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Diplomacy in Action

2013 INCSR: Countries/Jurisdictions of Primary Concern - Netherlands through Zimbabwe


Bureau of International Narcotics and Law Enforcement Affairs
Report
March 5, 2013

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Netherlands

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

Six islands in the Caribbean fall under the jurisdiction of the Netherlands. Bonaire, St. Eustatius, and Saba are special municipalities of the country The Netherlands. Aruba, Curacao, and St. Maarten are countries within the Kingdom of the Netherlands. The Netherlands is responsible for the courts and for combating crime and drugs trafficking within the Kingdom. As special municipalities, Bonaire, St. Eustatius and Saba are officially considered “public bodies” under Dutch law.

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: NO

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks, credit institutions, securities and investment institutions, providers of money transaction services, life insurers and insurance brokers, credit card companies, casinos, traders in high value goods, other traders, accountants, lawyers and independent legal consultants, business economic consultants, tax consultants, real estate brokers, estate agents, civil law notaries, trusts and asset administrative companies

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 23,224 in 2012

Number of CTRs received and time frame: Not available

STR covered entities: Banks, credit institutions, securities and investment institutions, providers of money transaction services, life insurers and insurance brokers, credit card companies, casinos, traders in high value goods, other traders, accountants, lawyers and independent legal consultants, business economic consultants, tax consultants, real estate brokers, estate agents, civil-law notaries, trust and asset administrative companies

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 1,300 in 2010

Convictions: 812 in 2010

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

The Netherlands is a member of the Financial Action Task Force (FATF). Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/countries/n-r/netherlandskingdomof/documents/mutualevaluationreportofthenetherlands.html

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of The Netherlands (GON) is largely in compliance with international standards but some implementation shortcomings exist. To address concerns about the operational independence and effectiveness of the Dutch financial intelligence unit (FIU), the Ministry of Security and Justice has plans to reorganize the National Police to create more flexibility and enhance its effectiveness in responding to money laundering cases. The government should ensure implementation of these actions in 2013.

The Dutch legal system does not include an autonomous offense of terrorism financing; the current legal framework is being changed to provide for it. The Netherlands has proposed legislation for a number of measures. The GON should enact the following proposed amendments, including: a flexible maximum fine based on business profits and gains; criminalization of abuse of public funds and corruption by public servants and the private sector; an increase in punishment to combat the commission of crimes within the context of the Economic Offenses Act; and a faster procedure to determine the right to seize documents in cases where lawyers and civil law notaries, among others, invoke their right not to submit evidence.

The Netherlands utilizes an “unusual transaction” reporting system. Designated entities are required to file unusual transaction reports (UTRs) with the FIU on any transaction that appears unusual (applying a broader standard than “suspicious”) or when there is reason to believe that a transaction is connected with money laundering or terrorist financing. The FIU investigates UTRs and forwards them to law enforcement for criminal investigation; once the FIU forwards the report, the report is then classified as a STR. There were 167,237 UTRs in 2012.

The GON should enact the draft legislation to strengthen its reporting regime and enact stronger KYC rules. The draft legislation includes specific requirements for customer due diligence (CDD) related to legal arrangements; an exchange of information among supervisory authorities; good faith as a condition for protection from criminal liability; a requirement to immediately obtain information in case of reliance on third parties for CDD; and politically exposed person (PEP)-related requirements that include non-Dutch PEPs resident in the Netherlands. The GON also should consider the draft law to modernize the supervision of lawyers, which has been sent to parliament.

The Netherlands cooperates fully with international investigations. The assignment of dedicated money laundering prosecutors is bringing change to historically low asset seizure rates. To further increase the confiscation of criminal assets, the Dutch Minister of Security and Justice introduced a new law including confiscation as a standard procedure of any money-driven criminal case, aimed at increasing law enforcement agencies’ capacity to take such action. The government should move to pass this law.

Nigeria

Nigeria remains a major drug transshipment point and a significant center for criminal financial activity. Individuals, such as internet fraudsters and corrupt officials and businessmen, as well as criminal and terrorist organizations take advantage of the country’s location, porous borders, weak laws, corruption, lack of enforcement, and poor socioeconomic conditions to launder the proceeds of crime. The proceeds of illicit drugs in Nigeria derive largely from foreign criminal activity rather than domestic activities. One of the schemes used by drug traffickers to repatriate and launder their proceeds involves the importation of various commodities, predominantly luxury cars and other items such as textiles, computers, and mobile telephone units. Drug traffickers reportedly also use Nigerian financial institutions for currency transactions involving U.S. dollars derived from illicit drugs.

Proceeds from drug trafficking, illegal oil bunkering, bribery and embezzlement, contraband smuggling, theft, and financial crimes, such as bank fraud, real estate fraud, and identity theft, constitute major sources of illicit proceeds in Nigeria. Advance fee fraud, also known as “419 fraud” in reference to the fraud section in Nigeria’s criminal code, remains a lucrative financial crime that generates hundreds of millions of illicit dollars annually. Money laundering in Nigeria takes many forms, including: investment in real estate; wire transfers to offshore banks; political party financing; deposits in foreign bank accounts; use of professional services, such as lawyers, accountants, and investment advisers; importing goods such as used cars and consumer electronics; and, cash smuggling. Nigerian criminal enterprises adeptly subvert international and domestic law enforcement efforts and evade detection. Nigeria is ranked 139 of 176 on Transparency International’s 2012 Corruption Perception Index.

Nigeria’s anti-money laundering/counter-terrorist financing (AML/CFT) progress in 2012 relative to its action plan was not considered sufficient by the Financial Action Task Force (FATF), which highlighted Nigeria’s lack of adequate progress by including Nigeria in its October 2012 Public Statement.

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: YES

KYC covered entities: Banks, investment and securities broker/dealers, and discount houses; insurance institutions; debt factorization and conversion firms, money exchanges, and finance companies; money brokerage firms whose principal business includes factoring, project financing, equipment leasing, debt administration, fund management, private ledger service, investment management, local purchase order financing, export finance, project and financial consultancy, or pension funds management; dealers in jewelry, cars and luxury goods; chartered accountants, audit firms, and tax consultants; clearing and settlement companies and legal practitioners; hotels, casinos, and supermarkets

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,153: January 1, 2012 – November 30, 2012

Number of CTRs received and time frame: 3,386,117: January 1, 2012 – November 30, 2012

STR covered entities: Banks, investment and securities broker/dealers, and discount houses; insurance institutions; debt factorization and conversion firms, money exchanges, and finance companies; money brokerage firms whose principal business includes factoring, project financing, equipment leasing, debt administration, fund management, private ledger service, investment management, local purchase order financing, export finance, project and financial consultancy, or pension funds management; dealers in jewelry, cars and luxury goods; chartered accountants, audit firms, and tax consultants; clearing and settlement companies and legal practitioners; hotels, casinos, and supermarkets

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 14: October 1, 2011 – September 30, 2012

Convictions: 5: October 1, 2011 – September 30, 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Nigeria is a member of the Inter Governmental Action Group against Money Laundering in West Africa (GIABA), a FATF-style regional body. Its most recent mutual evaluation can be found here: http://www.giaba.org/index.php?type=c&id=49&mod=2&men=2

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Nigerian authorities are working toward full implementation of a regime capable of thwarting money laundering and terrorist financing. The 2011 Terrorism (Prevention) Act (TPA) represents progress toward criminalizing terrorist financing, but it is not consistent with international standards. For example, terrorist financing is not listed as a predicate offense for money laundering. The Government of Nigeria (GON) should amend the law to bring it into compliance. In 2012, Nigeria developed amendments to both the TPA and Money Laundering (Prohibition) Act (MLPA). The amendments include all the required predicate offenses, including terrorist financing; the draft amendments to both laws are being negotiated in the National Assembly reconciliation committee, to work out differences between the House and Senate versions.

Lack of investigative capacity as well as judicial corruption have hindered the progress of and thwarted many prosecutions and investigations. The GON should ensure the autonomy and independence from political pressures of the Economic and Financial Crimes Commission (EFCC) and the Nigerian Financial Intelligence Unit (NFIU). The GON also should strengthen its supervision of designated non-financial businesses and professions. Moreover, the GON should work to eradicate any corruption existing within law enforcement bodies and ensure the range of agencies that pursue money laundering cases, including the EFCC, Nigerian Drug Law Enforcement Agency, Independent Corrupt Practices and Other Related Offenses Commission, Nigerian Agency for the Prevention of Trafficking in Persons, and National Police Force have the capacity to function as investigative partners in financial crimes cases. The National Assembly should amend the MLPA to provide for increased autonomy of the NFIU and adopt safe harbor provisions to protect STR reporting entities and their employees. The GON should consider developing a cadre of specially trained judges with dedicated portfolios in order to handle financial crime cases effectively, and the National Assembly also should adopt a non-conviction based asset forfeiture bill.

Pakistan

Pakistan is strategically located between south, central and western Asia, with a coastline along the Arabian Sea. Its porous borders with Afghanistan, Iran, and China facilitate the smuggling of narcotics and contraband between Afghanistan and overseas markets. The country suffers from financial crimes associated with tax evasion, fraud, corruption, trade in counterfeit goods, contraband smuggling, narcotics trafficking, and terrorism. The black market economy generates substantial demand for money laundering and illicit financing.

Common methods for transferring illicit funds include fraudulent trade invoicing, phony currency exchange, and bulk cash smuggling. Criminals utilize import/export firms, front businesses, and the charitable sector to carry out such activities. Pakistan’s real estate sector is another common money laundering destination, since real estate transactions tend to be poorly documented.

Money laundering in Pakistan affects both the formal and informal financial systems. In 2012, the Pakistani diaspora legitimately remitted $13.2 billion back to Pakistan via the formal banking sector. Though it is illegal to change foreign currency without a license, unlicensed hawala/hundi operatorss are prevalent throughout Pakistan. These entities also are commonly used to transfer and launder illicit money.

In October 2012, the Financial Action Task Force (FATF) included Pakistan on its Public Statement because of continuing deficiencies in its anti-money laundering/counter-terrorist financing (AML/CFT) 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: 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, Developmental Financial Institutions (DFIs), exchange companies, mutual funds, asset management companies, investment banks, leasing companies, modarabas—a kind of partnership, wherein one party provides finance to another party for the purpose of carrying on a business, pension funds, stock exchanges and brokers, insurance and reinsurance companies, insurance brokers and insurance surveyors

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 560 in 2011

Number of CTRs received and time frame: 204,417 in 2011

STR covered entities: Banks, DFIs, exchange companies, mutual funds, asset management companies, investment banks, leasing companies, modarabas, pension funds, stock exchanges and brokers, insurance and reinsurance companies, insurance brokers and insurance surveyors

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: Not available

Convictions: Not available

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Pakistan is a member of 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/Pakistan%20MER%20-%20final%20version.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Though Pakistan has taken some progressive steps towards remedying its AML/CFT regime, the FATF has noted Pakistan’s failure to adequately implement the totality of its action plan, or to address certain deficiencies in its terrorism finance laws. Pakistan should adopt legislation to address these deficiencies. Pakistani authorities also need to investigate and prosecute money laundering and terrorism financing and not focus on the predicate offense creating the proceeds of crime. Awareness raising on AML/CFT issues is critical to the judicial sector.

Weak legislation and lack of implementation also have stymied Pakistan’s AML regime. Enforcement deficiencies, particularly regarding the movement of cash, leave Pakistan’s informal financial sector vulnerable to illicit exploitation. For example, the State Bank of Pakistan (SBP) requires all money exchange companies to obtain licenses and meet minimum capital requirements. As a result, it is illegal for money exchange companies or hawaladars to operate without a license. However, few hawaladars have been registered by the authorities, and unlicensed hawaladars continue to operate illegally throughout Pakistan, particularly in Peshawar and Karachi.

To address these deficiencies, Pakistan should resolve remaining legal inadequacies related to the criminalization of money laundering; demonstrate effective regulation over exchange companies, specifically by creating an appropriate sanctions regime and increasing the range of preventive measures applicable to such services; implement effective controls for cross-border cash transactions; and develop an effective asset forfeiture regime.

Panama

Panama’s strategic geographic location, dollarized economy, and status as a regional financial, trade and logistics center make it an attractive target for money launderers. The Colon Free Zone (CFZ), the second largest free trade zone in the world, is located on Panama’s Atlantic coast. Money laundered in Panama is believed to be primarily from the proceeds of drug trafficking due to the country’s location along major drug trafficking routes. Numerous factors hinder the fight against money laundering, including a weak regulatory framework, the existence of bearer share corporations, a lack of collaboration among government agencies, inconsistent enforcement of laws and regulations, and a weak judicial system susceptible to corruption and favoritism.

The Government of Panama (GOP) has issued 14 permits to operate free trade zones (FTZs) in Panama. Currently, there are only nine active FTZs, all concentrated in Panama City and Colon.

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: NO

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks, savings cooperatives, savings and mortgage banks, and money exchanges; investment houses and brokerage firms; insurance and reinsurance companies; fiduciaries; casinos; free trade zone companies; finance companies; real estate brokers; and lawyers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 652 in 2011

Number of CTRs received and time frame: 517,267: January 1 - September 30, 2012

STR covered entities: Banks, cooperatives, money exchanges, money transfer companies, casinos, betting and gaming companies, fiduciaries, insurance and insurance brokerage companies, the national lottery, investment and brokerage houses, real estate companies, pawnshops, the CFZ, Panama Pacifico Special Economic Zone, Baru Free Trade Zone and other free trade zones

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 25: January 1 – October 1, 2012

Convictions: 26 in 2011

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Panama is a member of the Financial Action Task Force on Money Laundering in South America (GAFISUD), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.gafisud.info/eng-evaluaciones.php#informes_evaluaciones_mutuas

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Panama cooperates well with U.S. law enforcement agencies. However, the GOP’s success in interdicting illegal drug flows is not matched by success in addressing money laundering concerns. There is limited cooperation and communication among the various government agencies tasked with addressing money laundering. Agencies are under-resourced, often lacking the personnel and training to investigate and prosecute complex money laundering schemes.

Panama’s financial intelligence unit, the UAF, is responsible for analyzing suspicious financial transactions; however, it is ineffective due to a lack of resources and political independence. The UAF does not have the capability to receive STRs in an electronic format, hindering analysis and timely investigations. The UAF reports to the Ministry of the Presidency and, according to a broad range of sources, inquiries initiated by the UAF mainly concern political figures, leading to questions about its independence.

The judicial branch’s capacity to successfully prosecute and convict money launderers remains weak, and judges remain susceptible to corruption. The transition to an accusatory penal system, which began in September 2010, is expected to be fully implemented by 2015, but has not yet had a noticeable effect on money laundering prosecutions.

Panama’s Customs Authority is taking steps to reduce the use of Tocumen Airport as an artery for cash couriers to move cash into Panama. More targeted enforcement action, in collaboration with U.S. law enforcement agencies, has led to increased scrutiny of passengers and notable seizures of undeclared cash at the airport. Panamanian Customs has also been effective in identifying potential trade-based money laundering (TBML) with information from the Trade Transparency Unit (TTU), a multi-national trade data-sharing entity. The trade information is analyzed to identify anomalies indicative of TBML, trade fraud and other financial crimes. Despite these advances, Customs lacks sufficient resources to fulfill its mandate. Although Customs generates significant revenue for the government, its limited budget constrains its ability to hire skilled personnel and purchase necessary equipment.

As of November 2012, Panama has 14 double taxation treaties and eight tax information exchange agreements, including one with the United States signed in 2010.

The CFZ continues to be vulnerable to illicit financial activities and abuse by criminal groups, due primarily to weak customs, trade and financial transactions oversight. Bulk cash is easily introduced into the country by declaring it is for use in the CFZ. If the CFZ’s electronic transaction recording information system is fully integrated with the TTU, better identification of potential TBML activity will be possible.

The continued existence of bearer share corporations remains a vulnerability of the anti-money laundering (AML) regulatory framework. Additionally, only banks have enhanced due diligence procedures for foreign and domestic PEPs. Executive Decree 55 of February 1, 2012 expands the list of supervision entities, which now includes the Superintendent of Banks; the Panamanian Institute of Autonomous Cooperatives; the Superintendent of Securities Markets; the Colon Free Zone Management; the National Lottery; the Panama Pacifico Agency; the Free Zone of Baru Management; and five offices under the Ministry of Industry and Commerce: the Gaming Control Board, Directorate General of Financial Companies, Real Estate Board, National Directorate of Investments, and Superintendent of Insurance and Reinsurance. Cabinet Decree, Number 43 of November 13, 2012, sets the framework for Panama to become a participant in the Kimberley Process and allows the import and export of rough diamonds. This has raised concerns that rough diamonds could become a new channel for TBML. A new AML law, which has been in process since 2011, would strengthen the UAF’s authority and further increase the number of sectors required to report suspicious transactions. The government has not announced a time frame for enactment.

The GOP must improve its AML legal framework, strengthen the prosecutor’s office and the judicial system, and create a more transparent financial network so that money laundering will become more difficult within Panama’s borders.

Paraguay

Paraguay is a major drug transit country and money laundering center. A multi-billion dollar contraband trade, fed in part by endemic institutional corruption, occurs in the border region shared with Argentina and Brazil (the tri-border area, or TBA) and facilitates much of the money laundering in Paraguay. While the Government of Paraguay (GOP) suspects proceeds from narcotics trafficking are often laundered in the country, it is difficult to determine what percentage of the total amount of laundered funds is generated from narcotics sales or is controlled by domestic and/or international drug trafficking organizations, organized crime, or terrorist groups. Weak controls in the financial sector, open borders, bearer shares, casinos, a surfeit of unregulated exchange houses, lax or no enforcement of cross-border transportation of currency and negotiable instruments, ineffective and/or corrupt customs inspectors and police, and minimal enforcement activity for financial crimes allow money launderers, transnational criminal syndicates, and possible terrorist financiers to take advantage of Paraguay’s financial system.

Ciudad del Este, on Paraguay’s border with Brazil and Argentina, and nearby Salto del Guairá and Pedro Juan Caballero represent the heart of Paraguay’s “informal” economy. The area is well known for arms and narcotics trafficking, document forging, smuggling, counterfeiting, and violations of intellectual property rights, with the illicit proceeds from these crimes a source of laundered funds. Some proceeds of these illicit activities have been supplied to terrorist organizations, and trade-based money laundering occurs in the region.

As a land-locked nation, Paraguay does not have an offshore sector. Paraguay’s port authority manages free trade ports and warehouses in Argentina (Buenos Aires and Rosario); Brazil (Paranagua, Santos, and Rio Grande do Sul); Chile (Antofagasta and Mejillones); and Uruguay (Montevideo and Nueva Palmira).

Money laundering likely occurs in the formal financial sector and definitely occurs in the non-bank financial sector, particularly in exchange houses, which are often used to move illicit proceeds both from within and outside Paraguay into the U.S. banking system. Large sums of dollars generated from normal commercial activity and suspected illicit commercial activity are also transported physically from Paraguay to Uruguay and Brazil, with onward transfers likely to destinations including banking centers in the United States.

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: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks, credit and consumer cooperatives, and finance companies; insurance companies; exchange houses, stock exchanges, securities dealers, investment and trust companies; mutual and pension fund administrators; gaming entities; real estate brokers; nongovernmental organizations; pawn shops, and dealers in precious stones, metals, art, and antiques

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,487 in 2012

Number of CTRs received and time frame: 2,073,289 in 2012

STR covered entities: Banks, credit and consumer cooperatives, and finance companies; insurance companies; exchange houses, stock exchanges, securities dealers, investment and trust companies; mutual and pension fund administrators; gaming entities; real estate brokers; nongovernmental organizations; pawn shops, and dealers in precious stones, metals, art, and antiques

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 8 in 2012

Convictions: 0 in 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Paraguay is a member of the Financial Action Task Force against Money Laundering in South America (GAFISUD), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation, conducted by the International Monetary Fund (IMF), can be found here: http://www.imf.org/external/pubs/ft/scr/2009/cr09235.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

For reporting entities that do not have a natural supervisory authority, the Secretariat for the Prevention of Laundering of Money or Assets (SEPRELAD) is the competent supervisor. Both SEPRELAD’s budget and staff increased in 2012. In January, SEPRELAD began using software to collect suspicious transaction reports (STR) directly from obligated institutions. The software better establishes the requirements for a STR for obligated institutions and provides a streamlined workflow for collecting supporting documentation. STRs increased 180 percent compared to the average of the previous two years, with a marked increase in reports from exchange houses (98 in 2011; 891 in 2012) and from banks (293 in 2011; 518 in 2012). In 2012, SEPRELAD continued extensive money laundering investigations of four banks and one exchange house in Ciudad del Este that began in late 2011.

The non-bank financial sector operates in a weak regulatory environment with limited supervision. The non-governmental organization responsible for regulating and supervising credit unions, the National Institute of Cooperatives, lacks the capacity to enforce compliance. Exchange houses are another critical non-bank sector where enforcement of compliance requirements remains limited. A 2012 law requires that politically exposed persons (PEPs) of foreign nationality be subject to enhanced due diligence procedures, as is required of domestic PEPs. SEPRELAD is still developing procedures to implement this expanded requirement.

Prosecutors handling financial crimes have limited resources to investigate and prosecute. In addition, the selection of judges, prosecutors and public defenders is largely based on politics, nepotism, and influence peddling. The lack of interagency cooperation throughout Paraguay, and particularly within law enforcement, is an impediment to effective enforcement, prosecution, and reporting efforts. Money laundering criminal prosecutions/convictions data only represents cases prosecuted by the Attorney General’s Economic Crimes Office. Paraguay does not have a centralized system for tracking money laundering cases prosecuted by other offices or by local prosecutors outside of Asuncion.

In 2012, the GOP enacted a law and implementing regulations that require obligated institutions to freeze preemptively any financial assets they suspect of being linked to terrorism, including terrorism financing and acts of terrorism. This law complements the 2011 terrorist asset freezing law. Paraguay needs to enact effective asset forfeiture legislation. Apart from the terrorist asset freezing laws, Paraguayan law does not provide for freezing or seizure of many criminally-derived assets. Law enforcement can only freeze assets of persons under investigation for a crime in which the state risks loss of revenue from furtherance of a criminal act, such as tax evasion. Enforcement agencies have limited authority to seize or forfeit assets of suspected money launderers and do not include bank accounts. When a seizure does occur, law enforcement authorities cannot dispose of these assets until a defendant is convicted, which frequently takes years.

People entering or leaving the country are required to declare to Customs values exceeding $10,000 or its equivalent in other currencies. However, Customs operations at the airports or overland entry points provide little control of cross-border cash movements. Customs officials are often absent from major border crossings, and required customs declaration reports are seldom checked.

Although Paraguay has made overall progress in improving its anti-money laundering/counter-terrorism financing (AML/CFT) regime, and Paraguay’s efforts and political commitment are reflected in the issuance of new legislation, the authorities’ broader coordination capacity and the strengthening of the institutional frameworks should be enhanced. The GOP should demonstrate the effectiveness of the legislation in force and of mechanisms it has put in place.

Philippines

The Republic of the Philippines is not a regional financial center, but with a growing economy it is increasingly becoming an important player in Asia. Corruption is a source of laundered funds, and smuggling, particularly bulk cash smuggling, is a major problem. The Philippines continues to experience foreign organized criminal activity from players in China, Hong Kong, and Taiwan. In addition, insurgent groups operating in the Philippines engage in money laundering through ties to organized crime, and criminal activities are partially funded through kidnapping for ransom as well as narcotics and arms trafficking. In terms of narcotics trafficking, methamphetamine use is particularly high in the Philippines. While there are significant domestic clandestine methamphetamine laboratories, the drug also enters the country through bulk importation/smuggling via maritime vessels as well as air passenger couriers.

Casinos currently are not covered institutions under the Anti-Money Laundering Act (AMLA), although the laws surrounding online gaming are less clear. In 2011, gaming generated $1.3 billion and the revenue streams will expand further with a large, new casino slated to open soon in Manila. The Philippine Amusement and Gaming Corporation, a fully owned government entity, regulates the gaming industry.

Remittances sent to the Philippines by its large expatriate community also provide a channel for money laundering. However, banks and money remitters are now able to capture the bulk of remittances, approximately 80 - 90 percent, sent by overseas foreign workers to the Philippines.

The Philippines, dubbed the “world’s texting capital,” is a leader in the use of cell phone technology for funds transfers. Although less prevalent, the Government of the Philippines (GOP) has also started using this technology for government-to-persons (G2P) payments, such as through its Conditional Cash Transfer Program. The technology/systems used by telecom firms for facilitating financial transfers are subject to study and approval by the Philippine Central Bank.

The Philippine Economic Zone Authority (PEZA) regulates the 273 economic zones that are established throughout the country, and a handful of other zones are regulated locally or by the Bases Conversion Development Authority. Overall, the PEZA economic zones are properly regulated, but smuggling can be a problem in locally regulated zones. In addition, the Central Bank exercises regulatory supervision over four offshore banking units and requires them to meet reporting provisions and other banking rules and regulations.

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: YES

KYC covered entities: Banks (universal, commercial, thrift, rural, and Islamic) and quasi banks; pawn shops and dealers in precious metals and stones; life insurance and pre-need companies, agents and brokers; mutual benefit associations; professional reinsurers and reinsurance brokers; holding companies; trusts for charitable uses; securities dealers and brokers/sales representatives, investment houses, mutual funds, trusts, and other entities managing securities as agent/consultant; foreign exchange dealers, money changers, and remittance/transfer agents; entities dealing in currency, financial derivatives, cash substitutes, and similar monetary instruments; and accountants

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 17,711 in 2012

Number of CTRs received and time frame: 49,061,986 in 2012

STR covered entities: Banks (universal, commercial, thrift, rural, and Islamic) and quasi banks; pawn shops and dealers in precious metals and stones; life insurance and pre-need companies, agents and brokers; mutual benefit associations; professional reinsurers and reinsurance brokers; holding companies; trusts for charitable uses; securities dealers and brokers/sales representatives, investment houses, mutual funds, trusts, and other entities managing securities as agent/consultant; foreign exchange dealers, money changers, and remittance/transfer agents; entities dealing in currency, financial derivatives, cash substitutes, and similar monetary instruments; and accountants

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 13 in 2012

Convictions: 0 in 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

The Philippines is a member of the Asia/Pacific Group on Money Laundering, a Financial Action Task Force-style regional body. Its most recent mutual evaluation report can be found here: http://www.apgml.org/documents/docs/17/The%20Philippines%20DAR%20-%20Final%20%20210809.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

In June 2012, the Philippines enacted legislation to address some noted major deficiencies. The changes authorize the Anti-Money Laundering Council (AMLC) to apply to the courts for ex parte inquiry into deposits and investments in relation to all unlawful activities enumerated under the AMLA. The changes also make terrorism financing a stand-alone crime and empower the AMLC to freeze funds and properties of designated terrorists and terrorist organizations, without delay, for cases involving terrorist financing.

Revised Implementing Rules and Regulations issued in August 2012 now define a politically exposed person (PEP) and require covered institutions to take reasonable measures to determine whether a customer or beneficial owner is a PEP. The rules call for enhanced due diligence only for domestic PEPs assessed as high risk for money laundering and terrorist financing, including obtaining senior management approval for establishing or continuing business relationships and establishing their source of wealth/source of funds. Foreign PEPs are automatically subject to enhanced due diligence.

Legislation pending in the Philippine Senate seeks to address other deficiencies by expanding the definition of a money laundering offense according to standards specified by international conventions to which the Philippines is a party, and expanding the lists of covered institutions and predicate crimes. The country should pass this legislation. In addition, the country should seek to include casinos in the proposed list of covered institutions.

While the GOP has made notable progress in enacting legislation and issuing regulations, limited human and financial resources constrain tighter monitoring and enforcement.

Russia

The Russian financial sector is considered large, but not in relation to the size of the large corporations that dominate the economy. The current Russian administration aspires to transform Moscow into an international financial center. While there has been significant progress in improving the legal and enforcement framework, the prevalence of money laundering in Russia, high levels of organized crime, and corruption stand as major obstacles to this goal. A lack of transparency in the financial sector generally helps to enable corruption.

Domestic sources of laundered funds include organized crime, evasion of tax and customs duties, fraud, public corruption, and smuggling operations. The country is considered a significant transit and destination country for international narcotics traffickers who also use the country to launder the proceeds of their crimes. Criminal elements from Russia and neighboring countries continue to use Russia’s financial system and foreign legal entities to launder money. Criminals invest and launder their proceeds in securities instruments, both domestic and foreign real estate, and luxury consumer goods.

Russia’s money laundering risk factors include an economic environment conducive to fraud; many large-scale financial transactions associated with its vast natural resources; the state’s major role in the economy; and chronic under-funding and lack of capacity of regulatory and law enforcement agencies. These factors help create an enabling environment for corruption and financial criminality. The country’s vast territory means that relations with both its regions and quasi-autonomous regions, especially in the Caucasus region, have relatively low oversight. Considerable vulnerabilities exist in relation to money laundering and the funding of terrorism in these areas.

Gaming is only allowed in particular regions, with regulation shared across multiple agencies, including the Ministries of Finance and Internal Affairs. Russian gaming regulations are strict, although it is difficult to make broad conclusions about the effectiveness of enforcement beyond a few high profile cases. Online gaming is not allowed. Cybercrime is also a problem. Russia’s highly skilled hackers and traditional organized crime structures have followed the global trend of increasingly combining forces, resulting in an increased threat to the financial sector.

There is a large migrant worker population in Russia. While the majority of workers likely use formal banking mechanisms, there is likely to be a considerable amount of transfers through informal value transfer systems that may pose a vulnerability.

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: NO civilly: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks and credit institutions; Russian Post; payment acceptance and money transfer services; securities, insurance and leasing companies; investment and non-state pension funds; casinos and gaming outlets; dealers in precious metals and stones; real estate agents; pawnshops, microfinance organizations, and consumer credit cooperatives; and persons providing legal or accounting services

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,316,872: January 1 – March 31, 2012

Number of CTRs received and time frame: 826,444: January 1 - March 31, 2012

STR covered entities: Banks and credit institutions; securities markets, investment and pension funds; Russian Post; insurance sector; leasing companies; dealers in precious metals and stones; casinos; real estate agents; lawyers, notaries, and persons providing legal or accounting services; microfinance organizations; consumer credit cooperatives; and non-commercial organizations receiving funds from certain foreign entities

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 81: January 1 – March 31, 2012

Convictions: 173 in 2011

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Russia is a member of the Financial Action Task Force (FATF) and two FATF-style regional bodies: the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), and the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG). Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/countries/n-r/russianfederation/

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of Russia (GOR) has an effective legal and enforcement framework to deal with money laundering and terrorist financing. While amendments to the law are being proposed they have not yet been taken up for consideration by the Duma. The amendments are expected to contain several positive measures, including establishment of beneficial ownership requirements, such as criteria under which a person might be deemed a beneficial owner, and identification requirements. The amendments also are expected to expand the list of entities subject to anti-money laundering/countering the financing of terrorism (AML/CFT) requirements and the scope of transactions falling under the financial intelligence unit’s control. The GOR should pass these legislative changes.

In 2010, self-laundering of amounts lower than RUB 6 million (approximately $196,800) was decriminalized with the rationale being it would allow authorities to better focus on third party laundering. This contradicts international standards, however; and Russian authorities have been encouraged to reconsider this limit. Russia also should ensure that obligated entities are able to report every type of suspicious activity related to money laundering.

Though the overall STR regime is working well in practice, presently there is no legal basis for reporting attempted transactions by occasional customers. There is also no prohibition on maintaining existing accounts under fictitious names, even in cases where bona fide identification was shown at the time of opening the account. The Central Bank requires banks to conduct repeat identification of customers when there is doubt over previously submitted identification, but other financial institutions are not subject to such requirements. Banks also lack the authority to refuse to carry out a transaction or to open an account when they have strong AML concerns regarding the transaction or prospective clients. The above proposed amendments may address some of these issues, including allowing banks to refuse to open accounts when there is suspicion of fraud as well as prohibiting accounts for anonymous owners or those using pseudonyms. Further attempts should be made to bring the AML efforts of all Russian banks to a more sophisticated level, including continued enhancement of the compliance training and certification process.

Although the GOR continues to establish and develop anti-corruption measures, corruption continues to be a problem. Domestic PEPs still are not monitored with the same scrutiny as foreign PEPs. The government should ensure that domestic PEPs are put under the same scrutiny as foreign PEPs.

Singapore

Singapore is a major international financial and investment center as well as a major offshore financial center. Secrecy protections, a lack of routine large currency reporting requirements, and the size and growth of Singapore’s private banking and asset management sectors pose significant risks and make the jurisdiction a potentially attractive money laundering/terrorist financing destination for drug traffickers, transnational criminals, foreign corrupt officials, terrorist organizations and their supporters. Authorities have taken action against Jemaah Islamiyah and its members and have identified and frozen terrorist assets held in Singapore. Terrorist financing in general remains a risk.

As of December 1, 2012, there were 37 offshore banks in operation, all foreign-owned. Singapore is a center for offshore private banking and asset management. Assets under management in Singapore total approximately S$1.34 trillion (approximately $1.03 trillion). As of December 2011, Singapore had at least $700 billion in foreign funds under management. Singapore does not permit shell banks or anonymous accounts.

There are two casinos in Singapore with estimated combined annual revenue of $3.98 billion, but online gaming is illegal. Casinos are regulated by the Casino Regulatory Authority. Given the scale of the financial flows associated with the casinos, there are concerns that casinos could be targeted for money laundering purposes.

Singapore has nine free trade zones (FTZs) which may be used for storage, repackaging of import and export cargo, assembly and other manufacturing activities approved by the Director General of Customs in conjunction with the Ministry of Finance.

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, financial institutions, finance companies, merchant banks, life insurers, brokers, securities dealers, investment advisors, futures brokers and advisors, trust companies, approved trustees, and money changers and remitters

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 13,557 in 2011

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, auditors, financial advisors, capital market service licensees and exempt persons, finance companies, lawyers, notaries, merchant banks, life insurers, trust companies, approved trustees, real estate agents and money changers and remitters

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 32 in 2011

Convictions: 26 in 2011

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

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

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Singapore has a comprehensive STR regime and applies AML/CFT requirements to a broad range of entities. Currently, there is no requirement for reporting large currency transactions, which limits the ability to track significant financial movements. Singapore should consider the adoption of such reporting.

Singapore’s legal system generally provides for the investigation and prosecution of money laundering offenses. However, the implementation of these laws is uneven, particularly in prosecuting money laundering as a stand-alone offense, and investigating foreign-sourced cases. Singaporean police are fairly successful at identifying domestic predicate offenses, and include ancillary money laundering charges as appropriate. Singapore should more aggressively pursue domestic stand-alone money laundering offenses as well.

Singapore’s large, stable, and sophisticated financial center may be attractive as a conduit for laundering proceeds generated by foreign criminal activities, including official corruption. The Suspicious Transaction Reporting Office and criminal investigators are encouraged to identify money laundering that originates from foreign predicate offenses, and use stand-alone money laundering charges to prosecute foreign offenders in Singapore.

Somalia

In 2012, Somalia made significant progress in recovery from its status as a failed state by completing its political transition. In September 2012, a new Parliament elected a new President, who named a Prime Minister and Cabinet. Somali National Army forces, alongside troops from the African Union Mission in Somalia, made significant gains against the U.S.-designated terrorist group al-Shabaab, pushing the extremist militia out of all major cities it previously held. Nevertheless the country is still attempting to stabilize, and the government struggles with weak institutions. A provisional constitution was adopted by a Constituent Assembly of Somali leaders in 2012.

The financial system in Somalia operates almost completely outside of government oversight, either on the black market or via remitters and hawalas. Smuggling is rampant. Somalia has one of the longest land borders as well as the longest coastline in Africa. Officials are unable to maintain control over these points of entry, and goods flow in and out of Somalia unchecked. Piracy ransoms are laundered, especially in northern Somalia, and perhaps in neighboring countries, the Middle East, or Europe. There is some evidence that piracy revenues are laundered through Nairobi and Dubai. The ransoms are delivered through cash drops to pirates holding ships off Somalia’s coast. They are divided among the pirates themselves, their support networks on shore, and possibly national and international sponsors. Much of the ransom reportedly remains in cash. Anecdotal reports are that real estate, luxury goods and businesses are financed by ransoms. In Somalia’s small, impoverished towns, these purchases and investments are difficult to hide, however, making laundering money in Somalia difficult.

Public corruption significantly facilitates money laundering. For example, some government officials in Somalia’s northern region of Puntland are reportedly benefiting from pirate ransoms. They may facilitate ransom laundering or the transfer of ransom money to foreign destinations. Somalia ranks 174 of 174 countries on Transparency International’s 2012 Corruption Perception Index, although the new government is taking important steps to improve its public financial management and appears more committed to transparency than the transitional government that preceded it.

Somalia is also a center for terrorist financing. Al-Shabaab remains the most significant threat to Somalia and the region. Its insurgency against the Government of Somalia (GOS) receives financing from multiple sources, including through financial donations from non-Somali and Somali sympathizers both inside Somalia and abroad, taxation of and extortion targeting local businesses and private citizens, and a monopoly on the charcoal trade which both the Somali government and the UN have banned as a means of depriving al-Shabaab of a significant revenue stream. Some funds enter as cash, but a significant portion reportedly passes through hawaladars and other money or value transfer services. There also are occasional reports of U.S. dollar counterfeiting in al-Shabaab-controlled areas as well as reports of al-Shabaab extorting ransom payments from pirates. There are concerns that money is laundered into the country in support of al-Shabaab.

A 2006 World Bank study pegged remittances at roughly $1 billion per year, mostly sent by Somali workers overseas to their relatives. To the extent Somalis may be engaged in the drug trade in the United States, some of those proceeds are probably transferred to Somalia through hawalas in the form of remittances.

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 applicable

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

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: Not applicable

Number of CTRs received and time frame: Not applicable

STR covered entities: None

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

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

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Until the completion of its political transition in September 2012, Somalia was essentially without a functioning central government since 1991. While the new government is identifying priority areas for new legislation and working with the international community to enhance its institutional capacity and create regulatory bodies, existing laws – anti-money laundering (AML), counter-terrorism financing (CFT), or otherwise – are currently unenforceable, given the lack of policing and investigative capacity and Somalia’s insecurity.

The lack of credible AML/CFT laws, regulatory bodies, and enforcement mechanisms to counter money laundering and financial crimes is believed to be due to a lack of capacity within the federal government, and not a lack of political will. Obstacles to enacting AML/CFT laws include the federal government’s limited territorial control over parts of southern and central Somalia beyond Mogadishu, threats to the government by the al-Shabaab insurgency, lack of capacity at all levels of government, and insufficient policing and investigative capacity.

Somalia essentially lacks a formal financial sector with the exception of two commercial banks, one operating in Somaliland and the other in Mogadishu. There are no functioning government regulatory agencies to oversee the financial sector. As such, formal financial institutions and hawala companies in Somalia are not subject to know-your-customer (KYC) or STR reporting programs under Somali law. These entities have no credible government authority to which to report these types of transactions. There are virtually no financial record-keeping requirements enforced by the GOS. International standards, to the extent they exist, are self-imposed in Somalia by hawalas and other financial entities that must meet international rules and regulations to do business elsewhere in the world. Money remittance companies, for example, almost all use electronic AML/CFT systems which flag names listed on the UN 1267 Sanctions Committee’s consolidated list.

The legal system in Somalia is composed of traditional courts (“xeer”) as well as a variety of local and regional court systems. A legal system with both civilian and military courts operates under the federal government, but the laws that exist are difficult to enforce given the weak capacity of judicial and law enforcement institutions and general instability.

In theory, the Ministry of Finance and Treasury would be responsible for investigating financial crimes. The ministry lacks the capacity, including financial, technical and human resources, to investigate money laundering and terror financing. There are no government entities charged with, or capable of, tracking, seizing, or freezing illegal assets. Somalia has no modern laws requiring forfeiture of terrorist or laundered assets, and what laws may lend themselves to AML/CFT are not being enforced. The government has called on regional governments to help stem the flow of terrorist financing, including requesting local governments to trace, freeze, and seize al-Shabaab financing.

The Ministry of Finance and Treasury, and the wider government, still struggle to combat internal corruption and the embezzlement of public funds. While government corruption was rampant in the previous transitional administration, the new government has taken steps to combat corruption, including public declarations against corruption. The GOS has already increased transparency in government revenues, requiring that donations to the government be deposited directly to the Central Bank of Somalia. The new constitution provides for the establishment of an Anti-Corruption Commission to investigate allegations of corruption in the public sector. Somalia has not yet established the Commission.

Somalia has cooperated with foreign law enforcement on investigations concerning suspected terrorists, kidnapping, piracy and terrorist acts committed both inside and outside Somalia. Somalia has no mechanisms in place under which to share information related to financial crimes, money laundering, and terrorist financing with other countries but has said it welcomes collaboration.

Somalia should continue taking steps to combat corruption and cooperate internationally, and begin to give itself the legal authorities to combat money laundering and terrorist financing domestically, including by criminalizing both. The GOS should work toward equipping its law enforcement and judicial authorities with the resources and capacity – staffing, budget and training – to investigate and prosecute financial crimes.

Spain

Spain is a major European center of money laundering activities as well as an important gateway for illicit narcotics entering Europe from Central and South America and North Africa, although the serious focus of Spanish law enforcement on combating organized crime, drug trafficking, and money laundering during the past five years has reduced the country’s attractiveness as an entry point.

Money laundering is related to drug trafficking and organized crime, as well as financial support for terrorism and for tax evasion purposes. Proceeds continue to be invested in real estate in the once-booming coastal areas in the south and east of the country but criminal groups also place money in other sectors, including services, communications, automobiles, art work, and the financial sector. Access in Spain to European financial institutions allows for the introduction of illicit funds into the global financial system with diminished scrutiny.

Moroccan hashish and Latin American cocaine enter the country and are distributed and sold throughout Europe, with the resulting proceeds often returned to Spain. Passengers traveling from Spain to Latin America reportedly smuggle sizeable sums of bulk cash. Informal money transfer services also facilitate cash transfers between Spain and Latin America, particularly Colombia. Law enforcement cites an emerging trend in drugs and drug proceeds entering Spain from new European Union (EU) member states with less robust law enforcement capabilities.

Tax evasion in internal markets also continues to be a source of illicit funds in Spain. In a recent operation targeting a group of Chinese businesses, Spanish law enforcement discovered the systematic falsification of invoices for goods entering Spain, the sale of the goods, and an elaborate money laundering network that was used to repatriate the illicit proceeds back to the People’s Republic of China. The Spanish authorities estimated that the total amount of money laundered, and therefore associated tax revenue lost, was in the hundreds of millions of euros.

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: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks; mutual savings associations; credit companies; insurance companies; financial advisers; brokerage and securities firms; pension fund managers; collective investment schemes; postal services; currency exchange outlets; individuals and unofficial financial institutions exchanging or transmitting money; realty agents; dealers in precious metals, stones, antiques and art; legal advisors and lawyers; accountants; auditors; notaries; and casinos

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 2,975 in 2011

Number of CTRs received and time frame: 644,006 in 2011

STR covered entities: Banks, professional money changers, credit intermediaries, payment systems and managers, and lending firms; life insurance entities and insurance companies that provide investment services; securities and investment service companies, collective investment, pension fund, and risk capital managers; mutual guarantee companies; postal wire services; real estate brokers, agents and developers; auditors, accountants, and tax advisors; notaries and registrars of commercial and personal property; lawyers, attorneys, or other independent professionals when acting on behalf of clients in financial or real estate transactions; company formation and business agents; trustees; casinos, gaming and lottery enterprises; dealers of jewelry, precious stones and metals, art, and antiques; safekeeping or guaranty services; and foundations and associations

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: Not available

Convictions: Not available

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Spain is a member of the Financial Action Task Force (FATF). Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/59/15/46253063.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Spain has long combated both domestic and foreign terrorist organizations and Spanish law enforcement entities have identified various vulnerabilities, including donations to finance nonprofit organizations; establishment of publishing companies that print and distribute books or periodicals for the purposes of propaganda, fraudulent tax and financial assistance collections; the establishment of “cultural associations”; and alternative remittance system transfers. Informal non-bank outlets such as locutorios (communication centers that often offer wire transfer services) are used to move money in and out of Spain by making small international transfers for members of the immigrant community. Spanish regulators also note the presence of hawala networks in the Muslim community.

In April 2010, Spain enacted a law to prevent money laundering and terrorist financing. The law introduces a risk-based approach to preventing money laundering and terrorist financing and imposes stringent requirements on financial institutions as well as designated non-financial businesses and professionals. Additionally, the law greatly enhances authorities’ capacity to combat terrorist financing by placing greater requirements on financial institutions and other businesses, and by strengthening penalties and monitoring and oversight. The law entered into force immediately; however, implementing regulations will not be approved until 2013. Until then, many of its provisions are not being implemented. In the interim, the implementing regulations for an earlier 2005 law remain in force. Spain should implement the provisions of the new law.

Spanish law does not allow civil forfeiture. Carrying more than 100,000 euros (approximately $131,700) in cash within the country is not allowed. If the authorities discover an amount larger than that, they can seize and hold it until proof of legal origin is provided.

The Spanish government has increased its efforts to combat fraud and tackle Spain’s large underground economy. An anti-fraud law, which entered into effect on October 31, 2012, restricts cash transactions between businesses and professionals to less than 2,500 euros (approximately $3,300). Failure to comply with the new norm can result in an administrative fine equivalent to 25 percent of the total value of the payment. The limit for cash transactions for non-resident individuals is €15,000 (approximately $19,950), to allow for tourists’ expenditures. The anti-fraud law also establishes a new obligation to report on foreign assets and expands the liability of successor corporations, among other measures.

In 2010, the Financial Crimes Enforcement Network (FinCEN), the financial intelligence unit of the U.S., suspended information sharing with its Spanish counterpart, the Executive Service for the Prevention of Money Laundering (SEPBLAC) due to an unauthorized disclosure of FinCEN information by Spanish authorities. SEPBLAC has addressed the improper disclosure issues and has taken steps to ensure the protection of FinCEN’s information, including negotiating an updated version of a memorandum of understanding (MOU) with FinCEN. FinCEN will resume information exchange with SEPBLAC after signing the MOU. The security forces and the judiciary exchange information with the U.S. related to money laundering.

A working group has been created within the Commission for the Prevention of Money Laundering to promote the collection of statistics. Spain currently does not track the total number of prosecutions and convictions for money laundering. When money laundering occurs in conjunction with a predicate offense, only the predicate offense is tracked in a central statistics database. The numbers tracked for money laundering crimes only include those cases in which the conviction was for money laundering alone, without another offense. Spain should maintain and disseminate statistics on investigations and prosecutions.

St. Maarten

Sint Maarten (St. Maarten) is an autonomous entity within the Kingdom of the Netherlands (KON). St. Maarten enjoys sovereignty on most internal matters and defers to the KON in matters of defense, foreign policy, final judicial review, human rights, and good governance.

Drug trafficking is an ongoing concern for St. Maarten, and money laundering is primarily related to proceeds from illegal narcotics. Bulk cash smuggling and trade-based money laundering may be problems due to the close proximity of other Caribbean islands and Saint Martin, the French part of the shared island, which is also a free trade zone.

St. Maarten does not have an offshore banking industry. There are 14 casinos on the island and online gaming is legal and subject to supervision.

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, law offices, insurance companies, casinos, Customs, money remitters, the Central Bank, trust companies, accountants, car dealers, administrative offices, Tax Office, jewelers, credit unions, real estate businesses, notaries, currency exchange offices, and stock exchange brokers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not available

STR covered entities: Banks, law offices, insurance companies, casinos, Customs, money remitters, Central Bank, trust companies, accountants, car dealers, administrative offices, Tax Office, jewelers, credit unions, real estate businesses, notaries, currency exchange offices, and stock exchange brokers

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

St. Maarten is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF)-style regional body. Its first mutual evaluation was recently completed. Once published, it will be found here: https://www.cfatf-gafic.org/index.php?option=com_docman&Itemid=418&lang=en

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of St. Maarten’s (GOSM) anti-money laundering/counter-terrorist financing (AML/CFT) regime needs improvements in regard to KYC rules, STR collection, criminalizing terrorist financing in line with international standards, and general enhancement of AML/CFT supervision in all sectors. Additionally, shortcomings are noted within the financial intelligence unit (FIU).

Under the former Netherlands Antilles jurisdiction, most governmental organizations were based in Curacao. Following the dissolution of the Netherlands Antilles in 2010, St. Maarten created its own FIU under the Ministry of Justice. The FIU has signed memoranda of understanding for information exchange with several countries and is pursuing membership in the Egmont Group of FIUs.

While St. Maarten and Curacao have a joint Central Bank, St. Maarten has established a Tax Office Criminal Investigation Unit and a Financial Investigation Department.

The GOSM is amending legislation to provide for AML monitoring of casinos, and is pursuing money laundering investigations and prosecutions. In 2012, the GOSM conducted a major money laundering investigation, and in August, $687,000 was seized from suspected launderers. Two additional criminals were prosecuted for smuggling $15,000 into the country in September 2012.

The Mutual Legal Assistance Treaty between the KON and the United States extends to St. Maarten. As part of the KON, St. Maarten cannot sign or ratify international conventions in its own right. Rather, the KON may arrange for the ratification of any convention to be extended to St. Maarten. The 1988 Drug Convention was extended to St. Maarten in 1999. The International Convention for the Suppression of the Financing of Terrorism was extended to the Netherlands Antilles, and as successor, to St. Maarten in 2010. The UN Convention against Transnational Organized Crime and the UN Convention against Corruption have not yet been extended to St. Maarten.

Switzerland

Switzerland is a major international financial center. The country’s central geographic location, relative political, social, and monetary stability, the range and sophistication of financial services it provides, and its long tradition of bank secrecy not only contribute to Switzerland’s success as a major international financial center, but also continue to expose Switzerland to potential money laundering abuse.

Media reports indicate criminals attempt to launder illegal proceeds in Switzerland from a wide range of criminal activities conducted worldwide. These illegal activities include, but are not limited to, financial crimes, narcotics trafficking, arms trafficking, organized crime, terrorist financing and corruption. Although both Swiss and foreign individuals or entities launder money in Switzerland, foreign narcotics trafficking organizations, often based in Russia, the Balkans, Eastern Europe, South America and West Africa, dominate the narcotics-related money laundering operations in Switzerland.

There are currently 21 casinos in Switzerland. Every casino must obtain a concession from the Federal Council (highest authority of the executive branch) that needs to be renewed every 20 years. While generally well regulated, there are concerns about the use of casinos to launder money. One possible method involves the structuring of cash purchases of casino chips or tokens to avoid reporting requirements and subsequently redeeming the chips for checks drawn on, or wire transfers from, casino bank accounts. Corrupt casino employees also have facilitated drug money laundering activities.

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; insurance companies; casinos; financial intermediaries; wealth managers and investment advisors

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,625 in 2011

Number of CTRs received and time frame: Not available

STR covered entities: Banks; securities and insurance brokers; money exchangers or remitters; financial management firms; casinos; financial intermediaries; wealth managers and investment advisors

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 290 in 2011

Convictions: 219 in 2010

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Switzerland is a member of the Financial Action Task Force. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/53/52/43959966.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

From 2010 to 2011, the number of suspicious activity reports increased by 40 percent to 1,625, encompassing a total of CHF 3.3 billion (approximately $3.4 billion), compared to CHF 850 million (approximately $962 million) in 2010. In 2011, ten reports were related to terrorism finance, amounting to CHF 152,000 (approximately $160,000).

There is a lack of adequate regulation of some designated non-financial business sectors, such as real estate, jewelry, luxury cars, works of art, and commodities like oil and gas. The authorities should work to regulate these sectors.

Sports associations like the International Federation of Association Football or the International Olympic Committee are not businesses but associations. They do not pay taxes, and as associations, are exempted from the Swiss anti-corruption legal framework. The exception provided to these entities makes them more vulnerable to money laundering activity. The government should consider efforts to change these laws.

Since 2009, persons physically transferring money worth more than $10,600 into or out of Switzerland need to declare this cash and have to be able to specify to the authorities its origins, its destination, and its owner.

Taiwan

Taiwan is a regional financial center. Its modern financial sector, strategic location on international shipping lanes, expertise in high-tech sectors, and role as an international trade hub make it vulnerable to transnational crimes, including money laundering, drug trafficking, telecom fraud, and trade fraud.

Domestic money laundering is generally related to tax evasion, drug trafficking, public corruption, and a range of economic crimes. Jewelry stores increasingly are being used as a type of underground remittance system. Jewelers convert illicit proceeds into precious metals, stones, and foreign currency, and generally move them using cross-border couriers. The tradition of secrecy in the precious metals and stones trade makes it difficult for law enforcement to detect and deter money laundering in this sector. Gambling is only allowed in limited parts of Taiwan’s territory but the extent of either online or other illegal gaming is unknown.

Official channels exist to remit funds, which greatly reduces the demand for unofficial remittance systems. However, although illegal in Taiwan, a large volume of informal financial activity takes place through unregulated and possibly organized crime-linked non-bank channels. Taiwan has five free trade zones and a growing offshore banking sector which are regulated by Taiwan’s Central Bank and the Financial Supervisory Commission. There is no significant black market for smuggled goods in Taiwan.

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: Combined 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, trust and investment corporations, credit co-operative associations, credit departments of Farmers’ Associations and the Fishermen’s Association, Department of Savings & Remittances of Chunghwa Post Co., securities firms, life insurance companies, and retail jewelry businesses

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 5,257: January to October 2012

Number of CTRs received and time frame: 3,098,660: January to October 2012

STR covered entities: Banks, trust and investment corporations, credit co-operative associations, credit departments of Farmers’ Associations and the Fishermen’s Association, Department of Savings & Remittances of Chunghwa Post Co., securities firms, life insurance companies, and retail jewelry businesses

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 13: January to October 2012

Convictions: 10: January to October 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

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

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Taiwan continues to strengthen its anti-money laundering/counter-terrorist financing (AML/CFT) regime, but is not in full compliance with international standards on combating terrorist financing. While Taiwan criminalized the financing of terrorist activities, it is not an autonomous offense and does not specifically cover the financing and support of terrorist activities overseas. Taiwan should pass legislation to criminalize terrorism and terrorist financing as an autonomous crime, and clarify that the law covers such activities overseas. The government should abolish all shell companies and prohibit the establishment of new shell companies of any type.

New regulations regarding the reporting of transactions by jewelry stores came into force in January 2012, with stricter reporting requirements and a lower reporting threshold for transactions. Violations of these reporting requirements will be subject to penalties under Taiwan’s money laundering law. The responsible agency governing jewelry stores is the Department of Commerce within the Ministry of Economic Affairs, and it is unclear if this department has the capacity to audit jewelry stores. It is too early to evaluate the effectiveness of the new rules in discouraging illegal remittance via jewelry shops.

Taiwan’s AML/CFT requirements do not apply to several types of designated non-financial businesses and professions (DNFBPs), which remain vulnerable to money laundering/terrorist financing activity. Taiwan should raise awareness of the vulnerabilities of non-profit organizations to terrorist financing and should exert more authority over this sector. Taiwan should take steps to amend its legislation and regulations to bring all DNFBPs, as listed in the international standards, and the non-profit sector within the scope of its AML/CFT coverage. Given the increasing threat of alternative remittance centers such as the precious metals and stones sector, Taiwan’s law enforcement should enhance investigations of underground financial systems.

The United States and Taiwan, through their respective legal representatives, are parties to the Agreement on Mutual Legal Assistance in Criminal Matters Between the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States. Taiwan is unable to ratify UN conventions because of long-standing political issues. However, it has enacted domestic legislation to implement the standards in the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention for the Suppression of the Financing of Terrorism.

Thailand

Thailand is a centrally located Southeast Asian country with an extremely porous border. Thailand is vulnerable to money laundering within its own underground economy as well as to many categories of cross-border crime, including illicit narcotics and other contraband smuggling. Thailand is a source, transit, and destination country for international migrant smuggling and trafficking in persons, a production and distribution center for counterfeit consumer goods and a center for the production and sale of fraudulent travel documents. The proceeds of illegal gaming, corruption, underground lotteries, and prostitution are laundered through the country’s financial system. The Thai black market includes a wide range of pirated and smuggled goods, from counterfeit medicines to luxury automobiles.

Money launderers and traffickers use banks, as well as non-bank financial institutions and businesses, to move the profits of narcotics trafficking and other criminal enterprises. In the informal money changing sector, there is an increasing presence of hawalas via money shops that service Middle Eastern travelers in Thailand.

Thailand was publicly identified by the Financial Action Task Force (FATF) in February 2010 for its strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies, for which it has developed an action plan. In October 2012, the FATF determined that Thailand’s progress against the agreed action plan’s timeline continues to be insufficient and the Government of Thailand (GOT) needs to take adequate action to address its main deficiencies.

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: 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 (including state banks), finance companies, mortgage finance companies, securities dealers, insurance companies, money exchangers and remitters, asset management companies, jewelry and gold shops, automotive hire-purchase businesses or car dealers, real estate agents/brokers, antique shops, personal loan businesses, electronic card businesses, credit card businesses, and electronic payment businesses, as well as deposit/lending cooperatives with total operating capital exceeding $67,000

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 92,392: January - September 2012

Number of CTRs received and time frame: 824,082: January - September 2012

STR covered entities: Private and state-owned banks, finance companies, insurance companies, savings cooperatives, securities firms, asset management companies, and mortgage finance companies; land registration offices, moneychangers, remittance agents, jewelry and gold shops, automotive hire-purchase businesses and car dealerships, real estate agents and brokers, antique shops, personal loan companies, electronic and credit card companies, and electronic payment companies

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 44 in 2012

Convictions: 31 in 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

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

http://www.apgml.org/documents/docs/17/Thailand%20DAR.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Political and civil unrest, natural disasters and elections have impeded Thailand’s implementation of its AML/CFT action plan. Thailand’s legislative framework still does not adequately criminalize terrorist financing and does not establish adequate procedures for identifying and freezing terrorist assets. The GOT should pass the necessary laws in its end-of-year Parliamentary session to address the Thai financial system’s vulnerabilities to money laundering and terrorist financing.

Thai banking regulations cover financial institutions adequately but are ineffective against less formal operations.

The GOT has made some progress in improving its financial intelligence unit and its regulatory framework. The government has increased salaries of Anti-Money Laundering Office (AMLO) investigators to counter historically high turnover. The AMLO is responsible for monitoring compliance with AML/CFT requirements, coordinating information sharing and ensuring that financial supervisors carry out their responsibilities effectively. Thailand also has made progress in the training and supervision of reporting entities, particularly money changers and transfer businesses.

Thai law does not adequately prohibit tipping off, leaving financial institutions and their employees subject to potential liability for filing STRs. The GOT should amend its legislation as necessary to ensure this deficiency is corrected.

Turkey

Turkey is an important regional financial center, particularly for Central Asia and the Caucasus, as well as for the Middle East and Eastern Europe. It continues to be a major transit route for Southwest Asian opiates moving to Europe. However, narcotics trafficking is only one source of the funds laundered in Turkey. Other significant sources include smuggling, invoice fraud and tax evasion, and to a lesser extent, counterfeit goods, and forgery. Terrorist financing and terrorist organizations with suspected involvement in narcotics trafficking and other illicit activities are also present in Turkey.

Money laundering takes place in banks, non-bank financial institutions, and the underground economy. Informed observers estimate as much as half of the economic activity is derived from unregistered businesses. Money laundering methods in Turkey include: the large scale cross-border smuggling of currency; bank transfers into and out of the country; trade fraud; and the purchase of high-value items such as real estate, gold, and luxury automobiles. Turkish-based traffickers transfer money and sometimes gold via couriers, the underground banking system, and bank transfers to pay narcotics suppliers in Pakistan or Afghanistan. Funds are often transferred to accounts in the United Arab Emirates, Pakistan, and other Middle Eastern countries.

In October 2012, the Financial Action Task Force (FATF) included Turkey in its Public Statement for Turkey’s continuing lack of adequate terrorist financing legislation and a legal framework within which to freeze terrorist assets. The FATF also announced it would take the countermeasure of suspending Turkey’s FATF membership if appropriate actions to address its concerns are not taken by its February 22, 2013 plenary.

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, the Central Bank, post office banks, and money exchanges; issuers of payment and credit cards; lending, financial leasing, custody, settlement, and factoring companies; securities brokers, investment partnerships, and fund and asset managers; insurance, reinsurance and pension companies, and insurance and reinsurance brokers; Islamic financial houses; Directorate General of the Turkish Mint and precious metals exchange intermediaries; auctioneers, and dealers of precious metals, stones, jewelry, all types of transportation vehicles, art and antiquities; lawyers, accountants, auditors, and notaries; sports clubs; lottery and betting operators; and post and cargo companies

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, the Central Bank, post office banks, and money exchanges; issuers of payment and credit cards; lending, financial leasing, custody, settlement, and factoring companies; securities brokers, investment partnerships, and fund and asset managers; insurance, reinsurance and pension companies, and insurance and reinsurance brokers; Islamic financial houses; Directorate General of the Turkish Mint and precious metals exchange intermediaries; auctioneers, and dealers of precious metals, stones, jewelry, all types of transportation vehicles, art and antiquities; lawyers, accountants, auditors, and notaries; sports clubs; lottery and betting operators; and post and cargo companies

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

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

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

For the past two years, various draft terrorism finance laws, which were supposed to address international concerns, were circulated and submitted to Parliament, the most recent in October 2011. However, the FATF, upon review of the legislation, informed the Government of Turkey (GOT) that the draft law currently before Parliament is insufficient to address the vulnerabilities identified.

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

Other significant weaknesses exist in Turkey’s AML regime that should be addressed. These include: improving customer due diligence; making PEPs subject to enhanced due diligence; ensuring cross-border wire transfers and cash transfers are recorded in accordance with international standards; ensuring designated non-financial businesses and professions are scrutinized and are subject to reporting requirements; and increasing the capacity of the financial intelligence unit to allow greater data collection and analysis. The GOT should ensure adequate resources are made available to improve the deficiencies in its AML/CFT framework and implementation.

Ukraine 

Although Ukraine does not have a regional banking or financial industry, it has had close ties with other European banks. Recently, however, several international banks have pulled out of the country. In Ukraine, high risks of money laundering have been identified in foreign economic activities, credit and finance, the fuel and energy industry, and the metal and mineral resources market. Illicit proceeds are primarily generated through corruption; fictitious entrepreneurship and fraud; trafficking in drugs, arms or persons; organized crime; prostitution; cybercrime; and tax evasion.

The large shadow economy represents a significant vulnerability. An additional vulnerability is the level of corruption throughout society – both in the private and public sectors. The high level of corruption in the financial sector allows banking regulations to be bypassed or ignored. Transnational organized crime is also present and both transits the country as well as conducts business in Ukraine. It is involved in drug trafficking, economic crimes, cigarette trafficking, trafficking in persons, public corruption, real estate and other frauds, violent crimes and extortions. It is able to operate in Ukraine due to the corruption of the justice system.

Various laundering methodologies are used, including the use of real estate, insurance, bulk cash smuggling, and through shell companies and financial institutions. There is a significant market for smuggled goods and a large informal financial sector in the country. These activities are linked to evasion of taxes and customs duties. As many Ukrainians work abroad, worker remittances using banking transfers or via international payment systems are reported at $1.9 billion in 2011. However, not all worker remittances come through banking channels. The State Financial Monitoring Service acknowledges the existence and use of alternative remittance systems in Ukraine.

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: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks, non-banking institutions, insurance companies, gambling institutions, credit unions, depositories, securities traders, registers, pawn shops, mail service operators and other operators conducting money transfers, real estate traders, certain traders of precious metals and stones, notaries, auditors, independent lawyers, leasing providers, and private entrepreneurs

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not available – combined with CTRs

Number of CTRs received and time frame: 716,821 from January – September 2012

STR covered entities: Banks, non-banking institutions, insurance companies, gambling institutions, credit unions, depositories, securities traders, registers, pawn shops, mail service operators and other operators conducting money transfers, real estate traders, certain traders of precious metals and stones, notaries, auditors, independent lawyers, leasing providers, and private entrepreneurs

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 42: January - June 2012

Convictions: 34: January - June 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

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

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Ukraine should address the rise of cybercrime and related transnational organized criminal activities by examining the significant amounts of U.S. currency which appear to be diverted into this region using financial institutions. Ukraine should increase its attention to investigating large-scale corruption and money laundering schemes. Ukraine also should adopt and implement a system to provide for asset freezing, confiscation and forfeiture.

While Ukraine has the necessary treaties signed and ratified, in many instances they are not applied or are applied poorly. This is particularly true in the area of international law enforcement cooperation, mutual legal assistance and asset forfeiture. Furthermore, while Ukraine is a party to the UN Convention against Corruption and the UN Convention against Transnational Organized Crime, the provisions of these conventions are not implemented or are not working properly in Ukraine. Ukraine should work to implement its treaty obligations.

United Arab Emirates

The United Arab Emirates (UAE) is the primary transportation and trading hub for the Persian Gulf States, East Africa, and South Asia. Its robust economic development, political stability, and liberal business environment have attracted a massive influx of people, goods, and capital, which may leave the country vulnerable to money laundering activity. Dubai, especially, is a major international banking and trading center. The potential for money laundering is exacerbated by the large number of resident expatriates, roughly 80 to 85 percent of the total population, who send remittances to their homelands.

A significant portion of the money laundering/terrorist financing (ML/TF) activity in the UAE is likely related to proceeds from illegal narcotics produced in South West Asia. Narcotics traffickers from Afghanistan, where most of the world’s opium is produced, are increasingly reported to be attracted to the UAE’s financial and trade centers. Groups operating primarily outside the country almost certainly control the funds. Domestic public corruption contributes little to money laundering or terrorist financing.

Regional hawaladars and associated trading companies in various expatriate communities, most notably the Somalis, have established clearinghouses, the vast majority of which are not registered with the UAE government. Likewise, the UAE’s proximity to Somalia has generated anecdotal reports suggesting some influx and/or transit of funds derived from piracy. There is no significant black market for smuggled goods in the UAE, but contraband smuggling (including alcohol) probably generates some funds that are laundered through the system. There are some indications that trade based money laundering occurs in the UAE and that such activity might support terrorist groups in Afghanistan, Pakistan and Somalia.

Other money laundering vulnerabilities in the UAE include exploitation of cash couriers, the real estate sector, and the misuse of the international gold and diamond trade. The country also has an extensive offshore financial center and 38 free trade zones (FTZs). There are over 5,000 multinational companies located in the FTZs, and thousands more individual trading companies. Companies located in the free trade zones are considered offshore or foreign entities for legal purposes. However, UAE law prohibits the establishment of shell companies and trusts.

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, exchange houses, and securities traders

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 479: January 1 – March 31, 2011

Number of CTRs received and time frame: Not available

STR covered entities: Banks, insurance companies, exchange houses, and securities traders

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: Not available

Convictions: Not available

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

The United Arab Emirates 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/images/UploadFiles/UAEoptimized.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of the UAE (GOUAE) continues to work on enhancing its anti-money laundering/countering the financing of terrorism (AML/CFT) program; however, several areas require ongoing action by the GOUAE. The GOUAE should increase the capacity and resources it devotes to investigation of ML/TF both federally at the Anti-Money Laundering/Suspicious Cases Unit (AMLSCU) and at emirate-level law enforcement. AMLSCU needs to improve its timely financial information sharing capability to conform to international standards. The AMLSCU also needs additional resources to be able to execute its mandate of hawaladar supervision – currently it is not capable of supervising the vast number of hawaladars in the country or enforcing hawaladar compliance.

On August 13, 2012, the GOUAE issued Federal Legal Decree No. 5 for 2012 on combating cyber crimes. Article 37 of the law stipulates seven years’ imprisonment and a fine of not less than 500,000 Dirhams (approximately $136,128) and not exceeding 2 million Dirhams (approximately $544,514) against any person using electronic sites or any information technology means to transfer or deposit illegal funds with the intention to hide or camouflage their source, or to hide or camouflage the facts about illegal funds, their source, movement and ownership.

Although UAE legislation includes a provision prohibiting tipping off, the provision is very narrow and does not appear to address the disclosure of STR filings to third parties. Additionally, the Central Bank regulations appear to require institutions to notify customers of suspicions regarding their accounts. This would appear to contradict any tipping off prohibitions.

While firms operating in the Dubai International Financial Center (DIFC) are subject to the UAE AML law, the Dubai Financial Services Authority (DFSA), regulator of the DIFC, has its own AML regulations and supervisory regime which it has based on regulatory regimes and standards found in the United States and Europe. This has caused some ambiguity about the Central Bank’s and the FIU’s respective authorities within the DIFC; however, the overlapping authorities can result in financial institutions holding to a more rigorous standard in compliance matters.

Enforcement of cash declaration regulations is weak. Law enforcement and customs officials should conduct more thorough inquiries into large declared and undeclared cash imports into the country, as well as enforce outbound declarations of cash and gold utilizing existing smuggling laws.

Law enforcement and customs officials should proactively develop cases based on investigations, rather than wait for STR-based case referrals from the AMLSCU. All facets of trade-based money laundering should be given greater scrutiny by UAE customs and law enforcement officials, including customs fraud, the trade in gold and precious gems, commodities used as counter-valuation in hawala transactions, and the abuse of trade to launder narcotics proceeds. The GOUAE should expand follow-up with financial institutions and the Ministry of Social Affairs regarding regulations on charities to ensure their registration at the federal level. The UAE also should continue its regional efforts to promote sound charitable oversight. The GOUAE has been looking at moving forward with formulating a policy on all aspects of asset forfeiture, including asset sharing; it should continue to act upon this interest. The cooperation between the Central Bank and the DFSA can be improved, with lines of authority clarified. Moreover, the absence of meaningful statistics across all sectors is a significant hindrance to the assessment of the effectiveness of the AML/CFT program.

United Kingdom

The United Kingdom (UK) plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets. Although narcotics are still a major source of illegal proceeds for money laundering, the proceeds of other offenses, such as financial fraud and the smuggling of people and goods, have become increasingly important. The past few years have seen an increase in the movement of cash via the non-bank financial system as banks and mainstream financial institutions have tightened their controls and increased their vigilance. Bureau de change, cash smugglers (into and out of the UK), and traditional gatekeepers (including lawyers and accountants) are used to move and launder criminal proceeds. Also on the rise are credit/debit card fraud, internet fraud, and the purchase of high value assets to disguise illegally obtained 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: NO

KYC covered entities: Banks, credit unions, building societies, e-money issuers, and credit institutions; insurance companies; securities and investment service providers and firms; independent legal professionals, auditors, accountants, tax advisors, and insolvency practitioners; estate agents; casinos; high value goods dealers; and trust or company service providers

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 285,000: January 1, 2012 – November 29, 2012

Number of CTRs received and time frame: Not applicable

STR covered entities: Banks, credit unions, building societies, e-money issuers, and credit institutions; insurance companies; securities and investment service providers and firms; independent legal professionals, auditors, accountants, tax advisors, and insolvency practitioners; estate agents; casinos; high value goods dealers; and trust or company service providers

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 2,721 in 2010

Convictions: 1,587 in 2010

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

The United Kingdom is a member of the Financial Action Task Force. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/media/fatf/documents/reports/mer/FoR%20UK.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The United Kingdom has a comprehensive range of anti-money laundering/countering the financing of terrorism (AML/CFT) laws. It is an active participant in multilateral efforts to meet AML/CFT threats. The UK continuously reviews and assesses the effectiveness and proportionality of its AML/CFT regime – including through the approval of updated and more accessible industry guidance.

Late in 2012, in cooperation with U.S. authorities, the British Financial Services Authority (FSA) put in place a 25-point regulatory plan with which a large British-based bank must comply. The bank also agreed to pay a record $1.92 billion in fines to U.S. authorities for allowing itself to be used for several years to launder drug money flowing out of Mexico, and for other banking lapses, including transferring funds from countries under international sanctions. In a deferred prosecution agreement with the U.S. Department of Justice, the bank acknowledged it failed to maintain an effective program against money laundering and failed to conduct adequate due diligence on some account holders.

There is no enhanced customer due diligence for British PEPs. The UK should consider changing its rules to ensure domestic PEPs are identified and, if appropriate, subject to increased due diligence requirements in accordance with international recommendations.

In April 2013, the FSA is due to be reorganized. The new Prudential Regulation Authority will be the prudential supervisor and the Financial Conduct Authority will monitor the conduct of business across markets and services. The reorganization is dependent on the Financial Services Bill being approved by Parliament. Also, the Serious Organized Crime Agency, which includes the UK financial intelligence unit, is due to transition to the National Crime Agency in 2013. It is important these changes not impede the UK’s AML/CFT efforts.

Uruguay

Although the Government of Uruguay (GOU) took affirmative steps to counter money laundering (ML) and terrorism financing (TF) activities and continues to make progress in enforcement, Uruguay remains vulnerable to these threats. Uruguay has a highly dollarized economy, with the U.S. dollar often used as a business currency; about 75 percent of deposits and 50 percent of credits are denominated in U.S. dollars. Officials from the Uruguayan police and judiciary assess that Colombian criminal organizations are operating in Uruguay and Mexican criminal organizations are also likely present. There is additional concern about organized crime moving south from Brazil.

To the extent known, laundered criminal proceeds derive primarily from foreign activities related to drug trafficking organizations. Drug dealers are increasingly participating in other illicit activities like car theft and trafficking in persons, and violent crime is rising. Publicized ML cases are primarily related to narcotics and/or involve the real estate sector. Public corruption does not seem to be a significant factor behind money laundering or terrorist financing. Uruguay has porous borders with Argentina and Brazil and, despite its small size, there is a market for smuggled goods, determined by price differentials between Uruguay and its neighbors. Bulk cash smuggling and trade-based money laundering are likely to occur; however, there is no indication they are tied to terrorist financing.

Given the longstanding free mobility of capital in Uruguay, the informal financial sector is practically non-existent. Money is likely to be laundered via the formal financial sector (onshore or offshore). Six offshore banks operate in Uruguay, three of which cannot initiate new operations since they are in the process of being liquidated. Offshore banks are subject to the same laws, regulations, and controls as local banks, with the GOU requiring they be licensed through a formal process that includes a background investigation of the principals. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank.

There are 13 free trade zones (FTZs) located throughout the country. Three accommodate a variety of tenants offering a wide range of services, including financial services. Two were created exclusively for the development of the pulp industry, one is dedicated to science and technology, and the rest are devoted mainly to warehousing. Some of the warehouse-style FTZs and Montevideo’s free port and airports are used as transit points for containers of counterfeit goods or raw materials bound for Brazil and Paraguay. A decree passed in November 2010 discourages shell companies from establishing a presence in FTZs.

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: NO civilly: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks, currency exchange houses, stockbrokers, pension funds, insurance companies, casinos, art dealers, real estate and fiduciary companies, lawyers, accountants, and other non-banking professionals that carry out financial transactions or manage commercial companies on behalf of third parties

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 199: January – November 2012

Number of CTRs received and time frame: 6.1 million: January – October 2012

STR covered entities: Banks; currency exchange houses; stockbrokers and pension funds; insurance companies; businesses that perform safekeeping, courier, or asset transfer services; professional trust managers; investment advisory services; casinos; real estate brokers and intermediaries; notaries; auctioneers; dealers in antiques, fine art, and precious metals or stones; FTZ operators; and other persons who carry out transactions or administer corporations on behalf of third parties

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 11

Convictions: Not available

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Uruguay is a member of the Financial Action Task Force on Money Laundering in South America (GAFISUD), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.gafisud.info/pdf/InformeEMUruguay09.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Uruguay continued making progress on AML/CFT in 2012. Main developments include: the approval of the new National Strategy against money laundering for 2012-2015; the passage of a law banning bearer shares corporations; the signature of several tax information exchange agreements; the compilation of all AML/CFT-related legislation in a single body (with a view to harmonization and improvement); and, the launching of a Strategic Information Unit within the AML Secretariat (AMLS) (Decree 334/12). Additionally, the GOU created a working group to analyze the inclusion of tax evasion as a predicate crime for ML. The financial intelligence unit (UIAF) released a “Guide to Risky Operations and Alerts Related to Terrorism Finance” (Communication 2012/191), and the AMLS launched its web page.

The AML/CFT Strategy, approved in August 2012 via Decree 289/12, is expected to be a major improvement from the previous 2007 strategy. It was developed in two stages with donor support: identification of the most vulnerable areas (2010) and design of a strategy to address them (2011). The new Strategy seeks to strengthen Uruguay’s overall AML/CFT system by improving three areas: prevention; detection/financial intelligence; and criminal justice. UIAF personnel are hopeful the Strategy will help the GOU address several weak points on prevention and control. The Strategy’s work plan includes a precise set of goals, lays out responsibilities for different agencies, and sets a timeline for each goal.

Law No 18,914, passed in June 2012, mandates all government offices supply information to two judges and two prosecutors specialized in organized crime. The law expedites the procedures for judges and enables prosecutors to require reporting. In 2012, the GOU continued strengthening its AMLS, which organized several training events to create awareness about the importance of seizing assets and imprisoning criminals. In December 2011 and May 2012, the UIAF extended the obligation to report CTRs to securities intermediaries and wire transferors/remitters (Communications 2011/228 and 2012/036). In 2012, the UIAF designed a set of early warning indicators to leverage its comprehensive database. Over 96 percent of STRs were made by the financial sector.

The GOU does not have precise public records on prosecutions, convictions or amount of seized assets related exclusively to AML/CFT cases. Reportedly, 11 individuals were prosecuted in January - late November 2012, in two money laundering cases that had trafficking in persons and corruption as predicate crimes. The National Drug Council, which administers Uruguay’s Seized Assets Fund, indicates that between January and late November 2012, the GOU seized 47 vehicles and $1.2 million in cash, and confiscated one house. In 2012, the UIAF did not freeze any assets.

The GOU should amend its legislation to provide for criminal liability for legal persons. It also should continue improving its statistics related to money laundering, and should work with non-financial obligated entities, such as notaries or real estate brokers, to improve suspicious operations reporting.

Venezuela

Venezuela is a major cocaine transit country. The country’s proximity to drug producing countries, weaknesses in its anti-money laundering regime, limited bilateral cooperation, and substantial corruption in law enforcement and other relevant sectors continue to make Venezuela vulnerable to money laundering. The main sources of money laundering are proceeds generated by drug trafficking organizations.

Money laundering occurs through commercial banks, exchange houses, gambling sites, fraudulently invoiced foreign trade transactions, smuggling, real estate, agriculture and livestock businesses, securities transactions, and trade in precious metals. Trade-based money laundering remains a prominent method for laundering regional narcotics proceeds. One such trade-based system is the black market peso exchange, through which money launderers furnish narcotics-generated dollars in the United States to commercial smugglers, travel agents, investors, and others in exchange for Colombian pesos. It is reported many black market traders ship their goods through Margarita Island’s free port.

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: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

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

KYC covered entities: Banks, leasing companies, money market and risk capital funds, savings and loans, foreign exchange operators, regulated financial groups, and credit card operators; hotels and tourist institutions that provide foreign exchange; general warehouses or storage companies; regulated securities and insurance entities; casinos, bingo halls, and slot machine operators; and regulated notaries and public registration offices

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 1,427 in 2011

Number of CTRs received and time frame: Not available

STR covered entities: Banks, leasing companies, money market funds, savings and loans, foreign exchange operators, regulated financial groups, and credit card operators; hotels and tourist institutions that provide foreign exchange; general warehouses or storage companies; regulated securities and insurance entities; casinos, bingo halls, and slot machine operators; and regulated notaries and public registration offices

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 14: January 1 - November 29, 2012

Convictions: 8: January 1 - November 29, 2012

RECORDS EXCHANGE MECHANISM:

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

With other governments/jurisdictions: YES

Venezuela is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here:

http://www.cfatfgafic.org/downloadables/mer/Venezuela_3rd_Round_MER_(Final)_English.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of Venezuela (GOV) has implemented its 2010 action plan and improved anti-money laundering/counter-terrorism financing (AML/CFT) deficiencies. Venezuela’s executive branch approved new regulations to strengthen the supervision of banks and securities intermediaries through the Superintendent of Banking Sector Institutions and National Superintendent of Securities, respectively. In the banking sector, the new regulations require enhanced due diligence for higher-risk activities, customer profiles, and categories of customers – distinctions that did not exist prior to these regulations. In the securities sector, the new regulations require securities intermediaries to determine the origin and destination of the funds being used, conduct comprehensive customer due diligence, appoint compliance officers, maintain internal committees for prevention and control of money laundering, and have a code of ethics. In January 2012, the national assembly passed a law that defines and sanctions both organized crime and terrorist financing. However, the politicized judicial system compromises the law’s effectiveness. The GOV should increase institutional infrastructure and technical capacity to effectively implement the new AML/CFT legislation and legal mechanisms.

The U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) continues to suspend the exchange of information with Venezuela’s National Financial Intelligence Unit, after the unauthorized disclosure of information provided by FinCEN in January 2007.

Zimbabwe

Zimbabwe is not a regional financial center, but it faces problems related to money laundering and official corruption. Regulation and enforcement in the financial sector is weak, mainly due to a lack of trained regulators and investigators and limited asset-seizure authority. These deficiencies expose the country to money laundering abuses, but there are no data on the extent of money laundering in Zimbabwe. The exposure is greatest within the financial sector, which includes both formal and informal institutions. Commercial banks, building societies, moneylenders, insurance brokers, realtors, and lawyers in Zimbabwe are all vulnerable to exploitation by money launderers. Financial crime may also be magnified by efforts by the Government of Zimbabwe (GOZ) to sell diamonds through sanctions-skirting approaches including high-value cash transactions and obfuscating actual entities involved in electronic financial transactions.

Nearly all transactions in Zimbabwe are now carried out with either the U.S. dollar or the South African rand. The GOZ’s switch to this “multi-currency regime” dramatically reduced opportunities for money laundering and financial crime arising from the multiple exchange rates and opaque foreign exchange controls that were in place until 2009. Legislators from all parties in the coalition government have increased scrutiny of government activities, and ministers from former opposition parties have pushed for further reforms. For example, the parliamentary committee on mining has held officials to account for GOZ actions in the Marange diamond fields. As a result, the Ministry of Finance promised to tighten controls by introducing a Diamond Act and to enhance the revenue authority’s oversight on production and sale of diamonds. Ultimate responsibility for the Diamond Act lies with the Ministry of Mines and Mining Development, and a draft Act has not yet been produced. In addition, the minister of finance implemented a new law to improve accountability at the Reserve Bank of Zimbabwe.

The United States, Canada, Australia, and the European Union have imposed targeted financial sanctions and travel restrictions on political leaders and a limited number of companies and state-owned enterprises believed to have been complicit in human rights abuses and undermining Zimbabwe’s democracy.

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

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: Commercial banks, acceptance houses, discount houses, money transfer agencies, bureaux de change, legal practitioners, accounting firms, pension funds, real estate agents, cash dealers, and finance houses

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 142: January 1 - November 5, 2012

Number of CTRs received and time frame: Not available

STR covered entities: Commercial banks, acceptance houses, discount houses, money transfer agencies, bureaux de change, legal practitioners, accounting firms, pension funds, real estate agents, cash dealers, and finance houses

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/jurisdiction: YES

Zimbabwe 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/userfiles/Zimbabwe_detailed_report.pdf

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

AML legislation is sometimes abused for political purposes. More broadly, corruption sometimes impedes application of Zimbabwe’s anti-money laundering mechanisms.

Zimbabwe has developed an action plan to address its strategic anti-money laundering/counter-terrorist financing deficiencies. Zimbabwe now has a fully operational and functioning financial intelligence unit. The GOZ, however, still needs to adequately criminalize money laundering and terrorist financing, and establish and implement procedures to adequately identify and freeze terrorist assets to effectively implement UNSCRs 1267 and 1373.

Law-enforcement and regulatory agencies lack the resources to combat money laundering vigorously. Zimbabwe has criminalized money laundering and put in place mechanisms for freezing and forfeiting assets; however, deficiencies remain in being able to do so in a timely manner. The banking system can quickly freeze accounts, but financial institutions typically receive information related to designations from private sources and not government agencies. Zimbabwe has broad legislation on mutual legal assistance in both civil and criminal cases. In general, there are no legal or practical impediments to rendering assistance, providing both Zimbabwe and the requesting country criminalize the conduct underlying the offense. There were a number of prosecutions and convictions between January and November 2012, although exact figures are not available because of lack of a centralized system for compiling and collating the information.

The Government of Zimbabwe (GOZ) should ensure obliged entities comply with the STR filing requirements. The GOZ should improve its implementation of obligations under UNSCRs 1267 and 1373, and become a party to the International Convention for the Suppression of the Financing of Terrorism.



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