 31, 2012

STR covered entities: Banks, lending institutions, money dealers, financial brokerage firms, leasing companies, mutual funds, insurance companies, real estate developers, promotion and sale companies, high-value goods merchants (jewelry, precious stones, gold, works of art, archeological artifacts)

money laundering criminal Prosecutions/convictions:

Prosecutions: 6: January 1 - October 31, 2012

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

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 mutual evaluation can be found here: http://www.menafatf.org/MER/MutualEvaluationReportoftheLebaneseRepublic-English.pdf

Enforcement and implementation issues and comments:

Three laws intended to strengthen Lebanon’s anti-money laundering/counter-terrorist financing (AML/CFT) regime were passed by the Council of Ministers on March 14, 2012, and, as of early December 2012, are awaiting Parliament’s approval. These include: amendments to the existing money laundering Law 318/2001 which would, among other provisions, add new offenses to the existing law, impose financial penalties on obliged entities for reporting violations, and require lawyers and accountants to report suspicious transactions; new legislation imposing requirements for declaring the cross-border transportation of cash; and new legislation on the exchange of tax information, which would authorize the Ministry of Finance to join bilateral and multilateral agreements to exchange information related to tax evasion and tax fraud.

On April 5, 2012, the Banque du Liban issued Basic Circular No. 126 governing the relationship between banks and financial institutions and their correspondents abroad. This Circular requires banks and financial institutions operating in Lebanon to abide by the same laws, procedures, sanctions, and restrictions adopted by international legal organizations or by the sovereign authorities in their correspondent banks’ home countries.

Lesotho

The Kingdom of Lesotho has a small, concentrated financial sector offering limited financial services. The financial sector is closely linked to that of South Africa, with more than 85 percent of imports from and exports to the South African market. Most money laundering is related to corruption and fraud. The Government of Lesotho (GOL) is steadily increasing its control over, and ability to monitor the flow of money in Lesotho.

While there is not a significant black market for smuggled goods in the country, undeclared and under-declared items pass between Lesotho and South Africa daily. The vast majority of smuggling is low level and committed by individuals. Smugglers commonly bring undeclared consumer goods or occasionally larger items like automobiles from South Africa into Lesotho. Smaller items are smuggled to avoid paperwork and hassle, while larger items are smuggled to avoid paying import taxes at the borders. There is some evidence of more illicit activity as small arms are smuggled across Lesotho’s porous border, often in exchange for Lesotho-grown marijuana. The funding source is unclear, as is the destination of the proceeds. There is no offshore center in Lesotho.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, money lenders, money exchangers, brokers, insurance companies, securities dealers, real estate agents, gambling houses, casinos, the lottery, precious metals or stones dealers, and service providers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1 in 2012

Number of CTRs received and time frame: Not available

STR covered entities: Banks, money lenders, money exchangers, brokers, insurance companies, securities dealers, real estate agents, gambling houses, casinos, the lottery, precious metals or stones dealers, and service providers

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Limited resources, capacity, and expertise, as well as lack of awareness and training pose serious challenges to the adequate implementation of the anti-money laundering/counter-terrorist financing legislation. However, Lesotho is making progress. The Directorate on Economic Offenses has formed an anti-money laundering unit; and the financial intelligence unit (FIU) became fully operational in September 2012. Section 16 of the Money Laundering and Proceeds of Crime Act (MLPCA) enabling the FIU to receive suspicious transaction reports is now in force. The FIU is sensitizing banks and other professions about their obligations under the MLPCA. The MLPCA also is being amended to correct noted weaknesses. Border enforcement continues to be an area of concern.

Liberia

Liberia is not a significant regional financial center, and financial controls are weak. The Liberian economy is essentially cash-based, with both Liberian and U.S. dollars being legal tender, facilitating the laundering of U.S. currency. Currently, nine commercial banks operate in Liberia, eight of which are foreign-owned. There are no confirmed cases of money laundering or terrorist financing in the Liberian banking sector. There is little information on whether money laundering is linked to the sale of narcotics, but few hard drugs are interdicted in Liberia. Due to the lack of capacity of local law enforcement, the extent of drug trafficking is unknown. The relative openness of Liberia’s economy coupled with its desire for foreign investment makes the country vulnerable to some degree of illegal business activities. Liberia has a significant market for smuggled goods, which are easily imported through its porous borders.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Central Bank of Liberia, banks, thrift and loan associations; broker/ dealers in securities and commodities; bureau de change and check cashers; issuers of credit cards, money orders and other similar instruments; insurance, loan or financing agencies and underwriters; and funds remitters

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 0 in 2012

Number of CTRs received and time frame: 0 in 2012

STR covered entities: Central Bank of Liberia, banks, thrift and loan associations; broker/ dealers in securities and commodities; bureau de change and check cashers; issuers of credit cards, money orders and other similar instruments; insurance, loan or financing agencies and underwriters; and funds remitters

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Liberia is a member of the Inter Governmental Action Group against Money Laundering in West Africa (GIABA), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here:

http://www.giaba.org/reports/mutual-evaluation/Liberia.html

Enforcement and implementation issues and comments:

Liberia has not yet established a financial intelligence unit (FIU). The Central Bank of Liberia (CBL) receives suspicious transaction reports from banks which it analyzes for internal purposes only. Intelligence related to money laundering and other financial crimes is handled by various government security organizations in an uncoordinated fashion. Longstanding draft anti-money laundering/counter-terrorist financing (AML/CFT) legislation, which remains under review by an inter-ministerial committee comprising the CBL, the Ministry of Finance, and the Ministry of National Security, calls for establishing a FIU in the CBL.

In 2012, the CBL continued its transition to risk-based supervision of the financial sector. Approximately half of the banks provide money transfer services. There also are over 700 licensed and non-licensed foreign currency exchange (forex) bureaus. In Liberia, a forex bureau may be established by any natural or legal person once the CBL issues it a license. In addition to the licensed forex bureaus, there are a number of unregulated moneychangers throughout the country whose activities have raised concerns among forex bureau operators and the general public. The Government of Liberia (GOL) has not implemented the regulation addressing bureau de change for AML/CFT purposes. Forex is sold to anyone without identification or verification of the person’s identity or business profile. The Association of Foreign Exchange Bureaus has appealed to the CBL to strictly enforce the CBL Regulations for Licensing and Supervision of Foreign Exchange Bureaus.

In October 2012, the Liberia National Lotteries Corporation assumed responsibility for regulating the small gaming sector.

To date, there have been no arrests, prosecutions, or convictions for money laundering. Generally, implementation of laws is hampered by political interference, corruption, lack of capacity within the judiciary and police, and a lack of adequate resources. Under Liberia’s draft AML law, “serious crimes” covers only three of the predicate offenses for money laundering listed in the international standards. The GOL has not criminalized the financing of terrorism as required by UN Security Council Resolution 1373. The Liberian government has not frozen the assets of any of the Liberians on the UN asset-freeze list.

The GOL should criminalize terrorism financing to comport with international standards, and criminalize the other predicate offenses for money laundering. The GOL should muster the political will to seriously examine and combat money laundering within Liberia.

Libya

2011 witnessed the collapse of the former Libyan government headed by Muammar Qaddafi. On August 8, 2012 the interim Transitional National Council left office, delegating authority to the newly-elected General National Congress to select and approve a prime minister and cabinet. The new Prime Minister and his cabinet took office on November 14. As the new Government of Libya (GOL) works to assert its elected authority, armed militias, former revolutionaries, tribes, and clans within Libya engage in criminal activity for profit, including theft, weapons trafficking, and extortion. The United Nations Security Council and the U.S. maintain sanctions against the former Libyan regime. The Department of State has lifted the national sanctions against Libya. Only a few sanctions are left and they are focused on certain individuals and entities (i.e., Qaddafi’s family members and the Central Bank).

Despite high-level awareness of the need for diversification, for the foreseeable future the GOL will continue to be dependent on the oil and gas sectors of the economy to generate revenue. The markets remain primarily cash-based, and informal value transfer networks are present. Hawaladars are often used to facilitate trade and small project finance. Libya’s geographic position, porous borders and limited law enforcement capacity make it an attractive transit point for narcotics. Libya is also a transit and destination country for large numbers of migrants from sub-Saharan Africa and Egypt, whose movement across borders is facilitated primarily by bribery of border officials. Libya is a destination and transit point for smuggled goods, particularly black market and counterfeit goods from sub-Saharan Africa, Egypt, and China. Contraband smuggling includes narcotics, particularly hashish/cannabis and heroin. Libya has been going through a slow opening of its financial sector and modernization of its banking system. Priorities for the newly seated government remain to be seen.

Corruption remains a serious problem. Libya is ranked 160 out of 176 countries in Transparency International’s 2012 International Corruption Perception Index.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: Not available civilly: Not available

Know-your-customer (KYC) rules:

Enhanced due diligence procedures for PEPs: Foreign: Not available Domestic: Not available

KYC covered entities: Banks and financial institutions licensed by the Libyan Central Bank

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

STR covered entities: Banks and financial institutions licensed by the Libyan Central Bank

money laundering criminal Prosecutions/convictions:

Prosecutions: Not available

Convictions: Not available

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: NO

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

Enforcement and implementation issues and comments:

Since the fall of the former regime in 2011, there is little information or reliable data on the scope of Libya’s anti-money laundering/counter-terrorist financing countermeasures, including investigations, asset forfeiture, prosecutions, and convictions. In general, capacity and resources to conduct anti-money laundering awareness training and for countermeasure implementation are lacking. There is no available information about whether the former regime criminalized terrorist financing.

It is illegal to transfer funds outside of Libya without the approval of the Central Bank of Libya (CBL). Cash courier operations are in violation of Libyan law. It is estimated up to ten percent of foreign transfers are made through illegal means (i.e., not through the CBL). Prior to the revolution, between 1.5 and 2 million foreigners were thought to live and work in Libya. That number dropped dramatically during the revolution. Although many returned in late 2011, only an estimated half million foreign workers currently reside in Libya. Funds transfers by migrant workers (mainly from sub-Saharan Africa and Asia) are difficult for the Libyan government to monitor.

Given the poor quality and limited reach of Libya’s banking system, Libya’s formerly socialist practices, and commercial rivalries within the governmental structure that discourage disclosure of income and business transactions, many Libyans and foreigners rely on informal mechanisms for cash payments and transactions. Trade is often used to provide counter-valuation or a means of balancing the books between hawaladars.

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 contribute significantly to the ability of financial intermediaries in Liechtenstein to attract both licit and illicit funds from abroad. Liechtenstein’s financial services sector includes 17 banks, 107 asset management companies, 40 insurance companies, 71 insurance intermediaries, 33 pension schemes, 6 pension funds, 392 trust companies, 21 fund management companies with approximately 469 investment funds, and 637 other financial intermediaries. The three largest banks control 85 percent of the market.

In recent years Liechtenstein has made continued progress in its efforts against money laundering as banking secrecy has been softened to allow for greater cooperation with other countries to identify tax evasion. The Government of Liechtenstein (GOL) has renegotiated a series of double taxation agreements to include administrative assistance on tax evasion cases.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, securities and insurance brokers; money exchangers or remitters; financial management firms, investment companies, and real estate companies; dealers in high value goods; insurance companies; lawyers; casinos; the Liechtenstein Post Ltd.; and financial intermediaries

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 295 in 2011

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, securities and insurance brokers; money exchangers or remitters; financial management firms, investment companies, and real estate companies; dealers in high value goods; insurance companies; lawyers; casinos; the Liechtenstein Post Ltd.; and financial intermediaries

money laundering criminal Prosecutions/convictions:

Prosecutions: 1 in 2011

Convictions: 0 in 2011

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Liechtenstein 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-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:

Because there are no laws for declaration of currency and monetary instruments, Liechtenstein’s authorities cannot effectively monitor cross-border movement of currency or conduct bulk cash investigations.

The 2011 reporting year saw a decrease of suspicious activity reports (SAR) by 12 percent compared to 2010. Fifty percent of the SARs were based on fraud concerns, 6 percent on money laundering (a decline from last year), and 44 percent on other enumerated offense categories. In 2011, 66 percent of Liechtenstein’s SARs were forwarded to the Office of the Public Prosecutor. The present SAR reporting requirements do not clearly indicate whether attempted transactions related to funds connected to terrorist financing or terrorism are covered.

In practice, many of the customer characteristics often considered high-risk in other locales, including non-resident and trust or asset management accounts, are considered routine in Liechtenstein, subject only to normal customer due diligence procedures. The GOL also decided not to include entities with bearer shares, trusts and foundations, or entities registered in privately-held databases in the high-risk category. Liechtenstein should consider reviewing whether this decision makes its financial system more vulnerable to illegal activities.

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

Lithuania

Lithuania is not a regional financial center. It has adequate legal safeguards against money laundering; however, its geographic location bordering Belarus and Russia makes it a target for smuggled goods and tax evasion. The sale of narcotics does not generate a significant portion of money laundering activity in Lithuania. Value added tax (VAT) fraud is one of the biggest sources of illicit income, through under-reporting of goods’ value. Most financial crimes, including VAT embezzlement, smuggling, illegal production and sale of alcohol, capital flight, and profit concealment, are tied to tax evasion by Lithuanians. There are no reports of public corruption contributing to money laundering or terrorist financing.

Lithuania has Free Economic Zones (FEZ) in the cities of Klaipeda and Kaunas. As of year end 2012, there are 17 businesses operating in the Klaipeda FEZ, and 16 in the Kaunas FEZ. The companies operating in the zones have the same accounting and identification responsibilities as those operating outside the zones. Lithuania’s European Union accession agreement permits the indefinite operation of existing free trade zones, but precludes the establishment of new ones.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, credit unions, and financial leasing firms; insurance companies and brokers; lawyers, notaries, tax advisors, auditors, and accountants; investment and management companies; real estate brokers and agents; gaming enterprises; postal services; dealers in art, antiquities, precious metals and stones, and high value goods

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 214 in 2012

Number of CTRs received and time frame: 641,432 in 2012

STR covered entities: Banks, credit unions, and financial leasing firms; insurance companies and brokers; lawyers, notaries, tax advisors, auditors, and accountants; investment and management companies; real estate brokers and agents; gaming enterprises; postal services; dealers in art, antiquities, precious metals and stones, and high value goods

money laundering criminal Prosecutions/convictions:

Prosecutions: 16 in 2012

Convictions: 3 in 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

The Law of Article 17214 of the Code of Administrative Infringements sets higher penalties for money laundering and violations of terrorist financing prevention measures, and differentiates penalties depending on the type of violation. Administrative proceedings can be brought against both individuals and management of companies and institutions, making more effective use of money laundering and terrorist financing prevention measures.

On November 16, 2011, the Lithuanian government nationalized Lithuanian commercial bank Snoras; and on December 7, 2011, a court opened bankruptcy proceedings against the bank. The General Prosecutor’s office is conducting a pre-trial investigation into alleged large-scale embezzlement, money-laundering, abuse, fraudulent bookkeeping, document forgery and other criminal offenses committed at Snoras. Prosecutors also have issued a European arrest warrant for the two owners of the bank, who currently live in London and are fighting their extradition. A London court is expected to decide in 2013 whether or not to hand the two men over to Lithuania.

On December 14, 2012, the Second District Court of Vilnius City approved a General Prosecutor request for a two-month arrest of a candidate to parliament - one of the former heads of the National Credit Union (NCU). The General Prosecutor’s Office and the Financial Crime Investigation Service (FCIS) are conducting a pre-trial investigation into potentially illegal high-value loans issued by NCU and three other credit unions. The four credit unions are accused of overvaluing loan collateral and subsequently issuing loans based on the inflated amounts. The General Prosecutor and the FCIS also are investigating potential embezzlement, use of illegally acquired assets, and document forgery at these institutions.

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.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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 of listed crimes and a penalty threshold

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks and payment institutions; investment, tax, and economic advisers; brokers, custodians, and underwriters of financial instruments; commission agents, private portfolio managers, and market makers; managers and distributors of units/shares in undertakings for collective investments (UCIs); financial intermediation firms, registrar agents, management companies, trust and company service providers, and operators of a regulated market authorized in Luxembourg; foreign exchange cash operations; debt recovery and lending operations; pension funds and mutual savings fund administrators; corporate domiciliation agents, company formation and management services, client communication agents, and financial sector administrative agents; primary and secondary financial sector IT systems and communication networks operators; insurance brokers and providers; auditors, accountants, notaries, and lawyers; casinos and gaming establishments; real estate agents; and any other natural or legal persons trading in goods to the extent that payments are made in cash in an amount of €15,000 (approximately $20,250) or more

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks and payment institutions; investment, tax, and economic advisers; brokers, custodians, and underwriters of financial instruments; commission agents, private portfolio managers, and market makers; managers and distributors of units/shares in undertakings for collective investments (UCIs); financial intermediation firms, registrar agents, management companies, trust and company service providers, and operators of a regulated market authorized in Luxembourg; foreign exchange cash operations; debt recovery and lending operations; pension funds and mutual savings fund administrators; corporate domiciliation agents, company formation and management services, client communication agents, and financial sector administrative agents; primary and secondary financial sector IT systems and communication networks operators; insurance brokers and providers; auditors, accountants, notaries, and lawyers; casinos and gaming establishments; real estate agents; and any other natural or legal persons trading in goods to the extent that payments are made in cash in an amount of €15,000 (approximately $20,250) or more

money laundering criminal Prosecutions/convictions:

Prosecutions: Not available

Convictions: Not available

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Luxembourg is a member of the Financial Action Task Force (FATF). Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/infobycountry/0,3380,en_32250379_32236963_1_70591_43383847_1_1,00.html

Enforcement and implementation issues and comments:

During 2011, competent authorities were busy implementing the comprehensive package of legislative and administrative actions that were put in place in 2010, notably the Law of October 27, 2010. This law introduces important changes to AML/CFT provisions and prescribes changes to 20 existing pieces of legislation. Most visibly, the financial intelligence unit (FIU) expanded its capabilities through the hiring of additional analysts and continued preparations for an enlargement of the FIU premises. Nevertheless, state prosecution officials have called publicly for further resources, notably more analysts. In response to these requests, the Ministry of Justice has pledged to continue supporting the state prosecution, and the FIU in particular, with the level of resources needed to fulfill its responsibilities. In terms of quantitative data, the number of transaction reports, money laundering criminal prosecutions, and convictions has risen in comparison to 2010 following the systematic implementation of the new legislation.

Macau

Macau, a Special Administrative Region (SAR) of the People’s Republic of China, is not a significant regional financial center. Its financial system, which services a mostly local population, consists of banks and insurance companies as well as offshore finance businesses, such as credit institutions, insurers, underwriters, and trust management companies. Both sectors are subject to similar supervisory requirements and oversight by Macau’s Monetary Authority.

With annual gaming revenues of $38 billion in 2012, Macau is the world’s largest gaming market by revenue. The gaming industry relies heavily on loosely-regulated gaming promoters and collaborators, known as junket operators, for the supply of wealthy gamblers, mostly from nearby mainland China. Increasingly popular among gamblers seeking inscrutability and alternatives to China’s currency movement restrictions, junket operators are also popular among casinos aiming to reduce credit default risk and unable to legally collect gambling debts in China, where gambling is illegal. This inherent conflict of interest together with the anonymity gained through the use of the junket operator in the transfer and commingling of funds, as well as the absence of currency and exchange controls, present vulnerabilities for money laundering.

Macau Government officials indicate the primary sources of laundered funds—derived from local and overseas criminal activity—are gaming-related crimes, property offenses, and fraud.

For additional information focusing on terrorism financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: NO

Know-your-customer (KYC) rules:

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

KYC 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, notaries, registrars, commercial offshore service institutions, lawyers, auditors, accountants, and tax consultants

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,591: January 1 – October 31, 2012

Number of CTRs received and time frame: Not applicable

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

money laundering criminal Prosecutions/convictions:

Prosecutions: 0: January 1 - June 30, 2012

Convictions: 1: January 1 - June 30, 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

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:

Macau continues making considerable efforts to develop an anti-money laundering/counter-terrorist financing (AML/CFT) framework that meets international standards. Its financial intelligence unit (FIU) has been an essential component in coordinating efforts to develop long-term AML/CFT infrastructure and for close collaboration with other FIUs.

While Macau’s AML law does not require currency transaction reporting, gaming entities are subject to threshold reporting for transactions over MOP 500,000 (approximately $62,640) under the supplementary guidelines of the Gaming Inspection and Coordination Bureau (DICJ). Macau should continue to strengthen interagency coordination to prevent money laundering in the gaming industry, especially by introducing robust oversight of junket operators, mandating due diligence over non-regulated gaming collaborators, and implementing cross-border currency reporting. Macau also should enhance its ability to support international AML/CFT investigations.

As a SAR of China, Macau cannot sign or ratify international conventions in its own right. China is responsible for Macau’s international affairs and may arrange for the ratification of any convention to be extended to Macau. The 1988 Drug Convention was extended to Macau in 1999, the UN Convention against Transnational Organized Crime was extended to Macau in 2003, and both the UN Convention against Corruption and the International Convention for the Suppression of the Financing of Terrorism were extended to Macau in 2006.

Macedonia

Macedonia is not a regional financial center. Most financial transactions are done through banks; however, cash transactions and settlements of considerable amounts sometimes take place outside the banking system. Money laundering in Macedonia is most often linked to financial crimes such as tax evasion, smuggling, financial and privatization fraud, insurance fraud, and corruption. Most of the laundered proceeds come from domestic criminal activities. A small portion of money laundering activity may be connected to narcotics trafficking. Organized criminal groups are involved in weapons and human trafficking, and proceeds from these activities are invested in businesses and real estate.

Macedonia is not an offshore financial center, and the Law on Banks does not allow the existence of shell banks in Macedonia. Banks do not allow the opening of anonymous bank accounts and bearer shares are not permitted. There is no evidence that alternative remittance systems exist in Macedonia. There are a few free trade zones (FTZ) in Macedonia, which all function as industrial zones within which some industrial production receives the benefits of a FTZ. The production facilities enjoying these benefits are owned by foreign investors. The Government of Macedonia (GOM) is trying to attract more foreign investment by leasing out several large FTZs throughout the country.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, savings institutions, exchange offices, and money remittance agents; central securities depository and brokerages; legal entities approving loans, issuing electronic money, and issuing and administering credit cards; financial leasing, factoring, and forfeiting agents; financial consultants and advisors; investment funds, voluntary pension funds, and life insurance companies; auditors, accountants, notaries, and lawyers; real estate agents, consultants, and investment advisors; non-governmental organizations (NGOs); car dealerships; cadaster; company service providers; and, casinos

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 192: January 1 – October 31, 2012

Number of CTRs received and time frame: 73,900: January 1 – October 31, 2012

STR covered entities: Banks, savings institutions, exchange offices, and money remittance agents; central securities depository and brokerages; legal entities approving loans, issuing electronic money, and issuing and administering credit cards; financial leasing, factoring, and forfeiting agents; financial consultants and advisors; investment funds, voluntary pension funds, and life insurance companies; auditors, accountants, notaries, and lawyers; real estate agents, consultants, and investment advisors; NGOs; car dealerships; cadaster; company service providers; and, casinos

money laundering criminal Prosecutions/convictions:

Prosecutions: 3: January 1 – October 31, 2012

Convictions: 3: January 1 – October 31, 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

The GOM adopted the national strategy for combating money laundering and financing of terrorism for 2012-2014 and established the Council on Combating Money Laundering and Financing of Terrorism. The strategy sets out the activities of all relevant institutions in order to meet objectives covering legislation, capacity-building, international and inter-institutional cooperation and awareness raising. The Council is chaired by the Director of the Financial Intelligence Office (FIO), Macedonia’s financial intelligence unit, and made up of representatives of 14 reporting institutions and of investigative and prosecuting bodies. It coordinates and monitors activities specified in the strategy and reports to the government. The Council provides a platform for strengthening inter-institutional cooperation.

Macedonia’s anti-money laundering/counter-terrorist financing (AML/CFT) law was amended in April, 2012. While the new amendments strengthen the AML/CFT regime, deficiencies remain. In 2010, Macedonia passed legislation pertaining to judicial reforms, including amendments to the Constitution and the Criminal Procedure Code to allow the use of specialized investigative methods in investigating money laundering cases. The effective date of the new Criminal Procedure Code has been pushed back for the third time to December 2013.

The banking system is well regulated and supervised. Non-bank financial institutions are yet to be regulated with a separate law. Institutions supervised by the Public Revenue Office are poorly monitored, and inspections rarely occur as the Public Revenue Office is focused mainly on investigating tax evasion. The GOM should improve its supervision of the non-bank financial sector and provide necessary resources and training to ensure full implementation of laws. Dealers of arts, antiques, and other high-value consumer goods; entities dealing with jewelry and precious metals; travel agencies; stock exchanges; the credit registry and credit bureaus; gaming centers; and non-life insurance companies are excluded from the list of obliged reporting entities. The GOM should ensure these entities become reporting entities.

The responsibilities of the FIO overlap in many areas with the Public Revenue Office, the Customs Administration, the Financial Police, and the regular police (Ministry of Interior). In the last year, the FIO’s activities shrank noticeably, and it has been overshadowed by the actions of the Ministry of Interior and Financial Police. There is effective coordination among the concerned agencies, particularly when working jointly on investigations led by a public prosecutor. This has resulted in several coordinated large-scale investigations of cases involving money laundering, tax evasion, fraud, corruption, and misuse of official position.

To date, there have been no convictions for terrorist financing. Human resources and knowledge in the area of terrorism financing are largely lacking. The government should work to conduct the necessary training for all reporting agencies. According to the AML/CFT law, financial institutions can temporarily freeze assets of suspected money launderers and terrorist financiers prior to receiving a court order. Frozen assets are confiscated only by a court’s final verdict. Macedonia has an agency for management of seized and forfeited assets, but the agency has limited capacity and is minimally active.

The judicial system is highly politicized and inefficient. Rule of law is poorly respected, and selective enforcement of justice is common. The government should enact reforms in the judiciary to enable increased independence of the judiciary and more effective efforts against organized crime, corruption, terrorism, trafficking in human beings, money laundering, and narcotics smuggling.

Madagascar

Madagascar is neither a regional financial center nor a major source country for drug trafficking. However, Madagascar’s inadequately monitored 3,000 miles of coastline facilitates smuggling and money laundering. Criminal proceeds laundered in Madagascar derive mostly from domestic criminal activity, but are often linked to international trade. The major sources of money laundering proceeds in 2012 are tax evasion and customs fraud. Illegal mining activities and mineral resources smuggling, illegal logging, public corruption, and foreign currency smuggling are also areas of concern. Since the 2009 coup in Madagascar, declining enforcement of the rule of law also has led to trafficking of a wide variety of goods and persons. Smuggling of gemstones and protected flora and fauna generate funds that are laundered through the financial system and through informal channels not tracked by the de facto government. There is a significant black market for smuggled consumer goods. Trade-based money laundering occurs in Madagascar, involving both customs fraud and contraband. Media sources report that members of the High Transitional Authority (HAT) have profited from, facilitated, and directed criminal activity and money laundering.

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

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Financial institutions

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 61: January 1 – November 21, 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, financial institutions, financial intermediaries and advisors, money changers, casinos and gaming establishments, real estate dealers, postal services, insurance companies, mutual fund companies, and stockbrokers

money laundering criminal Prosecutions/convictions:

Prosecutions: 23 in 2012

Convictions: Not available

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: NO

Madagascar is not a member of a Financial Action Task Force-style regional body (FSRB).

Enforcement and implementation issues and comments:

The Malagasy Financial Intelligence Services (SAMIFIN), an independent institution, is Madagascar’s financial intelligence unit. SAMIFIN’s mandate is to analyze reports of money laundering and other financial crimes, and to report on suspicious money laundering activities. When SAMIFIN has evidence of suspected money laundering, it is required to report the information to other authorities responsible for prosecution and trial.

While the police sometimes investigate crimes related to money laundering and other financial crimes, they lack training and expertise. Moreover, the judicial system does not have the sophistication, resources, and political will to prosecute most money laundering offenses. In 2012, a special court was established by the HAT to judge all cases related to corruption and economic offenses, such as money laundering. Underground finance and informal value transfer systems should be acknowledged and investigated. The Government of Madagascar (GOM) should train police and customs authorities to proactively recognize money laundering at the street level and at the ports of entry. Additionally, prosecutors should receive training so they are more able to successfully prosecute complex financial crime and money laundering cases.

A bill to update the current law on money laundering and criminalize terrorist financing has been drafted and will be presented to the Cabinet and then to the High Transitional Council and the Transitional Congress, the two legislative bodies in the transitional government. The GOM should pass the stalled updated legislation on money laundering and criminalize terrorist financing. The GOM should pursue membership in a FSRB.

Malawi

Malawi is not a regional financial center. The main source of illegal profits in Malawi derives from public corruption. Another significant source of illicit funds is the production and trade of cannabis sativa (Indian hemp) which is extensively cultivated in remote areas of the country. Anecdotal evidence indicates Malawi is a transshipment point for other forms of narcotics. Human trafficking, vehicle hijacking, and fraud are also areas of concern.

Smuggling and the laundering of funds are exacerbated by porous borders with Mozambique, Zambia, and Tanzania. There are indications of trade-based money laundering, mostly through over/under invoicing. There are also cases of goods smuggled across the border; it is believed contraband smuggling generates proceeds that could be laundered through the financial system. Some of the trade-based money laundering is reportedly linked to Pakistan and India. Informal value transfer systems such as hawala are a concern. Malawi has a cash-based economy and there are usually few paper trails to follow in financial investigations.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, microfinance institutions, leasing and finance companies, lawyers, legal practitioners, notaries, casinos and other gaming entities, real estate agents, trust and company service providers, foreign exchange bureaus, accountants, auditors, dealers in precious metals and stones, safe custody services, buyers and sellers of gold bullion, stock brokers, and the stock exchange

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 42: January 1 – November 30, 2012

Number of CTRs received and time frame: 81,008: January 1 – November 30, 2012

STR covered entities: Banks, foreign exchange bureaus, microfinance institutions, money transmitting firms, discount houses, real estate agencies, casinos, accountants, lawyers, dealers in precious metals and stones, capital markets

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

The Government of Malawi (GOM) has adopted anti-money laundering/counter-terrorist financing (AML/CFT) legislation; however, the development of institutional capacity and enforcement mechanisms is still lacking. Malawi updated its regulations to implement the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act in September 2011. The regulations provide further clarification and guidance on complying with the Act.

Not all institutions subject to the KYC and STR requirements are actually conducting KYC due diligence or filing reports. Although more types of entities are conducting customer due diligence, only banks and foreign exchange bureaus forward reports to the Malawi financial intelligence unit (FIU). Furthermore, insurance companies are not covered at all. The FIU is housed within the Reserve Bank of Malawi. A permanent FIU director has not been named.

There have been no successful prosecutions or convictions for money laundering in Malawi. The recent arrest by anti-corruption authorities of a Malawi diplomat accused of involvement in the theft of MK 400 million (approximately $1,057,000) from the Account General Office may be a positive sign. Progress is hampered by a lack of capacity and investigative and prosecutorial expertise. Authorities believe a deficient national identification system also makes it difficult for financial institutions to apply a standard form of identification. The GOM should work toward full implementation of its AML/CFT legislation.

Malaysia

Malaysia is a growing regional financial center with a well developed anti-money laundering/counter-terrorist financing (AML/CFT) framework. Malaysia’s long porous land and sea borders and its strategic geographic position increase its vulnerability to transnational criminal activity, including money laundering and terrorist financing. Malaysia is primarily used as a transit country to transfer drugs originating from the southeastern Asian Golden Triangle and Europe. Drug trafficking is an important source of illegal proceeds in Malaysia. Iranian and Nigerian drug trafficking organizations are the main sources of illegal proceeds.

Malaysian authorities also highlight illegal proceeds from corruption as a significant money laundering risk. Other common predicate offenses generating significant proceeds in Malaysia include fraud, criminal breach of trust, illegal gambling, credit card fraud, counterfeiting, robbery, forgery, human trafficking, extortion and smuggling. Smuggling of goods subject to high tariffs is a major source of illicit funds. Customs’ efforts to investigate invoice manipulation identified trade-based money laundering risks.

Free trade zones in Malaysia are divided into Free Industrial Zones (FIZ), where manufacturing and assembly takes place, and Free Commercial Zones (FCZ), generally for warehousing commercial stock. The FIZs are designed mainly to promote manufacturing industries producing goods mainly for export and are dominated by large international manufacturers attracted to the zones because they offer preferential tax and tariff treatment. Currently there are 17 FIZs and 17 FCZs in Malaysia. Companies wishing to operate in a FIZ or FCZ must be licensed.

Malaysia’s offshore financial center on the island of Labuan is subject to the same AML/CFT laws as those governing onshore financial service providers. The financial institutions operating in Labuan include both domestic and foreign banks and insurers. Offshore companies must be established through a trust company, which is required by law to establish true beneficial owners and submit suspicious transaction reports (STRs).

A number of terrorist organizations have been active on Malaysian territory, and authorities have taken action against Jemaah Islamiah and other terrorist networks. Terrorist financing in Malaysia is predominantly carried out using cash and relies on trusted, clandestine networks.

Casinos are licensed and regulated by the Ministry of Finance. Casinos’ compliance with the AML/CFT guidelines is assessed on a periodic basis by the Financial Intelligence and Enforcement Department of the Central Bank.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks in the conventional, Islamic, and offshore sectors; offshore listing sponsors and trading agents; stock and futures brokers; unit trust, investment fund, and futures fund managers; money lenders and pawnbrokers; money remitters; charge account and credit card issuers; insurance financial advisers; e-money issuers; leasing and factoring businesses; lawyers, public notaries, accountants, and company secretaries; licensed casinos and gaming outlets; registered estate agents; trust companies, and dealers in precious metals and stones

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 27,857 in 2011

Number of CTRs received and time frame: Not available

STR covered entities: Banks in the conventional, Islamic, and offshore sectors; offshore listing sponsors and trading agents; stock and futures brokers; wholesale money changers; unit trust, investment fund, and futures fund managers; money lenders and pawnbrokers; money remitters; charge account and credit card issuers; insurance financial advisers; e-money issuers; leasing and factoring businesses; lawyers, public notaries, accountants, and company secretaries; licensed casinos and gaming outlets; registered estate agents; trust companies, and dealers in precious metals and stones

money laundering criminal Prosecutions/convictions:

Prosecutions: 36 in 2012

Convictions: 12 in 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Malaysia 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/Malaysian%20MER%20-%20FINAL%20August%202007.pdf

Enforcement and implementation issues and comments:

Reporting institutions are subject to strict customer due diligence rules, and the Government of Malaysia (GOM) has adopted banker negligence laws that extend criminal liability to bank directors if their institution launders money or finances terrorism.

The use of informal remittances, which are not subject to AML/CFT controls, creates vulnerability for abuse by money launderers and terrorist financiers. Malaysia’s competent authority for implementing its AML/CFT laws, Bank Negara Malaysia, should continue its efforts to encourage the use of formal remittances. In this regard, the Money Services Business Act (MSBA) was enacted on December 1, 2011 to further strengthen the safeguards against abuse of the money services business industry, comprising remittance, money changing and wholesale currencies businesses. Compliance with the MSBA is monitored closely by Bank Negara Malaysia. Additionally, law enforcement and customs authorities should examine trade-based money laundering and invoice manipulation and their relationship to underground finance and informal remittance systems. Malaysia should move aggressively to identify, investigate and prosecute drug trafficking kingpins.

Maldives

Maldives is a nation of many islands in the Indian Ocean and is close to international sea lanes. Authorities have expressed concern that the islands are being used as a transit point for money laundering and illegal immigration to Europe. The country has a small financial market but is susceptible to money laundering and terrorist financing due to limited oversight capacity.

No official figures are available, but anecdotal evidence suggests illegal drug trafficking and corruption produce significant amounts of illegal funds. Drug trafficking is noted as one of the most frequent asset-generating crimes. Other offenses include human trafficking, piracy, and offenses committed by gangs. Even though the number of corruption cases is low, only a small percentage is prosecuted and reports indicate the sums involved can be significant. There are indications funds raised in the country have been used to finance terrorist activities abroad.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, securities dealers and investment advisors, Maldives Securities Depository

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 2 in 2012

Number of CTRs received and time frame: 240,986 in 2012

STR covered entities: Banks, securities dealers and investment advisors, Maldives Securities Depository

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

thtp://www.apgml.org/documents/docs/17/Maldives%20-%20published%20DAR.pdf

Enforcement and implementation issues and comments:

The current anti-money laundering/counter-terrorist financing (AML/CFT) framework is very recent and in need of considerable improvements, both in terms of substance and implementation. Money laundering is criminalized only with respect to proceeds of offenses listed in the Drugs Act. Although all categories of offenses set out in the international standards have been criminalized, only drug-related offenses are considered predicate offenses for money laundering, constituting a major shortcoming of the current AML/CFT regime. In addition, terrorism financing is covered to a limited extent under the “aiding and abetting” clause of the GOM’s terrorism legislation; however it is not criminalized as an autonomous offense.

Efforts to provide adequate supervision of the financial sector are still in the initial stages. The Maldives Financial Transactions Reporting Regulation, implemented by the Central Bank in 2011, requires financial institutions to submit a weekly report of financial transactions of MVR 200,000 (approximately $13,000) or more, or its equivalent in a foreign currency. The Government of the Maldives (GOM) should take steps to ensure better compliance and understanding of AML/CFT requirements and should expand its KYC and reporting requirements to include insurance agents/brokers, finance companies, money remitters and exchanges, credit card companies, lawyers, accountants, and auditors active in the country. The government also should extend its safe harbor provisions to non-bank entities.

Shortcomings in the overall criminal legislative framework, in particular with respect to criminal procedure, and the lack of resources of competent authorities make it challenging for the GOM to fight effectively against money laundering and terrorist financing. The asset forfeiture provisions in the law are very limited. The GOM should ensure all appropriate assets or their equivalent value can be identified and forfeited in line with international recommendations. Maldives Police Services, the Prosecutor General’s Office and the judiciary should work on capacity building and training to enforce the existing AML/CFT system.

The GOM is working toward accession to the United Nations Convention against Transnational Organized Crime.

Mali

Mali is not a regional financial center, and has no free trade zones or offshore sectors. Illegal proceeds derive from rampant trafficking of drugs, small arms, people, and everyday commodities across the Algerian, Nigerien and Mauritanian borders in the sparsely-populated north of the country. Authorities believe terrorist cells from al-Qaida in the Islamic Maghreb, known to operate in the north, are involved in smuggling as well as kidnapping for ransom to generate funds. The majority of Mali’s economy is cash-based, making it difficult to track illegal or criminal financial transactions. Malian authorities believe proceeds being returned to South America from cocaine trafficking in Europe may be passed through Malian banks but lack the resources to make such a determination.

Mali is a member of the West African Economic and Monetary Union (WAEMU), which also includes Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Niger, Senegal, and Togo. All of the WAEMU members share a common currency, the West African CFA, and have developed common anti-money laundering/combating the financing of terrorism frameworks, including legal and financial intelligence unit (FIU) structures.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, the public treasury, microfinance entities, the post office, currency exchanges, insurance companies and brokers, securities and asset brokers and managers, the regional stock exchange, mutual funds, and casinos

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 34 in 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Issuers of credit, guaranties, and lease purchase; banks; the public treasury; microfinance entities, the post office, and currency exchanges; insurance companies and brokers; securities and asset brokers and managers, and the regional stock exchange; mutual funds; attorneys, notaries, and auditors; real estate and travel agents; non-governmental organizations; casinos and gaming establishments; and dealers of high-value goods and precious metals and stones

money laundering criminal Prosecutions/convictions:

Prosecutions: Not available

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Although Mali’s anti-money laundering law covers a number of financial sectors, very few comply with their legal reporting obligations. While businesses are technically required to report cash transactions over approximately $10,000, most do not. With the exception of casinos, designated non-financial businesses and professions are not subject to customer due diligence requirements. While Mali criminalizes tipping off and protects STR filers from criminal and civil liability, both of these provisions are too narrow and do not meet the international standards.

Mali’s financial intelligence unit, the National Financial Information Processing Unit (CENTIF), continues to enjoy closer relations with foreign FIUs. CENTIF enjoys a transparent and mutually beneficial relationship with liaison officers from the customs service, police, and gendarme forces. Significant challenges to CENTIF’s efficiency remain lack of training, especially for investigators who handle counter-terrorist financing, as well as a lack of funds to provide adequate publicity and comprehensive awareness training for bank and public sector employees outside of Bamako.

Article 30 of Law 10-062 calls for the competent authority to order, by administrative decision, the freezing, without delay or prior notification to persons or concerned entities, of funds and other financial resources of terrorists or of those who are financing terrorism and terrorist organizations. To date, Mali has not designated a competent authority, so currently there is no mechanism to freeze assets administratively. However, the justice authorities may freeze without delay funds of terrorists or others concerned in terrorist activities through a judicial decision.

Border enforcement is a severe problem in Mali, particularly in combating widespread smuggling and the infiltration of insurgent forces. Mali also lacks capacity in investigation of money laundering and terrorist financing. Mali lacks the capacity to trace informal networks and money/value transfer systems, including hawala. There also is doubt as to whether the state prosecutor’s office understands complex financial crimes sufficiently to be able to pursue money laundering or terrorist financing crimes effectively and to a successful prosecution. CENTIF has referred multiple investigations to justice authorities for prosecution, yet there are no known convictions.

Malta

Malta’s location between North Africa and Italy makes it a transit point for narcotics and human trafficking to Europe. The country’s offshore banking sector is relatively large (eight times GDP), and it is the second largest ship registrar in Europe. According to the Malta Police Force the major sources of illegal proceeds are trafficking of cocaine, heroin and cannabis resin, as well as economic crimes, namely fraud and misappropriation. The proceeds generated are not large and are primarily based on domestic offenses. According to Maltese authorities, between 2003 and 2011, 13 percent of all the suspected cases of money laundering or terrorist financing were related to drug trafficking; fraud accounted for another 13 percent. No organized criminal groups have been detected committing money laundering on behalf of others in Malta. Moreover, no terrorist financing activity has been detected. Contraband smuggling does not appear to be a significant source of illicit proceeds. No specific studies have been conducted in Malta on trade-based money laundering or terrorist financing.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: NO

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, currency exchange offices, stockbrokers, insurance companies, money remittance/transfer services, real estate agencies, auditors, accountants, notaries, tax advisors, trust and asset managers, company formation agents, nominee shareholders, casinos, auctioneers, and dealers in art, precious metals, and stones

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 125: January 1 - November 27, 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, currency exchange offices, stockbrokers, insurance companies, money remittance/transfer services, real estate agencies, auditors, accountants, notaries, tax advisors, trust and asset managers, company formation agents, nominee shareholders, casinos, auctioneers, and dealers in art, precious metals, and stones

money laundering criminal Prosecutions/convictions:

Prosecutions: Not available

Convictions: 5 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

While Malta has a comprehensive legal structure to combat money laundering, there are gaps concerning the material element for terrorism financing that could leave room for interpretation in respect of financing of “legitimate” activities, which could lead to furthering the financing of terrorism directly and/or indirectly. The Government of Malta (GOM) should work to strengthen its laws to fix these vulnerabilities.

In 2011, the Financial Intelligence Analysis Unit (FIAU) assisted the U.S. on a case where assets were confiscated, and as a result, an ad hoc asset sharing agreement was entered into. Part of the assets confiscated, amounting to $50,000, were given to Malta to be used specifically by the FIAU.

Representatives of the financial sector emphasize the risks involved with foreign deposits and investment possibly being linked to tax evasion or the diversion of funds by politically exposed persons from Eastern Europe and North Africa. There has been no assessment of the risk of illicit activity or terrorist financing within the non-profit organization (NPO) sector. Additionally, although a new supervisory entity has been established, the NPO registration process is not clear nor has there been awareness training for the sector to acquaint NPOs with the risks of terrorist financing. The GOM should maintain its vigilance over these potential vulnerabilities.

Marshall Islands

The Republic of the Marshall Islands (RMI) consists of 29 atolls and five islands, covering 70 square miles of land, spread across 750,000 square miles of ocean. The country is economically underdeveloped and has limited resources for private sector development. The RMI signed a Compact of Free Association with the United States in 1986, and relies on the United States for the majority of its economic support.

The RMI offshore corporate sector is vulnerable to money laundering. The Trust Company of the Marshall Islands, Inc.; the Registrar for Non-resident Domestic Entities; and the Office of the Maritime Administrator (collectively the Registry) administer a comprehensive registration program of corporations and ships. The RMI shipping fleet is the third largest flagged fleet in the world, although few of the vessels frequent the Marshall Islands. The port of Majuro is visited mainly by tuna fishing boats, with a few cargo ships per month delivering food and fuel to the nation.

Non-resident domestic corporations (NRDCs), the equivalent of international business companies, can be formed online subject to approval by the Registrar. Marketers of offshore services via the internet promote the Marshall Islands as a favored jurisdiction for establishing NRDCs and handle the incorporation process for applicants. A number of Marshall Islands NRDCs have gone public on exchanges in the U.S. and Europe. NRDCs are allowed to offer bearer shares. Corporate officers, directors, and shareholders may be of any nationality and live anywhere. NRDCs are not required to disclose the names of officers, directors, shareholders or beneficial owners listed with the Registrar, and corporate entities may act as directors, officers, and shareholders. The Registrar does not release the number of NRDCs or other offshore corporate operations. The corporate registry program does not allow the registering of offshore banks or insurance firms, online gaming institutions, or other companies which are financial in nature. All known parties to any corporate or maritime transaction are vetted by the Registry through a commercial database, which combines the UN, U.S., EU and other national and international specially designated national lists. NRDCs must maintain a registered agent in the Marshall Islands, and corporations can transfer domicile into and out of the RMI with relative ease. In addition to NRDCs, the RMI offers resident partnerships, unincorporated associations, and limited liability companies through the Attorney General’s office.

There are two banks in the country, the Bank of the Marshall Islands and a branch office of the Bank of Guam. There are no brokerage houses or other types of financial firms in the country. Land is almost never sold due to customary land tenure practices. There are no realtors, nor are there casinos or other entities typically used to launder money.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, credit institutions, and finance companies; insurance companies, brokers and intermediaries; brokers/dealers of securities, exchange and interest rate instruments, futures, and options; businesses issuing, selling or redeeming traveler’s checks, money orders, or similar instruments; payroll service businesses involved in collecting, holding and delivering cash; gaming houses, casinos, and lotteries; bullion and currency dealers and exchanges, and money transmission services

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 23 in 2012

Number of CTRs received and time frame: 2,818 in 2012

STR covered entities: Banks, credit institutions, and finance companies; insurance companies, brokers and intermediaries; broker/dealers of securities, exchange and interest rate instruments, futures, and options; businesses issuing, selling or redeeming traveler’s checks, money orders, or similar instruments; payroll service businesses involved in collecting, holding and delivering cash; gaming houses, casinos, and lotteries; bullion and currency dealers and exchanges, and money transmission services

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

The Marshall Islands is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Its mutual evaluation can be found here: http://www.apgml.org/documents/docs/17/RMI%20ME%202.pdf

Enforcement and implementation issues and comments:

The Marshall Islands has laws that can be used to prosecute both individuals and corporations for money laundering crimes. To date, the RMI government has filed two money laundering cases, both dismissed by the RMI High Court. There is a need for greater institutional capacity to successfully prosecute money laundering cases. The RMI should tighten enforcement of tipping off provisions, ensure designated non-financial businesses and professions are fully reporting, and ensure beneficial ownership is properly established.

Under RMI law, both the Banking Act and the Counter-Terrorism Act provide for the freezing, seizing, and/or detaining of terrorist assets. This authority, vested primarily in the Attorney General, allows for the immediate detention of funds where the Attorney General has reasonable grounds to believe the funds are intended to be used in the commission of a serious offense, including the financing of terrorism.

The Marshall Islands has signed tax treaties with 14 other jurisdictions. The RMI should ensure its offshore sector is adequately supervised and that information on company ownership and management is available to law enforcement and supervisory authorities.

Mauritania

The Islamic Republic of Mauritania has a largely informal and under-developed economy. Its economic system suffers from a combination of weak government oversight, lax financial auditing standards, a large informal trade sector, porous borders, and corruption in government and the private sector. Only an estimated four percent of Mauritanian adults have bank accounts, and informal banking and financial systems remain vulnerable to exploitation. In recent years, Mauritania has become a transshipment point for cocaine from South America intended for the European market. General smuggling, trafficking in vehicles stolen mostly in Europe, parallel financial networks, and the provision of logistical support for organized international drug traffickers are all serious problems. Because of increasing terrorist and illicit trafficking activities along the long and porous borders with Algeria and Mali, the Government of Mauritania (GOM) has continued an aggressive campaign against corruption and the terrorist network of al-Qaida in the Islamic Maghreb.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, money changers and remitters

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 5: January 1 – November 30, 2012

Number of CTRs received and time frame: Not available

STR covered entities: Banks, money exchanges and remittance offices

money laundering criminal Prosecutions/convictions:

Prosecutions: 0 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

Mauritania 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 mutual evaluation report can be found here: www.menafatf.org

Enforcement and implementation issues and comments:

While Mauritania has been successful in creating a legal and institutional framework to fight financial crimes, there remain many challenges to its successful implementation of that framework, especially given Mauritania’s cash-based and informal economy. All natural and legal persons are covered under Mauritanian anti-money laundering/counter-terrorist financing (AML/CFT) laws and are subject to both criminal and civil penalties, depending upon the crime committed. In 2012, the Office of the Inspector General of the State and the Financial Information Analysis Commission (CANIF), Mauritania’s financial intelligence unit, were empowered to lead efforts to identify, prevent and reduce corrupt practices and financial crimes, including financial crimes linked to narcotics and terrorist financing networks.

The CANIF has direct responsibility for overseeing AML/CFT activities. CANIF falls under the jurisdiction of the Central Bank of Mauritania and is unique in Mauritania in its comprehensive “whole of government” approach. CANIF includes representatives of the Mauritanian Ministries of Finance and Justice, as well as the customs authority, national police, and Gendarmerie working together to counter financial crimes. In 2011, CANIF released its first annual report on financial crime in Mauritania. 

Current regulations only require banks and formal money exchange and remittance offices to report suspicious transactions. Monitoring informal financial markets remains a challenge in Mauritania. Mauritanian authorities are aware of these issues and are working to formalize financial transactions to the extent possible and to devise mechanisms to prevent the exploitation of the informal financial system for illegal purposes. In 2011, two orders were signed among the Central Bank; the Ministry of Commerce, Industry, Handicraft and Tourism; and the Ministry of Interior and the Decentralization. Order N 640 promulgates a Counter-Terrorism Financing and Anti-Money Laundering ruling for non-financial companies and professions, and Order N 641 does the same for non-governmental organizations. The GOM should take steps to expand reporting and KYC requirements to additional financial and non-financial entities.

Mauritius

Mauritius has developed a reputation as a well-regulated and credible international financial center. According to the Mauritius’ Independent Commission Against Corruption (ICAC), laundered funds are primarily the proceeds from drug trafficking – mainly heroin and the prescription drug, subutex (a brand name for buprenorphine, an opiate used to treat heroin dependence, which is illegal in Mauritius). Other important predicate crimes for money laundering include aggravated larceny, conspiracy, forgery, swindling, and corruption. Criminal proceeds laundered in Mauritius are not controlled by drug trafficking organizations or organized criminal groups. According to ICAC, money laundering occurs in the banking system, the offshore financial center, and the non-bank financial system. Criminal proceeds are derived from both domestic and foreign criminal activities. There is no known black market for smuggled goods in Mauritius.

The Mauritius Global Business (offshore) Sector is a major foreign investment route into the Asian sub-continent. As of November 2012, there are close to 26,000 global business companies (GBCs) in Mauritius, including 928 licensed global funds. The offshore sector also includes management companies licensed by the Financial Service Commission to provide professional services to GBCs. Shell companies and bearer shares are not allowed in Mauritius nor are nominee or anonymous directors or trustees.

The Mauritius Freeport, a free-trade zone (FTZ), was established to promote the country as a regional FTZ center for Eastern and Southern Africa and the Indian Ocean rim. As of early December 2012, there are 263 operators in the Freeport, with a turnover estimated at $733 million for 2012.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, insurance companies, securities dealers, money changers, foreign exchange dealers, accountants, lawyers, notaries, chartered secretaries, gaming centers, jewelry dealers, property developers and promoters, and estate agents

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 211 in 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, insurance companies, securities dealers, money changers, foreign exchange dealers, accountants, lawyers, notaries, chartered secretaries, gaming centers, jewelry dealers, property developers and promoters, and estate agents

money laundering criminal Prosecutions/convictions:

Prosecutions: 24 in 2012

Convictions: 13 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Legislation to correct deficiencies and amend the Government of Mauritius’ (GOM) anti-money laundering/counter-terrorist financing (AML/CFT) regime has been pending since 2006. Limited capacity and training of the judiciary and the ICAC also compromise Mauritius’ ability to successfully combat various forms of money laundering. Stronger support of judges to carry cases through successful prosecution is needed. Although international law enforcement coordination is possible via the 2003 Mutual Assistance in Criminal and Related Matters Act, sharing of information is a lengthy and uncertain process. Timely access to financial documents domestically is also a problem. While Mauritius has a legal framework enabling it to freeze terrorist-related assets without delay, its ability to do so is subject to compliance with judicial proceedings.

The Asset Recovery Act took effect on February 1, 2012. The new law is intended to enable the forfeiture of proceeds of crimes to compensate victims, whether the State or an individual. It contains provisions for both conviction-based and non-conviction-based forfeiture. The Assets Recovery Office under the Director of Public Prosecutions is designated to exercise enforcement powers included in the law. Additionally, the law provides for the Recovered Assets Fund, where forfeited assets would be placed. On October 30, 2012, the Asset Recovery Act was amended to give the Director of Public Prosecutions the power to confiscate or recover assets accumulated illegally during the ten years preceding commencement of the Act.

GOM authorities should examine underground value transfer systems including regional hawala networks.

Mexico

Mexico is a major drug-producing and drug-transit country. Proceeds from the illicit drug trade leaving the United States are the principal sources of funds laundered through the Mexican financial system. Other significant sources of laundered illegal proceeds include corruption, kidnapping, extortion, piracy, alien smuggling, 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, the large flow of legitimate remittances, Mexico’s proximity to other Central American countries and the high volume of legal commerce to conceal transfers coming into 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, though the use of trade-based money laundering is an increasing trend. Although the combination of a sophisticated financial sector and a large cash-based informal sector complicates the problem, the implementation of U.S. dollar deposit restrictions reduced the amount of bulk cash repatriation back to the U.S. via the formal financial sector by approximately 70 percent, or $10 billion. According to U.S. authorities, drug trafficking organizations send between $19 and $29 billion annually to Mexico from the United States, though the Government of Mexico disputes this figure. Mexico has seized over $500 million in bulk currency shipments since 2002.

For additional information focusing on terrorism financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: NO civilly: YES

Know-your-customer (KYC) rules:

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

KYC 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, centros cambiarios (unlicensed foreign exchange centers), savings and loans institutions, money remitters, SOFOMES (multiple purpose corporate entity), SOFOLES (limited purpose corporate entity), and general deposit warehouses

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 44,591: January 1 - October 31, 2012

Number of CTRs received and time frame: 5 million: January 1 - October 31, 2012

STR 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, centros cambiarios (unlicensed foreign exchange centers), savings and loans institutions, money remitters, SOFOMES (multiple purpose corporate entity), SOFOLES (limited purpose corporate entity), and general deposit warehouses

money laundering criminal Prosecutions/convictions:

Prosecutions: 155: November 2011 - November 2012

Convictions: 160: November 2011 - November 2012

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Mexico is a member of the Financial Action Task Force (FATF) 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/countries/j-m/mexico/documents/mutualevaluationofmexico.html

Enforcement and implementation issues and comments:

On October 11, 2012, Mexico’s Senate approved the modifications to the anti-money laundering law introduced by the executive in August 2010, and approved by the lower house in April 2012. The President signed the bill into law on October 16, 2012. The legislation obliges designated non-financial businesses and professions to identify their clients and report suspicious operations or transactions above designated thresholds to the Secretariat of Finance. The thresholds vary by sector. The legislation establishes a Specialized Financial Analysis Unit in the Office of the Attorney General; restricts cash operations in Mexican pesos, foreign currencies and precious metals for a variety of “vulnerable” activities; and imposes criminal sanctions and administrative fines on violators of the new legislation. The government must publish the implementing regulations 30 days after the law enters into force (on/about July 17, 2013) and the affected entities and persons must begin reporting under the new regime no later than 60 days from that date.

Under the above regulations, casinos, notaries, lawyers, accountants, jewelers, realtors, non-profit organizations, armored car transport companies, armoring services, construction companies, art dealers and appraisers, and non-bank institutions providing credit card, pre-paid card, or traveler check services will also be subject to KYC and STR requirements.

Micronesia, Federated States of

The Federated States of Micronesia (FSM) is not a hub for finance of any kind. The FSM is small, remote, and poor. There are no free trade zones. Because of its low level of sophistication it is historically at low risk for money laundering, terrorist financing, and smuggled products. Money laundering primarily originates from public corruption, including bribery and misuse of public funds. Corruption extends to directing public contracts and employment to unqualified companies or persons; there are no reliably accurate estimates of the amount of proceeds derived from corruption.

Both the legislative and executive branches of the government have declined to allocate funds for the FSM to join any information sharing organization, which has stymied prosecution of cases with international links. Should legislation continue to be approved authorizing the building of a casino in Pohnpei or the Chinese casino project in Yap, money laundering concerns would rise.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, cash dealers, insurers, bingo parlors, trustees, and money transaction services

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not applicable

STR covered entities: All banks and financial institutions

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: NO

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

Enforcement and implementation issues and comments:

The Financial Intelligence Unit (FIU) of the National Police receives suspicious transaction reports (STRs) through the Department of Justice (DOJ). The FIU consists of a single police officer. It has no operational or budgetary independence and relies entirely on the DOJ for funding and the National Police for staff. The officer has both criminal investigative and regulatory responsibilities. Inadequate police training and lack of resources significantly diminish the investigative abilities of both police and FIU staff. There have been no arrests, prosecutions or convictions for money laundering since the FSM criminalized the offense in 2001.

The FSM has yet to make terrorist financing, or the commission of terrorist acts, specific crimes. The FSM should make the criminalization of terrorist acts and terrorist financing a priority, and establish an effective implementation mechanism.

Money laundering statutes provide for the seizure of “tainted” property, as well as any benefits derived from the commission of a money laundering offense. However, no property has ever been seized or confiscated under the money laundering statute. There is no civil forfeiture. The FSM should support the investigation of money laundering cases and the seizure and confiscation of assets where appropriate.

Local institutions and personnel lack the training and capacity to fully enforce the law and its attendant regulations. Although legally obligated, only one of the two banks in FSM currently reports STRs.

The FSM should become a party to the UN Convention against Corruption.

Moldova

Moldova is not considered a regional financial center. The economy is largely cash based and remains highly vulnerable to money laundering activities. The Government of Moldova (GOM) monitors money flows throughout the country, but does not exercise control over its breakaway region of Transnistria. Transnistrian authorities do not adhere to GOM financial controls and maintain a banking system independent of and not licensed by the National Bank of Moldova. Transnistria is also highly susceptible to money laundering schemes and is not in compliance with any accepted anti-money laundering (AML) norms. The situation is exacerbated by a high level of corruption and the influence of organized crime.

Criminal proceeds laundered in Moldova derive substantially from tax evasion, contraband smuggling, and corruption. Money laundering occurs in the banking system and in exchange houses, along with offshore financial centers in Transnistria. Fifteen banks constitute the Moldovan financial system. Neither offshore banks nor shell companies are permitted to operate in Moldova. Internet gaming sites do exist, although no statistics are available on the number of sites in operation. Internet gaming comes under the same set of regulations as domestic casinos. Enforcement of the regulations is sporadic.

Moldova has six free trade zones (FTZs), some of which are infrequently used. Reportedly, goods from abroad are sometimes imported into the FTZ and then resold and exported to other countries with documentation indicating Moldovan origin. Companies operating in FTZs are subject to inspections, controls, and investigations by inspectors from the Customs Service and the Center for Combating Economic Crime and Corruption.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks, deposit companies, and currency exchange offices; investment funds, service providers, and management companies; fiduciary companies and service providers; securities dealers/brokers and stock exchange companies; insurance and reinsurance companies; company formation agents and ownership registries; Internet casinos and gaming and lottery organizers and institutions; real estate agents; dealers of precious metals or gems; auditors, accountants, and financial consultants; lawyers, notaries, and organizations which provide asset transfer services

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

STR covered entities: Banks, deposit companies, and currency exchange offices; investment funds, service providers, and management companies; fiduciary companies and service providers; securities dealers/brokers, and stock exchange companies; insurance and reinsurance companies; company formation agents and ownership registries; Internet casinos and gaming and lottery organizers and institutions; real estate agents; dealers of precious metals or gems; auditors, accountants, and financial consultants; lawyers, notaries, and organizations that provide asset transfer services

money laundering criminal Prosecutions/convictions:

Prosecutions: 10 in 2012

Convictions: 12 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

Moldova has made some progress in instituting a legal framework for combating money laundering. Changes in 2011 to the AML law have had a positive impact on the FIU’s institutional development. In addition, the financial intelligence unit (FIU) increased its operational capacity by securing electronic access to more governmental databases. There are no statistics on the actual numbers of suspicious transaction reports (STRs) and currency transaction reports (CTRs) filed; a combined total of 720,441 reports were filed in 2012. The FIU has developed a five-year action plan to increase national and international cooperation.

In November 2012 the Ministry of Justice, in the framework of the Justice Sector Reform Strategy, drafted a package of laws aimed at combating corruption. The proposed amendments also will have an impact on combating money laundering. The proposed legislation includes the criminalization of illicit enrichment and extended confiscation. The GOM should work to pass these laws.

The GOM should continue to review and amend the criminal procedure code to institute non-conviction based confiscation and to permit special investigative techniques to be applied to a wider range of offenses associated with money laundering and terrorist financing. Additionally, the GOM should criminalize tipping off.

Monaco

The Principality of Monaco is the second-smallest country in Europe but is considered a major banking sector that closely guards the privacy of its clients. It has worked in recent years to comply with international requirements for greater openness and sharing of information. It is linked closely to France and to the economic apparatus of the European Union (EU) through its customs union with France and its use of the euro as its official currency. Monaco is known for its security and political stability.

Monaco’s state budget is based primarily on tourism, taxes, duties, and excise taxes which account for 75% of the total income; casino revenues constitute less than 3% of the state budget. Private banking and fund management dominate the financial sector.

Monaco does not have a formal offshore sector, but foreigners sought and were able to open accounts to hide illicit finances. While Monaco does not publish information about its financial sector, credible sources estimate the country’s 36 banks and three financial institutions hold more than 300,000 accounts and manage total assets of about 750 billion euros (approximately $975 billion). In data obtained for 2010, non-residents accounted for 48% of the financial institutions’ clientele, representing 60% of the total assets and deposits. Money laundering charges relate mainly to offenses committed abroad. The Principality does not face ordinary forms of organized crime, nor is there a significant market for smuggled goods.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks and credit societies; the post office; money exchanges and remitters; portfolio and fund managers and securities brokers/dealers; insurance firms; financial advisors and intermediaries; casinos; real estate agents; dealers of high value goods, antiques, art, precious stones and metals; lawyers; notaries; trustees and company service providers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 520 in 2011

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks; insurance companies; stockbrokers, corporate service providers, portfolio managers, and trustees; casinos; money remitters; real estate brokers; business, legal or tax advisors; dealers in precious stones, precious materials, antiquities, fine art and other valuable assets; lawyers; notaries; accountants

money laundering criminal Prosecutions/convictions:

Prosecutions: 66 in 2011

Convictions: 3 in 2011

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

Enforcement and implementation issues and comments:

The Government of Monaco (GOM) should enhance the authority of its financial intelligence unit (FIU) to forward reports and share financial intelligence with law enforcement and foreign FIUs even when the report or information obtained does not relate specifically to drug trafficking, organized crime, or terrorist financing. Noted deficiencies include weaknesses in Monaco’s ability to freeze terrorist assets without delay, asset sharing, and the threshold for reporting large transactions. The GOM should move quickly to rectify these deficiencies.

The GOM should become a party to the UN Convention against Corruption.

Mongolia

Mongolia is not a regional financial center. There are few financial and economic crimes, although numbers have increased in the last five years. Mongolia is vulnerable to low-grade transnational crime due to the growth in tourism, investment, and remittances from abroad, but the overall rate of these crimes has not increased. The risk of domestic corruption is likely to be enhanced as Mongolia’s rapid economic growth continues, fueled by large scale foreign investment in the mining sector.

Mongolia’s limited capacity to monitor its extensive borders with Russia and China is a liability in the fight against smuggling and narcotics trafficking, but drug use and trafficking remain limited and unsophisticated. There is a black market for smuggled goods, which appears largely tied to tax avoidance rather than drug trafficking. There are no indications that international narcotics traffickers exploit the banking system, and no instances of terrorist financing have been reported.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/

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

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

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

KYC covered entities: Banks; lending, factoring, and financial leasing institutions; issuers of guaranties and payment instruments; trusts; savings and credit cooperatives; insurance companies; securities dealers, remittance services, and foreign currency exchanges; pawnshops; and casinos (although casinos are currently prohibited in Mongolia)

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 138: January 1 – July 1, 2012

Number of CTRs received and time frame: 255,708: January 1 – July 1, 2012

STR covered entities: Banks

money laundering criminal Prosecutions/convictions:

Prosecutions: 1 in 2012

Convictions: 0 in 2012

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

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

http://www.apgml.org/documents/docs/17/Mongolia%20Mutual%20Evaluation%202007%20-%20Final%20.pdf

Enforcement and implementation issues and comments:

The Government of Mongolia’s (GOM) 2009 anti-money laundering/counter-terrorist financing (AML/CFT) law improved AML/CFT efforts but failed to bring Mongolia into compliance with international standards. It is not clear if the GOM has the capacity to fully enforce this law. Deficiencies include inadequate criminalization of money laundering and terrorist financing, lack of a system to seize and confiscate assets, and adequate procedures to identify and freeze terrorist assets, among others. The GOM should seek to pass its proposed financial reform package to address many of these issues.

The GOM does not currently have the capability to detect financial crimes, investigate them fully, and successfully prosecute offenses. Although four cases were opened during the year, the lack of a single successful prosecution to date illustrates the enforcement problem. While highly professional, the FIU appears under-staffed, and coordination with other law enforcement organizations reportedly remains deficient. Similar challenges face both law enforcement and the judicial systems. The government should increase the training for those responsible for enforcing money laundering laws, especially for those investigating and prosecuting money laundering cases.



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