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Money Laundering and Financial Crimes

International Narcotics Control Strategy Report

Bureau for International Narcotics and Law Enforcement Affairs

March 2003

[The Money Laundering and Financial Crimes section of the International Narcotics Control Strategy Report is based upon the contributions of many U.S. Government agencies. The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury, as a member of the international Egmont Group of Financial Intelligence Units, has a unique strategic and tactical perspective on international anti-money laundering developments. It is the primary contributor to the majority of the country write-ups and the SAR analyses in this section. Other agencies that have helped produce this section include (from the Department of Treasury) the U.S. Customs Service, the Internal Revenue Service, the Office of the Comptroller of the Currency, the Office of Technical Assistance, the Office of Foreign Asset Control, and the Secret Service; (from the Department of Justice) the Drug Enforcement Administration, the Federal Bureau of Investigation; the Criminal Division’s Asset Forfeiture and Money Laundering Section, the Counterterrorism Section, and the Overseas Prosecutorial Development Assistance and Training Office. The Federal Deposit Insurance Corporation and the Federal Reserve Board also contributed to this section.]

Introduction

Today the world is a riskier place for criminals to launder their ill-gotten gains and for terrorists to finance their operations than it was a year ago. This progress is largely the result of intensified international efforts to combat terrorist financing that followed the September 11 attacks. While money laundering and terrorist financing are not identical phenomena, the legal, regulatory and enforcement tool kit necessary to combat both are virtually the same. Yet, even without the response to the terrorist attacks, international anti-money laundering efforts were reaching a new level in 2002. The international community, seeking to respond immediately to September 11, was fortunate to have an excellent model and foundation in the form of well-established anti-money laundering standards and procedures developed over the previous twelve years by the multi-lateral Financial Action Task Force on Money Laundering (FATF), the flagship of international anti-money laundering/anti-terrorist financing efforts; the global network of FATF-styled regional bodies; and unilateral actions taken by committed countries in accordance with these norms and standards. The 31-member FATF, through its four-year old Non-Cooperative Countries and Territories (NCCT) process, directed for the first time that “counter-measures” be applied to long-identified NCCTs of Nauru and Ukraine. These counter-measures were applied to countries and territories that persisted in their failure to pass adequate anti-money laundering legislation as the necessary first step toward building and implementing a comprehensive and effective anti-money laundering regime. The exercise has had an impact, as country after country either subject to, or faced with the prospect of, counter-measures began passing the legislation necessary to avoid counter-measures and taking, in many cases, the additional steps to be removed from the NCCT list. Nigeria avoided countermeasures by passing legislation that remedied some of the deficiencies that FATF had identified. The imposition of countermeasures against the Ukraine in December 2002 had an immediate effect. In early 2003, Ukraine passed necessary amendments to its anti-money laundering legislation and FATF, at its February, 2003 Plenary called for removal of countermeasures.

Some notable 2002 accomplishments achieved through the FATF NCCT process include the following: Dominica, Hungary, Israel, Lebanon, the Marshall Islands, Niue, Russia and St. Kitts & Nevis made sufficient progress in remedying the deficiencies in their anti-money laundering regimes that they were removed from the NCCT list. Other NCCTs, notably St. Vincent and the Grenadines and Grenada, enacted significant new legislation or implementing regulations in 2002. At its February 2003 Plenary, FATF removed Grenada from the NCCT list.

While the NCCT process focused on money laundering and not terrorist financing per se, FATF, the United Nations (UN), and other international entities lost little time in 2002 moving to ensure that the international community incorporated anti-terrorist financing into its anti-money laundering regimes. FATF and the UN Counter-terrorism Committee (CTC) led the way by requesting, collecting and analyzing reports and self-assessments from nearly every jurisdiction about its ability to address terrorist financing. Against the backdrop of all of these efforts, and with the United States in the lead as the year closed, the international donor community was beginning to accelerate its efforts to provide anti-money laundering/anti-terrorist financing technical assistance to committed countries most vulnerable to terrorist financing. Much remains to be done, however, and it will require a sustained and increasingly broadened effort to accomplish the international anti-money laundering/anti-terrorist financing objectives that still lie ahead.

The United States’ international efforts to combat terrorist financing rely on a mix of multilateral and bilateral initiatives. Our strategy includes the following central elements:

• Establishing a clear set of norms, starting with key UN Security Council Resolutions and relevant international conventions concerning terrorist financing;

• Making the fight against terrorist financing a central element of every relationship the United States has with other countries and institutions;

• Convincing other countries to identify individuals and institutions involved in financing terrorism and to take appropriate action to shut down their activities, including through the freezing of their financial assets;

• Strengthening law enforcement cooperation in matters related to terrorist financing; and

• Providing training to increase the capacity of other countries to close down terrorist financing activities on their own soil, whether these activities occur in financial institutions, non-bank financial institutions, alternative remittance systems or through other means.

Additional diplomatic efforts beyond FATF are also helping to strengthen the international coalition to thwart money laundering and the funding of terrorism. This is playing out in anti-terrorist financing and enhanced anti-money laundering measures by, for instance, the Group of Eight Nations (G-8), the UN, the Asia Pacific Economic Cooperation Forum (APEC), the Organization of American States (OAS), the European Union (EU), the Organization for Security and Co-Operation in Europe (OSCE), and other multilateral and regional organizations. They have variously sponsored conferences, offered technical assistance, crafted recommendations, or adopted conventions and other instruments designed to strengthen measures and enhance cooperation. Some milestones marking this success include the following:

• The Department of the Treasury noted that the United States and 30 other nations have blocked an estimated $125 million of terrorists’ assets to date.

• As of December 31, 2002, 64 countries, including the United States, had ratified the UN International Convention for the Suppression of the Financing of Terrorism; another 75 countries had signed but not ratified the Convention. Among other provisions, this Convention obligates parties to criminalize the provision or collection of funds with the intent that they be used, or in the knowledge that they are to be used, to conduct terrorist activity.

• By year’s end, 181 of the UN’s 191 Member States had provided the CTC with self-assessment reports on their anti-terrorism capabilities, including their ability to combat terrorist financing, in response to requirements in UN Security Council Resolution 1373, adopted on September 28, 2001.

• On June 3, 2002, the United States, along with 29 other countries, signed the Inter-American Convention against Terrorism, which the OAS General Assembly adopted on that day. Three other countries signed the Convention before December 31, 2002, including Canada, which became the first state to ratify it. The Convention includes a provision requiring parties, to the extent they have not already done so, to “institute a legal and regulatory regime to prevent, combat, and eradicate the financing of terrorism and for effective international cooperation thereto . . .” Nearly all major regional political organizations have issued statements denouncing terrorism and have begun the process of implementing work plans designed to enable member states to eradicate terrorist financing.

• Both the International Monetary Fund and the World Bank agreed to include assessments of compliance with relevant FATF Forty Recommendations on Money Laundering and the Special Recommendations on Terrorist Financing in their Financial Sector Assessment Programs to assist in the monitoring of the progress of countries’ adherence to international standards.

The United States is relying on this strong foundation of norms and international commitments to implement its most robust anti-money laundering foreign assistance program to date, focused sharply on terrorist financing. Shortly after September 11, 2001, the Department of State convened an interagency group to identify those countries most vulnerable to terrorist financing and to devise a strategy to provide them with the necessary training and technical assistance to create comprehensive, effective anti-money laundering/anti-terrorist financing regimes. Throughout 2002, State Department-led Financial Systems Assessment Teams (FSATs) of U.S. experts conducted detailed assessments of the legal, regulatory and law enforcement capabilities and vulnerabilities of the most affected countries. By the end of the year, a majority of these countries had been assessed. Training and technical assistance implementation plans had been developed on virtually all of the assessed countries, and assistance had begun being delivered according to these plans. This program remains a high priority in 2003 and will be pursued until comprehensive anti-money laundering regimes are established in all of the priority countries.

The United States, however, does not have enough experts or funds to meet all of the anti-money laundering institution-building requirements worldwide. That is why we have had to prioritize and why we have made “burden-sharing” a key element in our discussions with other donor countries and organizations. International financial institutions and America’s friends and allies are increasingly agreeing to provide technical assistance to needy countries. Indonesia—a FATF NCCT—is a unique but illustrative example. Even before the October 2002 terrorist attack in Bali, donors had been providing assistance to the government. This included a joint Australian-U.S. program to draft anti-money laundering legislation; Australian training for police investigators; a $1.5 million grant by Japan to the Asian Development Bank to develop a comprehensive assistance plan; and consultations with Indonesia’s Central Bank and private sector financial institutions by a U.S. non-profit organization of senior bankers. These and other post-Bali generous proposals by our partners, for the development of specific aspects of an anti-money laundering regime, underscore the need to coordinate training and technical assistance so that costly programs are complementary, not duplicative, and so all assistance needs are met. The World Bank is one of several organizations grappling with this challenge. It has created a secure database, accessible to all potential donors, in which FATF-styled regional bodies may enter requests for assistance by their member countries.

The United States also began making greater use of its domestic legislation to combat the international money laundering threat. For instance, significant provisions in the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) have been used to counter-terrorist financing threats.

In other noteworthy cases, two U.S. financial institutions were penalized for failing to file Suspicious Activity Reports (SARs). Banks in the United States have been required to file SARs since April 1, 1996, but no monetary penalties had been imposed for failing to comply with these regulations until last year. In September 2002, the Financial Crimes Enforcement Network (FinCEN) imposed a $100,000 civil penalty against Great Eastern Bank of Florida for failing to file SARs for transactions that involved the structuring of cash deposits to avoid currency reporting requirements, and other similar transactions indicative of money laundering activity. In November 2002, Broadway National Bank in New York City pled guilty to three criminal charges for failing to file SARs, failing to have an adequate anti-money laundering program, and allowing the illegal structuring of currency transactions, and paid a fine of $4 million. These penalties mark the beginning of a new chapter in the enforcement of laws and regulations involving SARs and anti-money laundering programs.

Global efforts against money laundering and the financing and support of terrorism are necessary to achieve successful deterrence of these activities. The United States is actively engaged in this process through its diplomatic efforts and through its assessment, technical assistance and training programs to support governments committed to developing comprehensive anti-money laundering/anti-terrorist financing regimes. The past year saw substantial progress in many nations. With the impetus of international cooperation and assistance, countries will continue to make their financial systems more resistant to money laundering and terrorist financing. Those jurisdictions that fail to meet international standards will be identified and isolated.

International recognition and action against the threat posed by money laundering have increased over the last decade. Money laundering produces several deleterious economic, social and political effects. Money laundering undermines free enterprise by crowding out the private sector; threatens the financial stability of countries and the international free flow of capital; and poses international and national security threats through corruption of officials and legal systems. Indeed, the revenue produced by some narcotics-trafficking organizations can far exceed the funding available to the law enforcement and security services of some emerging market countries.

Since the events of September 11, 2001, there has also been a new recognition of the threat posed by money laundering’s closely related corollary, terrorist financing. The amount of damage in loss of life and economic after-effects from a relatively small amount of operational funding can be staggering. While terrorist financing shares most of the fundamental attributes of money laundering, (e.g. fundraising, funds transfers, and obfuscation of origin and beneficial owner of funds), and while the legal and regulatory regimes needed to control both are essentially the same, terrorist financing does exhibit some significant differences.

With the exception of crimes of passion, most crime is committed for financial gain. The primary motivation for terrorism, however, is not financial. While traditional narcotics-traffickers and organized crime groups primarily seek monetary gain, terrorist groups usually seek non-financial goals, such as publicity for their cause and political influence. Terrorist financing also differs from traditional forms of money laundering in other respects. Ordinarily, criminal activity produces funds and other proceeds that money launderers disguise so that the funds can be used for legitimate or criminal purposes. Funds that support terrorist activity may come from illicit activity but are also generated through legitimate means such as fundraising through legal non-profit entities. In fact, a significant portion of terrorists’ funding comes from contributors, some who know the intended purpose of their contributions and some who do not. Terrorist financing therefore contrasts with the financing of, for example, a narcotics-trafficking network, which obtains virtually all of its funding from illegal activities.

Operationally, the problems of criminal money launderers and terrorist financiers differ. Traditional money launderers must take large cash deposits and enter them into the financial system without detection. Terrorist financiers need to place substantially fewer funds into the hands of terrorist cells and their members because terrorist operations require relatively little money (for example, the attacks on the World Trade Center and the Pentagon are estimated to have cost approximately $500,000). This is a significantly easier task than seeking to disguise the large amounts of proceeds generated by organized crime and drug kingpins.

While the terrorist groups require modest funding for their operations and do not pursue financial gain as a primary goal, international terrorist groups need significant amounts of money to organize, recruit new adherents, train and equip them, and otherwise support their activities. In addition to direct costs, some terrorist organizations also need to fund media campaigns, to buy political influence, and to undertake social projects aimed at maintaining membership and attracting sympathetic supporters.

Because of these larger organizational costs, terrorists often rely in part on funds gained from traditional crimes such as robbery, kidnapping for ransom, narcotics-trafficking, extortion, document forgery, currency and merchandise counterfeiting, fraud, and smuggling. In this respect al-Qaida is an anomaly as, at least initially, it was largely self-financed by Usama Bin Ladin. In most cases, terrorists engage in criminal activity, at least to some extent, and then use some of the proceeds of these criminal activities to finance their terrorism efforts. Indeed, some Foreign Terrorist Organizations (FTOs), such as the United Self Defense Forces of Colombia (AUC) and the Revolutionary Armed Forces of Colombia, (FARC), and Sendero Luminoso in Peru, are so closely linked to the narcotics trade that they are often referred to as “narcoterrorists”.

As is frequently the case with narcotics-related money laundering, terrorist groups also utilize front companies; that is, commercial enterprises that engage in legitimate enterprise, but which are also used to commingle illicit revenues with legitimate profits from the commercial enterprise. Front companies are frequently established in offshore financial centers that provide anonymity to their beneficial owners, thereby insulating the beneficial owners from law enforcement. In addition to commingling the proceeds of crime, terrorist front companies also commingle donations from witting and unwitting sympathizers.

Terrorists tap a wide range of sources for their financial support, including the proceeds of criminal activity, otherwise legitimate commercial enterprises, social and religious organizations and State sponsors of terrorism. (The Secretary of State has designated Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria as states whose governments have repeatedly provided support for acts of international terrorism.)

Transnational organized crime groups have long relied on criminal proceeds to fund and expand their operations, and were pioneers in using corporate structures to commingle funds to disguise their origin. In particular, it is the terrorists’ use of social and religious organizations, and to a lesser extent, state sponsorship, that differentiates their funding sources from those of traditional transnational organized criminal groups.

The methods used for moving and laundering money for general criminal purposes are nearly identical to those used to move money to support terrorist activities. Indeed, in many cases, criminal organizations and terrorists employ the services of the same money professionals (currency exchangers, bankers, accountants and lawyers) to help move their funds.

Both terrorists and criminal groups have used and continue to use established mechanisms in the formal financial sector, such as banks, primarily because of their international linkages. Terrorist and criminal organizations have little trouble determining which countries and jurisdictions have poorly regulated banking systems. Both terrorist organizations and narcotics-trafficking groups have exploited these weaknesses, and their built-in impediments to international cooperation, and have made use of their financial services to originate wire transfers and establish accounts that require minimal or no identification and do not require disclosure of ownership.

In addition to the formal financial sector, terrorists and traffickers alike employ other methods as well. One common method is smuggling cash across borders either in bulk or through the use of couriers. Similarly, both traffickers and terrorists rely on currency or moneychangers. Moneychangers play a major role in transferring funds in Asia, the Americas, the Middle East, and other regions. Their presence is largest in countries where currency or exchange rate controls exist and where cash is the traditionally accepted means of settling commercial accounts. These systems are also commonly used by large numbers of expatriates to remit funds to families abroad. Traffickers and terrorists have become adept at exploiting the weaknesses and lack of supervision of these systems to move their funds.

Both terrorists and traffickers have used informal value transfer systems, such as “hawala” or Hundi, and underground banking; these systems use trusted networks to move funds and settle accounts with little or no paper records. Such systems are prevalent throughout Asia and the Middle East as well as within their expatriate communities in other regions.

Trade-based money laundering is known to be used by organized crime groups and is increasingly suspected of being used by terrorist financiers as well. This method involves the use of commodities, false invoicing, and other trade manipulation to move funds. Examples of this include the Black Market Peso Exchange in the Western Hemisphere, the use of gold in the Middle East and South Asia, and the use of conflict diamonds in Africa.

One method of money movement that seems to be used frequently by some terrorist groups is the misuse of Islamic banks to move funds. Islamic banks operate in keeping with Islamic law, which prohibits the payment of interest and certain other activities. They have proliferated throughout Africa, Asia and the Middle East since the mid-1970s. Terrorists find these to be attractive vehicles because, in some instances, these banks are not subject to a wide range of anti-money laundering regulations and controls normally imposed on secular commercial banks. Islamic banks often do not undergo the regulatory or supervisory scrutiny by bank regulators via periodic bank examinations or inspections. While these banks may voluntarily comply with banking regulations, and in particular, anti-money laundering guidelines, there is often no control mechanism to ensure such compliance or the implementation of updated anti-money laundering policies. In addition, many religious charities naturally gravitate to Islamic banks and use their services, which presents another vulnerability, as terrorists often move funds diverted from religious charities. Islamic banking is not unique to the Middle East, but is increasingly found in many regions. Some of the largest Islamic financial institutions now operate investment houses in Europe and elsewhere.

Like money laundering, terrorist financing represents a potential exploitable vulnerability. In money laundering, transnational organized crime groups deliberately distance themselves from the actual crime and the jurisdiction in which it occurs; for them the loss of drugs or products is merely seen as the cost of doing business, but they are never far away from the eventual revenue stream. In terrorist financing the operational funds are very difficult to track, but by adapting methods used to combat money laundering, such as financial analysis and investigations, use of task forces, and administrative blocking procedures, authorities can significantly disrupt the financial networks of terrorists, interdict the potential movement of terrorists’ funds and build a paper trail and base of evidence that helps to identify and locate the leaders of the terrorist organizations and cells.

Building the capacity of our coalition partners to combat money laundering and terrorist financing through cooperative efforts, and through training and technical assistance programs is critical to our national security. As Deputy Secretary of the Treasury Kenneth Dam stated on June 8, 2002 in an address to the Council on Foreign Relations, “…international cooperation is particularly important because the financial front of the war on terrorism cannot be won without it…you can’t bomb a foreign bank account. You need the cooperation of the host government to investigate and freeze that foreign account.”

While there are some important differences between money laundering and terrorist financing as noted above, in terms of capacity building through training and technical assistance there is no appreciable difference. The same measures that are required to establish a comprehensive anti-money laundering regime—sound legislation and regulations, suspicious transaction reporting mechanisms, Financial Intelligence Units, on-site supervision of the financial sector, internal controls, trained financial investigators, legal authorization to utilize special investigative techniques, modern asset forfeiture and administrative blocking capability, and the ability to cooperate and share information internationally) that are used to prevent, detect, investigate and prosecute money laundering—are precisely the tools required to identity, interdict and disrupt terrorist financing.

Increasingly, international organizations and regional groups are recognizing this and are adding anti-terrorist financing to their objectives and incorporating appropriate measures into their assessment and assistant programs. With increasing frequency around the world, a new FIU is established, or a new money laundering law enacted, or a regulation passed that disrupts the efforts to launder money and finance terrorism. While significant progress is being made, additional efforts are still necessary to secure expertise, devote resources to training and technical assistance, prioritize requirements, and then harmonize assistance efforts to continue the headway made thus far against money laundering and terrorist financing.

The United States Response

Money laundering and terrorist financing enforcement efforts are not limited to targeting charitable fronts and fundraising appeals, freezing assets, or obtaining regulatory cooperation from our foreign partners. Money laundering and terrorist financing enforcement plays a critical role by identifying and thwarting terrorist and transnational organized crime groups before they carry out their plans. The cornerstone of these efforts lies in our legislative response to terrorist financing and money laundering embodied in the USA PATRIOT Act. The USA PATRIOT Act was passed in October 2001, and revises key elements of the criminal code and Bank Secrecy Act to provide powerful new tools in the arsenal against terrorist financing and money laundering.

On the criminal side, the USA PATRIOT Act expands criminal offenses relating to terrorism, including offenses related to the support and financing of terrorism; permits more expansive sharing of information between the intelligence and law enforcement communities; and streamlines procedures concerning the use of domestic electronic intercepts of terrorist information that can be, and have been, used against those who provide, attempt to provide and/or conspire to provide material support or resources to terrorists or foreign terrorist organizations.

On the financial side, the USA PATRIOT Act expands the scope of pre-existing forfeiture laws; broadens compliance, reporting and record keeping requirements for certain types of financial institutions; encourages information sharing mechanisms between the government and the private sector; and restricts the ability of shell banks to do business in the United States. The USA PATRIOT Act also amends existing law to make it easier to pursue federal prosecutions of money remitters who fail to comply with state licensing or registration requirements. While the USA PATRIOT Act itself was passed in 2001, it was not until 2002 that many of the implementing regulations were enacted, and the new features of the USA PATRIOT Act began to be successfully employed.

By strengthening several sections of the criminal code, provisions in the USA PATRIOT Act make it easier for prosecutors to bring and prove charges of providing material support or resources to terrorists, through financial or other assistance, including through personal services provided by those who voluntarily enroll in terrorist training camps. The U.S. Criminal Code was strengthened by the Act to make it a crime for persons within the United States to provide, conceal or disguise the nature, location, source, or ownership of “material support or resources” used or attempted to be used in the commission of any of the predicate, enumerated terrorist-related crimes.

The USA PATRIOT Act also expanded an existing provision of the U.S. Criminal Code, enacted in 1994, that makes it a crime to provide “material support or resources” to terrorists. The USA PATRIOT Act amendments expand the existing definition of “material support or resources” to make it a crime for anyone subject to U.S. jurisdiction to provide anything of value—including expert advice or assistance—to those involved in terrorist activity. The USA PATRIOT Act amendments also expand the scope of another provision in the U.S. Criminal Code, enacted in 1996, which makes it a crime for anyone, within the United States or subject to the jurisdiction of the United States, knowingly to provide “material support or resources” to a foreign terrorist organization.

In 2002, the United States enacted other important legislation to combat terrorist financing. The Suppression of the Financing of Terrorism Convention Implementation Act of 2002, enacted as title II of Public Law 107-197, implements the requirements of the International Convention for the Suppression of the Financing of Terrorism. Among its provisions, this statute makes it a crime, by any means, directly or indirectly, unlawfully and willfully to provide or collect funds with the intention that such funds be used, or with the knowledge that such funds are to be used to carry out an offense set forth in the Convention, or any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act.

One of the significant provisions in the USA PATRIOT Act is a stipulation that amends the civil forfeiture statute in the United States to permit the forfeiture of funds held in U.S. correspondent accounts on behalf of foreign banks. Where the government can show that forfeitable property was deposited into an account at a foreign bank, U.S. prosecutors can now file a civil forfeiture action against the equivalent amount of money in that foreign bank’s correspondent account in the United States. This new power was used for the first time in 2001 and demonstrates the increasing reach of laws to seize and freeze terrorist funds.

The USA PATRIOT Act also expands the scope of forfeiture laws to permit the forfeiture of any property involved in the commission of a terrorist act. In addition, the Act remedies a technical problem that made it more difficult to prosecute and forfeit unreported cash smuggled in bulk into, or out of, the United States.

The Act also contains several provisions that increase the means available to the United States to advance worldwide initiatives against money laundering and terrorist financing. Prominent among these are the special measures contained in Section 311 of the Act which can be employed to protect the U.S. financial system from abuse by money launderers operating from or through international financial crime havens.

In the past, the United States has had limited choices when it came to protecting itself from such abuse, having on the one hand informational advisories issued to domestic banks about specific jurisdictions, and on the other hand, sanctions authorized by the International Emergency Economic Powers Act that blocked transactions with designated entities in a jurisdiction. Now, under Section 311, the United States has available a graduated set of five special measures that give it much greater flexibility in responding to current and emerging international money laundering and terrorist financing threats: requiring domestic financial institutions to broadly implement enhanced reporting requirements; additional requirements to identify beneficial owners of accounts; requirements for additional due diligence for payable-through accounts; requirements for additional information and record keeping on correspondent accounts; and a prohibition on the opening or maintenance of correspondent accounts for institutions from a named jurisdiction.

The authority of Section 311 of the Act was invoked for the first time in December 2002 when the United States designated Ukraine and the Republic of Nauru as primary money laundering concerns. (Both had already been listed by the Financial Action Task Force (FATF) as a Non-Cooperating Country or Territory (NCCT), and had been singled out by FATF for countermeasures for their lack of progress in strengthening their anti-money laundering regimes.) Designation is the required first step before implementing one or more of the above special measures, and it indicates that the United States is prepared to use this new authority to help counter international money laundering and terrorist financing threats.

The Act calls for the implementation of new suspicious activity reporting requirements for several categories of non-depository financial institutions, including securities broker/dealers, mutual funds, money service businesses, and currency exchanges. Additionally, such entities are tasked with developing and implementing anti-money laundering compliance programs.

Banks are restricted from doing business directly, or indirectly, with foreign shell banks. Any correspondent account a domestic bank holds for a foreign bank is subject to scrutiny to determine whether the foreign bank has a physical presence in another jurisdiction and to ensure that the foreign bank is not providing United States banking privileges to a shell bank through the use of a U.S. correspondent account. Any accounts found to fall within the shell bank prohibitions must be closed. Banks are also subject to enhanced due diligence requirements when doing business with foreign citizens opening large-dollar private banking accounts.

Finally, the Act makes it easier to prosecute, federally, money remitters who fail to comply with state licensing or registration requirements. Several cases were brought in 2002 to attack the problem of unlicensed money remitters. The first conviction of an unlicensed remitter occurred in November 2002.

The increased scrutiny of those conducting financial transactions through U.S. institutions is designed to limit the vulnerabilities of the U.S. financial sector and to detect money laundering and terrorist financing.

The FBI’s Terrorist Financing Operations Section (TFOS), formerly known as the Terrorist Financial Review Group, was formed in response to the critical need for a more comprehensive, centralized approach to investigate the financing of terrorists and terrorism. The mission of TFOS is to provide a coordinated financial investigative component to terrorism investigations and to develop predictive terrorist identification mechanisms to identify terrorists and their networks, and to disrupt and dismantle those networks and their funding mechanisms. The efforts of TFOS were initially focused on conducting and coordinating a comprehensive financial analysis of the 19 hijackers in order to link them together and to identify their financial support structure within the United States and abroad.

Terrorists, their networks and their support structures require funding in some form to exist and operate. Whether the funding and financial support is minimal or substantial, it leaves a financial trail that can be traced, tracked, and exploited for pro-active and reactive purposes. Being able to identify and track financial transactions and links after a terrorist act has occurred or terrorist activity has been identified represents only a small portion of the mission; the key lies in exploiting financial information to identify previously unknown terrorist cells, recognize potential terrorist activity/planning, and predict and prevent potential terrorist acts. The importance of the terrorist financing component of terrorism investigations is readily apparent from the fact that, through financial information, the TFOS and FBI established how the hijackers responsible for the September 11 attacks received their money, where they lived, and details concerning their flight training and associates.

TFOS provides assistance with the financial aspects of terrorism investigations to FBI Field Offices. Depending upon resource needs and expertise, assistance consisting of investigative, analytical, and document handling support, or the conduct of all aspects of the financial investigation, is also provided to Joint Terrorism Task Forces (JTTFs) operating in the FBI Field Offices, and to the 44 FBI Legal Attaché Offices located in foreign countries. TFOS also conducts independent terrorist financing investigations from FBI Headquarters.

TFOS use a relational database to organize, capture and analyze all TFOS financial documents. As information is entered into the database, link analysis and queries can be conducted to identify associations and further expand the scope of an investigation. The ultimate purpose of this process is to help investigators and analysts identify and clarify the activities of individuals, illicit charities, and corrupt financial institutions engaged as facilitators of terrorist funding. TFOS has used the database in connection with financial investigations of over 3,195 individuals and groups. Over 137,500 financial documents encompassing approximately 144,788 financial transactions have been entered into the database for link analysis. As part of its analytical efforts, TFOS also cultivates and maintains a contact database of private industry and government sources, and persons who can provide financial and other data in support of investigations.

TFOS has conducted a comprehensive national and international outreach initiative in an effort to share information regarding terrorist financing methods with the financial community and law enforcement. TFOS support of domestic and international terrorism investigations has led to TFOS-sponsored training programs on terrorism financing both domestically and with over 38 countries worldwide.

The U.S. Treasury Department established Operation Green Quest in October 2001 as part of America’s response to the events of September 11. Operation Green Quest is a multi-agency terrorist financing task force, headed by the U.S. Customs Service, that attempts to bring the full scope of the Treasury’s financial expertise to bear upon “...identifying, disrupting, and dismantling the financial infrastructures and sources of terrorist funding.”

The Green Quest Task Force includes representatives from the U.S. Customs Service; Internal Revenue Service; Secret Service; Bureau of Alcohol, Tobacco and Firearms; Office of Foreign Assets Control; Financial Crimes Enforcement Network; Federal Bureau of Investigation; Postal Inspection Service; Naval Criminal Investigative Service; and the Department of Justice. Members of the Task Force assist in coordinating U.S. investigations of terrorist financing and prioritizing resources to meet national security objectives.

Operation Green Quest has initiated a proactive, multi-faceted approach to increase communication among the private sector, financial institutions, and Green Quest. Over the years, law enforcement has found that outreach to, and dialog with, the private sector can yield enormous dividends.

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions against international narcotics-traffickers, targeted foreign countries, and terrorists and terrorism-sponsoring organizations, based on U.S. foreign policy and national security goals. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.

OFAC’s economic sanction programs against narcotics-traffickers began in October 1995 with President’s Clinton’s signing of Executive Order 12978, imposing sanctions on named narcotics traffickers centered in Colombia. In 1999, the Foreign Narcotics Designation Kingpin Act (Kingpin Act) provided the authority to impose similar sanctions on a global basis. Currently, OFAC’s economic sanctions programs involving foreign narcotics traffickers rely principally on the President’s broad powers under the International Emergency Economic Powers Act (IEEPA) and the Kingpin Act to prohibit commercial transactions involving specific individuals and entities. The Kingpin Act “de-certifies” foreign drug lords rather than foreign governments and countries. It also is designed to deny significant foreign narcotics traffickers and their organizations, including related businesses and operatives, access to the U.S. financial system and all trade and transactions involving U.S. companies and individuals.

OFAC implements and administers the IEEPA-based designation of terrorists, terrorist organizations, and terrorist supporters and networks as Specially Designated Global Terrorists (SDGTs) under Executive Order 13224, which President Bush issued on September 23, 2001 as part of the war on terrorist financing. Designation leads to the freezing of their assets and public exposure of their connections with terrorism or terrorist fundraising activities. Under this Executive Order, as amended, the Secretary of State, in consultation with the Secretary of the Treasury, the Attorney General, and the Secretary of Homeland Security, designates foreign persons that have committed, or pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy or economy of the United States. Designations of persons who act for or on behalf of, support or sponsor, or are otherwise associated with, terrorists and terrorist organizations are prepared by OFAC’s International Programs and Foreign Terrorist Divisions. OFAC’s Licensing, Compliance and Blocked Assets Divisions administer the programs and conduct funds interdiction activities, and its Civil Penalties and Enforcement Divisions issue civil penalties and coordinate criminal investigations relating to transactions of the sanctions prohibitions.

The office also administers an umbrella of other asset freeze and trade embargo programs involving terrorists or sponsors of terrorism, including those targeting:

• Terrorist-supporting states designated under 6(j) of the Export Administration Act of 1979, including Cuba (since 1963), Iran (since 1979), Iraq (since 1990), Libya (since 1986), North Korea (since 1950), Sudan (since 1997), and Syria (since1979);

• Foreign Terrorist Organizations (FTOs) designated under section 219 of the Immigration and Nationality Act, as amended; and,

• Specially Designated Terrorists (SDTs) named under earlier IEEPA-based freeze orders issued in 1995 and 1998 targeting certain Middle East terrorist groups and individuals.

As in previous years, money launderers have demonstrated great creativity in combining traditional money laundering techniques into complex money laundering schemes designed to thwart the ability of authorities to prevent, detect and prosecute money laundering. Below is a review of U.S. money laundering trends in 2002 are examples of the various money laundering/terrorist financing typologies.

The U.S. Suspicious Activity Reporting System plays a critical role in U.S. anti-money laundering efforts. Similar types of reporting throughout the world are key to global efforts to combat money laundering. The aggregate totals for U.S. Suspicious Activity Reports (SARs) help illustrate the nature of illegal proceeds and the relative scale of the problem. Depository institutions (i.e., banks, thrifts, savings and loans, and credit unions) have been required to file SARs since 1996. The USA PATRIOT Act extended the mandatory reporting requirements to brokers and dealers in securities, and the Department of the Treasury, pursuant to its rulemaking authority extended it to casinos and money services businesses, including money exchangers, sellers of traveler’s checks and money transmitters (MSBs). The requirements went into effect on January 1, 2002 for MSBs, and on January 1, 2003 for brokers and dealers in securities, and will become effective for casinos in March 2003. The regulations generally require that covered financial institutions file a SAR when they suspect transactions of law or suspicious activities involving amounts greater than between $2,000 and $5,000. The following statistics provide aggregate totals for SARs filed by depository institutions since implementation of the system on April 1, 1996 through October 2002. Additionally, a small part of the total volume reflects reports filed by affiliates of depository institutions or, in some cases, filed voluntarily by brokers and dealers in securities who are not affiliated with banks or gaming businesses that, as of October 2002, were not yet required under the Bank Secrecy Act (BSA) to file SARs.

Month	Number of Filings
	1997	1998	1999	2000	2001	2002
January	6,123	6,832	8,621	13,399	13,767	19,424
February	5,519	7,055	9,949	13,634	14,660	17,881
March	6,850	8,938	11,492	15,154	16,084	25,037
April	7,148	8,057	9,478	11,499	15,357	19,249
May	6,754	7,409	10,400	13,674	16,335	27,313
June	6,696	8,737	10,956	13,963	14,387	16,590
July	7,175	8,757	8,518	12,611	16,823	26,600
August	6,322	8,532	10,484	14,111	19,283	22,433
September	7,561	7,577	8,471	13,321	14,283	24,571
October	7,439	8,165	9,842	13,148	20,571	25,134
November	5,960	7,848	11,243	14,437	20,444
December	7,604	8,614	11,050	13,769	21,624
Subtotal	81,151	96,521	120,504	162,720	203,538	224,232
Total Filings	888,666

Table 1: SAR Filings by Year and Month

Table 2 provides a rank ordering of the underlying suspicious activity identified in the SAR data between April 1997 and October 2002.

Violation Type	1997	1998	1999	2000	2001	2002
BSA/Structuring/Money Laundering	35,625	47,223	60,983	90,606	108,925	126,971
Bribery/Gratuity	109	92	101	150	201	331
Check Fraud	13,245	13,767	16,232	19,637	26,012	26,170
Check Kiting	4,294	4,032	4,058	6,163	7,350	7,686
Commercial Loan Fraud	960	905	1,080	1,320	1348	1,571
Computer Intrusion	0	0	0	65	419	1,293
Consumer Loan Fraud	2,048	2,183	2,548	3,432	4,143	3,644
Counterfeit Check	4,226	5,897	7,392	9,033	10,139	10,198
Counterfeit Credit/Debit Card	387	182	351	664	1,100	1,050
Counterfeit Instrument (Other)	294	263	320	474	769	659
Credit Card Fraud	5,075	4,377	4,936	6,275	8,393	12,347
Debit Card Fraud	612	565	721	1,210	1,437	975
Defalcation/Embezzlement	5,284	5,252	5,178	6,117	6,182	5,101
False Statement	2,200	1,970	2,376	3,051	3,232	2,995
Misuse of Position or Self Dealing	1,532	1,640	2,064	2,186	2,325	2,217
Mortgage Loan Fraud	1,720	2,269	2,934	3,515	4,696	4,617
Mysterious Disappearance	1,765	1,855	1,854	2,225	2,179	1,869
Wire Transfer Fraud	509	593	771	972	1,527	3,293
Other	6,675	8,583	8,739	11,148	18,318	25,346
Unknown/Blank	2,317	2,691	6,961	6,971	11,908	6,753

Table 2: Frequency Distribution of SAR Filings by Characterization of Suspicious Activity

April 1, 1997 Through October 31, 2002

Organized crime and narcotics-traffickers have used the following methods for decades to launder their illegal proceeds:

• Financial activity inconsistent with the stated purpose of the business;

• Financial activity not commensurate with stated occupation;

• Use of multiple accounts at a single bank for no apparent legitimate purpose;

• Importation of high dollar currency and traveler’s checks not commensurate with stated occupation;

• Significant and even dollar deposits to personal accounts over a short period;

• Structuring of deposits at multiple bank branches to avoid Bank Secrecy Act requirements;

• Refusal by any party conducting transactions to provide identification;

• Apparent use of personal account for business purposes;

• Abrupt change in account activity;

• Use of multiple personal and business accounts to collect and then funnel funds to a small number of foreign beneficiaries;

• Deposits followed within a short period of time by wire transfers of funds;

• Deposits of a combination of monetary instruments atypical of legitimate business activity (business checks, payroll checks and social security checks); and

• Movement of funds through countries that are on the FATF list of NCCTs.

Financial institutions identifying suspicious transactions under the Bank Secrecy Act of 1970, chapter 53 of title 31, United States Code (BSA) are required to report such transactions by filing a SAR with the Financial Crimes Enforcement Network (FinCEN), in accordance with applicable regulations. SARs are not proof of illegal activity; rather they note possible wrongdoing that warrants further investigation. An actual determination of criminal activity can only be made following an investigation by law enforcement of the activity addressed in the SAR.

FinCEN did an analysis of the Suspicious Activity Reporting System to determine the volume of SARs filed that relate to jurisdictions the FATF has placed on the NCCT list since 2000.

The results of that analysis follow. Again, the results represent possible illegal activity; they are not positive determinations that criminal activity has occurred.

An asterisk (*) following the name of a jurisdiction indicates that FATF removed the jurisdiction from the NCCT list prior to December 31, 2002.

Bahamas. * An analysis by FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, reveals that there are 227 SARs that could be linked to transactions associated with the Bahamas. These SARs were filed by 50 U.S. banks, 11 foreign banks, 15 brokerage services firms, and one money service business with reported amounts ranging from a low of zero dollars to a high of $81,000,000. This is a slight increase over the 214 SARs filed in the first ten months of 2001. A significant number of financial violations relate to suspicious or fraudulent wire transfer activity to or from the Bahamas. Narratives describe processing large numbers of wire transfers, often in even numbered amounts, many times for several million dollars each. Other activity reported in SARs includes suspicious deposits of money orders and Nigerian advance fee fraud letters.

Burma. An analysis by FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, reveals that there are eight SARs that could be linked to transactions associated with Burma. Most of the reported activity involves suspicious wire transfer activity to or from Burma or involving a citizen of Burma. SARs report wire transfers originating in Tokyo, Hong Kong, and Singapore flowing into the United States and sent by individuals using Burmese passports for identification. Banks identify the activity as suspicious due to a lack of information linking the activity to legitimate funds. Additional activity reported on the SARs includes structured cash deposits made by Burmese citizens in an apparent attempt to avoid BSA filing requirements.

Cayman Islands. * An analysis by FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, identifies 215 SARs that could be linked to transactions associated with the Cayman Islands. These SARs were filed by 26 U.S. banks, 13 foreign banks, and eight brokerage services firms, with reported amounts ranging from a low of zero dollars to a high of $14,250,000. This is a noticeable increase over the 187 SARs filed in the first ten months of 2001. The analysis reveals that a significant number (156 or 72.6 percent) involve suspicious or fraudulent wire transfer activity to or from the Cayman Islands. A number of the reports cite “structuring” instances in order to avoid reporting requirements, and Nigerian advance fee fraud letters. Also reported are instances of traveler’s checks, money orders, personal and cashier’s checks being deposited to personal accounts over a relatively short period of time in excessive dollar amounts, followed by issuance of personal checks or wire transfer of funds.

Cook Islands. An analysis by FinCEN of the Suspicious Activity Reporting System for transactions relating to the Cook Islands reveals that 62 SARs were filed by U.S. and foreign banks, brokerage services firms, and money service businesses from January 1, 2002 through October 31, 2002. Reports indicate that 80 percent of the activities involve suspicious or fraudulent wire transfer activity involving Cook Islands entities. The reporting financial institutions in the United States have been unable to verify a physical presence for these entities, described as banks. The banks, reportedly operating in the Cook Islands, maintain correspondent relationships with several banks located in Hong Kong, Taiwan, New Zealand, and Estonia, and have been sending and receiving wire transfers to and from various locations. Each of the correspondent banks has a relationship with United States filing institutions. Incoming wire transfers originate in Cyprus, Russia, Thailand, Azerbaijan, Hong Kong, Germany, Belize, Taiwan, Switzerland, Denmark, Slovenia, Georgia, St. Vincent and the Grenadines, and the Cook Islands itself. Outgoing wires are sent to Belize, Denmark, Cook Islands, Switzerland, Taiwan and Hong Kong.

Dominica. * An analysis by FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, reveals that 23 SARs have been filed which could be linked to transactions associated with Dominica. These SARs were filed by 16 U.S. banks and one brokerage services firm with reported amounts ranging from a low of zero dollars to $4,246,936. This is an increase over 16 SARs filed in 2001, with almost 58 percent (15) of the filings citing “Bank Secrecy Act/structuring/money laundering”; 12 percent (three) citing “Other”, and another 12 percent (three) citing wire transfer fraud.

The majority of the reported activity (16 filings or 70 percent) involves suspicious wire transfers originating and/or terminating in Dominica. Often this is seen in concert with structured cash deposits to avoid BSA reporting requirements, large cash deposits, and the receipt of large checks. Dominica-based financial institutions, as well as companies in various industries including financial services, securities trading, commodities trading, and some retail establishments, are cited as being involved with suspect activity. An interesting trend is the number of SARs citing activity by companies related to Internet gaming/gambling, with several companies mentioned in multiple SARs. Another prevalent feature of wire activity is the use of correspondent banking relationships by Dominica-based financial institutions and companies.

Egypt. An analysis FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, reveals 481 SARs that could be linked to transactions associated with Egypt, an increase of 53 percent from the 315 SARs filed in all of 2001. The SARs report transaction amounts ranging from zero dollars to $84 million.

Most of the reported activity involves suspicious or fraudulent wire transfers destined for Egypt or originating from Egypt. A significant number of overall filings describe transactions conducted by or involving Egyptian nationals. Twenty percent of the SARs report that the specific reason for their filing is a possible relationship to terrorist attacks. It should also be noted that filings display a dramatically increased awareness and scrutiny of all financial activities involving Egypt, although they may not be directly related to the attacks of September 11, 2001. Furthermore, some of these filings make specific references to transactions by Islamic charitable organizations now suspected of being involved in funding terrorist activities.

Another type of possible money laundering activity noted in Egypt-related filings is the use of credit card accounts. Many SARs report large cash payments ($9,900 to $20,000) to credit card accounts with small or zero balances. Two SARs indicate the deposits were made in Cairo, that is, outside of the United States, with the U.S.-based cardholders requesting “Credit Balance Refund Checks” to be sent to them within days of the cash deposits being made. This activity circumvents BSA rules while allowing accessibility to funds virtually worldwide.

Grenada. * FATF removed Grenada from the NCCT list in February 2003. An analysis by FinCEN of the Suspicious Activity Reporting System, for the period of January 1, 2002 to October 31, 2002, reveals 37 SARs involving Grenada, which is lower than the 46 SARs filed in 2001. The 2002 SARs were filed by 16 U.S. banks, two brokerage or mortgage service firms, one foreign bank, and one money service business. Two SARs filed in February 2002 relate to the September 11 terrorist attacks on the United States. Both SARs, which were filed by the same U.S. bank, describe an attempt to open accounts for the benefit of the victims of the September 11 attacks. The trust funds were allegedly going to be donated by a trust organization incorporated in Belize, which has its headquarters in Grenada, and an office in Canada. Bank research indicates that the trust organization’s sources of funding are suspect and the bank did not open the accounts.

Guatemala. The FinCEN conducted an analysis of the Suspicious Activity Reporting System for transactions relating to Guatemala for the period January 1, 2002 through October 31, 2002. Results of the query include identification of 184 SARs that could be linked to transactions associated with Guatemala. These SARs were filed by 50 U.S. banks, nine foreign banks, and six money service businesses, with reported transaction amounts ranging from a low of zero dollars to $300 million.

Most of the reported activity involves suspicious or fraudulent wire transfer activity to or from Guatemala. Scenarios reported include groups of individuals sending wire transfers within minutes of each other from the same U.S. money service business location to the same locations in Guatemala, attempts to disguise originating countries in North Africa and Southwest Asia by routing wire transfers through European countries, and excessive cash and/or monetary instrument deposits followed by wire transfers that are not commensurate with the type of business. Several instances of wire transfer activity are reported in conjunction with allegations of political corruption in Guatemala. Businesses involved in the wire transfer activities reported include import/export companies, recycling companies, and money exchange services. Another ongoing trend seen during the past year involves large currency deposits, some of which contain suspicious traveler’s checks and money orders, by Guatemalan financial institutions. The traveler’s checks and money orders are usually consecutively numbered and payable to the same beneficiaries.

Hungary. * FinCEN conducted an analysis of the Suspicious Activity Reporting System and determined there are 67 SARs that could be linked to transactions associated with Hungary. The SARs were filed by U.S. and foreign banks and money services businesses during the period January 1, 2002 to October 31, 2002. Twenty-one SARs (36.8 percent) involve suspicious or fraudulent wire transfer activity to or from Hungary. Other activity reported includes deposits of multiple postal money orders over short periods of time, most of which were purchased four at a time, many times at different post offices. The deposits are structured in amounts under BSA reporting thresholds and are accompanied by letters instructing that the money be transferred to an offshore mutual fund account. Additional instances of “structuring” in order to avoid reporting requirements are noted. One SAR reports activity involving individuals, who are suspected of being involved in the funding of HAMAS, sending wire transfers to Lebanon. One of the wires came from a Hungarian bank.

Indonesia. FinCEN conducted an analysis of the Suspicious Activity Reporting System for the period from January 1, 2002 through October 31, 2002. Results identify 497 SARs that could be linked to transactions associated with Indonesia. These SARs were filed by 56 U.S. banks, 19 foreign banks, four brokerage services firms, and three money service businesses, with reported transaction amounts ranging from zero dollars to $500 million. Three hundred thirty-three (66 percent) of the filings cite “Bank Secrecy Act/money laundering,” while 137 (28 percent) cite “Other” transactions. It is noteworthy that the majority of the transactions listed in the “Other” category are reported as related to terrorist activities.

Most of the reported activity (64 percent) involves suspicious or fraudulent wire transfer activity to or from Indonesia. Incoming and outgoing wire activity, routed through, originating in, and/or terminating in Indonesia involves several different geographical locations, including locations in the Middle East and Asia. The primary pattern of activity, however, involves funds moving from Indonesia to the United States.

Since September 11, 2001, there has been a large increase in filings regarding terrorist-related activities. The searched period yields 85 SARs filed by various financial institutions in response to the attacks of September 11. The following scenarios are seen: (1) financial activity is found for individuals with names similar to known terrorists documented in governmental, regulatory, or media reports; (2) suspect purchases at military supply stores, discount knife stores, aviation schools, and global positioning services; and charitable donations by individuals where the occupations do not support such expenditures; (3) multiple individuals use a single account to conduct suspect financial activity such as outlined above; and (4) automated teller machine (ATM) activity in foreign locations is not commensurate with the stated occupation of the suspects.

Israel. * FinCEN conducted an analysis of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, and determined there are 395 SARs that could be linked to transactions associated with Israel. The SARs indicate that many of the reported financial transactions (311 or 79 percent) involve suspicious or fraudulent wire transfer activity to or from Israel. Frequently the wire transfers seem to be structured to avoid reporting requirements. A number of SARs indicate that family members, or agents claiming to be acting for a person in Israel, conducted wire transfers and other account activities. Financial institutions also filed SARs because the amounts or frequency of the activity is much higher than in the past, because the source of the funds is unknown, or because the filer suspects an agent of using the account for laundering money without the knowledge of the account holder. SARs also report suspicious deposits of sequentially numbered money orders or apparently structured purchases of money orders, and the use of traveler’s checks, often in large volumes. Many of the filing financial institutions suspect that traveler’s checks are used to move money internationally, when other available means would be safer and easier, to avoid reporting requirements.

Sixteen of the SARs report the reason for their filing is related to possible terrorism. For example, among the SARs, five detail wire transfers and other account activity of individuals who are exact or partial matches to names designated by the U.S. Government pursuant to various legal authorities, six recount wire transfers and other account activity that could possibly be pertinent to terrorist funding, and one reports wire transfers involving a charity suspected of funding terrorist activities.

Lebanon. * An analysis by FinCEN of the Suspicious Activity Reporting System related to Lebanon for the period January 1, 2002 through October 31, 2002, reveals there are 286 SARs that could be linked to transactions associated with Lebanon. It also reveals that much of the reported activity (156 or 54.5 percent) involves suspicious or fraudulent wire transfer activity between Lebanon and other countries. Many of the SAR narratives cite “structuring” instances in order to avoid reporting requirements. Other narratives describe the use of traveler’s checks in money laundering attempts and Nigerian advance fee fraud scams. Still other SARs report suspicious use of money orders. Two of the SARs report the reason for their filing is related to possible terrorism.

Liechtenstein. * FinCEN conducted an analysis of its Suspicious Activity Reporting System and found 26 SARs relating to Liechtenstein. SARs were filed by banks (U.S. and foreign) and one brokerage services firm between January 1, 2002 and October 31, 2002. Much of the reported activity (24 SARs, or 92 percent) involves suspicious or fraudulent wire transfer activity to or from Liechtenstein. The SAR narratives report sudden wire transfer activity for large amounts in accounts that had never experienced wire transfer activity. Others note funds wire transferred from unidentified individuals in Liechtenstein that were then rerouted out of the United States. The SARs seem to indicate a pattern of high dollar value transfers, rather than structuring, which is reported in only one SAR. The reported high value transfers are often by, or to, individuals or companies for whom such activity is an anomaly, or for no discernible reason.

Marshall Islands. * FinCEN conducted an analysis of the Suspicious Activity Reporting System for transactions relating to the Marshall Islands. The SARs were filed by U.S. and foreign banks, brokerage services firms, and money service businesses from January 1, 2002 through October 31, 2002. Two SARs were filed reporting possible transaction amounts ranging from $2,400 to $640,000. One SAR cites “Bank Secrecy Act/structuring/money laundering,” while the other SAR cites a check fraud transaction. Activity described in the SARs includes outgoing wire activity originating in the United States and terminating in the Marshall Islands with no apparent business reason for the transaction, and an alleged embezzlement. In this instance, checks drawn on the suspect account were made payable to a U.S. bank, endorsed with two signatures, and cash was received for the amount of the checks.

Nauru. An analysis by FinCEN of the Suspicious Activity Reporting System identifies five SARs that could be linked to transactions associated with Nauru. These SARs were filed by three foreign banks and one brokerage services firm from January 1, 2002 through October 31, 2002. Reported transaction amounts range from a low of zero dollars up to $55 million (a fraudulent bank guarantee). This is a significant decrease from the 25 SARs filed in 2001. The SARs report activity involving suspicious or fraudulent wires associated with companies or financial institutions either registered or with addresses in Nauru. SAR narratives describe Nauru banks (using only a post office box address) as receiving high dollar value wire transfers and requesting third party wire transfers and checks, deemed to be suspicious by the filing financial institution. The wire transfer activity was rejected and the accounts closed. Additional scenarios identified in SAR narratives include the attempted use of fraudulent bank guarantee documents.

Nigeria. An analysis by FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, reveals there are 2,399 SARs that could be linked to transactions associated with Nigeria. There are a high number of financial transactions related to wire transfer fraud, check fraud, and counterfeit checks and money orders. A typical check fraud scheme includes the deposit of counterfeit or fraudulent checks that are sent to United States account holders as payment for merchandise purchased from Nigeria, often over the Internet. A similar, less prevalent check fraud trend involves new account fraud--Nigerian organized crime groups who open new bank accounts using false or stolen information, then deposit fraudulent checks and attempt to withdraw the money before the checks are returned. SAR information also reveals suspicious transactions related to large-volume deposits of traveler’s checks usually purchased or negotiated in Nigeria. Overall, the most frequently reported activity involves advance fee fraud where financial institutions receive solicitations for participation in the fraud scheme, or institutions report on customer activities that indicate their possible involvement in a fraud scheme.

Niue. * An analysis by FinCEN of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, reveals that one SAR has been filed that could be linked to transactions associated with Niue. This is a decrease over the two SARs filed in 2001. The SAR reports “Other” as the transaction and describes suspicious wire transfer activity. The wire was for the benefit of a company with an address in Niue. The SAR filer was unable to obtain a sufficient explanation for the purpose of the wire, did not complete the transaction, and was in the process of closing the account when the SAR was filed.

Panama. * An analysis by FinCEN of the Suspicious Activity Reporting System identifies 304 SARs that could be linked to transactions associated with Panama. These SARs were filed by U.S. and foreign banks, brokerage services firms, and money service businesses from January 1, 2002 through October 31, 2002. The amounts of the transactions range from zero dollars to a high of $300,000,000. Eighty-two percent of the SARs report “Bank Secrecy Act/money laundering” as the type of transaction, many of which are “structuring” instances designed to avoid reporting requirements. Much of the reported activity (64 percent) involves suspicious or fraudulent wire transfer activity to or from Panama. In many instances, the individuals deposit cash and then immediately wire out the same amount, or a slightly lesser amount, to beneficiaries in Panama or other countries. A few SARs report “related to terrorism” as the reason for filing the report, because they involve wire transfers by individuals whose names are partial matches to names designated by the U.S. Government pursuant to various legal authorities. These SARs list wire transfers between Panama and Spain, Canada, and Pakistan. One SAR lists dozens of international money transfers by an individual whose name resembles two names on the Specially Designated Nationals list of the USG Treasury Office of Foreign Assets Control (OFAC).

Philippines. FinCEN conducted an analysis of the Suspicious Activity Reporting System for transactions relating to the Philippines. The 407 related SARs were filed by U.S. and foreign banks, brokerage services firms, and money service businesses from January 1, 2002 through October 31, 2002. Incoming and outgoing wire transfer activity, routed through, originating in, and/or terminating in the Philippines represents the majority of the SAR reporting. Most of the SAR narratives report large cash deposits followed by wire transfers to the Philippines. Additional activities reported in SAR narratives include issuance of numerous consecutively numbered checks by a global payment service; involvement in a pyramid scheme operating in Malaysia, Hong Kong, Thailand, Singapore, and Indonesia; and structured cash deposits to avoid reporting requirements.

Russia. * FinCEN conducted a review of the Suspicious Activity Reporting System, for the period January 1, 2002 to October 31, 2002, and identified 664 SARs that could be linked to transactions relating to Russia. The SARs were filed by U.S. and foreign banks, brokerage services firms, and money services businesses. The majority of filings (65 percent) involve wire transfers either to Russia from U.S. accounts, or vice versa. Many of the wires are in large and/or even dollar amounts totaling hundreds of thousands, or even millions of dollars, over periods of months to a year. In many instances funds are wired to an account at a Russian bank with no beneficiary identified. The majority of activity that involves Russian banks cites correspondent-banking relationships with U.S. banks. A behavior noted frequently in SARs citing suspicious wire transfers is the use of ATMs to withdraw funds via locations in the United States as well as in Russia and other European nations.

Approximately 15 percent of SAR filings report that the reason for their filing is related to the terrorist attacks of September 11, 2001, and awareness or scrutiny of all transactions involving customers and businesses associated with Russia, a country on FATF’s NCCT list. A small but significant number of filings mention Russian companies or banks involved in financial fraud schemes. Some of these firms were found to be associated with well-known Russian organized crime groups operating worldwide, while other businesses were identified by local or regional law enforcement from previous incidents in a specific area. Some of the filings cite examples of Nigerian Advanced Fee Fraud, or 419 fraud (referring to the relevant provision in the Nigerian criminal code), indicating that the funds to be moved are allegedly a result of a “pay-back contract” between a Nigerian and a Russian firm operating in Nigeria.

St. Kitts and Nevis. * FinCEN conducted an analysis of the Suspicious Activity Reporting System for transactions relating to St. Kitts and Nevis for the period January 1, 2002 through October 31, 2002. The 53 SARs that could be linked to transactions associated with St. Kitts and Nevis were filed by 19 U.S. banks, three foreign banks, six brokerage services firms, and one money service business, with reported transaction amounts ranging from a low of zero dollars to a high of $100,000,000. This is a significant decrease over 137 SARs filed in the first ten months of 2001.

The FinCEN analysis reveals significant activity (36 or 64 percent) involving suspicious or fraudulent wire transfer activity to or from Saint Kitts and Nevis. Other SAR narratives describe what appears to be computer intrusion and identity theft, and refer to an apparent fraud that netted over $200,000. Almost all of the money comes from a bank in Nevis. Other narratives describe alleged real estate investments involving bank guarantees in the $100 million range, of which the filing institutions were suspicious, and therefore, the reporting institutions decided to close the business accounts involved.

St. Vincent and the Grenadines. FinCEN conducted an analysis of the Suspicious Activity Reporting System for transactions involving St. Vincent and the Grenadines (SVG) for the period January 1, 2002 through October 31, 2002. U.S. banks, money service businesses, and brokerage service companies filed 37 SARs. Overall, SAR narratives report activity involving suspicious wire transfers, most frequently wires sent to SVG. Other SAR narratives (36.4 percent of the total number of SARs), all filed by the same U.S. bank, report suspicious activity carried out by a bank registered in St. Vincent, believed to be operating as a shell bank, since no physical presence could be confirmed. The SAR describes large volumes of suspicious wire transfers into what appear to be three different business accounts at the St. Vincent bank. Additional activities reported include possible securities fraud, structured cash deposits, suspicious account applications, and check fraud activity.

Ukraine. An analysis by FinCEN of the Suspicious Activity Reporting System reveals that the majority of the 130 SARs relating to Ukraine, filed by U.S. and foreign banks, money services businesses, and brokerage service firms from January 1, 2002 to October 31, 2002, report suspicious wire transfer activity. Some of this wire transfer activity is possibly related to charitable organizations with alleged links to terrorism. Narratives describe businesses allegedly operating as shell banks (registration and address information could not be verified) that continue to send and receive wire transfers, as well as fraudulent or suspicious letters of credit, bonds, checks, and certificates of deposit.

As part of its support to law enforcement, FinCEN routinely prepares proactive referral packages developed from SARs and other BSA information. In 2002, FinCEN conducted a search of the SAR database to determine the extent of SAR filings related to terrorism.

September 2001	27
October 2001	446
November 2001	324
December 2001	215
January 2002	292
February 2002	112
March 2002	241

Between September 12, 2001 and March 31, 2002, more than 1,600 SARs were filed that contained references to terrorism or terrorist groups:

The review indicates that the increase in filings was attributed to the issuance of various government lists of known or suspected terrorists, against which financial institutions researched their files/databases for possible matches. Eighty-five percent of the SARs (1,369) indicate the SAR was filed as the result of apparent matches to the names of individuals or entities provided to institutions by government agencies.

• The SARs were filed by 255 financial institutions.

• The suspicious activity reported in the SARs occurred in 43 states, the District of Columbia, Puerto Rico and Guam.

• Foreign branches of U.S. banks located in Saudi Arabia, Sri Lanka, the United Kingdom and Costa Rica filed SARs relating to terrorist activity.

• Transaction amounts ranged from $0 to $300 million.

• There were 1,016 SARs that were filed for reasons other than an attempt to complete a transaction.

The three main activities described in the SARs filed as a result of apparent name matches are:

• Wire transfers;

• Use of ATMs; and

• Large cash transactions.

The suspicious wire transfers occurred predominantly to or from Middle-Eastern countries. Other countries identified in connection with suspicious wire transfer activity included Pakistan, Malaysia, Indonesia, the Philippines, Liberia, Tanzania, Switzerland, the United States and Canada.

The ATM activity was described as suspicious because of the frequency of use and the geographic location of usage. The countries cited in SARs that reported suspicious use of ATMs included Lebanon, Morocco, Saudi Arabia, Jordan and the United States.

The suspicious cash transactions described in SAR narratives were conducted to establish new accounts, pay off credit card debts, effect wire transfers, and purchase money orders and/or travelers checks.

FinCEN further reviewed the SARs to evaluate whether any of them could possibly involve mechanisms to fund terrorist activities. The review reveals that traditional methods of money laundering were used, and at least one of the following additional indicators was involved:

• Movement of funds through state sponsors of terrorism and countries listed as having highly active anti-American terrorist activities;

• Use of unfamiliar charity/relief organization as a link in transactions;

• Wire transfer activities to and from multiple relief and/or charitable organizations, domestic and foreign; and/or

• The individual or entity involved is identified on one of the lists of suspected terrorists, terrorist organizations, or associated individuals or entities.

While these indicators alone may or may not denote terrorist funding, when combined with the common indicators of financial crime and money laundering, such transactions or patterns could be associated with terrorist financing activity. Additionally, when one or more of the potentially suspicious factors exist in regard to a specific financial transaction, increased scrutiny is warranted. Moreover, when the individual or entity appears on one of the lists of terrorist organizations or associated individuals or entities, the transaction may be subject to blocking or forfeiture.

The five synopses below were developed from SARs and other BSA information. They are provided here as illustrations of behavior that could indicate terrorist fundraising activities.

Relief/Charitable Organizations in the United StatesA bank filed three SARs reporting the activities of a relief organization operating in the United States, whose stated primary purpose is the collection of donations and funds for worthwhile causes in Middle Eastern countries. Over an approximate 15-month period, the relief organization initiated wire transfers from its U.S. bank account totaling $685,560, through its primary account in a former Soviet Republic, to its accounts in other former Soviet Republic countries. The relief organization’s U.S. bank account also received wire transfers totaling $724,694 from unknown senders at a European bank, and wired a total of $65,740 to a U.S. charitable organization. The filing institution deemed this activity inconsistent with the stated purpose of the account.

FinCEN identified two other SARs filed by two banks regarding financial activity of the U.S. charitable organization. The SARs identify $445,325 wired to the U.S. charitable organization’s account in the Middle East through the filing banks’ U.S. correspondent bank. The organization also wired $18,000 to a media services business in the Middle East in 2001. Four different accounts were used. SARs also describe structured cash deposits totaling $53,800, and check deposits totaling $121,705. FinCEN identified three additional accounts at three other banks through currency transaction reports (CTRs). Those CTRs report cash deposits totaling $227,519.

Relief Organization in the Middle EastFinCEN identified 649 SARs filed by seven depository institutions, reporting transactions totaling $9 million involving structured cash deposits and deposits of business, payroll and Social Security benefit checks. These SARs were filed during a 3-1/2 year period. Deposited funds were subsequently wire transferred within one or two days to a company located in the Middle East. The deposit and wire transfer activity involved 37 individuals conducting transactions through 44 accounts on behalf of four businesses. Two of the businesses were wire remittance companies; one was described as a relief organization at the same location as one of the wire remittance businesses; the fourth undescribed business, located in the Middle East, was the beneficiary of the wire transfer activity. The majority of the wire transfers were sent to two accounts in the Middle East. Other wire transfers were made to accounts at three different banks in foreign locations. The majority of the transactions (83 percent) were structured. Amounts of the deposits ranged from $350 to $636,790; most deposits fell between $2,000 and $8,000.

Owner of Pharmaceutical CompanyA SAR was filed reporting two same-day deposits ($3,500 and $9,900), made three hours apart to a savings account by a bank customer. The bank initiated a review of the customer’s accounts. The review identified additional suspicious activity in four of his personal accounts, including the original savings account. From December 1999 through April 2001, 38 cash/non-cash deposits and one wire transfer deposit totaled $2,202,384. During the same time period, one withdrawal, two redemptions of negotiable instruments, three wire transfers and two other debit transactions totaled $2,256,223. Of this total, $2,040,370 flowed into the original suspect’s savings account and $2,097,323 flowed out of the account. Cash and non-cash deposits were described as even dollar amounts ranging from $1,000 to $100,000. Wire transfer activity included a $25,000 wire transfer received from an individual and three transfers totaling $100,000 sent to two different individuals. The SAR, and related CTRs, describe the individual as the owner/president of a pharmaceutical company and the owner/CEO of a biochemical laboratory.

In July 1996, this individual transported $11,200 into the United States from a Caribbean country, and in December 2000, he transported $11,500 from the United States to Europe. In both instances, he claimed citizenship in a country subject to a travel warning for anti-American terrorist activity and provided a non-U.S. passport as identification. He is also cited as entering the United States a total of 32 times from March 1996 through August 2001. Identification provided, as cited in the entry records, was an alien registration number.

In 2002, law enforcement agencies continued to use both the financial transparency “paper trail” and investigative techniques such as informants and undercover investigations to penetrate suspect criminal organizations. Generally, law enforcement uses a combination of resources and techniques to put a case together. The following case examples highlight successful law enforcement investigations and techniques:

Operation Smoke ScreenIn a far-reaching case involving the prosecution of individuals involved in the financing of terrorism, two men in Charlotte, North Carolina were convicted in May 2002 (seven defendants previously pled guilty) of providing, and conspiring to provide, material support to Hizballah, a designated Foreign Terrorist Organization. The criminal group perpetrated an interstate cigarette tax evasion scheme whereby inexpensive cigarettes from North Carolina were transported to and then sold in Michigan to avoid the latter state’s higher taxes. Profits from the operation were forwarded to Hizballah. Law enforcement authorities around the world have recognized that cigarette smuggling networks can generate enormous profits. Moreover, trafficking in cigarettes often is the precursor to other types of contraband smuggling such as weapons and narcotics.

The case was initiated when a deputy sheriff working part-time at a large tobacco wholesaler in North Carolina noticed the same individuals purchasing large quantities of cigarettes. The suspects drove vehicles with out-of-state license plates. A joint investigation among federal, state, and local authorities ensued. Surveillance of the suspects revealed a large-scale cigarette smuggling ring involving the use of tobacco storefront operations in North Carolina to justify the large purchases and bulk sale of cigarettes. Based on the surveillance, search warrants were obtained for the businesses and residences of the subjects. As a result of the warrants, law enforcement personnel seized photos of the subjects counting large volumes of cash, a Hizballah banner, a Hizballah propaganda video of suicide bombers, and materials evidencing the involvement of some of the suspects with military training and/or operations. A receipt from a Hizballah leader for money received from the smuggling ring was located during the searches. Numerous false identification documents for the subjects were also found. Further evidence recovered showed that the criminal group intended to purchase a variety of items for Hizballah including night vision devices, radios and receivers, and metal detection devices. Ultimately, 25 individuals were charged with various transactions, including material support to a terrorist organization, money laundering, conspiracy, bank fraud, credit card fraud, and visa entry fraud. The Bureau of Alcohol, Tobacco, and Firearms played a large role during the initial stages of the investigation and the Federal Bureau of Investigation contributed during the later stages by helping to develop the link to a terrorist organization.

HAMAS Leader IndictedIn Dallas, Texas, an indictment was returned against a senior leader of HAMAS (a designated Foreign Terrorist organization) for conspiring to violate United States laws that prohibit dealings in terrorist funds. The HAMAS leader and a Texas-based company, INFOCOM Corporation, allegedly conspired to hide his continuing financial interests with the computer company. The indictment asserts that INFOCOM continued to engage in financial transactions with the HAMAS leader after his designation as a terrorist, in violation of the International Emergency Economic Powers Act.

Terrorist Organization Donor IndictedIn another case, the director of an Islamic charity in suburban Chicago was charged with funneling money to a terror network and other violent groups through his Benevolence International Foundation. The indictment describes a multi-national criminal enterprise that over many years fraudulently used charitable contributions from innocent Americans—Muslim, non-Muslim and corporations alike—to support al-Qaida, the Chechen mujahedin, and armed violence in Bosnia. The charges include providing material support to terrorists, mail and wire fraud, and transactions of the Racketeer Influenced and Corrupt Organizations (RICO) statute.

NarcoterrorismIndictments were issued against terrorist groups that directly combine narcotics-trafficking with their terrorism activities. Leaders of the United Self-Defense Forces of Colombia (AUC), a Colombian right-wing paramilitary group listed on the State Department’s Foreign Terrorist Organization list since 2001, were charged with various narcotics-trafficking offenses. The indictment alleges that, since January 1997, they caused the maritime shipment of approximately 17 tons of cocaine to the United States and Europe. The United States has requested that the Colombian government extradite all defendants to the United States for trial. A second case against members of AUC commenced in Houston, Texas. This case also involved a massive cocaine-for-arms scheme. Through three separate indictments, the United States has charged several members of a second Colombian terrorist group, the Revolutionary Armed Forces of Colombia, or FARC, with murder, kidnapping of U.S. citizens, and trading illegal drugs for weapons. The United States has long considered FARC a terrorist organization. Finally, in October 2002, an indictment was issued in San Diego that charged three individuals with a drug conspiracy and with conspiring to provide material support or resources to al-Qaida. This case started as an undercover sting operation, in which an FBI agent posing as a prospective drug buyer approached a person in the United States who claimed to have contacts in Pakistan with narcotics available for sale. The scheme evolved into discussions about an exchange of drugs for Stinger missiles, which the Pakistani defendants claimed were needed for persons fighting in Afghanistan (i.e., the Taliban or al-Qaida).

Charity MazeIn December 2001, Operation Green Quest developed information that a group of individuals were allegedly funneling funds to designated terrorist organizations through a maze of interrelated charities. The initial analysis reflected that these organizations were conducting transactions in excess of $1 billion. In 2002, Operation Green Quest coordinated the execution of approximately 20 search warrants on businesses and residences associated with this organization. Ten warrants were also executed on identified Internet servers. The ongoing investigation includes the review of seized documents, electronic files, and financial transactions in order to identify the suspect terrorist connections.

Bulk Currency SmugglingIn the United States, “bulk currency smuggling” is a money laundering and/or terrorism financing technique that is designed to bypass financial transparency reporting requirements and the U.S. Customs Service Currency and Monetary Instrument Report (CMIR), which obligates the filer to declare if he or she is transporting across the border $10,000 or more of cash or monetary instruments. Often the currency is smuggled into or out of the United States concealed in personal effects, secreted in shipping containers, or transported in bulk across the border via vehicle, vessel or aircraft. In 2002, an Operation Green Quest investigation was initiated in response to two seizures by U.S. Customs of approximately $300,000 concealed within the lining of clothing being shipped to Lebanon. Search warrants executed on the address associated with the violator resulted in the seizure of approximately $2.2 million. The investigation is progressing as a joint effort between U.S. Customs and other federal law enforcement agencies.

Outreach and Unlicensed RemitterIn 2002, U.S. Customs initiated an investigation of a company suspected of providing financial support to terrorism. The investigation was based on a referral from a financial institution. Customs agents identified $28 million that the targeted company wired overseas from the United States. As the investigation progressed, agents determined the target was operating as an unlicensed remitter, and a significant amount of the funds were illegally being transferred to an embargoed country. A search warrant executed on the business subsequently led to approximately 29 search warrants throughout the United States. The investigation culminated with the indictment and arrest of the primary target and five of his representatives. Charges include money laundering, with transactions of the International Emergency Economic Powers Act as the predicate crime. In an effort to trace the flow of funds and merchandise internationally, agents are working with their foreign counterparts to determine the end users and prosecute the intermediaries who were involved in the transactions.

The misuse of international trade has long been employed to avoid taxes, tariffs, and customs duties. It is believed that with the increasing transparency governing financial transactions around the world, criminal elements may also increasingly use traditional and widespread fraudulent trading practices to launder funds. For example, the under-invoicing of a shipment of trade goods from country A to country B is a simple and effective way of avoiding or lowering customs duties or tariffs. Trade is also used to launder the proceeds of criminal activity. Over-invoicing a shipment of goods can provide criminal organizations the paper rationale to send payment abroad and/or launder money. For example, if a container of electronics is worth $50,000 dollars but is over-invoiced for $100,000, the subsequent payment of $100,000 will pay both for the legitimate cost of the merchandise ($50,000) and also allow an extra $50,000 to be remitted or laundered abroad. The cover of the business transaction and related documentation wash the money clean. There are a multitude of other types of invoice fraud and trade manipulation. For example, export incentives often encourage fraud. There have been numerous examples of governments paying a company cash incentives to export products at the same time the company is using the same export to launder money. In some countries, traders report to exchange control authorities that imports cost more or exports less than the actual cost. The excess foreign exchange generated can be used to purchase additional foreign trade items. And in some areas of the world, trade goods (including narcotics) are simply bartered for other commodities of value.

The simple examples above are made complex when the misuse of trade also involves traditional and entrenched ethnic trading networks, indigenous business practices, smuggling, corruption, narcotics-trafficking, the need for foreign exchange, capital flight, terrorist financing, and tax avoidance. Frequently, many of these elements are commingled and intertwined, making it extremely difficult for criminal investigators to follow the trail.

Trade-based money laundering can also be viewed as a component of other types of alternative remittance systems, such as hawala, the Black Market Peso Exchange, and the use of precious metals and gems. Alternative remittance systems, sometimes also known as informal value transfer systems (IVTS), parallel banking or underground banking, move money or transfer value without necessarily using the regulated financial industry. In all of these alternative systems, trade is most often the vehicle that provides “counter-valuation” or a method of “balancing the books”.

Because of the increased worldwide focus on counter-terrorist financing, increased attention is also being given to these non-traditional methodologies that are frequently found in regions of concern. It is difficult for law enforcement and customs to interdict suspect transactions in this underworld of trade. But at times, these systems may intersect with banks and other traditional financial institutions in order to obtain currency needed to make disbursements, or as links in the clearing process involving wire transfers. It is at these intersections with financial institutions that the brokers or their representatives may become known, and their transactions reviewed for indications of unusual activity in countries that require suspicious transaction reports. Customs and law enforcement officials must play a much more aggressive role in recognizing and investigating how trade can be used in money laundering and in the financing of terrorism.

The trade in gold, diamonds other precious metals and gems has long been associated with money laundering. Terrorist organizations around the world have also used gold and the trade of precious commodities to launder money or transfer value. Since there has been increasing worldwide success in implementing financial transparency, the underworld of gold and other precious metals and gems may increasingly be used as an alternative method of laundering funds.

There are many reasons for gold’s popularity with money launderers. For example, gold has been a haven for wealth since antiquity; it is a readily acceptable medium of exchange around the world; its value is relatively constant; it offers easy anonymity; it is portable; the form of gold can be readily altered; the trade is easily manipulated; there are often cultural reasons that ensure a constant demand for gold; depending on the form of gold, it can act as either a commodity or a de facto bearer instrument. Gold is used in all stages of money laundering, i.e. placement, layering, and integration. Gold is an alternative remittance system by itself. It is also an integral part of other alternative remittance systems such as hawala and the Black Market Peso Exchange. Although almost any trade item can be used to launder money, gold is particularly attractive to money launderers because it is less bulky than many other commodities and has a relatively constant high dollar value.

Because of gold’s unique properties, it has also long been used as a vehicle to help finance terrorist operations. For example, the right-wing Posse Comitatus in the United States, the Aum Shinri Kyo cult in Japan, and Colombian narcotics traffickers have used gold. Most recently, there are reports that al-Qaida has used gold as an instrument of finance.

Gems such as emeralds and tanzanite are also linked to money laundering and terrorist financing. For example, much of the trade in emerald gemstones identified as originating in Pakistan actually originates in Afghanistan. The gems are often traded through Mumbai and Jaipur, India, and the resulting sale revenue goes directly to Dubai, where it is traded for gold bullion, which goes back to India. Gemstone auctions in Burma are used to launder narcotics monies. There are reports that tanzanite, mined only in northeastern Tanzania, is smuggled through ports in East Africa to bazaars in the Middle East. The black market trade in these gems is susceptible to manipulation by money launderers and those that help finance terrorism.

The extra-legal trade in diamonds in Africa often involves money laundering for criminal and political purposes, and loss of revenue via tax evasion. It also provides the means to purchase arms and influence the political arena. “Blood diamonds” is the term used to describe the diamond trade that has helped finance African civil wars in Angola, Sierra Leone, Liberia, and other countries. There are also allegations that the diamond trade intersects terrorist financing operations. The diamond trade in Africa is susceptible at many levels to exploitation, including cross-border trade using established diamond trade routes, secondary level traders and agents, and suspect buyers. Diamond traders in Africa are often non-African. Operating from secured compounds, expatriate buyers often purchase rough diamonds via local currency. (Although purchases occur in local currency, the diamond trade uses U.S. dollars at all levels of commerce including the payment to buyers.) Subsequent exports by the diamond buyers to the major diamond trading centers are often under-valued. Diamonds are also used to provide counter-valuation in hawala transactions. Many of the diamond buyers involved with illicit diamond dealing in West and Central Africa pay protection money to groups identified as terrorist organizations.

A south Asian trader based in southern Africa has a legitimate business involving the importation of electronics from a supplier based in Dubai. He also has a side business that launders money for numerous businessmen who are also based in southern Africa and are of the same ethnic group as the trader. Most of the laundered money originates from the black trade in precious gems. During the course of his import business, he asks the Dubai supplier, a member of his same extended family, to over invoice the electronics by 100 per cent. For example, a legitimate invoice for $100,000 would be invoiced as $200,000. The electronics are then shipped from Dubai to the trader in southern Africa where they are sold for profit.

The trader then sends a wire transfer for payment of the $200,000 from his bank in southern Africa to the bank of the Dubai supplier. The difference between the $100,000 actual price of the electronics and the fictitious price of $200,000 represents $100,000 laundered from his colleague’s criminal activity involving the trade in precious gems. Some of the money in Dubai is then transferred to a third country as legitimate business profits via normal banking procedures. The participants in the money laundering network share the same political ideology. Thus, twenty percent of the profits from the laundering operation are transferred to terrorist affiliated organizations.

In Somalia, there currently is an absence of regulated commercial banks. As a result, remittance companies are the primary conduits for moving funds into and out of Somalia. Although the overwhelming majority of these funds are used for legitimate purposes, a small percentage of transactions—sometimes labeled “black hawala”—mask the transfer of value for criminal purposes. The following is an example of how trade is used to provide counter-valuation for hawala¹: A Somali trader buys commodities from Dubai for resale in Somalia. In order to finance the trade, the Somali trader contacts a local agent of a remittance company in Mogadishu. The trader gives cash to the local remittance agent. (Most transactions are dollar-based but other currencies are used as well.) A commission is charged for the exchange. The trader asks that the funds be transferred to his foreign bank account located in Dubai.

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¹Abdusakem Omer, "A Report on Supporting Systems and Procedures for the Effective Regulation and Monitoring of Somali Remittance Companies (Hawala)" prepared for the United Nations Development Program, Mogadishu , 2002, pp 12-13.

Go to Part 2 of this report.

The local agent of the remittance company contacts a hawala clearinghouse that is also located in Dubai and asks that funds be transferred to the Dubai-based bank account identified by the Somali trader. The Dubai bank issues a letter of credit so that goods can be purchased. The desired goods are purchased in Dubai and the venders have no idea—nor do they care—that the origin of the funds is actually the result of a hawala exchange. The trade goods are then shipped to Somalia and sold by the trader. A percentage of the profit is kept and the balance is used to pay suppliers, and the cycle is repeated. Although this example focuses on Somalia, reports have indicated that the same hawala/trade networks are also used in other countries in Eastern Africa.

One of the most prevalent methods of laundering money through trade in the Western Hemisphere is via the Colombian Black Market Peso Exchange or BMPE. This money laundering technique is used to evade detection through the U.S. Bank Secrecy Act reporting requirements. In simple terms, Colombian cartels sell drug-related, U.S. dollars to black market peso exchangers in Colombia. Once this currency exchange has occurred, the trafficking organization has effectively laundered its money and is out of the BMPE process. The peso broker, on the other hand, must then launder the accumulated U.S. dollars in the United States. The peso broker uses a variety of methods to place the U.S. narcotics proceeds into financial institutions. (For U.S. law enforcement, the “placement” stage in money laundering represents the best opportunity to identify and interdict money laundering.) The peso broker, operating in Colombia, thus has a pool of narcotics-derived funds in the United States to “sell” or “exchange” to legitimate Colombian importers. The funds are used to purchase trade goods such as cigarettes, electronics, and gold.

The U.S. Department of Treasury’s Internal Revenue Service Criminal Investigation Division (CID) has an Illegal Source Financial Crimes Program that recognizes that money gained through illegal sources is part of the untaxed underground economy. The underground economy is a threat to the U.S. voluntary tax compliance system and undermines the overall public confidence in the tax system. The Internal Revenue Code generally states that all income is taxable, from whatever source it is derived. The IRS Narcotics Related Financial Crimes Program seeks to reduce the profits and financial gains of narcotics-trafficking and money laundering organizations that comprise a significant portion of the untaxed underground economy. In the case of BMPE investigations, the IRS and other law enforcement agencies, such as the U.S. Customs Service and the Drug Enforcement Administration, seek to disrupt a trade-based money laundering methodology that aims to legitimize the proceeds of narcotics-trafficking by exchanging funds for trade items often found in the untaxed underground economy.

Bank Secrecy Act CTR Filings: BMPE Structuring CaseOn April 22, 2002 in Miami Florida, Lourdes Garcia-Rodriguez and Nancy Torguet-Cavantes were found guilty of conspiracy to launder drug money and conspiracy to structure bank deposits in amounts under the $10,000 IRS reporting threshold. The subjects laundered approximately $5 million in drug proceeds through the Colombian BMPE. The subjects used their Miami-based freight company to export over $5 million worth of household appliances to customers in Colombia. Those customers paid for the appliances with bulk amounts of drug cash delivered to the offices of the Miami freight company. The subjects accepted the cash without completing the IRS forms required to document the receipt of cash over $10,000. They then deposited the drug dollars into a series of bank accounts in structured deposits of less than $10,000 each; this enabled them to avoid the financial reporting laws that require banks to report all cash transactions over $10,000. As a result of this IRS investigation, in January 2003, the subjects were sentenced to a total of 70 months imprisonment.

BMPE—Undercover Operation and International CooperationOperation Wire Cutter is another example of targeting a BMPE exchange that attempted to launder millions of drug dollars. Operation Wire Cutter used undercover operations as a successful law enforcement technique to interdict and thwart the BMPE methodology. Operation Wire Cutter began in September 1999 when U.S. Customs Service agents of the multi-agency “El Dorado” Task Force in New York developed information about suspected money brokers using the BMPE. The primary suspects were eight senior money brokers, located in Bogotá, believed to have over 50 years combined experience laundering drug money for Colombian cartels. Each of the money brokers headed distinct organizations that provided money laundering services to several organizations on a contract basis.

Undercover U.S. Customs agents in New York, posing as money launderers, entered into agreements with the Colombian brokers. Acting on instructions from the Colombian brokers, the undercover Customs agents “picked-up” drug currency in various U. S. cities and wired it to accounts specified by the brokers. At the same time, the Colombian Departmento Administativo de Seguridad (DAS) working with Customs and the U.S. Drug Enforcement Administration (DEA) conducted a parallel investigation of the BMPE money brokers and their associates in Colombia. This was the first time that U.S. authorities were able to combine undercover pick-ups of drug proceeds in the U.S. with investigative efforts by Colombian authorities to target BMPE money brokers. By coordinating investigative resources, authorities in both countries were able to monitor the money laundering process “full-circle”—watching drug funds enter the system in the United States and exit the system in Colombia.

Operation Wire Cutter resulted in the arrest of 37 individuals, 29 in the United States and eight in Colombia. United States authorities also seized more than $8 million dollars as well as 400 kilos of cocaine, 100 kilos of marijuana and 6.5 kilos of heroin.

Bilateral Activities

During 2002, a number of U.S. law enforcement and regulatory agencies provided training and technical assistance on money laundering countermeasures and financial investigations to their law enforcement, financial regulatory, and prosecutorial counterparts around the globe. These courses have been designed to give financial investigators, bank regulators, and prosecutors the necessary tools to recognize, investigate, and prosecute money laundering, financial crimes, and related criminal activity. Courses have been provided in the United States as well as in the jurisdictions where the programs are targeted.

Through the Department of State’s Bureau of International Narcotics and Law Enforcement Affairs (INL) in close coordination with the Department’s Office of the Coordinator for Counter-Terrorism on terrorist financing issues, $3.27 million was expended in fiscal year 2002 to provide law enforcement, prosecutorial and central bank training to countries around the globe. A prime focus of the training program was a multi-agency approach to develop or enhance financial crime and anti-money laundering regimes capable of combating not only money laundering activities but terrorist financing in selected jurisdictions. Supported by and in coordination with the State Department, the Department of Justice, Treasury Department component agencies, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, and non-government organizations offered law enforcement, regulatory and criminal justice programs worldwide.

During 2002, 37 INL-funded programs were delivered in 31 countries to combat international financial crimes, money laundering and terrorist financing. Nearly every federal law enforcement agency assisted in this effort by providing basic and advanced training courses in all aspects of financial criminal activity. In addition, INL made funds available for intermittent posting of financial advisors at selected overseas locations. These advisors work directly with host governments to assist in the creation, implementation, and enforcement of anti-money laundering and financial crime legislation. INL also provided several federal agencies funding to conduct multi-agency financial crime training assessments and develop specialized training in specific jurisdictions worldwide to combat money laundering.

INL along with the European Union and the Government of the United Kingdom continues to fund the Caribbean Anti-Money Laundering Programme (CALP). INL contributed $600,000 to the CALP in 2002. The objectives of CALP are to reduce the laundering of the proceeds of all serious crime by facilitating the prevention, investigation, and prosecution of money laundering. CALP also seeks to develop a sustainable institutional capacity in the Caribbean region to address the issues related to anti-money laundering efforts at a local, regional and international level.

In 2002, INL contributed $1.5 million to the United Nations Global Program Against Money Laundering (GPML). In addition to sponsoring money laundering conferences and providing short-term training courses, the GPML instituted a unique longer-term technical assistance initiative through its mentoring program. The mentoring program provides advisors on a year-long basis to specific countries or regions. In 2001, GPML mentors in the Caribbean assisted the Bahamas and Barbados in constructing viable Financial Intelligence Units. A GPML mentor provided advice on money laundering and asset forfeiture legislation to Antigua and Barbuda as well. Another GPML mentor provided assistance to the Secretariat of the East and South Africa Anti-Money Laundering Group (ESAAMLG). INL continues to provide significant financial support for many of the anti-money laundering bodies around the globe. During 2002, INL support was furnished to the Financial Action Task Force on Money Laundering (FATF), the international standard setting organization, and to FATF-styled regional bodies (FSRBs) including the Asia/Pacific Group on Money Laundering (APG), the Council of Europe’s Moneyval, formerly known as the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV, and the Caribbean Financial Action Task Force (CFATF). INL also provided financial support to the evolving ESAAMLG and the South American Financial Action Task Force, Grupo de Accion Financiera de Sudamerica Contra el Lavado de Activos (GAFISUD), the FATF-styled regional body in South America.

As in previous years, INL training programs continue to focus on an interagency approach and on bringing together, where possible, foreign law enforcement, judicial and central bank authorities in assessments and training programs. This allows for an extensive dialogue and exchange of information. This approach has been used successfully in Asia, Central and South America, Russia, the New Independent States (NIS) of the former Soviet Union, and Central Europe. INL also provides funding for many of the regional training and technical assistance programs offered by the various law enforcement agencies, including assistance to the International Law Enforcement Academies (ILEAs).

The ILEAs are a progressive concept in the area of international assistance programs. These four—soon to be five—academies offer a core law enforcement management program, regional seminars, and specialized training programs tailored to region-specific needs and emerging global threats, such as terrorism. Indeed, underscoring the ability of ILEAs to adapt quickly, the United States has already amended the money laundering portion of the “core” course presented at each ILEA to address terrorist financing, and the ILEA program is working on finalizing a new “specialized” course that would focus specifically and in detail on terrorist financing. The ILEAs help develop an extensive network of alumni that exchange information with their U.S. counterparts and assist in transnational investigations. These graduates are also expected to become the leaders and decision-makers in their respective societies. The Department of State works with the Departments of Justice and Treasury, and with foreign governments to implement the ILEA programs. To date, the combined ILEAs have trained over 10,000 officials from 50 countries. The annual ILEA budget averages approximately $18-19 million.

Europe. ILEA Budapest (Hungary) opened in 1995 to provide assistance to Russia, Central Asian and Eastern European countries. Trainers from the United States, Hungary, Canada, Germany, Great Britain, Holland, Ireland, Italy, Russia, INTERPOL and the Council of Europe provide instruction. ILEA Budapest trains approximately 750 students annually.

Asia. ILEA Bangkok (Thailand) opened in March 1999. The curriculum and structure of this Academy are similar to Budapest, except for the shorter duration of the core course and an added emphasis in narcotics matters. Participation is open to members of the Association of South East Asian Nations (ASEAN) and the Peoples Republic of China. Trainers from the United States, Thailand, Japan, Netherlands, Australia, Philippines and Hong Kong provide instruction. ILEA Bangkok trains approximately 550 students annually.

Africa. ILEA Gaborone (Botswana) opened in 2001. Its overall instructional format is similar to Budapest and Bangkok, but adjusted to suit the needs of the region. Participation is open to members of the Southern African Development Community (SADC), with expectations of future expansion to East African and other sub-Saharan African countries. ILEA Gaborone trains approximately 450 students annually.

Global. ILEA Roswell (New Mexico) opened in September 2001. It offers a curriculum similar to that of a Criminal Justice university. The courses have been designed by, and are taught by academicians, for graduates of the regional ILEAs. This Academy is unique in its format and composition, with an academic focus targeted to a worldwide audience. ILEA Roswell trains approximately 450 students annually.

Latin America. The Department of State is in the process of establishing an ILEA in San Jose, Costa Rica, along the lines of the existing academies in Budapest, Bangkok and Gaborone. A Bilateral Agreement establishing the ILEA was signed with the government of Costa Rica in June 2002, and training activities are expected to begin in 2003.

The FRB is active in the effort to deter money laundering, primarily through ensuring compliance with the Bank Secrecy Act and the USA PATRIOT Act by the domestic and foreign banking organizations that it supervises. In another initiative to combat money laundering, FRB staff conducted training in anti-money laundering tactics and provided technical assistance to banking supervisors and law enforcement officials throughout the world. Programs for Malaysia, Dominican Republic, Argentina, Barbados, Turkey, and the Philippines were provided in 2002.

In addition to its international training programs, the FRB presented training courses to U.S. law enforcement agencies, including the Federal Law Enforcement Training Center, Internal Revenue Service, Federal Bureau of Investigation, U.S. Customs Service, and Drug Enforcement Administration. The FRB also participated in financial sector assessment trips to several countries in the Middle East as a member of U.S. interagency teams.

The DEA Office of Training, International Training Section, conducts the International Asset Forfeiture and Money Laundering Seminar portions of the U.S. Department of Justice Asset Forfeiture Program. The intent of these seminars is to share, compare, and contrast U.S. legislation with that of other countries, building a relationship and fostering communications with foreign narcotics enforcement officials and prosecutors. Approximately 35 foreign government officials attend each seminar.

The week-long seminars employ lectures, presentations, case studies, and practical application exercises. The Department of Justice Asset Forfeiture Section, the U.S. Customs Service, the U.S. Marshal Service, and various divisional offices of DEA provide the guest lecturers.

The course curriculum includes instruction addressing money laundering and its relation to central bank operations, asset identification, seizure and forfeiture techniques, financial investigations, document exploitation, and international banking. Overviews of U.S. asset forfeiture law, country forfeiture and customs law, and prosecutorial perspectives are also included.

All seminars are conducted in-country. In 2002, seminars were conducted in Germany, Guatemala, Ecuador, Netherlands, Dominican Republic, and the United Kingdom.

During 2002, FBI agents and analysts assigned to the Terrorist Finance Operations Section (TFOS) provided training and presentations relating to terrorism financing methods and money laundering to law enforcement and banking officials of Australia, Belgium, Canada, Germany, Kuwait, the Netherlands, New Zealand, Finland, Germany, Jordan, Paraguay, Pakistan, Philippines, Russia, Singapore, Switzerland, Turkey, Thailand, United Arab Emirates and the United Kingdom. In many instances additional course instruction was also provided on topics ranging from evidence acquisition and case organization to computer forensic examination techniques. Additionally, in November 2002, TFOS sponsored an international seminar in the United States on the informal value transfer system hawala Officials from India, Pakistan, Jordan, and the United Kingdom attended this week-long conference.

The FDIC is working in partnership with several agencies against money laundering and the global flow of terrorist funds. Additionally, the agency participates in the planning and conduct of missions to assess vulnerabilities to terrorist financing activity worldwide, and to develop and implement plans to assist foreign governments in their efforts in this regard. To better achieve this end, the FDIC solicited employees interested in providing examination and other pertinent expertise. The response was overwhelming, with almost 100 candidates. Twenty individuals were selected to participate in foreign missions.

A training session was held in June 2002 that provided mission participants with background information on the international conventions on money laundering and terrorism, and expectations for foreign mission participants. A multi-agency team of instructors brought varying perspectives and experience to the session.

The FDIC’s Division of Supervision and Consumer Protection participated in the decision-making process of the Basel Committee that led to the approval, and April 17, 2002 issuance of the Sharing of Financial Records Between Jurisdictions in Connection with the Fight Against Terrorist Financing.

Periodically, FDIC staff meets with supervisory and law enforcement representatives from various countries to discuss anti-money laundering issues, including examination policies and procedures, the USA PATRIOT Act and its requirements, the FDIC’s asset forfeiture programs, suspicious activity reporting requirements and interagency information sharing mechanisms. In 2002, such presentations were given to Antigua, Barbados, Brazil, Chile, Dominica, Grenada, Russia, St. Lucia, St. Vincent and the Grenadines, and Thailand.

In April 2002, the FDIC sponsored the FDIC International Visitors Training Program. In addition to sessions on deposit insurance, bank closing procedures and general supervisory issues, one of the segments addressed the USA PATRIOT Act and anti-terrorist financing efforts. The session covered international conventions and specific requirements of the USA PATRIOT Act that will affect the international community. Attendees represented Armenia, Bosnia and Herzegovina, Bulgaria, Canada, China, Czech Republic, Estonia, Germany, Hong Kong, Hungary, Indonesia, Japan, Mozambique, Serbia, Thailand, Turkey and Venezuela.

FDIC provided anti-money laundering training and technical assistance to the Republic of the Marshall Islands (RMI) in February 2002. Staff assisted RMI in developing anti-money laundering regulations and examination procedures. The RMI had been on the FATF NCCT list, and the U.S. Treasury Department had issued financial advisories to U.S. banks warning them to scrutinize RMI transactions. Among the deficiencies cited by FATF was the lack of a regulatory scheme to detect money laundering in financial institutions. FDIC’s assistance to the RMI was a valuable part of the RMI’s efforts to be removed from the NCCT list.

FDIC staff also provided anti-money laundering technical assistance to the Government of Fiji in February 2002. The technical assistance request came from the Asia/Pacific Group on Money Laundering through the U.S. Treasury Department. Working collaboratively with anti-money laundering experts from Malaysia and New Zealand, the FDIC’s staff evaluated Fiji’s compliance with the FATF Forty Recommendations on Money Laundering.

In September 2002, FDIC staff gave an anti-money laundering presentation to the Taiwan Academy of Banking and Finance, a group comprised of various banking supervisory agencies. Topics included the Bank Secrecy Act, the USA PATRIOT Act, components of anti-money laundering examination programs and procedures, and an effective bank anti-money laundering program.

FinCEN, the U.S. Financial Intelligence Unit (FIU), a Bureau of the U.S. Treasury Department, coordinates and provides training and technical assistance to partner nations seeking to work against financial crimes, put in place anti-money laundering regulatory regimes, and establish Financial Intelligence Units. Its international training program focuses on providing training and technical assistance to a broad spectrum of foreign government officials, financial regulators, law enforcement personnel, and bankers. FinCEN’s international training program has two main components: (1) instruction to a broad range of government officials, financial regulators, law enforcement officers, and others, on the subject of money laundering and FinCEN’s mission and operation; and (2) financial intelligence analysis training and the operational aspects of FIUs such as FinCEN. For those FIUs that are fully functional the goal is to help them achieve an improved level of cooperation with U.S. and other FIUs in the exchange of information and the achievement of a better understanding of money laundering phenomena. As a member of the Egmont Group of FIUs, FinCEN also works closely with other members of the Egmont Group to provide training and technical assistance to various jurisdictions in establishing and operating their own FIUs.

During 2002, FinCEN conducted training courses independently, as well as with other agencies. In some instances courses are developed jointly with other agencies to address specific needs of the jurisdictions. A number of these courses are provided abroad to maximize the utility to the FIU. Such training sessions were held in Bulgaria and Poland in 2002.

Much of FinCEN’s work also involves strengthening existing FIUs and reinforcing channels for communicating operational information in support of anti-money laundering investigations. This includes participation in personnel exchanges (from the foreign FIU to FinCEN and vice versa) and regional and operational workshops. For instance FinCEN hosted a workshop on Informal Value Transfer Systems (IVTS) in Mexico in October 2002 that included presentations and discussions about the money laundering risks posed by IVTS service providers, such as hawala, and the law enforcement and regulatory challenges posed by such systems. Over 50 countries sent representatives. During the past year, FinCEN has also engaged in week-long personnel exchanges with the FIUs of Turkey and South Korea.

In 2002, representatives from well over 50 countries visited FinCEN to learn what is new in money laundering trends and patterns, details of the USA PATRIOT Act, international case processing, and the regulatory role of FinCEN. Additionally, FinCEN hosted delegations for more intensive seminars in computer software programs, data mining, and case processing from various jurisdictions of the Caribbean, the Middle East, Africa, Southeast Asia and the Pacific, Central and South America, the Gulf States, and Europe.

In 2002, the IRS Criminal Investigation Division (IRS-CI) increased its commitment to international training, multi-agency training efforts and technical assistance programs to foreign law enforcement agencies.

IRS-CI continues to provide training in Financial Investigative Techniques and Money Laundering at the International Law Enforcement Academies (ILEA) at Bangkok, Budapest and Gaborone. In furtherance of this commitment IRS-CI has detailed a special agent to serve as Deputy Director at the ILEA in Bangkok, Thailand. IRS-CI also serves as coordinator of the annual Complex Financial Investigations course, which is provided to senior, mid-level, and first-line law enforcement supervisors, inspectors, investigators, prosecutors and customs officers.

In 2002, IRS-CI also presented training on money laundering, identifying and analyzing business and other types of financial records, indirect methods of proof, and tracing the proceeds of crime at U.S. Government-sponsored seminars for financial investigators of the Royal Thai police; prosecutors and national police from the Philippines; leaders from the Jamaican Tax Administration, Jamaican Bankers Association, the Legal Force and the Jamaican Police Organized Crime Units; and judges, prosecutors, investigators, and banking regulators from Macedonia, Albania, Hungary, and Bulgaria.

A regional Money Laundering/Financial Investigative Techniques course was also provided in St. Johns, Antigua to various law enforcement officials from financial investigative units, FIUs, customs, and local police fraud units. The overall goal was to enhance anti-money laundering efforts, foster an atmosphere of cooperation and exchange among these countries and the United States and to provide financial techniques that would be instrumental in combating financial crimes. The participants represented the nine Caribbean nations, two of which are on FATF’s NCCT list. Attending were Anguilla, Antigua, Barbados, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. Similar courses were presented to financial investigators, police officers and prosecutors in the Czech Republic and Dar es Salaam, Tanzania.

Country-specific money laundering training was delivered to financial investigators, banking officials, prosecutors, customs agents, revenue agents, bank examiners, judges and police officers in Bogotá, Colombia and Abuja, Nigeria. The overall focus in both countries was to introduce techniques to combat money laundering and to foster cooperation among the local banking regulators, law enforcement officials, prosecutors and the U.S. Government.

IRS-CI assisted in conducting a Money Laundering and Evidence Control Training session sponsored by the Department of Justice in Bridgetown, Barbados. Participants included customs and law enforcement officials, prosecutors, and banking regulators. In particular, IRS-CI provided training on search warrants, its search warrant program, and seized evidence control and custody.

Technical assistance and guidance was provided to the Board of Inland Revenue in Trinidad and Tobago to assist with the design of its new Criminal Investigator Training Program.

The OCC supported and sponsored several anti-money laundering training initiatives during 2002. The following highlights the OCC’s efforts:

• Presented four sessions of the four-day Anti-Money Laundering School to foreign banking supervisors: one in Barbados, two sponsored by the Asociacion de Supervisores de Bancos de las Americas in Peru and Panama, and one in Washington, D.C.

• Presented an Anti-Money Laundering Training Module in two Bank Examination schools for foreign supervisors in Turkey and the United States.

• Participated in a USAID anti-money laundering training mission to Russia for banking supervisors and industry representatives.

Treasury’s OTA is located within the Office of the Assistant Secretary for International Affairs. The office delivers interactive, advisor-based assistance to senior level representatives in various ministries and central banks in the areas of tax reform, government debt issuance and management, budget policy and management, financial institution reform, and more recently, law enforcement reforms related to money laundering and other financial crimes.

In 1997, the Enforcement Program was added to Treasury’s advisory office. It is a long-term, advisor-based program developed out of concern that financial crime, corruption, organized criminal enterprises, and other criminal activities were undermining economic reforms promoted by the U. S. Government (USG). The Enforcement Program focuses on the development of legal foundations, policies, and organizations in three areas: (1) money laundering, terrorist financing and other financial crimes, (2) organized crime and corruption, and (3) the reorganization of law enforcement and financial entities in developing economies to help them prevent, detect, investigate and prosecute complex international financial crime. The Enforcement Program relies on intermittent and resident advisors to deliver its technical assistance. It works with embassy staff and host country clients on long-term projects designed to promote systemic changes and new organizational structures. The program receives funding from the State Department’s Bureau of International Narcotics and Law Enforcement Affairs (INL), the State Department Africa Bureau, USAID country missions and direct congressional appropriations.

The Enforcement Program is comprised of a group of approximately 50 experienced advisors with backgrounds in various areas of investigating, prosecuting or regulating financial and economic crimes, such as money laundering, terrorist financing, white-collar crime, organized crime, securities fraud, internal affairs and corruption, criminal law, and organization administration. In 2002, advisors provided assistance to the governments of Albania, Armenia, Azerbaijan, Bosnia, Bulgaria, El Salvador, Guatemala, Hungary, Macedonia, Moldova, Montenegro, Nigeria, Paraguay, Romania, Russia, South Africa, Tanzania, Thailand, Uganda, Ukraine, Honduras, Poland, Serbia and the Eastern Caribbean countries.

OTA conducted several assessments of anti-money laundering regimes in 2002, often working in concert with the U.S. Embassy and/or international bodies. These assessments addressed legislative, regulatory, law enforcement and judicial components of the various programs. The assessments included the development of technical assistance plans to enhance a country’s efforts to fight money laundering and terrorist financing. In 2002, such assessments were carried out in Georgia, Montenegro, Peru, Senegal, Ethiopia, Ghana, Guinea, Nicaragua, Bangladesh and Burkina Faso.

Nigeria. OTA collaborated with the Department of Justice’s Overseas Prosecutorial Development, Assistance and Training to provide training to members of Nigeria’s nascent Independent Corrupt Practice and Other Related Offenses Commission. The principal objective of the assistance is to strengthen Nigeria’s capacity to investigate and prosecute corruption. OTA focused on the legislation and tools used to investigate and prosecute various types of financial crimes, such as money laundering and advanced fee fraud schemes.

Tanzania. An enforcement assessment team visited Tanzania in May 2002. Subsequently, the team completed three working trips, with the cooperation of the U.S. Embassy. A work plan was signed in a public ceremony by the U.S. Ambassador to Tanzania, during a meeting on the fundamentals of money laundering, held for more than 60 high-level government officials and representatives from the business community in Dar es Salaam. The OTA team conducted a seminar that familiarized senior level policy officials with issues of financial crimes and the need for legislation. The team began working with members of the Tanzanian Multi-Disciplinary Committee on Money Laundering, formed to develop anti-money laundering policy, laws, and regulations.

Uganda. An assessment trip to Kampala took place in July 2002. Since then, the Uganda enforcement team completed two additional work trips. OTA is working with a governmental interagency group establishing financial crimes and anti-money laundering policy, procedures and laws. Work has begun on drafting a law to criminalize money laundering. The enforcement team is also working closely with the other Uganda OTA advisors, who work in the Central Bank and in the Capital Markets Authority, to coordinate efforts to strengthen the government’s ability to properly supervise financial institutions and markets, and with the IGG (Inspector General for the Government) on strengthening anti-corruption capacity.

Albania. An OTA advisor assisted the Albanian government in strengthening its asset forfeiture procedures and laws following a request made by the Bank of Albania that had discovered an account of an individual identified by the UN as having links to a terrorist organization.

Bulgaria. Program activities in 2002 included direct assistance to the Bulgarian Financial Intelligence Unit, the Bureau of Financial Intelligence Agency, in the development of its staff, analytic capacity, and information technology resources. The program also focused on the development of amendments to the Bulgarian Law on Measures Against Money Laundering; new legislation to address terrorist financing; and new legislation on asset forfeiture.

Armenia. From 1997 through 2001, OTA provided technical assistance in the areas of financial crimes, organized crime, gaming enforcement, insurance fraud, criminal tax case investigations and prosecutions. Liaison relationships were established between the Organized Crime Department of the Interior Ministry and the international law enforcement community, including federal and state entities in the United States. The Enforcement Team hosted a visit of the Prosecutor General and the Chief of Organized Crime along with members of their staffs, to Washington, D.C. and Los Angeles to further enhance that cooperation. A Financial Crimes Working Group was established.

Azerbaijan. OTA assisted law enforcement officials and regulatory agencies within Azerbaijan to better address financial and economic crimes by developing an improved legal foundation—including regulations and procedures—and to improve training and investigative techniques. The project specifically focuses on money laundering and terrorist financing crimes. In 2002, OTA sponsored a money laundering seminar in Baku, Azerbaijan. The seminar was attended by over 70 Azeri government officials, bankers and businesspeople, and highlighted the need for an effective anti-money laundering regime to fight transnational organized crime and combat groups involved in terrorist financing.

Macedonia. Advisors provided technical assistance regarding the newly implemented amendments to the money laundering law to bank examiners of the National Bank of Macedonia (the Central Bank) and to the compliance officers of the commercial and savings banks.

Moldova. OTA developed and delivered two separate training programs for the National Bank of Moldova and the Bankers Association of Moldova on bank examination procedures and methodologies of detecting and reporting suspicious financial transactions. The OTA team also provided technical assistance in drafting and implementing the Ministry of Finance Tax Law on the establishment of an investigative unit. The team assisted the bank fraud working group in the drafting of anti-fraud amendments to the “bank secrecy” law. Additionally, the team provided specialized forensic training and assistance in implementing the Law on Judicial Examination.

Russia. The current Resident Advisor assisted with the development of the Financial Intelligence Unit, the Financial Monitory Committee.

Bangladesh. An OTA Advisor participated in a World Bank/ International Monetary Fund-led assessment of Bangladesh’s financial sector, including Bangladesh’s anti-money laundering/anti-terrorist regime. The OTA Enforcement Advisor participated in the reviews of the regulatory systems in place for non-prudentially regulated sectors, specifically, moneychangers and money transmission companies, and the capacity and implementation of criminal law enforcement.

Thailand. In 2002, OTA placed a resident advisor in Bangkok to assist the Anti-Money Laundering Office.

El Salvador. In addition to its ongoing assistance to El Salvador, in September 2002 an OTA team provided training to Salvadoran investigators and judges on money laundering concepts and financial analysis units.

Guatemala. OTA provides technical assistance, through the U.S. Embassy, in establishing, staffing and training a new financial analysis unit authorized by the Anti-Money Laundering Law passed in October 2001. In 2002, discussions were held with the governmental agencies on the front line of the anti-money laundering program. Discussions also were held with the National Civilian Police at the National Training Academy to determine the possibility of augmenting the current program of training in the areas of money laundering and financial crimes investigations.

Paraguay. A team of OTA Advisors provided anti-money laundering training to the Government of Paraguay.

In 2002, two resident advisors were placed in Barbados and Port of Spain, Trinidad. Their role is to provide advice on asset forfeiture and the strengthening of anti-money laundering regimes in Eastern Caribbean countries, primarily those countries on FATF’s NCCT list.

During 2002, the Justice Department’s OPDAT and the AFMLS continued to provide training to foreign prosecutors, judges and law enforcement.

The seminars provided by OPDAT and AFMLS enhance the ability of participating countries to prevent, detect, investigate, and prosecute money laundering, and to make appropriate and effective use of asset forfeiture. The content of individual seminars varies depending on the specific needs of the participants, but topics addressed in 2002 included developments in money laundering legislation and investigations, the international standards for an anti-money laundering/terrorist financing regime, illustrations of the methods and techniques to effectively investigate and prosecute money laundering, inter-agency cooperation and communication, criminal and civil forfeiture systems, the importance of international cooperation, and the role of prosecutors. In 2002, in-depth sessions of this seminar were presented to representatives from Antigua, Armenia, Barbados, Bosnia and Herzegovina, Croatia, Dominica, Georgia, Grenada, Hungary, Macedonia, Mexico, Russia, St. Kitts and Nevis, St. Lucia, St. Vincent, Thailand and United Arab Emirates.

During 2002, a number of seminars were conducted that dealt with transnational or organized crime. The programs focused on current trends in organized crime, including corruption and money laundering, in each participant country. Topics addressed included how to implement complex financial investigations and special investigative techniques within a task force environment, international standards, legislation, mutual legal assistance, and effective investigation techniques. Seminars were presented to representatives from Azerbaijan, Bosnia and Herzegovina, Georgia, Jamaica, Kazakhstan, Kyrgyzstan, Moldova, Russia, Ukraine and Uzbekistan.

In 2002, OPDAT conducted programs on fraud and anti-corruption issues in the Dominican Republic, Mexico, Nigeria, Paraguay and South Africa. The programs covered organization of an anti-corruption unit, prosecutorial strategies, the role and techniques of financial and criminal fraud investigations and /or rules of conduct for police.

OPDAT and AFMLS have intensified their efforts since September 11 to assist countries to develop their legal infrastructure to combat terrorism and terrorist financing. OPDAT and AFMLS, with the assistance of the Counterterrorism Section and other Department of Justice (DOJ) components, play a central role in providing technical assistance to foreign counterparts both to attack the financial underpinnings of terrorism and to build legal infrastructures to combat it. In this effort OPDAT and AFMLS work as integral parts of the Interagency Working Group on Terrorist Financing, and in partnership with the Departments of State, Treasury and Commerce, and several other DOJ components.

In 2002, OPDAT, with funding from the Department of State’s Anti-Terrorism Assistance Program, organized a number of programs aimed at strengthening counter-terrorism laws abroad. Officials from several regions, including Central Asia, the Middle East, the Caucasus and Russia, Southeast Asia, South Asia, Latin America and Africa, participated in seminars focused on counter-terrorism legislation. The seminars addressed trends in international terrorism, international conventions and agreements, basic investigative tools needed to combat terrorism (e.g., electronic surveillance, wiretaps, undercover operations), methods of financing terrorism, extradition and mutual legal assistance, border security and immigration, export controls, weapons of mass destruction, and model legislation. AFMLS and other U.S. agencies provided instructors for each of the courses. Country groups worked with U.S. experts during the seminar to develop action plans to strengthen their countries’ counter-terrorism infrastructures. These programs were presented to representatives from Azerbaijan, Armenia, Bangladesh, Chile, Cote d’Ivoire, Cyprus, Djibouti, El Salvador, Egypt, Georgia, Guatemala, Guyana, India, Indonesia, Jordan, Kazakhstan, Kenya, Kyrgyzstan, Laos, Malaysia, Maldives, Morocco, Nepal, Pakistan, Paraguay, Peru, Philippines, Russia, Sierra Leone, South Africa, Sri Lanka, Tajikistan, Thailand, Turkey, United Arab Emirates and Uzbekistan.

With the assistance of attorneys from AFMLS and the Counterterrorism Section, OPDAT implemented “The Financial Underpinnings of Terrorism Program,” which provides intensive seminars covering all aspects of identifying and prosecuting methods of financing terrorism. An initial session for senior policy officials is followed by a longer, more hands-on session for investigators, judges and prosecutors. Officials from the Philippines and Turkey participated in these programs. A day-long roundtable on this topic was held in Washington, D.C. in September 2002 for a Saudi Arabian delegation, and a regional seminar for officials from Brazil, Panama, Paraguay, Argentina and Venezuela took place in December 2002.

OPDAT has organized several conferences at International Law Enforcement Academies (ILEA) relating to terrorism. In Bangkok, in March 2002, OPDAT and the International Criminal Investigative Training Assistance Program (ICITAP) organized a conference to address regional concerns involving terrorism. More than 30 senior criminal justice officials from Brunei, Cambodia, Hong Kong, Indonesia, Laos, Macau, Malaysia, China, Philippines, Singapore, Thailand and Vietnam exchanged views and experiences on tactics used by terrorist groups, anti-terrorism financing measures, and the prospects for regional anti-terrorism cooperation. AFMLS and the Counterterrorism Section supplied instructors. In March 2002, in Budapest, OPDAT organized a regional conference at the ILEA on the subject of money laundering, and AFMLS provided instructors. Issues addressed included international standards for legislation and investigations, the role of the FATF, asset forfeiture, mutual legal assistance and legislation countering money laundering, particularly as it relates to terrorist financing. Thirty-eight senior government officials from Azerbaijan, Georgia, Kazakhstan, Moldova, Russia and Ukraine attended. In Budapest, in June 2002, OPDAT organized a second conference at the ILEA to address regional approaches to investigating and prosecuting organized crime, with a large portion of the discussion focusing on money laundering and asset forfeiture, focusing on terrorist financing and international cooperation. Fifty prosecutors, investigators and criminal justice officials from Azerbaijan, Georgia, Kazakhstan, Moldova, Russia, Ukraine and Uzbekistan attended.

In July 2002, OPDAT’s representative to the Southeastern European Cooperative Initiative Center in Bucharest, Romania, helped to organize a workshop on the relationship between terrorism and organized crime. The workshop helped advance regional sharing of intelligence on the organized crime groups that facilitate the objectives of terrorism. Participants developed “best practices” and produced a regional action plan on operations to address the connection between organized crime and terrorism.

AFMLS organized and conducted a regional conference on the financing of terrorism in London in September 2002. This conference brought together 50 prosecutors and law enforcement officials from the United States, the United Kingdom, UAE, Germany, Pakistan, France, and Turkey.

AFMLS provides technical assistance in connection with legislative drafting on all matters involving money laundering, asset forfeiture and the financing of terrorism. During 2002, AFMLS provided such assistance to 26 countries, including the drafting of a model money laundering, asset forfeiture and terrorist financing law. In 2002, AFMLS assisted Pakistan, Indonesia, Philippines, Marshall Islands, El Salvador, Paraguay, Bulgaria, Georgia, Kazakhstan, Ukraine, Russia, Kosovo, St. Kitts and Nevis, and Thailand. OPDAT provided similar guidance to Azerbaijan.

AFMLS has participated in the Financial Systems Assessment Team (FSAT) led by the Department of State’s Coordinator for Counterterrorism Office and the Bureau of International Narcotics and Law Enforcement Affairs.

The U.S. Customs Service (Customs) and its Operation Green Quest are extensively involved in multi-agency international money laundering and financial-related terrorism training programs. Drawing on their expertise in undercover drug money laundering, as well as in traditional money laundering techniques related to all types of criminal activity, Customs and Operation Green Quest strive to impart their broad experience to law enforcement, the regulatory and trade communities, and banking officials of all jurisdictions.

Operation Green Quest’s goal is to assist foreign/domestic agencies to develop the knowledge, skills and abilities needed to strengthen and coordinate terrorist-related financial investigative activities. Operation Green Quest also will benefit from providing training by furthering effective regional cooperation in attacking transnational financial terrorist crimes, particularly financial crimes relating to money laundering in support of terrorist entities; strengthening regional law enforcement; and enhancing the banking and trade communities’ efforts in activities having an impact on the United States.

The Financial Terrorist Investigations Training seminar is intended as an introduction to international money laundering linked to terrorism. The seminar is focused on providing the necessary skills to policy makers, law enforcement personnel, and management officials of financial institutions so that they can recognize and combat money laundering by terrorists. This course is specifically designed to address terrorism, its relationship to money laundering issues, and country-specific problems. The training program addresses many of the same topics as the more generalized Customs training, but focuses the discussions on the relationship between money laundering techniques and terrorist financing. Charities and alternative remittance systems are also covered, and specifically their use by terrorists. Reinforced through the use of interactive exercises, students learn techniques used to recognize and investigate terrorist-related money laundering.

Operation Green Quest conducted the Financial Terrorist Investigation seminars domestically and abroad for officials from various nations, including Armenia, Australia, Azerbaijan, Barbados, China, Cyprus, Dominican Republic, Egypt, Georgia, Guyana, Hungary, Jordan, Kazakhstan, Kyrgyzstan, Morocco, Pakistan, Philippines, Russia, St. Kitts and Nevis, Suriname, Tajikistan, Thailand, Trinidad, Turkey, United Arab Emirates and Uzbekistan.

Customs also provides training that addresses the trends and patterns concerning money laundering and international banking, focusing on issues relating to transnational money laundering. The seminars cover the use of free trade zones, offshore banking practices, international monetary flows, bulk-cash and electronic funds transfers, and capital flight. Specialized sessions address the black market peso exchange system, the Money Laundering Coordination Center, and/or an overview of Operation Green Quest. The course addresses both the investigation and prosecution stages of money laundering.

The Secret Service continues to send instructors to the International Law Enforcement Academies (ILEA) in Budapest, Hungary, Bangkok, Thailand and Gaborone, Botswana; providing training and strategies to foreign police representatives in the detection of counterfeit U.S. currency and fraud schemes.

The Secret Service’s continued presence overseas and the training provided through the ILEAs are paramount in ongoing United States efforts to suppress and seize the ever increasing amount of foreign-produced counterfeit U.S. currency being sold, shipped and trafficked into this, and other, countries throughout the world. The Secret Service estimates that nearly 50 percent of all counterfeit U.S. currency passed in the United States originated overseas. The Secret Service’s established relationship with the counterfeit suppression program has generated training at the ILEA sites.

Bilateral overseas development includes training and education for law enforcement prosecutors and financial officials. Added benefits include deterrence, intelligence gathering and education regarding the organized criminal networks involved in transnational crime. An integral part of the Secret Service’s efforts in this area is the Combating Economic Fraud and Counterfeiting Seminar. In 2002, this seminar was offered to representatives from Trinidad, Bulgaria, Romania, Macedonia, Turkey, Dominican Republic, and Bulgaria.

Mutual Legal Assistance Treaties (MLATs) allow generally for the exchange of evidence and information in criminal and ancillary matters. In money laundering cases, they can be extremely useful as a means of obtaining banking and other financial records from United States treaty partners. MLATs, which are negotiated by the Department of State in cooperation with the Department of Justice to facilitate cooperation in criminal matters, including money laundering and asset forfeiture, are in force with the following countries: Antigua and Barbuda, Argentina, Australia, Austria, the Bahamas, Barbados, Belgium, Brazil, Canada, Cyprus, Czech Republic, Dominica, Egypt, Estonia, France, Grenada, Greece, Hong Kong SAR, Hungary, Israel, Italy, Jamaica, Latvia, Lithuania, Luxembourg, Mexico, Morocco, the Netherlands, Nigeria, Panama, the Philippines, Poland, Romania, Russia, South Africa, South Korea, Spain, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Switzerland, Thailand, Trinidad and Tobago, Turkey, Ukraine, the United Kingdom, the United Kingdom with respect to its Caribbean overseas territories (Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat, and the Turks and Caicos Islands), and Uruguay. MLATs have been ratified by the United States but not yet brought into force with the following countries: Belize, Colombia, Cyprus, India, Ireland, Liechtenstein, Nigeria, Sweden, and Venezuela. The United States has also signed and ratified the Inter-American Convention on Mutual Legal Assistance of the Organization of American States. The United States is actively engaged in negotiating additional MLATs with countries around the world. The United States has also signed executive agreements for cooperation in criminal matters with China (PRC) and Nigeria. The American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States have a mutual legal assistance agreement in force.

In addition, the United States has entered into executive agreements on forfeiture cooperation, including: (1) an agreement with the United Kingdom providing for forfeiture assistance and asset sharing in narcotics cases; (2) a forfeiture cooperation and asset sharing agreement with the Kingdom of the Netherlands; and (3) a drug forfeiture agreement with Singapore. The United States has asset sharing agreements with Canada, the Cayman Islands (which was extended to Anguilla, British Virgin Islands, Montserrat, and the Turks and Caicos Islands), Colombia, Ecuador, Jamaica, and Mexico.

Financial Information Exchange Agreements (FIEAs) facilitate the exchange of currency transaction information between the U.S. Treasury Department and other finance ministries. The United States has FIEAs with Colombia, Ecuador, Mexico, Panama, Paraguay, Peru, and Venezuela. Treasury’s Financial Crimes Enforcement Network (FinCEN) has memoranda of understanding or an exchange of letters in place with other Financial Intelligence Units to facilitate the exchange of information between FinCEN and the country’s Financial Intelligence Unit. FinCEN has an MOU or an exchange of letters with the FIUs in Argentina, Australia, Belgium, France, Netherlands, Slovenia, Spain, and the United Kingdom.

Pursuant to the provisions of the 1988 U.S. law, 18 U.S.C. § 981(i), 21 U.S.C. § 881(e)(1)(E), and 31 U.S.C. § 9703(h)(2), the Departments of Justice, State and Treasury have aggressively sought to encourage foreign governments to cooperate in joint investigations of narcotics-trafficking and money laundering, offering the possibility of sharing in forfeited assets. A parallel goal has been to encourage spending of these assets to improve narcotics law enforcement. The long-term goal has been to encourage governments to improve asset forfeiture laws and procedures, so that they will be able to conduct investigations and prosecutions of narcotics-trafficking and money laundering which include asset forfeiture. The United States and its partners in the G-8 are currently pursuing a program to strengthen asset forfeiture and sharing regimes. To date, Canada, Cayman Islands, Hong Kong, Jersey, Liechtenstein, Switzerland and the United Kingdom have shared forfeited assets with the United States.

From 1989 through December 2002, the international asset sharing program, administered by the Department of Justice, resulted in the net forfeiture in the United States of $404,196,504.61 of which $178,789,015.71 was shared with foreign governments that cooperated and assisted in the investigations. In 2002, the Department of Justice transferred forfeited proceeds to: Canada ($546,058.14); Greece ($2,267,959.05); Luxembourg ($686,842.66); Switzerland ($4,035,060.00); and Turkey ($264,846.42). Prior recipients of shared assets (1989-2001) include: Anguilla, Argentina, the Bahamas, Barbados, British Virgin Islands, Canada, the Cayman Islands, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Guatemala, Guernsey, Hong Kong , Hungary, Isle of Man, Israel, Liechtenstein, Luxembourg, Netherlands Antilles, Paraguay, Romania, South Africa, Switzerland, the United Kingdom and Venezuela.

From FY1994 through FY2002, the international asset sharing program, administered by the Department of Treasury, shared $23,329,648.00 with foreign governments that cooperated and assisted in the investigations. In FY2002, the Department of Treasury transferred forfeited proceeds to: Cayman Islands ($9,061.00); Canada ($686,863.00); China ($216,555.00); Isle of Man ($300,802.00); Mexico ($843,388.00); and the Netherlands ($64,407.00). Prior recipients of shared assets (1995-1999) include: Aruba, the Bahamas, the Dominican Republic, Egypt, Guernsey, Honduras, Jersey, Nicaragua, Panama, Portugal, Qatar, Switzerland and the United Kingdom.

Multilateral Activities

United Nations Security Council ResolutionsSeveral UN Security Council Resolutions (UNSCR) 1267/1390/1455 require UN Member States to implement certain measures—namely, asset freezing, travel restrictions, and an arms embargo—against individuals and entities that are related to Usama Bin Ladin, and members of al-Qaida and the Taliban, and those associated with them. The UN 1267 Sanctions Committee maintains a consolidated list, regularly updated, of such individuals and entities, against which Member States are required to impose the measures. UNSCR 1452 allows for limited exceptions to the asset freeze provisions under certain circumstances. A Monitoring Group reports to the UN 1267 Sanctions Committee on the implementation of the resolutions.

United Nations Security Council Resolution 1373On September 28, 2001 the United Nations Security Council adopted Resolution 1373 (UNSCR 1373) concerning terrorism. UNSCR 1373 requires States to take certain specified measures to combat terrorism. Among other things, it requires States: to freeze without delay funds, financial assets or other economic resources of persons who commit, attempt to commit, facilitate or participate in the commission of terrorist acts; to prohibit their nationals or any persons and entities within their territories from making any funds, financial assets or economic resources or other related services available—directly or indirectly—for the benefit of persons who commit, attempt to commit, facilitate or participate in the commission of terrorist acts; to ensure that terrorist acts are established as serious criminal offenses in domestic laws and regulations and that punishment duly reflects the seriousness of such terrorist acts; to deny safe haven to those who finance, plan, support or commit terrorist acts; and to ensure that any person who participates in the financing, planning, preparation or perpetration of terrorist acts is brought to justice. The Resolution calls upon States to exchange information and cooperate to prevent the commission of terrorist acts.

UNSCR 1373 established a Committee, the UN Counter-Terrorism Committee (CTC), to monitor implementation of the resolution and to receive reports from States on steps they have taken to implement the resolution. To facilitate this reporting, the Committee sent out a self-assessment questionnaire. By year-end 2002, 181 of the UN’s 191 Member States had submitted reports to the CTC.

UN International Convention for the Suppression of the Financing of Terrorism

On December 9, 1999, the United Nations General Assembly adopted the International Convention for the Suppression of the Financing of Terrorism. It was opened for signature from January 10, 2000 to December 31, 2001. This Convention requires parties to criminalize the provision or collection of funds with the intent that they be used, or in the knowledge that they are to be used, to conduct certain terrorist activity. Article 18 of the Convention requires states parties to cooperate in the prevention of terrorist financing by adapting their domestic legislation, if necessary, to prevent and counter preparations in their respective territories for the commission of offenses specified in Article 2. To that end, Article 18 encourages implementation of numerous measures also included among the FATF’s Forty Recommendations on Money Laundering. These measures, which states parties may implement at their discretion, include: prohibiting accounts held by or benefiting people unidentified or unidentifiable; verifying the identity of the real parties to transactions; and requiring financial institutions to verify the existence and the structure of the customer by obtaining proof of incorporation.

The Convention also encourages states parties to obligate financial institutions to report complex or large transactions and unusual patterns of transactions that have no apparent economic or lawful purpose, without incurring criminal or civil liability for good faith reporting; to require financial institutions to maintain records for five years; to supervise (for example, through licensing) money-transmission agencies; and to monitor the physical cross-border transportation of cash and bearer-negotiable instruments. Finally, the Convention addresses information exchange, including through the International Criminal Police Organization (Interpol). As of December 31, 2002, 64 states had become parties to the Convention; 75 other states had signed, but not ratified, the Convention. It entered into force internationally on April 9, 2002. The United States became a party to the Convention on June 26, 2002.

UN Convention Against Transnational Organized CrimeThe UN Convention against Transnational Organized Crime (Convention), signed by 125 countries including the United States at a high-level signing conference December 12-14, 2000 in Palermo, Italy, is the first legally binding multilateral treaty specifically targeting transnational organized crime. Two supplemental Protocols addressing trafficking in persons and migrant smuggling were also signed by many countries in Palermo. Each instrument will enter into force on the ninetieth day after the 40th state deposits an instrument of ratification, acceptance, approval or accession. As of the end of 2002, 147 countries had signed the convention and 28 countries had deposited instruments of ratification.

The Convention takes aim at preventing and combating transnational organized crime through a common toolkit of criminal law techniques and international cooperation. It requires states parties to have laws criminalizing the most prevalent types of criminal conduct associated with organized crime groups, including money laundering, obstruction of justice, corruption of public officials and conspiracy. The article on money laundering regulation requires parties to institute a comprehensive domestic regulatory and supervisory regime for banks and financial institutions to deter and detect money laundering. The regime will have to emphasize requirements for customer identification, record keeping and reporting of suspicious transactions.

The Financial Action Task Force on Money Laundering (FATF), established at the G-7 Economic Summit in Paris in 1989, is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering.

The FATF was given the responsibility of examining money laundering techniques and trends, evaluating counter-money laundering measures, and recommending measures still needed. In 1990, FATF issued Forty Recommendations on Money Laundering. These recommendations are designed to prevent proceeds of crime from being utilized in future criminal activities and from affecting legitimate economic activity. Revised in 1996 to reflect changes in money laundering patterns, the recommendations are currently undergoing another revision, scheduled to be completed by June 2003, to reflect new trends in money laundering.

FATF monitors members’ progress in implementing anti-money laundering measures, reviews money laundering techniques and counter-measures, and promotes the adoption and implementation of anti-money laundering measures globally. In performing these activities, FATF collaborates with other international bodies.

In June 2000, membership of the FATF expanded from 26 to 29 jurisdictions and two regional organizations, representing the major financial centers of North America, Europe and Asia. The delegations of the FATF’s members are drawn from a wide range of disciplines, including experts from the Ministries of Finance, Justice, Interior and External Affairs; financial regulatory authorities; and law enforcement agencies.

FATF focused on several major initiatives during 2002:

Non-Cooperative Countries and Territories ExerciseIn response to the G-7 Finance Ministers 1998 Birmingham Summit, FATF formally created the Ad Hoc Group on Non-Cooperative Countries and Territories (NCCT). In 1999, this group developed 25 criteria by which to determine those jurisdictions undermining the global effort to combat money laundering. These criteria encompass four broad areas:

• Loopholes in financial regulations

• Obstacles raised by other regulatory requirements

• Obstacles to international cooperation

• Inadequate resources for preventing and detecting money laundering activities

FATF initiated its review process with a limited number of jurisdictions in February 2000. Based on this process, FATF identified fifteen jurisdictions as non-cooperative in the international fight against money laundering at its June 2000 Plenary.

In deciding whether a jurisdiction should be removed from the NCCT list, the FATF Plenary must be satisfied that the jurisdiction has addressed the previously identified deficiencies. The FATF relies on its collective judgment, and attaches particular importance to reforms in the areas of criminal law, financial supervision, customer identification, suspicious activity reporting, and international co-operation. As necessary, legislation and regulations must have been enacted and have come into effect before removal from the list can be considered. In addition, the FATF seeks to ensure that the jurisdiction is implementing the necessary reforms. Thus, information related to institutional arrangements, the filing and utilization of suspicious activity reports, examinations of financial institutions, and the conduct of money laundering investigations, is considered.

Throughout 2002, the FATF monitored the progress made by NCCTs to address deficiencies and implement corrective measures. In June 2002, four jurisdictions, Hungary, Israel, Lebanon, and St. Kitts and Nevis, were removed from the NCCT list. The FATF also published its third NCCT Review. In October 2002, the FATF again removed four countries from the NCCT list: Dominica, Marshall Islands, Niue and Russia. At the same time, it decided to recommend that its members impose counter-measures on Nigeria and Ukraine starting December 15, 2002, unless the two countries took immediate steps to remedy deficiencies previously identified by the FATF. Ultimately Nigeria took actions sufficient to avoid counter-measures, while on December 20, 2002, FATF again called for the imposition of counter-measures against Ukraine. FATF subsequently called for the removal of countermeasures against Ukraine at its February 2003 plenary because it had passed the necessary amendments to its anti-money laundering law.

Revision of the FATF Forty Recommendations on Money LaunderingThe FATF Forty Recommendations on Money Laundering represent the international standard for counter-money laundering regimes. They cover such areas as regulatory, supervisory, and criminal law, as well as international cooperation.

Money laundering methods and techniques change as new measures to combat money laundering are implemented and new technologies are developed. Therefore, in 2001, FATF embarked on another review of the FATF Forty to ensure that they were up-to-date. In May 2002, FATF released a consultation document in order to obtain comments from countries, international organizations, the financial sector and other interested parties. The FATF identified a number of areas where possible changes could be made to the FATF framework, broadly including customer due diligence and suspicious transaction reporting, beneficial ownership and control of corporate vehicles, and the application of anti-money laundering obligations to non-financial businesses and professions. A revised set of the Forty Recommendations on Money Laundering is expected in June 2003.

Combating Terrorist FinancingIn response to September 11, FATF expanded its mission beyond money laundering to focus its energy and expertise on the worldwide effort to combat terrorist financing. During an extraordinary plenary meeting in Washington, DC on October 29-30, 2001, FATF agreed to Eight Special Recommendations on Terrorist Financing. These Special Recommendations now represent the international standards in this area. The recommendations are reprinted in the Appendix to this report.

The first phase of FATF’s self-assessment exercise for the Eight Special Recommendations—that is, the collection and preliminary analysis of relevant data for FATF members—was completed and the results published by the FATF Plenary in June 2002. FATF then called on non-FATF members to take part in the self-assessment process beginning in February 2002. As of December 2002, 95 non-FATF countries have completed the self-assessment exercise.

In order to secure the swift and effective implementation of these new standards, FATF has developed a best practices paper on combating the abuse of non-profit organizations (www.fatf-gafi.org/pdf/SR8-NPO_en.pdf). FATF will also issue Interpretive Notes on Special Recommendations VI (alternative remittance) and VII (wire transfers) in 2003.

In June 2002, FATF initiated a process to identify jurisdictions that lack appropriate measures to combat terrorist financing and is working with the UNCTC, the UN Global Programme Against Money Laundering PML, International Financial Institutions (IFIs), and FATF style regional bodies (FSRBs) to coordinate the delivery of technical assistance to such jurisdictions.

CharitiesThis year, the United States and the international community devoted more time and resources to combating the abuse of charitable organizations by terrorists, and achieved some noteworthy successes. One key step forward was taken by FATF, when it adopted and disseminated a paper outlining international best practices for combating the abuse of non-profit organizations. These suggestions go far toward setting international standards for encouraging greater transparency in the financial, programmatic, and administrative practices of organizations that raise funds from donors. In addition, the United States has issued best practice guidelines to provide guidance for U.S. charities and donors about how to protect their organizations and donations from being diverted to support terrorism.

FATF, the IMF, and the World BankMoney laundering and the financing of terrorism are worldwide concerns that increase the risks to domestic and global financial systems and can impact national security. In the wake of the events of September 11, 2001, the international community adopted a broad and comprehensive agenda to address both. As an important part of that effort, the IFIs agreed to take on an enhanced role in the global fight against money laundering and the financing of terrorism.

At the 2001 Annual Meeting of the IMF and World Bank in November 2001, the United States and other nations stressed the importance of integrating anti-money laundering and counter-financing of terrorism (AML/CTF) issues into the IFIs’ financial sector assessment, surveillance and diagnostic activities. There was increased recognition of the need for the IMF and World Bank to increase their involvement in strengthening financial regulatory frameworks and to provide technical assistance to authorities on AML/CTF issues. A number of nations stressed the importance of a collaborative effort between the FATF and the IFIs in this effort.

Significant progress was made toward meeting these objectives during 2002. The IMF and World Bank are now including assessments of members’ AML/CTF regimes in the course of their Financial Sector Assessment Program (FSAP) reviews and in other aspects of their engagement with members. The IMF and Bank collaborated closely with the FATF, other international standard setters (the Basel Committee of Banking Supervisors, the International Association of Insurance Supervisors, and the International Organization of Securities Commissions), and the Egmont Group of Financial Intelligence Units to develop a comprehensive and unified methodology for measuring countries’ implementation of AML/CTF principles, based on the FATF Forty Recommendations on Money Laundering and the FATF Eight Special Recommendations on Terrorist Financing.

In the fall of 2002, the FATF membership endorsed, and the IMF and World Bank Executive Boards approved use of the comprehensive methodology to assess member compliance with AML/CTF principles. As an integral part of the enhanced program, the Executive Boards of the IMF and World Bank approved a twelve-month pilot project to assess members’ compliance with AML/CTF principles in participation with FATF and FATF-style regional bodies. The pilot project adds the FATF Forty Recommendations on Money Laundering and the FATF Eight Special Recommendations on Terrorist Financing (the FATF 40 + 8) to the list of areas and associated standards and codes that are incorporated into the operational work of the IMF and the World Bank. The United States and other G-7 members have volunteered to be assessed using the new AML/CTF methodology.

FATF 2002-2003 Typologies ExerciseFATF conducted its annual typologies exercise (November 19-20, 2002, in Rome, Italy) to identify current and emerging methods, trends, and patterns in money laundering and terrorist financing, and to discuss effective counter-measures. This year’s exercise focused on terrorist financing; money laundering vulnerabilities in the securities sector; the links between money laundering and terrorist financing and the diamond, gold and precious metals trades; and contrasting methods used for money laundering and fiscal offenses.

Asia/Pacific Group on Money LaunderingThe Asia/Pacific Group on Money Laundering (APG) is comprised of 25 members from South Asia, Southeast Asia, East Asia and the South Pacific. Australia, Bangladesh, Chinese Taipei, Cook Islands, Fiji Islands, Hong Kong China, India, Indonesia, Japan, Korea (Republic of), Macau China, Malaysia, Marshall Islands, Nepal, New Zealand, Niue, Pakistan, Palau, Philippines, Samoa, Singapore, Sri Lanka, Thailand, United States of America and Vanuatu are APG members. There are also thirteen observer jurisdictions and thirteen observer international and regional organizations

The APG’s mission is to contribute to the global fight against money laundering, organized crime and terrorist financing by enhancing anti-money laundering and anti-terrorist financing measures in the Asia/Pacific region.

Major achievements during the year include the following: a further expansion of APG membership with the addition of Nepal, the Marshall Islands, and Palau; the completion of five mutual evaluations (Malaysia, Cook Islands, Fiji, Indonesia and Thailand); further expansion of the APG’s work in the area of technical assistance and training; a successful typologies meeting in October in Vancouver, Canada; and, with the assistance of the Asian Development Bank, the launch of a comprehensive APG website (www.apgml.org).

The Fifth Annual Meeting of the APG, held at Brisbane, Australia in June 2002 was quite successful. The meeting was the largest APG meeting to date. The Plenary reached agreement on a range of issues, including revised Terms of Reference (to include a formal commitment to combat the financing of terrorism), the adoption of the five mutual evaluation reports, discussion of the current review of the FATF’s Forty Recommendations on Money Laundering and consideration of technical assistance and training outcomes and priorities for the next few years. Outcomes of the meeting included further expansion of the APG’s work in the area of technical assistance and training and a Special Forum on Technical Assistance and Training. It was further decided at this meeting that the Republic of Korea would assume the rotating Co-Chair position for two years when Malaysia’s term expired. The new Commissioner of the Korea Financial Intelligence Unit, Mr. Gyu-Bok Kim, is now the co-chair.

At the June Annual Meeting, members adopted a revised mission statement and a number of goals as a part of its strategic plan. The APG wants to develop a better understanding of the nature, extent and impact of money laundering in the region, and expand regional awareness of money laundering issues and the role of the APG. The APG intends to identify, agree on, oversee and facilitate implementation of comprehensive anti-money laundering measures appropriate for each jurisdiction in the region, which will include the facilitation and coordination of technical assistance. Finally, the APG plans to facilitate the implementation of the FATF Special Eight Recommendations on Terrorist Financing and the relevant United Nations instruments in all member jurisdictions. The revised mission statement and goals contained in the APG’s Strategic Plan July 2001 to June 2004 build on the APG’s Strategic Plan 1999 to 2001 and recognize in particular the importance of combating terrorist financing.

Additional outcomes and highlights of the Annual Meeting included:

The presentation of a significant new study on the Negative Effects of Money Laundering on Economic Development; consideration of a draft First Yearly Report on money laundering trends and methods in the region; a detailed discussion of the current review of the FATF Forty Recommendations on Money Laundering and the APG’s further input into that process; a discussion of possible areas where regional anti-money laundering measures might be explored in the future, including underground banking/alternative remittance systems, information sharing and the implications of the cash economy; and progress reports from the five previously evaluated jurisdictions—Vanuatu, Samoa, Macau, China, Labuan IOFC and Chinese Taipei.

The APG has an ambitious 2002-03 work program. Among other goals, the APG intends to conduct a number of new mutual evaluations, including South Korea, the Philippines and Bangladesh; coordinate and deliver increased technical assistance and training; contribute to the review of the FATF Forty Recommendations on Money Laundering and subsequently assist with implementation; increase anti-terrorist financing activities; continue work by the APG Working Group on Alternative Remittance and Underground Banking Systems and the APG Working Group on Information Sharing; conduct the Sixth Annual Meeting in Manila in May 2003; and continue to cooperate with related organizations and bodies, including the FATF, other regional anti-money laundering bodies, international and regional financial institutions, the UN Global Programme Against Money Laundering, Interpol, the World Customs Organization, the Commonwealth Secretariat and the Pacific Islands Forum Secretariat.

Caribbean Financial Action Task ForceThe Caribbean Financial Action Task Force (CFATF), comprised of 29 jurisdictions, continues to advance its anti-money laundering initiatives within the Caribbean basin. CFATF members include Anguilla, Antigua and Barbuda, Aruba, Commonwealth of the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica, Dominica, the Dominican Republic, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, the Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands, and Venezuela. Members of the CFATF subscribe to a Memorandum of Understanding (MOU) that delineates the CFATF’s mission, objectives, and membership requirements. All members are required to make a political commitment to adhere to and implement the FATF Forty Recommendations on Money Laundering, the FATF Special Eight Recommendations against Terrorist Financing, as well as the CFATF’s additional 19 Recommendations, and to undergo peer review in the form of mutual evaluations to assess their level of implementation of the recommendations. Members are also required to contribute to the CFATF budget and to participate in the activities of the body.

In October 2002, Guatemala, Guyana, and Honduras became full Members of the CFATF, increasing its membership to 29 governments. Also, in October 2002, Alfred Sears, Attorney General and Minister of Education of The Bahamas, assumed Chairmanship of the CFATF.

In July 2001, the CFATF initiated its second round of mutual evaluations, focused on the effective implementation of the FATF and CFATF Recommendations, as well as the FATF’s NCCT 25 criteria. In October 2002, the CFATF’s Council of Ministers adopted six mutual evaluation reports—on The Bahamas, Cayman Islands, Costa Rica, Dominican Republic, Panama, and Trinidad and Tobago. Mutual evaluation reports on Antigua and Barbuda, Barbados, and the Turks and Caicos Islands, for which on-site visits were conducted during 2002, will be presented and discussed at Plenary XVII in Panama during March 2003. The CFATF plans to conduct workshops for mutual evaluation examiners during 2003, and annually thereafter.

The CFATF has established an initiative to compile annual country reports on each member to assess compliance with the international anti-money laundering and counter-terrorist financing standards. This project is intended to complement the Mutual Evaluation Program and enhance the CFATF’s monitoring capacity. The first set of country reports was drafted during 2002 and is expected to be adopted and published during 2003.

In April 2002, the CFATF and GAFISUD conducted a joint two-day typologies exercise in Trinidad and Tobago, focused on terrorist financing and economic citizenship programs (ECPs). During this exercise, 27 presenters from 13 countries and six international organizations shared expertise focused on detecting and combating terrorist financing, as well as on criminal abuse of ECPs.

During the April 2002 CFATF Plenary meeting, CFATF members considered both the FATF Eight Special Recommendations on Terrorist Financing and the associated Self-Assessment Questionnaire (SAQTF). In October 2002, the Council of Ministers endorsed the FATF Eight Special Recommendations, agreed to extend the CFATF mandate to include terrorism and terrorist financing, as well as to participate in the FATF global self-assessment exercise, and to extend the remit of the CFATF Secretariat to facilitate the provision of technical assistance and training relative to terrorist financing to Members. The majority of CFATF member governments have now fully participated in the FATF global assessment.

Council of Europe MoneyvalFormerly known by the French acronym, PC-R-EV (Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures), Moneyval is a FATF-style regional body that includes within its membership those Council of Europe member states that are not members of the FATF. Moneyval members include Albania, Andorra, Armenia, Azerbaijan, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Georgia, Hungary, Latvia, Liechtenstein, Lithuania, Malta, Moldova, Poland, Romania, the Russian Federation, San Marino, Slovakia, Slovenia, Former Yugoslav Republic of Macedonia, and Ukraine. Moneyval aims to encourage legal, financial and punitive measures among its members that are in line with international standards. To accomplish this, it relies on a system of mutual evaluations and peer pressure.

In 2002, Moneyval continued its second round of mutual evaluations and began a first round of evaluations for new members. The second round of mutual evaluations, covering 22 jurisdictions, will run through December 2003. Reports for Slovenia, Cyprus, and the Czech Republic were discussed and adopted at the 9th plenary meeting of Moneyval in June 2002. At its 10th plenary meeting in December 2002, mutual evaluation reports on Hungary and Andorra were discussed and adopted. Consideration of reports on Slovakia and Malta were postponed for technical reasons until 2003. First round evaluation visits took place in Monaco (October) and Azerbaijan (December) during 2002.

Moneyval agreed at its June 2002 Plenary to apply certain compliance enhancing measures with regard to four member countries lacking sufficient anti-money laundering regimes. Under these special procedures, Moneyval’s actions will range from requiring regular reporting to the delivery of high-level warnings. Moneyval’s plenary sessions will examine progress by the affected countries, each of which will be monitored closely to ensure that deficiencies in the jurisdiction are addressed.

Like the FATF, Moneyval has taken on additional responsibilities in the area of counter-terrorist financing. In the first half of 2002, the Council’s European Committee on Crime Problems revised Moneyval’s terms of reference to specifically include the issue of financing terrorism. The new text recognizes the FATF Special Eight Recommendations on Terrorist Financing as international standards and authorizes the evaluation of the performance of Moneyval member states in complying with these standards. By December 2002, 21 out of 24 member states had submitted their self-assessment questionnaires on terrorist financing.

A significant accomplishment of 2002 involved convening the 3rd Moneyval Training Seminar, which took place in Paphos, Cyprus in November 2002. This was a first joint training session for Moneyval and GRECO (the Council’s anti-corruption committee) mutual evaluators. Hosted by the Government of Cyprus and its Financial Intelligence Unit, there were general as well as parallel sessions for the Moneyval and GRECO evaluators focusing on the conduct of their respective assessments.

Moneyval is currently discussing with two member States the modalities of a comprehensive technical assistance program to be funded by the European Commission. In addition, it had organized a round-table at its June 2002 plenary meeting on technical assistance needs in the area of counter-terrorist financing and subsequently has forwarded a list of suggested activities to the World Bank for dissemination among potential donor states.

Eastern and Southern African Anti-Money Laundering Group (ESAAMLG)ESAAMLG was launched at a meeting of ministers and high-level representatives in Arusha, Tanzania, in August 1999 and held its first meeting in April 2000. The group maintains its Secretariat in Dar es Salaam, Tanzania. Its member countries are: Kenya, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, and Uganda. Botswana, Lesotho, Zambia, and Zimbabwe are invited to ESAAMLG meetings, but are not considered full members because they have not yet signed the Memorandum of Understanding. The United States, United Kingdom, Commonwealth Secretariat, United Nations, and World Bank serve as cooperating nations and organizations. In February 2003, a new Executive Secretary is expected to take office.

The most recent annual meeting of the ESAAMLG’s Ministers and senior officials was held in August 2002, in Mbabane, Swaziland. The Ministers endorsed the group’s work program for 2003, which includes a mandate to begin the mutual evaluation process. Six countries—Mauritius, Swaziland, Lesotho, South Africa, Mozambique, and Namibia—volunteered to be evaluated during the first round. Mutual evaluation training is scheduled for January 2003, and the first two evaluations are to take place soon after. Also at the August plenary, Swaziland assumed the one-year presidency of ESAAMLG.

In October 2002, a mentor selected by the United Nations Global Programme against Money Laundering began a two-year assignment advising the ESAAMLG Secretariat in Dar es Salaam.

The ESAAMLG has also launched a self-assessment exercise vis-à-vis the FATF Forty Recommendations on Money Laundering and the Eight Special Recommendations on Terrorist Financing. Thus far, seven member countries have completed the exercise on the Forty Recommendations and five on the Special Eight. A full report on the self-assessments will be submitted at the next Plenary in March 2003.

Financial Action Task Force Against Money Laundering in South America (GAFISUD)The Memorandum of Understanding establishing the South American Financial Action Task Force, (Grupo de Acción Financiera de Sudamerica Contra el Lavado de Activos-GAFISUD) was signed on December 8, 2000 by nine member states: Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Peru, Paraguay, and Uruguay. Mexico, Portugal, Spain, the United States, the Inter-American Development Bank, the International Monetary Fund, the United Nations Office for Drug Control and Crime Prevention, and the World Bank have joined GAFISUD as cooperating and supporting observer members (PACOS). In addition, the Organization of American States’ Inter-American Drug Abuse Control Commission (OAS/CICAD) is a special advisory member of GAFISUD. GAFISUD is a FATF-style regional body committed to the adoption and implementation of the FATF Forty Recommendations on Money Laundering. GAFISUD’s mission also includes member self-assessment and mutual evaluation programs. Headquarters and a permanent Secretariat have been officially established in Buenos Aires, Argentina, and Uruguay has offered a training center as a permanent training venue for GAFISUD.

Colombia was elected as the first President of the organization for a one-year term and served additionally as the provisional Executive Secretariat. At the fourth Plenary in Santiago, Chile in December 2001, the presidency was turned over to Chile’s Minister of the Interior. The Plenary also resulted in the adoption by GAFISUD of the FATF Eight Special Recommendations on Terrorist Financing. GAFISUD is now preparing a regional study to facilitate proper implementation of the FATF Special Eight Recommendations.

At the May 2002 Plenary in Buenos Aires, GAFISUD finalized and adopted Mutual Evaluation Reports for Colombia and Uruguay. Additionally, GAFISUD circulated a draft Action Plan to Counter Terrorism that proposed, among other things, the adoption and ratification of the FATF Special Recommendations Against Terrorism. As a prelude to final adoption of this plan, GAFISUD initiated a self-evaluation exercise to determine current levels of compliance by GAFISUD members with these recommendations.

At the December 2002 Plenary in Montevideo, Uruguay was elected to assume the Presidency of GAFISUD. In addition, the Plenary finalized and adopted the FATF Mutual Evaluation Reports on Argentina and Brazil, formally adopted the May Action Plan to Counter Terrorism, and agreed to use the new FATF/World Bank/IMF FSAP methodology, which includes assessments of counter-terrorist financing programs, for the second round of mutual evaluations of its membership.

GAFISUD has also been increasingly active in training and technical assistance. In April 2002, GAFISUD and CFATF organized a joint two-day typologies exercise in Trinidad and Tobago. This unprecedented exercise focused on terrorist financing and 27 presenters from 13 different countries and six international organizations shared their knowledge on defending the Americas from terrorist financiers.

Since the December 2001 Plenary, GAFISUD made a commitment to coordinate training activities in the region. Towards that end, GAFISUD participated in a Technical Assistance Coordination meeting in April 2002 hosted by the World Bank/IMF. Seminars and workshops coordinated for the region in 2002 included a second seminar for mutual evaluators, a forum for coordination and information exchange within national anti-money laundering regimes, and a seminar for FIUs.

In September 2002, GAFISUD, with funding provided by the Inter-American Development Bank, organized and conducted a three-day training session for experts who will conduct mutual evaluation exercises. This session, held in Montevideo, Uruguay, included three experts (legal, bank regulatory and law enforcement) from each GAFISUD member country.

The Plenary adopted a far-reaching training work plan for 2003 that will focus on enhancing legislation to more broadly permit the use, with appropriate safeguards, of special investigative techniques such as the use of informants, under cover operations, task forces, and electronic surveillance as well as advanced training for financial investigators.

The Heads of State and Government of the Economic Community of West African States (ECOWAS) established GIABA in December 1999. GIABA’s first meeting was held in Dakar, Senegal, in November 2000. Members include: Benin, Burkina Faso, Cape Verde Islands, the Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mauritania, Mali, Niger, Nigeria, Senegal, and Togo. A Senegalese magistrate serves as the acting head of GIABA.

At the first meeting, GIABA endorsed the FATF Forty Recommendations on Money Laundering, recognized the FATF as an observer, and provided for self-assessment and mutual evaluation procedures to be carried out by GIABA. While the text prepared by the experts provided for a strong involvement of ECOWAS in the activities of GIABA, the Ministers agreed to give more autonomy to the new body.

In November 2002, GIABA held a meeting with representatives from 14 of the member countries (Liberia was not represented) to discuss the money laundering situation in the region and international efforts to combat money laundering. Representatives of FATF, the Government of the United Kingdom, the UN Global Programme against Money Laundering, and the U.S. Treasury Department made presentations. GIABA did not set a date for its next meeting.

Caribbean Anti-Money Laundering ProgrammeThe U.S. Government, in partnership with the European Union and the U.K. Government launched the Caribbean Anti-Money Laundering Programme (CALP) on March 1, 1999. The Programme has been designed to assist the 21 Caribbean Basin member countries of CARIFORUM (the representative organization for Caribbean countries) to develop their anti-money laundering procedures.

The two primary objectives of CALP are:

• To reduce the incidence of the laundering of the proceeds of all serious crime by facilitating the prevention, investigation, and prosecution of money laundering and the seizure and forfeiture of property connected to such laundering activity.

• To develop a sustainable institutional capacity in the Caribbean region to address the issues related to anti-money laundering efforts at a local, regional and international level, by strengthening existing institutional capacity at the regional level, and developing new, or enhancing existing, institutional capacity at the local level.

The holistic approach undertaken by CALP consists of three separate, yet interlinked, sub-programs, detailed as follows using the theme “Taking the Profits out of Crime”:

Legal/JudicialThe lawyer responsible for delivering this sub-program is heavily involved in worldwide research of anti-money laundering laws, regulations and working practices. Appropriate recommendations are then made to the respective governments of the member countries to ensure they have the necessary legal structures in place to combat money laundering. Countries with very limited facilities are additionally assisted with drafting of the recommended introduction of our changes to their legislation. Within this sub-program, training is also given to prosecutors, magistrates and judges, and awareness training for other organizations within the financial and law enforcement sectors. In 2002, the CALP legal advisor developed a Model Terrorist Financing Law for use by the common law countries covered by CALP.

Financial SectorExperience has shown that much of the intelligence and evidence related to money laundering comes from various financial organizations, in particular, banks, casinos and insurance companies. This sub-program has been developed to train, at all levels, staff within such organizations to identify suspicious financial activity and unusual business transactions. Staff members are made aware of the legal requirements and protection in their respective countries. A particular target is compliance officers within the financial industry who are normally responsible for some staff training. Most of such individuals have anti-money laundering issues, as part of their responsibility, so a “train the trainer” theme has been encouraged in an effort to ensure that this aspect of training is sustainable once the Programme has completed.

Law EnforcementThe Law Enforcement expert is principally concerned with the development of training to enable Caribbean law enforcement officers to effectively investigate offenses brought to their attention. The training, from basic to advanced level, has been developed in association with Caribbean law enforcement training establishments. The objective again being for such establishments to take over continued training once the Programme has been discontinued. A further objective of this sub-program is to encourage all member countries to form their own Financial Intelligence Units, with staff trained to liaise with the financial sector, consider reported suspicious financial activity and prepare intelligence reports to assist the law enforcement officers to investigate suspected offenses.

All experts employed within the overall program are always available to advise investigators, prosecutors and judges on any aspect of anti-money laundering issues.

When the Programme commenced, very few Caribbean countries had any form of anti-money laundering legislation. None had used laws to pursue an anti-money laundering case to completion. As a consequence, most investigators, prosecutors and judges had no experience with such cases.

Since 1999, members of CALP, working with other aid programs and agencies have witnessed a major change in the attitudes of Caribbean governments with respect to money laundering. As of August 2002, all member countries have legislation, although a number of laws or procedures still need to be updated. A majority of countries have effective Financial Intelligence Units, and those who do not have all declared their intention to introduce these units within the foreseeable future.

As a consequence of these advances, a considerable number of money laundering investigations have been undertaken, with many substantial cases now before the courts, and a few have been successfully prosecuted to conviction.

The life of the Programme now extends to December 2004 when it is anticipated that all countries will have effective legislation, and investigative ability. During 2003, it is intended that an independent review will be undertaken to consider the anti-money laundering needs of member countries.

The Egmont Group of Financial Intelligence Units (FIU)An important recent development in the international approach to combating money laundering is the creation of Financial Intelligence Units (FIUs) around the world. An FIU is a centralized unit for financial intelligence, formed by a nation to protect its financial services sector, to detect criminal abuse of its financial system, and to ensure adherence to its laws against financial crime and money laundering. Since 1995, a number of FIUs have begun working together in an informal organization known as the Egmont Group (named for the location of the first meeting at the Egmont-Arenberg Palace in Brussels). The numbers have grown dramatically. In 1995, 14 units met in Brussels; seven years later, 169 FIUs were recognized in Monaco. The newest FIUs to join the Egmont Group in 2002 are located in Andorra, Barbados, Canada, Israel, Marshall Islands, Poland, Russia, Singapore, South Korea, United Arab Emirates, and Vanuatu.

The Egmont Group serves as an international network, fostering improved communication and interaction among FIUs in such areas as information sharing and training coordination. The goal of the Egmont Group is to provide a forum for FIUs around the world to improve support to their respective governments in the fight against financial crimes. This support includes expanding and systematizing the exchange of financial intelligence information, improving expertise and capabilities of personnel employed by such organizations, and fostering better and more secure communication among FIUs through the application of technology. The Egmont Group’s secure web system permits members of the group to communicate with one another via secure e-mail, posting and assessing information regarding trends, analytical tools, and technological developments. FinCEN, on behalf of the Egmont Group, maintains the Egmont Secure Web (ESW). Currently, there are 55 FIUs connected to the ESW.

Within the Egmont Group, working groups (Legal, Training/Communications, and Outreach) meet three times a year. The Legal Working Group reviews the candidacy of potential members and enhances information exchange between FIUs. The Training/Communications Working Group looks at ways to communicate more effectively, identifies training opportunities for FIU personnel, and examines new software applications that might facilitate analytical work. The Training/Communications Working Group co-hosted an FIU training seminar for analysts in Mexico, in conjunction with an international informal value transfer system seminar hosted by FinCEN in October 2002. This working group has also published a collection of sanitized terrorist and money laundering cases that were used at the typology exercises of the FATF and other entities. The group intends to publish sanitized cases submitted from various FIUs on a quarterly basis. In addition, Britain’s FIU, NCIS, sponsored a technical workshop for information technology specialists in the FIUs. The workshop focused on data mining, information fusion, security, and artificial intelligence.

The Outreach Working Group works to create a global network of FIUs to facilitate international cooperation. The Outreach Working Group identifies countries that the Egmont Group should approach to offer assistance in FIU development. The chair of the Outreach Working Group anticipates at least another 10-11 candidate FIUs may be ready for admission into the Egmont Group at the next plenary in Spring 2003.

The historic and expected future growth of the Egmont Group, as well as its now recognized value to law enforcement in the area of information exchange, necessitated the creation of an infrastructure to handle many of the activities that arise between plenary meetings. One of the most significant events during 2002 was the creation by the “Heads of FIUs” of the Egmont Committee (Committee). This Committee will serve to assist the Egmont Group in a range of activities from internal coordination and administrative consultation to representation with other international fora. Specifically, the Egmont Committee will consult and co-ordinate with the working groups and the Heads of FIUs. FinCEN will chair the newly formed Egmont Committee, with two co-chairs from the FIUs of Colombia and Australia. The Committee is currently composed of regional representation from Asia, Europe, the Americas, and Oceania, and meets three times a year in conjunction with the working groups.

As of June 2002, the members of the Egmont Group were Andorra, Aruba, Australia, Austria, Bahamas, Barbados, Belgium, Bermuda, Bolivia, Brazil, British Virgin Islands, Bulgaria, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic, El Salvador, Estonia, Finland, France, Greece, Guernsey, Hong Kong, Hungary, Iceland, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Latvia, Liechtenstein, Lithuania, Luxembourg, Marshall Islands, Mexico, Monaco, Netherlands, Netherlands Antilles, New Zealand, Norway, Panama, Paraguay, Poland, Portugal, Romania, Russian Federation, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, United Kingdom, United States, Vanuatu, and Venezuela.

The Group of Experts to Control Money Laundering (OAS/CICAD)OAS/CICAD is the OAS body responsible for combating illicit drugs and related crimes including money laundering. During 2002, OAS/CICAD continued its peer review of member anti-money laundering measures through the Multilateral Evaluation Mechanism (MEM) process, which periodically reviews the progress of individual countries in combating the illicit narcotics and related crimes. The first round of evaluations of all 34 OAS/CICAD member countries was concluded in December 2000. A report on the second round of full evaluations, based on an evaluation of MEM questionnaires that the countries have completed, will cover the years 2001-2002, and is expected to be released in January 2003.

The Group of Experts to Control Money Laundering is the specialized body within CICAD that is responsible for combating money laundering, and works closely with the OAS/Inter-American Committee Against Terrorism (CICTE), on combating terrorist financing. Among the notable achievements of the experts group were:

• Extension of the mandate of the Group of Experts for the Control of Money Laundering to include terrorist financing as well as money laundering.

• Revision of the Model Regulations Concerning Laundering Offenses connected to Illicit Drug Trafficking and other Serious Offenses to incorporate the FATF Special Eight Recommendations on Terrorist Financing.

• Increasing the effectiveness of money laundering legislation by assisting members in making money laundering a separate, autonomous offense.

• Strengthening Financial Intelligence Units through training and measures to enhance information sharing.

• Conducting typologies (analysis of current trends, patterns and techniques related to corruptions and terrorist financing).

CICAD continues to be active in training and technical assistance. CICAD successfully concluded the initial stage of a joint CICAD-Inter American Development Bank (IADB) Project that trained over 350 judges and prosecutors in seven South American countries (Argentina, Bolivia, Chile, Ecuador, Peru, Uruguay and Venezuela). A follow-up stage of this program has begun in these countries, and it is expected that the courses will be replicated—in a first stage round—in Argentina, Chile and Uruguay. In addition, a training course was conducted during the first week of September, in cooperation with the Spanish Government, for judges, prosecutors and legislators in Guatemala, and for representatives from Costa Rica, El Salvador, Honduras, Nicaragua, and Panama. Professors from Spain and Uruguay taught classes.

In August 2002, the OAS General Secretariat and the IADB signed Non-Reimbursable Technical Cooperation Agreement No. ATN/SF-7884-RG, whereby CICAD will carry out a two-year project to establish and strengthen Financial Intelligence Units (FIUs) in South America. This $1.9 million project will directly benefit Argentina, Bolivia, Brazil, Chile, Ecuador, Peru, Uruguay and Venezuela. The program began in August 2002, and depending on countries’ needs and the state of development of their FIUs, will provide assistance in four areas: (1) legal framework development; (2) institutional development; (3) training; and (4) technology for information and communication.

OutreachCICAD actively participated in a number of outreach efforts designed to increase member awareness of money laundering risks and the components of an effective anti-money laundering regime, including for example, the XXXVI Conference of the Inter-American Bar Association (Working Group on Money Laundering) held in Cochabamba, Bolivia. CICAD also made presentations at the “Third Latin American Conference in Money Laundering” organized by Alert Global Media, which took place in San Juan, Puerto Rico in October.

As a special advisory member, CICAD participated in the GAFISUD Plenary Meetings IV and V held in Buenos Aires and Montevideo in May and December, respectively. Also it participated in the Egmont Group X Meeting, held in June 2002. CICAD representatives also attended FATF and CFATF meetings held in Paris and Trinidad respectively.

Pacific Islands ForumThe Pacific Islands Forum (PIF) was formed in 1971, and includes all the independent and self-governing Pacific Island countries, Australia and New Zealand. The 16 members are: Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. Annual meetings are held by the heads of member governments, followed by dialogue at the ministerial level with partners Canada, China, European Union, France, Indonesia, Japan, Korea, Malaysia, Philippines, United Kingdom and the United States.

The PIF’s mission is to work in support of PIF member governments to enhance the economic and social well being of the South Pacific people by fostering cooperation between governments and international agencies, and by representing the interests of PIF members. Senior government officials from these jurisdictions meet periodically to discuss mutual concerns and regional issues. Meetings have focused heavily on regional trade and economic development issues and, in recent years, the environment. Acting under the Honiara Declaration, PIF members have developed model legislation on extradition, mutual assistance in criminal matters and forfeiture of the proceeds of crime. In 1994, PIF achieved observer status at the UN. It also is an observer at APEC and APG meetings.

Because many of the PIF members are hampered by a lack of resources, the UN Global Program Against Money Laundering, the United States, Australia and New Zealand are providing assistance to the other PIF members through the PIF Secretariat to enable them to develop and enact laws and procedures to prevent terrorism and transnational crime, and to comply with the provisions of UNSCR 1373 and the FATF Special Recommendations on Terrorist Financing. In addition, the program will help maintain stability in the region by promoting regional cooperation. A multi-lateral legal experts working group will be established to achieve these goals.

United Nations Global Programme against Money Laundering (GPML)The United Nations is one of the most experienced providers of training and technical assistance to legal, financial and law enforcement authorities globally. The United Nations Global Programme against Money Laundering (GPML) was established in 1997 to assist Member States to comply with the United Nations Conventions and other instruments that deal with money laundering by providing technical assistance and training in the development of the infrastructure and requisite institutions needed to counter the laundering of criminally derived proceeds.

Since 2001, the GPML has broadened this work to help Member States counter the financing of terrorism. GPML now incorporates a focus on counter-financing of terrorism (CFT) in all its technical assistance work. In addition, the Programme collaborates closely with the United Nations Counter-Terrorism Committee (CTC) in New York. In 2002, GPML began drafting model CFT legislative provisions for both common and civil law systems, and worked closely with the U.S. Department of Justice and the Organization for Security and Cooperation in Europe (OSCE) to deliver CFT training.

In 2002, the GPML continued to concentrate on its core activities of assistance to governments with the drafting of legislation, and the development of Financial Intelligence Units (FIUs). Much of the legislative assistance was, as in 2001, delivered in conjunction with the International Monetary Fund (IMF). GPML was among the first technical assistance providers to recognize the importance of countries’ creating a financial intelligence capacity, and the Programme’s Mentors worked extensively with the development and the implementation phases of FIUs in several countries. Also, in 2002, GPML again supported the Egmont Group’s FIU training seminar. More than 200 FIU officials attended the seminar held in Oaxaca, Mexico in October.

In 2002, GPML rapidly expanded its Mentor Programme, providing “on-the-job” training that adapts international standards to specific local/national situations, rather than the traditional, more generic training seminars. The concept originated in response to repeated requests from Member States for longer-term international assistance in this technically demanding and rapidly evolving field. GPML provides experienced prosecutors and law enforcement personnel who work side-by-side with their counterparts in a target country for several months at a time on daily operational matters to help develop capacity. Some advise governments on legislation and policy, while others focus on operating procedures. Regional Mentors in Africa, Asia-Pacific and the Caribbean have significantly added to GPML’s capacity.

The UN’s Mentor Programme has key advantages over more traditional technical assistance. First, the mentor offers sustained skills and knowledge transfer. Second, mentoring constitutes a unique form of flexible, ongoing needs assessment, where the mentor can pinpoint specific needs over a period of months, and adjust his/her work plan to target assistance that responds to those needs. Third, the Member State has access to an “on-call” resource to provide advice on real cases and problems as they arise. Fourth, a mentor can facilitate access to foreign counterparts for international cooperation and mutual legal assistance at the operational level by using his/her contacts to act as a bridge to the international community.

Pre-requisites for the Mentor Programme include candidate suitability, the commitment of the requesting Member State, and the available timing. The success of the program relies on GPML’s selecting the appropriate expert for each circumstance.

In 2002, the GPML’s Caribbean Region Mentor provided technical assistance in the development of FIUs in Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. The joint United Nations-Commonwealth Secretariat Pacific Region Anti-Money Laundering Initiative began in October 2002. The two organizations share the costs of the project, which is designed to enhance the financial investigations capacity of jurisdictions in the Pacific Region. GPML’s financial investigations expert is spending 12 months providing technical assistance to the Cook Islands, Fiji, Samoa, and Vanuatu. Additionally, a GPML Regional Mentor began work with the Secretariat of the Eastern and Southern Africa Anti-Money Laundering Group (ESSAMLG) to work with the Secretariat on the development of its activities. At the national level, the GPML Mentors undertook technical assistance work in Antigua and Barbuda, Barbados, Canada, and the Republic of the Marshall Islands. GPML staff members, meanwhile, supplied national technical assistance to other countries, including Georgia, Haiti, and Indonesia.

GPML used both established and new collaborations with other international organizations as a key means of increasing technical assistance and training supply, as well as of ensuring synergy with the activities of other providers in the field. In 2002, the Programme collaborated with the IMF on global legislative assistance, the Commonwealth Secretariat on the joint Mentor in Asia-Pacific, the OSCE in Kyrgyzstan and Kazakhstan, and the World Bank in Russia.

In addition to collaborations with partner organizations which work to enhance the provision of technical assistance at the regional level, GPML has also been working with FATF-style regional bodies to develop their capacity to assist their Member States, particularly in Africa with the Groupe Intergouvernemental Anti-Blanchiment en Afrique (GIABA); the Groupe Anti-Blanchiment d’Afrique Centrale (GABAC), and ESAAMLG.

Research activities in 2002 focused on practitioner tools that could add value to the technical assistance delivered by the United Nations and its partner organizations. The Programme began collaborating with the United Nations Office on Drugs and Crime (UNODC) Field Office in Bangkok to produce computer-based training. The objective is to provide governments with the necessary resources and expert guidance to develop and maintain self-sustaining training programs. The output will be a comprehensive ongoing computer-based interactive anti-money laundering training program that will significantly raise skill levels, knowledge and awareness within the anti-money laundering community.

GPML also maintains a database of legislation and legal analysis of national money laundering laws. The International Money Laundering Information Network (IMoLIN—www.imolin.org) is a practical tool in daily use by government officials, law enforcement and lawyers. The Programme runs this database on behalf of the United Nations and eight major international partners in the field of anti-money laundering: the Asia/Pacific Group on Money Laundering (APG), the Caribbean Financial Action Task Force (CFATF), the Commonwealth Secretariat, the Council of Europe, the Financial Action Task Force (FATF), Interpol, the Organization of American States (OAS), and the World Customs Organization. The process of adding and updating relevant information on international/national measures, conventions and legislation to combat the financing of terrorism is ongoing. Work on the present phase involves scanning the existing legislation that is not available in electronic format, and adding it to the virtual library of anti-money laundering legislation. In addition, GPML runs the Anti-Money Laundering International Database (AMLID) on IMoLIN, a password-restricted global review of national legislation, available only to public officials. In 2002, GPML updated the AMLID analytical questionnaire to reflect new trends in legislation and policy. Applications for access to AMLID rose in 2002 by 33 percent.

In March, the Programme launched the GPML Global Press Review, which it distributes to the United Nations System, and to governments and partner international organizations involved in anti-money laundering activities as a means of keeping them updated on global developments in the field.

The World Bank and the International Monetary FundThe World Bank ( the Bank) has undertaken a number of steps to raise awareness of AML/CTF issues in its member countries and is providing technical assistance to countries to strengthen AML/CTF regimes.

In 2002, the Bank established the Global Dialogue Series, in order to bring together by videoconference leading experts and senior country officials responsible for formulating public policy on AML/CTF for a constructive exchange of ideas. Nine Global Dialogues have been held since January 2002 for countries in Eastern Europe and Central Asia, Latin America, Africa, South Asia, and East Asia and the Pacific. Government officials from a total of 42 countries have participated in these Dialogues.

In September, the International Monetary Fund (IMF), in collaboration with GAFISUD, organized a conference in Uruguay to develop coordination strategies in South America in the fight against money laundering and financing of terrorism. This workshop brought together the nine member countries of GAFISUD to share experiences with national and regional counterparts, discuss best practices, identify gaps in systems, and formulate practical cooperation strategies. In December, the Bank organized a regional conference in Moscow. The conference focused on building effective Financial Intelligence Units (FIUs). The seminar provided countries that are at a relatively early stage of addressing AML/CTF concerns and do not have fully operational FIUs with the basic information necessary for establishing and operating an FIU that meets international standards. Representatives from 23 countries attended, mostly from Europe and Central Asia but also including Egypt and China.

In addition to the regional conferences, the Bank provided technical assistance to an additional 12 countries in 2002 in response to individual requests. Drafting legislation for AML/CTF and building capacity to implement the AML/CTF standards are among the most frequent requests received in 2002.

Finally, the Bank and the IMF have launched an initiative intended to improve the international coordination of anti-money laundering and counter-terrorist financing technical assistance. On April 22, 2002, the Bank and IMF hosted a meeting in Washington to develop a mechanism for coordinating technical assistance, involving the participation of the FATF, FATF-style regional bodies (FSRB), the UN Global Programme against Money Laundering and UN Counter Terrorism Committee, the regional development banks, including the Asian Development Bank, the Department of State and other key bilateral training and technical assistance providers. Following this meeting, the Bank and IMF have been working closely with the FSRBs to assist them coordinate and meet the technical assistance needs in their region.

As part of this initiative, the Bank and the IMF have established a database of technical assistance requests and responses. The database is intended to support the strategic objectives of the Bank’s technical assistance coordination initiative, including identifying high priority needs and filling gaps, strengthening the roles of the regional secretariats in coordinating technical assistance at the regional level, and enhancing information flow on needs and activities among all of the relevant partners.

The Bank is providing the infrastructure and support for the database, including training FSRBs in using the database. The initial technical assistance requests were entered into the database by the Bank based on surveys carried out in 2002 by the regional secretariats. Subsequently, information on technical assistance requests and responses will be maintained primarily by the FSRB secretariats. Technical assistance donors/providers have web-based access to the database in order to view outstanding technical assistance requests and recent technical assistance activities. The Bank will periodically circulate reports to technical assistance providers in order to assess progress in meeting requests on the database.

Offshore Financial Centers

The pressure being brought to bear by the international community on offshore financial centers to comply with anti-money laundering standards has not abated since the 1999 edition of the INCSR first discussed the issue. Since the inception of its Non-Cooperative Countries and Territories (NCCT) exercise the FATF has designated twenty-three jurisdictions as NCCTs. Sixteen of the 23 NCCTs have either been Offshore Financial Centers (OFCs) or jurisdictions which offer services and products commonly associated with the OFCs. While 12 OFCs have remedied FATF-identified deficiencies in their legal and regulatory regimes and have been de-listed as NCCTs, four OFCs remained on the list of 11 NCCTs as of December 31, 2002.

Nearly simultaneously with the onset of the FATF NCCT exercise, the Financial Stability Forum (FSF), a body created by the G-7 in 1999, comprised primarily of officials from international regulatory bodies) established the Offshore Working Group OWG). The OWG concluded that a number of the OFCs were perceived as having weaknesses in financial supervision, cross-border cooperation and transparency. The OFCs were divided into three groups: eight OFCs (Group I) were described as “largely of a good quality”; nine Group II OFCs were found to be of lower quality than Group I OFCs, but somewhat more cooperative, more transparent and better supervised than the 26 OFCs in Group III. All 35 OFCs in Groups II and III were found to have regulatory deficiencies that could allow financial market participants to engage in regulatory arbitrage of several forms, thereby undermining efforts to strengthen the global financial system.

The FSF requested the International Monetary Fund (IMF) to develop, organize and conduct assessments of OFC adherence to international financial standards, including to several of the FATF Forty Recommendations that involved supervision and regulatory matters. The FSF recommended giving “highest priority to those in Group II” and “high priority to those OFCs in Group III whose scale of financial activity has the greatest potential impact on global financial stability.”

The IMF agreed to conduct assessments only of those OFCs that volunteered and first completed a self-assessment of their supervisory regimes, focused principally on the supervisory and regulatory arrangements in place for banking, securities and insurance activities. The self-assessment would be followed by an IMF-led assessment (Module II Assessment, because the self-assessment constituted the first assessment.). Following the Module II assessment, a broader and more complex IMF-led assessment (Module III) would be undertaken to assess the status of a jurisdiction’s modifications recommended in the Module II assessment. The IMF will make no assessments public unless the assessed jurisdiction voluntarily consents. During 2001, the IMF completed Module II assessments of Aruba, Belize, Cyprus, Gibraltar, Macau and Panama, and in 2002, completed Module II assessments of Andorra, Palau, Samoa, the Seychelles and the Bahamas.

While the IMF assessments performed to date confirm that many of the offshore jurisdictions are taking positive steps to increase compliance with anti-money laundering standards, as have the eight OFCs that have been de-listed from the FATF NCCT list, many OFCs continue to be inadequately regulated. The IMF assessments suggest that jurisdictions with a higher gross domestic product (GDP) are more likely to increase compliance supervision. The smaller the GDP, the more likely it is that a jurisdiction does not have adequate resources to devote to supervision and compliance. The tiny NCCT offshore jurisdiction of Niue recognized that it did not have either the necessary infrastructure to adequately regulate its five offshore banks or the financial or human resources to implement essential regulation of an offshore financial sector. As a result, in October of 2002, Niue abolished its offshore banking sector and was removed from the FATF NCCT list.

Offshore Financial Services Table

Major Money Laundering Countries

Each year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in more than 185 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions that involve proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.

The 2002 INCSR assigned priorities to jurisdictions using a classification system consisting of three differential categories titled Jurisdictions of Primary Concern, Jurisdictions of Concern, and Other Jurisdictions Monitored.

The “Jurisdictions of Primary Concern” are those jurisdictions that are identified pursuant to the INCSR reporting requirements as “major money laundering countries.” A major money laundering country is defined by statute as one “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics-trafficking.” However, the complex nature of money laundering transactions today makes it difficult in many cases to distinguish the proceeds of narcotics-trafficking from the proceeds of other serious crime. Moreover, financial institutions engaging in transactions involving significant amounts of proceeds of other serious crime are vulnerable to narcotics-related money laundering. The category “Jurisdiction of Primary Concern” recognizes this relationship by including all countries and other jurisdictions whose financial institutions engage in transactions involving significant amounts of proceeds from all serious crime. Thus, the focus of analysis in considering whether a country or jurisdiction should be included in this category is on the significance of the amount of proceeds laundered, not of the anti-money laundering measures taken. This is a different approach taken than that of the FATF Non-Cooperative Countries and Territories (NCCT) exercise, which focuses on a jurisdiction’s compliance with stated criteria regarding its legal and regulatory framework, international cooperation, and resource allocations.

All other countries and jurisdictions evaluated in the INCSR are separated into the two remaining groups, “Jurisdictions of Concern” and “Other Jurisdictions Monitored,” on the basis of a number of factors that can include: (1) whether the country’s financial institutions engage in transactions involving significant amounts of proceeds from serious crime; (2) the extent to which the jurisdiction is or remains vulnerable to money laundering, notwithstanding its money laundering countermeasures, if any (an illustrative list of factors that may indicate vulnerability is provided below) ; (3) the nature and extent of the money laundering situation in each jurisdiction (for example, whether it involves drugs or other contraband); (4) the ways in which the United States regards the situation as having international ramifications; (5) the situation’s impact on U.S. interests; (6) whether the jurisdiction has taken appropriate legislative actions to address specific problems; (7) whether there is a lack of licensing and oversight of offshore financial centers and businesses; (8) whether the jurisdiction’s laws are being effectively implemented; and (9) where U.S. interests are involved, the degree of cooperation between the foreign government and U.S. government agencies.

A government (e.g., the United States or the United Kingdom) can have comprehensive anti-money laundering laws on its books and conduct aggressive anti-money laundering enforcement efforts but still be classified a “Primary Concern” jurisdiction. In some cases, this classification may simply or largely be a function of the size of the jurisdiction’s economy. In such jurisdictions quick, continuous and effective anti-money laundering efforts by the government are critical. While the actual money laundering problem in jurisdictions classified “Concern” is not as acute, they too must undertake efforts to develop or enhance their anti-money laundering regimes. Finally, while jurisdictions in the “Other” category do not pose an immediate concern, it will nevertheless be important to monitor their money laundering situations because, under the right circumstances, virtually any jurisdiction of any size can develop into a significant money laundering center.

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

• Failure to criminalize money laundering for all serious crimes or limiting the offense to narrow predicates.

• Rigid bank secrecy rules that obstruct law enforcement investigations or that prohibit or inhibit large value and/or suspicious or unusual transaction reporting by both banks and non-bank financial institutions.

• Lack of or inadequate “know your client” requirements to open accounts or conduct financial transactions, including the permitted use of anonymous, nominee, numbered or trustee accounts.

• No requirement to disclose the beneficial owner of an account or the true beneficiary of a transaction.

• Lack of effective monitoring of cross-border currency movements.

• No reporting requirements for large cash transactions.

• No requirement to maintain financial records over a specific period of time.

• No mandatory requirement to report suspicious transactions or a pattern of inconsistent reporting under a voluntary system; lack of uniform guidelines for identifying suspicious transactions.

• Use of bearer monetary instruments.

• Well-established non-bank financial systems, especially where regulation, supervision, and monitoring are absent or lax.

• Patterns of evasion of exchange controls by legitimate businesses.

• Ease of incorporation, in particular where ownership can be held through nominees or bearer shares, or where off-the-shelf corporations can be acquired.

• No central reporting unit for receiving, analyzing and disseminating to the competent authorities information on large value, suspicious or unusual financial transactions that might identify possible money laundering activity.

• Lack of or weak bank regulatory controls, or failure to adopt or adhere to Basel Committee’s “Core Principles for Effective Banking Supervision”, especially in jurisdictions where the monetary or bank supervisory authority is understaffed, underskilled or uncommitted.

• Well-established offshore financial centers or tax-haven banking systems, especially jurisdictions where such banks and accounts can be readily established with minimal background investigations.

• Extensive foreign banking operations, especially where there is significant wire transfer activity or multiple branches of foreign banks, or limited audit authority over foreign-owned banks or institutions.

• Jurisdictions where charitable organizations or alternate remittance systems, because of their unregulated and unsupervised nature, are used as avenues for money laundering.

• Limited asset seizure or confiscation authority.

• Limited narcotics, money laundering and financial crime enforcement and lack of trained investigators or regulators.

• Jurisdictions with free trade zones where there is little government presence or other supervisory authority.

• Patterns of official corruption or a laissez-faire attitude toward the business and banking communities.

• Jurisdictions where the U.S. dollar is readily accepted, especially jurisdictions where banks and other financial institutions allow dollar deposits.

• Well-established access to international bullion trading centers in New York, Istanbul, Zurich, Dubai and Mumbai.

• Jurisdictions where there is significant trade in or export of gold, diamonds and other gems.

• Jurisdictions with large parallel or black market economies.

• Limited or no ability to share financial information with foreign law enforcement authorities.

Changes in INCSR Priorities, 2002-2003

Upgrades	Downgrades
Costa Ricaà Primary Concern	Grenadaà Concern Primary
Haitià Primary Concern	St. Vincent & the Grenadinesà Concern Primary
Bosnia & Herzegovinaà Concern Other

The following countries were added to the Money Laundering & Financial Crimes report this year and are included in the “Other” Column: Andorra, Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, The Gambia, Guinea, San Marino, Sao Tome & Principe, Sierra Leone, and Syria.

Countries/Jurisdictions of Primary Concern		Countries/Jurisdictions of Concern		Other Countries/Jurisdictions Monitored
Antigua and Barbuda	Taiwan	Albania	St. Vincent	Afghanistan	Macedonia
Australia	Thailand	Argentina	Turks & Caicos	Algeria	Madagascar
Austria	Turkey	Aruba	Vanuatu	Andorra	Malawi
Bahamas	Ukraine	Bahrain	Vietnam	Angola	Maldives
Brazil	United Arab Emirates	Barbados	Yemen	Anguilla	Mali
Burma	United Kingdom	Belgium	Yugoslavia FR	Armenia	Malta
Canada	USA	Belize		Azerbaijan	Mauritius
Cayman Islands	Uruguay	Bolivia		Bangladesh	Micronesia FS
China, People Rep	Venezuela	Bosnia & Herzegovina		Belarus	Moldova
Colombia		British Virgin Islands		Benin	Mongolia
Costa Rica		Bulgaria		Bermuda	Montserrat
Cyprus		Cambodia		Botswana	Morocco
Dominica		Chile		Brunei	Mozambique
Dominican Rep		Cook Islands		Burkina Faso	Namibia
France		Czech Rep		Cameroon	Nepal
Germany		Ecuador		Chad	New Zealand
Greece		Egypt		Congo, Dem. Rep. of	Niger
Guernsey		El Salvador		Congo, Rep. of	Norway
Haiti		Gibraltar		Cote d’Ivoire	Oman
Hong Kong		Grenada		Croatia	Papua New Guinea
Hungary		Guatemala		Cuba	Qatar
India		Honduras		Denmark	Sao Tome & Principe
Indonesia		Ireland		Eritrea	Saudi Arabia
Isle of Man		Jamaica		Estonia	Senegal
Israel		Korea, North		Ethiopia	Sierra Leone
Italy		Korea, South		Fiji	Slovenia
Japan		Latvia		Finland	Soloman Islands
Jersey		Malaysia		Gabon	Sri Lanka
Lebanon		Marshall Islands		Gambia	Suriname
Liechtenstein		Monaco		Georgia	Swaziland
Luxembourg		Netherlands Antilles		Ghana	Sweden
Macau		Nicaragua		Guinea	Syria
Mexico		Niue		Guyana	Tajikistan
Nauru		Palau		Iceland	Tanzania
Netherlands		Peru		Iran	Togo
Nigeria		Poland		Jordan	Tonga
Pakistan		Portugal		Kazakhstan	Trinidad and Tobago
Panama		Romania		Kenya	Tunisia
Paraguay		Samoa		Kuwait	Turkmenistan
Philippines		Seychelles		Kyrgyzstan	Uganda
Russia		Slovakia		Laos	Uzbekistan
Singapore		South Africa		Lesotho	Zambia
Spain		St. Kitts & Nevis		Liberia	Zimbabwe
Switzerland		St. Lucia		Lithuania

In the Country/Jurisdiction Table on the following page, “major money laundering countries” are identified for purposes of INCSR reporting requirements. Identification as a “major money laundering country” is based on whether the country or jurisdiction’s financial institutions engage in transactions involving significant amounts of proceeds from serious crime. It is not based on an assessment of the country or jurisdiction’s legal framework to combat money laundering or the degree of its cooperation in the international fight against money laundering.

Country/Jurisdiction Table

The comparative table that follows the Glossary of Terms below identifies the broad range of actions that jurisdictions have, or have not, taken to combat money laundering, that were effective as of December 31, 2002. This reference table provides a comparison of elements that define legislative activity and identify other characteristics that can have a relationship to money laundering vulnerability.

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

2. “Criminalized Beyond Drugs”: The jurisdiction has extended anti-money laundering statutes and regulations to include non-drug-related money laundering.

3. “Record Large Transactions”: By law or regulation, banks are required to maintain records of large transactions in currency or other monetary instruments.

4. “Maintain Records Over Time”: By law or regulation, banks are required to keep records, especially of large or unusual transactions, for a specified period of time, e.g., five years.

5. “Report Suspicious Transactions”: By law or regulation, banks are required to record and report suspicious or unusual transactions to designated authorities.

6. “Financial Intelligence Unit”: The jurisdiction has established an operative central, national agency responsible for receiving (and, as permitted, requesting), analyzing, and disseminating to the competent authorities disclosures of financial information concerning suspected proceeds of crime, or required by national legislation or regulation, in order to counter money laundering. These reflect those jurisdictions that are members of the Egmont Group.

7. “System for Identifying and Forfeiting Assets”: The jurisdiction has enacted laws authorizing the tracing, freezing, seizure and forfeiture of assets identified as relating to or generated by money laundering activities.

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

9. “Cooperates w/International Law Enforcement”: By law or regulation, banks are permitted/required to cooperate with authorized investigations involving or initiated by third party jurisdictions, including sharing of records or other financial data.

10. “International Transportation of Currency”: By law or regulation, the jurisdiction, in cooperation with banks, controls or monitors the flow of currency and monetary instruments crossing its borders. Of critical weight here are the presence or absence of wire transfer regulations and use of reports completed by each person transiting the jurisdiction and reports of monetary instrument transmitters.

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

12. “Non-Bank Financial Institutions”: By law or regulation, the jurisdiction requires non-bank financial institutions to meet the same customer identification standards and adhere to the same reporting requirements that it imposes on banks.

13. “Disclosure Protection Safe Harbor”: By law, the jurisdiction provides a “safe harbor” defense to banks or other financial institutions and their employees who provide otherwise confidential banking data to authorities in pursuit of authorized investigations.
    
    
14. “States Parties to 1988 UN Drug Convention”: As of December 31, 2001, a party to the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.¹
    
    
15. “Criminalized the Financing of Terrorism.” The jurisdiction has criminalized the provision of material support to terrorists and/or terrorist organizations.
    
    
16. “States Party to the UN International Convention for the Suppression of the Financing of Terrorism.” As of December 31, 2002, a party to the International Convention for the Suppression of the Financing of Terrorism, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.

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¹Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and Turks and Caicos are Overseas Territories of the United Kingdom. Guernsey, the Isle of Man and Jersey are Crown Dependencies of the United Kingdom. As such, they are not members of the United Nations. Niue is not a member of the United Nations; nor is Taiwan.

Comparative Table

Appendix

Recognizing the vital importance of taking action to combat the financing of terrorism, the FATF has agreed these Recommendations, which, when combined with the FATF Forty Recommendations on money laundering, set out the basic framework to detect, prevent and suppress the financing of terrorism and terrorist acts.

Afghanistan. Afghanistan is not a regional financial or banking center. Its financial and credit institutions are rudimentary. Afghanistan does not have anti-money laundering or terrorist financing legislation. Efforts are being made to strengthen police and customs forces, but there are few resources or expertise to combat financial crimes.

Much of the money laundering in Afghanistan is linked to the trade of narcotics. Afghanistan accounts for the large majority of the world’s opium production. The opium is refined into heroin, often broken into small shipments, and smuggled across porous borders via truck or mule caravan for resale broad. Payment for the narcotics is generated through a variety of means, including trade based money laundering. Narcotics are sometimes thought of as just another commodity or trade good. There are reports that the going rate for a kilo of heroin is a color television set. A kind of barter system has developed where narcotics in Afghanistan and neighboring Pakistan are exchanged for foodstuffs, vegetable oils, electronics, and other goods. Many of these trade goods are smuggled into Afghanistan from neighboring countries or enter through the Afghan Transit Trade without payment of customs duties or tariffs. Invoice fraud, corruption, indigenous smuggling networks, and legitimate commerce are all intertwined. Hawala networks are also widespread, and often times trade goods are used to provide counter-valuation in balancing the books. There are allegations that these alternative remittance systems within Afghanistan have also been involved with the financing of terrorist organizations.

Afghanistan is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.

Much work is required to develop and modernize Afghanistan’s infrastructure, financial framework, judiciary, and civil service including its police and customs service. An effective first step in constructing an anti-money laundering program would be to enact anti-money laundering and anti-terrorist finance legislation that complies with international standards.

Albania. Albania remains at significant risk for money laundering because it is a transit country for trafficking in narcotics, arms, contraband, and illegal aliens. Organized crime groups use Albania as a base of operations for conducting criminal activities in other countries. Albanian organized crime groups active outside the country send large sums of illegitimately earned money—estimated by the European Union at $15 billion annually—back to Albania. The proceeds from these activities are easily laundered in Albania because of weak government controls. Albania’s economy is primarily cash-based.

Albania criminalized all forms of money laundering through Article 287 of the Albanian Criminal Code of 1995. In 2000, the International Monetary Fund (IMF) assisted Albania in drafting anti-money laundering legislation that was subsequently approved by Albania’s legislature. Law No. 8610 “On the Prevention of Money Laundering” (passed in 2000) requires financial institutions to report to an anti-money laundering agency all transactions that exceed approximately $10,000 as well as those that involve suspicious activity. Financial institutions are required to report transactions within 48 hours if the origin of the money cannot be determined. In addition, private and state entities are required to report all financial transactions that exceed certain thresholds. The Bank of Albania has established a task force to confirm banks’ compliance with customer verification rules.

The legislation also mandates the establishment of an agency to coordinate the Government of Albania’s (GOA) efforts to detect and prevent money laundering. The Agency for Coordinating the Combat of Money Laundering (ACCML) is Albania’s Financial Intelligence Unit. The ACCML falls under the control of the Ministry of Finance and evaluates reports filed by financial institutions. If the agency suspects that a transaction involves the proceeds of criminal activity, it must forward the information to the prosecutor’s office. The ACCML has the ability to enter into bilateral or multilateral information sharing agreements on its own authority. The legislation, however, does not mandate staffing and funding of the ACCML.

Albania has not criminalized terrorist financing, and Albanian law does not authorize freezing or confiscating assets belonging to terrorists. However, the GOA has used its anti-money laundering law to freeze the assets of individuals and organizations on the UN 1267 Sanction Committee’s consolidated list of terrorists.

Coordination against money laundering and terrorist financing among agencies is sporadic. Authority and responsibility remains unclear among agencies, and therefore, duplication and confusion are possible.

Albania became a party to the UN International Convention for the Suppression of the Financing of Terrorism on April 10, 2002. On August 21, 2002, Albania ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Albania is a party to the 1988 UN Drug Convention. Albania is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly know as PC-R-EV).

The GOA should clarify interagency anti-money laundering responsibilities and should provide adequate legal and financial resources to the ACCML. It should also criminalize terrorist financing.

Algeria. Algeria is not a financial center and the extent of money laundering in Algeria is not known.

On April 7, 2002, the Government of Algeria adopted Executive Order 02-127, which established the Cellule du Traitement du Renseignement Financier (CTRF), an independent unit within the Ministry of Finance. The 2003 Finance Law, approved on December 25, 2002, requires all financial institutions to report suspicious activity to the CTRF. All financial institutions are also obligated to comply with requests for information from the CRTF or face penal liability. The Finance Law allows the CTRF to freeze assets for up to 72 hours based on suspicious activity. Additionally, the Finance Law provides for state protection for officials or informants who cooperate with the CTRF.

The Central Bank monitors all international financial operations carried out by public or private banking institutions. Individuals entering Algeria must declare all foreign currency to the customs authority.

Algeria criminalized terrorist financing by adopting Ordinance 95.11 on February 24, 1994, making the financing of terrorism punishable by 5-10 years of imprisonment.

Algeria is a party to both the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. On October 7, 2002, Algeria became a party to the UN Convention against Transnational Organized Crime, which is not yet in force internationally.

Algeria should enact a comprehensive anti-money laundering regime and criminalize money laundering for all serious crimes.

Andorra. Due to its geographical location in the Pyrenees, its relatively strong financial system, and the free movement of money across its frontiers, Andorra is likely to attract money laundering operations.

Andorra substantially revised its anti-money laundering regime in December 2000 with the passage of its Law on International Criminal Co-operation and the Fight against the Laundering of Money and Securities Deriving from International Delinquency. Essentially, this law imposes reporting obligations upon Andorran financial institutions, insurance and re-insurance companies and on natural persons or entities whose professions or business activities involve the movement of money or securities that may be susceptible to laundering. It goes on to specifically cover external accountants and tax advisors, real estate agents, notaries and other legal professionals when acting in certain professional capacities, as well as casinos and dealers in precious stones and metals. Reports of suspicious transactions are made to the Unit for the Prevention of Laundering Operations (UPBO), Andorra’s Financial Intelligence Unit. Predicate offenses for money laundering are defined in the criminal code and include drug trafficking, hostage taking, sales of illegal arms, prostitution and terrorism. Article 49 of this law contains a tipping off prohibition and Article 50 provides a safe harbor in that individuals or entities who report suspicious activities or transactions under this law are not liable for violations of any other secrecy or confidentiality statutes.

A decree to set up specific regulations to cover all administrative aspects of the Act of December 2000 was approved in August 2002. The decree requires retail establishments to notify the government of any transactions for gems and jewelry where the payment made in cash is greater than 15,000 euros. The law also requires banks to notify the FIU of any currency exchanges where the amount is over 1,250 euros.

Customer identification, including identification of the beneficial owner, is required at the time a business relationship is established and before any transaction when the obligation to take due care calls for verification of the identity of the beneficial owner. Records verifying identity must be kept for a period of at least ten years from the date when the business relationship ends.

The entirety of Title I of this same law pertains to the organization of international judicial help, generally easing previous restrictions that had applied when a foreign authority requested information protected by Andorran bank secrecy. Information may be furnished in response to requests otherwise conforming to Andorran law.

The UPBO was established in 2001 and has become a member of the Egmont Group. Andorra complies with the Financial Action Task Force (FATF) 40 recommendations plus the Special Recommendations on Terrorist Financing. UPBO, with a staff of four, is an administrative unit with no law enforcement powers of its own. But the police work closely with the FIU, and a newly passed article authorizes the use of telephone taps and undercover officers in money laundering investigations. The UPBO can administratively freeze assets for five days without a judicial order. If the assets need to be held for a longer period, the UPBO can seek a judicial order, which normally occurs within the five-day period the UPBO is authorized to hold the accounts. Judicial freeze orders can be effective for an indefinite period of time. UPBO also acts in a supervisory role, and provides education regarding compliance and money laundering prevention to financial services providers.

The UPBO works closely with its Spanish and French counterparts. During the first seven months of operation (July 24, 2001—February 22, 2002), the UPB received 24 suspicious transaction reports filed by obligated institutions. To date it has not dealt with any cases involving terrorism, but it has frozen assets in some non-terrorist related money laundering cases.

Andorra has signed, but not yet ratified, the UN International Convention on the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime, which is not yet in force internationally.

Although not a member of the European Union, Andorra has very close cultural and geographic ties to Spain and France. In fact, Andorra does not have a requirement for cross-border currency declarations, because with Spain’s threshold at 8,000 euros and France’s at 6,000 euros, it would be impossible to enforce.

Andorra should continue to enhance its anti-money laundering regime by broadening its definition of money laundering to expand the list of predicate offenses, and if it has not already done so, should criminalize the financing of terrorism.

Angola. Angola has an underdeveloped financial sector and money laundering does not appear to be a significant problem. Yet the laundering of funds derived from corruption is a concern, as is the illegal trade in diamonds and the usage of diamonds as a conduit for money laundering schemes. It is possible that links exist between the illegal diamond trade and international drug and criminal organizations. Angola is participating in the “Kimberley Process,” which is a globally coordinated effort to halt trade in “conflict” diamonds in countries such as Angola by domestically implementing rough diamond trade control regimes. Angola has already implemented a domestic system in accordance with the Kimberley Process.

Angola has no comprehensive laws, regulations, or other procedures to detect money laundering and financial crime. Angola’s counternarcotics laws criminalize money laundering related to narcotics-trafficking.

Angola has not deposited its instruments of ratification to the 1988 UN Drug Convention. Angola has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.

Angola should criminalize terrorist financing and money laundering related to all serious crimes and should develop a viable anti-money laundering regime.

Anguilla. Anguilla’s offshore financial sector renders it vulnerable to money laundering. As with the other U.K. Caribbean overseas territories, Anguilla underwent an evaluation of its financial regulations in 2000, co-sponsored by the local and British governments.

Anguilla’s domestic financial sector includes four domestic banks and 17 insurance companies. The Eastern Caribbean Central Bank (ECCB) supervises Anguilla’s four domestic banks. The offshore sector includes two banks, one captive insurance company, and approximately 2,792 international business companies (IBCs) and 43 trusts. IBCs may be registered using bearer shares that conceal the identity of the beneficial owner of these entities. The Financial Services Department (FSD) Director is responsible for inspecting Trust Companies, Offshore Banks, the Registrar of Insurance and is the Inspector of Company Management.

The Proceeds of Criminal Conduct Act (PCCA), 2000 extends the predicate offenses for money laundering to all indictable offenses and allows for the forfeiture of criminally derived proceeds. It provides for suspicious activity reporting and a safe harbor for this reporting. The Money Laundering Reporting Authority Act (MLRA), 2000 requires persons involved in the provision of financial services to report any suspicious transactions derived from drugs or criminal conduct. The MLRA establishes requirements for customer identification, record keeping, reporting, and training procedures. It also details provisions for a Reporting Authority that will receive the suspicious transaction reports required and may forward information to the police for further investigation. The Reporting Authority is now operational, but it is not a member of the international Egmont Group of FIUs. The Criminal Justice (International Co-operation) (Anguilla) Act, 2000 enables Anguilla to directly cooperate with other jurisdictions through mutual legal assistance.

The U.S./U.K. Mutual Legal Assistance Treaty concerning the Cayman Islands was extended to Anguilla in November 1990. Anguilla is also subject to the U.S./U.K. Extradition Treaty. Anguilla is a member of the Caribbean Financial Action Task Force (CFATF), and is subject to the 1988 UN Drug Convention.

Anguilla should continue to strengthen its anti-money laundering regime by adopting measures to immobilize bearer shares and ensure that beneficial owners of IBCs can be identified. Legislation should be passed granting operational independence for the FSD, with its own funding source and a supervisory board.

Antigua and Barbuda. Antigua and Barbuda has comprehensive legislation in place to regulate its financial sector, but it remains susceptible to money laundering because of its loosely regulated offshore financial sectors and its Internet gaming industry. In August 2001, as a result of the enactment of new laws and their substantial implementation, both the U.S. and the UK lifted April 1999 financial advisories recommending that their respective financial institutions give enhanced scrutiny to all financial transactions routed into or out of Antigua and Barbuda.

In response to these advisories, the Government of Antigua and Barbuda (GOAB) in 1999 repealed the 1998 amendments to Antigua and Barbuda’s Money Laundering (Prevention) Act (MLPA) of 1996 that had effectively strengthened bank secrecy, inhibited money laundering investigations and infringed on international cooperation. Additional amendments to the MLPA in 2000, 2001 and 2002 enhanced international cooperation, strengthened asset forfeiture provisions and created civil forfeiture powers.

Antigua and Barbuda in October 2001 enacted the Prevention of Terrorism Act, which empowers the Supervisory Authority under the MLPA to nominate any entity as a “terrorist entity” and to seize and forfeit terrorist funds. The law specifies any finances in any way related to terrorism. Antigua circulated all the various “terrorist” lists to all financial institutions in Antigua. The lists did not produce any disclosures. All institutions were personally contacted to ensure compliance. Thus, no terrorist funds were detected in Antigua. The GOAB has responded to the FATF Self-Assessment for Implementation of the Special Recommendations on Terrorist Financing; based on its responses, it was determined to be compliant with six of the seven recommendations and partially compliant with the recommendation concerning alternative remittances. The GOAB has acceded to the International Convention for the Suppression of the Financing of Terrorism. No known evidence of terrorist financing has been discovered in Antigua and Barbuda to date. The GOAB has not undertaken any specific initiatives focused on the misuse of charitable and non-profit entities.

In 2000, the GOAB amended the International Business Corporations Act (IBCA) of 1982 in order to excise 1998 amendments that had given the International Financial Sector Regulatory Authority (IFSRA) responsibility to both market and regulate the offshore sector as well as to allow members of the IFSRA Board of Directors to maintain ties to the offshore industry. The GOAB further amended the IBCA that year to require that registered agents ensure the accuracy of the records and registers that are kept at the Registrar’s office, as well as to know the names of beneficial owners of IBC’s and to disclose such information to authorities upon request. In December 2000, the GOAB issued a Statutory Instrument, which has the force of law, requiring banks to establish the true identities of account holders and to verify the nature of an account holder’s business, source of funds and beneficiaries. In 2002, the IFSRA was replaced by a new entity entitled the Financial Services Regulatory Commission (FSRC). The Director of IFSRA was removed from her position and replaced by a new director. FSRC, was reportedly created, to create a unified regulatory structure of Antigua’s financial services’ sector. FSRC now has the responsibility of regulating the offshore banking sector, the formation of international business corporations, Internet gaming, and domestic financial services, such as insurance and trusts.

From 1999 through 2002, the GOAB conducted an extensive review of the offshore banking sector. As a result, 26 offshore banks had their licenses revoked, were dissolved, placed in receivership or otherwise put out of business. Currently, Antigua and Barbuda has 21 licensed offshore banks in operation. Of these, however, 11 are foreign shell banks that have no physical presence in Antigua and Barbuda.

Unlike some of the other countries in the Eastern Caribbean, the GOAB has not yet chosen to initiate a unified regulatory structure or uniform supervisory practices for its domestic and offshore banking sectors. Currently, the Eastern Caribbean Central Bank (ECCB) supervises Antigua and Barbuda’s domestic banking sector. A domestic entity, the FSRC is responsible for the regulation and supervision of the offshore banking sector as well as conducting examinations and on-site and off-site reviews of the country’s offshore financial institutions and of some domestic financial entities, such as insurance companies and trusts. The FSRC, formed in 2002, represents on balance a weaker regulatory structure than its predecessor, the International Financial Services Regulatory Authority (IFSRA). Additionally, the FSRC issues licenses for the international business corporations and maintains the register of all corporations, of which there are approximately 13,500. Bearer shares are not permitted. The license application requires disclosure of the names and addresses of directors—who must be natural persons—the activities the corporation intends to engage in and the names of shareholders and number of shares that they will hold. Service providers are required by law to know the names of beneficial owners.

The Office of National Drug Control and Money Laundering Policy (ONDCP) directs the GOAB’s anti-money laundering efforts in coordination with the FSRC. It has primary responsibility for the enforcement of the MLPA. ONDCP is a department of the Prime Minister’s Ministry and the GOAB intends to introduce legislation designating the ONDCP as a law enforcement agency with statutory powers of investigation, search and arrest. The GOAB’s Financial Intelligence Unit and Financial Investigations Unit are components of the ONDCP. In recent years, a number of GOAB civilian and law enforcement officials, both in and out of the ONDCP, have received anti-money laundering training from the Caribbean Anti-Money Laundering Program and bilateral Department of State, Bureau of International Narcotics and Law Enforcement Affairs funded anti-money laundering training programs.

Casinos and sports book-wagering operations in Antigua and Barbuda’s Free Trade Zone are supervised by the ONDCP and the FSRC, of which the Directorate of Offshore Gaming (DOG)—13 professional and clerical employees—is a part. Antigua and Barbuda’s domestic casinos, of which there are six, are required to incorporate as domestic corporations and Internet gaming operations, of which there are 39, are required to incorporate as IBC’s. The FSRC and DOG have issued Internet Gaming Technical Standards and guidelines. The 2000 and 2001 amendments to the MLPA expand its coverage to include all types of gambling entities and set financial limits above which customer identification and source of funds information are required. Suspicious activity and suspicious transaction reports from domestic and offshore gaming are sent to the ONDCP and FSRC; currently, they are receiving 2-3 weekly. The GOAB has drafted and is considering legislation and regulations for the licensing of interactive gaming and wagering in order to address possible money laundering through client accounts of Internet gambling operations.

Antigua and Barbuda is a party to the 1988 UN Drug Convention, a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering and a member of the Caribbean Financial Action Task Force (CFATF), of which it assumed the Vice-Presidency in 2002. The GOAB underwent its Second Round CFATF Mutual Evaluation in October 2002. In 1999, Antigua and Barbuda was the first country in the Eastern Caribbean to exchange instruments of ratification bringing into force a Mutual Legal Assistance Treaty and an Extradition Treaty with the United States. One extradition request related to a fraud and money laundering investigation remains pending under the Treaty, awaiting the outcome of an appeal against a Magistrate’s deportation order. Antigua and Barbuda signed a Tax Information Exchange Agreement with the United States in December 2001 that allows the exchange of tax information between the two nations. Antigua and Barbuda ratified the UN Convention against Transnational Organized Crime on July 24, 2002. In 2002, the Bahamas sponsored Antigua and Barbuda for membership in the Egmont Group. The ONDCP expects to be admitted as a full member at the Group’s 2003 Plenary.

In 2002 the GOAB continued its bilateral and multilateral cooperation in various criminal and civil investigations and prosecutions, including, in particular, the FBI’s investigation into the activities in Antigua and Barbuda of John Muhammed, the alleged Washington, D.C. area sniper. The GOAB has provided assistance to U.S. and other countries’ law enforcement officials and prosecutors investigating and prosecuting fraud and money laundering cases. The GOAB has benefited through an asset sharing agreement with Canada and has received other asset sharing revenues as a result of its cooperation in the freezing and forfeiture of illegal assets at the request of other countries. However, Antigua and Barbuda has not prosecuted a money laundering or forfeiture case, on its own.

The GOAB should continue its international cooperation and rigorously implement and enforce all provisions of its anti-money laundering legislation, as well as take the necessary legislative and regulatory steps to ensure that its gambling sector is properly covered by anti-money laundering legislation and is strictly supervised. Additionally, the GOAB should vigorously enforce its money laundering laws by actively prosecuting money laundering and asset forfeiture cases. The GOAB should ensure that all offshore banks licensed in Antigua and Barbuda have a physical presence, to avoid possibly losing correspondent accounts in U.S. banks under Section 313 of the USA Patriot Act.

Argentina. Argentina is neither an important regional financial center nor an offshore banking center. Money laundering related to narcotics-trafficking, corruption, contraband, and tax evasion is believed to occur throughout the financial system, in spite of the Government of Argentina’s (GOA’s) efforts, described below, to stop it. The severe financial crisis and capital controls of the past two years may have reduced the opportunities for money laundering through the banking system. However, transactions conducted through non-bank sectors and professions, such as the insurance industry; financial advisors; accountants; notaries; trusts; and companies, real or shell, remain viable mechanisms to launder illicit funds.

In the midst of the political and economic crisis that swept Argentina during 2002, the Government made efforts at implementing the regulations for anti-money laundering law number 25.246 of May 2000. Law 25.236 expands the predicate offenses for money laundering to include all crimes listed in the Penal Code, sets a stricter regulatory framework for the financial sectors, and creates a Financial Intelligence Unit (FIU), in Spanish, Unidad de Informacion Financiera (UIF), under the Ministry of Justice and Human Rights. Under this 2000 law, requirements for customer identification, record keeping, and reporting of suspicious transactions now apply to all financial entities and businesses supervised by the Central Bank, the Securities Exchange Commission (Comisión Nacional de Valores—CNV), and the Superintendency of Insurance. These financial entities and businesses include banks; currency exchange houses; casinos; securities dealers; registrars of real estate; auto dealerships; dealers in art, antiques, and precious metals; insurance companies; issuers of travelers checks; credit card companies; armored car companies; postal money transmitters; notaries; and certified public accountants.

The law forbids the institutions to notify their clients when filing suspicious financial transactions reports, and provides a safe harbor from liability for reporting such transactions. The UIF is expected to establish reporting norms tailored to each type of business. The UIF began operating in June 2002 at a minimum capacity due to a lack of funds, since it was not included in the national budget for 2002. In addition, it has not received the technical and specialized personnel that were to join it from the Central Bank, CNV, and the Superintendency of Insurance. The UIF now has 28 staff, and their 2003 budget will support an increase in staff up to 60. However, that budgeted personnel level is not supported with funds for sufficient computer and security equipment or office furniture and supplies even for the current 28 staff.

Per a rule issued by the UIF, effective October 29, 2002, entities supervised by the Central Bank, CNV, and the Superintendency of Insurance must report all suspicious transactions over 500,000 Argentine pesos (approximately $140,000) directly to the UIF. Transactions below 500,000 Argentine pesos will go to the appropriate supervisory body for pre-analysis and subsequent transmission to the UIF if deemed necessary. The UIF has now received approximately 200 SARs.

The UIF also issued a rule for the centralized registration at the UIF of transactions involving the transfer of funds (outgoing or incoming), cash deposits, or currency exchanges that are equal to or greater than 10,000 pesos (approximately $2,700). The UIF further receives copies of the declarations to be made by all individuals (foreigners or Argentine citizens) entering or departing Argentina with over $10,000 in currency or monetary instruments. These declarations are required by Resolutions 1172/2001 and 1176/2001 issued by the Argentine Customs Service in December 2001. Argentina’s Narcotics Law of 1989 authorizes the seizure of assets and profits, and provides that these or the proceeds of sales will be used in the fight against illegal narcotics-trafficking. The money laundering law of May 2000 (25.246) provides that proceeds of assets forfeiture under this law can also be used to fund the UIF.

The GOA remained active in multilateral counternarcotics and international anti-money laundering organizations. It is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention Against Transnational Organized Crime, which is not yet in force internationally. It is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering, and the Financial Action Task Force (FATF) as well as the South American Financial Action Task Force (GAFISUD). The GOA and the United States Government (USG) have a Mutual Legal Assistance Treaty that entered into force in 1993, and an extradition treaty that entered into force on June 15, 2000. In March 2001, the GOA signed the UN International Convention for the Suppression of the Financing of Terrorism. On September 26, 2001, the Central Bank of Argentina issued Circular B-6986 instructing financial institutions to identify and freeze the funds and financial assets of the individuals and entities listed by the USG as possibly engaged in acts of terrorism. Although no assets were frozen, the Central Bank continues to monitor the financial institutions.

Argentina should take measures to implement the FATF’s 8 Special Recommendations on Terrorist Financing. With strengthened mechanisms available under the May 2000 anti-money laundering law, including the creation of the UIF, Argentina seems poised to prevent and combat money laundering effectively. Disputes over information sharing between the UIF and the tax agency (AFIP) also need to be resolved for anti-money laundering efforts to succeed. In addition, further implementation efforts are needed in order to succeed: increased public awareness of the problem of money laundering and the requirements under the new law, forceful sanctioning of officials and institutions that fail to comply with the reporting requirements of the law, the pursuit of a training program for all levels of the criminal justice system, and provision of the necessary resources to the UIF to carry out its mission.

Armenia. Armenia is not a major financial center; however, high unemployment, low salaries, corruption, a large underground economy, and the presence of organized crime also contribute to Armenia’s vulnerability to money laundering. Schemes used to launder funds include the under-invoicing of imports, double bookkeeping, and misuse of the banking system.

Under banking laws amended in October and November, 2002, the Central Bank requires banks in Armenia to demand certain information from people and businesses making large deposits in order to demonstrate that the funds are of legal origin. The new laws also require banks to confirm the identity of clients wishing to open a bank account. Also under the new laws, the Central Bank can freeze bank accounts suspected of containing funds used for terrorist financing or money derived from criminal activities. The Government of Armenia has drafted a law that would criminalize money laundering.

Armenia is a party to the 1988 UN Drug Convention. Armenia has signed, but not yet become a party to, both the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime, which is not yet in force internationally. In 2001, Armenia signed, but has not yet become a party to, the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. It is, however, a party to the European Convention on Mutual Assistance in Criminal Matters.

Armenia should establish and implement a comprehensive anti-money laundering regime that criminalizes money laundering and terrorist financing.

Aruba. Aruba, which has full internal autonomy, is a part of the Kingdom of the Netherlands. As a transit country for cocaine and heroin, Aruba is both attractive, and therefore, vulnerable to money launderers. While not large, the offshore sector consists of 562 active limited liability companies and 3,762 active offshore tax-exempt companies referred to as Aruba Exempt Companies (AEC). Both types of companies can issue bearer shares. The financial sector is composed of the five onshore banks, two offshore banks, four bank-like institutions, and two credit unions; other financial sector entities include eight life insurance companies, 12 general insurance companies, two captive insurance companies, ten company pension funds, and 30 money remitters and exchange offices. There are also 11 casinos. Aruba’s offshore industry constitutes about one percent of GDP and is due to be phased out by the end of 2005 as part of the Government’s May 2001 commitment to the OECD in connection with the Harmful Tax Practices initiative.

Aruba offshore services currently include the offshore Naamloze Vennootschap (NV) or limited liability company, which is a low-tax entity, and the Aruba Exempted Company (AEC). A local director, usually a trust company, must represent offshore NVs. A legal representative that must be a trust company represents AECs. AECs pay an annual registration fee of approximately $280, and must have a minimum authorized capital of $6,000. AECs cannot participate in the economy of Aruba, and are exempt from several obligations: all taxes and currency restrictions, and the filing of annual financial statements. Trust companies provide a wide range of corporate management and professional services to AECs, including managing the interests of their shareholders, stockholders, and other creditors. In May 2000, the Government of Aruba (GOA) issued guidance notes on corporate governance practices.

The GOA has prepared a State Ordinance for the Supervision of Trust Companies. The draft ordinance, which was submitted to Parliament on January 23, 2001, provides for the oversight of thrift companies to ensure that they follow “Know Your Customer” procedures. The International Monetary Fund (IMF) also reviewed the draft ordinance. The draft ordinance is still pending enactment.

To replace the offshore sector and keep Aruba competitive for international capital, the GOA is proposing a New Fiscal Framework (NFF or Dutch acronym: NFR) that reportedly contains elements such as a dividend tax and imputation credits. The proposal will have to be consistent with OECD standards regarding its “Harmful Tax Practices” regime. The full content and its practical application, however, cannot be fully assessed at this time.

Following up on the July 4, 2000, Parliamentary approval of the State Ordinance Free Zones Aruba (FZA), the Parliament unanimously approved the designation of a Free Zone Aruba NV entity to operate the free zones. One aspect of this designation requires free zone customers to reapply for authorization to operate within the zones. As a result of these tougher standards there was a 65 percent drop in free zone business in Aruba.

The Free Zone NV is preparing a “Best Practices” guide describing these standards for its companies. Aruba took the initiative in the Caribbean Financial Action Task Force (CFATF) to develop regional standards for free zones, where none existed, in an effort to control trade-based money laundering. The guidelines were adopted in April 2001 at the CFATF Plenary, and in October the CFATF Ministerial Council followed.

All financial and non-financial institutions are obligated to report unusual transactions to Aruba’s Financial Intelligence Unit (FIU), the Meldpunt Ongebruikelijke Transacties (MOT). The MOT has a staff of five that consists of three investigators and two administrative assistants. On March 12 the GOA authorized a doubling of the MOT’s staff to 12 and is committed to providing the MOT with additional computer equipment and software in 2003 to increase its effectiveness and efficiency.

The FIU is required to inspect all casinos, banks, money remitters, and insurance companies. On July 1, 2001, a State Ordinance was issued that extended reporting and identification requirements to casinos and insurance companies, and in early 2003, the MOT will begin on-site inspections. The State Ordinance on the Supervision of Insurance Business (SOSIB) and the Implementation Ordinance on SOSIB require insurance companies established after July 1, 2001, to obtain a license from the Central Bank of Aruba. Effective February 19, 2002, suspicious transaction reporting was extended to life insurance companies.

In June 2000, Aruba enacted a State Ordinance making it a legal requirement to report the importation and exportation via harbor and airport of currency in excess of 20,000 Aruban guilders (approximately $11,000). The law is still pending implementation.

In July of 2002, there were two convictions for money laundering through supermarkets. In most cases the money laundering offense is integrated into investigations of the underlying offense.

Aruba signed a multilateral directive with Colombia, Panama, the United States, and Venezuela to establish an international working group to fight money laundering that occurs through the Black Market Peso Exchange (BMPE). The final set of recommendations on the BMPE was signed on March 14, 2002. The working group developed policy options and recommendations to enforce actions that will prevent, detect, and prosecute money laundering through the BMPE. The next working group meeting will convene in July 2003 to review countries’ progress in implementing the recommendations and to report on results achieved in combating trade-based money laundering.

In October 2002, the MOT took the initiative to host a “Counter-terrorism Financing Anti-Money Laundering Conference” in Aruba for 120 participants drawn from the GOA, the private financial sector, FinCEN, and the FBI.

Through the Netherlands, Aruba participates in the Financial Action Task Force (FATF), and therefore, participates in the FATF mutual evaluation program. The GOA has a local FATF committee that oversees the implementation of the FATF recommendations, including the Eight Special Recommendations on Terrorist Financing. The local FATF committee reviewed the GOA anti-money laundering legislation and proposed, in accordance with the FATF Eight Special Recommendations on Terrorist Financing, amendments to existing legislation and introduction of new laws. Currently, there are seven draft ordinances before Parliament. As part of its commitment to combat the financing of terrorism, the GOA formed another committee to ensure cooperation within the Kingdom of the Netherlands.

Aruba is a member of CFATF and served as its Chairman in 2001. In 1999, the Netherlands extended application of the 1988 UN Drug Convention to Aruba. The Netherlands’s Mutual Legal Assistance Treaty with the United States applies to Aruba, though it is not applicable to requests for assistance relating to fiscal offenses addressed to Aruba.

The MOT is a member of the Egmont Group. A draft law, which would authorize the MOT to share information with foreign counterpart organizations through a memorandum of understanding (MOU), is now with Parliament. In June 2001, the MOT signed an agreement with the FIUs of the Netherlands and the Netherlands Antilles to exchange information.

Aruba’s anti-money laundering legislation adheres to the recommendations of FATF and the CFATF. The GOA has shown a commitment to combating money laundering by establishing a solid anti-money laundering program. Given the money laundering vulnerability presented by bearer shares, the GOA should ensure that bearer shares are immobilized under the NFF. The GOA should also pass and implement legislation, regulations and MOUs to improve information sharing by its FIU and to improve adherence to the new FATF Eight Special Recommendations on Terrorist Financing. The GOA should also provide adequate resources to the MOT to enable it to properly carry out its mission of analyzing unusual transactions and conducting on-site inspections of all financial and non-financial institutions.

Australia. Australia is one of the key centers for capital markets activity in the Asia-Pacific region, with liquid markets in equities, debt, foreign exchange and derivatives. Activity across Australia’s exchange and over-the-counter financial markets amounted to $27.6 trillion through June 2002, an increase of 19.5 percent on the same period 12 months ago. The market capitalization of finance and insurance on the Australian stock exchange (ASX) has increased eightfold from $18.8 billion in 1991 to $147 billion in 2001. The Government of Australia (GOA) has put in place a comprehensive system to detect, prevent, and prosecute money laundering. The major sources of illegal proceeds are fraud and drug trafficking. The last two years have seen a noticeable increase in activities investigated by Australian law enforcement agencies that relate directly to offenses committed overseas. The majority of these matters are connected to frauds committed in an overseas jurisdiction where money has either been laundered into Australia for the purpose of acquiring assets or has been laundered through Australia to overseas countries.

Australia criminalized money laundering related to serious crimes with the enactment of the Proceeds of Crime Act of 1987. This legislation also contains provisions to assist investigations and prosecution in the form of production orders, search warrants, and monitoring orders. The Mutual Assistance in Criminal Matters Act of 1987 allows Australian authorities to assist other countries in identifying, freezing, seizing, and confiscating the proceeds of crime.

The Financial Transaction Reports Act (FTR) of 1988 was enacted to combat tax evasion, money laundering, and serious crimes. Banks and financial institutions are required to verify the identities of all new account holders and new signatories to existing accounts, and must retain the record, or a copy of it, for seven years after the day on which the relevant account is closed. A cash dealer, or an officer, employee or agent of a cash dealer, is protected against any action, suit or proceeding in relation to the reporting process. The FTR also establishes reporting requirements for Australia’s financial services sector. Required to be reported are: suspicious transactions; cash transactions in excess of Australian $10,000; and international funds transfers equivalent to or exceeding Australian $10,000. FTR reporting also applies to non-bank financial institutions such as money exchangers, money remitters, stockbrokers, casinos and other gambling institutions, bookmakers, insurance companies, insurance intermediaries, finance companies, finance intermediaries, trustees or managers of unit trusts, issuers, sellers and redeemers of travelers checks, bullion sellers and other financial services licensees. Lawyers also are required to report significant cash transactions. Accountants do not have any FTR obligations. However, they do have an obligation under a self-regulatory industry standard not to be involved in money laundering transactions.

The Australian Transaction Reports and Analysis Center (AUSTRAC), Australia’s Financial Intelligence Unit (FIU), estimates that approximately $26 million in reported suspect transactions is reported annually from reporting cash dealers (financial institutions). Australian Federal Police (AFP), based on their intelligence on drug crime and major frauds, estimates that approximately $1.75-2.1 million is laundered through the Australian economy each year. AUSTRAC was established under the FTR to oversee compliance with the reporting requirements imposed on the financial services sector. AUSTRAC also gathers and disseminates financial intelligence that supports revenue collection and law enforcement activities.

In June 2002, Australia passed the Suppression of the Financing of Terrorism Act 2002. The aim of the bill is to restrict the financial resources available to support the activities of terrorist organizations. This legislation criminalizes terrorist financing and substantially increases the penalties that apply when a person uses or deals with suspected terrorist assets that are subject to freezing. The bill enhances the collection and use of financial intelligence by requiring cash dealers to report suspected terrorist financing transactions to AUSTRAC, and relaxes restrictions on information sharing with relevant authorities regarding the aforementioned transactions. The bill also addresses commitments Australia has made with regard to the UNSCR 1373 and the UN International Convention for the Suppression of the Financing of Terrorism. There have been no prosecutions or arrests under this legislation to date. The Security Legislation Amendment (Terrorism) Act 2002, which received Royal Assent on 5 July 2002, inserted into the Criminal Code offenses of receiving funds from, or making funds available to, a terrorist organization.

On September 6, 2002, the GOA froze three accounts in the name of a listed terrorist entity, the International Sikh Youth Federation (ISYF). A review of the FTR Act is currently being undertaken with regard to improving procedures, implementing international best practices, and addressing further aspects of terrorist financing to include alternative remittance systems.

Australia is a member of the Financial Action Task Force (FATF), co-chairs the Asia/Pacific Group on Money Laundering (APG) and is also a member of the Pacific Island Forum, and the Commonwealth Secretariat. Through its funding and hosting of the Secretariat of the APG, Australia has elevated money laundering issues to a priority concern among countries in the Asia/Pacific region. AUSTRAC is a member of the Egmont Group, and has bilateral agreements allowing the exchange of financial intelligence with 11 countries, with approximately 19 additional MOUs in various stages of negotiation. MOUs have recently been signed with Singapore, Isle of Man and Israel. An MOU with Canada is expected to be signed shortly. Other MOUs are with Vanuatu, United States, United Kingdom, New Zealand, Belgium, France, Italy and Denmark. MOUs with Malaysia and Thailand are expected to be signed early in 2003, and with Switzerland in April 2003. In September 1999, a Mutual Legal Assistance Treaty between Australia and the United States entered into force. In March 2002, Australia signed a bilateral agreement with Vanuatu.

Australia has signed and ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, and the 1988 UN Drug Convention. Australia has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Australia ratified the UN International Convention for the Suppression of the Financing of Terrorism on September 26, 2002.

Australia continues to pursue a well-balanced, comprehensive and effective anti-money laundering regime that meets the objectives of the FATF Forty Recommendations and the Special Recommendations on Terrorist Financing. It gives high priority to dealing with money laundering and to international cooperation. AUSTRAC serves as a model for FIUs worldwide, because of its demonstrated commitment and competence in using financial reports and related information to identify money trails. The GOA should continue its efforts to emphasize money laundering issues and trends within the APG, and its commitment to providing training and technical assistance to the Asia/Pacific region.

Austria. Austria is not an important regional financial center, offshore tax haven or banking center. There is no hard evidence that Austria is a major money laundering country; however, like any highly developed financial marketplace, Austria’s financial and non-financial institutions are vulnerable to money laundering. According to the Austrian Interior Ministry’s 2001 National Security Report, organized crime has become a cross-border multinational problem in Austria, representing a considerable share of overall criminal activity. The percentage of undetected organized crime is believed to be enormous, with revenues derived from organized crime often mingled with legitimate income in legal firms. Organized crime, in particular from the former Soviet Union, is trying to launder money in Austria by investing in real estate, exploiting existing business contacts, and trying to establish new contacts in politics and business.

Austria criminalized money laundering in 1993. Adoption of the Banking Act of 1994 creates customer identification, record keeping, and staff training obligations for the financial sector. Entities subject to the Banking Act include banks, leasing and exchange businesses, safe custody services, and portfolio advisers, as well as insurance companies underwriting life policies. The Banking Act created the Austrian Financial Intelligence Unit (AFIU, formerly known as EDOK) within the Interior Ministry. In 2002, the AFIU was absorbed as one section of the newly established Austrian Bundeskriminalamt (Federal Crime Office). AFIU continues to serve as the central repository of suspicious transaction reports.

The Banking Act requires identification of all customers when entering an ongoing business relationship, i.e., in all cases of opening a checking account, a passbook savings account, a securities deposit account, etc. In addition, customer identification is required for all transactions of more than 15,000 euros, ($14,016) for customers without a permanent business relationship with the bank. Banks and other financial institutions are required to keep records on customers and account owners. Bankers are protected with respect to their cooperation with law enforcement agencies. They are also not liable for damage claims resulting from delays in completing suspicious transactions. There is no requirement for banks to report large currency transactions, unless they are suspicious. AFIU is, however, providing information to banks to raise awareness of large cash transactions.

The existence of anonymous numbered passbook savings accounts spurred the Financial Action Task Force (FATF) to threaten Austria with suspension from FATF if Government of Austria (GOA) did not take action to abolish the accounts. The European Commission had lodged a complaint with the European Court of Justice contending that these anonymous passbook savings accounts violated the Commission’s anti-money laundering directive. The FATF lifted its warning about the anonymous passbook savings accounts following the GOA’s enactment of legislation, effective November 2, 2000. Since then, new passbook savings accounts and deposits on existing accounts require customer identification. The deadline for identifying existing anonymous accounts was June 30, 2002; since then, special procedures, i.e., delaying payments and reporting such customers to the police, apply for accounts not yet identified. There are no statistics on how many accounts have not been identified. Banks and other financial institutions must maintain records on customer identification for at least five years after the termination of the business relationship. Records of all transactions are kept for at least five years following the execution of those transactions.

The anonymity of securities accounts was abolished in 1996 with the so-called “iceberg solution.” Under this arrangement, withdrawals and sales of securities from anonymous accounts opened before August 1, 1996, were allowed without customer identification; these accounts would then “melt away” over time, since no new deposits were allowed. This arrangement expired June 30, 2002. However, for securities accounts not identified by June 30, 2002, special procedures, like those applied to passbook savings accounts, do not apply. In 1997, the GOA tightened restrictions on trustee accounts, applying requirements that encompass identification of the beneficial owner(s).

A planned amendment of the Banking Act to implement the EU’s Money Laundering Directive on the prevention of the use of the financial system for the purpose of money laundering, as amended in 2001, and to incorporate changes related to terrorism financing and implementation of stricter identification requirements (for trustees and beneficial owners, and by requiring banks to ask for and make a copy of an official picture ID and terminate entries of “personally known customer” in banks’ records) was not sent to Parliament due to the GOA’s early break-up in September 2002.

Another outstanding issue for the next government is the deferred amendment of the Customs Act addressing the problem of international transportation of illegal-source currency and monetary instruments. The planned amendment was to introduce border controls for cash. Presently, there are no cross-border reporting requirements, and there is no declaration requirement at the border relating to the amount of currency that can be legally brought into or taken out of Austria.

The Banking Act includes a due diligence obligation, and individual bankers are held legally responsible if their institutions launder money. In addition, banks have signed a voluntary agreement to prohibit active support for capital flight. On November 26, 2001, the Federal Economic Chamber’s banking and insurance department, in cooperation with all banking and insurance associations, published an official “Declaration of the Austrian Banking and Insurance Industries to Prevent Financial Transactions in Connection with Terrorism.”

Currently, there are no money laundering controls applied to non-banking financial institutions not subject to the Banking Act. However, an amendment of the Business Code taking effect June 15, 2003, will introduce money laundering regulations regarding identification, record keeping, and reporting of suspicious transactions for dealers in high-value goods such as precious stones or metals, or works of art, auctioneers, and real estate agents. Regulations for accountants, lawyers and notaries are in the drafting phase and will be incorporated in the occupational regulations for these professions, expected to be implemented by mid-2003. For casinos, a planned amendment of the Gambling Act, implementing a legal requirement for customer identification and a reporting requirement of suspected money laundering or terrorism financing activities, was not sent to Parliament due to the GOA’s early break-up, and is another issue for the next government. However, absent the legal regulation for customer identification, casinos licensed in Austria are already supervised by the Ministry of Finance, and require and record picture IDs of all visitors.

Legislation implemented in 1996 allows for asset seizure and the forfeiture of illegal proceeds; however, there is little evidence of enforcement to date. The amended Extradition and Judicial Assistance Law provides for expedited extradition, expanded judicial assistance, and acceptance of foreign investigative findings in the course of criminal investigations, as well as enforcement of foreign court decisions. Austria has strict banking secrecy regulations, though bank secrecy will be lifted for cases of suspected money laundering. Moreover, bank secrecy does not apply in cases when banks and other financial institutions are required to report suspected money laundering. Such cases are subject to instructions of the authorities (i.e., AFIU) with regard to processing such transactions.

The Criminal Code Amendment 2002, effective October 1, 2002, introduces the following new criminal offense categories: terrorist grouping, terrorist criminal activities, and financing of terrorism. “Financing of terrorism” is defined as a separate criminal offense category in the Criminal Code, punishable in its own right. Terrorism financing is also included in the list of criminal offenses subject to domestic jurisdiction and punishment regardless of the laws where the act occurred. Further, the money laundering offense is expanded to terrorist groupings. The law also gives the judicial system the authority to identify, freeze and seize terrorist financial assets. The Austrian authorities have circulated to all financial institutions the list of individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list and those designated by the United States or the EU. According to the Ministry of Justice and the AFIU, no accounts found in Austria ultimately showed any links to terrorist financing. After September 11, 2001, the AFIU froze several accounts on an interim basis, but in trying to establish evidence, only two accounts were designated for seizure. Both later turned out to be cases of mistaken identity.

The GOA has undertaken some initial efforts that may help thwart the misuse of charitable and/or non-profit entities as conduits for terrorist financing. The new law on associations (Vereinsgesetz, published in Federal Law Gazette number I/66 of April 26, 2002) came into force on July 1, 2002, and covers charities and all other non-profit associations in Austria (including religious associations, sports clubs, etc.). Materially, the new law is very similar to the old law, but it does call for record keeping and auditing on the part of non-profit entities. The Vereinsgesetz regulates the establishment of associations, bylaws, organization, management, association register, appointment of auditors, and detailed accounting requirements. The Ministry of Interior’s responsibility is limited to approving the establishment of associations, regardless of the purpose of the association, unless it violates legal regulations. There are no regular or routine checks made on associations established in Austria. Only in case of complaints will the Interior Ministry start investigations and, in case of serious violations of laws, may officially prohibit the association. As mentioned above, the planned amendment of the Banking Act to tighten ID requirements was not sent to Parliament due to GOA’s early break-up in September 2002. The draft also included regulations to subject money remittance businesses to the Banking Act.

Austria has not enacted legislation that provides for sharing narcotics-related assets with other governments. However, mutual legal assistance treaties (MLATs) can be used as an alternative vehicle to achieve equitable distribution of forfeited assets. The MLAT that has been in force since August 1, 1998, between the GOA and the United States contains a provision relating to asset sharing. The GOA has been extremely cooperative with U.S. law enforcement investigations. Austria has a bilateral agreement with Hungary concerning the exchange of information related to money laundering. Austria has endorsed fully all core principles of the 1997 Basel Committee. In addition to the exchange of information with home country supervisors permitted within the EU, Austria has defined this information exchange more precisely in agreements with five other EU members (France, Germany, Italy, Netherlands, and UK) and with the Czech Republic, Hungary and Slovenia.

Austria is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. In December 2000, Austria signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Austria ratified the UN International Convention for the Suppression of the Financing of Terrorism on April 15, 2002. Austria is a member of the FATF and the EU, and is an observer with the Council of Europe’s select committee of experts on the evaluation of anti-money laundering measures (Moneyval, formerly PC-R-EV). The AFIU is a member of the Egmont Group.

The GOA has criminalized money laundering for all serious crime and passed additional legislation necessary to construct a viable anti-money laundering regime. The GOA should ensure its pending laws and regulations are adopted and implemented, particularly those covering financial intermediaries and gaming entities. Additionally, the GOA should adequately regulate its charitable and non-profit entities to reduce their vulnerability to misuse by terrorist organizations and their supporters.

Azerbaijan. Azerbaijan is not considered a major center for international money laundering given its small, underdeveloped banking sector. It is difficult, however, to determine the extent of the money laundering problem, due to existing bank secrecy laws and the number of formal and informal non-bank financial institutions. The large number of cash transactions, as well as the legacy of corruption and tax evasion, compounds the problem. Azerbaijan has not adopted a specific anti-money laundering law, although parliament has made amendments to its banking and currency laws in order to prevent money laundering activities. In November 2001, regulations were enacted that stipulated any person leaving or entering the country with $50,000 or more in foreign currency must report the amount to customs.

Funds transfers abroad in excess of $ 10,000 must have the approval of the National Bank of Azerbaijan (NBA). The NBA also has issued “know your customer” directives to individual banks. Reportedly, non-bank financial institutions are probably used to launder money related to tax evasion and avoidance of customs fees.

Article 214-1 of Azerbaijan’s Criminal Code criminalizes the financing of terrorism. The NBA also distributes lists of individuals and entities added to the U.S. Executive Order 13224 asset freeze list and submitted to the UN 1267 Sanctions Committee to be included on its consolidated list of entities/individuals whose assets UN member states are obligated to freeze pursuant to UNSCR 1267 and 1390. To date, NBA has identified and frozen the assets of one designated entity.

Azerbaijan is party to the 1988 UN Drug Convention. In October 2001, Azerbaijan became a party to the UN International Convention for the Suppression of the Financing of Terrorism. In November 2001, Azerbaijan signed the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime but has not yet ratified the Convention. Azerbaijan submitted the Financial Action Task Force (FATF) Terrorist Finance Self-Assessment Questionnaire in October 2002.

Azerbaijan should enact money laundering legislation that establishes a viable anti-money laundering regime that would require filing suspicious transactions to a Financial Intelligence Unit. Additionally, the Government of Azerbaijan should develop awareness programs for its law enforcement and customs agencies.

Bahamas. The Commonwealth of the Bahamas is an important regional and offshore financial center. The U.S. dollar circulates freely in the Bahamas, and is everywhere accepted on a par with the Bahamian dollar.

Money laundering in the Commonwealth of the Bahamas is mostly related to the proceeds of cocaine and marijuana trafficking, although a substantial portion is likely related to financial fraud. During 2001, the Government of the Commonwealth of the Bahamas (GCOB) implemented legislative reforms that strengthened its anti-money laundering regime and made it less vulnerable to exploitation by money launderers and other financial criminals. As a result, in June 2001, the Financial Action Task Force (FATF) removed the Bahamas from the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. The United States and Canada also withdrew financial advisories for the Bahamas. Although removed from the NCCT list, FATF continues to monitor the Bahamas’ progress in implementing its anti-money laundering regime. During 2002, the GCOB continued to implement legislative reforms, enacted in 2000, that strengthened its anti-money laundering regime and report such implementation efforts to the Americas Review Group of FATF.

Financial services are the second most important industry in the Bahamas, accounting for 15 percent of the Gross Domestic Product (GDP) and ranking just behind tourism. At the beginning of 2002, there were 356 licensed bank or trust companies, down 13 percent from 410 at the beginning of 2001. The decline was due to the Central Bank of the Bahamas’ requirement that “managed banks” (those without a physical presence but which are run by an agent such as a lawyer or another bank) either establish a physical presence in the Bahamas (an office, separate communications links and a resident director) or cease operations. Some 227 of the 356 institutions were permitted to deal with the public and 129 had either restricted or non-active licenses. Of the public institutions, only 44 were Bahamian-based banks and trusts; 106 were subsidiaries of banks and trusts based outside the Bahamas; 53 were euro-currency branches of foreign banks and trusts based in the United States, the United Kingdom, Canada, Europe, South America, Central America and Asia; and 24 were clearing banks or trusts based outside the Bahamas and authorized to deal in Bahamian and foreign currency and gold.

During 2002, the Financial Intelligence Unit (FIU), created in 2000, continued to share financial information with its foreign counterparts, including FinCEN, the U.S. Financial Intelligence Unit. In 2001, the FIU received 246 suspicious transaction reports, and more than 80 reports have been received in 2002.

In 2002, the Bahamian Court of Appeal reversed a controversial lower court decision that had held unconstitutional a provision of the FIU Act 2000. The appellate decision confirmed the power of the FIU to freeze a financial account without first obtaining a court order. The plaintiff, a British Virgin Islands firm, Financial Clearing Corporation, did not pursue a possible appeal to the Judicial Committee of the Privy Council in London.

The Financial Transaction Reporting Act 2000 required financial institutions (including banks and trusts, insurance companies, real estate brokers, casino operators, and others who hold or administer accounts for clients) to report suspicious transactions to the FIU and to the police. That Act also established “Know Your Customer” (KYC) requirements for financial institutions and obliged them to verify by December 31, 2001 the identities of all their existing account holders and of customers without an account making transactions over $10,000. The Act has been amended several times to extend the deadline, which is now December 31, 2003.

All new accounts established in 2001 or later had to be in compliance with KYC rules before they were opened. As of October 2002, only 229,000 accounts had been verified of 538,861 accounts (some 42 percent). From their introduction, the KYC requirements caused complaints by Bahamians who were unable to produce adequate documentation when attempting to open accounts in domestic banks. (The absence of house numbers on most Bahamian streets, the prevailing practice of utility companies issuing bills only in the name of landlords rather than tenants, and the scarcity of picture identification among Bahamians contributed to these documentation problems.) In October 2002, the Minister of Financial Services and Investments, a post created by the Progressive Liberal Party (PLP) government elected in April 2002, lamented that the rigid, overly prescriptive requirements of the KYC rules had caused financial institutions to harass long-standing, well-known clients for documents and observed that those rules had been applied to accounts of low-risk customers, including pensioners, whose opportunities for money laundering were minimal.

The Tracing and Forfeiture/Money Laundering Investigation Section of the Drug Enforcement Unit of the Royal Bahamas Police Force is the primary financial law enforcement agency in the Bahamas, with the responsibility for investigating suspicious transaction reports received from the FIU. This agency is also responsible for investigating all reports of money laundering in the Bahamas received from law enforcement agencies or the public. Furthermore, this agency investigates matters of large cash seizures, in addition to investigating local drug traffickers and other serious crime offenders to determine whether they benefited from their criminal conduct. From January through May 2002 the FIU forwarded 15 suspicious transactions reports to the Tracing and Forfeiture/Money Laundering Investigation Section. Eleven of the reports were investigated and one was forwarded to the Commercial Crime Section for further investigation. The Tracing and Forfeiture/Money Laundering Investigation Section also investigated matters involving seized cash during 2002. Several of these cases are currently before the courts.

The Central Bank of the Bahamas Act 2000 expanded the powers of the Central Bank to enable it to respond to requests for information from overseas regulatory authorities, and gave the Bank’s Governor the right to deny licenses to banks or trust companies he deems unfit to transact business in the Bahamas. The primary impact on the offshore sector has been the weeding out of many of the “managed” or “shell” banks that had no actual physical presence in the Bahamas. During 2001, the Governor revoked the licenses of 55 of these banks, including the British Bank of Latin America and the Federal Bank, both identified in a U.S. Senate Report as being at high risk of involvement in money laundering, and Al-Taqwa Bank, which in October 2001 was placed on the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224 (on terrorist financing).

At the beginning of 2001, there were some 100,000 incorporated international business companies (IBCs) in the Bahamas. The International Business Companies Act 2000 eliminated anonymous ownership of IBCs by prohibiting bearer shares and imposing KYC requirements. As a result, the Bahamas became less attractive to both potential and existing IBC owners. During the first nine months of 2001, the number of new IBCs registered in the Bahamas was down to 4,148, compared to 14,454 during the same period of 2000. In February 2002, the GCOB approved the employment of nine persons in the Registrar General’s Department to assist in reviewing the 90,000 IBC files to verify the companies’ compliance with the provisions of the International Business Companies Act 2000. The project began on April 8, 2002, and continued through the year.

The Bahamas has two casinos in Nassau and one in Freeport/Lucaya, and a license for a fourth casino on San Salvador has been approved. Annual revenues for the three existing casinos are estimated at $196 million. Cruise ships that overnight in Nassau may operate casinos. Betting in casinos on sporting events is allowed except on horse races. There are no Internet gambling sites based in the Bahamas. Under Bahamian law, Bahamian residents cannot gamble in the casinos.

As of March 2002, there were 56 local insurers and 30 offshore insurance companies in the Bahamas. At the beginning of 2002 there were 724 Bahamas-based mutual funds (down 4 percent from 757 at the start of 2001) with a net asset value of $94 billion.

While most money laundering in the Bahamas is narcotics related, a major money laundering case, that of prominent Bahamian attorney Leslie Vernon Rolle, is related to a $1.7 million financial fraud scheme. (That much-delayed prosecution is scheduled for trial in the Supreme Court in 2003.)

Some Bahamian bankers contend that under the strengthened anti-money laundering regulations, it is more difficult to make deposits in a Bahamian bank than in other jurisdictions. That this increased strictness may have driven drug traffickers to keep cash in their homes and vehicles is supported by police seizures of large sums of drug-related money in those places in 2001 and 2002. According to the Royal Bahamas Police Force (RBPF), two trends characterized money laundering in the Bahamas in 2002: an increasing “professionalization” of money laundering by the use of professionals in the business and financial sectors, and the prevalent use of cash intensive businesses as fronts for co-mingling illegal gains with legitimate receipts. The RBPF noted that professional money launderers now receive a standard fee of 20 percent of the funds being laundered. The RBPF also cited the use of businesses such as restaurants, small hotels, bars, nightclubs, retail outlets, construction companies, and concert performances as fronts. The RBPF listed several “less creative” money laundering methods employed in the Bahamas, including purchasing of vehicles, placing properties and assets in the names of spouses, children and parents, paying small businesses to prepare false receipts, storing cash in safety deposit boxes, and attempting to smuggle money into the Caribbean and the United States in boxes, luggage, or strapped to the body.

The Bahamas FIU became a member of the Egmont Group in June 2001. The Bahamas FIU and the Belgian FIU signed a memorandum of understanding on November 30, 2001, to exchange information between the two units. The Bahamas FIU has also approached the FIU of Aruba and the Netherlands Antilles to begin drafting a memorandum of understanding. As a result of the Financial Intelligence Unit (Amendment) Act 2001, the Financial Intelligence Unit is now able to cooperate and render assistance to any foreign Financial Intelligence Unit that performs functions similar to the Financial Intelligence Unit and not only those units that are members of the Egmont Group.

On October 2, 2001, the Bahamas signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism. A Terrorism Bill is being drafted to present to Parliament. This Bill is intended to implement the provisions of the UN terrorism conventions and the UN Security Council Resolutions dealing with terrorism and terrorism financing. The Bahamas also participated in the FATF Self-Assessment Exercise on Terrorist Financing, and submitted the Self-Assessment Questionnaire to FATF in May 2002.

In April 2001, the Bahamas signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The Bahamas has a Mutual Legal Assistance Treaty with the United States, which entered into force in 1990, and also with the United Kingdom and Canada. The Attorney General has established an International Affairs Unit to deal specifically with mutual legal assistance matters. The Bahamas is party to the 1988 UN Drug Convention, currently sits as President of the Caribbean Financial Action Task Force, and is a member of the Offshore Group of Banking Supervisors.

The GCOB has enacted substantial reforms that could reduce its financial sector’s vulnerability to money laundering. The GCOB should continue to further its anti-money laundering efforts by criminalizing the financing of terrorists and terrorism. The Bahamas should continue with the enforcement of the anti-money laundering legislation and international cooperation.

Bahrain. Bahrain has one of the most diversified economies in the Gulf Cooperation Council (GCC). Unlike its neighbors, oil accounts for only 18 percent of Bahrain’s gross domestic product (GDP). Bahrain has promoted itself as an international financial center in the Gulf region. It hosts a mix of 178 diverse financial institutions, including 51 offshore banking units (OBUs), 34 investment banks, of which 16 specialize in Islamic banking, and 22 commercial banks, of which 14 are foreign owned. In addition, there are 34 representative offices of international banks, 17 money exchangers, four money brokers, and several other investment institutions. The vast network of its banking system, along with its geographical location in the Middle East as a transit point along the Gulf and into Southwest Asia may attract money laundering activities. It is thought that the greatest risk of money laundering stems from questionable foreign proceeds that transit Bahrain.

In January 2001, the Government of Bahrain (GOB) enacted a new anti-money laundering law that criminalizes the laundering of proceeds derived from any predicate offense. The law stipulates punishment of up to seven years in prison and a fine of up to one million dinars ($2.65 million) for convicted launderers and those aiding or abetting them. If organized criminal affiliation, corruption, or disguising the origin of proceeds is involved, the minimum penalty is a fine of at least 100,000 dinars (approximately $265,000) and a prison term of not less than one year.

Following enactment of the law, the Bahrain Monetary Agency (BMA), as the principal regulator, issued regulations requiring financial institutions to report suspicious transactions, to maintain records for a period of five years, and to provide ready access to account information to law enforcement officials. Immunity from criminal or civil action is given to those who report suspicious transactions. Even prior to the enactment of the new anti-money laundering law, financial institutions were obligated to report suspicious transactions greater than 6,000 dinars (approximately $15,000) to the BMA.

The new law also provides for the formation of an interagency committee to oversee Bahrain’s anti-money laundering regime. Accordingly, in June 2001, the National Anti-Money Laundering Policy Committee was established and assigned the responsibility for developing anti-money laundering policies and guidelines. The committee includes members from the BMA, the Bahrain Stock Exchange, and the Ministries of Finance, Interior, Justice, and Commerce. The new law further provides additional powers of confiscation, and allows for better international cooperation.

The law also provides for the creation of a Financial Intelligence Unit (FIU), known as the Anti-Money Laundering Unit (AMLU), which is housed in the Ministry of Interior. AMLU is empowered to receive reports of money laundering offenses, conduct investigations, implement procedures relating to international cooperation under the provisions of the law, and to execute decisions, orders and decrees issued by the competent courts in offenses related to money laundering.

There are 51 BMA-licensed offshore banking units (OBUs) that are branches of international commercial banks. Unlike other banks, these OBUs are exempt from foreign-exchange controls, cash reserve requirements, taxes on interest paid to depositors, and banking income taxes. Such treatment only applies to non-dinar denominated deposits. In exchange for these privileges, OBUs pay the government annual license fees, are prohibited from accepting deposits from citizens and residents of Bahrain, and must refrain from transactions involving Bahraini dinars. The OBUs are required by law to be audited yearly by outside firms, to have records available for examination by the BMA, and to submit statistical reports to the BMA twice a year.

Bahrain law permits the formation of offshore resident companies and offshore non-resident companies that are formed as international business companies (IBCs). Resident companies must have an office within Bahrain, a minimum capital of $54,000, and a license from the BMA, in order to conduct financial activities.

Bahrain is a member of the GCC, which is a member of the Financial Action Task Force (FATF). In June 2000, Bahrain underwent a FATF mutual evaluation. Bahrain is also a member of the Offshore Group of Banking Supervisors and has agreed to undergo a mutual evaluation by this body. In January 2002, BMA issued a circular intended to implement the FATF Special Eight Recommendations on Terrorist Financing. BMA requested of its licensees that the FATF recommendations be considered part of the Agency’s money laundering regulations. In November 2001, Bahrain signed the UN International Convention for the Suppression of the Financing of Terrorism, but has not yet become a party to it. Terrorist financing is a predicate offense in Bahrain under Articles 1 and 2 of Law No. 4. In exercise of the Royal Prerogative, Law 4 empowers the GOB to issue Prime Ministerial Edicts to seize and confiscate assets used to finance terrorism. The BMA has frozen one account designated by the UN 1267 Sanctions Committee and six accounts listed under U.S. Executive Order 13224.

BMA Circular BC/1/2002 states that money changers may not transfer funds for customers in another country by any means other than Bahrain’s banking system, under pain of legal sanctions. In addition, all BMA licensees are required to include details of originator’s information with all outbound transfers. With respect to incoming transfers, licensees are required to maintain records of all originator information and to carefully scrutinize inward transfers that do not contain originator’s information, as they are presumed to be suspicious transactions. Licensees that suspect, or have reasonable grounds to suspect, that funds are linked or related to suspicious activities—including terrorist financing—are required to file suspicious transaction reports (STRs). Licensees must maintain records of the identity of their customers in accordance with the agency’s money laundering regulations, as well as the exact amount of transfers. The BMA requires all money exchanges to produce such information upon request. BMA regulations require high-value goods and bullion dealers to file STRs with the AMLU. The government is considering extending its STR reporting regime to encompass more sectors.

Decree No. 21 of 1989 governs the licensing of non-profit organizations. The Ministry of Labor and Social Affairs (MLSA) is responsible for licensing and supervising the charity organization in Bahrain. The BMA—in consultation with Ministries of Labor, Justice, and Finance and National Economy—is working on a draft regulation for charity organizations in order to insure that such organizations are not being used to finance illegal activities. Under the draft regulation, organizations must keep records of sources and uses of financial resources, organizational structure, and membership. Charitable societies are required to deposit their funds with banks located in Bahrain, and to report any changes in banking relations within a week. MLSA has the right to inspect records of the societies to insure their compliance with the laws.

Bahrain is a leading Islamic finance center in the region. Since the licensing of the first Islamic bank in 1979, the sector has grown considerably, today having 26 Islamic banks and financial institutions. Given the large share of such institutions in Bahrain’s banking community, BMA is working to create an appropriate framework for regulating and supervising the Islamic banking sector, applying regulations and supervision as is the case with conventional banks. For example, in March 2002, the BMA developed the Prudential Information and Regulatory Framework for Islamic Banks (PIRI) that seeks to monitor the operations of the banks.

Bahrain has undertaken a number of significant steps in establishing an anti-money laundering regime. The GOB should follow through by enforcing the law and developing and prosecuting anti-money laundering cases. Its officials have attended orientation and training sessions in Bahrain and international locations. The new FIU will need time to train staff and gain experience in tracking suspicious transactions, and law enforcement will need to develop expertise in investigating money laundering offenses.

Bangladesh. Bangladesh is not an important regional financial center. There are no indications that substantial funds are laundered through the official banking system. The principal vulnerability remains the widespread use of the underground hawala or hundi system to transfer value outside the formal banking network. The vast majority of the hawala systems in Bangladesh are used to repatriate wages from Bangladeshi workers abroad. However, the hawala systems are also used to avoid taxes, customs duties and currency controls and as a compensation mechanism for the significant amount of goods smuggling into Bangladesh. There have been substantial seizures of gold at Bangladeshi ports this past year, which could be related to gold’s use in the region to provide counter-valuation in hawala transactions.

Money Laundering is a criminal offense. In April 2002, Bangladesh enacted the Money Laundering Prevention Act (MLPA) that applies to all forms of money laundering. The MLPA authorizes the country’s Central Bank, the Bangladesh Bank, to supervise the activities of banks, investigate all offenses related to money laundering, and take appropriate steps to address any problems. The MLPA requires financial institutions to accurately identify customers and to report suspicious transactions to Bangladesh Bank. The MLPA imposes penalties for money laundering and allows the Bangladesh Bank to fine financial institutions no more than 100,000 taka (less than $2000) for failure to retain or report the required data on suspicious transactions. Because the MLPA has been enacted recently, banks in Bangladesh have not yet established implementing procedures.

Monetary exchanges outside the formal banking system are illegal. Bangladesh has not addressed the issue of international transportation of illegal-source currency and monetary instruments. Offshore financial accounts are not permitted in Bangladesh. There is no asset forfeiture law. Bangladesh does not have a Financial Intelligence Unit (FIU). There has been no known money laundering arrests or prosecutions in Bangladesh.

Bangladesh does not have a law that makes terrorist financing a crime. No terrorist assets have been identified, frozen, or seized to date. Bangladesh has not signed the UN International Convention for the Suppression of the Financing of Terrorism. Bangladesh is a party to the 1988 UN Drug Convention, and is a member of the Asia/Pacific Group on Money Laundering.

Bangladesh should criminalize terrorist financing. It should also create a centralized FIU to receive suspicious transaction reports and disseminate information to law enforcement. Training should also be given to law enforcement and customs authorities on how to recognize money laundering crimes and initiate investigations from the field. Customs should create a central computerized database that could help to counteract customs fraud, trade-based money laundering, and smuggling. Training should also be given to prosecutors and judicial authorities in order to enhance their understanding of money laundering and their ability to enforce the new MLPA.

Barbados. As a transit country for cocaine and heroin, Barbados is both attractive and vulnerable to money launderers. The Government of Barbados (GOB) has taken a number of steps in recent years to strengthen its anti-money laundering regime.

The GOB initially criminalized drug money laundering in 1990 through the Proceeds of Crime Act, No. 13, which also authorized asset confiscation and forfeiture, permitted suspicious transaction disclosures to the Director of Public Prosecutions and exempted such disclosures from civil or criminal liability. The Money Laundering (Prevention and Control) Act 1988 (MLPCA) criminalized the laundering of proceeds from unlawful activities that are punishable by at least one year imprisonment. The MLPCA made money laundering punishable by a maximum of 25 years in prison and a maximum fine of Barbadian dollars (BDS) 2 million (approximately $1 million). The law also provided for asset seizure and forfeiture.

In November 2001, the GOB amended its financial crimes legislation to shift the burden of proof to the accused to demonstrate that property in his or her possession or control is derived from a legitimate source. Absent such proof, the presumption is that such property was derived from the proceeds of crime. The law also enhances the GOB’s ability to freeze bank accounts and to prohibit transactions from suspect accounts.

The MLPCA applies to a wide range of institutions, including domestic and offshore banks, international business companies (IBCs) and insurance companies. These institutions are required to identify their customers, cooperate with domestic law enforcement investigations, maintain records of all transactions exceeding BDS 10,000 (approximately $5,000), and report suspicious transactions to the Anti-Money Laundering Authority (AMLA). The AMLA forwards this information to the Commissioner of Police if it has reasonable grounds to suspect money laundering. Financial institutions must also establish internal auditing and compliance procedures. The MLPCA sets forth seizure and criminal forfeiture procedures.

The definition of a financial institution was widened in an amendment to the MLPCA in 2001 to include “any person whose business involves money transmission services, investment services or any other services of a financial nature.” This amendment was designed to bring entities other than traditional financial institutions into the class of persons or institutions that are supervised by the AMLA, and therefore, subject to the requirements of the MLPCA.

The AMLA was established in August 2000 to supervise financial institutions’ compliance with the MLPCA and issue training requirements and regulations for financial institutions. The AMLA’s FIU was established in September 2000. The FIU is now fully staffed and operational. It was admitted to the Egmont Group in 2002.

Barbados has achieved be the only money laundering conviction in the Eastern Caribbean2002. The money laundering conviction was in relation to a fraud scheme.

The Barbados Central Bank’s 1997 Anti-Money Laundering Guidelines for Licensed Financial Institutions were revised in 2001. The revised Know—Your Customer Guidelines were issued in conjunction with the AMLA, and provide detailed guidance to financial institutions regulated by the Central Bank. The Central Bank undertakes regular on-site examinations of licensees and applies a comprehensive methodology that seeks to assess the level of compliance with legislation and guidelines.

The Offshore Banking Act (1980) gave the Central Bank authority to supervise and regulate offshore banks, in addition to domestic commercial banks. The International Financial Services Act replaced the 1980 Act in June 2002 in order to incorporate fully the standards established in the Basel Committee’s “Core Principles for Effective Banking Supervision.” The new law provides for on-site examinations of offshore banks. This allows the Central Bank to augment its offsite surveillance system of reviewing anti-money laundering policy documents and analyzing prudential returns. The Ministry of Finance issues banking licenses after the Central Bank receives and reviews applications, and recommends applicants for licensing. Offshore banks must submit quarterly statements of assets and liabilities and annual balance sheets to the Central Bank. Supervision of the financial sector is shared among the Central Bank, the Ministry of Commerce, Consumer Affairs and Business Development, the Supervisor of Insurance, the Registrar of Cooperatives and the Barbados Securities Commission.

As of November 30, 2002, six domestic banks (Barbadian, Canadian-parent, and U. K.-parent banks operate on equal terms in Barbados), 14 finance companies or merchant banks and 55 offshore banks were regulated and supervised by the Central Bank. The offshore sector also includes 4,206 international business companies (IBCs), 392 exempt insurance companies, and 1,575 foreign sales corporations (FSCs), specialized companies that permit persons to engage in foreign trade transactions from within Barbados. The Foreign Sales Corporation Act, which authorized establishment of FSCs, was repealed in 2000.

The International Business Companies Act (1992) provides for general administration of IBCs. The Ministry of International Trade and Business vets and grants licenses to IBCs after applicants register with the Registrar of Corporate Affairs. Bearer shares are not allowed and financial statements of IBCs are audited if total assets exceed $500,000.

Barbados has bilateral tax treaties that eliminate or reduce double taxation with the United Kingdom, Canada, Finland, Norway, Sweden, Switzerland, and the United States. The treaty with Canada currently allows IBCs and offshore banking profits to be repatriated to Canada tax-free after paying a much lower tax in Barbados. A Mutual Legal Assistance Treaty and an Extradition Treaty between the United States and Barbados each entered into force in 2000. Barbados is a member of the Offshore Group of Banking Supervisors, the Caribbean Financial Action Task Force and the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Barbados is a party to the 1988 UN Drug Convention. Barbados signed, but has not yet ratified, the UN Convention Against Transnational Organized Crime, which is not yet in force internationally. Barbados is a party to the UN International Convention for the Suppression of the Financing of Terrorism.

No evidence of terrorist financing has been known to be developed in Barbados. The GOB has not taken any specific initiatives focused on alternative remittance systems or the misuse of charitable and non-profit entities. The Barbados Anti-Terrorism Act, 2002-6, Section 4, gazetted on May 30, 2002, criminalizes the financing of terrorism.

The GOB should maintain strict control over vetting and licensing of offshore entities. The GOB should continue its efforts to prosecute and convict money launderers. The establishment of the AMLA and continued development of the AMLA’s Financial Intelligence Unit should provide Barbados with the necessary tools to enforce compliance by financial and commercial sectors, and enable it to cooperate fully with foreign authorities to investigate and prosecute money laundering and other financial crimes.

Belarus. The absence of anti-money laundering laws or regulations makes Belarus vulnerable to money laundering. Banks are more inclined to focus on protecting the secrecy of their clients than on discovering and reporting irregular or unaccounted-for deposits. The growing number of casinos also could become venues for money laundering.

Belarus faces problems with organized crime that plague other countries of the former Soviet Union. The lack of anti-money laundering laws could lead organized crime to engage in more substantial money laundering in Belarus. Belarus made no effort in 2002 to enact an anti-money laundering regime.

Belarus has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Belarus is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.

Belarus should enact comprehensive anti-money legislation that criminalizes money laundering and the financing of terrorists and terrorism.

Belgium. Belgium has a very comprehensive anti-money laundering regime. Despite this, Belgium’s financial system remains vulnerable to money laundering. Most of the money laundering cases detected in Belgium are related to narcotics-trafficking, particularly with its neighboring countries, the Netherlands, Luxembourg, Germany, and France. According to a 2001-2002 report from Belgium’s Financial Intelligence Unit (FIU), the Financial Intelligence Processing Unit (CTIF-CFI), the largest share of money laundering cases between July 1, 2001, and June 30, 2002, was connected to the unlawful trafficking in goods and merchandise, mainly automobiles, alcohol, and tobacco. There were also a growing number of cases tied to organized crime, fiscal fraud, prostitution, and human trafficking.

The main money laundering techniques are through bureaux de change, international fund transfers and payments, and payments into accounts. The top three venues are bureaux de change, credit establishments, and brokerage firms. Funds are also laundered through the diamond industry, real estate, offshore companies, gambling or amusement halls, and banks. Belgian officials noted in recent reports that “dummy companies,” or front companies, figured prominently in cases turned over to legal authorities for prosecution for money laundering. They also stated that money launderers attempt to use notaries to create such companies or to buy property. They use such methods as selling property below its market value, making significant investments on behalf of foreign nationals with no connections to Belgium, making client property transactions whose value is disproportionate to the socio-economic status of the client, and creating a large number of companies in a short space of time.

On January 1, 2002, the FIU entered into an agreement with the Federal Police to expedite cases to the Public Prosecutor that are the focus of an active police investigation. The Government of Belgium (GOB) in 1990 criminalized money laundering related to all crimes. In 1993, it passed additional legislation that mandated reporting of suspicious transactions by financial institutions, and created the CTIF-CFI as its FIU, to receive, process, and analyze them. Since the founding of CTIF-CFI, 659 individuals have been successfully prosecuted under Belgian law, receiving combined total sentences of 1,332 years and 14.2 million euros in fines (approximately $14.2 million). During the same time period Belgian authorities confiscated nearly 360 million euros. As of June 2002, the CTIF-CFI had created 12,948 distinct case files (representing 66,963 suspicious transaction reports) since becoming operational in 1993, including 2,845 between July 2001 and June 2002. During that time period over 1,045 files were turned over to the Public Prosecutor. A total of 42 money laundering cases amounting to 2.8 million euros (approximately $2.8 million), which were connected to the January 1, 2002, introduction of the euro, were submitted to the Public Prosecutor.

Belgian financial institutions are required to maintain records on the identities of clients engaged in transactions that are considered suspicious, or that involve an amount equal to or greater than 10,000 euros (approximately $10,000). Financial institutions also are required to train their personnel in the detection and handling of suspicious transactions that could be linked to money laundering. No civil, penal, or disciplinary actions can be taken against institutions or individuals for reporting such transactions in good faith. Non-reporting and non-compliance with other requirements of the 1993 law are punishable by a fine of up to 1.25 million euros, approximately $1.25 million. Furthermore, a law adopted on April 8, 2002, increases the protection accorded to witnesses, including bank employees, who come forward with information about money laundering crimes.

In 1998, the GOB adopted legislation that mandates the reporting of suspicious transactions by notaries, accountants, bailiffs, real estate agents, casinos, cash transporters, external tax consultants, certified accountants, and certified accountant-tax experts. Under the legislation, casinos include any establishments that conduct casino-like gambling activities. CTIF-CFI has observed a marked increase in casino chip purchasing operations, much of it tied to Central and Eastern European organized crime syndicates. There is concern that casino operators are not keeping adequate records of the buying and selling of chips, or of customer identification documents, as required under the anti-money laundering law.

The GOB passed a new law on May 3, 2002, giving Belgium the authority to invoke countermeasures against “Non-Cooperative Countries and Territories” imposed by FATF. The GOB issued its countermeasures against Nauru in a June 10, 2002 Royal Decree. The May 2002 law also imposes further limitations on the operations of bureaux de change.

In July 2002 the Belgian Council of Ministers approved a proposal to establish, as part of Belgian domestic law, the Directive 2001/97/EC of the EU Parliament and Council of December 4, 2001, amending the Council Directive 91/308/EEC on the prevention of the use of the financial system for the purpose of money laundering. Belgian law currently mandates that all financial institutions, and non-financial persons subject to the Belgian anti-money laundering law, be obliged to send an STR if there is a suspicion that the origin of money or assets is derived from the commission of an offense linked to terrorism. The new proposal of law extends this reporting obligation to the funds suspected of being derived from the financing of terrorism. Moreover, this new proposal extends the obligations of the anti-money laundering system to lawyers and dealers in diamonds.

On September 27, 2001, Belgium signed the UN International Convention for the Suppression of the Financing of Terrorism. The ratification process is in abeyance, pending Senate approval. Belgium intends to implement legislation by mid-2003 that would bring its domestic laws in line with the EU Council Common Position 2001/930 of December 27, 2001, on the application of specific measures to combat terrorism. Article 1 of Common Position 2001/930 requires that EU member states criminalize the willful provision or collection of funds to carry out terrorist acts. Under EU law, most recently EU Council Regulation No. 881/2002 of May 27, 2002, Belgium has implemented UN resolutions 1267 (1999), 1333 (2000) and 1390 (2002), imposing certain restrictive measures directed against persons and entities associated with Usama Bin Ladin, the al-Qaida network, and the Taliban. Belgium is also subject to enforcing Council Regulation No. 2580/2001 of December 27, 2001, which obligates EU member states to freeze the funds of individuals and entities listed in the Annex to the Council Common Position 2001/931 of December 27, 2001, and which are subject to the EU’s asset-freeze regulation.

CTIF-CFI is actively involved in the fight against terrorism and its financing. Belgium has circulated the list of Specially Designated Global Terrorists named by the United States pursuant to E.O. 13224. The GOB, however, lacks the executive-type powers that U.S. authorities have under Executive Order 13324 to administratively freeze accounts. As such, the GOB can freeze accounts with respect to any individual or entity only after those individuals or entities have been added to the UN Consolidated List pursuant to Security Council resolutions 1267, 1333 and 1390 and/or covered by an EU asset freeze regulation.

CTIF-CFI is currently investigating several cases of terrorist financing-related money laundering. These have involved both apparently legitimate sources (involving businesses acting as fronts or collected from associations with purported social, charitable, or cultural purposes) and illegal ones (involving illegal drugs, fiscal fraud, and diamond trafficking, among other activities). As of December 31, 2002, a total of 55 such cases have been transmitted to the Public Prosecutor, 49 of which (37.52 million euros) were forwarded following September 11, 2001. These funds originate from both legal and illicit activities. According to a CTIF-CFI report, there is growing evidence that some Belgian-based non-governmental organizations (NGOs) are being used to funnel terrorist funds. CTIF-CFI has identified financial links in Belgium to al-Qaida, and the FIU has indicated that addressing the problem of terrorist financing has become one its highest priorities.

The Belgian FIU organized a meeting in October 2001 in Brussels that the 15 FIUs of the European Union attended. The purpose of the meeting was to enhance cooperation between the FIUs in their fight against the financing of terrorism.

Belgium is a party to the 1988 UN Drug Convention, and in December 2000 signed the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Belgium has a Mutual Legal Assistance Treaty with the United States, which entered into force on January 1, 2000. The GOB exchanges information with other countries through international treaties. Belgium is a member of the Financial Action Task Force (FATF) and the European Union. The CTIF-CFI is a member of the Egmont Group and has a cooperative relationship with 50 foreign FIUs worldwide.

Belgium should criminalize terrorist financing to enhance its comprehensive anti-money laundering regime. Through the enhanced scrutiny law enforcement agencies are devoting to all sectors of the global economy that may be abused by terrorist organizations and their supporters, the smuggling of diamonds and gems has been identified as a sector through which it is easy to move across international borders without detection. For that reason, the GOB should exert vigilance with regard to its diamond market to prevent its being used as a means to finance terrorism.

Belize. Belize’s proximity to Mexico and Guatemala has made it a significant transshipment point for illicit drugs, notably cocaine and marijuana. Belize’s growing offshore sector has seven offshore banks, an unknown number of international trusts, over 18,000 international business companies (IBCs), and an Internet gaming site. The transshipment of drugs and the growing offshore sector, regulated by those who promote it, make Belize vulnerable to money laundering.

Belize is aware that contraband smuggling generates funds that are laundered through the banking system; however, authorities believe that the funds are insignificant in amount and not related to narcotics money laundering. Belize believes that criminal proceeds are derived primarily from foreign criminal activity. To date all evidence of money laundering is the result of foreign criminal activity utilizing the services of the offshore financial sector.

The Money Laundering Prevention Act (MLPA), in force since 1996, criminalizes money laundering related to many serious crimes including arms and narcotics trafficking, fraud, extortion, terrorism, blackmail, and certain theft involving more than $10,000. The Act also provides mechanisms for the freezing and forfeiture of assets; requires that all licensed financial institutions know their customers; mandates the recording of large currency transactions and the reporting of suspicious transactions by banks and non-bank financial institutions (exchange houses, insurance companies, lawyers, accountants but not casinos); exempts employees of financial institutions from civil, criminal or administrative liability for cooperating with regulators and law enforcement officials in investigating money laundering; specifies penalties for banks, non-bank financial institutions and intermediaries who assist and collaborate in money laundering; and authorizes international cooperation in money laundering cases. Additionally, persons departing Belize must declare B$20,000 (approximately $5,000) or more in cash or negotiable bearer instruments.

Financial institutions are required to report complex, unusual, or large business transactions to the Governor of the Central Bank. Supporting Regulations and Guidance Notes were issued in 1998. The Central Bank forwards any reports warranting further investigation to the Director of Public Prosecutions (DPP) Office. Financial institutions are required to retain records for a minimum of five years, and can lose their licenses and face a maximum fine of $50,000 for failing to do so. Individual bankers can be held responsible if their institutions are caught laundering money. However, bankers are protected from prosecution if they cooperate with law enforcement. Financial institutions must also comply with instructions from the Central Bank, and permit the Supervisory Authority to enter and inspect records.

The gaming industry is not regulated under the MLPA. Neither the Gaming Control Act, 1999, nor the Computer Wagering Licensing Act, 1995, require reporting of suspicious activity reports. The Government of Belize (GOB) has established legislation that facilitates computer and casino gaming; however, the legislation makes no provision for due diligence procedures, record keeping, or suspicious transactions reporting.

The International Financial Services Commission (IFSC) serves as the regulator for Belize’s offshore sector. Members of the IFSC consist of individuals from the private and public sector. The IFSC promotes, protects, and enhances Belize as an offshore center. It also regulates and supervises the provision of international financial services within Belize through formulation of appropriate policies and the provision of advice to government on regulatory matters. The IFSC does not regulate domestic and offshore banks that are supervised by the Central Bank.

IBCs are regulated under the International Business Companies Act of 1990 and amendments to the Act issued in 1995 and 1999. The 1999 amendment to the IBC Act allows properly licensed IBCs to operate as banks and insurance companies. Registered agents have primary responsibility for the registration and on-going operations of the IBCs registered in Belize. There is no legal requirement for identification of beneficial ownership or directors of IBCs to be disclosed to the registrar. Offshore banks are not permitted to issue bearer shares. IBCs are allowed to issue bearer shares; the registered agents of such companies must know the identity of the beneficial owner of the shares.

The Offshore Banking Act, 1996 (OBA), governs activities of Belize’s offshore banks. The Act generally prohibits offshore banks from transacting business with residents of Belize. There are minimum capital requirements under the OBA and the shares of offshore banks must be in registered form and not in bearer form. Offshore banking licenses are granted by the Minister of Finance on the recommendation of the Central Bank, which has supervisory powers over both domestic and offshore banks. With regard to the offshore banks, the supervisory role of the Central Bank is restricted to the licensee’s operations in Belize. The Central Bank has no access to information regarding a customer, depositor or transaction, except in case of large credit exposures.

Offshore trusts are governed under the Belize Trust Act, 1992, and are also prevalent in Belize. Registration with a regulatory body is not required. Although the Central Bank is the supervisory authority with regard to money laundering, there are no legal requirements to provide account information or activity regarding trusts to the Central Bank. While the GOB maintains that trusts are well regulated, it is important to note that the authorities do not know how many trusts are in operation and that no additional measures are being contemplated to thwart the potential misuse of charitable and/or non-profit entities, such as charitable trusts, that can be used as conduits for the financing of terrorism.

Under Belizean law all assets related to money laundering may be forfeited. This includes vessels, vehicles, aircraft and other means of transportation or communication. It also includes property tangible or intangible that may be related to money laundering. There are no limitations to the kinds of property that may be seized, but there are no specific provisions allowing for sharing of seized assets between cooperating foreign authorities.

Belizean authorities have assisted foreign authorities with money laundering investigations. Belize’s Police Department (BPD) has assigned five persons to investigate money laundering cases. This unit will serve as the Financial Intelligence Unit. An office space, separate from the police department, has been designated for this unit.

Belize has criminalized terrorist financing with amendments to its anti-money laundering legislation, the Money Laundering Prevention Act. Belize authorities have the power to identify, freeze, and seize terrorist finance assets. Authorities have also circulated to all financial institutions lists of persons alleged to be involved with terrorist financing. None of those on the list have been reported to be engaged in financial transactions in Belize, and no assets belonging to persons alleged to be engaged in terrorist financing have been identified in Belize.

The MLPA provides for the provision of legal assistance to a foreign country when there is bilateral or multilateral treaty in force providing for mutual legal assistance. Whenever possible, the Belize authorities have cooperated with U.S. Government agencies—most specifically with the FBI, Securities and Exchange Commission, U.S. Commodities Futures Trading Commission, and various state and regulated agencies. However, because the MLAT between Belize and the United States is not yet in force, in 2001, a court in Belize ordered that no legal assistance could be provided in a money laundering case. No arrests or prosecutions pertaining to money laundering or terrorist financing have occurred in Belize since January 2002.

Belize is a party to the 1988 UN Drug Convention. Belize has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Belize is a member of the Caribbean Financial Action Task Force and the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Belize signed a Mutual Legal Assistance Treaty (MLAT) with the United States. Belize has ratified the MLAT and the United States is expected to do so in 2003. Belize also has bilateral agreements with the United Kingdom and Canada.

The GOB will remain vulnerable to money launderers as long as IBCs can issue bearer shares without disclosure of the beneficial owner. The GOB should also increase its monitoring to ensure that charitable trusts are not vulnerable to abuse by terrorists. The GOB should monitor the Internet and casino gaming industry and require suspicious activity reporting to prevent potential money launderers from using these sectors to launder funds. Additionally, the GOB should provide the Financial Intelligence Unit sufficient resources and staff needed to receive, analyze, and disseminate suspicious transaction reports.

Benin. Benin is not a major financial center. However, Government of Benin (GOB) officials believe narcotics traffickers use Benin to launder proceeds. Although the exact nature of money laundering is unknown, GOB officials suspect that the primary methods are through the purchase of assets such as real estate, the wholesale shipment of vehicles or items for resale, and front companies. In addition, some laundering seems to occur through the banking system.

A 1997 counternarcotics law criminalizes narcotics-related money laundering, and provides penalties of up to 20 years in prison as well as substantial fines. The law requires that all financial institutions report transactions above a certain threshold, although compliance with this provision of the law is believed to be low. Cross-border currency reporting requirements exist, but are not enforced.

The GOB has the legal authority to seize narcotics-related assets, but no seizures have been made. Law enforcement authorities lack the training and resources to investigate money laundering cases.

In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA) based in Dakar, Senegal. In November 2002 GIABA hosted an anti-money laundering seminar for representatives of 14 ECOWAS members, including Benin.

Benin is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Benin’s National Assembly ratified the UN International Convention for the Suppression of the Financing of Terrorism on October 28, 2002.

Benin should criminalize terrorist financing and money laundering related to all serious crimes. Benin should also develop and enforce a viable anti-money laundering regime.

Bermuda. Bermuda, an overseas territory of the United Kingdom (UK), is considered a major offshore financial center and has a reputation, among offshore financial centers, for the integrity of its financial regulatory system. The government of Bermuda (GOB) has been cooperating with the United States and the international community in its money laundering and counter-terrorism efforts.

In 1997, the GOB enacted the Proceeds of Crime Act (PCA). The PCA applies money laundering controls to financial institutions such as banks, deposit companies, trust companies, and investment businesses, including broker-dealers and investment managers. Insurance companies are covered to the extent that they are doing higher risk business. Amendments in 2000, effective June 1, 2001, extended the scope of the legislation beyond the laundering of drug-related moneys to cover the proceeds of all indictable offenses, including tax evasion, corruption, fraud, counterfeiting, theft and forgery. It is likely that when the PCA is amended, which is expected to occur in 2003, the law will be expanded to address terrorist-related assets and to cover gatekeepers, such as attorneys and accountants.

One shortcoming of the current law is that it does not provide measures to detect/monitor cross-border transportation of cash. However, if there are reasonable grounds for suspicion, HM Customs is authorized to seize cash and instruments, and monies can also be seized if travelers fail to report the transportation of cash in excess of $10,000. The GOB is consulting with industry groups on proposals to enact remedial legislation to govern the transportation of cash.

In addition to the PCA, which has encountered virtually no objections from the financial sector and has not resulted in a decline in deposits, other Bermuda statutes address money laundering. The Criminal Justice (International Co-Operation) (Bermuda) Act 1994, as amended in 1996, provides assistance upon requests from overseas agencies, including securing of evidence in Bermuda and overseas. It directs responsibility for the criminal aspects of financial crime to the Financial Investigation Unit, whereas tax offenses fall under the purview of the Attorney General.

The Investment Business Act 1998 authorizes the Bermuda Monetary Authority (BMA) to obtain any information deemed necessary by regulators to conduct their supervision of investment providers, who are fully subject to know-your-customer requirements under the PCA and its regulations. The BMA’s supervision of investment providers includes specific on-site testing of their systems and controls, including their compliance with anti-money laundering requirements. The GOB will propose a new Investment Business Bill in 2003 to enhance its regulatory powers, including revisions expanding the BMA’s authority to cooperate with foreign regulatory bodies. There will be no change in the anti-money laundering provisions or in the BMA’s compliance testing regime.

As of January 1, 2000, the Banks and Deposit Companies Act 1999 implements the Basel Committee’s “Core Principles for Effective Banking Supervision.” The BMA is the designated entity for licensing and supervision of deposit-taking institutions, including the worldwide operations of Bermudian banks. As part of its oversight responsibilities, the BMA conducts on-site reviews and detailed compliance testing of banks’ anti-money laundering controls. In 2001, the BMA was not required to employ its formal enforcement powers to investigate suspicions of illegal deposit-taking. The BMA may require reports from auditors, accountants or other persons with relevant professional skills on matters pertinent to the authority’s responsibilities. Banks and other financial institutions must retain records for a minimum of five years. Bankers and others are protected by law with respect to their cooperation with law enforcement officials. Bermuda has not adopted bank secrecy laws, but does have banker negligence laws. Bearer shares are not permitted in Bermuda.

Bermuda’s Trusts (Regulation of Trust Business) Act 2001, effective January 1, 2002, invests the BMA with full licensing, supervision and enforcement powers relating to persons who conduct trust business in or from Bermuda. The BMA routinely conducts on-site review visits to determine, among other things, compliance with anti-money laundering laws and regulations. Regulatory oversight of Bermuda’s insurance industry is undertaken by the BMA.

New legislation to give the BMA a full set of regulatory powers with respect to collective investment schemes is in the early stages of development. In the meantime, collective investment schemes are regulated pursuant to regulations under the Bermuda Monetary Authority Act. In December 2002, Parliament passed the Bermuda Monetary Authority Amendment Act 2002, expanding the authority of the BMA to detect and prevent financial crime. Provision is also made authorizing the BMA to collect fees directly from financial service providers, an indication of its independence from the GOB. In order to implement provisions of UN anti-terrorism Security Council Resolutions, the Act also provides for the manner in which the Minister of Finance may delegate powers to the BMA for blocking accounts.

Although Bermuda is considered an offshore financial center, all financial institutions in Bermuda are subject to the PCA, as amended, which, as noted above, includes know-your-customer requirement and provides for the monitoring of accounts for suspicious activity. The vetting process is undertaken when an entity is incorporated. The BMA requires that a personal declaration form be submitted for principals (beneficial owners) of international businesses prior to licensing. Similar requirements apply to proposals to transfer shares. Additionally, a company must detail its business plan and maintain a register of shareholders at its registered office.

Offshore banking is not permitted in Bermuda, nor are nominee (anonymous) directors allowed. However, the BMA reports that some overseas banks have established operations on the island to provide other forms of financial services, such as licensed trust operations. In such instances, the BMA liaises with the home regulatory body to enhance combined supervision. Neither casinos nor Internet gaming sites are allowed in Bermuda.

International business forms the basis of Bermuda’s economy. The BMA licenses and regulates international business in the same manner as it does domestic companies. As of June 30, 2002, the Registrar of Companies recorded 13,020 international businesses registered in Bermuda, compared to 2,772 domestic companies. Of the international businesses, there were 11,806 exempt companies, 557 exempt partnerships, 638 non-resident international companies (incorporated elsewhere to do business in Bermuda), and 19 non-resident insurance companies. The BMA’s Report and Accounts records the following breakdown for 2001: 1,641 insurance companies, 1,301 mutual fund companies, and 120 unit trust companies.

The majority of Bermuda’s exempt companies are shell companies with no physical presence on the island. Local directors are designated (generally a local lawyer and secretary) who manage corporate affairs in Bermuda. The owners and controllers are vetted by the BMA before they can be established or any shares transferred between non-residents. The register of members is open to public inspection. The GOB regulates offshore companies and domestic companies equally from a prudential standpoint. The difference between the two is the ownership restriction. Domestic companies, which must be at least 60 percent Bermudian-owned, are permitted to do business within Bermuda. Exempted companies are exempt from the 60 percent ownership restriction and in fact can be up to 100 percent foreign-owned, but they are prohibited from doing business locally. The GOB agreed to remove some minor distinctions between the two categories as part of its advance commitment to the OECD.

The Financial Investigation Unit (FIU), within the Bermuda Police Service, serves as Bermuda’s Financial Intelligence Unit; The FIU has been a member of the Egmont Group, an organization of Financial Intelligence Units, since 1999. The majority of suspicious transaction reports (STR) have related primarily to conversion of suspected local drug profits to U.S. dollars via the island’s Western Union money transmission service, which closed as of October 31, 2002. Because Bermuda law requires money transmission services to be conducted in association with a licensed deposit-taker, conversion of funds is subject to bank reporting standards.

In 2001, there were 2,827 STRs filed with the Financial Investigation Unit of the Bermuda Police Service. The figures were similar in 2002, with 1,742 STRs logged in and another 800 still to be entered into the system. Bank fraud cases, including STRs, totaled 3,556 in 2001 and about 3,800 in 2002. In 2001, there were two arrests but no prosecutions for money laundering. In 2002, there were eight arrests representing three cases, of which two are ongoing investigations and the third is in the hands of the Director of Public Prosecutions.

The PCA, as amended, establishes procedures for identifying, tracing, and freezing the proceeds of drug trafficking and other indictable offenses, including money laundering, tax evasion, corruption, fraud, counterfeiting, stealing and forgery. Additionally, the PCA provides for forfeiture upon criminal conviction if it is proven that benefit was gained from a criminal act. Under the PCA, there is no provision for seizure of physical assets unless intercepted leaving the island. However, the Supreme Court may issue a confiscation order pursuant to which the convicted must satisfy a monetary obligation. The amount paid is placed into the Confiscated Assets Fund and may be shared with other jurisdictions at the direction of the Minister of Finance. If the convicted fails to satisfy the confiscation order, the onus is on the prosecution to apply to the court for appointment of a receiver. Under the Misuse of Drugs Act, physical assets can be seized if used at the time the offense was committed.

The GOB enforces the existing drug-related asset seizure/forfeiture laws. It is the responsibility of the police and the court system to trace/seize assets. Although Bermuda cooperates with the United States and other countries to trace/seize assets and uses tips from other countries, it does not—as an overseas territory—engage in negotiations with other governments to enter into treaty obligations with respect to asset tracing and seizure. This role rests with the United Kingdom. Banks are legally obligated to cooperate in the tracing/seizure of assets. The GOB issued no confiscation orders in 2000, one for approximately $62,000 in 2001, and none in 2002, although several are being processed. Inexperience by the GOB is perhaps the major impediment in implementing asset forfeiture and seizure legislation.

Bermuda has not formally criminalized terrorist financing, but it is subject by extension to the UK Terrorism (United Nations Measures) (Overseas Territories) Order 2001. That order creates the offense of collecting and making funds available for terrorist purposes and provides for identification and freezing of terrorist-related funds. Nevertheless, Bermuda recognizes the need for domestic terrorism legislation and in 2003 is expected to propose amendments to expand the definition of “serious crimes” under the PCA to include terrorism-related offenses, consistent with FATF guidelines, as well as relevant changes to Bermuda’s criminal code. Meanwhile, the BMA has requested that financial institutions treat suspect terrorist financing as if covered by PCA and to report accordingly. Financial institutions have been given the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224 (on terrorist financing) and the UN 1267 Sanctions Committee consolidated list, but no matches have been found.

Bermuda is subject to the US/UK Extradition Treaty. Bermuda is a member of the Caribbean Financial Action Task Force (CFATF), and through the UK, is also a party to the 1988 UN Drug Convention. Bermuda is also a party by extension from the UK to the UN International Convention for the Suppression of the Financing of Terrorism. Bermuda is also a member of the Offshore Group of Banking Supervisors.

Bermuda should modify its domestic legislation to ensure that it implements the FATF Special Eight Recommendations on Terrorist Financing and should consider enacting measures to detect/monitor cross-border transportation of cash. Bermuda should also consider devoting additional resources toward investigative efforts to combat money laundering to more thoroughly deter international criminals and follow through on its plans for additional training in areas such as asset forfeiture.

Bolivia. Most money laundering in Bolivia is related to public corruption, contraband smuggling, and narcotics-trafficking. Bolivia’s long tradition of banking secrecy facilitates the laundering of the profits of organized crime and drug trafficking, the evasion of taxes, and laundering of other illegally obtained earnings.</