Namibia
Namibia is not a regional financial center. Namibia has one government bank and four commercial banks. Of particular concern in Namibia is the smuggling of precious minerals and gems, the proceeds of which Namibian authorities think may be laundered through Namibian banking institutions.
Namibia has not criminalized money laundering. Banks are required to report suspicious transactions and to record and report the identity of customers engaging in large transactions. Bankers and other individuals making suspicious transaction reports are protected by law with respect to their cooperation with law enforcement authorities. Banks and other financial institutions are required to maintain records related to large transactions and make those records available to government authorities for use in narcotics-related and other criminal investigations.
Namibia is in the process of drafting an anti-money laundering law that would apply to bank and nonbank financial institutions. The law would criminalize money laundering and terrorist financing. It would also address cross-border currency reporting requirements and information sharing with foreign law enforcement authorities. Other aspects of the bill are still being considered.
Namibia currently does not have laws which criminalize the financing of terrorism as required by UNSCR 1373. Under the proposed anti-money laundering bill, terrorism or terrorist financing will be considered a serious crime. Under the Government of the Republic of Namibia?s (GRN) proposed antiterrorism legislation, the President will be empowered to proscribe an organization if it commits or participates in terrorism; prepares for acts of terrorism; promotes or encourages terrorism; or is otherwise involved with terrorism.
There have been no known arrests or prosecutions for money laundering or terrorist financing since January 1, 2003.
Namibia is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG). Namibia served as the Chair of ESAAMLG from August 2001 until August 2002.
On August 16, 2002, Namibia ratified the UN Convention against Transnational Organized Crime. Namibia is also a party to the 1988 UN Drug Convention. In November 2001 the GRN signed the UN International Convention for the Suppression of the Financing of Terrorism; however, it has yet to ratify this Convention.
Namibia should pass a law that criminalizes money laundering and terrorist financing as part of a viable anti-money laundering regime, as it has committed to doing through its membership in ESAAMLG, and become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Nauru
Nauru is a small central Pacific Island nation with a population of approximately 12,000. It is an independent republic and an associate member of the British Commonwealth. The Republic of Nauru is an established ?zero? tax haven, as it does not levy any income, corporate, capital gains, real estate, inheritance, estate, gift, sales, or stamp taxes. It is an offshore banking center with a number of weaknesses in its regulatory structures. The government-owned Bank of Nauru acts as the Central Bank for monetary policy but it has no regulatory function over offshore banks. Nauru?s legal, supervisory, and regulatory framework has provided significant opportunities over time for the laundering of the proceeds of crime.
In June 2000, the Financial Action Task Force (FATF) placed Nauru on the list of noncooperative countries and territories (NCCT) in the fight against money laundering. The FATF, in its June 2000 report, cited several concerns, including excessive bank secrecy provisions, a lack of basic anti-money laundering regulations, and Nauru?s failure to criminalize money laundering. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions, warning them to give enhanced scrutiny to all financial transactions originating in, or routed to or through Nauru, or involving entities organized or domiciled, or persons maintaining accounts, in Nauru. In response to mounting international pressure, the Government of Nauru passed the Money Laundering and Proceeds Crime Act of 2001 (AMLA 2001) in August 2001. The AMLA 2001 requires financial institutions to maintain accounts in the name of the account holder, thus prohibiting anonymous accounts and accounts held in fictitious names. It also requires financial institutions to record and verify the identity of account holders, to report suspicious activity, and to develop internal anti-money laundering policies and procedures. The AMLA 2001 allows for the establishment of a financial intelligence unit called the Financial Institutions Supervisory Authority (FISA). Thus far, FISA has not been formed and no suspicious transaction reports have been filed. Finally, the AMLA 2001 provides for mutual assistance with respect to money laundering investigations. There are, however, limitations placed on compliance with foreign requests for assistance. Nauru may refuse to comply with a request if the action sought by the foreign authority is contrary to any provision of the Republic of Nauru Constitution, or would prejudice the national interest.
On September 7, 2001, the FATF issued a press release recognizing the passage of the AMLA 2001. The FATF, however, found the legislation to have several deficiencies, and urged Nauru to enact appropriate amendments by November 30, 2001 in order to avoid the application of countermeasures. On December 5, 2001, the FATF called upon its members to impose countermeasures against Nauru because of Nauru?s failure to remedy deficiencies in its anti-money laundering regime. On December 6, 2001, Nauru amended the AMLA 2001 to address certain deficiencies in the original act, including clarifying that the law applies to all financial institutions incorporated under the laws of Nauru (as opposed to just financial institutions conducting business within Nauru), and by broadening the definition of money laundering. Despite the passage of anti-money laundering legislation with amendments, Nauru continued to lack a legal framework and an effective regime for the regulation and supervision of offshore banks.
In January 2002, the U.S. Treasury Department supplemented its previously issued advisory by reminding U.S. banks and other financial institutions of their obligations under the newly enacted Section 313 of USA PATRIOT Act of 2001 concerning correspondent accounts with foreign shell banks. Under this new law, U.S. financial institutions, as well as other financial institutions operating in the United States, are required to terminate any U.S. correspondent accounts provided to foreign shell banks, and they must take reasonable steps to ensure that correspondent accounts held by foreign banks are not being used to provide U.S. banking services indirectly to foreign shell banks. In December 2002, the Secretary of Treasury, after consultation with the Departments of Justice and State, as well as other concerned U.S. government agencies, designated Nauru as a jurisdiction of ?primary money laundering concern? under section 311 of the USA PATRIOT Act (the Act). In the announcement, the U.S. Treasury published a list of 161 banks licensed by the Republic of Nauru, the majority of which are believed to be shell banks. In the announcement, U.S. Treasury proposed invocation of Special Measure Five, prohibiting U.S. financial institutions from opening or maintaining any payable-through or correspondent accounts involving a Nauru financial institution.
During 2003 the government of Nauru took measures to address a number of the internationally cited deficiencies in its anti-money laundering regime. The Anti-Money Laundering Act 2003 (AMLA) consolidates the Anti-Money Laundering Act of 2001 and the Anti-Money Laundering (Amendment) Act of 2001. The amended legislation gives the Nauru FIU, the Financial Institution Supervisory Authority, authority to cooperate with foreign states including the power to obtain search warrants, property tracking, and monitory orders, and gives the Director of Public Prosecutions the power to freeze and seize assets relating to money laundering.
Also in 2003, legislative amendments to the Corporation Act 1972 were designed to abolish offshore banking and shell banks. The amendments also eliminate all bank secrecy provisions. In June 2003, the FATF issued a press release welcoming Nauru?s legislative efforts to eliminate offshore banks. However, a number of legislative clarifications to the Cooperation Amendment Act are necessary to ensure that all banking licenses are no longer valid. In addition, the Banking Act of 1975 must be amended to prohibit the issuance of offshore banking licenses.
During 2003, Nauru took steps to publish the list of corporations which recently held offshore banking licenses from Nauru. This list can be found on Nauru?s Official website URL: http://www.un.int/nauru/banking.html. In addition, Nauru has engaged with a number of overseas regulators so that appropriate measures can be taken against previously licensed offshore banks.
The Government of Nauru (GON) has cooperated with officials from the United States and other countries in certain criminal investigations involving Nauruan institutions. Nauru recently joined the United Nations. Nauru has observer status within the Asia/Pacific Group on Money Laundering. Nauru has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Nauru has also signed, but not yet ratified, the UN Convention against Transnational Organized Crime.
Nauru must pass and enact further amendments to AMLA 2003 and Banking Act of 1975. Nauru must continue to work with the FATF to ensure that the existing financial sector is covered by an effective AML regime. Nauru should also criminalize the financing and support of terrorists and terrorism. The GON should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Nepal
Nepal is not a regional financial center and there are no indications that Nepal is used as an international money laundering center. The Government of Nepal (GON) has not criminalized money laundering, and legislation on money laundering, mutual legal assistance and witness protection, developed as part of the GON?s Master Plan for Drug Abuse Control, remained stalled in 2003. (Note: Since the dissolution of Parliament in May 2002, any new laws must be passed by royal ordinance, which must be renewed after six months). Banks are not required to record the identity of customers engaging in significant transactions. However, any Nepali citizen who wishes to open a foreign currency account must obtain a license to do so from the National Bank (NRB), and Nepali citizens wishing to take currency overseas must obtain a letter of credit from a bank recognized by the NRB. Banks have provided records regarding letters of credit to assist in GON investigations into corruption by senior officials. Nepal has explored the development of an offshore sector.
The NRB has the authority to freeze and seize assets related to criminal investigations. However, the GON?s ability to identify and trace assets is hindered by a lack of a computerized informational sharing system. For example, many bank branch offices do not have computers. The Nepal Police also has the authority to seize any goods or property related to criminal investigations.
The hawala system (hundi in Nepal) is widespread. Expatriate Nepali workers?the primary source of hundi transactions?are often employed in the Gulf, Malaysia, and other countries that have introduced new, more stringent regulations on informal remittance systems. Nepali workers in India still utilize hawala-hundi. There have been no significant initiatives to regulate the system in Nepal. In Nepal, hundi is also linked to the issues of capital flight, tax avoidance, and corruption.
Nepal has not passed any laws criminalizing terrorist financing. However, the Terrorist and Destructive Activities Act criminalizes terrorism. As a result, the NRB has the authority to seize any assets deemed to have been used in terrorist activities. No assets belonging to entities on the UN 1267 Sanctions list have been identified in Nepal.
Nepal is a party to the 1988 UN Drug Convention. It has also signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Nepal should become a party to the UN International Convention for the Suppression of the Financing of Terrorism. Nepal should enact anti-money laundering and terrorist finance legislation, develop a comprehensive anti-money laundering regime that would require the mandatory filing of suspicious transaction reports, and establish a financial intelligence unit.
Netherlands Antilles
The Netherlands Antilles, which has autonomous control over its internal affairs, is a part of the Kingdom of the Netherlands. The Netherlands Antilles is comprised of Curacao, Bonaire, the Dutch part of Sint Maarten/St. Martin, Saba, and Sint Eustatius. The Government of the Netherlands Antilles (GONA) is located in Willemstad, the capital of Curacao, which is also the financial center of the five islands. Narcotics trafficking and a lack of border control between Sint Maarten and St. Martin create opportunities for money launderers in the Netherlands Antilles.
The Netherlands Antilles has a significant offshore financial sector with 39 international banks and approximately 50 trust companies providing financial and administrative services to their international clientele, including 18,750 international companies, mutual funds, and international finance companies. The law and regulations on bank supervision state that international banks must have a physical presence on the island and hold records there. The Central Bank supervises the international banks. Authorities in other countries supervise some mutual funds. In early 2003, legislation was introduced to transfer supervision of the trust sector to the Central Bank. International corporations may be registered using bearer shares. It is the practice of the financial sector in the Netherlands Antilles to maintain copies of bearer share certificates for international corporations, which include information on the beneficial owner, either with the bank or the company service providers. There is a proposal to require that the name of the ultimate beneficial owner of the bearer share be recorded in a registry and made accessible to law enforcement officials upon a treaty-based request for the information.
Money laundering is a crime. Legislation in 1993 and subsequent interpretations regarding the ?underlying crime? establish that prosecutors do not need to prove that a suspected money launderer also committed an underlying crime in order to obtain a money laundering conviction. It is sufficient to establish that the money launderer knew, or should have known, of the money?s illegal origin. In 2000, the National Ordinance on Freezing, Seizing, and Forfeiture of Assets derived from crime went into effect. The law allows the prosecutor to seize the proceeds of any crime once the crime is proven in court.
Over the past couple of years, the GONA has taken steps to strengthen its anti-money laundering regime by expanding suspicious activity reporting requirements to gem and real estate dealers; enhancing the possibilities of freezing, seizing, or forfeiting criminal assets; introducing indicators for the reporting of unusual transactions for the gaming industry; issuing guidelines to the banking sector on detecting and deterring money laundering; and modifying existing money laundering legislation that penalizes currency and securities transactions, by including the use of valuable goods. The 2002 ?National Ordinance on the Supervision of Fiduciary Business,? institutes a Supervisory Board that oversees the international financial sector. At the same time, GONA subjected the members of this sector to know-your-customer rules. A GONA inter-agency anti-money laundering working group cooperates with its Kingdom counterparts.
In May 2002 cross-border currency reporting legislation came into force. The law specifies reporting procedures for an individual bringing in or taking out more than NAF 20,000 (approximately $11,000) in cash or bearer instruments, and also applies to courier services. Declaration of currency exceeding the limit must include origin and destination. There is a fine of up to NAF 500,000 (approximately $280,900) or one year in prison. In July 2003, Sint Maarten Customs seized $11,500 from a traveler, and in August 2003, $20,000 in undeclared currency was seized from a Curacao passenger. The free trade zones are minimally regulated; however, administrators and businesses in the zones have indicated an interest in receiving guidance on detecting unusual transactions. Unusual transactions are by law reported to the financial intelligence unit (FIU), the Netherlands Antilles Reporting Center, Meldpunt Ongebruikelijke Transacties (MOT NA). On June 1, 2003, the Central Bank issued new consolidated reporting guidelines, replacing those of 1996. These guidelines are more closely focused on banks, insurance companies, pensions funds, money transfer services, and financial administrators. The guidelines now specifically include counterterrorism detectors. The Central Bank also established a Financial Integrity Unit to monitor corporate governance and market behavior. Entities under supervision must submit an annual statement of compliance.
Onshore banks are increasingly using their discretionary authority to protect themselves against money laundering. The largest commercial bank has lowered its limits on moneygrams to $2,000. Banks are reluctant to do business with the Internet gaming providers, provoking complaints from that sector. In 2003 Curacao was reported to have six sports booking sites and 100 Internet casinos.
The current staff of the MOT NA continues to work diligently to enhance the effectiveness and efficiency of its reporting system. In 2003, the MOT NA staff doubled to 10. Significant progress has been made in automating suspicious activity reporting; in 2002 reporting institutions sent 99.2 percent of their reports to the MOT NA electronically. One hundred percent of the submissions is now done on-line, and soon most of the matches with external databases will be done electronically. The Netherlands is reported to be the most significant source of suspicious transactions. Of note is national accounts information indicating that over the past few years, family remissions transfers from the Netherlands have surged from negative to positive. Analysis is required to determine if the source is illicit activities. The MOT NA transmits information electronically to the police. During 2003, there was an increase in information requests from the Public Prosecutor?s Office. The MOT NA has issued a manual for casinos on how to file reports and has started to install software in casinos that will allow reports to be submitted electronically.
On October 18, 2002, the GONA published new indicators for the reporting of unusual transactions with regard to terrorism financing. The new indicators require that unusual transactions reported to the police or judicial authorities in connection with money laundering or the financing of terrorism must also be reported to the MOT NA. This requirement also extends to unusual transactions relating to credit cards, money transfers and game of chance transactions.
The MOT NA is an active member of the Egmont Group. Netherlands Antilles law allows the exchange of information between the MOT NA and foreign FIUs by means of memoranda of understanding and by treaty. The MOT NA?s policy is to answer requests within 48 hours after receipt. In January 2002, the GONA enacted legislation allowing a judge or prosecutor to freeze assets related to the Taliban cum suis and Usama Bin Ladin cum suis (cum suis means that all companies and persons connected with the Taliban or Usama Bin Ladin are included). The legislation contains a list of individuals and organizations suspected of terrorism. The Central Bank instructed financial institutions to query their databases for information on the suspects and to immediately freeze any assets that were found. In October 2002, the Central Bank instructed the financial institutions under its supervision to continue these efforts and to consult the UN website for updates to the list.
The Netherlands Antilles is a member of the Caribbean Financial Action Task Force (CFATF). As part of the Kingdom of the Netherlands, the Netherlands Antilles participates in the Financial Action Task Force. In 1999, the Netherlands extended application of the 1988 UN Drug Convention to the Netherlands Antilles. The Kingdom of the Netherlands became a party to the UN International Convention for the Suppression of the Financing of Terrorism in 2002. In accordance with Netherlands Antilles law, which stipulates that all the legislation must be in place prior to ratification, the GONA is preparing legislation that will enable the Netherlands Antilles to ratify the Convention. The Mutual Legal Assistance Treaty between the Netherlands and the United States also applies to the Netherlands Antilles. An agreement was signed in April 2002 between the Netherlands and the United States, which is also applicable to the Netherlands Antilles, for the exchange of information with respect to taxes. This agreement is scheduled to come into force in January 2004. In September 2003, the U.S. Attorney in St. Thomas indicted five defendants, including one from Sint Maarten, for charges including laundering funds totaling $68 million. Cooperation with Sint Maarten under the MLAT was an important element in the investigation.
The GONA has shown a commitment to combating money laundering by establishing a solid anti-money laundering regime. An increase to the MOT NA staff is particularly notable. The GONA should criminalize the financing of terrorists and terrorism, and should enact the necessary legislation to enable it to ratify the UN International Convention for the Suppression of the Financing of Terrorism. The GONA should continue its focus on increasing regulation and supervision of the offshore sector and free trade zones and pursuing money laundering investigations and prosecutions.
The Netherlands
The Netherlands is a major regional financial center and as such is an attractive target for the laundering of funds generated from a variety of illicit activities, which are often related to the sale of heroin, cocaine, synthetic drugs or cannabis. A considerable portion of domestic money laundering is believed to be generated through activities involving financial fraud. Much of the money laundered in the Netherlands is likely owned by major drug cartels and other international criminal organizations. There are no indications of syndicate-type structures in organized crime or money laundering and there is virtually no black market for smuggled goods in the Netherlands. The Dutch experience with law enforcement and unusual transaction reporting provides no evidence that money laundering is focused on any particular part of the financial sector. Although, under the Schengen Accord, there are no formal controls on the borders with Germany and Belgium, the Dutch authorities run special operations designed to keep smuggling to a minimum.
In 1994, the Netherlands criminalized money laundering related to all crimes, although prosecutors first had to prove the predicate offense before prosecuting for money laundering. In 2002, legislation was enacted making the facilitating, encouraging, or engaging in money laundering a separate criminal offense, easing somewhat the government?s burden of proof regarding the criminal origins of proceeds. Under the new law, the government needs only to prove that the proceeds ?apparently? originated from a crime. The penalty for deliberate acts of money laundering is a maximum of four years? imprisonment and a maximum fine of 45,000 euros, while liable acts of money laundering (of people who do not know first-hand of the criminal nature of the origin of the money, but should have reason to suspect it) are subject to a maximum imprisonment of one year and a fine no greater than 45,000 euros. Repeated convictions for money laundering offenses may be punished with up to six years? imprisonment and a maximum fine of 45,000 euros. In addition to criminal prosecution for money laundering offenses, money laundering suspects can also be charged with participation in a criminal organization (Article 140 of the Penal Code), violations of the financial regulatory acts, or noncompliance with the obligation to declare unusual transactions according to the economic offenses act.
All financial institutions in the Netherlands, including banks, bureaux de change, casinos, and credit card companies, are required to report cash transactions over 15,000 euros as well as any less substantial transaction that appears unusual, to the Office for Disclosure of Unusual Transactions (MOT), the Netherlands? financial intelligence unit (FIU). In December 2001, the reporting requirements were expanded to include trust companies, financing companies, and commercial dealers of high-value goods. In June 2003, notaries, lawyers, real estate agents, accountants, and tax advisors were added. Under the Identification of Services Act (WID), all those that are subject to reporting obligations must identify their clients, either at the time of the transaction or at some point prior to the transaction, before providing financial services.
Financial institutions are also required by law to maintain records necessary to reconstruct financial transactions for at least five years. The requirements also have been applicable to the Central Bank of the Netherlands (to the extent that it provides covered services) since 1998. There are no secrecy laws or fiscal regulations that prohibit Dutch banks from disclosing client and owner information to bank supervisors, law enforcement officials, or tax authorities. Financial institutions and all other institutions under the reporting and identification acts, and their employees, are specifically protected by law from criminal or civil liability related to cooperation with law enforcement or bank supervisory authorities. Furthermore, current legislation requires Customs authorities to report unusual transactions to the MOT; however, the Dutch do not currently have a currency declaration requirement for incoming travelers.
The Money Transfer and Exchange Offices Act, which was passed in June 2001, requires money transfer offices, as well as exchange offices, to obtain a permit to operate, and subjects them to supervision by the Central Bank. Every money transfer client has to be identified.
The Central Bank of the Netherlands, the Financial Markets Authority and the Pension and Insurance Chamber, as the supervisors of the Dutch Financial sector regularly exchange information nationally and internationally. Sharing of information by Dutch supervisors does not require formal agreements or MOUs. Plans to merge the supervisory Activities of the Pension and Insurance Chamber with that of the Netherlands Central Bank are well advanced. The supervisory Activities of the Pension and Insurance Chamber will be merged with that of the Netherlands Central Bank on April 1, 2004.
The MOT, which was established in 1994, reviews and analyzes the unusual transactions and cash transactions filed by banks and financial institutions. It forwards suspicious transaction reports with preliminary investigative information to the Police Investigation Service and to the office for operational support of the National Public Prosecutor for MOT cases (BLOM). The total number of unusual financial transaction reports received by the MOT in 2002 almost doubled (up 81 percent) from 2001, to over 137,000. The MOT flagged approximately 24,000 of the unusual transaction reports as ?suspicious? for further investigation by the BLOM. The increase in unusual transaction reports is predominately from the reports generated by money transfer offices (notably through providers like Western Union and Money Gram).
In order to facilitate the forwarding of suspicious transactions, the MOT and BLOM created an electronic network called Intranet Suspicious Transactions. Also, a secure website for the actual reporting of unusual transactions by financial institutions was developed, thus completing the electronic infrastructure. Furthermore, fully automatic matches of data with the police databases are included with the unusual transaction reports forwarded to the BLOM Since the money laundering detection system also covers areas outside the financial sector, the system is used for detecting and tracing terrorist financing activity.
In 2002, BLOM conducted 120 anti-money laundering actions, resulting in the confiscation of approximately 30 million euros, and arrested 192 suspects. In addition, they initiated 322 additional money laundering investigations. The anti-money laundering division of Europol is currently using the BLOM?s analysis tool, including the associated database.
The Netherlands has enacted legislation governing asset forfeitures. The 1992 Asset Seizure and Confiscation Act enables the authorities to confiscate assets that are illicitly obtained or otherwise connected to criminal acts. The legislation was amended in 2003 to improve and strengthen the options for identifying, freezing and seizing criminal assets. The police and several special investigation services are responsible for enforcement in this area. These entities have adequate powers and resources to trace and seize assets. Asset seizure has been fully integrated in all law enforcement investigations into serious crime. Statistics provided by the Office of the Public Prosecutor show that the amount of assets confiscated in 2002 amounted to 7.9 million euros ($8.4 million). The Public Prosecutor Hit-And-Run Money Laundering Teams (HARM-Team) established in 2001 seized a total amount of 29.5 million euros ($36.9 million). The U.S. and the Netherlands have an agreement on asset sharing dating back to 1994.
Terrorist financing is a crime in the Netherlands. In 2002, the ?Sanction Provision for the Duty to Report on Terrorism? became effective. This ministerial decree provides authority to the Netherlands to identify, freeze, and seize terrorist finance assets. The Netherlands has frozen more terrorist related assets than any other EU member state. The decree also requires financial institutions to report all transactions (actually carried out or intended) that involve persons, groups, and entities that have been linked, either domestically or internationally, with terrorism, to the MOT. Any terrorist crime will automatically qualify as a predicate offense under the Netherlands ?all offenses? regime for predicate offenses of money laundering. Legislation increasing the penalties for terrorist financing was passed by the second chamber of Parliament and is expected to pass the upper chamber and go into effect by mid-year 2004. The Netherlands Security Service investigates terrorist financing, and is cooperating with law enforcement entities that are experienced in this area.
Dutch civil law requires registration of all active foundations in the registers of the Chambers of Commerce. Each foundation?s formal statutes (creation of the foundation must be certified by a notary of Law) must be submitted to the Chambers. Charitable institutions also register with, and report to, the tax authorities in order to qualify for favorable tax. Approximately 15,000 organizations (and their management) are registered in this way. The organizations have to file their statutes, showing their purpose and mode of Operations, and submit annual reports. Samples are taken for Auditing.
The Netherlands is in full compliance with FATF money laundering and terrorist financing recommendations, with respect to both legislation and enforcement. The Netherlands also complies with the European Union?s (EU) second money laundering directive. The EU directives have been implemented through the Money Laundering Disclosure Act, and the FATF guidelines have been incorporated into the Identification of Financial Services Act. In some areas, money laundering legislation in the Netherlands is ahead of the EU legislation (such as full money laundering controls on money remitters, including licensing and identification of customers).
The Netherlands is a member of the Financial Action Task Force (FATF) and participates in the Caribbean Financial Action Task Force as a Cooperating and Supporting Nation. The MOT is a member of the Egmont Group of FIUs. MOT has concluded formal information sharing MOUs with Belgium, Aruba and the Netherlands Antilles. The Netherlands 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. The Dutch participate in the Basel Committee, and have endorsed the Committee?s ?Core Principles for Effective Banking Supervision.? In February 2002, the Netherlands became a party to the UN International Convention for the Suppression of the Financing of Terrorism. The Netherlands has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.
Since March 2002, the MOT has supervised the PHARE Project for the European Union. The PHARE Project is the European Commission?s Anti-Money Laundering Project for Economic Reconstruction Assistance to Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria, Cyprus, and Malta. The purpose of the project is to provide support to Central and Eastern European countries in the development and/or improvement of anti-money laundering regulations. For this purpose, the MOT has established a project team of six persons. In addition to the team, there is a consortium of international experts. The MOT has also established, and monitors, the FIU.NET Project, (an electronic exchange of current information between European FIUs by means of a secure web).
The Netherlands should continue the strong enforcement of its anti-money laundering program and its leadership in the international arena.
New Zealand
New Zealand is not a major regional or offshore financial center. It has a small number of banks and financial institutions whose operations can be effectively monitored by government authorities. There is evidence that some money laundering does take place, although not to a significant extent. Narcotics proceeds and commercial crime are the primary sources of illicit funds. International organized criminal elements do operate in New Zealand.
A 1995 amendment to New Zealand?s Crimes Act 1961 criminalized the laundering of proceeds knowingly derived from a serious offense. The Financial Transaction Reporting Act 1996 contains obligations for a wide range of financial institutions, including banks, credit unions, casinos, real estate agents, lawyers, and accountants. These entities must identify clients, maintain records, and report suspicious transactions. The Act also contains a ?safe harbor? provision and requires the reporting of large cross-border currency movements.
The Terrorism Suppression Act, enacted in October 2002, criminalized terrorist financing. This Act also made the necessary changes to the existing law to enable New Zealand to ratify the UN International Convention for the Suppression of the Financing of Terrorism on November 4, 2002. The Act gives the government wider authority to designate entities as terrorist organizations and freeze their assets. The Prime Minister is responsible for making the designation upon a recommendation prepared by the New Zealand Police. Once the designation is made, the New Zealand Police informs banks and other appropriate parties. A public notice is also published. The Police are currently developing additional procedures to implement the provisions of the Terrorism Suppression Act.
New Zealand has consistently implemented financial controls against entities included on the UN 1267 Sanctions Committee consolidated list. It has not yet identified in New Zealand any assets from these entities.
New Zealand and the United States do not have a Mutual Legal Assistance Treaty. However, New Zealand legislation applies certain provisions of the Mutual Assistance in Criminal Matters Act 1992 unilaterally to the United States. In practice, New Zealand and U.S. authorities have had a good record of cooperation and information sharing in this area.
New Zealand is a party to the 1988 UN Drug Convention, and in July 2002, ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. New Zealand is a member of the Financial Action Task Force, the Asia/Pacific Group on Money Laundering (APG), and the Pacific Islands Forum. Its Financial Intelligence Unit is a member of the Egmont Group. The New Zealand government has played a leadership role in promoting efforts to combat money laundering in the South Pacific region, providing substantial amounts of technical assistance and training.
New Zealand has established a comprehensive anti-money laundering regime. It should build upon this base by continuing its implementation of its Terrorism Suppression Act. Additionally, New Zealand should continue its recognized leadership in the international arena.
Nicaragua
While Nicaragua is not a regional financial center, Nicaragua?s status as a drug transit zone and highly vulnerable banking system make the country an attractive target for narcotics-related money laundering. Government of Nicaragua (GON) officials have stated that most laundered money comes from misappropriated public revenues rather than from contraband or narcotics. The GON has pledged to fight terrorism, money laundering, and narcotics trafficking. However, limited resources and corruption continue to complicate efforts to counter these threats. Nicaragua suffers from economic instability, weak regulation, and lax oversight of its financial system.
Nicaragua does not permit offshore banks to operate as such but it does permit them to establish and operate through nationally chartered entities (such as a Panamanian bank currently working to establish a savings and loan company under a Nicaraguan charter). Bank and company bearer shares are permitted. Nicaragua has a well-developed indigenous gaming industry, which it is only now moving to regulate.
Nicaragua?s Law 177 of 1994 criminalized money laundering related to drug-trafficking; however, money laundering not related to drugs remains legally undefined. Attempts to amend Law 177 to address this deficiency have been rejected by the National Assembly. Law 285 of 1999 reformed Law 177 only in that it requires banks to report cash deposits that exceed approximately $10,000 to the Bank Superintendence, which forwards these reports for analysis to the Commission of Financial Analysis (CFA) within the National Anti-Drug Council. Law 285 also prohibits anonymous accounts, requires financial institutions to identify customers and maintain transaction records for five years, and requires travelers entering the country to declare cash, monetary instruments, or precious metals exceeding approximately $10,000 or its foreign equivalent. Finally, Law 285?s implementing measure, Decree 74, requires that financial institutions report all complex, unusual, and significant transactions, and transactions with no apparent legal purpose, to the Bank Superintendence and to the CFA. The CFA is not a financial intelligence unit; however, it is assigned responsibility for detecting money laundering trends, coordinating with other investigative agencies, and reporting its findings to the National Anti-Drug Council. On paper, the CFA is composed of representatives from various elements of law enforcement and banking regulators, but in practice the CFA is an ineffective operation. On the other hand, a largely USG supported ?Economic Crimes Unit? within the Nicaraguan National Police has contributed to a number of high-level money laundering investigations and prosecutions.
In 2003, a draft law that establishes money laundering as an autonomous crime and requires more stringent reporting of large or suspicious bank deposits was introduced in the National Assembly. The new legislation also sets up a Commission of Financial Analysis that will conduct both analysis and investigations. However, this legislation has little support and it is unlikely that the Assembly in the near term will consider the draft law. The GON is also developing a new law that would regulate and tax the gaming industry and attempt to prevent money laundering within it.
Since its election, the Government of President Enrique Bolanos has pushed a strong anti-corruption campaign. Several prominent figures from the administration of former President Aleman have been arrested and convicted for corruption and money laundering. Other major figures continue to use parliamentary immunity to avoid money laundering charges in local courts.
Nicaragua is currently negotiating a financial information sharing agreement with Costa Rica, largely based on model legislation created by the Central American Parliament. It does not have such an agreement with the United States but has cooperated, on an ad hoc basis, in a number of recent cases. In this manner it has also benefited in several U.S. asset seizure cases such as a DEA-seized drug boat and the Florida properties of the former Nicaraguan tax director. In the case of assets seized within the country, the proceeds are generally apportioned between the lead agency (usually the police) and the general treasury.
Draft antiterrorism legislation, which would criminalize terrorism financing, is being circulated through various National Assembly committees but is not likely to pass anytime soon. In the meantime, most elements of terrorism and terrorism financing may be prosecuted under existing laws. The GON has the authority to identify, freeze, and seize terrorism-related assets but has not, as yet, identified any such cases. To the GON?s knowledge, there are no hawala or other similar alternative remittance systems operating in Nicaragua, nor has there been a recognized use of gold or gem trading or charitable organizations to disguise such transactions.
Nicaragua is a party to the 1988 UN Drug Convention. It has also ratified the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the UN Convention for the Suppression of the Financing of Terrorism. Nicaragua is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering, and signed the Central American Treaty for the Prevention and Repression of Money and Asset Laundering Related to Illicit Activities Connected with Drug Trafficking and Related Crimes. In 2002, Nicaragua was reinstated to the Caribbean Financial Action Task Force (CFATF) after having been suspended due to a lack of participation.
The GON should expand the predicate crimes for money laundering beyond narcotics trafficking. The GON should establish a functional financial intelligence unit and fully implement and fund its anti-money laundering regime. Nicaragua should take steps to immobilize its bearer shares and adequately regulate its gaming industry. The GON should criminalize terrorist financing. Until Nicaragua brings its anti-money laundering/antiterrorist financing regime up to international standards, its financial sector will remain vulnerable to abuse by criminal and terrorist organizations and their supporters.
Niger
Niger is not a regional financial center. While there are criminal activities that take place within the region, there is no evidence to suggest that money laundering activities take place on a large scale within Niger. Seven small commercial banks and one modest-sized local bank operate in Niger. Black market currency exchanges operate freely and currency easily flows unregulated through Niger?s porous borders. Most economic activity takes place in the informal sector.
The Central Bank of West African States (BCEAO), based in Dakar, Senegal, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU): Benin, Burkina Faso, Guinea-Bissau, Cote d?Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency. All bank deposits over approximately $7,700 made in BCEAO member countries must be reported to the BCEAO, along with customer identification information. In addition, all foreign currency exchanges over 1 million CFA (approximately $1,900) require written authorization from the Niger Ministry of Finance.
In September 2002, the WAEMU Council of Ministers, which oversees the BCEAO, issued a directive requesting that each member country set up a national committee under their Minister of Finance to deal with financial information as it relates to money laundering. The BCEAO would be in charge of coordinating such committees. Each member country is now responsible for putting legislation in place to implement this directive, and the legislation is expected to be harmonized regionally. On November 27, 2003, the Niger Council of Ministers adopted a bill that formally prohibits money laundering and puts into place structures and regulations to deter such activity. The bill is expected to become law in early 2004 after passage by the National Assembly. When in force, this law will bring Niger into conformity with the rest of the WAEMU nations. The bill calls for the creation of a central office at the BCEAO for the coordination of money laundering issues and formally obliges all financial institutions in Niger to report suspicious activity. Currently, banks in Niger report suspicious activity to the BCEAO and to local law enforcement, although there are no legal requirements to do so. In 2002, one bank account in Niger was frozen due to its relationship to illegal financial activity.
The Government of Niger (GON) and the BCEAO actively comply with U.S.-led efforts to combat terrorist financing. When notified, the BCEAO promptly disseminates information to all financial institutions in Niger. Since January 1, 2003, there have been no reported cases of money laundering or terrorist financing in Niger.
The WAEMU Council of Ministers also issued a directive in September 2002 on the topic of terrorist financing, requesting member countries to pass legislation requiring banks to freeze the accounts of any persons or organizations on the UN 1267 Sanctions Committee consolidated list.
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 Niger. In July 2002, Niger participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against drug trafficking, terrorism, and money laundering. Niger is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.
Niger should criminalize money laundering and terrorist financing and sign the UN International Convention for the Suppression of the Financing of Terrorism. Niger should also make suspicious transaction reporting mandatory.
Nigeria
The Federal Republic of Nigeria is the most populous country in Africa and is West Africa?s largest democracy. Nigeria?s large economy is also a hub of trafficking of persons and narcotics and a center of criminal financial activity for the entire continent. Individuals and criminal organizations have taken advantage of the country?s location, weak laws, systemic corruption, lack of enforcement, and poor economic conditions to strengthen their ability to perpetrate all manner of financial crimes at home and abroad. Nigerian criminal organizations have proven adept at devising new ways of subverting international and domestic law enforcement efforts and evading detection. Their success in avoiding detection and prosecution has led to an increase in financial crimes of all types, including bank fraud, real estate fraud, identity theft, and advance fee fraud. Despite years of government effort to counter rampant crime and corruption, Nigerians continue to be plagued by crime.
Advance fee fraud is a lucrative financial crime that generates hundreds of millions of illicit dollars annually for criminals. Initially, Nigerian criminals made advance fee fraud infamous; recently nationals of many African countries and from a variety of countries around the world have begun to perpetrate advance fee fraud. This type of fraud is referred to internationally as ?Four-One-Nine? fraud (419 is a reference to the fraud section in Nigeria?s criminal code). While there are many variations, the main goal of 419 fraud is to deceive victims into payment of an advance fee by persuading them that they will receive a very large benefit in return. These ?get rich quick? schemes have ended for some victims in monetary losses, kidnapping, or murder. Through the Internet, businesses and individuals around the world have been and continue to be targeted by perpetrators of 419 scams.
In June 2001 the Financial Action Task Force (FATF) placed Nigeria on the list of noncooperative countries and territories (NCCT) in combating money laundering. Among the deficiencies cited by the FATF were the failure to criminalize money laundering for offenses other than those related to narcotics, the lack of customer identification requirements for over-the-counter transactions under a threshold of $100,000, inadequate suspicious transaction reporting requirements, the absence of anti-money laundering measures applied to stock brokerage firms and other financial institutions, and a high level of government corruption. In April 2002, FinCEN, the U.S. financial intelligence unit, issued an advisory to inform banks and other financial institutions operating in the United States of serious deficiencies in the anti-money laundering regime of Nigeria.
In June 2002, the FATF stated that it would consider recommending countermeasures against Nigeria at its October 2002 plenary if Nigeria did not engage with the FATF Africa Middle East Review Group and move quickly to enact legislative reforms that addressed FATF concerns. In October, the FATF recommended countermeasures against Nigeria if the Government of Nigeria (GON) did not enact sufficient legislative reforms by December 15, 2002.
On December 14, 2002, the National Assembly of Nigeria passed three pieces of anti-money laundering legislation, and President Olusegun Obasanjo signed the legislation into law the same day: an amendment to the 1995 Money Laundering Act that extends the scope of the law to cover the proceeds of all crimes; an amendment to the 1991 Banking and Other Financial Institutions (BOFI) Act that expands coverage of the law to stock brokerage firms and foreign currency exchange facilities, gives the Central Bank of Nigeria (CBN) greater power to deny banks licenses, and allows the CBN to freeze suspicious accounts; and the Economic and Financial Crimes Commission (Establishment) Act that establishes the Economic and Financial Crimes Commission (EFCC)?a financial intelligence unit?that will coordinate anti-money laundering investigations and information sharing. Since May 2003, the EFCC has seized assets valued at $2 million. The new Economic and Financial Crimes Commission Act 2002 also criminalizes the financing of terrorism and participation in terrorism. Violation of the Act carries a penalty of up to life imprisonment.
In April 2003, the EFCC was formally constituted with the primary mandate to investigate and prosecute financial crimes. Since April 2003, the EFCC has recovered or seized assets valued at over 31 billion naira ($219 million) from various people guilty of fraud inside and outside of Nigeria, and more than one billion naira ($7 million) from a syndicate that included highly placed government officials who were defrauding the Federal Inland Revenue Service (FIRS). Several influential individuals have been arrested and are currently awaiting trial. In an effort to expedite the trial process, the Commission has been assigned two high court judges in Lagos and two in Abuja to hear all cases involving financial crimes. This signals an intent by the government to more aggressively investigate ?419? and other economic crimes in Nigeria.
In November 2003, President Obasanjo presented bills on money laundering and economic crimes to the Senate for consideration. The bills? intent is to further strengthen the government?s powers to combat financial crimes. Once passed, the money laundering law will apply to the proceeds of all financial crimes. It will also cover stock brokerage firms and foreign currency exchange facilities. The legislation will give the CBN greater power to deny banks licenses and freeze suspicious accounts. This legislation will strengthen the financial institutions by also requiring more stringent identification of accounts, removing a threshold for suspicious transactions, and lengthening the period for retention of records.
There is one case currently before the Nigerian courts involving money laundering.
Nigeria is a party to both the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. In June 2003, Nigeria ratified the UN International Convention for the Suppression of the Financing of Terrorism. On December 9, 2003, Nigeria signed the UN Convention Against Corruption. The United States and Nigeria signed a Mutual Legal Assistance Treaty (MLAT) in 1989, which entered into force in January 2003. Nigeria has signed memoranda of understanding with Russia, Iran, India, Pakistan, and Uganda to facilitate cooperation in the fight against narcotics trafficking and money laundering. Nigeria has also signed bi-lateral agreements for exchange of information on money laundering with South Africa, United Kingdom, and all Commonwealth and Economic Community of West African States countries.
The GON should continue to engage with the FATF to ensure that Nigeria?s remaining anti-money laundering deficiencies are corrected. It should also bolster the EFCC by ensuring that it is adequately funded. The GON should construct a comprehensive anti-money laundering regime that willingly shares information with foreign regulatory and law enforcement agencies, that is capable of thwarting money laundering and thwarting terrorist financing and comports with all relevant international standards. The GON should criminalize the financing of terrorism consistent with the UN International Convention for the Suppression of the Financing of Terrorism.
Niue
Niue is a self-governing parliamentary democracy in the South Pacific that maintains a free association with New Zealand. Niueans are citizens of New Zealand and are part of the British Commonwealth.
Concerns were raised in the past about Niue?s vulnerability to money laundering. Legislation from the mid-1990s created an offshore financial center heavily dependent upon international business companies (IBCs). In addition, a small number of offshore banks were licensed. Niue also offers trusts, partnerships, financial management, and insurance services. Niue allows the creation of asset protection trusts that are impervious to many types of legal claims arising in other jurisdictions. In addition, trusts in Niue are exempt from taxation if the parties to the trust are not residents of Niue.
The International Business Companies Act of 1994 is the legislative basis for establishing IBCs. Marketers of offshore services promote Niue as a favored jurisdiction for establishing IBCs, for a variety of reasons. The presence of a significant number of international business companies, operating offshore, makes Niue particularly vulnerable to money laundering. With a population of roughly 2,100, Niue reported that it had registered 9,229 IBCs as of December 2003. Allowed under Niue?s International Business Companies Act 1994, the IBCs are not required to disclose their beneficial ownership or to keep a register of directors. Moreover, Niue allows bearer shares and the marketing of shelf companies, which are offered by Internet marketers complete with associated offshore bank accounts and mail-drop forwarding services. The IBCs are legally formed and registered by a Panamanian law firm on Niue?s behalf. The government reported in December 2003 that it had not registered any offshore financial service businesses, such as insurance companies, mutual fund companies, trust companies, and agents.
The Proceeds of Crime Act 1998 criminalizes the laundering of proceeds from any offense punishable by at least one year in prison. Under the Proceeds of Crime Act, financial institutions may report suspicious transactions either to the police or to the Attorney General. However, there have been no such reports, and there are not relevant procedures in place to deal with their possible collection and analysis. Currently, the Proceeds of Crime Act allows the court to order the confiscation or forfeiture of property derived from a serious offense, once the offender has been convicted. The Act does not specifically address assets derived from narcotics trafficking, terrorism financing, or organized crime. The government is working to amend the Act to allow it to freeze transactions in which money laundering or terrorism financing is suspected.
Niue enacted the Financial Transactions Reporting Act (FTRA) in November 2000. The FTRA imposes reporting and record keeping obligations upon banks, insurance companies, securities dealers and futures brokers, money services businesses, and persons administering or managing funds on behalf of IBCs. Specifically, the FTRA requires financial institutions to report suspicious transactions, verify the identity of its customers, and keep records of financial transactions for six years. However, the act contains a number of loopholes that result in inadequate customer identification requirements, among other deficiencies. For example, section 11 of the FTRA requires that financial institutions verify the identity of customers who wish to conduct a transaction. Subsection 11(2) provides a loophole in that a financial institution dealing with an intermediary need establish the identity of the underlying customer only if the transaction exceeds $10,000.
The FTRA also calls for the establishment of a Financial Intelligence Unit (FIU) within the office of the Attorney General. The FIU has still not been established. Niuean officials have said that the establishment of the FIU will depend upon the outcome of ongoing discussions among the Pacific Islands Forum of a proposed regional FIU for Forum member countries. To date, no movement has been made towards the establishment of any operational FIU, domestic or regional.
Should a Niuean FIU become operational, financial institutions will be required to prepare a written statement of their internal procedures to make their officers and employees aware of the laws in Niue about money laundering; the procedures, policies, and audit systems adopted by the institution to deal with money laundering; and procedures to train the institution?s officers and employees to recognize and deal with money laundering; and then to submit the statement of those procedures to the unit. The FIU will also have powers to conduct investigations to ensure compliance with the Financial Transactions Reporting Act 2000 by financial institutions. Currently, casinos and notaries are not covered within the definition of ?financial institution? under the Act, but the Government is considering promoting an amendment that would substitute the definition of ?financial institution? from the IMF model Financial Transactions Reporting Act.
The Financial Transactions Reporting Act 2000 provides that one of the functions of the financial intelligence unit is to issue guidelines to financial institutions in relation to transaction record keeping and reporting obligations and to provide training programs for financial institutions about transaction record keeping and reporting obligations.
In June 2000, the Financial Action Task Force (FATF) placed Niue on the list of noncooperative countries and territories (NCCT) in the fight against money laundering, because of numerous deficiencies in Niue?s anti-money laundering regime. In particular, the report cited deficiencies in customer identification requirements, and concerns that the structure and effectiveness of the regulatory regime for offshore financial institutions and IBCs were inadequate. Following the FATF exercise, the U.S. Treasury Department issued an advisory to United States financial institutions advising them to give enhanced scrutiny to all financial transactions involving Niue.
In June 2002, Niue brought into force the International Banking Repeal Act. This Act eliminated Niue?s offshore banks. As a result, all offshore banking licenses have been terminated. In addition, Niue now maintains in country a mirror of the IBC registry kept in Panama. All company registration information is kept on island by a registered agent and is accessible to appropriate officials.
Due to these reforms, the FATF decided in October 2002 that Niue has in place an anti-money laundering system that generally meets international standards. Niue was therefore removed from the NCCT list. The U.S. Treasury Department subsequently withdrew its June 2000 advisory to U.S. financial institutions.
Niue is not a member of the United Nations. In November 2001, the government amended the United Nations Act 1946 to enable the Cabinet to promulgate regulations giving effect to UN Security Council resolutions. And, in September 2003, the Cabinet passed the United Nations Sanctions (Terrorism Suppression and Afghanistan Measures) Regulations 2003. Those regulations implement UN Security Council Resolution 1373, as well as Resolutions 1267 and 1333.
Niue has not signed the Vienna Convention. Niue is a member of the Asia/Pacific Group on Money Laundering.
In 1998, Niue passed the Mutual Assistance in Criminal Matters Act, which authorizes the Attorney General of Niue to provide certain types of legal assistance to other countries involved with criminal investigations. Niue has no bilateral cooperation agreements with other countries for the exchange of information on money laundering, though the government has expressed a willingness to cooperate with international efforts to combat money laundering.
Niue should continue to enhance its anti-money laundering legislation. Recent reforms address some of the deficiencies in Niue?s anti-money laundering regime; however, the government must finalize and promulgate the necessary regulations to bring the legislation into full force, including the establishment of an FIU. Niue must ensure that the recently enacted reforms are fully and effectively implemented. Additionally, Niue should criminalize terrorist financing.
Norway
Norway is not considered an important regional financial center; there are 19 commercial banks in the country and approximately 125 savings banks. According to Oekokrim, the economic crime unit of the Ministry of Justice, which serves as Norway?s financial intelligence unit (FIU), money laundering is linked with a wide range of criminal activity, including, but not limited to, narcotics trafficking. Most money laundering cases in Norway are related to domestic criminal activity, and no terrorist groups are known to have laundered funds in the country. Most money laundering occurs outside the banking system of Norway, due to the reporting requirements of the financial institutions; however, structuring of deposits still appears to be a problem within the financial system.
The Norwegian Penal Code includes many criminal offenses as predicates to money laundering. Norway?s anti-money laundering legislation has been strengthened in recent years to conform to the FATF Forty Recommendations. In 2004, a new Money Laundering Act will take effect, replacing the provisions of the 1988 Financial Institutions Act. The new act will strengthen data registration requirements, broaden the obligation to report suspicious transactions, and make negligent contravention of the act a criminal offense.
The Banking, Insurance, and Securities Commission of Norway monitors the financial markets and financial institutions, issues warnings, forwards the consolidated UNSCR 1267/1390 list of terrorist entities and individuals to financial institutions, and issues orders to freeze assets and funds. The Commission conducts on-site inspections to monitor the finance sector and to ensure that the regulations are complied with correctly. The Commission has also taken steps to strengthen reporting requirements of charitable entities.
Current money laundering statutes require financial institutions to report large and suspicious transactions to Oekokrim, to verify the identity of their customers, and to keep records of transactions for at least five years. Large cash transactions (including cross-border transactions) by banks are routinely reported to the Central Bank and kept on file. Norway has not enacted secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law-enforcement authorities. The law also protects the reporting individuals; however, individual bankers may be held responsible if their institutions are used to launder money. Norway obligates foreign financial institutions operating in Norway to comply with domestic laws and regulations governing host country financial institutions. Money laundering controls are applied to all nonbank financial institutions, including insurance companies.
There were approximately 30 major arrests and/or prosecutions for money laundering in Norway in 2001 and 25 in 2002. Law enforcement officials have the authority to freeze and confiscate assets during money laundering investigations.
Oekokrim continues to establish systems for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets. According to Norwegian laws, assets derived from criminal acts (narcotics trading, money laundering, and support for terrorism), are to be seized and confiscated by the State. Legitimate businesses may also be seized if used to launder drug money or support terrorist activity, or are linked to other criminal proceeds. Norway destroys seized drugs, alcohol, and cigarettes, but auctions off other items, including automobiles, private property and buildings. The State receives the proceeds from the asset seizures and forfeitures. Norway?s asset seizure enforcement meets international standards, and Oekokrim remains the principal entity responsible for tracing and seizing assets, although any police unit may do so in Norway. Norway?s Money Laundering Act and Terrorist Financing Law ensure the availability of adequate records in connection with investigations of interest to the U.S. and other governments. To date, Norway has not enacted laws for sharing narcotics assets with other countries.
On June 28, 2002, a new bill entered into force, permanently establishing legislative measures against acts of terrorism and the financing of terrorism, and fulfilling the requirements of the UN International Convention for the Suppression of the Financing of Terrorism. The law applies to anyone who supplies funds to, or collects funds for, individuals or groups that plan acts of terrorism, and makes the support of terrorists with equipment or services a criminal offense.
Norway has the authority to identify, freeze, and seize terrorist financial assets. On October 11, 2002, Norway adopted the European Union?s (EU?s) Common Position on the application of specific measures to combat terrorism. The Common Position details the names of major terrorists groups. Norway has also distributed to financial institutions the list of individuals and entities from the UN 1267 and UN 1333 Sanctions Committee?s Consolidated list. Norway has not discovered any evidence that terrorist funds have been deposited in the country.
Alternative remittance systems are prohibited in Norway. In May 2003, three Somalis were convicted of violating banking regulations by sending unauthorized remittances overseas, and they each received suspended sentences of 45 days in jail. In August 2003, three additional Somalis were similarly convicted, with the leader of the group sentenced to a 14-month jail sentence after being convicted of laundering $128,500. The prosecutor in the case determined that the group had illegally remitted approximately $18 million between 1998 and 2001 through two hawala systems. The prosecutor noted that no evidence existed that the money was remitted to fund terrorism activities.
Norway works with Europol and is a member of the Financial Action Task Force (FATF), Interpol, and Schengen. Oekokrim is a member of the Egmont Group. Norway is a party to the 1988 UN Drug Convention. Norway is also a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime; the UN International Convention for the Suppression of the Financing of Terrorism; and the UN Convention against Transnational Organized Crime. Norway has now ratified all 12 of the International Conventions and Protocols relating to terrorism.
Norway should continue to enhance its anti-money/laundering-antiterrorist financing regime. Norway should consider the adoption of laws that would allow the sharing of seized assets with third party jurisdictions which assisted in the conduct of the underlying investigation.
Oman
Oman is not a regional or offshore financial center and does not have a significant money laundering problem. Its small banking sector is supervised by the Central Bank of Oman (CBO), which has the authority to suspend or reorganize a bank?s operations. In 2003, Oman had a total of 16 banks with 356 branches. Smuggling trade goods across Oman?s long borders and coastline is becoming an increasing concern. Oman may also be vulnerable to forms of trade based money laundering and customs fraud.
In March 2002, Royal Decree No. 34/2002 was issued promulgating ?The Law of Money Laundering.? This new law strengthened the existing money laundering regulations by detailing bank responsibilities, widening the definition of money laundering to include funds obtained through any criminal means, and providing for the seizure of assets and other penalties. The new law applies to other types of nonbank financial institutions as well. In 2003, there were no arrests under the law.
In July 2003, Oman submitted a supplementary report to the United Nations with respect to UNSCR 1373 that stated ?the legal freezing measures designated by the Money Laundering Act are applied to both residents and nonresidents holding funds, financial assets, or other economic resources in the Sultanate of Oman if they are linked to terrorist-related activities.?
The Royal Oman Police (ROP), in coordination with the CBO, is responsible for investigating money laundering activities. Banks are required to know their customers and report all suspicious transactions. Compliance personnel are now present in all banks. Oman has plans to establish a Financial Intelligence Unit (FIU) that will receive suspicious transactions and help coordinate resulting investigations. Oman regulates charitable organizations under the Non-Governmental Organizations Act promulgated pursuant to Royal Decree 14/2000. Under this act, the Minister of Social Development is responsible for approving and monitoring all charitable contributions and fundraising activities.
Oman is a party to the 1988 UN Drug Convention and a member of the Gulf Cooperation Council (GCC), which is a member of the Financial Action Task Force (FATF). In June 2001, Oman underwent a FATF mutual evaluation. Oman has distributed the UN 1267 terrorist asset freeze lists to all banks and other financial institutions in the country for checking against their accounts. Thus far, the Government of Oman has reported negative results.
Oman should become a party to the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism.
Oman should continue to implement its anti-money laundering program, specifically creating a FIU and training criminal investigators to initiate money laundering investigations from the field. Oman also should become more aware of the dangers of alternative remittance systems to launder money and transfer value such as hawala and trade based money laundering.
Pakistan
Financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion, and corruption remain a significant problem in Pakistan. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets. The proceeds of narcotics trafficking and funding for terrorist activities are often laundered by means of the alternative remittance system called hawala. This system is also widely used by the Pakistani people for legitimate purposes. A nexus of private unregulated charities has also emerged as a major source of illicit funds for international terrorist networks.
The Control of Narcotics Substances Act of 1996 criminalizes the laundering of narcotics-related proceeds. The Act contains provisions for the freezing and forfeiture of assets associated with narcotics trafficking and the reporting of financial transactions believed to be associated with narcotics trafficking. Since 2002, Pakistan?s Ministry of Finance has been coordinating an interministerial effort to draft anti-money laundering and antiterrorist financing legislation to bring Pakistan into compliance with international norms. As of late December 2003, this legislation remains inconsistent with international standards and has not yet received final cabinet approval, nor has it been submitted to the National Assembly. In the absence of such legislation, the Central Bank has created a money laundering unit, put forward a series of ?know-your-customer? regulations, and instructed Pakistan?s five largest commercial banks to submit suspicious transaction reports to the Central Bank. Pakistan?s Securities and Exchange Commission, which has regulatory oversight for nonbank financial institutions, is preparing to form a financial crimes unit and is developing ?know-your-customer? regulations that will require full disclosure of beneficial ownership of accounts.
Pakistan?s cooperation in Operation Enduring Freedom has brought renewed focus on the role of informal financial networks in financing terrorist activity. In July 2002, the Government of Pakistan (GOP) passed an ordinance regulating hawala money changers and facilitating cross-verification of financial transactions between Pakistan and the Gulf States. These measures have led to the registration and formalization of many hawala businesses, but a significant number continue to operate outside the legal framework. A large percentage of hawala transfers to Pakistan consists of the repatriation of wages from the roughly five million Pakistani expatriates residing abroad. According to U.S. sources, the GOP?s regulation of the domestic hawala business, as well as post-September 11 changes in the patterns of behavior of overseas Pakistanis, have resulted in the migration of a considerable share of hawala business into the formal banking sector.
There have also been reports of money laundering using gold and gems, as well as cash transfers by couriers. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets. Trade-based money laundering is also prevalent. Goods such as foodstuffs, electronics, vegetable oils, and other products that are primarily exported from Dubai to Karachi are then forwarded, at least on paper, to Afghanistan via the Afghan transit trade. Through smuggling, corruption, avoidance of customs duties and taxes, and barter deals for narcotics, many of the goods destined for Afghanistan find their way into the burgeoning Pakistani black market. The trading in these goods and commodities is also believed to be used to provide countervaluation in hawala transactions. A nexus of private, unregulated charities has emerged as a major source of illicit funds for international terrorist networks. On December 12, 2003, Pakistan?s Central Bank announced that to date it had frozen bank accounts totaling $10,780,000 belonging to 27 militant groups as part of a crackdown on terrorist financing.
Currently, Pakistan does not have a financial intelligence unit (FIU). Pakistan?s National Accountability Bureau, Anti-Narcotics Force, Federal Investigative Agency (FIA), and Customs oversee Pakistan?s anti-money laundering efforts. The National Accountability Bureau has been effective in investigating and prosecuting corruption, but has been accused of political bias in selecting its targets. Pakistan is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. As of December 2003, Pakistan had not signed the UN International Convention for the Suppression of the Financing of Terrorism. Pakistan became a member of the FATF-style regional body, the Asia/Pacific Group on Money Laundering, in 2000.
Pakistan should move quickly to enact anti-money laundering and antiterrorist financing legislation that conforms to international standards. It also should issue financial regulations that mandate the reporting of all suspicious transactions, and establish an FIU. In addition, in light of the role that private charities have played in terrorist financing, the GOP should develop a system to regulate charitable organizations and to shut down those charitable organizations that finance violence and terrorism. More emphasis should be put on the misuse of trade to launder money. The misuse of the Afghan transit trade should be examined. Tax reform is an essential component in helping to counteract the appeal of hawala.
Palau
An archipelago of more than 300 islands in the Western Pacific with a population of nearly 20,000 and per capita GDP of about $6,000. Upon its independence in 1994, the Republic of Palau entered the Compact of Free Association with the United States. The U.S. dollar is legal tender. Palau is not a major financial center. Nor does it any longer offer offshore financial services. There are no offshore banks, trust companies, securities brokers/dealers or casinos in Palau. Palauan authorities believe that drug trafficking and prostitution are the primary sources of illegal proceeds that are laundered.
Amid reports in late 1999 and early 2000 that offshore banks in Palau had carried out large-scale money laundering activities, a few international banks banned financial transactions with Palau. In response, Palau established a Banking Law Review Task Force that recommended financial control legislation to the Olbill Era Kelulau (OEK), the national bicameral legislature in 2001. Following that, Palau took several steps toward addressing financial security through banking regulation and supervision and putting in place a legal framework for an anti-money laundering regime. Several pieces of legislation were enacted in June 2001.
The Money Laundering and Proceeds of Crimes Act (MLPCA) of 2001 criminalized money laundering and created a financial intelligence unit. This legislation imposes threshold and suspicious transactions reporting and record keeping requirements for five years from the date of the transaction. Credit and financial institutions are required to keep regular reports of all transactions made in cash or bearer securities in excess of U.S. $10,000 or its equivalent in foreign cash or bearer securities. This threshold reporting also covers domestic or international transfers of funds of currency or securities involving a sum greater than U.S. $10,000. All such transactions (domestic and/or international) are required to go through a credit or financial institution licensed under the laws of the Republic of Palau.
The Financial Institutions Act of 2001 established the Financial Institutions Commission, an independent regulatory agency, which is responsible for licensing, supervising and regulating financial institutions, defined as banks and security brokers and dealers in Palau. Currently, there are nine licensed banks in Palau. Seven of the banks are 100 percent owned by foreigners and foreigners and citizens of Palau jointly own two. Additionally, three other banks have had their licenses invalidated. Other entities subject to the provisions of the MLPCA, such as the seven money services businesses, two finance companies and five insurance companies, are essentially unsupervised. Credit and financial institutions are required to verify customers? identity and address. In addition, these institutions are required to check for information by ?any legal and reasonable means? to obtain the true identity of the principal/party upon whose behalf the customer is acting. If identification cannot, in fact, be obtained, all transactions must cease immediately.
The lack of both and human and fiscal resources has hampered the development of a viable anti-money laundering regime in Palau. There is not a functioning FIU and implementing regulations to ensure compliance with the MLPCA have yet to be written. The will of the Executive branch to comply with international standards, however, was clearly demonstrated by President Remengesau in 2003, when he vetoed a bill that would have extended the deadline for bank compliance and would have reduced the minimum capital for a bank from $500,000 to $250,000.
Palau has enacted several legislative mechanisms to foster international cooperation. The Mutual Assistance in Criminal Matters Act (MACA), passed in June 2001, enables authorities to cooperate with other jurisdictions in criminal enforcement actions related to money laundering and to share in seized assets. The Foreign Evidence Act of 2001 provides for the admissibility in civil and criminal proceedings of certain types of evidence obtained from a foreign State pursuant to a request by the Attorney General under the MACA. Under the Compact of Free Association with the United States, a full range of law enforcement cooperation is authorized.
Palau has taken several steps toward enacting a legal framework by which to combat money laundering. It has signed Pacific Island Forum anti-money laundering initiatives and as a member of the Asia/Pacific Group on Money Laundering, Palau is committed to implement the Financial Action Task Force Revised 40 Recommendations and its Eight Special Recommendations on Terrorist Financing. As a party to the UN Convention for the Suppression of the Financing of Terrorism, Palau should criminalize the financing of terrorism. In continuing it efforts to comport with international standards, Palau should promulgate implementing regulations to the MLPCA, establish a functioning FIU, lower or eliminate the threshold for reporting suspicious transactions and begin a broad-based implementation of the legal reforms already put in place.
Panama
The economy of Panama is services-based and heavily weighted toward maritime transportation, commerce, banking, and financial services. Tourism is taking a prominent role as Panama?s cruise industry gains stature internationally. Despite significant progress to strengthen Panama?s anti-money laundering regime since October 2000, money laundering remains a serious problem in Panama and is a potential threat to the stability of the country?s legitimate financial institutions. Panama?s proximity to major drug-producing countries, its sophisticated international banking sector, U.S. dollar-based economy, and the Colon Free Zone?s (CFZ) role as an originating or transshipment point for goods purchased with narcotics dollars through the Colombian Black Market Peso Exchange make the country particularly vulnerable to money laundering. Panama?s financial institutions engage in currency transactions involving international narcotics trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States.
Panama?s large offshore financial sector includes international business companies (over 370,000 currently registered in Panama), offshore banks (approximately 34 banks), captive insurance companies (corporate entities created and controlled by a parent company, professional association, or group of businesses), and trusts. Captive insurance has become one of the most important sectors of Panama?s offshore financial industry, following banking. Lack of control over transfer of negotiable (bearer) bonds is another potential vulnerability that could be exploited by money launderers. The high volume of trade occurring through the CFZ (there are approximately 2,040 businesses established in the Zone) presents opportunities for trade-based money laundering to occur.
In June 2000, the Financial Action Task Force (FATF) identified Panama as a noncooperative country or territory in international efforts to fight money laundering (NCCT). In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions advising them to ?give enhanced scrutiny? to financial transactions involving Panama, including transactions involving the CFZ. Both the FATF designation and the advisory were withdrawn in June 2001, following a number of significant actions taken by the Government of Panama (GOP) to remedy the cited deficiencies in its anti-money laundering regime. The GOP engaged in a coordinated effort to enact and implement laws, executive orders, and regulatory agreements with banks to bring Panama?s anti-money laundering program into compliance with international standards.
Law No. 41 (Article 389) of October 2, 2000, amended the Penal Code by expanding the number of predicate offenses for money laundering beyond narcotics trafficking, to include criminal fraud, arms trafficking, trafficking in humans, kidnapping, extortion, embezzlement, corruption of public officials, terrorism, and international theft or trafficking of motor vehicles. Law No. 41 established a punishment of 5 to 12 years imprisonment and a fine.
Law No. 42 of October 2, 2000, requires financial institutions (banks, trust companies, money exchangers, credit unions, savings and loans associations, stock exchanges and brokerage firms, and investment administrators) to report to the Financial Analysis Unit (UAF)?Panama?s financial intelligence unit (FIU)?currency transactions in excess of $10,000 and suspicious financial transactions. Law 42 also mandates that casinos, CFZ businesses, the national lottery, real estate agencies and developers, and insurance/reinsurance companies report to the UAF currency or quasi-currency transactions that exceed $10,000. Furthermore, Law 42 requires Panamanian trust companies to identify to the Superintendence of Banks the real and ultimate beneficial owners of trusts.
Executive Decree No. 163 of October 3, 2000, which amended the June 1995 decree that created the UAF, authorizes the UAF to share information with FIUs of other countries, subject to entering into a memorandum of understanding (MOU) or other information exchange agreement. By the end of 2003 the UAF had signed MOUs with 27 FIUs, including the U.S. FIU. Executive Order No. 163 also allows the UAF to provide information related to possible money laundering directly to the Office of the Attorney General for investigation. The UAF continues efforts to raise the level of compliance for reporting suspicious financial transactions, particularly by nonbank financial institutions and businesses in the CFZ.
Executive Order 213 of October 3, 2000, amending Executive Order 16 of 1984 relating to trust operations, provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities. Furthermore, in October 2000, Panama?s Superintendence of Banks issued Agreement No. 9-2000 that defines requirements that banks must follow for identification of customers, exercise of due diligence, and retention of transaction records.
In 2002, the Ministry of Commerce and Industry issued a circular to all finance companies reminding them of the transaction-reporting requirement of Law 42. It also increased the number of inspections of finance companies, and began drafting a law to regulate the operations of pawnshops and exchange houses. The Autonomous Panamanian Cooperative Institute established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with the requirements of Law 42. The National Securities Commission carried out numerous training sessions and workshops for its personnel and regulated entities. The Colon Free Zone Administration prepared and issued a procedures manual for the users of the CFZ, outlining their responsibilities regarding prevention of money laundering and requirements under Law 42.
In December 2002, the Panamanian Legislative Assembly approved the Financial Crimes Bill (Law No. 6 of December 6, 2002), which establishes criminal penalties of up to ten years in prison and fines of up to one million dollars for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. The penalties criminalize a wide range of activities related to financial intermediation, including the following: illicit transfers of monies, accounting fraud, insider trading, and the submission of fraudulent data to supervisory authorities.
With support from the Inter-American Development Bank, the GOP is implementing a Program for the Improvement of the Transparency and Integrity of the Financial System. This Transparency Program is targeted, through enhanced communication and information flow, training programs, and technology, at strengthening the capabilities of those government institutions responsible for preventing and combating financial crimes and terrorist financed activities.
Panama has brought cases for domestic prosecution, and the UAF routinely transfers cases to the Unidad de Inteligencia Financiera (UIF) for investigation. During 2002, the UAF referred 196 such cases to the Attorney General. To increase GOP interagency coordination, the UAF and Panamanian Customs are developing an office at the Tocumen International Airport to expedite the entry of customs currency declaration information into the UAF?s database. This will enable the UAF to begin more timely investigations. In 2003, Panamanian Customs continued an anti-money laundering program at Tocumen International Airport, begun in 2001, to deter currency smuggling by seizing and forfeiting all undeclared funds in excess of $10,000 from arriving passengers. GOP cooperation in the investigation of the Western Hemisphere?s largest Black Market Peso Exchange money laundering scheme was instrumental in the U.S. conviction in 2002 of Yardena Hebroni, owner of Speed Joyeros, a CFZ enterprise. The GOP also revoked the Panamanian residency of Hebroni, an Israeli national, after she was ordered deported from the United States. Also notable in 2002 was GOP cooperation in the investigation of large-scale political corruption, theft, and embezzlement of Government of Nicaragua funds, and money laundering by former Nicaraguan president Arnoldo Aleman and members of his government and family. The Panamanian portion of the investigation resulted in the freezing of $7 million of the Nicaraguan funds in Panamanian banks and in the freezing of considerable real estate holdings in Panama.
The GOP identified the combating of money laundering as one of five goals in its five-year National Drug Control Strategy issued in 2002. The Strategy commits the GOP to devote $2.3 million to anti-money laundering projects, the largest being institutional development of the UAF. Also in 2002, the Institute of Autonomous Panamanian Cooperatives, UAF, and the U.S. Embassy Narcotics Assistance Section cosponsored a roundtable on money laundering that offered practical training to financial institutions to assist them in meeting the reporting requirements under Law No. 42. Both private and public sector officials responsible for enforcement of money laundering laws participated in a number of training events during 2003.
Law No. 50 of July 2003 criminalizes terrorist financing and gives the UAF responsibility for prevention of this crime. There are no legal impediments to the GOP ability to prosecute or extradite suspected terrorists. Panama Public Force (PPF) and the Judicial System have limited resources to deter terrorists, due to insufficient personnel and lack of expertise in handling complex international investigations. On January 18, 2003, the GOP entered into a border security cooperation agreement with Colombia, and also increased funds to the PPF to help secure the frontier. In response to U.S. efforts to identify and block terrorist-related funds, the GOP continues to monitor suspicious financial transactions.
Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. The GOP has also assisted numerous countries needing assistance in strengthening their anti-money laundering programs, including Guatemala, Costa Rica, Russia, Honduras, and Nicaragua. Panama also hosted the Seventh Hemispheric Congress on the Prevention of Money Laundering in August 2003. Panama is active in the multilateral Black Market Peso Exchange Group Directive. In March 2002, the GOP signed the cooperation agreement issued by the working group as part of a regional effort against the black market system. Panama is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD), the Caribbean Financial Action Task Force (CFATF), and the Offshore Group of Banking Supervisors. The UAF is a member of the Egmont Group. Panama is a party to the 1988 UN Drug Convention. Panama is a signatory to 11 of the UN terrorism conventions and protocols. During 2002, the GOP became a party to the UN International Convention for the Suppression of the Financing of Terrorism, and in 2000 signed, but has not yet ratified, the UN Convention against Transnational Organized Crime.
Panama should continue its regional assistance efforts. It should also continue implementing the significant reforms it has undertaken to its anti-money laundering regime, in order to reduce the vulnerability of Panama?s financial sector and to enhance Panama?s ability to investigate and prosecute financial crime, money laundering, and potential terrorist financing. In particular, the GOP should institute controls over the transfer of bearer bonds.
Papua New Guinea
Papua New Guinea is not a regional financial center. Its banking sector is relatively small and fairly regulated. There are currently no laws against money laundering or terrorist financing. However, according to the Government of Papua New Guinea?s (GPNG?s) September 2003 report to the UN Counter-Terrorism Committee that monitors implementation of UN Security Council Resolution 1373 (CTC), money laundering in Papua New Guinea will be criminalized pursuant to the proposed ?Proceeds of Crime Bill.? The bill would obligate financial institutions to retain essential financial documents for a specific period of time. Covered transactions will include transmission of funds between Papua New Guinea and a foreign country. The proposed legislation also calls for the communication of suspicious information by financial institutions to the police.
According to the September 2003 report to the CTC, the GPNG is also considering amendments to the Criminal Code Act that will cover the collection of funds, recruiting or soliciting of funds from other countries for terrorists/terrorist purposes ?which will essentially make terrorist acts criminal offenses.? In addition, the National Intelligence Organization (NIO) is in the process of submitting a Plan of Action on counterterrorism and other transnational crimes. The Plan of Action will focus on coordination and sharing of intelligence. Currently interagency coordination does exist to some extent with regard to narcotics, and task force ?Centre-points? have also been established to monitor and share intelligence information on drug trafficking, arms smuggling, human trafficking, and other border concerns. However, ?financial tracking? is not yet fully developed.
Papua New Guinea is not a party to any bilateral or multilateral treaties on mutual assistance in criminal matters. The GPNG plans legislation in this area. A proposed review will address changes to modernize the extradition process to conform to international standards. Papua New Guinea is an observer to the Asia/Pacific Group on Money Laundering. Papua New Guinea is not a party to the 1988 UN Drug Convention. Papua New Guinea is a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Papua New Guinea should enact a comprehensive anti-money laundering regime that criminalizes money laundering related to all forms of predicate offenses. Specific antiterrorism legislation implementing UNSCR 1373 and the UN International Convention on the Suppression of the Financing of Terrorism should also be adopted, including providing judicial jurisdiction for the crimes of terrorism and terrorist financing. Papua New Guinea should also become a party to the 1988 UN Drug Convention.
Paraguay
Paraguay is a principal money laundering center, and although accurate figures are not known, the National Anti-Drug Secretariat (SENAD) suspects that narcotics trafficking may generate about 40 percent of laundered funds. Money laundering occurs in both the banking and nonbanking financial systems.
Paraguay is particularly vulnerable to money laundering, as little personal background information is required to open a bank account or to make financial transactions in Paraguay. Paraguay is an attractive financial center for neighboring countries, particularly Brazil. Foreign banks are registered in Paraguay and nonresidents are allowed to hold bank accounts, but current regulations forbid banks from advertising or seeking deposits from outside the country. The Superintendent of Banks audits financial institutions and supervises all banks under the same rules and regulations. However, there are few effective controls over businesses, and there is a large informal economy outside the regulatory scope of the Government of Paraguay (GOP).
Money laundering in Paraguay is facilitated by the multi-billion dollar contraband re-export trade that is centered in Ciudad del Este (CDE), the heart of Paraguay?s informal economy, which lies outside the reach of the government?s authority. The area is well known for arms and drug trafficking as well as crimes against international property rights. There are no controls on the amount of currency that can be brought into or out of the country, and there are no cross-border reporting requirements. Government officials, in both Paraguay and the U.S., also suspect the area to be a source of terrorist financing. Raids in CDE have led to the seizure of arms catalogs, bomb-making materials, extremist Islamic materials, and receipts of wire transfers from Paraguay to the Middle East and the United States. Paraguay has taken some measures to tackle this ?gray? economy and to develop strategies to implement a formal, diversified economy. Important options that Paraguay is considering are ?maquila? (assembly line industries) and tourism.
Paraguay continued to experience banking failures, including the closing of the National Workers? Bank (BNT), the collapse of Banco Aleman in June 2002, and that of Multi-Banco in June 2003. The most spectacular case involved $16 million diverted from the Central Bank to private accounts allegedly linked to the family of former President Luis Gonzalez Macchi. The GOP is working with the U.S. Treasury and Justice Departments to trace and account for the missing funds, and return them to the Central Bank.
The GOP made significant progress in 2003 with regard to strengthening its anti-money laundering regime. A new law was drafted to improve the effectiveness of Paraguay?s money laundering legislation and establish a single functional Financial Intelligence Unit (FIU). The draft of the new legislation was completed in November 2003 and is scheduled to be formally introduced in Congress in March 2004.
Until the new law is passed, money laundering is considered a criminal offense under Paraguay?s two anti-money laundering statutes, Law 1015 of 1996 and Article 196 of Paraguay?s Criminal Code, adopted in 1997. The existence of the two laws has led to substantial confusion due to overlapping provisions. Under Article 196, the scope of predicate offenses includes only offenses that carry a maximum penalty of five years or more; Law 1015 includes additional offenses. Article 196 also establishes a maximum penalty of five years for money laundering offenses, while Law 1015 carries a prison term of two to ten years. This is particularly significant because, under the new Criminal Code and Criminal Procedure Code, defendants who accept charges that carry a maximum penalty of five years or less are automatically entitled to a suspended sentence and a fine instead of jail time, at least for the first offense. Since a defendant cannot be charged with money laundering unless he or she has first been convicted of the predicate offense, many judges are apparently reluctant to prosecute any defendant on money laundering charges because a sentence has already been issued for a predicate offense. Law 1015 of 1996 also contains ?due diligence? and ?banker negligence? provisions and applies money laundering controls to nonbanking financial institutions, such as exchange houses. Bank secrecy laws do not prevent banks and financial institutions from disclosing information to bank supervisors and law enforcement entities. Additionally, bankers and others are protected under the anti-money laundering law with respect to their cooperation with law enforcement agencies.
Additional provisions of Law 1015 require banks and financial institutions to know and record the identity of customers engaging in significant currency transactions and to report those suspicious activities to the FIU, the Unidad de An?lisis Financiera (UAF) that began operating in 1997 within the Secretary for the Prevention of Money Laundering (SEPRELAD) under the auspices of the Ministry of Industry and Commerce (MIC). However, for many years the UAF has been regarded as ineffective and hampered by a burdensome bureaucratic structure, lack of financial support and the inability to keep trained personnel. The UAF?s weaknesses were reflected in the small number of cases presented to the Public Ministry (Attorney General?s office) for prosecution. Before 2001, only one went to trial and it was dismissed on procedural grounds. The majority of the cases prepared by the UAF were incomplete and were returned to the UAF by prosecutors for more information or investigation. These included most of the 46 suspicious financial transactions by ethnic Arabs that the FIU had compiled immediately following September 11, 2001 which showed millions in dollars of wire transfers from Ciudad del Este to Lebanon. Although charges of money laundering were not presented against any individual, part of the information prepared by the FIU did help buttress the criminal case against one suspected fund-raiser for terrorist organizations. This person was sentenced to six and one-half years in prison for tax evasion.
In an effort to invigorate the investigations against money laundering, the SEPRELAD was transferred in July 2002, by Presidential Decree, to the Attorney General?s Office. While this transfer allowed for improvement in some areas, particularly in management, progress has was slow. The UAF lacked a standardized form for the filing of suspicious activity reports (SARs), which inhibited the reporting and analysis process. Analysis was also limited because SAR reporting currently is manual, and the UAF analysts had to input the information from the SAR forms into the UAF database. Reporting requirements for large currency transactions were not appropriately enforced. There were also serious concerns with regard to the UAF?s personnel, its handling of confidential information, cumbersome record keeping and concerns about possible corruption within the FIU. As a result, in August 2003, SEPRELAD was returned to the direction of the Ministry of Industry and Commerce, and a new director was named. By October, existing personnel began to be vetted and replaced as appropriate.
A complicating factor for Paraguay in the wake of the September 11, 2001 terrorist attacks, was the creation of a parallel investigative unit by the Superintendent of Banks. The intended purpose of this new FIU was principally to coordinate the review of Paraguayan financial institutions? databanks for suspected terrorist activity. Although the banking FIU did conduct some initial investigations, it did not collaborate effectively with the FIU under the Ministry of Industry and Commerce. Moreover, the existence of two FIU?s in Paraguay, with duplicative activities, was contrary to international standards established by the Egmont Group, which Paraguay joined in 1998. As defined by the Egmont Group, a financial intelligence unit must be a central, national agency responsible for receiving, analyzing and disseminating financial information. In an effort to rectify the situation, in November 2003 the Superintendent of Banks abolished its FIU equivalent and established instead a banking ?Risk Control Division? with the primary responsibility of reviewing national financial institution?s records for suspected terrorist activity. The Risk Control Division was also empowered to coordinated information exchange with the Central Banks of other MERCOSUR countries, but was not given authority already contained in the Ministry of Industry and Commerce?s FIU to conduct investigative work associated with financial suspicious activity reports.
The new money laundering legislation, if approved by the Paraguayan Parliament following its scheduled presentation in March of 2004, will institute important national reforms. In addition to confirming the FIU-SEPRELAD as Paraguay?s lead and sole financial investigative unit, it establishes the FIU-SEPRELAD an independent secretariat or agency reporting directly to the Office of the President (similar to the local drug enforcement agency, the SENAD). The draft law also establishes money laundering as an autonomous crime punishable by a prison term of five to 20 years. It establishes predicate offenses as any crime that is punishable by a prison term exceeding six months and specifically criminalizes money laundering tied to the financing of terrorist groups or acts. The draft legislation further allows prosecutors to recommend that judges freeze or confiscate assets connected to money laundering and its predicate offenses, and it creates a special asset forfeiture fund (to be administered by a consortium of national governmental agencies) to support programs for crime prevention and suppression, including combating money laundering and related training.
The full range of relevant institutions will be required to report suspicious transactions to the FIU-SEPRELAD and to maintain registries of large currency transactions that equal or exceed $10,000. Other provisions of the draft law include penalties for failure to file or falsify reports, ?know-your-client provisions,? and standardized record keeping for a minimum of seven years. The FIU-SEPRELAD will also refer cases as appropriate for further police (SENAD) investigation and to the Attorney General?s Office for prosecution. It will also serve as the central entity for related information exchanges with other concerned foreign entities. The law further specifies that the investigative unit of the police is the principal authority for carrying out all antidrug and other financial investigations, and will also have the authority to initiate investigation of cases on its own. Due to allegations of malfeasance and corruption against the Paraguayan Customs Service, there is currently little or no coordination between the two entities.
Under the draft legislation, those institutions that must interact with the FIU-SEPRELAD include, inter alia, banks, financial institutions, insurance agencies, currency exchange houses, securities companies and brokers (stock exchange), investment companies, money transmitters, administrators of mutual investment and pension funds, credit unions, operators of gambling facilities, real estate agencies, nongovernmental organizations, pawnshops and dealers in jewels, precious stones and metals, automotives, art and antiques.
With only 10 prosecutors dedicated to financial crimes, Paraguay currently has only limited resources to investigate and prosecute money laundering and financial crimes. Moreover, prosecutors have little experience working with FIU--SEPRELAD, and until the new law is enacted, most judges have little incentive to investigate money laundering cases because many believe that sentencing on predicate offenses is sufficient punishment., Thus, there have not been any successful money laundering prosecutions in Paraguay so far, and improvement is unlikely until the new law becomes a reality.
The GOP ratified the OAS Inter-American Convention on Terrorism on October 30, 2003, and has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Paraguay is a member the South American Financial Action Task Force (GAFISUD) and underwent a mutual evaluation on anti-money laundering practices in 2003. Paraguay is also a member of the Egmont Group. The GOP has signed the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Hemispheric Drug Strategy. Paraguay is party to the 1988 UN Drug Convention, and participates in Summit of the Americas and CICAD-related meetings on money laundering. The GOP has signed, but not ratified, the OAS Inter-American Convention on Mutual Assistance in Criminal Matters and the UN Convention against Transnational Organized Crime, which entered into force on September 29, 2003. On December 9, 2003, Paraguay signed the UN Convention against Corruption, which is not yet in force internationally. Paraguay is also a member of the ?3 Plus 1? Counterterrorism Dialogue.
While the GOP took a number of positive steps in 2003, there are other initiatives that should be pursued in 2004 to increase the effectiveness of Paraguay?s efforts to combat money laundering and terrorist financing. Most important is enactment of the new money laundering law that meets international standards. The GOP should also continue efforts to combat corruption, especially with regard to the Customs service and tax authority, and increase information sharing among concerned agencies when and if the corruption issues are resolved. Paraguay does not have an antiterrorism law or a law criminalizing terrorist financing. While the new money laundering law will increase the GOP?s abilities to combat terrorist financing, the GOP should take steps as quickly as possible to ensure that comprehensive antiterrorism legislation is passed. It is essential that the UAF-SEPRELAD receive the financial and human resources necessary to operate as an effective, fully functioning FIU capable of effectively combating money laundering, terrorist financing and other financial crimes.
Peru
Peru is not a major regional financial center nor an offshore money laundering haven. Narcotics-related and other money laundering does occur, but existing laws do not provide reliable or adequate mechanisms to estimate its scale in Peru. Such money laundering may be connected with narcotics-related activity originating in Peru, Colombia, or elsewhere in the region, and may involve proceeds of narcotics sales in the United States. Peru?s economy is largely cash-based, facilitating possible money laundering. Peru?s economy is approximately 65 percent dollarized, increasing its vulnerability to laundering in U.S. currency.
A number of former government officials, most from the prior Fujimori Administration, are under investigation for corruption-related crimes, including money laundering. These officials have been accused of transferring tens of millions of dollars in proceeds from illicit activities (e.g. bribes, kickbacks, or protection money) into offshore accounts in the Cayman Islands, the United States, and/or Switzerland. The Peruvian Attorney General, a Special Prosecutor, the office of the Superintendent of Banks (SBS) and the Peruvian Congress have conducted numerous investigations, some of which are ongoing, involving dozens of former Government of Peru (GOP) officials. In 2003, the GOP continued to make strong efforts at uncovering and recovering the millions of U.S. dollars believed to be the proceeds of money laundering activities carried out by Vladimiro Montesinos, former director of the Peruvian National Intelligence Service. There are currently five known money laundering cases underway in the Peruvian court system, but no convictions for money laundering offenses have occurred to date in Peru.
In 2002 the GOP strengthened its anti-money laundering regime by creating a financial intelligence unit (FIU), expanding the type of institutions required to file suspicious transaction reports, increasing the number of predicate crimes, criminalizing willful blindness, and reinstating reporting requirements for large cash transactions. Prior to 2002, Peru had a limited anti-money laundering legislative and regulatory framework. The previous system criminalized only the laundering of proceeds directly associated with narcotics trafficking and ?narcoterrorism.? The new law builds on the 1991 banking law, the 1996 General Law of the Financial and Insurance System and Organic Law of the Superintendency of Banking and Insurance (No. 26702), and 1998 implementing regulations. The new law is very brief, however, and lacks implementing regulations. Furthermore, only certain financial institutions are regulated under the money laundering law, and no regulatory control is
On April 12, 2002, President Toledo signed Law 27693, which provided for the creation of Peru?s first FIU, the Unidad de Inteligencia Financiera (UIF). The UIF is an autonomous body located under the Office of the Prime Minister, and is responsible for receiving, analyzing, and disseminating suspicious transaction reports. Prior to Law 27693, all unusual or suspicious financial transactions were reported directly to the Office of the Attorney General, and the information was then shared with the Financial Investigative Office of the Peruvian National Police Directorate of Counternarcotics (DINANDRO). Under the new law, the UIF reports information on possible crimes to the Attorney General?s office.
Also, only banks and financial institutions were required to file suspicious transaction reports under the old legislation. Now stock funds or brokers, the customs agency, casinos, auto dealers, construction or real estate firms, and other sectors, in addition to banks and financial institutions, are all required to report suspicious transactions to the UIF within 30 days. These entities are also required to maintain registries of suspicious activity reports (SARs). The UIF is also empowered to request financial transaction information from exchange houses, metal and antiques traders, and travel agencies.
Law 27693 also reinstated reporting requirements for large cash transactions. An amendment to the previous anti-money laundering law had required the reporting of currency transactions over 30,000 soles (about $10,000), but this requirement was suspended in August 1998, one month after the amendment went into effect. This amendment did not apply to institutions other than banks or financial companies. The new money laundering law requires the reporting of individual cash transactions exceeding $10,000 or transactions totaling $50,000 in one month. Nonfinancial institutions, such as exchange houses, casinos, lotteries or others, must report individual transactions over $2,500 or monthly transactions over $10,000. Private businesses, banks, and financial companies must report these transactions to the UIF, and major institutions are required to appoint supervisory-level compliance officials to ensure that reporting requirements are met. Law 27693 does not address the issue of reporting the transportation of cash or monetary instruments into or out of Peru.
On June 20, 2002, a new law was passed, Law 27765, that expands the predicate offenses for money laundering to include the laundering of assets related to serious crimes, such as drug trafficking, terrorism, corruption, trafficking of persons, and kidnapping. However, Peru has not enacted legislation that criminalizes the financing of terrorism. The penalties for money laundering were also altered. Instead of a life sentence for the crime of laundering money, the new law sets prison terms of to fifteen years for convicted launderers, with a minimum sentence of twenty-five years for cases linked to narcotics trafficking, terrorism, or laundering through banks or financial institutions. In addition, the revised Penal Code criminalizes ?willful blindness,? the failure to report money laundering conducted through one?s financial institution when one has knowledge of the money?s illegal source, and imposes a three to six year sentence for failure to file suspicious transaction reports.
The UIF began operations in June 2003. A director was appointed in April 2003 and the unit had hired approximately 20 staff members by the end of 2003. The UIF secured approximately 5 million in initial funding from a government fund, ?Fedadoi,? of monies recovered after having been diverted or stolen under the prior Fujimori regime. The UIF began receiving SARs from financial sector institutions on September 1; from public notaries on September 22; from casinos, lotteries and other gaming institutions on October 22; and from all other obligated entities between November 10 and December 19, 2003. The UIF had received roughly 50 SARs by December 2003. Senior UIF staff has visited the U.S., Guatemala, Colombia and other countries to observe the operations of other FIUs.
In spite of significant advancements in Peru?s money laundering legislation, the powers of the UIF are still limited. On November 6, 2003, the UIF proposed introduction of a draft law to modify Law 27693, the law that created Peru?s UIF. The draft law expands the budgetary sources of the UIF and increases the number of entities that are required to file or maintain reports. The new law, however, does not grant the UIF the ability to impose sanctions for failure to report. Bank secrecy is protected by the Peruvian constitution, and the UIF is in the process of proposing an amendment that would grant it the ability to lift bank secrecy provisions and obtain further account information of persons who are the subject of suspicious transaction reports.
Peru currently lacks comprehensive and effective asset forfeiture legislation. The Financial Investigative Office of the Peruvian National Police Directorate of Counter narcotics has seized numerous properties over the last several years, but few were turned over to the police to support counternarcotics efforts. While Peruvian law does provide for asset forfeiture in money laundering cases, and these funds can be used in part to finance the UIF, there exists no clear mechanism to distribute seized assets among government agencies. The government?s ?Fedadoi? fund currently holds around 75 million in monies recovered after having been stolen or diverted during the Fujimori administration.
Terrorism is considered a problem in Peru, which is home to the terrorist organization Shining Path. Although the Shining Path has been designated by the United States as a foreign terrorist organization pursuant to Section 219 of the Immigration and Nationality Act and under Executive Order (E.O.) 13224, and the United States and 100 other countries have issued freezing orders against its assets, the GOP has no legal authority to quickly and administratively seize or freeze terrorist assets. In the event that such assets are identified, the Superintendent for Banks must petition a judge to seize or freeze them. A final judicial decision is then needed to dispose of or use such assets. Foreign Ministry Officials are working with other GOP agencies to complete the necessary legal revisions that will permit asset-freezing actions.
The Office of the Superintendent of Banks routinely circulates to all financial institutions in Peru updated lists of individuals and entities that have been included on the UNSCR 1267 Sanctions Committee?s consolidated list as being linked to Usama Bin Ladin, the Taliban, and al-Qaida, as well as those on the list of Specially Designated Global Terrorist Entities designated by the United States pursuant to E.O. 13224 (on terrorist financing). To date, no assets connected to designated individuals or entities have been identified, frozen, or seized.
Peru ratified the UN International Convention for the Suppression of the Financing of Terrorism on November 10, 2001, and the OAS Inter-American Convention on Terrorism on June 4, 2003. Peru is a party to the 1988 UN Drug Convention. On January 23, 2002, Peru deposited its instrument of ratification for the UN Convention against Transnational Organized Crime, which entered into force on September 29, 2003. Peru is a member of the Organization of American States Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering, and the South American Financial Action Task Force (GAFISUD). Peru and the U.S. Government signed a new extradition treaty in July 2001. The GOP ratified the treaty in October 2002 and the United States completed its ratification on January 23, 2003.
The GOP has made serious advancements in strengthening its anti-money laundering regime in 2003. However, much progress is still required. Anti-corruption efforts in Peru should be a priority, and the need for strong confidentiality protocols for the UIF should be stressed. The GOP should enact legislation that criminalizes the financing of terrorism and allows for administrative as well as judicial blocking of terrorist assets.
Philippines
The Philippines is a major financial center in the Pacific. In the past few years, the illegal drug trade in the Philippines reportedly has evolved into a billion-dollar industry. Additionally, the Philippines has experienced an increase in foreign organized criminal activity from China, Hong Kong, and Taiwan. Insurgency groups operating in the Philippines fund their activities through the trafficking of narcotics and arms and engage in money laundering through alleged ties to organized crime. Corruption of government officials is also a source of laundered funds.
In June 2000, the Financial Action Task Force (FATF) placed the Philippines on the list of noncooperative countries and territories (NCCT) in the fight against money laundering. The major deficiencies cited by the FATF were excessive bank secrecy provisions and lack of a basic set of anti-money laundering regulations, including customer identification and record keeping requirements. Following its placement on the NCCT list, FinCEN, the U.S. financial intelligence unit, issued an advisory to all U.S. financial institutions instructing them to ?give enhanced scrutiny? to transactions involving the Philippines; the advisory is still in effect.
With the March 2003 enactment of the amendments to the Anti-Money Laundering Act of 2001 (AMLA), the Government of the Republic of the Philippines (GORP) made important progress in developing its anti-money laundering and terrorist financing regime. The FATF deemed the amendments to have sufficiently addressed the main legal deficiencies in the Philippines anti-money laundering regime and the international organization decided not to formally apply countermeasures. In June 2003, FATF invited the Philippines to submit an implementation plan to enable FATF to evaluate the execution of its legislative changes. The GORP is currently in the implementation phase. The Philippines will remain on the NCCT list until sufficient implementation of the legal and regulatory framework has taken place.
The major accomplishments of the Amendments to the AMLA are the following: a). Lowered the threshold amount for covered transactions (cash or other equivalent monetary instrument) from 4,000,000 pesos to 500,000 pesos ($80,000 to $10,000) within one (1) banking day. b). Expanded financial institution reporting requirements to include the reporting of suspicious transactions, regardless of amount. c). Authorized the Central Bank (Bangko Sentral ng Pilipinas or BSP) to examine any particular deposit or investment with any bank or nonbank institution in the course of a periodic or special examination (in accordance with the rules of examination of the BSP), to ensure institution compliance with the Anti-Money Laundering Act. d) Deleted the prohibitions of the Anti-Money Laundering Council to examine particular deposits or investments opened or created before the Act. The AMLC is now able to respond to a request from foreign authorities regarding deposits and investments made prior to the coming into effect of the AMLA.
The Anti-Money Laundering Act 2001 (AMLA) criminalizes money laundering, an offense defined to include the conduct of activity involving the proceeds of any unlawful activity, and imposes penalties that include a term of imprisonment of up to seven years. The Implementing Rules and Regulations (IRR) for the Anti-Money Laundering Act were enacted in April 2002.
The Anti-Money Laundering Council (AMLC), the Philippine financial intelligence unit (FIU), was established under the AMLA. The AMLC is comprised of the Governor of the Central Bank, Commissioner of the Insurance Commission, and the Chairman of the Securities and Exchange Commission. By law, the AMLC Secretariat is an independent agency that is responsible for receiving, maintaining, analyzing, and evaluating covered suspicious transactions, provides advice and assistance to relevant authorities, and issues publications. In practice however, the AMLC is experiencing operational difficulties.
The AMLC is authorized, among other things, to receive suspicious activity reports from covered institutions and to freeze assets alleged to be connected to money laundering. However, the AMLC is unable to instantly freeze bank accounts. By law, the AMLC must wait for Suspicious Transaction Reports (STRs) to be filed, and then establish probable cause. Once probable cause is established, the AMLC is able to freeze an account for a period of 15 days. The AMLC is required to obtain a court order to be able to examine an account. A drawback to this system, especially in connection with terrorist financing, is that terrorism has not yet been defined as a crime. According to the GORP, in its first year of operations the AMLC received 299 STRs and 186,621 Covered Transaction Reports (CTRs).
An interagency Financial Systems Assessment Team (FSAT) conducted an on-site evaluation of the Philippines? anti-money laundering/counterterrorist financing (AML/CTF) regime in October 2003. The FSAT team identified GORP vulnerabilities in the areas of financial regulatory practice, FIU investigative and information technology resources, law enforcement, and prosecution that inhibit the full exploitation of the GORP?s newly amended anti-money laundering legislation and Implementation Plan and made specific recommendations for assistance and training.
Despite major improvements to the legal framework, there is an area of concern regarding bank compliance and bank secrecy that has not yet been resolved. The BSP does not have a mechanism in place to assure that the financial community is adhering to the reporting requirements. While bank secrecy provisions to the BSP?s supervisory functions were lifted in Section 11 of the AMLA, implementation appears to be a problem. Due to Philippine ?privacy issues,? examiners of the BSP are not allowed to review documents held by covered institutions in order to determine if the covered institutions are complying with the reporting requirement. They are only allowed to ask the AMLC, as a result of their examination, if an STR has been filed. If the AMLC determines one was not filed, then it has the responsibility to make inquiries of the covered institution. This process is entirely too cumbersome for due diligence.
The Philippines is a member of the Asia/Pacific Group on Money Laundering and is a party to the 1988 UN Drug Convention. The Philippines and the United States have a Mutual Legal Assistance Treaty that entered into force in 1996. The GORP has signed and ratified the UN Convention against Transnational Organized Crime.
The GORP became a party to, the UN International Convention for the Suppression of the Financing of Terrorism on January 7,2004. An Anti-Terrorism Bill covering the financing of terrorism is pending in both Houses of the Congress but a vote on the legislation is not expected until after the May 2004 general election. In the absence of an Anti-Terrorism Law, the Anti-Money Laundering Council is able to freeze funds and transactions identified with or traced to designated terrorist organizations and/or individuals upon request of the United Nations Security Council, the U.S. and other foreign governments.
The Government of the Republic of the Philippines should continue to enhance and implement its newly amended anti-money laundering legislation. In particular, the GORP must effectively implement the laws and procedures it has put in place. The GORP should ensure that adequate financial and human recourses are in lace to properly equip and train law enforcement and regulatory personnel. Finally, the GORP should enact and implement legislation that criminalizes terrorism and terrorist financing.
Poland
Its location between the former Soviet Union republics and countries of the European Union and the lucrative markets beyond places Poland directly in the path of narcotics-traffickers and organized crime groups. Narcotics trafficking, organized crime activity, auto theft, smuggling, extortion, counterfeiting, burglary and other crimes generate criminal proceeds in the range of $2-3 billion yearly, according to Polish government estimates. Poland?s banks serve as transit points for the transfer of criminal proceeds. Polish insurance companies and casinos may likewise be venues for money laundering activity. The unregistered or gray economy, used primarily for tax evasion, is estimated at between 14 and 20 percent of GDP; the Government of Poland (GOP) believes the black economy is only 1 percent of GDP.
The National Security Strategy of Poland has labeled the anti-money laundering effort as a top priority. In June 2001, the November 2000 Act on Counteracting Introduction into Financial Circulation of Property Values Derived from Illegal or Undisclosed Sources, often referred to as ?the Act of 16 November,? came into force. This law broadened the offense of money laundering to encompass all serious crimes, and increased penalties. It also contains ?safe harbor? provisions that exempt financial institution employees from normal restrictions on the disclosure of confidential banking information. The ?Act of 16 November? also provided for the creation of a financial intelligence unit (FIU), the General Inspectorate of Financial Information (GIIF), to collect and analyze large and suspicious transactions. GIIF is housed within the Ministry of Finance and became operational in July 2001. In 2002, Poland amended its customs law to require the reporting of any cross-border movement of more than 10,000 euro in currency or financial instruments.
Article 299 of the Criminal Code criminalizes money laundering. The article places Poland in the group of countries with the ?all crimes? approach to the predicate offense, addresses self-laundering, and criminalizes tipping off. The Parliament passed amendments to the law on countering the trading in assets from illegal or unknown sources and on countering the financing of terrorism on March 14, 2003. The law requires that GIIF be notified about all financial deals exceeding 15,000 euros. A major weakness of Poland?s former money laundering regime was that it did not cover many nonbank financial institutions that had traditionally been used for money laundering. Under the new regime, the scope of institutions subject to identity verification, record keeping, and suspicious transaction reporting has been widened. Financial institutions subject to the reporting requirements include banks, the National Depository for Securities, the post offices, auction houses, antique shops, brokerages, casinos, insurance companies, investment and pension funds, leasing firms, private currency exchange offices, real estate agencies, and notaries public. Legal professionals and accountants are still not covered by the legislation. In addition, financial institutions are now required to put internal anti-money laundering procedures into effect?a process that is overseen by GIIF. The GIIF is also working with the private sector to develop a better risk profile in Poland, including taking measures to prevent the misuse of charities.
Additional amendments to the money laundering law were prepared, and underwent a first reading before the Sejm on December 11, 2003. These amendments were to address remaining areas which were not fully in line with the Second European Union (EU) Directive. Poland will become an EU member on May 1, 2004, and has worked diligently to bring its laws into full conformity with EU obligations. These amendments broaden the scope of institutions obligated to report to include lawyers, auditors and charities; add corporate criminal liability to the penal code; and give the GOP authorization to act against terrorism financing. Poland is still working on amendments to the criminal code, which would further improve the government?s ability to seize assets.
In its first year of existence, GIIF received over 350 suspicious transaction reports (STRs). In 2002, GIIF received 670 STRs, from which prosecutors prepared 70 cases. In the first eleven months of 2003, GIIF received 621 STRs, of which it forwarded 134 to prosecutors. Most of the STRs in 2003 came from commercial banks and insurance companies. To date, there have been over 100 cases of money laundering, 20 in the first quarter of 2003 alone. There have been only two convictions under the money laundering law, although investigations begun by GIIF have led to convictions for other offenses. GIIF is authorized to put a suspicious transaction on hold for 48 hours. The Public Prosecutor then has the right to suspend the transaction for three months further, pending a court decision. In the first nine months of 2003, GIIF suspended 14 transactions, and blocked eight accounts worth 12.5 million euro.
GIIF is upgrading its computer system to incorporate an expected two million transactions per month, including currency transaction reports exceeding 15,000 euros, and with provision for banks to submit reports securely and electronically. This new system should be complete and ready to go on line by July 1, 2004. GIIF also does on-site training and compliance-monitoring investigations. By late 2003, GIIF staff had completed on-site compliance investigations of all 61 commercial banks in Poland, and undertook a second, stricter control cycle. (The number of commercial banks has decreased and stands at 61; there are also 700 cooperative banks, which are very small and are grouped together for supervision purposes.) However, there is a lack of coordination between GIIF and other supervisory bodies, so there are some overlapping responsibilities, and some gaps in coverage.
There are two main police units that deal with the detection and prevention of money laundering. These are the General Investigative Bureau and the Unit for Combating Financial Crime. Both units cooperate well with GIIF overall, although there is a stated need for coordination at the higher levels. The Polish Code of Criminal Procedure, Article 237, allows for some Special Investigative Measures. This is problematic since money laundering investigations are not specifically covered, although it is possible that organized crime provisions might apply in some cases.
The GOP also recently created an office of antiterrorist operations within the National Police to coordinate and supervise regional antiterrorism units, as well as to train local police in antiterrorism measures. However, Poland has not criminalized terrorist financing. The Ministry of Justice has completed draft amendments to the criminal code that would criminalize terrorist financing as well as elements of all terrorism-related activity, and the amendments have been presented to the Minister of Justice. The next step is an inter-ministerial discussion on the amendments, which is scheduled to take place in early 2004.
Poland is a party to the 1988 UN Drug Convention, the European Convention on Extradition and its Protocols, the European Convention on Mutual Legal Assistance in Criminal Matters, and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, which went into full effect on April 1, 2003. In November 2001, Poland ratified the UN Convention against Transnational Organized Crime, which was in fact a Polish initiative. In 2003, Poland ratified the UN Convention for the Suppression of the Financing of Terrorism. Poland also signed and expects to ratify shortly the UN International Convention for the Suppression of Terrorist Bombings.
As a member of the Council of Europe, Poland participates in the Council of Europe?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) and has undergone first and second round mutual evaluations by that group. GIIF has been an active participant in the Egmont Group since it joined in 2002, and in FIU.net, the EU-sponsored information exchange network for FIUs.
A Mutual Legal Assistance Treaty between the United States and Poland came into force in 1999. In addition, Poland has signed bilateral mutual legal assistance treaties with Sweden, Finland, Ukraine, Lithuania, Latvia, Estonia, Germany, Greece and Hungary. As Polish law requires GIIF to have memoranda of understanding (MOU) with other international competent authorities before it can participate in information exchanges, GIIF has been diligent in signing MOUs with its counterparts in other countries. GIIF has signed 20 MOUs in the past 18 months. The GIIF-FinCEN MOU was signed in fall 2003. For the first eleven months of 2003, 201 requests were received by GIIF from foreign authorities, and GIIF made 80 requests to foreign authorities; three cases were opened using foreign information.
The GOP has taken a number of steps to put in place a comprehensive anti-money laundering regime to meet international standards. Improvements could further be made by promoting training at the sector level and by working to better coordinate investigations between relevant investigating agencies and prosecutors, so as to obtain an improved record of prosecutions and convictions. The GOP should also pass specific antiterrorist financing legislation.
Portugal
Portugal is an entry point for narcotics transiting into Europe, and officials of the Government of Portugal (GOP) indicate that most of the money laundered in Portugal is narcotics-related. GOP officials also report that currency exchanges, wire transfers, and real estate purchases are used for laundering criminal proceeds.
Portugal has a comprehensive anti-money laundering regime that criminalizes money laundering and other serious offenses, including terrorism, arms trafficking, kidnapping, and corruption. All cross-border movements of currency that exceed 12,000 euros must be declared. All financial institutions, including insurance companies, must identify their customers, maintain records for a minimum of ten years, and demand written proof from customers regarding the origin and beneficiary of transactions that exceed 12,000 euros. Nonfinancial institutions, such as casinos, property dealers, lotteries, and dealers in high-value assets, must also identify customers engaging in large transactions, maintain records, and report suspicious transactions to the Office of the Public Prosecutor.
In February 2002, the law governing money laundering (Act 10/2002) was brought into force. This law extended the list of entities obliged to report large transactions, to include account officers, external auditors, notaries, registrars, and money carriers. It also includes any other entities involved with the purchase and sale of real estate or commercial entities; operations connected with funds, securities, or other assets belonging to clients; opening or management of savings bank accounts or securities accounts; creation, exploitation, or management of companies, trust funds, or similar structures; and the execution of any financial operation. In addition, the obligated entities have the duty to report any suspicious operation, independent of the transaction amount.
Act 10/2002 also expands money laundering to include as predicate crimes arms trafficking, extortion, prostitution, trafficking in nuclear materials, trafficking in persons, trafficking in human organs or tissues, child pornography, trafficking in listed species, and tax fraud.
Portugal has established regulatory agencies, including the Central Bank of Portugal, the Portuguese Insurance Institution, the Gambling General Inspectorate, and the Economic Activities General Inspectorate, to monitor and enforce the reporting requirements of the obliged entities.
Portugal?s incorporation of the 2001 European Union (EU) Money Laundering Directive has not been completed. The Portuguese parliament has given the initial approval to the new law and the draft is currently under review by the committee and must be voted on by the whole assembly again. Portugal expects the law to take effect in early 2004.
When money laundering is suspected, financial institutions must cease processing the transaction in question and report it to the judicial authority and the Office of the Public Prosecutor. The Public Prosecutor then forwards suspicious transaction reports (STRs) for analysis to the Central Unit for Money Laundering Investigation (SCIB), which acts as the financial intelligence unit (FIU) for Portugal. Often, reporting entities, usually banks, file their formal report with the Prosecutor?s Office while informally reporting the case directly to the SCIB. If money laundering is indicated, the Portuguese Judicial Police will conduct an investigation. The SCIB consists of ten criminal investigation officers. The SCIB reported receiving 251 STRs in 2001 and 256 STRs in 2002, from banks and other financial entities. A total of 1,013 STRs have been filed between 1998 and 2002.
Portuguese laws provide for the confiscation of property and assets connected to money laundering, and authorize the Judicial Police to trace illicitly obtained assets, (including those passing through casinos and lotteries), even if the predicate crime is committed outside of Portugal. Act 10/2002 has also eased prosecutions. Police may now request files of individuals under investigation and, with a court order, can obtain and use audio and videotape as evidence in court. The law allows the Public Prosecutor to request that a lien be placed on the assets of individuals being prosecuted, in order to facilitate asset seizures related to narcotics and weapons trafficking, terrorism, and money laundering.
The 2002 law shifted the burden of proof in cases of criminal assets forfeiture from the government to the defendant; an individual must prove that his assets were not obtained as a result of his illegal activities. The law defines criminal assets as those owned by an individual at the time of indictment and thereafter. The law also presumes that assets transferred by an individual to a third party within the previous five years are still his, unless proven otherwise.
Portugal has comprehensive legal procedures that enable it to cooperate with foreign jurisdictions and share seized assets. The financial sector cooperates fully with the Judicial Police and the Public Prosecutor. Between January and November of 2002, the Judicial Police conducted 30 investigations of money laundering in connection with narcotics trafficking. Those investigations resulted in the arrest of seven individuals and the confiscation of approximately $3.5 million.
The Portuguese Madeira Islands International Business Center (MIBC) has a free trade zone, an international shipping register, offshore banking, trusts, holding companies, stock corporations, and private limited companies. The latter two business groups, of which there are approximately 6,500 companies registered in Madeira, are similar to international business corporations (IBCs). All entities established in the MIBC will remain tax exempt until 2011. Twenty-seven offshore banks are currently licensed to operate within the MIBC. The Madeira Development Company supervises offshore banks.
Companies can also take advantage of Portugal?s double taxation agreements. Decree-Law 10/94 permits existing banks and insurance companies to establish offshore branches. Applications are submitted to the Central Bank of Portugal for notification, in the case of EU institutions, or authorization, in the case of non-EU or new entities. The law allows establishment of ?external branches? that conduct operations exclusively with nonresidents or other Madeiran offshore entities, and ?international branches? that conduct both offshore and domestic business. Although Madeira has some local autonomy, its offshore sector is regulated by Portuguese and EU legislative rules, and it is supervised by the competent oversight authorities. Exchange of information agreements contained in double taxation treaties allow for the disclosure of information relating to narcotics or weapons trafficking. Bearer shares are not permitted.
In August 2003, Portugal passed Act 52/2003, which pertains to the fight against terrorism. The 2003 law specifically defines money laundering and criminalizes the transfer of funds related to the commission of terrorist acts. Additional legislation on terrorist financing is being drafted for consideration by parliament in 2004. Portugal has created a Terrorist Financing Task Force that includes the Ministries of Finance and Justice, the Judicial Police, the Security and Intelligence Service, the Bank of Portugal and the Portuguese Insurance Institution.
Portugal has applied all of the FATF recommendations on terrorist financing. Names of individuals and entities included on the UN 1267 sanctions consolidated list, or that the U.S. and EU have linked to terrorism, are passed to private sector organizations through the Bank of Portugal, Stock Exchange Commission, and the Portuguese Insurance Institution. In practice, the actual seizure of assets would only occur once the European Union?s clearinghouse process agrees to the EU-wide seizure of assets of terrorists and terrorist-linked groups. Portugal is actively cooperating in the search and identification of assets used for terrorist financing. To date, no significant assets have been identified or seized.
Portugal is a member of the Council of Europe, the European Union, and the Financial Action Task Force (FATF). Portugal held the FATF presidency from 1999 to 2000. Portugal is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Portugal is a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, and became a party to the UN International Convention for the Suppression of the Financing of Terrorism on October 18, 2002. The Money Laundering Investigation Unit of Portugal?s Judicial Police is a member of the Egmont Group.
Portugal has put into place a comprehensive and effective regime to combat money laundering. The GOP?s passage of new laws in 2002 strengthen its ability to investigate and prosecute, and the more recent steps taken in 2003 seek to extend the regime?s reach to terrorist financing. The GOP should continue to exercise due diligence over its offshore sector, and closely monitor domestic nonbank financial institutions.
Qatar
Qatar has a relatively small population (approximately 600,000 residents), with an extremely low rate of general and financial crime. The financial sector, though modern, is limited in size, and subject to strict regulation by the Qatar Central Bank (QCB). There are 15 licensed financial institutions, and two Islamic banks; 16 exchange houses; and three investment companies. Although Qatar is a cash-intensive economy, cash placement by money launderers is believed by authorities to be a negligible risk due to the close-knit nature of the society in Qatar and the rigorous ?know your customer? procedures required by Qatari law.
On September 11, 2002, the Emir of the State of Qatar signed the Anti-Money Laundering Law. According to Article 28 of the law, money laundering offenses involve the acquisition, holding, disposing of, managing, keeping, exchanging, depositing, investing, transferring, or converting of funds from illegal proceeds. The law imposes penalties of imprisonment of five to seven years, in addition to fines. The law expanded the powers of confiscation of proceeds gained from the commission of a crime, and instrumentalities used to commit a crime, to include the identification and freezing of assets as well as the ultimate confiscation of the illegal proceeds upon conviction of the defendant for money laundering.
The law requires all financial institutions to report suspicious transactions to the QCB and retain records for up to 15 years. The law also gives the QCB greater powers to inspect suspicious bank accounts, and grants the authorities the right to confiscate money in illegal transactions. Article 17 permits Qatar to extradite convicted criminals in accordance with international or bilateral treaties.
The Anti-Money Laundering Law established the National Anti-Money Laundering Committee (NAMLC) to oversee and coordinate money laundering combating efforts. It is chaired by the Deputy Governor of the QCB, in addition to seven other members form the Ministries of Interior, Civil Affairs and Housing, Economy and Commerce, Finance, Justice, and a representative from the QCB. The NAMLC is in the process of setting up its financial intelligence unit (FIU).
In addition to reporting suspicious transactions, financial institutions (including businesses conducting hawala transactions) must report all cash transactions of 30,000 Qatari rials (approximately $10,000) or above to the QCB. In 2002, the threshold was raised to QR100,000 (approximately $33,000). Any transaction of QR100, 000 or higher will be investigated by the QCB in coordination with the Ministries of Justice and Interior. All financial institutions also must identify the person entering into a business relationship or conducting a transaction.
All accounts must be opened in person. (Only Qatari citizens, legal foreign residents, and citizens of other Gulf Cooperation Council (GCC) states are permitted to open bank accounts.) In January 2002, QCB issued Circular Number 9 regarding the Combat of Money Laundering and Financing of Terrorism. This circular was designed to increase the awareness of all banks operating in Qatar with respect to anti-money laundering efforts, by explaining money laundering schemes and monitoring suspicious activities.
Qatar has taken steps to combat the financing of terrorism, including requiring banks to freeze the assets of the individuals and entities listed on the UN 1267 Sanctions Committee?s consolidated list. In 2002, the GOQ established a national committee, to review the consolidated designation lists and to recommend any necessary actions against individuals or entities found in Qatar. On August 24, 2003, the Anti-Money Laundering law was amended (amendment 21/2003) and published in the official gazette. Amendment 21 revised three articles in the anti-money laundering law. Article 2 was amended to broaden the definition for money laundering to include any activities related to terrorist financing. Article 8 added the customs and ports authority to the NAMLC. Article 12 authorized the Central Bank governor to freeze suspicious accounts up to ten days and to inform the attorney general within three days of any action taken. The Attorney General may renew or nullify the freeze order for a period of up to three months. After this process, a freeze order may not be renewed unless authorized by court order.
Qatar?s charities are under the direct supervision of the Ministry of Civil Service Affairs and Housing, as detailed in Law No. 8 of 1998 regarding private associations and institutions. Among the requirements of this law are: 1. registration; 2. regular government audits; 3. government approval for all disbursals; and 4. government inspection of facilities, documents, and records.
Article 37 of Law Number 8 of 1998, concerning the establishment and governance of private associations and institutions, stipulates that the Ministry of Awqaf (Endowments) and Islamic Affairs shall oversee and monitor all the activities of private institutions within the boundaries that are regulated by executive provisions. The Ministry may examine the institution?s books, records, and documents that are related to its activities, and it may amend its bylaws. The institution shall provide the Ministry with any information, documents, or other data it requests.
According to Article 1 of Law 15 of 1993, banks practicing in offshore business shall be formed either as joint stock companies having their head offices in the State of Qatar or as branches of Qatari or foreign banks.
The QCB, Public Prosecutor and the Criminal Investigation Division (CID) of the Ministry of Interior are the principal entities that have the responsibility for investigating and prosecuting money laundering cases. The QCB receives all suspicious transaction reports and conducts an initial analysis. The QCB obtains additional information from the banks and other government ministries before determining whether to forward the suspicious report to the Ministry of Interior. The Public Prosecutor and CID work closely on all criminal cases, although in financial cases they often seek the assistance of the QCB. There are no specialized units within the Public Prosecutor or CID?s offices that initiate or investigate financial crimes.
Qatar is in the process of establishing its financial intelligence unit (FIU). The Qataris have little financial crimes investigative experience. The Government of Qatar (GOQ) is working to increase the ability of local authorities to investigate financial crimes, particularly as outlined in the new money laundering law.
Qatar does not yet have any cross-border reporting requirements for financial transactions. Immigration and customs authorities are reviewing this policy and are increasingly interested in expanding their ability to detect trade-based money laundering. The Government of Qatar (GOQ) continues to investigate a seizure which occurred in November 2002 of approximately $400,000 worth of gold which had been smuggled into the country.
Qatar participates in the Financial Action Task Force (FATF) activities through its membership within the GCC. Qatar is a party to the 1988 UN Drug Convention. Qatar should become a party to the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime.
The amendments to Qatar?s new money laundering law to address terrorist financing crimes are indications of Qatar?s commitment to combating money laundering and terrorism financing. Implementation and enforcement of the new law and regulations are essential to the success of Qatar?s efforts. Qatar has demonstrated a willingness to work with other countries? FIUs in the fight against financial crimes. Qatar should continue to work to ensure that law enforcement, prosecutors, and customs authorities are active in recognizing and pursuing various forms of money laundering.
Romania
Romania continues to develop its anti-money laundering regime. Its geographic location makes it a natural transit country for trafficking in narcotics, arms, stolen vehicles, and persons and, therefore, vulnerable to money laundering. The majority of crimes generating illicit funds in 2003 were tax/VAT fraud and tax evasion. Romania also has one of the highest occurrences of online credit card fraud in the world. As in other countries in Eastern Europe, corruption and the presence of organized crime activity facilitate money laundering. The Romania National Office Against Money Laundering estimates $1.64 billion euros ($2.02 billion) has been laundered in Romania since 2001. Money laundered comes primarily from domestic criminal activity carried out by international crime networks. Romania saw a surge in organized crime activity during the first part of 2003. Transparency International placed Romania in the top tier of the world?s most corrupt countries. The proceeds of financial crimes and from the smuggling of cigarettes, alcohol, coffee, and other dutiable commodities are also believed to be laundered in Romania. From Romania, most of the laundered funds go to Cyprus (222 million euros in 2003).
Romania criminalized money laundering with the adoption in January 1999 of Law No. 21/99 ?On the Prevention and Punishment of Money Laundering.? The law became effective in April 1999 and mandates provisions for customer identification; record keeping; reporting transactions of a suspicious or unusual nature; currency transaction reporting for transactions over 10,000 euros; a financial intelligence unit (FIU), known as the National Office for the Prevention and Control of Money Laundering (NOPCML); and internal anti-money laundering procedures and training for all domestic financial institutions covered by the law. The list of entities subject to money laundering controls includes banks, nonbank financial institutions, attorneys, accountants, and notaries. However, in practice, these controls have not been as rigorous as those imposed on banks. There exists some natural discomfort on the part of the banking industry regarding requirements to assist law enforcement, but this has not stopped the Government of Romania (GOR) from establishing further measures, such as Norm No. 3, ?Know Your Client.? These norms, issued in February 2002 by the National Bank of Romania, bring Romania?s norms into line with the Basel Committee?s ?Customer Due Diligence for Banks Supervision in the insurance sector has recently been tightened.
In December 2002, the Law on the Prevention and Sanctioning of Money Laundering went into effect, changing the list of predicate offenses to the ?all-crimes? approach and requiring that every banking operation involving a sum exceeding 10,000 euros be reported to the NOPCML and monitored. The law also revises certain provisions in the former law. In addition, the new law expands the number and types of entities required to report to the NOPCML. Some of these new entities include art dealers, travel agents, privatization agents, postal officials, money transferors, and real estate agents. The new law also provides for both suspicious transaction reports (STRs) and currency transaction reports (CTR), with the CTR amounts conforming to European Union (EU) standards. The know your customer identification requirements have also been honed so that identification of the client becomes necessary upon both the beginning of a relationship and upon single or multiple transactions meeting or approaching a 10,000 euro standard. In accordance with a new national strategy on money laundering, lawyers are now obligated to report to the NOPCML. In addition, and in line with the Second EU Directive, tipping off has been prohibited. Romanian law permits the disclosure of client and ownership information to bank supervisors and law enforcement authorities, and protects banking officials with respect to their cooperation with law enforcement.
The NOPCML receives and evaluates STRs as well as CTRs. The law also provides for feedback to be given, upon request, to NOPCML from the General Prosecutor?s Office, and for NOPCML to participate in inspections and controls in conjunction with supervisory authorities. In 2002, MOPCML received 433 suspicious transaction reports filed on over 1,600 persons. During the first three-quarters of 2003, NOPCML had received 342 reports and investigated more than 1,500 persons. Of these, 256 cases were referred to the Prosecutor?s Office. However, efforts to prosecute these cases have been hampered by delays in reporting suspicious transactions, by a lack of resources in some regions, and by insufficient training in conducting complex historical financial investigations. The Law on the Prevention and Sanctioning of Money Laundering increased the powers of NOPCML, but it did not provide for an increase in administrative capacity. Romania has been working closely with Italy to improve the efficiency and effectiveness of NOPCML. Romanian law has some, but limited, provisions for asset forfeiture in the Law on Combating Corruption, No. 78/2000, and the Law on Combating Tax Evasion, No. 87/1994. The Directorate of Economic and Financial Crimes of the national police also has a mandate to pursue money laundering. Despite hundreds of money laundering cases investigated since 2001, the interface with the justice system remains ineffective.
The GOR announced a national anti-corruption plan in early 2003 and passed a law against organized crime, codifying the provisions of the UN Convention in January 2003, as well as a new anti-corruption law in April 2003. In the thirteen months since the September 2002 founding of the Anti-Corruption Prosecutor?s Office (PNA), over 2200 cases of corruption have been investigated. A new Criminal Procedure Code was passed and became effective on July 1, 2003. The new Code contains provisions for authorizing wiretapping, intercepting, and recording telephone calls for up to 30 days, in certain circumstances. These circumstances, as provided for within the new Code, include terrorism acts and money laundering.
After the events of September 11, 2001, Romania passed a number of legislative measures designed to sanction acts contributing to terrorism. Emergency Ordinance 141, passed in October 2001, legislates that the taking of measures, or the production or acquisition of means or instruments with an intention to commit terrorist acts, are offenses of exactly the same level as terrorist acts themselves. These offenses are punishable with imprisonment ranging from five to 20 years. Emergency Ordinance 159, also passed in 2001, sets measures for preventing the use of the financial and banking system to finance terrorist attacks, and sets forth the parameters for the government to combat such use. The National Bank of Romania, which oversees all banking operations in the country, also issued Norm No. 5 in support of Emergency Ordinance 159. Emergency Ordinance 153 was passed to strengthen the government?s ability to carry out the obligations under UNSCR 1373, including the identification, freezing and seizure of terrorist funds or assets. The National Bank of Romania receives lists of individuals and terrorist organizations from the UN. Sanctions Committee, EU, and USG, and circulates these to banks and financial institutions. No arrests or prosecutions have been carried out in regard to terrorism financing.
In April 2002, the GOR?s Supreme Defense Council of the Country (CSAT) adopted a National Security Strategy, which included a General Protocol on the Organization and Functioning of the National System on Preventing and Combating of Terrorist Acts. This system, effective July 2002 and coordinated through the Intelligence Service, brings together and coordinates a multitude of agencies, including 14 ministries, the General Prosecutor Office, the National Bank, and the National Office for the Prevention and Control of Money Laundering. The GOR has also set up an interministerial committee to investigate the potential use of the Romanian financial system by terrorist organizations.
The EU?s Europe Agreement with Romania provides for cooperation in the fight against drug abuse and money laundering. Romania is a member of the Council of Europe (COE) and participates in the Council of Europe?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). A mutual evaluation in April 1999 by that Committee uncovered a number of areas of concern, including the high evidence standard required for reporting suspicious transactions, a potential conflict with the bank secrecy legislation, and the lack of provisions for cases in which the reporting provisions are intentionally ignored. Romania has been working to address these concerns, bringing in legal experts from the EU to consult. In late 2003, Romania also underwent a Financial Sector Assessment Program (FSAP) by the World Bank as part of that organization?s pilot program.
The NOPCML is a member of the Egmont Group. The Mutual Legal Assistance Treaty signed in 2001 between the United States and Romania entered into force in October 2001. Romania has demonstrated its commitment to international anti-crime initiatives by participating in regional and global anti-crime efforts. Romania is a party to the 1988 UN Drug Convention, the Agreement on Cooperation to Prevent and Combat Transborder Crime, and the UN Convention against Transnational Organized Crime. With Law No. 263/2002, passed in 2002, Romania ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. During 2002, Romania also ratified the Council of Europe?s Criminal Law Convention on Corruption, and in December signed the UN Convention Against Corruption. Romania ratified the UN International Convention for the Suppression of the Financing of Terrorism in January 2003.
Romania should continue addressing the concerns of the Council of Europe evaluators as to further improvements in its anti-money laundering regime, and should continue its progress on money laundering investigations and prosecutions. The GOR should adopt procedures for the timely freezing, seizure and forfeiture of crime or terrorism related assets. The GOR should adopt reporting requirements for the cross-border movement of currency and monetary instruments.
Russia
Russia?s ability to combat the laundering of criminal financial proceeds domestically and internationally has been considerably strengthened over the past two years by aggressive enactment and implementation of comprehensive money laundering and counterterrorism financing legislation. Despite notable progress and demonstrated political will to aggressively combat these phenomena, the magnitude of money laundering remains large, because of the number and scale of contributing factors. Russia?s abundance of natural resources, infiltration of society by organized crime, high level of corruption (Transparency International Corruption Perceptions Index 2003 assigns Russia a score of 2.7 out of 10. ?Highly clean? rates a ?10? and the 2.7 score?unchanged from 2002?puts Russia in 86th place out of 133 countries), porous borders, role as a geographic gateway to Europe and Asia, weak banking system, and under-funding of regulatory and law enforcement agencies continue to leave it vulnerable to money laundering. Russia is still used for money laundering by Russian criminals moving funds out of Russia and by criminals from neighboring countries because of familiarity with the language, culture and economic system. The majority of these funds do not appear to be from activities related to narcotics production or trafficking, although these activities are believed to occur. Most of the proceeds of criminal or quasi-criminal activity are believed to derive primarily from domestic sources, including evasion of customs duties and smuggling operations. Such activities, however, are not believed to be connected to narcotics trafficking.
Net flows of money out of the country, primarily attributed to unrepatriated export earnings, tax evasion, and a weak banking system, have slowed noticeably in recent years, due in part to the 1998 ruble devaluation and higher oil prices, which together have led to more than 6 percent annual growth in the economy between 1999 and 2002. The growth in GDP, along with a renewed government effort to advance lagging economic structural reforms, raised business and investor confidence over Russia?s prospects in its second decade of transition, which in turn led to have led to a gradual reduction in capital flight.
The capital flight for 2003 totaled $2.7 billion, however, the underlying quarterly flows were quite volatile. The 2003 figure is down from $8.3 billion in 2002 and $15.2 billion in 2001. A significant but by no means predominant portion of capital flight constitutes proceeds of criminal activity. Central Bank officials have not linked the resumption in capital flight to the current scandal surrounding the arrest and indictment for tax evasion and embezzlement of Mikhail Khodorkovskiy, the CEO of the country?s largest oil producer, Yukos.
Russian Federation Federal Law No. 115-FZ ?On Combating Legalization (Laundering) of Criminally Gained Income and Financing of Terrorism? became effective on February 1, 2002, with subsequent amendments to the laws on banking, the securities markets, and the criminal code in October 2002, January 2003, and December 2003. The law requires obligated banking and nonbanking financial institutions to monitor and report transactions to an authorized agency, keep records, and identify their customers. Russian financial institutions (e.g., credit organizations, securities market professionals, insurance and leasing companies, funds transfer organizations, and pawnshops) must monitor and report to the government covered transactions that exceed 600,000 rubles (approximately $20,000) and involve any one of a list of specified characteristics, including, for example, the purchase of securities with cash or the use of foreign currency. Financial institutions must also report suspicious or unusual transactions that contain certain high-risk features or when money laundering is suspected.
Earlier reforms (1999) by the Central Bank of Russia (CBR) instituted regulatory measures to scrutinize offshore financial transactions. In the following six months, wire transfers from Russian banks to offshore financial centers dropped significantly. At the same time the CBR curtailed establishing correspondent relations with offshore banks by raising the standards for ?eligible? offshore financial institutions and thereby reducing the number. In August 2003, the CBR issued order 1317-U, which regulates the relations of Russian financial institutions with their counterparts in offshore zones. In addition to requiring reporting of all transactions, offshore banks are in some cases subject to enhanced due diligence and maintenance of additional mandatory reserves to offset potential risks undertaken by the Russian institution for specific transactions. Foreign financial entities, including those from known offshore havens, are not permitted to operate directly in Russia: they must do so solely through subsidiaries incorporated in Russia, which are subject to domestic supervisory authorities. During the process of incorporation and licensing, each director of the Russian company must be identified and investigated by Russian authorities; therefore nominee or anonymous directors are, as a practical matter, not permitted under Russian law and regulation. Enforcement of these procedures will be carried out as part of the regular domestic bank inspection process. (Since the regulation is brand new, there is not yet a track record of enforcement.) For Russian businesses that want to open operations abroad, including in offshore zones, government permission is required. The Ministry of Economic Development and Trade (MEDT) has a department that reviews requests from Russian firms, and the CBR must also approve the overseas currency transfer if the MEDT approves. In both these cases, the regulatory body for the offshore activity is the same as for domestic activity.
The CBR has issued guidelines regarding anti-money laundering practices within credit institutions, to include know your customer (KYC) and bank due diligence programs; yet, according to a Financial Action Task Force (FATF) report of April 2003, KYC regulations in Russia are currently inadequate. Though banks are required to know, record, and report identities of customers in suspicious transaction report (STR) filings, and to maintain appropriate records, the current requirement to identify beneficial owners of accounts refers only to establishing the identity of the legal or natural person who controls the funds, not the original source or true owner, thereby in effect allowing a bank to simply identify the nominal owner of the account. According to recent press reports, however, the Central Bank is in the process of drafting amendments to the current banking laws to bring them in line with the revised FATF Forty Recommendations, for consideration by parliament in spring 2004. Amendments to make identification and reporting of all suspicious transactions mandatory, as opposed to only transactions containing certain features, are also underway. Additionally, consistent with FATF recommendations, the criminal code was amended in December 2003, removing a specific monetary threshold for crimes connected with money laundering, and thus paving the way for prosecution of criminal offenses regardless of the sum involved.
Still, issues remain in this sphere. According to the FATF, a recent CBR audit revealed that although most Russian credit institutions perform their obligations as required by Russian money laundering and terrorist finance laws, approximately nine percent of credit institutions and 11.7 percent of credit institution branches were found to be out of compliance with one or more of the requirements of Russian law. Typical breaches involve inadequate record keeping, failure to follow client identification requirements as set out in the internal control rules, mistakes in formulating and submitting records in electronic form to the CBR, and incorrectly classifying transactions as not being subject to obligatory control.
Article 8 of Russian Federation Law 115-FZ calls for the Financial Monitoring Committee (FMC), an independent executive agency administratively subordinated to the Ministry of Finance, to serve as Russia?s financial intelligence unit (FIU). The FMC is responsible for coordinating all of Russia?s anti-money laundering and counterterrorism financing efforts. The FMC, which first became operational in February 2002, is as an administrative FIU, having no law enforcement investigative powers.
The FMC opened seven regional departments in 2003. Each of the territorial offices corresponds with one of the seven federal districts that comprise the Russian Federation. The Central Federal District office is headquartered in Moscow; the remaining six are located in the major financial/industrial regions throughout Russia. The primary functions of the territorial offices are to establish cooperation with regional law enforcement and other authorities to enhance information that comes into the FMC, and to supervise anti-money laundering and terrorism financing legislation compliance by institutions under FMC supervision. Additionally, the satellite offices must identify and register at the regional level all of the pawnshops, leasing, and gaming entities under their jurisdiction. They also are charged with coordinating efforts between the CBR and other supervisory agencies with respect to implementation of anti-money laundering and counterterrorist financing regimes.
Recent amendments to the anti-money laundering law have increased the FMC?s information gathering authority to include activities of investment foundations, nonstate pension funds, gambling businesses, and sales of precious metals and jewelry. Moreover, the amendments allow the FMC, in concert with banks, to freeze possible terrorist-related financial transactions up to one week. (Banks may freeze transactions for two days, and the FMC may follow up with an additional five days.) Consistent with FATF recommendations, further amendments are currently being drafted to expand the list of entities and individuals obliged to report to the FMC on suspicious financial operations. New entities will include lawyers, notaries, realtors, accountants, auditors, and other individuals providing legal services. Using encrypted software provided by the FMC, virtually all reporting from credit, securities, and insurance institutions is submitted via electronic means.
To date, the FMC has received over one million reports, approximately 50 percent of which are mandatory (currency) transaction reports and the other 50 percent suspicious transaction reports. According to the FMC, 12,000 of these reports contained evidence of criminal activity and were turned over to competent law enforcement authorities?the Ministry of Internal Affairs, the State Narcotics Control Committee, or the Federal State Security Service?for investigation, which resulted in the opening of 200 criminal cases. Thirteen of those criminal cases have thus far been sent to court.
In October 2003, the Russian Ministry of Internal Affairs (MVD) announced money laundering investigations against two large banks, Sodbiznesbank and Eurotrust. According to the MVD, four senior officials from Sodbiznesbank were allegedly involved in illegal transactions involving approximately $16.1 million, and three employees at Eurotrust were under investigation for laundering approximately $258 million of criminal proceeds.
In light of the reforms to Russia?s anti-money laundering regime, FATF withdrew its call for countermeasures against Russia in September 2001, and removed Russia from its list of noncooperative jurisdictions in October 2002. The U.S Treasury Department Advisory, which had instructed U.S. financial institutions to ?give enhanced scrutiny? to all transactions involving Russia, was also lifted. In February 2003, the FATF granted Russia observer status, and following a successful FATF mutual evaluation in April, Russia became a full FATF member at the June 2003 plenary. At its first plenary as a full-fledged FATF member, Russia announced its intention to create a FATF-Style Regional Body (FSRB) for the five Central Asian States of Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Russia is currently pursuing this initiative.
Russia has a legislative and financial monitoring scheme that facilitates the tracking and seizure of all criminal proceeds. None of this legislation, however, is specifically tied to narcotics proceeds. Russia?s laws criminalizing money laundering and terrorist financing also provide for the forfeiture of criminal proceeds. Russian legislation provides for a variety of investigative techniques such as search, seizure and compelling the production of documents, as well as the identification, freezing, seizing and confiscation of funds/assets. Where sufficient grounds exist to suppose that property was obtained as the result of a crime, investigators and prosecutors can apply to the court to have the property frozen or seized. Law enforcement agencies have power to identify and trace property that is, or may become, subject to confiscation or is suspected of being the proceeds of crime or terrorist financing. In accordance with its international agreements, Russia recognizes rulings of foreign courts relating to the confiscation of proceeds from crime within its territory and can fully or partially transfer confiscated proceeds of crime to the foreign state whose court issued the confiscation order. However, Russian law still does not provide for the seizure of instruments of crime. Businesses can be seized only if it can be shown that they were acquired with criminal proceeds. Legitimate businesses cannot be seized solely on the basis that they were used to facilitate the commission of a crime. While Russian law enforcement has adequate police powers to trace and seize assets, most Russian law enforcement personnel lack experience and expertise in these areas.
The Russian Federation has enacted new legislation and executive orders to strengthen its ability to fight terrorism. On January 11, 2002, President Putin signed a decree entitled ?On Measures to Implement the UN Security Council Resolution (UNSCR) No. 1373 of September 28, 2001.? Noteworthy among this decree?s provisions are the introduction of criminal liability for intentionally providing or collecting assets for terrorist use, and the decree?s instructions to relevant agencies to seize assets of terrorist groups. This latter clause, however, conflicted with existing domestic legislation. Accordingly, on September 24, 2002, the Duma approved an amendment to the anti-money laundering law, resolving the conflict, and allowing banks to freeze assets immediately, pursuant to UNSCR 1373. This law came into force on January 2, 2003. Further, Article 205.1 of the criminal code, which was enacted in October 2002, criminalizes terrorist financing. On October 31, 2002, the Federation Council (Russia?s upper house) approved a supplemental article to the 2003 federal budget, allocating from surplus government revenues an additional 3 billion rubles ($100 million) in support of federal antiterrorism programs and improvement of national security.
In February 2003, at the request of the General Procuracy, the Russian Supreme Court issued an official list of 15 terrorist organizations. According to press reports, the financial assets of these organizations were immediately frozen. In addition, Russia has assisted the United States in investigation of terrorist financing, providing vital financial documentation and other evidence establishing the criminal activities of the Benevolence International Foundation (BIF). Russian authorities have also provided U.S. federal law enforcement authorities with valuable evidence relating to terrorist fundraising activities of an individual currently being prosecuted in the United States for possession of counterfeit currency.
The United States and Russia signed a Mutual Legal Assistance Treaty in 1999, which entered into force on January 31, 2002. To date, the FMC has signed cooperation agreements with the FIUs of the United States, Poland, Britain, the Czech Republic, Belgium, Italy, Panama, France, Estonia and Ukraine. Additionally, the FMC is an active member of the Egmont Group of FIUs, having taken on sponsorship of several candidate countries for 2004. The FBI, DEA and Homeland Security all exchange operational information with their Russian counterparts on a regular basis.
In addition to membership in the FATF, Russia holds membership in the Council of Europe?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). Russia ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime in January 2001. Russia is a party to the 1988 UN Drug Convention and has signed, and is expected to soon ratify, the UN Convention against Transnational Organized Crime, which entered into force on September 29, 2003. In November 2002, Russia ratified the UN International Convention for the Suppression of the Financing of Terrorism. Russia also became a signatory to the UN Convention Against Corruption, which has not yet entered into force, on December 9, 2003.
The enactment of comprehensive anti-money laundering legislation in 2001, followed by creation of a fully functioning FIU in 2002 and entry into the FATF in 2003, marked major milestones in Russia?s anti-money laundering regime. Although Russia has developed a solid foundation for combating money laundering and can effectively begin to serve as a role model for other governments in its region, legal loopholes remain open that Russia should immediately address. Russia should enact legislation that would provide for the seizure of instruments, as opposed to merely the proceeds, of criminal activity. Russia should also enact more stringent banking legislation requiring financial institutions to identify the true source, or beneficial owner, of funds, as opposed to identifying only the person or entity that controls the funds of a particular account. Russia should continue to address deficiencies in anti-money laundering compliance programs at banking and nonbanking financial institutions, through continued education and outreach to the affected industries. Finally, Russia should continue its active participation in international fora.
Rwanda
Rwanda is not considered a major financial center. Since recovering from the 1994 Genocide and war, Rwanda?s banking system has been controlled by the government and is now in the process of privatization. The system lacks the efficiencies of more modern banking systems. However, with advancing stability in the country, Rwanda could become a greater risk as its banking system develops and countries like Kenya or Tanzania become less hospitable to money launderers.
There have been no documented reports of money laundering in Rwanda, primarily due to the government?s monitoring through the Central Bank of monetary transfers totaling more than $50,000, whether internal or international. The authority for such monitoring is granted in the Rwandan Banking Act of 2000. We do not know if Rwandan financial institutions engage in international narcotics-trafficking transactions or whether Rwanda has entered into bilateral agreements for the exchange of information on money laundering with other countries. Since Rwanda has been the recipient of large amounts of foreign assistance, the IMF and the World Bank provide some monitoring of the banking sector, particularly with regard to government spending. In addition, the majority of charitable and nonprofit entities are recipients of international aid and are largely monitored by their donors, the IMF and/or the World Bank.
There has been significant evidence of the Government of Rwanda (GOR) indirectly engaging in mineral transfers from the Congo during the Rwandan occupation of the eastern Congo that ended in the fall of 2002. The National Bank of Rwanda (BNR) and the Rwandan Private Sector Federation (the Rwandan equivalent of the chamber of commerce) both confirmed the large amounts of Rwandan profits obtained from the processing of coltan from 1999 through 2001. According to the BNR, the profits reportedly peaked at $3 million in customs fees and banking profits in a two-month period in 2000. These profits helped fuel the Rwandan GDP growth rate of 9 percent for 2002. Neither organization could confirm significant transactions in Congolese diamonds.
For the past two years, Rwanda has been completely overhauling its legal system. Additional legislation will be presented to the newly elected parliament. Potential loopholes remain in the legal system. These include a lack of provision for the prosecution of potential money laundering cases and, in the area of imports and exports, a lack of regulation except post-checks on transferred goods. According to legal experts with the Rwandan Finance Ministry and the Prosecutor General?s office, no laws under consideration would curb secrecy in respect to client and ownership information in either domestic or offshore financial transactions. Additionally, there are no laws in place concerning banker negligence or the forfeiture and seizure of assets in cases involving narcotics trafficking, serious crimes or terrorists. In addition, no arrests for money laundering or terrorist financing have occurred in Rwanda since January 1, 2003. On December 5, 2003, the cabinet decided to establish a unit within the Ministry of Internal Security to fight global terrorism.
Rwanda has officially committed itself to locating and freezing terrorist assets identified by the international community. However, Rwanda has yet to develop fully its laws and its ability to enforce regulations against terrorist financing in accordance with the relevant UN resolutions. The GOR does, however, retain the power to identify, freeze, and seize terrorist finance-related assets. The Ministry of Finance circulates lists of identified individuals and organizations included on the UN 1267 Sanctions Committee?s consolidated list, and Rwanda is a party to the UN International Convention for the Suppression of the Financing of Terrorism.
The GOR cooperates with the United States when requested in connection with investigations and proceedings related to narcotics, terrorism, terrorist financing, and other serious crimes. For example, the Rwandan National Police?s (RNP) Economic Crimes Division has recently cooperated with the USG in check embezzlement investigations that have led to arrests in Uganda. However, the RNP lacks the experience, training, and resources to be effective in investigating and enforcing laws concerning modern money laundering and terrorist financing. Furthermore, no formal body of laws or regulations concerning this cooperation currently exists in Rwanda, although Rwanda is a party to the 1988 UN Drug Convention, and the UN Convention against Transnational Organized Crime.
Rwanda should enact comprehensive anti-money laundering legislation covering all serious crimes including terrorist financing and take steps to develop a viable anti-money laundering regime. Rwanda should also consider becoming an observer to the East and South Africa Anti-Money Laundering Group.
Samoa
Samoa does not have major organized crime, fraud, or drug problems. The most common crimes that generate revenue within the jurisdiction appear to be low-level fraud and theft. The domestic banking system is very small, and there is relatively little risk of significant money laundering derived from domestic sources. Samoa?s offshore banking sector is relatively small but insufficiently regulated. The Government of Samoa (GOS) enacted the Money Laundering Prevention Act (the Act) in June 2000. This law criminalizes money laundering associated with numerous crimes, sets measures for the prevention of money laundering and related financial supervision. Newly adopted regulations and guidelines fully implementing this legislation came into force in December 2002. Under the Act, a conviction for a money laundering offense is punishable by a fine not to exceed WST $1 million (approximately $354,000), a term of imprisonment not to exceed seven years, or both.
The Act requires financial institutions to report transactions considered suspicious to a Money Laundering Prevention Authority (MLPA), the Somoa Financial Intelligence Unit (FIU) currently working under the auspices of the Governor of the Central Bank. The MLPA receives and analyzes disclosures, and if it establishes reasonable grounds to suspect that a transaction involves the proceeds of crime, it refers the information to the Attorney General and the Commissioner of Police. In 2003, Samoa established under the authority of the Ministry of the Prime Minister, an independent and permanent Transnational Crime Unit (TCU). The TCU is staffed by personnel from the Samoa Police Service, Immigration Division of the Ministry of the Prime Minister and Division of Customs. The TCU is responsible for intelligence gathering and analysis and investigating transnational crimes, including money laundering, terrorist financing and the smuggling of narcotics and people.
The Act requires financial institutions to record new business transactions exceeding WST $30,000 (approximately $10,000), to retain records for a minimum of seven years, and to identify all parties to the transactions. This threshold reporting system exposes the financial institutions to potential abuse. As it is written, financial institutions are under no obligation to maintain any record for single transactions where the amount is under WST $30,000, so numerous small transactions could avoid detection. Nevertheless, Section 4.3(a) of the Money Laundering Prevention Regulations 2002 requires financial institutions to identify their customers when ?there are reasonable grounds for believing that the one-off transaction is linked to one or more other one-off transactions and the total amount to be paid by or to the applicant for business in respect to all of the linked transactions is Samoan Tala $30,000, or the equivalent in another currency.? Section 12 of the Act establishes that all financial institutions have an obligation under this law to ?develop and establish internal policies, procedures and controls to combat money laundering, and develop audit functions in order to evaluate such policies, procedures and controls.? The new Regulations and Guidelines also remedy the lack of specificity in the Act about the obligation of financial institutions to establish the identity of the beneficial owner of an account managed by an intermediary. Specifically, Section 12.06 of the new Money Laundering Prevention Guidelines for the Financial Sector provides that ??If funds to be deposited or invested are being supplied by or on behalf of a third party, the identity of the third party (i.e., the underlying beneficiary) should also be established and verified.? The law requires individuals to report to the MLPA if they are carrying with them WST $10,000 (approximately $3,300) or more, in cash or negotiable instruments, upon entering or leaving Samoa.
The Act removes secrecy protections and prohibitions on the disclosure of relevant information. Moreover, it provides protection from both civil and criminal liability for disclosures related to potential money laundering offenses to the competent authority.
The Central Bank of Samoa, the Office of the Registrar of International and Foreign Companies, and the MLPA regulate the financial system. There are three locally incorporated commercial banks, supervised by the Central Bank. The Office of the Registrar of International and Foreign Companies has responsibility for regulation and administration of the offshore sector. There are no casinos, but two local lotteries are in operation.
Samoa is an offshore financial center, with six offshore banks licensed. For entities registered or licensed under the various Offshore Finance Centre Acts there are no currency or exchange controls or regulations, and no foreign exchange levies payable on foreign currency transactions. No income tax or other duties, nor any other direct or indirect tax or stamp duty is payable by registered/licensed entities. In addition to the six offshore banks, Samoa currently has 10,502 international business corporations (IBCs), three international insurance companies, five trustee companies, and 181 international trusts. Section 16 of the Offshore Banking Act does not prohibit persons who have been sentenced for an offense involving dishonesty from applying to be employed as directors or managers of offshore banks. The Act only requires prior approval, in writing, of the Minister, without setting any criteria to guide the decision. In addition, there is no provision in the Act that specifies the qualifications for an owner/shareholder of an offshore bank. IBCs may be registered using bearer shares and shelf companies that conceal the identity of the beneficial owner and the date of incorporation. Corporate entities may be listed as officers and shareholders because Samoan IBCs have all the legal powers of a natural person. There are no requirements to file annual statements or annual returns. These provisions make IBCs particularly attractive to money launderers, and Samoan authorities have not yet addressed them.
International cooperation can only be provided when Samoa has entered into a mutual cooperation agreement with the requesting nation. Under the Act, the MLPA has no powers to exchange information with overseas counterparts. The inability of the MLPA simply to exchange information on an administrative level is a material weakness of the current system. However, according to a 2003 Samoa Report to the UN Counter Terrorism Committee, Somoa is currently reviewing the legal framework for the effective operation of the MLPA in order to strengthen domestic and international information exchange. In addition, the Office of the Attorney General, in conjunction with the Central Bank of Samoa, the Ministry of Police and the Division of Customs of the Ministry for Revenue, is currently preparing amendments to the Money Laundering Prevention Act of 2000 for purposes of strengthening and complementing legislation that is being drafted or developed, including the Proceeds of Crime Bill, the Mutual Assistance in Criminal Matters Bill, and the Extradition Amendment Bill.
Samoa signed the UN International Convention for the Suppression of the Financing of Terrorism in November 2001, and ratified it on September 27, 2002. In April 2002, Samoa became a party to the Prevention and Suppression of Terrorism Act. This legislation defines and provides for terrorist offenses, including offenses dealing specifically with the financing of terrorist activities. The combined effect of the Money Laundering Prevention Act of 2000 and the Prevention and Suppression of Terrorism Act of 2002 is to make it an offense for any person to provide assistance to a criminal to obtain, conceal, retain or invest funds or to finance or facilitate the financing of terrorism.
Samoa is a member of the Asia/Pacific Group on Money Laundering and the Pacific Island Forum. Samoa has not signed the 1988 UN Drug Convention.
Since the passage of the Money Laundering Prevention Act in June 2000, Samoa has continued to strengthen its anti-money laundering regime and has issued regulations and guidelines to financial institutions so that they have a clear understanding of their obligations under the Act. Particular emphasis should be directed toward regulation of the offshore financial sector, principally the establishment of due diligence procedures for owners and directors of banks and the elimination of anonymous accounts for onshore and offshore banks. The GOS should enact legislation to identify the beneficial owners of IBCs to help ensure that criminals do not use them for money laundering or other financial crimes. Samoa should adopt its pending legislation to allow for international cooperation and information sharing.
San Marino
San Marino, a small independent enclave located within Italy, is the 3rd smallest country in Europe after the Holy See and Monaco. San Marino claims to be the oldest republic in the world founded in 301 A.D. San Marino?s policies and social trends closely track those of its larger neighbor. San Marino has a small economy but a rather large financial sector. The Government of San Marino (GOSM) passed money laundering legislation in 1998. In June 2003 a law was passed that provides functional integration between the Office of Banking Supervision and the Central Bank, strengthening the supervisory system that will help counter money laundering and terrorist financing. Also in 2003, the Office of Banking Supervision issued Circular No. 33 addressed to banks and financial companies that obligates the collection of customers? personal data and their business/professional activity. The GOSM has also introduced a draft law on the ?Provisions of Anti-Terrorism, Anti-Money Laundering and Anti-Insider Trading.? The draft legislation criminalizes terrorism; introduces rules supplementing the Anti-Money Laundering law of 1998 by incorporating modifications recommended by the FATF and the Council of Europe; provides for the freezing of financial assets or property; allows special investigative techniques; and contains rules on insider trading. In April 2003, San Marino had its second round of mutual evaluations by MONEYVAL.
The GOSM is a party to the UN International Convention for the Suppression of the Financing of Terrorism. It should become a party to the UN convention against Transnational Crime.
Sao Tome and Principe
Sao Tome, which has a small economy and only one commercial bank, is not a regional financial center.
Sao Tome is a party to the 1988 UN Drug Convention.
Sao Tome should criminalize money laundering and terrorist financing. Sao Tome should also enact legislation allowing the GOSTP to freeze assets related to money laundering and terrorist financing. Sao Tome should become a party to both the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Crime.
Saudi Arabia
Saudi Arabia is a growing financial center in the Gulf Region of the Middle East. There is little known money laundering enforcement in Saudi Arabia related to traditional predicate offenses. However, Saudi donors and unregulated charities have been a major source of financing to extremist and terrorist groups over the past 25 years. Following the al-Qaida bombings in Riyadh on May 12, 2003, the government of Saudi Arabia has taken steps to help counteract terrorist financing.
All ten commercial banks in Saudi Arabia operate as standard ?western-style? financial institutions. There are no ?Islamic? banks in Saudi Arabia. In 2003 Saudi Arabia approved a new anti-money laundering law that for the first time contains criminal penalties for money laundering and terrorist financing. The law bans conducting commercial or financial transactions with persons or entities using pseudonyms or acting anonymously; requires financial institutions to maintain records of transactions for a minimum of ten years and adopt precautionary measures to uncover and prevent money laundering operations; requires banks and financial institutions to report suspicious transactions; authorizes government prosecutors to investigate money laundering and terrorist financing; and allows for the exchange of information and judicial actions against money laundering operations with countries with which Saudi Arabia has official agreements. Saudi Arabia did pursue anti-money laundering investigations prior to the enactment of the 2003 law. It is believed 70-80 percent of those cases involved narcotics related money laundering.
Saudi Arabian Monetary Authority (SAMA) guidelines correspond to the forty anti-money laundering recommendations of the Financial Action Task Force (FATF). On May 27, 2003 SAMA issued updated anti-money laundering and counter terrorist finance guidelines for the Saudi banking system. The guidelines require that banks have mechanisms to monitor all types of ?Specially Designated Nationals? as listed by SAMA; that fund transfer systems be capable of detecting specially designated names; that SAMA circulars on opening accounts and dealing with charity and donation collection be strictly adhered to; and that the banks be able to provide the remitter?s identifying information for all outgoing transfers. Saudi law prohibits nonresident individuals or corporations from opening bank accounts in Saudi Arabia without the specific authorization of the SAMA.
All banks are also required to report any suspicious transactions to the recently created Saudi Financial Intelligence Unit (FIU), which is under the authority of the General Security Department of the Interior Ministry. The Saudi FIU is in its early formative stages, but it appears the FIU will collect and analyze suspicious transaction reports and other available information and decide to make referrals the Mabahith or other entities for action. The FIU will be staffed by officers from the Mabahith, SAMA, the Ministry of Commerce, and the Ministry of Interior?s Bureau of Investigation and Prosecution.
Saudi Arabia appears to be implementing UN Security Council Resolutions on terrorist financing. It has frozen accounts of individuals and organizations in response to information provided by the USG. The Government of Saudi Arabia (GOSA) signed a multilateral agreement under the auspices of the Arab League to fight terrorism. Saudi Arabia has signed but not ratified the UN International Convention for the Suppression of the Financing of Terrorism. In September 2003, the FATF and the GCC carried out a ?mutual evaluation? of Saudi Arabia to assess compliance with the FATF anti-money laundering and terrorist finance recommendations.
Hawala transactions outside banks and licensed moneychangers are illegal in Saudi Arabia. Reportedly, some money laundering cases that SAMA has investigated in the past decade involved the hawala system. In order to help counteract the appeal of hawala, particularly to many of the approximately six million expatriates living in Saudi Arabia, Saudi banks have taken the initiative and created fast, efficient, high quality, and cost-effective fund transfer systems. An important advantage for the authorities in combating potential money laundering and terrorist financing is that the senders and users of fund transfers through this formal financial sector are clearly identified.
Contributions to charities in Saudi Arabia are usually Zakat, which is an Islamic religious duty with specified humanitarian purposes. However, over the past decade, according to a 2002 report to the United Nations Security Council, al-Qaida and other jihadist organizations collected between $300 and $500 million and the majority of those funds originated from Saudi charities and private donors.
To help address this problem, in 2003, Saudi Arabia established a High Commission for oversight of all charities. Charities in Saudi Arabia are to be licensed, registered, audited, and supervised. New rules announced in 2003 include stipulations that accounts can be only opened in Saudi Riyals; there are enhanced customer identification requirements; there is one main consolidated account for each charity; there are no cash disbursements?payments may be made only by checks payable to the first beneficiary and deposited in a Saudi bank; the use of ATM and credit cards for charitable purposes will not be permitted; there will be no transfers outside of Saudi Arabia. The Saudi government is still working to implement these measures.
Saudi Arabia took specific legal and regulatory steps in 2003 to combat money laundering and terrorist financing. Progress is being made in establishing an operational Financial Intelligence Unit. However, as in many countries in the region there is an over-reliance on Suspicious Transaction Reporting to generate money laundering investigations. Law enforcement agencies should take the initiative and proactively generate investigations. Saudi Arabia should move rapidly to monitor and enforce the new anti-money laundering and terrorist finance laws, regulations and guidelines. The new requirements relating to charities are far reaching. However, significant loopholes remain including the definition of a charitable organization and the ability of a group or individual previously affiliated with suspect charitable organizations to simply cease referring to itself as a charity. Saudi Arabia should take affirmative steps to close loopholes and should ratify the UN International Convention for the Suppression of the Financing of Terrorism.
Senegal
Senegal?s banking system and formal and informal money-exchange systems are vulnerable to the laundering of proceeds from corruption, narcotics trafficking, illegal gems and arms-trafficking, and trafficking in persons, all of which are prevalent in West Africa. Numerous foreign banks, including several French and African banks, have branches in Senegal.
Article 102 of Senegal?s 1997 drug code criminalizes narcotics-related money laundering as a misdemeanor punishable by up to 10 years in prison. The last money laundering prosecution under this law was in 1999. The drug code requires banks to report suspicious transactions believed to be linked to narcotics trafficking. Banks are required to keep records between one and ten years, depending on the type of record. The drug law authorizes the seizure of assets related to narcotics trafficking. Banking secrecy provisions can only be waived by a judge?s order as part of case involving narcotics. There is no requirement to report cross-border currency transactions.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. GIABA recently hosted a self-evaluation exercise on anti-money laundering capabilities in conjunction with the International Monetary Fund and ECOWAS member states. A Senegalese magistrate is the acting head of GIABA. The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU): Benin, Burkina Faso, Guinea-Bissau, Cote d?Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency, which is also linked to the euro. All bank deposits over approximately $7,700 made in BCEAO member countries must be reported to the BCEAO, along with customer identification information.
Although current law limits money laundering to drug-related activities, a draft law is being prepared which will make money laundering a crime unto itself. The law would apply to banks, nonbank financial institutions, and intermediaries. The proposed law would criminalize money laundering for many serious crimes. Under the law, banking information could be shared with law enforcement authorities, and individuals could be held legally responsible if they do not report suspicious activity. The law would also expand current asset seizure provisions so that authorities could seize assets related to the laundering of proceeds from many serious crimes.
Senegal is expected to soon adopt a Uniform Act on Money Laundering that implements standards drafted by the WAEMU member states in conjunction with GIABA and the BCEAO. Under the harmonized WAEMU standards, Senegal will join the other seven WAEMU countries and ultimately the 15 members of ECOWAS in updating the judicial and penal code concerning money laundering and crimes of corruption, establishing a Financial Intelligence Unit (FIU), and strengthening law enforcement and detection capability of money laundering and corruption. Senegal is working closely with the Department of Treasury, multilateral organizations such as the World Bank, and other donors on providing training on money laundering to the financial community, law enforcement professionals, and the judiciary.
In September 2002, the WAEMU Council of Ministers, which oversees the BCEAO, approved an anti-money laundering regulation applicable to banks and other financial institutions, casinos, travel agencies, art dealers, gem dealers, accountants, attorneys, and real estate agents. The regulation is subject to review by member countries, which would be responsible for implementing many provisions of the regulation.
Under the WAEMU regulation, financial institutions would be required to verify and record the identity of their customers before establishing any business relationship. The regulation would require financial institutions to maintain customer identification and transaction records for ten years. The regulation would also impose certain customer identification and record maintenance requirements on casinos.
All financial institutions, businesses, and professionals under the scope of the WAEMU regulation would be required to report suspicious transactions. The regulation calls for each member country to establish a National Office for Financial Information Process (CENTIF), which would be responsible for collecting suspicious transactions and would have the authority to share information with other CENTIFs within the WAEMU as well as with the Financial Intelligence Units of non-WAEMU countries.
The WAEMU Council of Ministers issued another directive in September 2002 requesting member countries to pass legislation requiring banks to freeze the accounts of any persons or organizations designated by the UN 1267 Sanctions Committee.
In 2001 the BCEAO hosted a conference on money laundering. In July 2002 Senegal participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against drug trafficking, terrorism, and money laundering.
Senegal is a party to the 1988 UN Drug Convention and has signed and ratified, the UN Convention against Transnational Organized Crime. The Government of Senegal has also indicated that the ratification of the UN International Convention for the Suppression of Financing of Terrorism is underway.
Senegal should criminalize terrorist financing and money laundering for all serious crimes. The GOS should work with its counterparts in GIABA and its partners in WAEMU to establish a comprehensive anti-money laundering regime in the region. Senegal should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Serbia and Montenegro
At the crossroads of Europe and on the highway known as the ?Balkan route,? narcotics trafficking; smuggling of persons, drugs, weapons and pirated goods; money laundering; and other criminal activities continue in Serbia and Montenegro (SAM, formerly the Federal Republic of Yugoslavia (FRY)). The 2001 Foreign Currency and Foreign Trade Laws, as well as more effective enforcement of intellectual property rights laws, have reduced the volume of smuggled and pirated goods in the SAM substantially. Nonetheless, the country still has a significant black market for such goods. Income from narcotics trafficking, however, is typically not used to support this black market but instead is laundered in the real estate market, one of the most popular ways to legalize criminal proceeds in SAM. Trade-based money laundering, in the form of over- and under-invoicing, is another of the most common methods of money laundering. The Government maintains that the majority of criminal proceeds from narcotics trafficking laundered in the country are derived from illegal activities of the Kosovar ?Narco-Mafia,? and Serbian officials estimate that up to half of all financial transactions in SAM may be connected in some way to money laundering. SAM has had an uphill battle against an entrenched problem; estimates of money laundered by Yugoslavia?s former president Slobodan Milosevic and his associates go as high as one billion U.S. dollars.
The European Union has an ongoing lawsuit in New York against the U.S. tobacco company RJ Reynolds. The EU accuses RJR of knowingly selling cigarettes to criminal networks, which paid for their purchases using money earned in drug and arms smuggling. Among the claims made by the EU plaintiffs is that Republic of Montenegro Prime Minister Djukanovic was a witting participant and profiteer in this smuggling and money laundering scheme. The lawsuit alleges, inter alia, that the Italian Mafia established Montenegrin Tabak Transit (MTT) in the mid-1990s under the official sanction of the Montenegrin Foreign Investment Agency and the special protection of Djukanovic. MTT in turn funneled mafia payments?in the form of ?licensing payments??to then Yugoslav President Milosevic?s regime and to Djukanovic and other officials, using banks in Switzerland and Liechtenstein.
It is also worth noting that Serbian judicial authorities have an ongoing investigation against two former high-ranking civil servants on money laundering charges, the former security adviser to the Serbian Prime Minister, and the former director of the Serbian Bank Rehabilitation Agency, who allegedly were involved in laundering money through offshore accounts in several financial safe haven countries. The two officials have stepped down from their government posts.
State Union: In March 2002, the leadership of the FRY, Serbia and Montenegro signed the Belgrade Agreement on restructuring the relationship between the two republics. On February 4, 2003, the FRY parliament voted to adopt a new Constitutional Charter that established the state union of ?Serbia and Montenegro.? Under this state union structure, most governmental authority previously addressed by federal Yugoslav authorities devolved to the individual republics. As a result, responsibility for the laws and institutions determining policies and legislation has been shifted. Consequently, both the Republic of Serbia (Serbia) and the smaller Republic of Montenegro (Montenegro) have addressed money laundering and terrorism financing?but each has done so in its own way. Banks in both republics have demonstrated remarkable tolerance for and compliance with the laws in their respective jurisdictions.
In 2001, the federal Yugoslav authorities prepared a national strategy to fight terrorism and established a national coordinating body. However, this body fell into abeyance when the FRY transformed into the state union in February 2003. Ratification to international Conventions as well as treaties currently lies at the overarching State Union level.
Serbia: The Yugoslav Federal Assembly adopted an anti-Money Laundering Law in September 2001; it came into effect in July 2002. The law defines money laundering to mean depositing, or introducing into the financial system in any other manner, money which has been acquired through illegal activity. This includes money derived from the gray market economy and from arms and narcotics trafficking. Criminal penalties for money laundering violations range from six months? to eight years? imprisonment, while civil penalties range from 45,000 to 450,000 dinars ($650 to $6,500) per offense.
Among the entities required to take actions and measures aimed at uncovering and preventing money laundering under the law are: commercial and savings banks and other financial credit institutions, the postal savings bank, the post office, commercial enterprises, all government entities, the National Bank of Yugoslavia and its clearing and payments department, foreign exchange bureaus, casinos, pawnshops, stock exchanges, and national lottery organizers. The obliged entities are required to identify persons opening an account ?or establishing any other kind of lasting business cooperation with the client? and to report on every cash transaction exceeding 10,000 euros or 600,000 dinars, as well as any suspicious transaction. Similar reporting thresholds apply to insurance policies and cross-border currency transactions. The law also provides for record keeping and established special procedures for tracking terrorist financing.
The law also provides for the establishment of a financial intelligence unit (FIU), the Federal Commission for the Prevention of Money Laundering (FCPML), to assume responsibility for receiving and disseminating currency and suspicious transaction reports; it also has responsibility for countering the financing of terrorism via its Department for the Suppression of the Financing of Terrorism. FCPML is authorized to suspend a suspicious transaction or freeze assets for 48 hours.
In March 2002, the FCPML was established as an independent federal body by governmental decree; it became operational on July 1, 2002. At its founding, both the law and the FIU were at the federal level, and in name were applicable to both Serbia and Montenegro. On February 4, 2003, reflecting the dissolution of the centralized federal state into the two republic entities, and pursuant to Article 13 of the Constitutional Charter and Implementation Law, the FCPML, up until then a federal FIU, became the FIU for the Serbian Republic. In its first year of existence, FCPML has received over 60,000 reports, and 162 suspicious cases were disseminated to law enforcement. In its first 18 months, the Serbian Administration has forwarded eight cases of possible money laundering to the prosecutor?s office, with four still being investigated and two now in court proceedings. In July 2003, FCPML became a member of the Egmont Group and participates actively in information exchange with counterpart FIUs.
On July 18, 2003, Serbia passed a new law codifying the powers of the Central Bank, decreasing its independence and establishing parliamentary control over its operations. Bank supervision in the National Bank of Serbia was inactive for a three-month period due to turnover, but a new Director of Bank Supervision has since arrived.
A new draft money laundering law implementing all international standards, extending the list of obligated entities to include attorneys and accountants and harmonizing legislation with all European Union (EU) Directives, was under review and submitted in the beginning of October 2003. The new law was approved by all of the relevant authorities, but then a parliamentary crisis broke out, and the procedure was suspended. On December 28, 2003, Serbia held a parliamentary election and as a result, the ratio between parties in the Parliament has changed. Once a new government is formed, an urgent procedure for the adoption of the draft law will be requested. However, there is still the possibility that the bill will need to pass to the relevant authorities for approval once again.
The Serbian FCPML is the authority charged with enforcing the UN terrorism sanction lists; although it routinely checks for accounts, it has found no evidence of terrorism financing within the banking system and no evidence of alternative remittance systems in use. The Department for Combating Organized Crime (UBPOK), in the Ministry of Interior, is the law enforcement body responsible for countering terrorism. UBPOK cooperates and shares information with its counterpart agencies in all of the countries bordering Serbia and Montenegro.
Serbia has no terrorism financing law consistent with the standards contained in international conventions, and its legislative and institutional framework for combating terrorism financing remains weak. Draft legislation is pending. Despite the fact that according to the Serbian Criminal Code, business licenses of legal or natural persons may be revoked and business activities banned if the subject is found guilty of criminal activities, including narcotics trafficking or terrorism financing, Serbia is hamstrung with regard to international assistance in investigating terrorism financing. Serbia?s police may not make use of the Mutual Legal Assistance Treaty (MLAT) process in terrorism financing cases, and therefore forfeit any available international assistance, because under Serbian law, the MLAT process is restricted to crimes with penal sentences equal to or exceeding ten years. Under current law, the maximum term for a money laundering or terrorism financing offense is eight years. Under Serbia?s Criminal Procedure Code, an MLAT request for assistance in investigating terrorism activities requires the approval of an investigative judge. However, investigative judges, for a number of reasons, often do not grant these requests. Serbia is currently in the process of amending its Criminal Procedure Code to bring it into conformity with Council of Europe standards. Serbia has no asset seizure or forfeiture law. Actual asset seizures can only be carried out by court order.
Montenegro: In 1996, in an effort to lure needed funds, Montenegro proclaimed itself an offshore area and allowed financial intermediaries to do business?without controls?for a percentage of the profit. Hundreds of millions of dollars worth of money passed through Montenegrin offshore accounts annually; speculation is that much of the money came from criminal activity.
Montenegro has changed in a very short time. In August 2002, the Central Bank of Montenegro (CBCG) issued a decree that required banks and other financial institutions to report suspicious transactions, establish anti-money laundering control programs and train their employees on money laundering matters. Finally, in response to the proliferation of its offshore sector in the past decade, the Montenegrin government required offshore banks to re-register, post a one million Eurobond or fee, and to reestablish themselves as regular banks. Since none of the offshore entities has done this, the Central Bank considers them all dissolved. The Finance Ministry has not released complete information about the disposition of the 400 offshore entities whose names they turned over to CBCG.
Montenegro passed anti-money laundering legislation on September 24, 2003. The new law obligates banks, post offices, state entities, casinos, lotteries and betting houses, insurance companies, jewelers, travel agencies, auto and boat dealers, and stock exchange entities to file reports on all transactions exceeding 15,000 euros as well as on any related transactions that aggregate 15,000 euro or more, even if each particular transaction does not exceed the threshold. Failure to report, according to the law, could result in fines up to 20,000 euros as well as sentences of up to 12 years. The new law establishes record keeping requirements and provides for the establishment of an FIU that would receive, analyze, and disseminate the reports to the competent authorities. The Government of the Republic of Montenegro adopted ?The Act on Forming FIU? in December of 2003 and had a deadline of the end of January 2004 for naming the head of this agency.
Money laundering was also criminalized in a new Criminal Code. Montenegro amended its Criminal Code in June 2003 to enable the government to confiscate money and property involved in criminal activity. Additionally, according to the Code, business licenses of legal or natural persons may be revoked and business activities banned if the subject is found guilty of criminal activities, including narcotics trafficking or terrorism financing. Montenegro is currently in the process of amending its Criminal Procedure Code to bring it into conformity with Council of Europe standards. Montenegro has no asset seizure or forfeiture law. Actual asset seizures can only be carried out by court order.
Montenegro has no antiterrorism financing law that approaches international standards, nor does Montenegro?s anti-money laundering legislation include the detection and prevention of terrorism financing within the scope of the FIU?s responsibilities. Rather, the Sector for Bank Control, within the Montenegrin Central Bank (CBCG), will take this responsibility. CBCG has the authority to suspend a transaction or freeze assets on suspicion of money laundering or terrorism financing for up to 72 hours. No terrorism financing has been detected within the Montenegrin banking system.
Kosovo: Since 1999, Kosovo has been governed by the United Nations Interim Administration in Kosovo (UNMIK). It does not fall under the jurisdiction of either Serbia or Montenegro. Recognizing that as Kosovo?s neighbors tighten their anti-money laundering regimes, Kosovo itself could become a haven for money laundering, the UN has determined that Kosovo must adopt a strict approach to the fight against money laundering. As part of the transition toward autonomous governance, the UN has focused on involving the Kosovar-run Provisional Institutions of Self-Governance (PISG) in ten areas, including the operations of a financial intelligence unit.
Currently, the operative law in Kosovo incorporates laws in effect in Kosovo prior to 1989, supplementary UNMIK regulations, as well as laws promulgated from the Kosovo Assembly. However, none of these laws provides any clear prohibition of money laundering or requires that suspicious transactions be reported. Additionally, it is unclear whether UNMIK can designate organizations or persons involved in terrorist acts or freeze/confiscate assets of such entities. Legal advisors were seeking to resolve these issues at the close of 2003. A draft law was drawn up in February 2003, called ?On the Deterrence of Money Laundering and Related Offenses?; this law appears to be approximately as comprehensive as similar laws in Kosovo?s Balkan neighbors. However, the draft regulation has been in internal UN legal review and was not yet promulgated by the end of 2003. If the Regulation is implemented as drafted, a Kosovo Financial Intelligence Centre (KFIC) will be established to ensure compliance with the proposed Regulation?s record keeping and reporting requirements. The Regulation, as drafted, would also regulate financial accounting of nongovernmental organizations, which has been an area of terrorist financing concern in Kosovo.
SAM has no laws governing its cooperation with other governments, related to narcotics, terrorism, or terrorist financing. Cooperation is instead based on participation in Interpol, bilateral cooperation agreements, and agreements concerning international legal assistance. There are no laws at all governing the sharing of confiscated assets with other countries, nor is any legislation under consideration; SAM may at this time enter into bilateral agreements for this purpose.
Serbia and Montenegro has a legal assistance arrangement with the U.S., governed by the 1901 Convention on Extradition of Offenders. SAM has signed 34 bilateral agreements on mutual legal assistance with 25 countries: Albania, Algeria, Austria, Belgium, Bulgaria, the Czech Republic, Denmark, France, Greece, The Netherlands, Croatia, Iraq, Italy, Cyprus, Germany, Poland, Romania, Hungary, Mongolia, Russian Federation, Slovakia, Spain, Switzerland, Turkey, the United Kingdom, and the United States. These agreements authorize extradition of suspected terrorists. Both SAM and its constituent republics cooperate with their counterparts and neighbors. In April 2003, SAM joined eight other participants in the South Eastern Europe Cooperation Process, in adopting a joint ?Belgrade Declaration? to call for the continuation of regional cooperation and the intensification of the fight against terrorism and organized crime. SAM worked with Interpol to set up an office for that organization in Belgrade as part of its efforts to contribute to the fight against terrorism and other transnational crimes.
Serbia and Montenegro is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. On October 9, 2003, SAM ratified the Council of Europe?s Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, and the Convention will go into full force on February 1, 2004. SAM has ratified eight of the 12 UN Conventions or Protocols dealing with terrorism, including the UN International Convention for the Suppression of the Financing of Terrorism, although the domestic implementation procedures are not providing the framework for full application in either republic. In December 2003, SAM became a signatory to the UN Convention Against Corruption. As a new member of the Council of Europe, SAM is a full and active member of the Council of Europe?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), and underwent a first-round evaluation by a team from that Committee in October 2003.
Montenegro should establish its FIU and both Serbia and Montenegro should work to ensure that resources are available for the FIUs to work effectively and efficiently. Both republics should expand their anti-money laundering legislation to include all serious crimes, and enact legislation to establish asset seizure and forfeiture regimes. Both should also continue to participate in international fora that offer training and technical assistance for police, customs, and judiciary officials involved with combating money laundering and terrorist financing. They should also both criminalize terrorism financing specifically and implement a comprehensive framework to support an antiterrorism regime of international standards.
Seychelles
Seychelles is a not a major financial center, but it does have a developed offshore financial sector, which makes the country vulnerable to money laundering.
The Government of Seychelles (GOS), in efforts to diversify its economy beyond tourism, has taken steps to develop an offshore financial sector to increase foreign exchange earnings. The GOS actively markets Seychelles as an offshore financial and business center that allows the registration of nonresident companies. There are currently over 4,800 registered international business companies (IBCs) in Seychelles that pay no taxes in Seychelles, and are not subject to foreign exchange controls. The Seychelles International Business Authority (SIBA), which acts as the central agency for the registration for IBCs, promotes the fact that IBCs need not file annual reports. The SIBA is part of the Ministry of International Trade, and also manages the Seychelles International Trade Zone.
In addition to IBCs, Seychelles permits offshore trusts (registered through a licensed trustee), offshore insurance companies, and offshore banking. Three offshore insurance companies have been licensed, but no mutual fund companies. The International Corporate Service Providers Act 2003 will be entering into force very soon. This act is designed to regulate all the activities of the corporate service providers as well as the trustee service providers. It will strengthen existing legislation regarding due diligence and know your customer rules.
A major weakness of the Seychelles? offshore program is that it still permits the issuance of bearer shares, a feature that can facilitate money laundering by making it extremely difficult to identify the beneficial owners of an IBC. Seychelles officials stated in 2000 that they were reviewing the question of bearer shares and intended to outlaw them. In the interim, the GOS has indicated that it will not approve the issuance of any more bearer shares.
No offshore casinos or Internet gaming sites have yet been licensed; if they are, they will be subject to stringent legislation modeled on the Australian Internet Gaming Act. There are no cross-border currency reporting requirements, but the point of entry at the international airport is under constant supervision by Customs and the Police, who search suspicious incoming or outgoing passengers.
In 1995, the GOS passed the Economic Development Act (EDA), which provided concessions (protection from asset seizure and immunity from prosecution for crimes committed abroad and most crimes, other than violent crimes and narcotics trafficking, committed in the Seychelles) to individuals investing more than $10 million in the Seychelles. As a result of the enactment of the EDA, FinCEN issued an advisory to U.S. banks and financial institutions calling on them to exercise enhanced scrutiny with respect to transactions involving Seychelles. The GOS repealed the EDA in 2000. In May 2003, FinCEN withdrew its advisory, since the repeal of the EDA effectively addressed the concerns that had prompted the issuance of the advisory.
In 1996, the GOS enacted the Anti-Money Laundering Act (AMLA), which criminalizes the laundering of funds from all serious crimes, requires financial institutions and individuals to report to the Central Bank transactions involving suspected cases of money laundering, and establishes safe harbor protection for individuals and institutions filing such reports. There are no bank secrecy laws in Seychelles. The AMLA imposes record keeping and customer identification requirements for financial institutions, and also provides for the forfeiture of the proceeds of crime.
Under the AMLA, money laundering controls are applied to nonbanking financial institutions, including exchange houses, stock brokerages, casinos, and insurance agencies, but not to lawyers and accountants. No arrests and/or prosecutions have been made for money laundering and terrorist financing since January 1, 2003.
Under the AMLA, anyone who engages directly or indirectly in a transaction involving money or other property (or who receives, possesses, conceals, disposes of, or brings into Seychelles any money or property) associated with a crime, knowing or having reasonable grounds to know that the money or property is derived from an illegal activity, is guilty of money laundering. In addition, anyone who aids, abets, procures, or conspires with another person to commit the crime, while knowing, or having reasonable grounds for knowing that the money was derived from an illegal activity, is likewise guilty of money laundering.
In 1998, the Central Bank of Seychelles issued a comprehensive set of guidance notes that further elucidated and strengthened the provisions of the AMLA. The Central Bank of the Seychelles receives and analyzes suspicious activity reports and disseminates them to the competent authorities. In November 2002 the Central Bank circulated to all local commercial banks a document on due diligence issued by the Basel Committee
The Government of Seychelles intends to enact early in 2004 the Prevention of Terrorism Bill 2004. The proposed legislation will recognize the government?s authority to identify, freeze, and seize terrorist finance-related assets. Currently the Mutual Assistance in Criminal Matters Act of 1995 empowers the Seychelles Central Authority to search and seize anything relevant to a proceeding or investigation relating to a criminal matter involving a serious offense under a written law of a requesting state.
The proposed Prevention of Terrorism Bill will strengthen the government?s hand in this area. It will specifically provide for the forfeiture of assets. Even now the Seychelles authorities can work with states that are members of the Commonwealth, or have a treaty for bilateral mutual legal assistance with the Seychelles regarding criminal matters. Under current legislation assets used in the commission of a terrorist act can be seized, and legitimate businesses can be seized if used to launder drug money, support terrorist activity, or are otherwise related to criminal activities. Both civil and criminal forfeiture are allowed under current legislation. To date, no assets have been identified, frozen, or seized pertaining to terrorist financing, upon request of such a foreign state.
The transactions of charitable and nonprofit entities are scrutinized by the authorities to prevent their misuse, and such systems as hawala are regulated.
The Seychelles is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. The Seychelles implements fully the FATF Forty Recommendations on money laundering and its Eight Special recommendations on Terrorist Financing. The Seychelles is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. The Seychelles has signed the UN International Convention for the Suppression of the Financing of Terrorism. The Seychelles circulates to relevant authorities the updated lists of designations under Executive Order 13224. The Seychelles is in ongoing discussions with Kenya and Mauritius regarding a memoranda of understanding on drug trafficking.
The GOS should expand its anti-money laundering efforts by moving to immobilize bearer shares and requiring complete identification of beneficial owners of IBCs. The GOS should establish a financial intelligence unit to collect, analyze, and share financial data with foreign counterparts, in order to effectively combat money laundering and other financial crimes. Seychelles should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism and actively participate in ESAAMLG.
Sierra Leone
Sierra Leone, which has a small commercial banking sector, is not a regional financial center. Loose oversight of financial institutions, weak regulations, rampant corruption, and a prevalent informal money-exchange system create an atmosphere conducive to money laundering. Given the importance of the large diamond sector to the economy, the prevalence of money laundering in the diamond sectors of neighboring countries and the loose oversight of the financial sector, Sierra Leone?s diamond sector is particularly vulnerable to money laundering. There are also allegations that the diamond trade intersects terrorist financing operations. The diamond trade is susceptible at many levels of exploitation, including cross-border trade, secondary level traders and agents, and suspect buyers. Furthermore, law enforcement and customs have limited understanding and capability to effectively investigate and control money laundering.
There is no specific legislation concerning money laundering. However, the Ministry of Justice is in the process of developing such laws. Progress towards implementing these laws has been stymied by severe lack of knowledge and technical capacity on behalf of the relevant Government of Sierra Leone Ministries. Under the proposed laws, banks are required to record the identity of customers engaging in large currency transactions and to maintain adequate records necessary to reconstruct significant transactions in order to respond to government information requests. Banks are also required to report suspicious transactions, although they do not usually adhere to this requirement. Bank secrecy laws prevent the disclosure of client and ownership information except under court order.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. Sierra Leone is currently meeting with members of (ECOWAS) to develop a draft model money laundering law.
Sierra Leone is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Sierra Leone is a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Sierra Leone should criminalize money laundering and terrorist financing, enforce existing financial laws and regulations, and provide legal authority for the seizure of criminal and terrorist assets.
Singapore
As a significant international financial and investment center, and in particular as a major offshore financial center, Singapore is attractive to potential launderers. Bank secrecy laws and the lack of routine currency reporting requirements make Singapore an attractive destination to foreign drug traffickers, other foreign criminals, and terrorist organizations and their supporters seeking to launder their money, and for flight capital. Money laundering occurs mainly in the offshore sector, but may also occur in the nonbank financial system, including large numbers of money changers and remittance agencies.
Singapore has a sizeable offshore financial sector. In 2003, there were 116 commercial banks in Singapore, of which 50 were offshore banks, down significantly from 83 in December 2000. There are also 27 full banks and 39 wholesale banks in Singapore. All offshore banks are branches of foreign banks. Singapore does not permit shell banks, either in the domestic or offshore sectors. There are no offshore trusts, although banks may open trust, nominee, and fiduciary accounts. All banks in Singapore, whether domestic or offshore, are subject to the same regulation, record keeping, and reporting requirements, including regarding money laundering and suspicious transactions. Any person who wishes to engage in business, whether local or foreign, must register under the Companies Act. Every Singapore-incorporated company must have at least two directors, one of whom must be ordinarily resident in Singapore, and one or more company secretaries, who must be resident in Singapore. There is no nationality requirement. A company incorporated in Singapore has the same status and powers as a natural person. Bearer shares are not permitted. Casinos and Internet gaming sites are illegal in Singapore.
The Monetary Authority of Singapore (MAS) performs extensive checks on all applicants for banking licenses. These include a check to see if the bank is under adequate home country banking supervision, how long the bank has been in business, and its general reputation within the financial community. The MAS will need to revise its regulations, in line with the Revised FATF 40 Recommendations, to proscribe banks from entering into correspondent relationships with prohibited shell banks.
As a matter of policy, Singapore strongly opposes money laundering and terrorist financing. The Corruption, Drug Trafficking, and other Serious Crimes (Confiscation of Benefits) Act of 1999 (CDSA) criminalizes the laundering of proceeds from narcotics and over 180 other serious offenses, including foreign offenses which would be serious offenses if they had been committed in Singapore. The list of offenses may need to be revised to ensure consistency with the expanded list of predicate crimes under Recommendation 1 of the FATF?s Revised Forty Recommendations in adopted in June, 2003. Financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions. Financial institutions are required to maintain adequate records to respond quickly to Government of Singapore (GOS) inquiries in money laundering cases. However, there are no reporting requirements on amounts of currency brought into or taken out of Singapore.
The Monetary Authority of Singapore, a semi-autonomous entity under the Ministry of Finance, serves as Singapore?s Central Bank and financial sector regulator. MAS performs extensive prudential and regulatory checks on all applicants for banking licenses, including a check to see if the bank is under adequate home country banking supervision. Banks must have clearly identified directors. It is illegal to perform banking transactions without a license. In 2000, MAS first issued a series of regulatory guidelines (i.e., ?Notices?) requiring banks to apply ?know your customer? standards, adopt internal policies for staff compliance, and cooperate with Singapore enforcement agencies on money laundering cases. These Notices are regulatory in nature and are enforceable by prosecution. Similar guidelines exist for securities dealers and other financial service providers. Banks must obtain documentation, such as passports or identity cards, from all personal customers so that the bank can verify their names, permanent contact addresses, dates of birth, and nationalities, and conduct inquiries into the bona fides of company customers..
The regulations specifically require that financial institutions obtain evidence of the identity of the beneficial owners of offshore companies or trusts. The guidelines also mandate specific record keeping and reporting requirements, outline examples of suspicious transactions that should prompt reporting, and establish mandatory intra-company point-of-contact and staff training requirements. MAS Notice 626 applies to banks, Notice 824 applies to finance companies, Notice 1014 applies to merchant banks, and Notice 314 to direct life insurers and brokers. MAS issued similar guidelines for securities dealers and investment advisors, and futures brokers and advisors.
In November 2002, the MAS revised its Notices to banks to enhance customer identification and record keeping requirements. The requirements to obtain satisfactory evidence of the identity of intermediary and/or beneficial owners apply to all accounts, including trust, nominee and fiduciary accounts. Additional identification requirements also apply to account applicants that are shell companies, clubs, societies or charities. The MAS recognizes that the Notices to banks will have to be further adapted to reflect the revised FATF Forty Recommendations adopted in June 2003.
The Suspicious Transaction Reporting Office (STRO) is Singapore?s financial intelligence unit (FIU). Part of the Singapore Police Force?s Commercial Affairs Department, it began operating on January 10, 2000. In the first ten months of 2003, the STRO received 1372 suspicious transaction reports (STRs), up from 1118 reports in 2002 and 549 reports in 2001. Of the reports received, 334 resulted in investigations in the first ten months of 2003, as compared to 436 resultant investigations during the whole of 2002, and just 264 resultant investigations during the whole of 2001.
As a leading financial center in Southeast Asia, Singapore has been a key player in the regional effort to stop terrorist financing in Southeast Asia. The Terrorism (Suppression of Financing) Act, passed in 2002, criminalizes terrorist financing, although the provisions of the Act are actually much broader. In addition to making it a criminal offense to deal with terrorist property (including financial assets), the Act criminalizes the provision or collection of any property (including financial assets) with the intention that the property be used, or having reasonable grounds to believe that the property will be used, to commit any terrorist act or for various terrorist purposes. The Act also provides that any person in Singapore, and every citizen of Singapore outside Singapore, who has information about any transaction or proposed transaction in respect of terrorist property, or who has information that he/she believes might be of material assistance in preventing a terrorism financing offense, must immediately inform the police. The Act gives the authorities the power to freeze and seize terrorist assets. The Act, which supplements and extends interim legislation enacted in November 2001, took effect January 29, 2003. In January 2003, the Singapore Government released a white paper describing its investigations into the Jemaah Islamiyah (JI) terrorist network. The government is known to have detained five persons in 2003 as suspected terrorists; one of these was later released with restrictions placed on his associations and movements
Separate legislative authority, Section 27A(1)(b) of the Monetary Authority of Singapore Act, as amended in 2002, provides MAS with broad powers to direct financial institutions to comply with international obligations, including UN Security Council Resolutions 1267, 1333, 1373, 1390 and other similar resolutions. Regulations issued by the MAS to implement this authority took effect September 30, 2002. The regulations?the MAS (Anti-Terrorism Measures) Regulations 2002?bar banks and financial institutions from providing resources and services of any kind which will benefit terrorists and from doing ?anything that . . . assists or promotes? terrorist financing. Financial institutions must notify the MAS immediately if they have in their possession, custody or control any property belonging to terrorists or any information on transactions involving terrorists? funds. The regulations apply to all branches and offices of any financial institution incorporated in Singapore, or incorporated outside of Singapore but which are located in Singapore. The regulations include a list of terrorists that is based on the UNSCR 1267 consolidated list. Singapore updates the regulations periodically to include additional names added by the UNSCR 1267 Committee. The most recent update is S 606/2003, the MAS (Anti-Terrorism Measures) Regulations 2003, dated December 22, 2003.
The MAS, on October 9, 2001, issued Circular FSG 48/2001, instructing financial institutions in Singapore to comply with a series of circulars intended to implement UNSCR 1373, including a freeze on assets possessed or controlled by any person known to have committed or attempted to commit acts of terrorism. MAS previously issued Circular FSG 5/2001 to implement UNSCR 1267, and FSG 6/2001 to implement UNSCR 1333. MAS issues revised circulars updating the freeze order after new names were added to the UNSCR 1267 consolidated list, although the process is not always immediate. Singapore officials say they have not identified any assets in Singapore of persons included in the UNSCR 1267 consolidated list.
Alternative remittance systems exist, and are used mainly by the approximately 600,000 foreign workers in Singapore. All remittance agents, formal or informal, must be licensed and are subject to the same laws and regulations, including requirements for record keeping and the filing of suspicious transaction reports. In 2002 the regulations were strengthened. The firms now have to submit a financial statement every three months, and report the largest amount transmitted on a single day. Firms must also answer questions about the way they conduct business and about their overseas partners. Informal networks, such as hawalas, that are not licensed are considered illegal.
Charities in Singapore are subject to extensive government regulation, including close oversight and reporting requirements, and restrictions that limit the amount of funding which can be transferred out of Singapore. A total of 1,564 charities were registered as of December 31, 2002. With a few exceptions, all charities must register with the Government, and must, as part of the registration process, submit governing documents outlining the charity?s objectives and particulars on all trustees. The Commissioner of Charities has the power to investigate charities, including authority to search and seize records, and to restrict the transactions the charity can enter into, suspend charity staff or trustees, and/or establish a scheme for the administration of the charity. Charities must keep detailed accounting records, and retain them for at least seven years.
Under the Charities (Fund-raising Appeals for Foreign Charitable Purposes) Regulations 1994, any charity or person who wishes to conduct or participate in any fund raising for any foreign charitable purpose must apply for a permit. The applicant has to show that at least 80 percent of the funds raised will be used in Singapore, although the Commissioner of Charities has discretion to allow a lower percentage to be applied within Singapore. Permit holders are subject to additional record keeping and reporting requirements, including details on every item of expenditure disbursed, amounts transmitted to persons outside Singapore, and to whom the money was transmitted. A total of 37 permits were issued in 2002 for fund raising for foreign charitable purposes. There do not appear to be any restrictions or reporting requirements on foreign donations to charities in Singapore.
Singapore is party to the 1988 UN Drug Convention, and in December 2000 signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. In 2003, Singapore ratified the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention on the Marking of Plastic Explosives. It also passed legislation in November 2003 enabling it to comply with the UN Convention on the Suppression of Unlawful Acts Against Maritime Navigation. Singapore is a member of the Financial Action Task Force (FATF), the Asia/Pacific Group on Money Laundering, the Egmont Group, and the Offshore Group of Banking Supervisors. In addition, as of January 2004, the IMF and the World Bank were in the final stages of conducting an assessment of Singapore?s anti-money laundering and counterterrorist financing framework.
To bolster law enforcement cooperation and facilitate information exchange, Singapore enacted the Mutual Assistance in Criminal Matters Act (MACMA) in March 2000. The MACMA provides for international cooperation on any of the 182 predicate ?serious offenses? listed under the CDSA of 1999. The provisions of the MACMA apply to countries that have concluded treaties, memoranda of understanding, or other agreements with Singapore. In the first ten months of 2003, the STRO received 68 requests for information exchange from overseas law enforcement bodies, compared to 69 such requests received in 2002, and 45 requests in 2001. Singapore and the United States signed the Agreement Concerning the Investigation of Drug Trafficking Offenses and Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking in November 2000, the first agreement concluded pursuant to the MACMA. This agreement, which entered into force in early 2001, facilitates the exchange of banking and corporate information on drug money laundering suspects and targets, including access to bank records. It also entails reciprocal honoring of seizure/forfeiture warrants. This agreement applies only to narcotics cases, and does not cover nonnarcotics-related money laundering, terrorist financing, or financial fraud.
The Terrorism (Suppression of Financing) Act provides for mutual legal assistance in cases where there is no treaty, memorandum (MOU), or other agreement in force between Singapore and another country that is a party to the UN International Convention for the Suppression of the Financing of Terrorism. Singapore?s FIU has concluded MOUs concerning cooperation in the exchange of financial intelligence with counterparts in Australia and Belgium, and continues to actively seek MOUs with additional FIUs. In May 2003 the Singapore Government issued a regulation pursuant to the Terrorism Act and the MACMA that will enable it to provide legal assistance to the United States and the United Kingdom in matters related to terrorism financing offenses. The U.S. and Singapore are currently discussing a possible mutual legal assistance treaty. Singapore concluded a mutual legal assistance agreement with Hong Kong in 2003.
Singapore should continue close monitoring of its domestic and offshore financial sectors. As a major financial center, it should also take measures to regulate and monitor large currency movements into and out of the country to ensure that narcotics traffickers, international criminals, terrorists, terrorist organizations or their supporters do not misuse Singapore?s financial system. The conclusion of broad mutual legal assistance agreements would further Singapore?s ability to work internationally to address these problem. In addition, Singapore may have to amend various laws to ensure consistency with the FATF?s revised forty recommendations approved in June 2003.
Slovakia
The geographic, economic, and legal conditions that shape the money laundering environment in Slovakia are typical of those in other Central European transition economies. Slovakia?s location along the major lines of communication connecting Western, Eastern, and Southeastern Europe makes it a transit country for smuggling and trafficking in narcotics, arms, stolen vehicles, and illegal aliens. Organized crime activity and the opportunities to use gray market channels also lead to a favorable money laundering environment. Financial crimes have been quite problematic for Slovak authorities. In fact, the most frequent predicate offenses for money laundering break down as follows: 57 percent fraud, 21 percent tax evasion, and 5 percent embezzlement. With the law ?On Protection Against the Legalization of Proceeds from Criminal Activities,? also known as Act No. 367/2000, Slovakia criminalizes money laundering for all serious crimes and imposes customer identification, record keeping, and suspicious transaction reporting requirements on banks. In January 2001, nonbank financial institutions (casinos, post offices, brokers, stock exchanges, commodity exchanges, asset management companies, insurance companies, real estate companies, tax advisors, auditors, and credit unions), which have been particularly susceptible to laundering, became subject to suspicious transaction reporting requirements. A money laundering conviction does not require a conviction for the predicate offense, and a predicate offense does not have to occur in Slovakia to be considered as such. The failure of an obligated entity to report, as well as tipping off, are criminal offenses.
New anonymous passbook savings accounts are banned as of October 2000. In 2002, a new preventive law came into effect, and legislative amendments abolished all existing bearer passbooks. Owners of anonymous accounts had until December 31, 2003, to close them; however, the law offers a three-year noninterest-bearing grace period to collect money in the accounts before it is confiscated. As of January 1, 2007, bearer passbook accounts will cease to exist. The new law also extended reporting requirements to antique, art, and collectible brokers; dealers in precious metals or stones, or other high-value goods; legal advisors; consultants; securities dealers; foundations; financial managers and consultants; and accounting services. ?Obliged persons? are required to identify all customers, including legal entities, if they find that the customers prepared or conducted transactions deemed as suspicious or involving a sum, or related sums exceeding 15,000 euros within a 12-month period. Insurance sellers must identify all clients whose premium exceeds 1,000 euros in a year or whose one-time premium exceeds 2,500 euros. Casinos are obligated to identify all customers. Transactions may be delayed by the entities up to 48 hours, with another 24-hour extension allowed if authorized by the Financial Police. If the suspicion is unfounded, the state assumes the burden of compensation for losses stemming from the delay.
In late 2003, the Slovak cabinet approved a law on measures against entities which acquired property through illegal income; the law is waiting for parliamentary approval. According to the law, an undocumented increase in property exceeding the minimum monthly wage multiplied by 200 is considered to be possibly illegal. Anyone with suspicions of illegally acquired property may report it to the police, who are then obliged to investigate the allegations, ultimately reporting it to the Office of the Attorney General if findings are conclusive.
As recommended in its second-round MONEYVAL evaluation in 2001, the Government of Slovakia (GOS) has replaced basic legislation, and Slovakian legislation is now in full harmony with the Second European Union (EU) Directive. The FATF?s 2002-3 Annual Report stated that the amended legislation provided a ?basically sound preventive legal structure.? New and improved customer identification procedures were to be presented to Parliament no later than the end of 2003, and throughout 2003 the banking sector was being evaluated for compliance with laws and regulations. In a controversial move, ?suspicious transactions? has been amended to read ?unusual business activity.?
Slovakia?s financial intelligence unit (FIU), the OFiS of the Bureau of Financial Police (OFiS-UFP), has jurisdictional responsibilities over money laundering violations. Established in 1996, the OFiS-UFP receives and evaluates suspicious transaction reports (STRs), and collects additional information to establish the suspicion of money laundering. Once enough information has been obtained to warrant suspicion that a criminal offense has occurred, the OFiS-UFP forwards the case to the State Prosecutor?s Office for investigation and prosecution. In 2002, OFiS-UFP received 570 reports alleging unusual transactions totaling SKK 24.1 billion ($719 million). Over 90 percent (517) of the reports came from banks, 44 from insurance companies, five from the central securities registrar, three from betting houses and one from the post office. Out of the total package, 157 reports were submitted to the OFiS-UFP for further inspection, 93 to police investigators for the purpose of criminal proceeding, 50 to the appropriate tax office and 158 were re-classified as ?suspicious business operation.? Criminal prosecutions have been proposed in 69 cases; of these, 46 have already been launched. During the first six months of 2003, OFiS-UFP received 213 financial disclosure reports, 90 percent of which came from the banking sector. (The GOS attributes a low level of reporting from some sectors to lack of supervision.) Of these, twelve were passed on for further investigation. Approximately seven percent of those reports led to criminal prosecutions. In 2002, the OFiS-UFP conducted 25 on-site inspections of obliged entities as follows: six insurance companies, 11 leasing companies, four foreign exchange houses, two securities brokers and two real-estate brokerages. According to available information, 17 inspections have been completed without penalties, three are yet unfinished and in five cases inspectors levied fines (cumulatively amounting to SKK 700,000, or $20,895).
Recently, the FIU was divided into three departments. A receptor branch receives and disseminates reports from the obligated entities. A supervisory branch ensures the cooperation of the reporting entities as well as international cooperation. The analytical branch does the actual analysis. OFiS-UFP analysts participate regularly in international and domestic fora related to combating money laundering. The year 2003 saw no major changes to the FIU, which is still seeking to increase its administrative capacity. However, the newly created Bureau for the Fight Against Corruption has siphoned some staff from the FIU.
The GOS ratified the UN International Convention on the Suppression of the Financing of Terrorism on September 13, 2002. The Convention has been incorporated into amendments of the Bank Act, Penal Code, and Act No. 367/2000. However, Slovakia elected to pursue several optional terms of the convention that were fully incorporated in March 2003. All competent authorities in the Slovak Republic have full power to freeze or confiscate terrorist assets in accordance with UNSCR 1373. The GOS agreed to freeze all accounts owned by entities on the UN or U.S. lists immediately. No terrorist finance related accounts have been frozen or seized in Slovakia, but were a terrorism-related account to be identified, the Financial Police would hold any related financial transaction for up to 48 hours, and then gather evidence to freeze the account and seize any assets.
Slovakia is a party to the European Convention on Mutual Legal Assistance, and became a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime in 2001. Slovakia is a party to the 1988 UN Drug Convention, and in December 2003 it signed the UN Convention Against Corruption and ratified the UN Convention against Transnational Organized Crime. Slovakia became a member of the Organization for Economic Cooperation and Development (OECD) in December 2000, thereby expanding its opportunities for multilateral engagement. Slovakia is a member of the Council of Europe (COE) and participates in the Council of Europe?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). Slovakia sends experts to conduct mutual evaluations on fellow member countries; it also underwent mutual evaluations by this group in 1998 and 2001.
The OFiS-UFP is a member of the Egmont Group. Slovakia has MOUs with the FIUs of Slovenia, Belgium, Poland, and the Czech Republic, and a letter of exchange with the FIU of Slovenia. The OFiS-UFP is the responsible authority for international exchange of information regarding money laundering under the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
Slovakia should continue to improve its anti-money laundering regime. Continued implementation of the provisions of Slovakia?s new anti-money laundering legislation will give the Slovak financial system greater protection by helping it prevent and detect money laundering in all financial sectors. Slovakia should also improve supervision of some nonbank sectors to ensure reporting requirements are followed. Slovakia should provide adequate resources to assure its FIU, law enforcement and prosecutorial agencies are adequately funded and trained to effectively perform their various responsibilities. Slovakia should criminalize terrorist financing.
Slovenia
While not a major money laundering country, Slovenia?s economic stability and location on the Balkan drug route offer attractive opportunities for money laundering. Narcotics trafficking, especially heroin via the ?Balkan route? smuggled by mainly Albanian and Serbian nationals, is a growing problem and the main source of illegal proceeds. Other significant sources of illegal proceeds are fraud, trafficking in weapons, illegal immigration, and currency and securities counterfeiting, as well as extraterritorial offenses such as tax evasion, tax and VAT fraud, and corruption. Organized crime is believed to be involved in both predicate crimes and laundering operations. Money laundering often tends to be undertaken by citizens of the other former state socialist countries, using nonresident accounts, and occurs through the banking system, foreign exchange houses, real estate transactions, and cross-border currency transport.
Slovenia?s Law on the Prevention of Money Laundering was enacted in 1994 and amended in 2001. The law criminalizes money laundering and requires all financial institutions, casinos, and legal and natural persons to report suspicious transactions and currency transactions above 5 million Slovenian tolars (approximately $24,000.) Records must be retained for a minimum of five years. Financial supervisory bodies include the Bank of Slovenia, the Securities Market Agency, the Insurance Supervisory Agency, and the Office for Gaming Supervision. The Bank of Slovenia has supervisory power over bureaux de change, and in February 2003 issued a handbook for those bodies complete with reporting requirements, auditing procedures, and indicators.
Slovenia?s financial intelligence unit, the Office for Money Laundering Prevention (OMLP), was established in 1995 and has a staff of 17. It is a member of the Egmont Group. In 2002, OMLP received 92 cases of suspected money laundering and temporarily seized nearly 310 million tolars. In its eight years of operations, OMLP has received 831 suspicious cases and closed 732. Foreign nationals were involved in nearly half of the cases. A special financial crime division was established within the general police directorate in 2000. This unit is in charge of conducting preliminary investigations into money laundering cases and other economic crimes. However, the backlog of cases has become problematic in that about half of all cases fell outside of the statute of limitations before they could be tried. Of the procedures that made it to court in time, 90 percent ended in conviction. Law enforcement authorities, prosecutors, and judges all suffer from a lack of training and experience with regard to pursuing financial crime. Despite this, though, four money laundering cases were brought to fruition by July 2003. Of the four, one was acquitted, and the three convictions are currently on appeal. In two of these cases assets were confiscated.
In October 2001, the Slovenian Parliament passed an anti-money laundering law that updates the original 1994 law by, among other provisions, expanding the OMLP?s sources of available financial information, extending OMLP?s authority to temporarily halt suspect transactions, and requiring mandatory client identification for transactions exceeding 3 million Slovenian tolars (approximately $14,400). December 2001 saw the passage of a new law that increases the power of supervisory authorities to prohibit the establishment of new bearer passbook accounts, as well as phases out already existing bearer passbook accounts. Further amendments to the law, which extend reporting obligations to lawyers, law firms, notaries, auctioneers, art dealers, gaming houses, and lottery concessions, were passed and entered into force in July 2002. Additional identification requirements were also implemented, most notably beneficial owner identification in every case.
The 2002 amendments also gave OMLP more power and latitude in opening cases and sharing information. The amount of time during which transactions could be held was increased from 48 to 72 hours, and record keeping was extended from five to ten years. Another new change is the penal requirement of five years? imprisonment for money laundering. Negligent money laundering is criminalized, but there has never been a conviction for that. Slovenian legislation is now harmonized with the provisions outlined in the Second EU Directive.
Additional legislation was proposed in 2003. Laws concerning foreign currency exchange and banking were at the Parliament level; these laws would make changes to requirements for exchange offices and supervision. In addition, Parliament also received a draft Law on Criminal Procedure. In mid-2003, OMLP drafted a law on asset sharing in conjunction with the Ministries of Justice and Interior.
The 1902 extradition treaty between the U.S. and the Kingdom of Serbia remains in force between the U.S. and Slovenia. Slovenia is actively involved in regional efforts to combat money laundering and terrorism financing, working overall throughout the Balkans and Eastern Europe, especially with Serbia, Montenegro, Ukraine, and Russia. As a EU accession country slated to join in May 2004, Slovenia has been working to expand cooperation. It has run a regional counternarcotics conference with Croatian counterparts, and hosted a regional anti-money laundering conference for eight of its Balkan neighbors.
Slovenia is a member of the Council of Europe?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) and has undergone a mutual evaluation by the Committee, as well as lending its own experts to evaluate other member countries. Slovenia also actively participates in other programs combating money laundering and terrorism financing run through the EU, the Council of Europe, Interpol and the United Nations. Slovenia is a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, and ratified the Civil Law Convention on Corruption in July 2003. Slovenia is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism. In July 2003 Slovenia signed the European Convention on the Suppression of Terrorism.
Slovenia should pass specific antiterrorist financing legislation and should continue to work with its law enforcement and judicial authorities to increase the levels of action and experience in pursuing financial crime.
Solomon Islands
The Solomon Islands is not a regional financial center. The Islands? banking system is small. The country has not criminalized money laundering. According to a report by the Solomon Islands to the UN Counter Terrorism Committee, in 2003 the Solomon Islands introduced a draft Bill on Money Laundering. The draft Bill provides a mechanism that prevents the movement of funds for terrorist purposes and enhances the exchange of financial intelligence with other countries.
The Solomon Islands is not a party to the 1988 UN Drug Convention.
The Solomon Islands should pass anti-money laundering and counter terrorism financing legislation that conforms to international standards. The Solomon Islands should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
South Africa
South Africa?s position as the major financial center in the region, its relatively sophisticated banking and financial sector, and its large cash-based market, all make it a very attractive target for transnational and domestic crime syndicates. Nigerian, Pakistani, and Indian drug traffickers, Chinese Triads, and Russian Mafia have all been identified as operating in South Africa along with native South African criminal groups. Although the links between different types of crime have been observed throughout the region, money laundering is primarily related to narcotics trade. The other dominating types of crimes related to money laundering are: fraud, theft, corruption, currency speculation, illicit dealings in precious metals and diamonds, human trafficking, and smuggling. South Africa is not an offshore financial center.
The Proceeds of Crime Act, No. 76 of 1996, criminalizes money laundering for all serious crimes. This Act was superseded by the Prevention of Organized Crime Act (No. 121 of 1998), which confirmed the criminal character of money laundering, mandated the reporting of suspicious transactions, and provided a ?safe harbor? for good faith compliance. Violation of this Act, carries a fine of up to R 100 million or imprisonment for up to 30 years. Subsequent regulations direct that the reports be sent to the Commercial Crime Unit of the South African Police Service. Both of these Acts contain criminal and civil forfeiture provisions.
In November 2001 President Mbeki signed the Financial Intelligence Centre Act (FICA) into law. The FICA established both the Financial Intelligence Centre (FIC) and the Money Laundering Advisory Council to advise the Minister of Finance on policies and measures to combat money laundering. The mandate of the Financial Intelligence Center (FIC) is to coordinate policy and efforts to counter money laundering activities. The FIC similarly acts as a centralized repository of information and statistics on money laundering. The FICA requires a wide range of financial institutions and businesses to identify customers, maintain records of transactions for at least five years, appoint compliance officers to train employees to comply with the law, and report transactions of a suspicious or unusual nature. Such businesses include companies and businesses considered particularly vulnerable to money laundering activities such as banks, life insurance companies, foreign exchange dealers, casinos, and real estate agents. If the FIC has reasonable grounds to suspect that a transaction involves the proceeds of criminal activities, the FIC will forward this information to the investigative and prosecutorial authorities. If there is suspicion of terrorist financing, that information is to be forwarded to the National Intelligence Service. The FIC began operating in February 2003. In July 2003 the FIC was admitted as a member of the Egmont Group of financial intelligence units.
Because of the cash-driven nature of the South African economy, alternative remittance systems that bypass the formal financial sector exist. Currently, there is no legal obligation requiring alternative remittance systems to report cash transactions.
The House of Assembly passed a bill proposed by the South African Law Commission in 2001, criminalizing specifically the financing of terrorism, on November 21, 2003, under the title ?The Constitutional Democracy Against Terrorism and Related Activities Act of 2004.? According to this act, any person who engages in a terrorist activity is guilty of the offense of terrorism. There is a special provision criminalizing the financing of terrorism. This act will complement and amend the FICA of 2001. The FIC will combat terrorist financing as well as money laundering, based on this new act. The Act also calls for the jurisdiction?s authority to identify, freeze and seize money laundering related assets.
As of December 2003, 30 money laundering cases are under investigation and only a very few actual cases have been prosecuted for money laundering or terrorist financing.
In June 2003, South Africa became the first African nation to be admitted into the Financial Action Task Force thus strengthening its money laundering control capacity. South Africa is also an active member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) having signed the memorandum of understanding in 2003.
The GOSA is a party to the UN International Convention for the Suppression of the Financing of Terrorism and the 1988 UN Drug Convention. South Africa has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.
In 2003, South Africa improved and strengthened its anti-money laundering regime and its overall legal capacity to combat money laundering in all its forms, and has made new efforts to prosecute a number of money launderers.
Spain
Money laundered in Spain is primarily from the proceeds of the Colombian cocaine trade, although money laundered through other Latin American countries also plays a role. Hashish proceeds from Morocco enter Spain as well as some heroin money from Turkish smugglers. There is also some concern about the black market smuggling of goods to avoid taxation, especially tobacco and electronics from Gibraltar. The majority of laundered money enters as bulk cash via individuals carrying cash in their luggage or hidden on their bodies when arriving at international airports; containers loaded with currency entering the larger ports (such as Algeciras); and money smuggled by small craft along the coastline. Money also enters and leaves Spain through the commercial banking system and informal nonbank outlets (such as ?Locutorios?), which make small international transfers for the immigrant community. Although little of the money laundered in Spain is believed to be used for terrorist financing, money from the extortion of businesses in the Basque region is moved through the financial system and used to finance the Basque group ETA. Spain is aware of the problem; however the money is difficult to track.
The Government of Spain (GOS) remains committed to combating narcotics trafficking, terrorism, and financial crimes, and continues to work hard to tighten financial controls. The criminalization of money laundering was added to the penal code in 1988 when laundering the proceeds from narcotics trafficking was made a criminal offense. In 1995 the law was expanded to cover all serious crimes that required a prison sentence greater than three years. All forms of money laundering were made financial crimes in amendments to the code on November 25, 2003, which will take effect on October 1, 2004.
The penal code can also apply to individuals in financial firms if their institutions have been used for financial crimes. An amendment to the penal code in 1991 made such persons culpable for both fraudulent acts and negligence connected with money laundering.
Businesses and financial service suppliers operating in Spain or targeting Spanish markets are subject to a new law, Ley de Servicios de la Sociedad de Informacion y de Comercio Electronico (LSSICE), that came into force on October 12, 2002, for Internet marketing and distribution. The new law requires businesses to register their domain names, company registry, physical address, and other company details. Financial sector businesses such as online banks must still send written contracts to new customers for signature and obtain physical proof of their identity, in order to comply with existing banking regulations.
Royal Decree 998/2003 of July 5, 2003 modified the structure of the Ministry of Interior to facilitate more active combating of drug trafficking. This law creates an Advisory Committee on Observation that will attempt to follow the use of technologies by criminal organizations and money launderers and take measures to ensure that Spanish law enforcement authorities are able to meet the new challenges.
Specific measures to prevent money laundering were written to regulate the legal entities in the financial sector and individuals moving large sums of cash, in December 1993 (Law No. 19/1993), as an expansion to the criminal code which previously applied only to physical persons. The regulations for enactment were established by Royal Decree 925/1995, which set the standards for regulation of the financial system. The regulations were amended in 2003 and cover money laundering linked to illicit drugs, terrorism, and organized crime. The financial sector is required to identify customers, keep records of transactions, and report suspicious financial transactions. The money laundering law applies to most entities active in the financial system, including banks, mutual savings associations, credit companies, insurance companies, financial advisers, brokerage and securities firms, postal services, currency exchange outlets, casinos, and individuals and unofficial financial institutions exchanging or transmitting money (alternative remittance systems). The 2003 amendments add lawyers and notaries as covered entities. Previously, notaries and lawyers were required to report suspicious cases, but now they are considered part of the financial system that is under the supervision of appropriate regulators.
Law 19/2003 obligates financial institutions to make monthly reports on large transactions. Banks are required to report all international transfers greater than 30,000 euros. The law also requires the declaration and reporting of internal transfers of funds greater than 80,500 euros.
In addition to suspicious transactions, individuals traveling internationally are required to report the importation or exportation of currency greater than 6,000 euros. Previously, the Spanish authorities could only keep 12 percent if they uncovered illegal activity, but had to return the remainder with a Bank of Spain check, which effectively laundered the money. Law 19/2003 increases the seizure to 100 percent if illegal activity under financial crimes ordinances can be proven. Spanish authorities claim they have seen a drop in cash carriers since the enactment in July 2003. For cases where the money can not be connected to criminal activity, but it also has not been declared, the authorities may keep between 25 and 100 percent, depending on the amount of the currency being carried.
The Commission for the Prevention of Money Laundering and Financial Crimes (CPBC) coordinates the fight against money laundering in Spain. The Secretary of State for Economy heads the commission and all of the agencies involved in the prevention of money laundering participate. The representatives include the National Drug Plan Office, the Ministry of Economy, the Federal Prosecutors (Fiscalia), Customs, the Spanish National Police, the Guardia Civil, CNMV (equivalent to the SEC), the Treasury, the Bank of Spain, and the Director General of Insurance and Pension Funds. Any member of the Commission may request an investigation, should suspicious activity be brought to his or her attention.
The CPBC delegates responsibility to two additional organizations. The first is a secretariat in the Treasury, located in the Ministry of Economy. Following investigation and a guilty verdict by a court, this regulating body carries out penalties. Sanctions can include closure, fines, account freezes, or seizures of assets. Changes in Law 19/2003 now allow seizures of assets of third parties in criminal transactions, and a seizure of real estate in an amount equivalent to the illegal profit. One weakness that remains in financial sanctions is that the joint owner may access joint accounts if he or she can show financial need.
The second organization is the Executive Service of the Commission for the Prevention of Money Laundering (SEPBLAC), which serves as Spain?s financial intelligence unit. SEPBLAC receives and analyzes suspicious activity reports (SARs) and currency transaction reports. SEPBLAC has the primary responsibility for any investigation in money laundering cases and directly supervises the anti-money laundering procedures of banks and financial institutions. Incriminating information is turned over to the Federal Prosecutors for prosecution. Spanish banks are required by law to maintain fiscal information for five years and mercantile records for six years.
The Fund of Seized Goods of Narcotics Traffickers receives seized assets. This agency was established under the National Drug Plan. The proceeds from the funds are divided, with half going to drug treatment programs and half to a foundation that supports the officers fighting narcotics trafficking.
Terrorist financing issues are governed by a separate code of law and commission, the Commission of Vigilance of Terrorist Finance Activities (CVAFT). This commission was created under Law 12/2003 on the Prevention and Blocking of the Financing of Terrorism. The commission is headed by the Ministry of Interior and includes representatives from the Fiscalia and Ministries of Justice and Economy. Currently, only the head of CVAFT can request information in terrorist financing cases, so other members must rely on the commission head to begin an investigation.
Crimes of terrorism are defined in Article 571 of the Penal Code, and penalties are set forth in Articles 572 and 574. Sanctions range from ten to thirty years? imprisonment with longer terms if the terrorist actions were directed against government officials. The Spanish are more active in freezing terrorist accounts, than drug money laundering accounts. Their ability to freeze accounts in the most recent law is more aggressive than that of most of their European counterparts. Though many laws are transposed from EU directives, Law 12/2003 goes beyond EU requirements.
All legal charities are placed on a register maintained by the Ministry of Justice. Responsibility for policing registered charities lies with the Ministry of Public Administration. If the charity fails to comply with the requirements, sanctions or other criminal charges may be levied.
Spain is a member of the FATF, and co-chairs the FATF terrorist finance working group. Spain is a participating and cooperating nation to the South American Financial Action Task Force (GAFISUD), and a cooperating and supporting nation to the Caribbean Financial Action Task Force (CFATF). Spain is a major provider of counterterrorism assistance. The GOS ratified the UN Convention against Transnational Organized Crime on March 2, 2002, and the UN International Convention for the Suppression of the Financing of Terrorism on April 9, 2002. Spain is also a party to the 1988 UN Drug Convention. SEPBLAC is a member of the Egmont Group.
The GOS has signed criminal mutual legal assistance agreements with Argentina, Australia, Canada, Chile, the Dominican Republic, Mexico, Morocco, Uruguay, and the United States. Spain?s Mutual Legal Assistance Treaty with the United States has been in effect since 1993. Spain also has entered into bilateral agreements for cooperation and information exchange on money laundering issues with Bolivia, Chile, El Salvador, France, Israel, Italy, Malta, Mexico, Panama, Portugal, Russia, Turkey, Venezuela, Uruguay, and the United States. Spain actively collaborates with Europol, supplying and exchanging information on terrorist groups. In 2003, U.S. law enforcement authorities cooperated with the GOS in an investigation that resulted in the seizure of over $10 million in cash, jewelry, planes, and real estate.
Seizures of assets involving more than one country and the division of the assets depend on the relationship with the third country. EU working groups will determine how to divide the proceeds for member countries. Outside of the EU, bilateral commissions are formed with countries that are members of FATF, FATF-like bodies and the Egmont Group, to deal with the division of seized assets. With other countries, negotiations are conducted on an ad hoc basis.
Spain should continue the strong enforcement of its anti-money laundering program and its leadership in the international arena. It should consider whether additional measures are required to address possible money laundering in the stock market to ensure that the sector is not used for financial crimes.
Sri Lanka
Sri Lanka is neither an important regional financial center nor a preferred center for money laundering. Money laundering currently is not a criminal offense. There are strict bank secrecy laws, under which the Government of Sri Lanka is required to obtain a court order to obtain banking information of bank customers. In a bid to tackle money laundering and terrorist financing in the absence of a specific legal framework, in December 2001, the Central Bank introduced regulations on customer due diligence. These regulations apply to commercial banks and licensed specialized banks coming under the Central Bank. The Government is in the process of finalizing draft legislation to deal with money laundering. It is believed there will be three separate laws: 1. A financial transaction reporting law modeled on those in the Commonwealth; 2. A law on countering terrorist financing based on UN and FATF models; and 3. A law to criminalize proceeds from crimes. Currently, financial transactions relating to terrorism and narcotics are illegal under Central Bank regulations and banking laws.
Many areas of concern exist in Sri Lanka?s anti-money laundering efforts. The Central Bank continues to allow the operation of bearer certificates of deposits. In July 2003, in order to check money laundering through bearer certificates, the Central Bank required banks to maintain a record of people purchasing these certificates. The Government offered a tax amnesty to Sri Lankans in 2003. Under the amnesty, individuals and companies could declare previously undisclosed wealth accrued from any source. The amnesty granted immunity from taxes and investigations. The amnesty was aimed at widening the tax base. Casinos are another area of concern as there is no law to regulate their operations. Sri Lanka has also become a transit point for illegal migration of Sri Lankans and other Asian nationals to Europe and the Gulf.
There is an indigenous alternative remittance system in the form of informal money transfer systems. Sri Lankan migrant workers, mainly in the Middle East, use a hawala-like system to remit their earnings. Various payments out of Sri Lanka also use this system. Sri Lankan commercial banks are increasing their presence and services in the Middle East in order to cater to this clientele.
Sri Lanka is not considered an offshore financial center. Offshore banking units are allowed to operate as a part of a commercial bank operating in the country in order to facilitate trade finance. They are subject to Central Bank supervision. Bearer shares are not permitted for banks and companies.
Regulations under the United Nations Act No. 45 of 1968 provide for freezing and forfeiture of assets of financiers of terrorism. There is no specific provision in law to freeze and forfeit narcotics related assets. Trafficking, possessing, importing or exporting of narcotics is punishable by death or life imprisonment under the Poisons, Opium and Dangerous Drugs Ordinance (OPDDO). Draft amendments to OPDDO and new money laundering legislation are expected to include asset forfeiture and seizure provisions for narcotics related crimes and money laundering.
Terrorist financing is an offense punishable by imprisonment for a period of five to ten years. The Central Bank of Sri Lanka has circulated the list of individuals and entities that have been included on the UN 1267 Sanctions Committee?s consolidated list with instructions to identify, freeze and seize terrorist assets. To date no such assets have been identified. Sri Lanka is a party to the UN International Convention for the Suppression of the Financing of Terrorism and to the 1988 UN Drug Convention. Sri Lanka has signed but not ratified the UN Convention against Transnational Organized Crime.
Sri Lanka should initiate a comprehensive anti-money laundering program that has as its foundation anti-money laundering and antiterrorist financing laws. The proceeds of all crime should be included as predicate offenses for money laundering. The practice of bearer certificates of deposit should be terminated. There should be a formalized system of reporting suspicious transactions from financial institutions to a Financial Intelligence Unit (FIU). Casinos should also be made subject to financial intelligence reporting to the FIU. Sri Lanka should devote adequate resources to train police and customs officials to recognize and investigate different forms of money laundering, including alternative remittance systems.
St. Kitts and Nevis
The Government of St. Kitts and Nevis (GOSKN) is a federation composed of two islands in the Eastern Caribbean, but each island has the authority to organize its own financial structure. The federation is at major risk for corruption and money laundering due to the high volume of narcotics-trafficking activity through and around the islands and the presence of known traffickers on the islands. An inadequately regulated economic citizenship program adds to the problem.
Most of the offshore financial activity in the federation is concentrated in Nevis in which there is one offshore bank (a wholly owned subsidiary of a domestic bank), approximately 13,800 international business companies (IBCs), and 950 trusts. The Nevis domestic structure consists of five domestic banks, four domestic insurance companies (all of which are subsidiaries of St. Kitts companies), and one money remitter. There are also 65 trust and company service providers. In St. Kitts, there are four domestic banks, two credit unions, four domestic insurance companies, two money remitters, and 15 company service providers. There are also four trusts and 450 exempt companies. A regional stock exchange, common to the members of the Organization of Eastern Caribbean States (OECS) and supervised by a regional regulator, is located in St. Kitts. There are two casinos in St. Kitts, and three casino licenses are pending. Applicants may apply as an IBC for an Internet gaming license, but none have been issued, despite the fact the Internet Gaming Commission indicates that St. Kitts and Nevis (SKN) has 42 Internet gaming sites.
The Eastern Caribbean Central Bank has direct responsibility for regulating and supervising the offshore bank in Nevis, as it does for the domestic sector in the entire St. Kitts and Nevis (SKN), and for making recommendations regarding approval of offshore bank licenses. The St. Kitts and Nevis Financial Services Commission, with regulators on both islands, regulates nonbank financial institutions for anti-money laundering compliance.
In June 2000, the Financial Action Task Force (FATF) placed St. Kitts and Nevis on the list of noncooperative countries and territories in the fight against money laundering (NCCT). The FATF in its report cited several concerns surrounding the anti-money laundering regime of SKN. Among the problems identified by FATF were the narrow definition of money laundering as a punishable offense, the absence of mandatory suspicious transaction reporting, and the lack of effective supervision of the Nevis offshore sector. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions, emphasizing the need for enhanced scrutiny of certain transactions and banking relationships in St. Kitts and Nevis to ensure that appropriate measures are taken to minimize risk for money laundering. As a result of the legislative changes addressed below as well as the responsiveness of the GOSKN to requests for mutual legal assistance and other financial sector regulatory inquiries, the FATF, with certain ongoing follow-up conditions, removed the GOSKN from the NCCT list in June 2002. The U.S. Treasury Department removed its Financial Advisory in August 2002. In June 2003, the FATF stated that the GOSKN had adequately addressed all of its previously identified deficiencies and would no longer require monitoring by the FATF.
The Financial Intelligence Unit Act No. 15 of 2000 authorizes the creation of the Financial Intelligence Unit (FIU). The FIU began operations in 2001 and has a director, deputy director, and four police officers. The FIU receives, collects, and investigate suspicious activity reports (SARs). The FIU is also charged with liaising with foreign jurisdictions. By November 2003, the FIU had received 77 SARs. During its first two years of operation the FIU received over 100 SARs and froze over $1.6 million. The Proceeds of Crime Act No. 16 of 2000 criminalizes money laundering for serious offenses (defined to include more than drug offenses) and imposes penalties ranging from imprisonment to monetary fines. The Act also overrides secrecy provisions that may have constituted obstacles to the access of administrative and judicial authorities to information with respect to account holders or beneficial owners. Other measures designed to remedy shortcomings in SKN?s anti-money laundering regime include the Financial Services Commission Act No. 17 of 2000, the Nevis Offshore Banking (Amendment) Ordinance No. 3 of 2000, the Anti-Money Laundering Regulations No. 15 of 2001, the Companies (Amendment) Act No. 14 of 2001, the Anti-Money Laundering (Amendment) Regulations No. 36 of 2001, the Nevis Business Corporation (Amendment) Ordinance No. 3 of 2001, and the Nevis Offshore Banking (Amendment) Ordinance No. 4 of 2001.
The GOSKN also issued regulations requiring financial institutions to identify their customers, to maintain a record of transactions, to report suspicious transactions to the FIU, and to establish anti-money laundering training programs. The Financial Services Commission has issued guidance notes on the prevention of money laundering pursuant to the Anti-Money Laundering Regulations. The Commission?s Regulator is authorized to carry out anti-money laundering examinations. The GOSKN has separated the offshore marketing and regulatory functions. In particular, an offshore Marketing and Development Department, separate from the Financial Services Commission, was established in April 2001. Legislation requires certain identifying information to be maintained about bearer certificates, including the name and address of the bearer of the certificate, as well as its beneficial owner. In addition to these measures, Nevis issued regulations aimed at facilitating the identification of beneficial owners of corporations and corporate shareholders.
Financial Services (Exchange of Information) Regulations were promulgated in 2002. These regulations define the parameters for the exchange of information between domestic regulatory agencies and foreign regulatory agencies. Financial services officials in SKN have been seeking to educate relevant stakeholders as to their responsibilities related to anti-money laundering, e.g., using radio, television, newspapers and seminars. The GOSKN encouraged the founding of an association of compliance officers within relevant financial institutions and provided training in anti-money laundering to government financial services personnel. In 2003, the Nevis island administration announced plans to strengthen regulatory oversight of service providers.
St. Kitts and Nevis enacted the Anti-Terrorism Act No. 21, effective November 27, 2002. Sections 12 and 15 of the Act criminalize terrorist financing. The Act implements various UN Conventions against terrorism. The GOSKN has some existing controls that apply to alternative remittance systems, but has undertaken no initiatives that apply directly to the potential terrorist misuse of charitable and nonprofit entities. St. Kitts and Nevis circulates lists of terrorists and terrorist entities to all financial institutions. To date, no accounts associated with terrorists or terrorist entities have been found in SKN.
St. Kitts and Nevis is a member of the Caribbean Financial Action Task Force CFATF) and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD). A mutual legal assistance treaty between St. Kitts and Nevis and the United States entered into force in early 2000. St. Kitts and Nevis is a party to the 1988 UN Drug Convention and in November 2001 signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. The GOSKN became a party to the UN International Convention for the Suppression of the Financing of Terrorism on November 16, 2001.
Notwithstanding its recent progress, SKN remains vulnerable to money laundering and other financial crimes. St. Kitts and Nevis should continue to devote sufficient resources to effectively implement its anti-money laundering regime. Specifically, the GOSKN also needs to determine the volume of Internet gaming sites present on the islands. Oversight of these entities is crucial as they are vulnerable to abuse by criminal and terrorist groups. Additionally, the GOSKN should adequately oversee, or should curtail its economic citizenship program.
St. Lucia
St. Lucia has developed an offshore financial service center that could potentially make the island more vulnerable to money laundering and other financial crimes. The Government of St. Lucia (GOSL) also is considering the establishment of gaming enterprises.
Currently, St. Lucia has two offshore banks, 1,052 international business companies, 20 international trusts, 12 international insurance companies, 15 registered agents and trustees (service providers), two money remitters, two mutual fund administrators and four domestic banks. The GOSL has been cooperative with the USG in financial crime investigations.
The 1993 Proceeds of Crime Act criminalizes money laundering with respect to narcotics. The Proceeds of Crime Act also provides for a voluntary system of reporting account information to the police or prosecutor when such information may be relevant to an investigation or prosecution. In addition, the Act requires financial institutions to retain information on new accounts and details of transactions for seven years.
Many of the 1993 Proceeds of Crime Act provisions are superseded by the 1999 Money Laundering (Prevention) Act, which criminalizes the laundering of proceeds with respect to 15 prescribed offenses, including narcotics trafficking, corruption, fraud, terrorism, gambling and robbery. The Money Laundering (Prevention) Act mandates suspicious transaction reporting requirements and imposes record keeping requirements. In addition, the Money Laundering (Prevention) Act imposes a duty on financial institutions to take ?reasonable measures? to establish the identity of customers, and requires accounts to be maintained in the true name of the holder. The Act also now requires an institution to take reasonable measures to identify the underlying beneficial owner when an agent, trustee or nominee operates an account. These obligations apply to domestic and offshore financial institutions, including credit unions, trust companies, and insurance companies. In April 2000, the Financial Services Supervision Unit issued detailed guidance notes, entitled ?Minimum Due Diligence Checks, to be conducted by Registered Agents and Trustees.?
Pursuant to the Money Laundering (Prevention) Act, the Money Laundering (Prevention) Authority was established in early 2000. The Authority consists of five persons ?who have sound knowledge of the law, banking or finance.? The Authority?s functions include receipt of suspicious transactions reports, subsequent investigation of the transactions, dissemination of information within (e.g., to the Director of Public Prosecutions) or outside of St. Lucia, and monitoring of compliance with the law. The Money Laundering (Prevention) Act imposes a duty on the Authority to cooperate with competent foreign authorities. Assistance includes the provision of documents, giving of testimony, undertaking of examinations, execution of search and seizure orders, and the provision of information and evidentiary items. The Authority has a number of regulatory powers, including the right to enter the premises of a financial institution during normal working hours to inspect transaction records or copy relevant documentation, issue guidelines to financial institutions, and instruct a financial institution to facilitate an investigation by the Authority.
In 1999, the GOSL also enacted a comprehensive inventory of offshore legislation, consisting of the International Business Companies (IBC) Act, the Registered Agent and Trustee Licensing Act, the International Trusts Act, the International Insurance Act, the Mutual Funds Act and the International Banks Act. An IBC may be incorporated under the IBC Act. Only a person licensed under the Registered Agent and Trustee Licensing Act as a licensee may apply to the Registrar of IBC?s to incorporate and register a company as an IBC. The registration process involves the Registered Agent submitting to the registrar the memorandum and articles of the company, payment of the prescribed fee and the Registrar?s determination of compliance with the requirements of the Act. IBCs can be registered online through the GOSL?s Pinnacle web page. IBCs intending to engage in banking, insurance or mutual funds business may not be registered without the approval of the Minister responsible for international financial services. An IBC may be struck off the register on the grounds of carrying on business against the public interest.
The Financial Intelligence Authority Act No. 17 of 2002 authorizes the establishment of a Financial Intelligence Unit (FIU) for St. Lucia, which became operational in October 2003. Some of the functions of the Money Laundering (Prevention) Authority have been transferred to the new Financial Intelligence Unit (FIU). The FIU will receive suspicious transaction reports and will be able to compel the production of information necessary to investigate possible offenses under the 1993 Proceeds of Crime Act and the 1999 Money Laundering (Prevention) Act. Failure to provide information to the FIU is a crime, punishable by a fine or up to ten years imprisonment. The Financial Intelligence Authority Act permits the sharing of information obtained by the FIU with foreign FIUs. The Caribbean Anti-Money Laundering Program (CALP), which is funded jointly by the United States, the United Kingdom and the European Union, has trained St. Lucia?s FIU personnel.
In September 2003, legislation was adopted merging the Money Laundering (Prevention) Authority with the FIU. The legislation also extends anti-money laundering compliance requirements to credit unions, money remitters and pawnbrokers, as well as strengthens criminal penalties for money laundering. There have been no money laundering convictions to date in St. Lucia.
The GOSL established the Committee on Financial Services in 2001. The Committee, which meets monthly, is designed to safeguard St. Lucia?s financial services sector. The Committee is composed of the Minister of Finance, the Attorney General, the Solicitor General, the Director of Public Prosecutions, the Director of Financial Services, the Registrar of Business Companies, the Commissioner of Police, the Deputy Permanent Secretary of the Ministry of Commerce, the police officer in charge of Special Branch, the Comptroller of Inland Revenue and others. The GOSL announced in 2003 its intention to form an integrated regulatory unit to supervise the onshore and offshore financial institutions the GOSL currently regulates. The Eastern Caribbean Central Bank regulates St. Lucia?s domestic banking sector.
Anti-terrorism and counterterrorist financing legislation is pending before the St. Lucia Parliament. The GOSL has not signed the UN International Convention for the Suppression of the Financing of Terrorism. In 2002, St. Lucia signed the Inter-American Convention Against Terrorism, which includes counterterrorist financing provisions. St. Lucia circulates lists of terrorists and terrorist entities to all financial institutions. To date, no accounts associated with terrorists or terrorist entities have been found in St. Lucia. The GOSL has not taken any specific initiatives focused on the misuse of charitable and nonprofit entities.
As a member of the Caribbean Financial Action Task Force (CFATF), St. Lucia underwent a first mutual evaluation immediately prior to the establishment of its offshore sector. St. Lucia underwent its Second Round evaluation in September 2003. St. Lucia is a party to the 1988 UN Drug Convention and a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. In February 2000, St. Lucia and the United States brought into force a Mutual Legal Assistance Treaty. On September 26, 2001, St. Lucia signed the UN Convention against Transnational Organized Crime. St. Lucia has a Tax Information Exchange Agreement with the United States.
The GOSL should ratify the UN International Convention for the Suppression of the Financing of Terrorism and adopt antiterrorism financing legislation. St. Lucia should continue to enhance and implement its money laundering legislation and programs.
St. Vincent and the Grenadines
Until its government fully implements the financial sector and anti-money laundering laws it has enacted, St. Vincent and the Grenadines (SVG) will remain vulnerable to money laundering and other financial crimes, as a result of the rapid expansion and inadequate regulation of its offshore sector in recent years.
SVG?s offshore sector includes ten offshore banks (down from 42 in 2000), 6,342 international business companies (IBCs) (down from over 11,000 in 2000), four offshore insurance companies, nine mutual funds, and 394 international trusts. SVG?s domestic sector comprises five commercial banks, one development bank, two savings and loans, one building society, three credit unions, and one money remitter. There are also 21 insurance companies. The Eastern Caribbean Central Bank (ECCB) supervises SVG?s five domestic banks. Beginning in October 2001 with an administrative agreement, and finalized in the International Banks (Amendment) Act No. 30 of 2002, the Government of SVG (GOSVG) has given the ECCB increasing authority to review and make recommendations regarding approval of offshore bank license applications and to directly supervise SVG?s offshore banks in cooperation with the GOSVG?s Offshore Finance Authority (OFA). The agreement includes provisions for joint on-site inspections to evaluate the financial soundness and anti-money laundering programs of offshore banks. The OFA alone continues to supervise and regulate the other offshore sector entities. The GOSVG has strengthened the structure and staffing of the OFA.
In June 2000, the Financial Action Task Force (FATF) placed SVG on the list of noncooperative countries and territories in the fight against money laundering (NCCT). The FATF in its report cited several concerns, including the fact that SVG had not put in place anti-money laundering regulations or guidelines with respect to offshore financial institutions. The FATF also cited obstacles to international cooperation, and rudimentary licensing and registration requirements for financial institutions in SVG. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions, warning them to give enhanced scrutiny to all financial transactions originating in or routed to or through SVG, or involving entities organized or domiciled, or persons maintaining accounts in, SVG. In June 2003, the FATF recognized that GOSVG had sufficiently addressed deficiencies identified by the FATF through enactment and implementation of appropriate legal reforms, and SVG was removed from the NCCT list. The FATF encouraged GOSVG to consider tightening provisions relating to the granting of exemptions from customer identification requirements. In July 2003, the U.S. Treasury Department withdrew its advisory against the GOSVG
Since July 2000, the GOSVG has passed substantial legislation, primarily the International Banks (Amendment) Act No. 7 of 2000 that deals with the authorization and regulation requirements for offshore banks as well as with the rules regarding the transfer of shares and beneficial interest. The GOSVG also enacted the International Banks (Amendment) Act of October 2000, which enables the Offshore Finance Inspector to have access to the name or title of an account of a customer and any other confidential information about the customer that is in the possession of a licensee. The GOSVG prepared a further amended International Banks Act with a view to improving licensing procedures and better regulating the offshore banking sector.
The GOSVG enacted the International Business Companies Amendment Act No. 26 of 2002, which became effective on May 27, 2002, to immobilize and register bearer shares. The GOSVG also revoked the Confidentiality Act and passed the Exchange of Information Act No. 29 of 2002 to authorize and facilitate the exchange of information, particularly among regulatory bodies. In April 2001, the GOSVG revoked its economic citizenship program, which provided the legal basis to sell SVG citizenship and passports, although no passports were reported to have been issued under the program.
SVG enacted the Proceeds of Crime and Money Laundering (Prevention) Act in December 2001 and the Proceeds of Crime (Money Laundering) Regulations in January 2002. Subsequent amendments further strengthened provisions of the Act and the Regulations. Among other measures, this Act criminalizes money laundering and imposes on financial institutions and regulated businesses a requirement to report suspicious transactions suspected of being related to money laundering or the proceeds of crime. The related regulations establish mandatory record keeping rules and limited customer identification/verification requirements.
The Financial Intelligence Unit Act No. 38 of 2001 established the Financial Intelligence Unit (FIU) that began operation in May 2002. The FIU Act, 2001 allows for the exchange of information with foreign FIUs. An amendment to the FIU Act permits the sharing of information even at the investigative or intelligence stage. The FIU became a member of the Egmont Group in June 2003. By November 2003, the FIU had received 283 suspicious activity reports.
There were no money laundering convictions, but the GOSVG has frozen approximately $1.5 million and confiscated approximately $40,000. SVG officials also cooperated with a U.S. investigation of a major suspected money launderer in 2002. The GOSVG in 2003 reintroduced a customs declaration form to be completed and signed by incoming travelers. Incoming travelers are required to declare currency over approximately $3,800.
The GOSVG enacted the United Nations Terrorism Measures Act No. 34, effective August 2, 2002. Sections 3 and 4 of the Act criminalize terrorist financing. The GOSVG is a party to the UN International Convention for the Suppression of the Financing of Terrorism and is deemed to be partially compliant. The GOSVG has not undertaken any specific initiatives focused on the misuse of charitable and nonprofit entities. The GOSVG circulates lists of terrorists and terrorist entities to all financial institutions in St. Vincent and the Grenadines. To date, no accounts associated with terrorists have been found in SVG.
The GOSVG is a member of the Caribbean Financial Action Task Force (CFATF), and underwent its Second Round mutual evaluation in November 2002. In addition, SVG is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD). SVG is a party to the 1988 UN Drug Convention and acceded to the Inter-American Convention Against Corruption in 2001. SVG signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. An updated extradition treaty and a Mutual Legal Assistance Treaty between the United States and SVG entered into force in September 1999.
The GOSVG should address all remaining concerns raised by the international community concerning its anti-money laundering regime, including in the areas of customer identification, physical presence, money remitters, outstanding bearer shares and money laundering prosecutions. The GOSVG should continue to provide training to its regulatory, law enforcement and FIU personnel on money laundering operations and investigations and strengthen the FIU?s relationship with its foreign counterparts. The GOSVG also should ensure that it properly supervises the offshore sector.
Suriname
Suriname is not a regional financial center. Narcotics-related money laundering occurs primarily through unregulated private sector activities, specifically casinos, gold mining and car dealerships. Narcotics-related money laundering is closely linked to transnational criminal activity related to the transshipment of Colombian cocaine and is believed to occur through both the nonbanking financial system (i.e., money exchange businesses or cambios) and through a variety of other means including, but not limited to, the sale of gold purchased with illicit money and the manipulation of commercial and state controlled bank accounts. The money laundering proceeds are believed to be controlled by both local drug-trafficking organizations and organized crime.
Suriname?s overall anti-money laundering regime remains weak. The Government of Suriname (GOS) is attempting to implement a package of anti-money laundering legislation passed in 2002 based on recommendations made by the Caribbean Financial Action Task Force (CFATF). This legislation addresses multiple issues including (a) criminalizing money laundering, (b) establishing a financial intelligence unit (FIU) to track and report on unusual and suspicious financial transactions, and (c) requiring financial service providers to store information on clients for seven years and to confirm the identities of clients, individual or corporate, before completing requested financial services. The legislation includes a due diligence section making individual bankers responsible if their institution is laundering money, and ensures the protection of bankers and others with respect to their cooperation with law enforcement officials. The law, ?Reporting of Unusual Transactions? was enacted in September 2002 and entered into force in March 2003. This law requires financial institutions, other intermediaries and natural legal persons who conduct financial services to report suspicious financial transactions to the FIU. In addition, there is an amendment to the criminal code allowing authorities to confiscate illegally obtained proceeds and assets obtained partly or completely through criminal offenses.
The Central Bank issued guidelines for the prevention of money laundering in 1996 that contain a definition of a suspicious transaction as any transaction that deviates from the usual account and customer activities and that are not ?normal? daily banking business. These guidelines are not mandatory.
The FIU opened an office in early 2003 and is receiving extensive training. The FIU, which falls under the auspices of the Attorney General?s office, is tasked with identifying, recording and reporting the identity of customers engaging in suspicious financial transactions. After an initial rough start, the head of the FIU resigned effective January 2004 after less than six months in office. No replacement has been announced.
Suriname?s financial regime will be challenged in early 2004 by a planned currency change which will drop three zeros from the currency and change the name from the Surinamese Guilder to the Surinamese Dollar. Oversight of this transition will provide a significant test for the newly established FIU to prevent money launderers from exploiting the change in currency. The Central Bank, however, has anticipated this problem and will require that suspicious transactions be reported/investigated. Any currency conversions after an initial three-month grace period must be converted at the Central Bank with an explanation of why the currency was not converted earlier.
The GOS has not criminalized terrorist financing, however, GOS officials are working with the Caribbean Anti-Money Laundering Program to draft legislation requiring transparency in the financial sector that would contain specific provisions for terrorist financing.
The GOS has an agreement with the Netherlands on extradition and legal assistance with regard to criminal matters. Suriname also has bilateral treaties and cooperation agreements with the United States, on narcotics trafficking, and with Colombia, France and Netherlands Antilles on transnational organized crime. Suriname is a member of the CFATF and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD). Suriname is party to the 1988 UN Drug Convention and signed the Inter American Convention against Terrorism in June 2002.
Suriname should continue its efforts to fully implement its anti-money laundering legislation, particularly the establishment of the FIU, and train its personnel. The GOS should criminalize terrorist financing and become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Swaziland
Swaziland is a growing regional financial center. International narcotics trafficking continues to grow in Swaziland, increasing the threat of money laundering. Swaziland?s proximity to South Africa, lack of effective counternarcotics legislation, limited enforcement resources, relatively open society, and developed economic infrastructure make it attractive for trafficking organizations and increase the risk for money laundering.
The Money Laundering Act of 2001 criminalizes money laundering for specified predicate offenses, including narcotics trafficking, kidnapping, counterfeiting, extortion, fraud, and arms-trafficking. The Act establishes a currency reporting requirement, requires banks to report suspicious transactions to the Central Bank, and provides conditions when assets may be frozen and forfeited. It also requires banks to retain records for five years to improve the ability to trace suspicious transactions and patterns. The penalty for money laundering is six years imprisonment, a fine amounting to roughly $3,500, or both. The Act also allows for providing assistance to foreign countries that have entered into mutual assistance treaties with the Government of Swaziland.As of December 2003, the Central Bank received fewer than 10 reports of suspicious transactions. The police bear responsibility for investigating such cases, but no investigations have taken place. The police would also be responsible for seizing any assets related to money laundering, but no seizures have taken place under the Money Laundering Act of 2001. To assist the banking community with tracking suspicious transactions, the Central Bank distributed anti-money laundering guidelines to all banks in late 2002.
Swaziland is party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. Swaziland has signed, but not yet ratified, the UN International Convention against Transnational Organized Crime. Swaziland is also a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. In August 2002, Swaziland hosted the ESAAMLG plenary and Council of Ministers meeting. Swaziland served as President of ESAAMLG from August 2002 to August 2003.
Swaziland should criminalize terrorist financing. Swaziland should also establish a financial intelligence unit capable of sharing information with foreign law enforcement and regulatory officials.
Sweden
Sweden does not appear to have a significant money laundering problem. Swedish anti-money laundering legislation includes all serious crimes. Sweden?s money laundering controls allow Sweden to fulfill the recommendations of the Hague Forfeiture Convention.
Swedish law obligates banks, credit market companies, securities businesses, exchange offices, remittance dealers, insurance brokers, life insurance companies and casinos to report suspicious activity to the police financial intelligence unit (FIU). The law also requires financial institutions, insurance companies, currency exchange houses, and money transfer companies to verify customer identification, inquire into a transaction?s background, and verify identities for each transaction, particularly in the case of new customers and involving amounts above SEK 110,000 ($12,300). Swedish law does not allow individual officers of obligated institutions to be penalized for noncompliance; however, the Swedish Supervisory Authority has the ability to sanction noncompliant institutions. The FIU is entitled to demand customer information from dealers in antiques, jewelry, and art; companies buying and selling new and used vehicles; and firms dealing with gambling and the sale of lottery tickets. Swedish law also provides for the seizure of assets derived from drug-related activity.
Sweden?s FIU received 4,155 suspicious transaction reports in 2001, a 60 percent increase from 2000 due to the implementation of the European Union?s Anti-Money Laundering Directive through Swedish law, which required bureaux de change to report suspicious activity. In 2002, the FIU received 8,008 suspicious transaction reports, and 10,000 reports in 2003.
Sweden ratified the International Convention for the Suppression of the Financing of Terrorism on June 6th 2002, and on July 1st 2002, a new act on penalties for financing serious crimes entered into force. According to the act, it is punishable to collect, provide or receive money or other funds with the intention that they should be used, or in the knowledge that they are to be used, in order to commit serious crimes that are classified as terrorism in international conventions. Attempts to commit such crimes are also punishable. Banks and financial institutions are obliged to observe and report to the police transactions that are suspected to comprise funds that will be used to finance serious crimes. Freezing of assets based on UN Security Council Resolutions is carried out by implementation of EC law.
Sweden is in the process of implementing the second EU Directive on Money Laundering, which expands the reporting requirements to occupational groups such as lawyers, accountants, real estate agents, tax-advisers, and dealers in high value items. The proposal is out for public review, and the new law will come into effect by January 1, 2005.
Sweden has endorsed the Basel Committee?s ?Core Principles for Effective Banking Supervision.? Sweden is a member of the Financial Action Task Force and the Council of Europe. Its FIU is a member of the Egmont Group. Sweden is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. It is also a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
Sweden should continue to expand its anti-money laundering-antiterrorist financing regime. Sweden should adopt reporting requirements for the cross-border transportation of currency or monetary instruments. Sweden should ensure legislation is enacted to extend suspicious transaction reporting requirements to intermediaries, such as attorneys, accountants and financial advisors.
Switzerland
Switzerland is a major international financial center, with some 370 banks maintaining headquarters there. In addition, approximately 12,000 to 15,000 fiduciaries function as nonbank financial institutions. Narcotics-related money laundering proceeds are largely controlled by foreign drug-trafficking organizations. Authorities suspect that Switzerland is vulnerable at the layering and integration stages. Switzerland?s central geographic location; relative political, social, and monetary stability; wide range and sophistication of available financial services; and long tradition of bank secrecy are all factors that make Switzerland a major international financial center. These same factors make Switzerland attractive to potential money launderers. However, Swiss authorities are aware of this and are sensitive to the size of the Swiss private banking industry relative to the size of the economy, and waive bank secrecy rules in the prosecution of money laundering and other criminal cases. An estimated $2.9 trillion is represented by deposits in Swiss institutions, with foreigners accounting for over half of the input into the financial system; this amount is 12 times the GDP of the country.
Reporting indicates that criminals attempt to launder proceeds in Switzerland from a wide range of illegal activities conducted worldwide, particularly narcotics trafficking and corruption. Switzerland?s extensive market in fine arts is also used to launder money. Although both Swiss and foreign individuals or entities conduct money laundering activities in Switzerland, narcotics-related money laundering operations are largely controlled by foreign narcotics-trafficking organizations, often from the Balkans or Eastern Europe. For example, some of the money generated by Albanian narcotics-trafficking rings in Switzerland goes to armed Albanian extremists in the Balkans.
Switzerland ranks fifth in the highly profitable art work trading market, and exported $877 million worth of art work worldwide in 2003. Generating about $200 billion a year in turnover, the market offers lucrative opportunities for organized crime to transfer stolen art or to use art to launder criminal funds. The U.S. is by far Switzerland?s most important trading partner, and purchased $442 million of ?Swiss? works of art in 2003. The Swiss art market is especially attractive for unethical transactions, since art works, which may have been smuggled into Switzerland, can legally be re-exported as genuine Swiss art work after five years. Swiss officials, concerned about the possible abuse of the Swiss art dealer market, drafted new legislative changes to enlarge the scope of existing anti-money laundering legislation to include art dealers. Additionally, on June 17, 2003, the parliament adopted a bill on the transfer of cultural goods, which regulates the return of looted cultural objects. The new legislation, which is expected to come into force by mid-2004, extends the timeframe from the current five years to meet the UN International Standards of 30 years as defined in the 1970 UNESCO Convention. It also will enable police forces to search bonded warehouses and art galleries.
Money laundering is a criminal offense. Switzerland has significant anti-money laundering legislation in place, making banks and other financial intermediaries subject to strict Know Your Customer and reporting requirements. Switzerland has also implemented legislation for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets.
The current money laundering laws and regulations have been extended to nonbank financial institutions. Consequently, all nonbank financial intermediaries are required to either join an accredited self-regulatory organization (SRO), or come under the direct supervision of the Money Laundering Control Authority (MLCA) of the Federal Finance Administration. The MLCA was formed in 1998 to oversee anti-money laundering laws in the nonbanking sector. The SROs must be independent of the management of the intermediaries they supervise and must enforce compliance with due diligence obligations. Noncompliance can result in a fine or a revoked license. About 7,000 fiduciaries operate in this previously unregulated arena. The MLCA is not afraid to take action against financial intermediaries: during the summer of 2002, the MLCA shut down three financial management companies, because they were operating illegally and failed to comply with anti-money laundering regulations. Reporting regulations on international money transactions, applicable to money transmitters in particular, have recently been tightened as well.
In January 2002, the Government Efficiency Bill took effect. Under this bill, the Chief Public Prosecutor became vested with the power to prosecute crimes provided by Article 340bis of the Swiss Penal Code; money laundering falls under these provisions. Formerly, the individual cantons were charged with investigating money laundering offenses on their own. Additional legislation, effective January 1, 2002, increased the effectiveness of the prosecution of organized crime, money laundering, corruption, and other white-collar crime, by increasing the personnel and financing of the criminal police section of the federal police office. The law confers on the federal police and Attorney General?s office the authority to take over cases that have international dimensions, involve several cantons, or which deal with money laundering, organized crime, corruption, and white collar crime.
In December 2002, the new money laundering ordinances of the Swiss Federal Banking Commission were adopted; these became effective on July 1, 2003. These new regulations, aimed at the banking and securities industries, codify a risk-based approach to suspicious transaction and client identification, and install a global Know Your Customer (KYC) risk management program for all banks, including those with branches and subsidiaries abroad. In the case of higher-risk business relationships, additional investigation by the financial intermediary is required. The changes also require increased due diligence in the cases of politically exposed persons by ensuring that decisions to commence relationships with such persons be undertaken by the senior executive body of a firm. Legislation that aligns the Swiss supervisory arrangements with the Basel Committee?s ?Core Principles for Effective Banking Supervision? is contained in the Swiss Money Laundering Act.
The new ordinances also present new rules against terrorism financing, stating that instruments currently used to prevent money laundering are also applicable to the prevention of terrorism financing; if a financial intermediary investigates the background of an unusual or suspicious transaction, and linkages with a terrorist organization are revealed, the institution must report the matter to the Swiss financial intelligence unit (FIU) immediately. Additionally, the ordinance mandates computer-based transaction monitoring systems for all but the smallest financial intermediaries. Consistent with Financial Action Task Force (FATF) standards, all cross-border wire transfers must now contain details about the funds remitters. The provisions of the ordinance also address Swiss supervision of subsidiaries belonging to a consolidated group of financial intermediaries (for which information channels must be established), and all provisions apply to correspondent banking relationships as well. Shell banks?banks with no physical presence at their place of incorporation?may not maintain any correspondent bank accounts.
In October 2003, the Swiss cabinet also mandated an interdepartmental working group led by the Ministry of Finance in order to comply with the new set of FATF Forty Recommendations adopted in June 2003. In December 2003, the MLCA effected a new money laundering ordinance which implements the new FATF Forty Recommendations. FATF is expected to review implementation by early 2005.
In July 2003, the government-sponsored Zimmerli Commission, charged by the Finance Ministry with examining reform of finance market regulators, presented 46 recommendations. Most notably, the Committee recommended merging the Federal Banking Commission and the Federal Office for Private Insurance, or the banking and insurance sectors, into a single, integrated financial market supervision body, possibly known as FINMA. These proposals are expected to be drafted into legislation and adopted by the Swiss parliament in 2006; the changes that would need to be made are extremely far-reaching.
Auditing firms, which in the past enjoyed preferential treatment compared to their clients, have also been put under scrutiny. The Swiss Ministry of Justice has drafted a bill on auditing firms oversight, which is expected to be introduced to parliament during 2004.
The Money Laundering Reporting Office Switzerland (MROS) is Switzerland?s FIU. All financial intermediaries (banks, insurers, fund managers, currency exchange houses, securities brokers, etc.) are legally obliged to establish customer identity when forming a business relationship. They also must notify the MROS, or a government authorized supervisory body, if a transaction appears suspicious. If financial institutions determine that assets were derived from criminal activity, the assets must be reported to MROS and frozen within five days until a prosecutor decides whether to take further action. MROS?s staff, particularly the nonbanking sector staff, increased in 2002, so the FIU staff, now eight, has doubled since its establishment in 1998. In June 2003, MROS released figures for the previous year: From 2002 into 2003, money laundering cases rose 56 percent over 2001 figures, with more than 650 reports of suspicious transactions (STRs) worth approximately $500 million. For the first time, the majority of reports came from the nonbank sector, probably due to the stricter reporting regulations directed at nonbank financial intermediaries. However, while the percentage of STRs coming from banks has decreased, the number of STRs from the banks has actually continued to increase.
Switzerland?s banking industry offers the same account services for both residents and nonresidents. These can be opened through various intermediaries who advertise their services. As part of Switzerland?s international financial services, banks offer certain well-regulated offshore services, including permitting nonresidents to form offshore companies to conduct business, which can be used for tax reduction purposes.
The Swiss Commercial Law does not recognize any offshore mechanism per se and its provisions apply equally to residents and nonresidents. The stock company and the limited liability company are two standard forms of incorporation offered by Swiss Commercial Law. The financial intermediary is required to verify the identity of the beneficial owner of the stock company and must also be informed of any change regarding the beneficial owner. Bearer shares may be issued by stock companies but not by limited liability companies.
Swiss casino operators have joined counterparts from Greece, Austria, Finland, Spain, Portugal, and the United Kingdom to form a new Casino Operators? Association. Among the stated priorities for the group are addressing issues surrounding money laundering and how to stop it, and responsible gaming practices.
The European Union (EU) finance ministers issued a warning to Switzerland in 2002, saying that Switzerland?s lack of action was hampering the global crackdown on money laundering and other financial crimes, and threatened sanctions if Switzerland did not change its banking secrecy laws. However, current Swiss law provides for no banking secrecy for suspected fraud, money laundering, or terrorist-related funds, despite Switzerland?s steadfast position on maintaining banking secrecy in the face of tax evasion not related to other crimes.
The Government of Switzerland has made it a key foreign policy goal to correct the country?s image as a haven for illicit banking services. The Swiss believe that their system of self-regulation, which incorporates a ?culture of cooperation? between regulators and banks, equals or exceeds that of other countries. The primary interest of the Swiss system is to avert bad risks by countering them at the account-opening phase, where due diligence and KYC address the issues, rather than relying on an early-warning system keeping up with all filed transactions. The Convention on Due Diligence is very comprehensive, requiring the identification of the client and the beneficial owner, who needs to be a physical person. Because of the due diligence approach the Swiss have taken, there are fewer STRs filed than in other countries, but the ones that are filed lead to the opening of criminal investigations 80 percent of the time. In January 2003, Switzerland won a battle when the EU backed away from demands that Switzerland scrap banking secrecy. Despite the measures that Switzerland has taken, it is likely to endure more criticism from other countries for its continued banking secrecy laws and its refusal to look upon tax evasion as a crime.
The Oversight Commission of the Swiss Bankers Association fined Credit Suisse for inadequate due diligence in connection with a total of $214 million deposited in the bank by former Nigerian dictator Sani Abacha. Swiss press reports put the fine at $500,000 (SFr. 750,000 at the time), making it the largest fine ever imposed by the Commission. The recipient of the fine will be the International Red Cross Committee, a Swiss organization.
If financial institutions determine that assets were derived from criminal activity, the assets must be frozen immediately until a prosecutor decides on further action. Under Swiss law, suspect assets may be frozen for up to five days while a prosecutor investigates the suspicious activity. Switzerland cooperates with the United States to trace and seize assets, and has shared a large amount of funds seized with the U.S. Government (USG) and other governments. The Government of Switzerland has worked closely with the USG on numerous money laundering cases. The banking community cooperates with enforcement efforts. In addition, legislation permits ?spontaneous transmittal??allowing the Swiss investigating magistrate to signal to foreign law enforcement authorities the existence of evidence in Switzerland. The Swiss used this provision in 2001 to signal Peru that they had uncovered accounts linked to former Peruvian presidential advisor Vladimiro Montesinos. On March 31, 2003, the Swiss Federal Court rejected an appeal by Raul Salinas, brother of a former president of Mexico and main suspect in a major money laundering affair, to release millions of dollars blocked on 10 different Swiss bank accounts.
During 2002, the Swiss Federal Council presented a bill to the Nationalrat, Switzerland?s lower house, that addressed a number of terrorism issues surrounding ratification of the UN terrorism conventions. This bill included an independent provision on terrorist financing that introduces criminal liability for legal persons involved in terrorism financing. The Swiss House was scheduled to consider it in the first half of 2003. The newly amended Swiss penal code makes terrorism financing a predicate offense for money laundering. Changes in the Criminal Code in 2003 also make terrorism financing a predicate offense in money laundering, and expand the scope of application to legal persons.
Since September 11, 2001, Swiss authorities have been alerting Swiss banks and nonbank financial intermediaries to check their records and accounts against lists of persons and entities with links to terrorism. The accounts of these individuals and entities are to be reported to the Ministry of Justice as suspicious transactions. Based on the ?State Security? clause of the Swiss Constitution, the authorities have ordered banks and other financial institutions to freeze assets of organizations and individuals designated by the UN 1267 Sanctions Committee. In the 2002 reporting period, MROS received reports of 15 cases possibly linked to the funding of terrorism. The total amount of money involved was $1.03 million. All the reports involved individuals and institutions appearing on the U.S. Government?s lists. The 15 reports were transmitted to the Swiss federal prosecutor in Berne.
Along with U.S. Government and UN lists, the Swiss Economic and Finance Ministries have drawn up their own list of approximately 44 individuals and entities connected with international terrorism or its financing. Swiss authorities have thus far blocked about 82 accounts totaling $25 million from individuals or companies linked to Usama bin Ladin and al-Qaida under UN resolutions. The Swiss Federal Prosecutor also froze separately 41 accounts representing about $25 million, on the grounds that they were related to terrorism financing, but the extent to which these funds overlap with the UN lists has yet to be determined. In January 2003, the Swiss Ministry of Justice handed over banking information to U.S. authorities, following a legal assistance request issued in April 2002. The request related to a bank transfer of $1.4 million, which took place between June 2000 and September 2001, and was addressed to the Benevolence International Foundation, a Chicago-based Islamic foundation with alleged ties to al-Qaida and other terrorist groups. The transfer originated from a Swiss bank account whose account holder was a company located in the Virgin Islands. The firm had initially lodged a complaint against this decision to the supreme Swiss federal court but was turned down in November 2002.
Switzerland is a signatory of, but has not yet ratified, the UN Convention against Transnational Organized Crime. Switzerland has ratified the Council of Europe Convention on the Laundering, Search, Seizure, and Confiscation of Proceeds from Crime. In September 2003, Switzerland ratified the UN International Convention for the Suppression of the Financing of Terrorism, and in December 2003 signed the UN Convention Against Corruption. To date, Switzerland has not ratified the 1988 UN Drug Convention.
Swiss authorities cooperate with counterpart bodies from other countries. MROS cooperation with other FIUs has increased by more than 20 percent in 2003. Requests for cooperation with Liechtenstein, Switzerland?s closest neighbor both culturally and geographically, have tripled. Switzerland has a Mutual Legal Assistance Treaty in place with the United States, and Swiss law allows authorities to furnish information to U.S. regulatory agencies, provided it is kept confidential and used for supervisory purposes. The U.S.-Swiss extradition treaty permits extradition for any unlawful act punishable by imprisonment in both countries. Switzerland is a member of the Financial Action Task Force and the Egmont Group. Switzerland is a member of the Basel Committee on Banking Supervision, which established the first international code of conduct for banks.
Switzerland should extend its anti-money laundering program to include dealers in high-end goods. Switzerland can also continue to improve on its anti-money laundering regime, as it has been doing, and address deficiencies that it finds, as well as continuing to work toward full implementation of its anti-money laundering/antiterrorist financing regime.
Syria
The U.S. Department of State had designated Syria as a State Sponsor of Terrorism. Given its extremely underdeveloped banking sector, Syria is not a likely center for money laundering via the formal financial sector. Since private banks were nationalized in the early 1960s, Syria?s entire financial system has been owned and operated by the state, although in early 2004 a limited number of private banks received permission to begin operating in Syria. The existing public banks are inefficient and highly regulated, and focus almost exclusively on financing public enterprises. The Government of Syria (SARG) heavily restricts foreign currency flows out of the country, which contributes to the use of alternative systems of moving money or transferring value. Syrian businessmen also use banks in neighboring Lebanon and Jordan to receive a full range of banking services. The private sector routinely conducts foreign currency transactions to finance imports, generally by using letters of credit from Lebanon and Europe. Due to foreign exchange controls, the private sector also has restricted access to foreign currency. Illicit proceeds from the narcotics trade may flow through Syria, but it is generally believed they are moved to Lebanon for laundering purposes. As a result, the primary money laundering vulnerability in Syria is not necessarily through financial institutions but via the use of alternative remittance systems such as hawala, trade-based money laundering, and currency smuggling. Such money laundering methodologies are often used to finance terrorism throughout the region and elsewhere. Although a positive development in terms of modernization of the financial sector, the opening of private banks in Syria makes the banking system increasingly vulnerable to money laundering until such time as the SARG implements measures to facilitate its oversight of financial transactions.
Due to distrust of public banks, currency restrictions, and displeasure with the official exchange rate, most Syrians prefer to utilize informal banking systems to transfer currency into Syria, sometimes by physically moving cash via Syrian bus and shipping companies with offices in the region. Relatives, friends and colleagues often provide a similar service using foreign bank accounts, particularly in Lebanon. For example, a Syrian businessman with excess Syrian pounds can pay for his expatriate cousin?s new Damascus apartment in local currency, and the cousin then transfers a commensurate amount of hard currency to a designated overseas account. In instances where no relative or friend is available and/or the amount to be transferred is too high, a few money changers, well known to the business community and operating with tacit SARG approval, also provide a means of depositing hard currency in overseas accounts. These mechanisms are a form of hawala.
The government-controlled banking system in Syria consists of the Central Bank of Syria and five public banks, each specializing in one aspect of economic activity: the Commercial Bank of Syria, the Agricultural Cooperative Bank, the Industrial Bank, the Real Estate Bank, and the People?s Credit Bank. These banks have in the past employed a rigid interest rate structure that discourages savings deposits, particularly during periods of inflation. Only the Commercial Bank of Syria has been permitted to provide commercial banking services until January 2004 when the first private banks opened. The Commercial Bank, as the sole legal trader of foreign currencies, also effectively has controlled all foreign trade and all foreign currency transactions. In addition to monopolizing the exchange of foreign currencies, the SARG maintains one of the last remaining fixed, multiple exchange rate systems in the world, employing three different rates depending on the nature of the transaction, although it is expected that the SARG may take steps toward eliminating the multiple exchange rate system in 2004. Until that is changed, however, this inefficient system also undoubtedly contributes to alternative methods of transferring value outside the state controlled banking system. There are reports that such transactions occur with the tacit approval, if not involvement, of SARG officials. A large percentage of Lebanon?s banking services involve Syrian accounts.
In April 2001 Law No. 28 legalized private banking and Law No. 29 established rules on bank secrecy. The first private banks opened in January 2004, but the services they provide are limited under current governmental regulations. Clients may open savings and checking accounts, for example, but deposits to foreign currency accounts can be made by wire transfer only, and not by cash. Much still needs to be done to fundamentally restructure the banking sector, particularly in terms of either suspending or amending existing regulations that prohibit a newly-licensed private bank from operating fully. The SARG continues to work on detailed regulations that will govern the operation of private banks.
In September 2003, Syria passed Legislative Decree No. 59, creating an Anti-money Laundering Commission. While this is an important movement in principle toward addressing vulnerabilities in the banking sector, particularly the new vulnerabilities which can arise with the opening of private banks, it is not yet clear what relationship the commission will have with financial institutions or whether the commission will hold effective investigative powers.
Syria is a party to the 1988 UN Drug Convention. Syria should become a party to the UN International Convention for the Suppression of the Financing of Terrorism, and should immediately stop all support of terrorist organizations.
As a first step in crafting a viable anti-money laundering program, Syria should approve comprehensive anti-money laundering and antiterrorism finance legislation that adheres to world standards. Syria should then take meaningful steps to enforce the law and follow-up rules and regulations governing the banking sector.
Taiwan
Taiwan?s modern financial sector and its role as a hub for international trade make it attractive to money laundering. Its location astride international shipping lanes makes it vulnerable to transnational crimes such as narcotics trafficking and smuggling. The use of alternative remittance systems or ?underground banking? is a money laundering vulnerability. There is a significant volume of informal financial activity through unregulated nonbank channels. According to suspicious activity reports (SARs) filed by financial institutions on Taiwan, the predicate crimes linked to SARs include: financial crimes, corruption, narcotics, and other general crimes, in that order.
Taiwan?s anti-money laundering legislation is embodied in the Money Laundering Control Act (MLCA) of April 23, 1997. Its major provisions include a list of predicate offenses for money laundering, customer identification and record keeping requirements, disclosure of suspicious transactions, international cooperation, and the creation of a financial intelligence unit, the Money Laundering Prevention Center (MLPC).
The Legislative Yuan amended the MLCA in 2003, to expand the list of predicate crimes for money laundering, widen the range of institutions subject to suspicious transaction reporting, and mandate compulsory reporting of significant currency transactions of over New Taiwan (NT)$1 million to the MLPC. As a result of the amendments, the list of institutions subject to reporting requirements was expanded to include casinos, automobile dealers, jewelers, boat and plane dealers, real estate brokers, credit card firms, insurance companies and securities dealers, as well as traditional financial institutions. In addition, two new articles were added to the MLCA, granting prosecutors and judges the power to freeze assets related to suspicious transactions, and giving law enforcement more powers related to asset forfeiture and the sharing of confiscated assets.
In terms of reporting requirements, financial institutions are required to identify, record, and report the identities of customers engaging in significant or suspicious transactions. Reports of suspicious transactions are required at the time of the transaction. Institutions are also required to maintain records necessary to reconstruct significant transactions for an adequate amount of time. Bank secrecy laws are overridden by anti-money laundering legislation, allowing the MPLC to access all relevant financial account information. Financial institutions are held responsible if they do not report suspicious transactions.
In 2003, the MPLC received 1,485 reports of possible money laundering activity, of which 1,057 cases were closed, 168 involved probable crimes, and 260 remain under review. The MLPC referred 76 cases to other departments of the Ministry of Justice Investigation Bureau (MJIB) for review, and referred 92 cases to the police.
Individuals are required to report currency transported into or out of Taiwan in excess of NT$60,000 (approximately $1,765), $5,000, or $5,000 worth of foreign currency. Starting in March 2004, over 6,000 Chinese renminbi ($725) must also be reported. When foreign currency in excess of NT$500,000 (approximately $14,700) is brought into or out of Taiwan, the bank customer is required to report the transfer to the Central Bank, though there is no requirement for Central Bank approval prior to the transaction. Prior approval is required, however, for exchanges between New Taiwan dollars and foreign exchange when the amount exceeds $5 million for an individual resident and $50 million for a corporate entity.
The authorities on Taiwan are actively involved in countering the financing of terrorism. As of December 2003, a new ?Counter-Terrorism Action Law? (CTAL) was drafted and was under consideration by the legislature. The new law would explicitly designate the financing of terrorism as a major crime. Under the proposed CTAL, the National Police Administration, the MJIB and the Coast Guard would be able to seize terrorist assets even without a criminal case in Taiwan. Also, in emergency situations, law enforcement agencies would be able to freeze assets for three days without a court order. Assets and income obtained from terrorist-related crimes could also be permanently confiscated under the CTAL, unless the assets could be identified as belonging to victims of the crimes.
The Bureau of Monetary Affairs (BOMA) has circulated to all domestic and foreign financial institutions in Taiwan the names of individuals and entities included on the UN 1267 Sanctions Committee?s consolidated list. In accordance with UN Security Council Resolution 1373, the MLCA was amended to allow the freezing of accounts suspected of being linked to terrorism. No targeted assets have been identified to date. According to the MLPC, in 2003, financial institutions in Taiwan reported six possible cases of terrorist financing. However, in all six cases, the suspects were determined not to be terrorists.
Alternative remittance systems, or underground banks, are considered to be operating in violation of Banking Law Article 29. Authorities on Taiwan consider these entities to be unregulated financial institutions. Foreign labor employment brokers are authorized to use banks to remit income earned by foreign workers to their home countries. These remittances are not regulated or reported. Thus, money laundering regulations are not imposed on these foreign labor employment brokers. However, if the brokers accept money in Taiwan dollars for delivery overseas in another currency, they are violating Taiwan law. It is also illegal for small shops to accept money in Taiwan dollars and remit it overseas. Violators are subject to a maximum of three years in prison, and/or forfeiture of the remittance and/or a fine equal to the remittance amount. Authorities on Taiwan do not believe that charitable and nonprofit organizations in Taiwan are being used as conduits for the financing of terrorism.
A mutual legal assistance agreement between the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) entered into force in March 2002. It provides a basis for the law enforcement agencies of the territories represented by AIT and TECRO to cooperate in investigations and prosecutions for narcotics trafficking, money laundering (including the financing of terrorism), and other financial crimes.
Although Taiwan is not a UN member and cannot be a party to the 1988 UN Drug Convention, the authorities on Taiwan have passed and implemented laws in compliance with the goals and objectives of the Convention. Similarly, Taiwan cannot be a party to the UN International Convention for the Suppression of the Financing of Terrorism, as a nonmember of the United Nations, but it has agreed unilaterally to abide by its provisions. Taiwan is a founding member of the Asia/Pacific Group on Money Laundering (APG) and actively participates in the Group?s meetings. The MLPC is a member of the Egmont Group.
Over the past five years, Taiwan has created and implemented an anti-money laundering regime that comports with international standards. The MLCA amendments of 2003 address a number of vulnerabilities, especially in the area of asset forfeiture. The authorities on Taiwan should continue to strengthen the existing anti-money laundering regime as they implement the new measures. The authorities on Taiwan should also enact legislation that would promulgate regulations regarding alternate remittance systems.
Tajikistan
Tajikistan is not an important financial center in the region and does not have a developed banking system. In many rural areas of the country, the use of a barter system is common.
The most significant financial crime in 2003 was a Ponzi scheme that defrauded many people out of thousands of dollars. The smuggling of consumer goods is a concern. In most cases, goods such as tobacco, alcohol, and fuel are not officially imported into Tajikistan. For example, a shipment intended for Kazakhstan transiting Tajikistan never reaches Kazakhstan. The same practice occurs with goods intended for Afghanistan. While there is certainly a black market for smuggled goods, there is little evidence that items are financed with narcotics money, with the exception of imported cars and luxury items. Drug traffickers can sell drugs outside the country, buy goods with the proceeds, import the goods into Tajikistan, and sell them. One recent money laundering case involved the purchase of Russian cars with the proceeds of narcotics. The cars were subsequently imported into Tajikistan and sold at prices lower than the Russian purchase price. Tajikistan is not an offshore center, but offshore zones are often used while concluding deals with foreign enterprises.
The Tajik Criminal Code of May 21, 1998 Legalization (laundering) of Illegally Obtained Income prohibits money laundering. This prohibition includes not only narcotics money laundering but also circumvention of other financial currency controls. However, under the law banks are not required to know, record, or report the identity of customers engaging in significant transactions unless criminal proceedings have been undertaken against a specific individual or organization. Financial institutions make no regular reports of transactions or other activity, and reporting officers have no special legal protections with respect to cooperating with law enforcement. Several laws and regulations have been adopted including Civil Code Article 284 that addresses the misuse of gold, precious metals and gems. The government has not addressed other forms of alternative remittance systems.
The Law on Banking Activity of May 23, 1998 addresses bank secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement authorities for domestic and offshore financial services companies. Tajikistan has cross-border currency reporting requirements. Travelers may depart with a maximum amount of $2,000 but may enter with unlimited quantities. In 2003 there were no reported arrests or prosecutions for money laundering or terrorist financing.
Tajikistan does not currently have any asset-seizure mechanisms. Corrupt ion and the undeveloped legal sector make such a program difficult. The Government passed Criminal Code, Art. 57 stating that asset forfeiture is possible but it also specified exceptions. A program is being developed to allow the Drug Control Agency to utilize this law as one means of achieving self-sustainability.
Terrorist finance is considered to be a ?serious crime? under the 1998 money laundering statute. Tajikistan has not adopted laws or regulations that ensure the availability of adequate records in connection with narcotics, terrorism, terrorist financing or other investigations. Tajikistan signed the UN Convention Against Terrorism Financing, the CIS Agreement on the Legal Assistance and Cooperation on Civil, Family and Criminal Cases of January 22, 1993, and is a member of the CIS Antiterrorism Center. Tajik authorities have been cooperative with U.S. efforts to trace and halt terrorist-related funds.
Tajikistan is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. Tajikistan should enact anti-money laundering and terrorist finance legislation that adheres to world standards.
Tanzania
Tanzania is not considered an important regional financial center, but is vulnerable to money laundering because of the weaknesses of its financial institutions and law enforcement capabilities. A weak financial sector and an under-trained, under-funded law enforcement apparatus make such crimes difficult to track and prosecute. Officials have noted that some real estate and used car businesses are used for money laundering purposes. Government officials have also cited narcotics trafficking and the emerging casino industry as areas of concern for money laundering. The prevalence of hawala and the threat of terrorist organizations on the unregulated island of Zanzibar make it an area of concern. Officials indicate that money laundering schemes in Zanzibar generally take the form of foreign investment in the tourist industry and bulk cash smuggling.
The Proceeds of Crime Act of 1991 criminalizes narcotics-related money laundering. However, the Act does not adequately define money laundering, and it has only been used to prosecute corruption cases. The law obliges financial institutions to maintain records of financial transactions exceeding 10,000 shillings (approximately $109) for a period of 10 years. If the institution has reasonable grounds to believe that a transaction relates to money laundering, it may communicate this information to the police for investigation, although such reporting is not required. Financial institution employees are legally protected from liability stemming from reporting suspicious transactions.
In November 2002, Parliament approved the Prevention of Terrorism Act, which the President signed into law on December 14. The Act criminalizes terrorist financing. It also requires all financial institutions to inform the government each quarter of whether any of their assets or any transactions may be associated with a terrorist group, although the implementing regulations for this provision have not yet been drafted. Under the Act, the government may seize assets associated with terrorist groups.
The Government of Tanzania (GOT) became a party to the UN International Convention for the Suppression of the Financing of Terrorism in January 2003. Tanzania is a party to the 1988 UN Drug Convention and has signed the UN Convention against Transnational Organized Crime. Tanzania is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), which was founded in 1999. The GOT continues to play a leading role in the operation of this FATF-style regional body and has detailed personnel to the ESAAMLG Secretariat, located in donated office space in Dar es Salaam. Tanzania continues to host the ESAAMLG task force meetings held each March.
In line with Tanzania?s commitment to supporting the ESAAMLG, Tanzania has created a multi-disciplinary committee on money laundering and a drafting committee that are preparing a review of the existing law and developing belated comprehensive money laundering legislation. The provisions included in this legislation should provide for the creation of a financial intelligence unit (FIU) that collects mandatory suspicious transaction reporting from financial institutions. This FIU should be empowered to share information with other FIUs and foreign law enforcement agencies.
Tanzania should continue to work through ESAAMLG to establish a FIU and develop a comprehensive anti-money laundering regime that comports with all international standards.
Thailand
Thailand is a major risk for money laundering. Smuggling of narcotics and contraband and evasion of customs duty are significant problems, although physical transit of heroin produced in Burma and Laos through Thailand has been reduced considerably in the past decade. Thailand is also a major production, transit, and distribution country for counterfeit goods. Drug traffickers use Thailand?s banking system to hide and move their proceeds. The underground banking system is also widely in use as a money laundering method. Money is transported in bulk from the United States to other Asian countries, and ultimately moved to Thailand. Gambling dens and underground lotteries account for a significant portion of Thailand?s underground economy, and remain attractive mechanisms for money laundering. Thailand financial institutions and gem industry are also vulnerable to misuse by terrorist organizations and their supporters.
Thailand?s anti-money laundering legislation, the Anti-Money Laundering Act (AMLA) B.E. 2542 (1999), criminalizes money laundering for the following seven predicate offenses: narcotics trafficking, trafficking in women or children for sexual purposes, fraud, financial institution fraud, public corruption, customs evasion, extortion, and blackmail. On August 11, 2003, Prime Minister Thaksin Shinawatra issued two Executive Decrees to enact measures related to terrorism and terrorist financing as permitted under the Thai Constitution. The two decrees amend section 135 of the penal code and criminalize both terrorism and terrorist financing and make terrorist related crimes the eighth predicate offense under the money laundering statute. In early 2004, the Thai cabinet approved amendments to AMLA to create an asset forfeiture fund, authorize asset sharing, and add the following additional predicate offenses: weapons smuggling, illegal gambling; government procurement fraud; crimes affecting natural resources and the environment; intellectual property rights infringement; and Money Exchange Control Act violations. Legislation is expected to be considered by the Parliament during 2004. Since October 27, 2000, there have been 68 convictions under the AMLA. Cases are proceeding for civil forfeiture against property involved in drug trafficking, prostitution, public fraud and embezzlement, customs evasion, and corruption offenses. The value of assets either forfeited or under seizure total 2,602,523,212.62 Baht (approx. $65 million).
In addition to the passage of terrorist related legislation in 2003, the RTG issued instructions to all authorities to comply with UN Security Council Resolutions 1267, 1269, 1333, 1373, and 1390, including the freezing of funds or financial resources belonging to the Taliban and the al-Qaida network. To date, Thailand has not identified, frozen, and/or seized assets linked to individuals and entities included on the UN 1267 Sanctions Committee consolidated list. The only action taken regarding alternative remittance systems is the general provisions of the AMLA, that make it a crime to transfer, or receive a transfer, that represents the proceeds of a predicate criminal offense.
The AMLA requires customer identification, record keeping, and the reporting of large and suspicious transactions, and provides as well for the civil forfeiture of property involved in a money laundering offense. Financial institutions are also required to keep customer identification and specific transaction records for a period of five years from the date the account was closed, or from the date the transaction occurred, whichever is longer. Reporting individuals (banks and others) that cooperate with law enforcement entities are protected. Thailand does not have secrecy laws that prevent disclosure of client and ownership information of bank accounts to supervisors and law enforcement authorities. The AMLA gives the anti-money laundering office the authority to compel a financial institution to disclose such information.
The AMLA created the Anti-Money Laundering Office (AMLO), which became fully operational in 2001. AMLO is Thailand?s financial intelligence unit (FIU). When first established, AMLO reported directly to the Prime Minister. In October 2002, a reorganization of the executive branch took place, and AMLO was designated as an independent agency under the Ministry of Justice. AMLO receives, analyzes, and processes suspicious and large transaction reports, as required by the AMLA. From January through September 2003, the AMLO received 636,129 currency transaction reports and 84,967 suspicious transaction reports. In addition, AMLO has the responsibility for investigating money laundering for civil forfeiture purposes and has additional responsibility for the custody, management, and disposal of seized and forfeited property. The AMLO is also tasked with providing training to the public and private sectors concerning the provisions of the AMLA. The law also creates the Transaction Committee, which operates within AMLO to review and approve disclosure requests to financial institutions and asset restraint/seizure requests. The AMLA also established the Money Laundering Control Board, which is comprised of ministerial level officials and agency heads and serves as an advisory board that meets periodically to set national policy on money laundering issues and to propose the relevant ministerial regulations.
The anti-money laundering controls apply to financial institutions and the Bureau of Land. The Stock Exchange of Thailand (SET) requires securities dealers to have know-your-customer procedures; however, the SET does not do any anti-money laundering compliance checks during its reviews. Although insurance companies are covered under the definition in AMLA of a financial institution, there are no anti-money laundering regulations for the insurance industry. Currency exchange dealers are required to be licensed; however, there are no anti-money laundering regulations for exchange businesses.
The Bank of Thailand (BOT) regulates financial institutions in Thailand, but bank examiners are prohibited, except under limited circumstances, from examining the financial transactions of a private individual. This prohibition acts as an impediment to the BOT?s auditing of a financial institution?s compliance with the AMLA or BOT regulations. Besides this lack of power to conduct transactional testing, BOT does not currently examine its financial institutions for anti-money laundering compliance. However, as a result of discussions between BOT and AMLO, they have agreed to jointly conduct such examinations and expect to begin sometime in 2004.
Financial institutions (such as banks, finance companies, savings cooperatives, etc.), land registration offices, and persons who act as solicitors for investors are required to report significant cash, property, and suspicious transactions. Reporting requirements for most financial transactions (including purchases of securities and insurance) exceeding 2 million baht (approximately $50,000), and property transactions exceeding 5 million baht (approximately $125,000), have been in place since October 2000. However, in December 2002, a proposal was made to lower the threshold for reporting cash transactions to 500,000 baht ($12,500). The proposal is not yet in effect. The various land offices are also required to report on any transaction involving property of 5 million Thai baht, or greater, or a cash payment of 2 million Thai baht, or greater, for the purchase of real property.
Licenses were first granted to Thai and foreign financial institutions to establish Bangkok International Banking Facilities (BIBFs), in March 1993. BIBFs may perform a number of financial and investment banking services but can only raise funds offshore (through deposits and borrowing) for lending in Thailand or offshore. The United Nations Drug Control Program and the World Bank listed BIBFs as potentially vulnerable to money laundering activities, because they serve as transit points for funds. Thailand?s 44 BIBFs are now subject to AMLA.
The Royal Thai Government (RTG) has established the Department of Special Investigation (DSI), within the Ministry of Justice pursuant to the Special Investigations Act of 2004. The DSI and the Royal Thai Police (RTP) will conduct criminal investigations of money laundering and related predicate offenses, while the AMLO will handle civil asset forfeiture cases. The DSI will become operational following the promulgation of ministerial regulations, which is expected to occur in 2004. It is also anticipated that the DSI and the RTP will enter into a memorandum of understanding to delineate investigative responsibilities.
The U.S.-Thai Mutual Legal Assistance Treaty entered into force in 1993. Thailand also has mutual legal assistance agreements with the United Kingdom, Canada, China, France, and Norway. Numerous bilateral agreements are pending, as well as memoranda of understanding between the Anti-Money Laundering Office and financial intelligence units in other nations. In December 2000, Thailand signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, and is studying its domestic laws to determine what implementing legislation is required. Thailand has signed the UN Convention against Corruption, the first legally binding international agreement aimed at combating corruption, in Merida, Mexico on December 9, 2003. Thailand is a party to the 1988 UN Vienna Convention. The RTG has signed, but not ratified, the UN International Convention for the Suppression of the Financing of Terrorism.
AMLO became a member of the Asia/Pacific Group on Money Laundering in April 2001 and the Egmont Group of financial intelligence units in June 2001. AMLO hosted the Pacific Rim Money Laundering and Financial Crimes Conference from March 24 through 26, 2003, in Bangkok.
The Royal Thai Government should continue to implement its anti-money laundering program, but until the RTG provides a viable mechanism for all of its financial institutions to be examined for compliance with the AMLA, Thailand?s anti-money laundering regime will not comport with international standards. The RTG should require the SET to include anti-money laundering compliance checks during its reviews. The RTG should develop and implement anti-money laundering regulations for exchange businesses and should take additional measures to address alternative remittance systems to further strengthen its anti-money laundering regime against crime, particularly by expanding its predicate offenses to include a broader base of serious financial crimes, such as arms/weapons trafficking, alien smuggling, and environmental crimes, as well as making structuring a criminal offense.
Thailand continues to suffer problems with asset management and disposition, due in part to a lack of resources. This lack of resources could be addressed through the creation of an Asset Forfeiture Fund, which could make funds available for money laundering and asset forfeiture investigations. Thailand appears to recognize the utility in this concept as evidenced by the recent Cabinet approval to introduce legislation to amend AMLA.
During the past year, the RTG has instituted a practice of providing rewards to investigators up to 25 percent of the value of the asset forfeited. Such a practice raises ethical concerns, can distort the law enforcement motive when seizing property, can encourage overreaching and illegal seizures, and is a practice that should be revisited.
Thailand should become a party to the relevant UN multilateral conventions, including: International Convention for the Suppression of the Financing of Terrorism; Convention against Transnational Organized Crime; and Convention Against Corruption.
Togo
Togo?s poor financial infrastructure makes it an unlikely venue for money laundering through its financial institutions. Its porous borders, however, make it a transshipment point in the regional and sub-regional trade in narcotics. Togo?s 1998 drug law criminalizes narcotics-related money laundering and penalizes offenses with up to 20 years in prison. However, there have never been any arrests for money laundering. Financial institutions are required to monitor and report monetary transactions above a threshold appropriate to the local economic situation, and must maintain records of such transactions and supply them to government authorities on request. Financial institutions are legally protected in respect to their cooperation with law enforcement authorities. Due diligence legislation applies to bankers and other professionals, although no arrests have been made for violations of this law.
The Government of Togo (GOT) has the legal authority to seize assets associated with narcotics trafficking. In 2001, President Eyadema created the national Anti-Corruption Commission to combat corruption and money laundering.
Terrorist financing is a criminal offense in Togo. The GOT has circulated to Togolese financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224. The GOT closely regulates charities and other nongovernmental organizations.
The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU): Benin, Burkina Faso, Guinea-Bissau, Cote d?Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency. All bank deposits over approximately $7,700 made in BCEAO member countries must be reported to the BCEAO, along with customer identification information. In September 2002, the WAEMU Council of Ministers, which oversees the BCEAO, issued a directive requesting that each member country set up a national committee under their Minister of Finance to deal with financial information as it relates to money laundering. The BCEAO would be in charge of coordinating such committees. Each member country is now responsible for putting legislation in place to implement this directive, and the legislation is expected to be harmonized regionally.
The WAEMU Council of Ministers issued another directive in September 2002 requesting member countries to pass legislation requiring banks to freeze the accounts of any persons or organizations on the UN 1267 Sanctions Committee consolidated list.
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 Togo. In July 2002, Togo participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against narcotics trafficking, terrorism, and money laundering.
Togo is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. Togo has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.
Togo should criminalize money laundering for all serious crimes and should enforce existing laws and regulations.
Tonga
Tonga is an archipelago, located in the South Pacific, about two-thirds of the way from Hawaii to New Zealand. Tourism is the second largest source of hard currency earnings following remittances. Tonga is neither a financial center nor an offshore jurisdiction. An additional source of revenue is the registry of approximately 65 ships from 25 countries, including the United States. Tonga became a party to the UN International Convention for the Suppression of the Financing of Terrorism in December 2002.
In a report to the UN Counter-Terrorism Committee, Tonga reported that its Government Committee on Money Laundering and the Financing of Terrorism was working on proposed new legislation and amendments to bring its legislative framework into line with international best practices. Tonga should enact legislation that specifically criminalizes the financing of terrorism and should consider joining the Asia/Pacific Group on Money Laundering.
Trinidad and Tobago
Trinidad and Tobago has a well-developed and modern banking sector that makes it an increasingly significant regional financial center. Trinidad and Tobago (T&T) is not an offshore financial center. Narcotics proceeds are implicated in some money laundering, but this is not a known important source of financial crimes in T&T. Criminal proceeds laundered in T&T are derived primarily from domestic criminal activity and from the activity of nationals involved in crime abroad.
The Proceeds of Crime Act of 2000 (POCA) expands money laundering predicate offenses to include all serious crimes. The POCA requires financial institutions to proactively report suspicious transactions, and banks and financial institutions are required to maintain records necessary to reconstruct transactions for a number of years. Secrecy laws are limited to standard client confidentiality provisions. Failure to comply with POCA?s record keeping and reporting requirements can result in a fine of 250,000 TT (approximately $40,000) and imprisonment for two years for summary conviction, and a fine of 3,000,000 TT (approximately $500,000) and seven years imprisonment for conviction on indictment. Upon summary conviction for money laundering, an offender can be liable for a fine of 25,000,000 TT (approximately $4,000,000) and 25 years imprisonment. Furthermore, under the POCA, any officer who aids and abets the money laundering activities of an institution can be convicted of money laundering. The POCA also enables the courts to seize the proceeds of all serious crimes, although no profits or property have been seized under the Act.
The Central Bank has set anti-money laundering guidelines, including due diligence provisions that apply to all financial institutions subject to the 1993 Financial Institutions Act. These include banks, finance companies, leasing corporations, merchant banks, mortgage institutions, unit trusts, credit card businesses, financial services businesses and financial intermediaries. Credit unions and exchange houses are not subject to the guidelines.
Government of Trinidad and Tobago (GOTT) customs regulations require that any sum above approximately $5,000 (in currency or monetary instruments) entering or leaving the country be declared. Cash above approximately $10,000 may be seized, with judicial approval, pending determination of its legitimate source.
The GOTT is progressing operationally to establish a financial intelligence unit. In November 2003, as part of that goal, the GOTT Ministry of Finance inaugurated a new Criminal Investigation Division within the Bureau of Inland Revenue. The GOTT has an inter-ministerial counternarcotics/crime task force that investigates narcotics trafficking and related money laundering. Since January 1, 2003, there are five on-going money laundering investigations.
The GOTT has legislation in place that allows it to trace, freeze, and seize assets, including intangible assets such as bank accounts. Authorities may seize legitimate businesses if they are used to launder drug money. The GOTT does not have legislation that specifically authorizes the sharing of forfeited assets with other countries, but has done so in the past on a case-by-case basis through bilateral agreements.
Legislation specifically aimed to criminalize the financing of terrorism has been stalled in Parliament because the opposition party has blocked terrorist financing reform as part of its domestic political agenda. The GOTT is developing financial sector supervision regulations that acknowledge and monitor alternative remittance systems. The use of charitable or nonprofit entities has been reported whenever suspect by the banking system. The GOTT has circulated to its financial institutions the lists of individuals and entities that have been included on the UN 1267 Sanctions Committee?s consolidated list as being linked to Usama Bin Ladin, al-Qaida, or the Taliban, along with the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224 (on terrorist financing) and the relevant EU lists. There has not yet been any identified evidence of terrorist financing in T&T.
Trinidad and Tobago is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. The GOTT has not become a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. T&T is also a member of the Caribbean Financial Action Task Force (CFATF), which is headquartered in Port of Spain. It underwent a second round CFATF mutual evaluation in 2002, and the report has been endorsed by CFATF?s Council of Ministers. T&T is also a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD). In 1999, an MLAT with the United States entered into force. In 2000, the United States and GOTT signed a joint statement on law enforcement cooperation, which pledges in part to expand cooperation on the detection and prosecution of money laundering and related criminal activities.
The GOTT should pass antiterrorist financing legislation that will provide the authority to identify, freeze and seize terrorist assets. The GOTT should also continue to implement its anti-money laundering program and its efforts to improve its ability to investigate money laundering.
Tunisia
Tunisia is not considered an important regional financial center due in large part to the very strict control exercised by the Central Bank over all aspects of financial transactions and the general nonconvertibility of the Tunisian dinar. There is no discernible money laundering activity reported to be occurring in Tunisia through formal financial institutions.
Although there is no specific anti-money laundering law in Tunisia, Law No. 92-52 (of May 18, 1992) against narcotics trafficking includes provisions that could contribute to combat money laundering. Under Articles 2 and 30 of this law anyone aiding in narcotic operations or transfers of proceeds in connection with these operations, including financial institutions, can be punished. On December 9, 2003 the Tunisian Parliament passed Law No. 94/2003 criminalizing support and financing to individuals, organizations or activities related to terrorism.
The Tunisian penal code allows for the sequestering, confiscating, or seizure of assets and property in certain situations including narcotics trafficking and terrorist activities. The definition of ?assets? is quite broad and could cover any number of financial or physical assets. Financial assets are traced by the Central Bank and the Economic Enforcement Agency, each of which has broad powers for investigating and seizing financial assets. Tunisia has no legal provisions for sharing seized criminal assets with other governments.
Financial institutions are required to gather full identifying information for personal and business accounts. In addition, all supporting documentation must be maintained for 10 years. Only certain categories of individuals and businesses are allowed to open foreign currency or convertible dinar accounts and all of these accounts are monitored by the Central Bank. Because there is no law against money laundering in general, there is no obligation for a financial institution to report suspicious activities or provisions for holding bankers responsible if their institution is used for money laundering. However, the prevailing practice is for institutions to verbally report any unusual activity to the Central Bank, who will notify the investigative Economic Enforcement Agency. There are no ?secret? or numbered accounts in Tunisia.
Offshore financial institutions are held to the same regulatory standards as onshore institutions. Offshore institutions undergo the same due diligence process as onshore banks and are licensed only after the Central Bank investigates their reference and recommends that the Ministry of Finance approve their application. Tunisian law also makes provisions for ?moral integrity? checks of major shareholders, directors, and officers of financial institutions at any time doubts may arise. Anonymous directors are not allowed. Tunisia currently hosts 12 offshore banks, approximately 1,200 offshore companies and approximately 300 offshore trading companies. There are no offshore casinos or Internet gaming sites. Bearer financial instruments or shares are prohibited (Act No. 35 of 2000.)
Although the Tunisian government maintains that there are no alternative fund transfer systems such as hawala since all fund transfers must go through the banks or National Post Office, it is precisely due to these restrictions and currency exchange controls there are underground methods of moving money or transferring value in and out of the country. While a gray market in consumer goods does exist in the country, there is no evidence that this trade is funded by illicit proceeds. Residents are generally prohibited from holding or exporting foreign currency except in certain cases (travel or business needs, etc.) Nonresidents entering Tunisia with foreign currency or other instruments are required to declare the total amount if they wish to re-export a portion (not exceeding 1,000 dinar or approximately $840) or deposit any of the money in a Tunisian bank. Nonresidents do not need to declare currency exports of under 1,000 dinar. In December 2002, the legislature discussed tightening gold import regulations in light of an emerging parallel gold market. Customs may at any time require declarations for gold or securities.
Tunisia is a party to the 1988 UN Drug Convention. It has signed and ratified the UN Convention against Transnational Organized Crime. The Central Bank has adhered to all requests from the UN 1267 Sanctions Committee. To date no terrorist assets have been identified in Tunisia. Tunisia is party to the UN International Convention for the Suppression of Financing of Terrorism. Tunisia has varying bilateral agreements on ?criminal matters? with 29 countries and is party to 12 international agreements on counterterrorism.
Tunisia should pass a comprehensive anti-money laundering law that adheres to world standards as the first step in developing a viable anti-money laundering program.
Turkey
Turkey is an important regional financial center, particularly for Central Asia and the Caucasus, as well as for the Middle East and Eastern Europe. Turkey is not an offshore financial center and does not have secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement officials. It continues to be a major transit route for Southwest Asian opiates moving to Europe. However, local narcotics-trafficking organizations are reportedly responsible for only a small portion of the total of funds laundered in Turkey. A substantial percentage of money laundering that takes place in Turkey appears to involve tax evasion, and informed observers estimate that as much as 50 percent of the economy is unregistered. There is no significant black market for smuggled goods in Turkey.
Money laundering takes place in both banks and nonbank financial institutions. Traditional money laundering methods in Turkey involve the cross-border smuggling of currency; bank transfers into and out of the country; and the purchase of high value items such as real estate, gold, and luxury automobiles. It is believed that Turkish-based traffickers transfer money to pay narcotics suppliers in Pakistan and Afghanistan, primarily through Istanbul exchange houses. The exchanges then wire transfer the funds through Turkish banks to accounts in Dubai and other locations in the United Arab Emirates. The money is then paid, often through alternative remittance systems, to the Pakistani and Afghan traffickers.
Turkey criminalized money laundering in 1996 for a wide range of predicate offenses, including narcotics-related crimes, smuggling of arms and antiquities, terrorism, counterfeiting, and trafficking in human organs and in women. The Council of Ministers subsequently passed a set of regulations that mandate the filing of suspicious transaction reports (STRs), and require customer identification and the maintenance of records for five years. These regulations apply to banks and a wide range of nonbank financial institutions, including insurance firms and jewelry dealers. However, the number of STRs being filed is quite low, even taking into consideration the fact that the Turkish economy is cash-based. A possible reason for this is the lack of safe harbor protection for bankers and other filers of STRs. Turkish officials indicated in August 2002 that the Government of Turkey (GOT) has drafted a bill that will provide such protection, but it has not yet been enacted. Turkey also has in place a system for identifying, tracing, freezing, and seizing narcotics-related assets, although Turkish law allows for only criminal forfeiture.
In July 2001, the Ministry of Finance issued a circular of banking regulations requiring all banks, including the Central Bank, securities companies, and post office banks, to record tax identity information for all customers opening new accounts, applying for checkbooks, or cashing checks. The circular also requires exchange offices to sign contracts with their clients. Additionally, noninterest-utilizing entities such as Islamic financial institutions are required to record tax identity information for all transactions.
The Ministry of Finance also issued a circular mandating that a tax identity number be used in all financial transactions as of September 1, 2001. The circular applies to all Turkish banks and to branches of foreign banks operating in Turkey, as well as other financial entities. The new requirements are intended to increase the government?s ability to track suspicious financial transactions.
Since the financial crisis of 2000, the GOT has taken over 19 of Turkey?s 81 banks and has significantly tightened oversight of the banking system through an independent regulatory authority, the Banking Regulatory and Supervisory Agency (BRSA), which conducts anti-money laundering compliance reviews at banks under authority delegated from the Financial Crimes Investigation Board (MASAK). However, BRSA?s reputation was hurt recently by its failure to detect a major bank fraud involving Imar Bank. There is also some concern about the current government?s commitment to BRSA?s continued independence.
The 1996 anti-money laundering law established MASAK, which is part of the Ministry of Finance. MASAK, which became operational in 1997, receives, analyzes, and refers STRs for investigation. MASAK serves as Turkey?s financial intelligence unit (FIU). MASAK has a pivotal role between the financial community, on the one hand, and Turkish law enforcement, investigators, and judiciary, on the other. Since its inception, MASAK has pursued more than 500 money laundering cases. Of those, 59 have been prosecuted, with only two cases resulting in convictions as of December 2003. Part of this is due to the fact that Turkey?s police, prosecutors, judges, and investigators still need substantial training in dealing with financial crimes and because of a lack of coordination between the courts that prosecute the predicate offenses and the courts that prosecute money laundering cases. Most of the cases involve nonnarcotics criminal actions or tax evasion; roughly 30 percent are narcotics related.
MASAK itself is not yet functioning at the optimal level of efficiency. It requires additional legal authority, continuity of senior management, training, and computers. Training and equipment needs are being addressed by a European Union accession project, which is expected to commence by mid-2004. In 2003 MASAK prepared an amendment to the seminal 1996 law, that MASAK hopes Parliament will ratify in early 2004. The new law will broaden the definition of money laundering and expand the list of predicate offenses. It will also increase MASAK?s authority and expand its ability to cooperate with other GOT agencies. After passage of the proposed legislation, MASAK expects to conduct compliance reviews of banks itself instead of relying on the BRSA. The GOT is also drafting legislation that will enable MASAK to conduct money laundering investigations into bank owners who misuse their banks? capital, to investigate the proceeds of bribery and corruption, and to investigate fraudulent bankruptcy cases. If all these changes are implemented, Turkey?s anti-money laundering law will include all predicate offenses listed by the Financial Action Task Force (FATF).
Turkey cooperates closely with the United States and its neighbors in the Southeast Europe Cooperation Initiative (SECI). Turkey and the United States have an MLAT and cooperate closely on narcotics and money laundering investigations. Following the election of a new government in Turkey in November 2002, many of the key officials responsible for counternarcotics and anti-money laundering programs (including the head of MASAK) were replaced in 2003. Recently, the timeliness of MASAK?s response to requests made through the assistance mechanisms of the Egmont Group has been declining.
Turkey has traditionally taken a strong stance against terrorism. In February 2002, MASAK issued General Communiqu? No. 3 that detailed a new type of STR to be filed by financial institutions in cases of terrorist financing. The GOT complies with UNSCR 1373 through the distribution to interested GOT agencies (but not financial institutions) of ministerial decrees. Financial institutions receive the lists through the Turkish Bankers Association. The GOT has the authority to identify and freeze the assets of terrorist individuals and groups designated by the UN 1267 Sanctions Committee, and it froze such assets in several cases during 2002. However, the process can be cumbersome and is not particularly effective; in 2003, a joint FBI-Royal Canadian Mounted Police investigation on terrorist financing was hampered by the lack of a specific law criminalizing the financing of terrorism. The proposed legislation described above should ameliorate the situation. In the interim, there are various laws with provisions that can be used to punish the financing of terrorism. In particular, Article 169 of the Turkish Penal Code prohibits assistance in any form to a criminal organization or to any organization which acts to influence public services, media, proceedings of bids, concessions, and licenses, or to gain votes, by using or threatening violence. To commit crimes by implicitly or explicitly intimidating and cowing people is illegal under the provisions of the Law No. 4422 on the Prevention of Benefit-Oriented Criminal Organizations.
Turkey is a member of the FATF. MASAK is an active member of the Egmont Group. Turkey is a party to the 1988 UN Drug Convention and in December 2003 ratified the UN Convention against Transnational Organized Crime. Additionally, in April 2003 Turkey ratified the Council of Europe (COE) Civil Law on Corruption. In May 2002, Turkey became a party to the UN International Convention for the Suppression of Terrorist Bombings. Turkey also became a party to the UN International Convention for Suppression of the Financing of Terrorism on June 28, 2002. Turkey has signed, but not yet ratified, the COE Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds of Crime.
Turkey has declared its commitment to fight money laundering and terrorist financing. However, it needs to strengthen its legislative basis for this by swiftly enacting the draft laws to strengthen MASAK?s powers and to criminalize terrorist financing. It should also obtain training for its prosecutors, judges, and investigators and improve the coordination between the courts in order to enable them to obtain more convictions for money laundering. The GOT should enact its safe harbor bill to protect the filers of STRs, which may result in increased filings. Tax evasion remains a severe problem in Turkey and is directly linked to money laundering. Turkey?s 2001 initiative on tax identity numbers should enhance its ability to prosecute tax evaders. Turkey should also regulate and investigate alternative remittance networks to thwart misuse by terrorist organizations or their supporters.
Turkmenistan
Turkmenistan has only a few international banks and a small, underdeveloped domestic financial sector. Turkmenistan?s economy is primarily cash-based. Due to the presence of narcotics-trafficking and organized criminal groups, the country is susceptible to money laundering. There is some concern that several of the country?s foreign-owned hotels and casinos could be vulnerable to financial fraud and used for money laundering. In addition, the national currency, the manat, has a black market exchange rate that is four times the official rate. These rates create conditions that are favorable to money laundering. Corruption in Turkmenistan is also a source of concern due to the low salaries and broad general powers of Turkmen law enforcement officials. In 2003, the Government of Turkmenistan did not report any suspected cases of money laundering.
Article 242 of the Criminal Code imposes liability for the laundering of criminal proceeds. Financial and other transactions using criminal proceeds are punishable by a fine or up to two years imprisonment. Presidential Resolution 0210/02-2 of 1995 gives the Central Bank authority over all international financial transactions. Under this resolution, any entity making an electronic transfer of funds to an account abroad must provide documentation that establishes the source of the funds. Turkmenistan?s tax inspectorate has responsibility for uncovering irregularities that might be indicative of financial crimes and money laundering. The tax inspectorate works in coordination with Turkmen law enforcement. Turkmenistan is a party to the 1988 UN Drug Convention.
Turkmenistan is urged to sign the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism. Turkmenistan should pass anti-money laundering and terrorist finance legislation that adheres to world standards.
Turks and Caicos
The Turks and Caicos Islands (TCI) is a Caribbean overseas territory of the United Kingdom (UK). TCI is comprised of two island groups and forms the southeastern end of the Bahamas archipelago. The U.S. dollar is the currency in use. TCI has a significant offshore center, particularly with regard to insurance and international business companies (IBCs). Its location has made it a transshipment point for narcotics-traffickers. The TCI is vulnerable to money laundering because of a large offshore financial services sector as well as because of bank and corporate secrecy laws and Internet gaming activities. There was no updated information to add in 2004.
The TCI?s offshore sector has eight banks (five of which also deal with onshore clientele), approximately 2,500 insurance companies, 1,000 trusts, and 13,000 ?exempt companies? that are IBCs, including those formed by the Enron Corporation. The Financial Services Commission (FSC) licenses and supervises banks, trusts, insurance companies, and company managers; it also licenses IBCs and acts as the Company Registry for the TCI. The Financial Services Commission employs a staff of 14 and conducts limited on-site inspections. The FSC became a statutory body under the Financial Services Commission Ordinance 2001 and became operational in March 2002, and now reports directly to the Governor.
The offshore sector offers ?shelf company? IBCs, and all IBCs are permitted to issue bearer shares; however, the Companies (Amendment) Ordinance 2001 requires that bearer shares be immobilized by depositing them, along with information on the share owners, with a defined custodian. This applies to all shares issued after enactment and allows for a phase-in period for existing bearer shares of two years. Trust legislation allows establishment of asset protection trusts inoculating assets from civil adjudication by foreign governments; however, the Superintendent of Trustees has investigative powers and may assist overseas regulators.
The 1998 Proceeds of Crime Ordinance criminalizes money laundering related to all crimes and establishes extensive asset forfeiture provisions and ?safe harbor? protection for good faith compliance with reporting requirements. The Law also establishes a Money Laundering Reporting Authority (MLRA), chaired by the Attorney General, to receive, analyze, and disseminate financial disclosures such as suspicious activity reports (SARs). Its members also include the following individuals or their designees: Collector of Customs, the Superintendent of the FSC, the Commissioner of Police, and the Superintendent of the Criminal Investigation Department. The MLRA is authorized to disclose information it receives to domestic law enforcement and foreign governments.
The Proceeds of Crime (Money Laundering) Regulations came into force January 14, 2000. The Money Laundering Regulations place additional requirements on the financial sector such as identification of customers, retention of records for a minimum of five years, training staff on money laundering prevention and detection, and development of internal procedures in order to ensure proper reporting of suspicious transactions. The Money Laundering Regulations apply to banking, insurance, trustees, and mutual funds. Although the customer identification requirements only apply to accounts opened after the Regulations came into force, TCI officials have indicated that banks would be required to conduct due diligence on previously existing accounts by December 2005.
In 1999, the FSC, acting as the secretary for the MLRA, issued nonstatutory Guidance Notes to the financial sector, in order to help educate the industry regarding money laundering and the TCI?s anti-money laundering requirements. Additionally, it provided practical guidance on recognizing suspicious transactions. The Guidance Notes instruct institutions to send SARs to either the Royal Turks & Caicos Police Force or the FSC. Officials forward all SARS to the Financial Crimes Unit (FCU) of the Royal Turks and Caicos Islands Police Force, which analyzes and investigates financial disclosures. The FCU also acts as TCI?s financial intelligence unit (FIU).
As with the other United Kingdom Caribbean overseas territories, the Turks and Caicos underwent an evaluation of its financial regulations in 2000, co-sponsored by the local and British governments. The report noted several deficiencies and the government has moved to address most of them. The report noted the need for improved supervision, which the government acknowledged. An Amendment to the Banking Ordinance was introduced in February 2002 to remedy deficiencies outlined in the report relating to notification of the changes of beneficial owners, and increased access of bank records to the FSC, but the Ordinance has not yet been enacted. No legislation has yet been introduced to remedy the deficiencies noted in the report with respect to the Superintendent?s lack of access to the client files of Company Service and Trust providers, nor is there legislation that clarifies how the Internet gaming sector is to be supervised with respect to anti-money laundering compliance.
The TCI cooperates with foreign governments?in particular, the United States and Canada?on law enforcement issues including narcotics trafficking and money laundering. The FCU also shares information with other law enforcement and regulatory authorities inside and outside of the TCI. The Overseas Regulatory Authority (Assistance) Ordinance 2001, allows the TCI to further assist foreign regulatory agencies. This assistance includes search and seizure powers and the power to compel the production of documents.
The TCI is a member of the Caribbean Financial Action Task Force, and is subject to the 1988 UN Drug Convention. The Mutual Legal Assistance Treaty between the United States and the United Kingdom concerning the Cayman Islands was extended to the TCI in November 1990.
The Turks and Caicos have put in place a comprehensive system to combat money laundering with the relevant legislative framework and an established FIU. The FSC has made steady progress in developing its regulatory capability and has some experienced senior staff. However, the current regulatory structure is not fully in accordance with international standards. The TCI should criminalize the financing of terrorists and terrorism, and enhance its on-site supervision program. TCI should expand efforts to cooperate with foreign law enforcement and administrative authorities. TCI should provide adequate resources and authorities to provide supervisory oversight of its offshore sector in order to further ensure criminal or terrorist organizations do not abuse the TCI?s financial sector.
Uganda
Uganda is not a regional money laundering center. Ugandan law enforcement agencies suspect that Uganda?s bank and nonbank financial sectors are used to launder money, but thus far have been unable to prove their suspicions because of the country?s inadequate legal framework. Foreign exchange bureaus and alternative remittance systems are widely used in Uganda and are essentially unregulated.
In 2001, Uganda criminalized narcotics-related money laundering. The Bank of Uganda issued ?Know Your Customer? guidelines; however, the bank does not have the authority to penalize noncompliance. In December 2003, the Ministry of Finance submitted to parliament a comprehensive anti-money laundering bill developed based on FATF?s Forty Recommendations on Money Laundering. This legislation would criminalize money laundering for all serious crimes.
Uganda is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) and served as chairman of ESAAMLG in 2003. Uganda is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the United Nations Convention against Transnational Organized Crime.
Uganda criminalized terrorist financing in the Anti-Terrorism Act of June 2002. Uganda is a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Uganda should enact comprehensive anti-money laundering legislation and construct a viable anti-money laundering regime capable of thwarting terrorist financing.
Ukraine
Although Ukraine has adopted, enacted, and implemented comprehensive anti-money laundering legislation over the past year, high level and widespread corruption, organized crime, smuggling, and tax evasion continue to plague Ukraine?s economy. Transparency International has rated Ukraine 2.4?unchanged from 2002?on a scale where 10 means ?highly clean.? Money laundering in Ukraine is not primarily related to proceeds from narcotics trafficking. Instead, proceeds originate in criminal activities such as smuggling of goods or trafficking in humans, and large-scale corruption by government official and others. Ukraine?s former Prime Minister, Pavlo Lazarenko, is currently out on bail awaiting trial in San Francisco on charges that he laundered over $114 million, which he allegedly obtained illegally while serving as Prime Minister. Ukraine has provided assistance to the United States in connection with this prosecution. Retail outlets that sell luxury goods and other businesses (including casinos and some restaurants) in Kiev and elsewhere are suspected of being fronts for money laundering and/or tax evasion.
When the Financial Action Task Force (FATF), in September 2001, placed Ukraine on the list of noncooperative countries and territories in the fight against money laundering (NCCT), its report noted that Ukraine lacked (1) a complete set of anti-money laundering laws; (2) an efficient mandatory system for reporting suspicious transactions to a financial intelligence unit (FIU); (3) adequate customer identification requirements; and (4) adequate resources at present to combat money laundering. Following the FATF action, the United States Treasury Department issued an advisory to all U.S. financial institutions instructing them to ?give enhanced scrutiny? to all transactions involving Ukraine. FATF gave Ukraine until October 2002 to enact comprehensive, effective anti-money laundering legislation, or it would face the possibility of countermeasures from the FATF member countries.
At its September 2002 plenum, FATF extended its original October 2002 deadline until December 15, 2002. On November 28, 2002, President Kuchma signed into law Ukrainian Law No. 249-IV, an anti-money laundering package ?On Prevention and Counteraction to the Legalization (Laundering) of the Proceeds from Crime.? On December 20, 2002, the FATF determined that Ukraine?s AML statute did not meet international standards and announced that FATF members would impose countermeasures on Ukraine. Under Section 311 of the USA PATRIOT Act, the United States designated Ukraine as a jurisdiction of primary money laundering concern on December 20, 2002. In response to the imminent threat of countermeasures, Ukraine passed further comprehensive legislative amendments in December 2002 and February 2003, in accordance with FATF demands. Immediately upon passage of the February amendments, the FATF withdrew its call for members to invoke countermeasures and the U.S. followed suit on April 17, 2003 by revoking Ukraine?s designation under Section 311 of the USA PATRIOT Act as a jurisdiction of primary money laundering concern.
By passing comprehensive anti-money laundering (AML) legislation, Ukraine was not only able to avoid the countermeasures threatened by the FATF, but to initiate the process of NCCT de-listing. At the FATF plenary in September 2003, Ukraine was invited to submit an implementation plan, and upon review by the FATF Europe Review Group (ERG), an on-site visit to assess Ukraine?s progress in developing its anti-money laundering regime has been scheduled for January 19-23, 2004. The results of the on-site visit by the FATF evaluation team will be reported to the FATF ERG prior to the Paris plenary on February 25, 2004. The ERG will give its recommendation as to whether or not the NCCT designation should be lifted and a decision will be taken by the general plenary at that time.
As a member of the Council of Europe, Ukraine has undergone two mutual evaluations by that group?s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), in May 2000 and September 2003. Although Ukraine criminalized drug money laundering in 1995, the initial 2000 mutual evaluation report was highly critical of Ukraine. The 2003 evaluation presented quite a different finding, as evaluators noted that a number of the previously noted deficiencies had been remedied, especially with regard to passage of a basic anti-money laundering law in November 2002.
Two subsequent sets of amendments adopted in December 2002 and February 2003 have further helped bring Ukraine into compliance with internationally-recognized standards, as set forth by the FATF, the Vienna and Strasbourg conventions, the European Union (EU) directives on prevention of use of the financial system for money laundering purposes, and the Basel principles applicable to banks. Effective September 1, 2001, the Government of Ukraine (GOU) criminalized nondrug money laundering in the Criminal Code of Ukraine. Subsequent amendments adopted in January 2003 include willful blindness provisions and also expand the scope of predicate crimes for money laundering to include any action that is punishable under the criminal code by imprisonment of three years or more, excluding certain specified actions. Provisions in the criminal code also address drug-related money laundering offenses and provide for the confiscation of proceeds generated by criminal activities.
The GOU enacted the ?Act on Banks and Banking Activities? (Act) of January 2001, which imposes anti-money laundering measures upon banking institutions. The Act prohibits banks from opening accounts for anonymous persons, requires the reporting of large transactions and suspicious transactions to state authorities, and provides for the lifting of bank secrecy pursuant to an order of a court, prosecutor, or specific state body. Further amendments in February 2003 require banks to establish and implement bank compliance programs, conduct due diligence to identify beneficial account owners prior to opening an account or conducting certain transactions, and maintain records on suspicious transactions and the people carrying them out, for a period of five years. Cross-border transportation of cash sums exceeding $1000 must be declared by travelers.
In August 2001, ?The Law on Financial Services and State Regulation of the Market of Financial Services? was signed. The law establishes regulatory controls over nonbank financial institutions that manage insurance, pension accounts, financial loans, or ?any other financial services involving savings and money from individuals.? Specifically, the law defines financial ?institutions? and ?services,? imposes record keeping requirements on covered entities, and identifies the responsibilities of regulatory agencies. The law created the State Commission on Regulation of Financial Services Markets, which, with the National Bank of Ukraine and the State Commission on Securities and the Stock Exchange, has the primary responsibility for regulating financial services markets. Amendments introduced in February 2003 set forth additional requirements similar to those prescribed for banks for all nonbanking financial institutions.
The AML legislation calls for customer identification, reporting of suspicious and unusual transactions to the State Department of Financial Monitoring, and five years of record keeping. It also mandates the establishment of anti-money laundering procedures in first-line financial institutions such as banks; stock, securities, and commodity brokers; and insurance companies, among other entities. Subsequent amendments to Articles 5, 6, and 8, respectively, mandate establishment of bank compliance programs and appointment of bank compliance officers who may be subject to criminal liability for noncompliance. They also mandate that financial institutions identify beneficial owners of accounts, and that employees of entities of initial financial monitoring unconditionally report transactions suspected for money laundering or terrorism finance. The AML legislation includes a ?safe harbor? provision that protects reporting institutions from liability for cooperating with law enforcement agencies.
Significantly, amendments to Article 11 of the Law reduce the monetary threshold beyond which transactions and operations are subject to compulsory financial monitoring, from Ukrainian hryvnias (UAH) 300,000 (approximately $57,750) for cashless payments and UAH 100,000 (approximately $19,250) for payments in cash to one single amount for both, UAH 80,000 (approximately $15,400). The compulsory transaction-reporting threshold stands only if the transaction also meets one or more suspicious activity indicators as set forth in the law. Any transaction that is suspected of being connected to terrorist activity is to be reported to the appropriate authorities immediately.
On December 10, 2001, the Ukrainian Presidential Decree ?Concerning the Establishment of a Financial Monitoring Department? mandated the creation of the State Department of Financial Monitoring (FMD) by January 1, 2002, to function as Ukraine?s FIU. Under the terms of this decree, the FMD is an independent authority administratively subordinated to the Ministry of Finance and is the sole agency authorized to receive and analyze financial information from first line financial institutions. Ukraine?s basic AML law establishes a two-tiered system of financial monitoring and combating of criminal proceeds, including terrorist financing provisions. It also identifies the participants: entities of initial financial monitoring, or those legal entities that carry out financial transactions; and entities of state financial monitoring, or those regulating entities charged with regulation and supervision of activities of the service providers. The overall regulatory authority in the system is vested in the FMD, which became operational on June 12, 2003, in accordance with Article 4 of the AML law.
The FMD is an administrative agency with no investigative or arrest authority. It is authorized to collect and analyze suspicious transactions, including those related to terrorism financing, and to transfer financial intelligence information to competent law enforcement authorities for investigation. FMD also has authority to conclude interagency agreements, and can exchange intelligence on financial transactions with a money laundering or terrorist financing nexus with other FIUs. As of October 21, 2003, memoranda of understanding were concluded between the FMD and the financial intelligence units of the Russian Federation, the Slovak Republic, Estonia, Spain, and the Kingdom of Belgium.
To date, the FMD has received 209,025 suspicious transaction reports (STRs), the bulk of which have been reported by banks. Approximately ten percent of these have been identified by the FIU for ?active research? and 3,211 separate materials have been sent to competent law enforcement agencies. From June 12, 2003, the date the FMD became operational, through December 2003, FMD has referred 11 criminal cases to the General Prosecutor?s Office, two cases to the State Tax Administration, three cases to the Ministry for Internal Relations, and two cases to the Security Service.
Regarding criminal prosecution of anti-money laundering cases, 25 cases were brought before the courts during the last five months of 2001, for which three convictions were obtained. In 2002, 287 criminal AML cases were brought before the courts and 77 convictions were obtained. For the first nine months of 2003, 128 criminal AML cases were brought before the courts, resulting in 40 convictions.
Ukraine is in the initial stages of drafting a law that may permit asset forfeiture. Ukraine has yet to establish a system and a legal basis for freezing and seizing assets derived from serious crimes.
In response to earlier criticisms by the FATF regarding lack of coordination and information-sharing among agencies, the Cabinet of Ministers issued Decree No. 1896 on December 10, 2003, establishing a Unified State Informational System of Prevention and Counteraction of Money Laundering and Terrorism Financing, which will allow for integration of disparate state databases and foster better interagency cooperation.
Amendments to criminalize terrorism finance and to vest the Security Service of Ukraine with authority to investigate terrorism finance have been proposed. The GOU has cooperated with USG efforts to track and freeze the financial assets of terrorists and terrorist organizations. The National Bank of Ukraine (NBU), State Tax Administration, Ministry of Finance, and State Security Service (SBU) are fully aware of U.S. Executive Order (E.O.) 13224 and subsequent updates and addenda to the lists of terrorists and terrorist organizations. All agencies have tracked data that was provided, and have exchanged information. The NBU has issued orders to banks to freeze accounts of individuals or organizations listed in the E.O. and later lists.
The GOU has also taken appropriate steps to implement UN Security Council resolutions relevant to fighting terrorism. The Cabinet of Ministers, on December 22, 1999, issued a resolution ordering agencies and banks to freeze Taliban funds as specified in UNSCR 1267. A Cabinet of Ministers resolution instructed the NBU to order all banks to comply with UNSCR 1333. In response to these measures, the NBU sent letters to regional departments and commercial banks to execute all applicable provisions of UNSCRs 1267 and 1333.
The FMD acknowledges the existence and use of alternative remittance systems such as hawala. FMD personnel have attended seminars and exchanged information about such systems. The FMD and security agencies monitor charitable organizations and other nonprofit entities that might be used to finance terrorism.
The FMD is a viable candidate for joining the Egmont Group of FIUs in 2004, having been successfully vetted by the Egmont Legal Working Group at the June 2003 plenary. The U.S.-Ukraine Treaty on Mutual Legal Assistance in Criminal Matters was signed in 1998 and entered into force in February 2001. A bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital, which provides for the exchange of information in administrative, civil and criminal matters, is also in force.
Ukraine has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Ukraine is a party to the 1988 UN Drug Convention as well as the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, which came into force with respect to Ukraine in January 1998. In January 2002, the European Convention on the Suppression of Terrorism was signed. Ukraine ratified the UN International Convention for the Suppression of the Financing of Terrorism in September 2002. Ukraine also became a signatory to the UN Convention Against Corruption, which has not yet entered into force, on December 11, 2003.
Ukraine has demonstrated considerable political will to combat money laundering by strengthening, clarifying, and implementing its newly adopted laws. As evidenced by the strides made by its FIU, the NBU, and other actors in the financial and legal sectors, Ukraine has clearly shown its ability to implement a comprehensive anti-money laundering regime. The GOU should criminalize the financing and support of terrorists and terrorism. The GOU should adopt an asset forfeiture regime. The GOU should continue to enhance and implement its newly adopted anti-money laundering regime and to work towards NCCT de-listing and accession of its FIU to the Egmont Group of FIUs in 2004.
United Arab Emirates
The United Arab Emirates (UAE), which remains a cash-based society, is considered an important regional financial center for the Gulf region. The financial sector is modern and outward looking. Dubai, in particular, is a major banking center. About 50 million people are projected to pass through Dubai?s airport by the year 2010. The UAE?s robust economic development and liberal business environment have attracted a massive influx of people and capital. Approximately 80 percent of the UAE population is comprised of nonnationals. Because of the UAE?s role as the primary transportation and trading hub for the Gulf states, East Africa, and South Asia, and with expanding trade ties with the countries of the former Soviet Union, the UAE has the potential to be a major center for money laundering. That potential is exacerbated by the large number of resident expatriates from these areas, many of whom are engaged in legitimate trade with their homelands.
Following the September 11 terrorist attacks in the United States, and revelations that terrorists had moved funds through the UAE, the Emirates? authorities acted swiftly to address potential vulnerabilities and, in close concert with the United States, to freeze the funds of groups with terrorist links, including the Al-Barakat organization, which was headquartered in Dubai. Both federal and emirate-level officials have gone on record as recognizing the threat money laundering activities in the UAE pose to the nation?s security and have taken significant steps in 2003 to better monitor cash flows through the UAE financial system.
While the laundering of narcotics funds may take place in the UAE, given the country?s close proximity to Afghanistan?where 70 percent of the world?s opium is produced?the potential exploitation of the UAE financial system by foreign terrorists and terrorist financing groups is the primary concern.
In January 2002, the President of the United Arab Emirates promulgated Law No. 4 criminalizing all forms of money laundering activities. The law calls for stringent reporting requirements for wire transfers exceeding $545 and currency importation/exportation limits set roughly at $11,700. The law imposes stiff criminal penalties (up to seven years in prison and a fine of up to 300,000 dirhams ($81,700), as well as seizure of assets if found guilty) for money laundering and also provides safe harbor provisions for those who report such crimes. Banks and other financial institutions supervised by the Central Bank (exchange houses, investment companies, and brokerages) are required to follow strict ?know your customer? guidelines; all financial transactions over $54,000, regardless of their nature, must be reported to the Central Bank. Financial institutions also are required to maintain records on transactions for five years.
The Central Bank (CB) announced that it received 633 suspicious transaction reports from August 2001 to August 2003, of which 497 were from banks, 49 from money changers, and 87 from customs departments. Thirteen accounts have been frozen as a result of these STRs.
Money laundering may take place within the formal banking system, including the numerous money exchange houses, but is believed to be largely confined to the informal and largely undocumented ?hawala? remittance system. The fact that hawala is an undocumented and nontransparent system, and is highly resilient in response to enforcement and regulatory efforts, makes it difficult to control and an attractive mechanism for terrorist and criminal exploitation. The UAE has begun to make progress in publicly accepting its vulnerability and involvement vis-?-vis hawala. New regulations to improve oversight of the hawala system were implemented in 2002. There is no accurate estimate of the number of UAE-based hawala brokers.
The CB now supervises 61 hawala brokers, which?like other financial institutions in the UAE?are now required to submit sheets containing names and addresses of transferors and beneficiaries to the CB and to complete suspicious transaction reports. The new attention on hawala is encouraging more people to use regulated exchange houses in the UAE. Traders in Dubai?s Central Souk (Market) said hawala exchange rates are now only 3 percent cheaper than formal exchange houses, persuading many to use the formal, and more secure, banking network.
The UAE Government (UAEG) also has admitted the need to better regulate ?near-cash? items such as gold, jewelry, and gemstones, especially in the burgeoning markets in Dubai. The UAE acceded to the Kimberley Process (KP) in November 2002 and began certifying rough diamonds exported from the UAE on January 1, 2003. The Dubai Metals and Commodities Center (DMCC) is the quasi-governmental organization charged with issuing KP certificates in the UAE, and employs four individuals full-time to administer the KP program. Prior to January 1, 2003, the DMCC circulated a sample UAE certificate to all KP member states and embarked on a public relations campaign to educate the estimated 50 diamond traders operating in Dubai concerning the new KP requirements.
UAE customs officials may delay or even confiscate diamonds entering the UAE from a KP member country without the proper KP certificate.
The UAE hosted an International Conference on Hawala in May 2002, which was attended by over 300 delegates including government officials, executives of supervisory institutions, banking experts, and law enforcement officials from 58 countries. The conference concluded with the issuance of ?The Abu Dhabi Declaration on Hawala,? which calls for the establishment of a sound mechanism to regulate hawala. The CB intends to sponsor a follow-up conference on hawala in April 2004 to assess the effectiveness of hawala registration and documentation requirements that went into effect in November 2002.
The supervision of the UAE banking and financial sector falls under the authority of the CB. The CB issues instructions and recommendations as deemed appropriate and is permitted to take any necessary measure to ensure the integrity of the UAE?s financial system. The CB issues licenses to financial institutions under its supervision and may impose administrative sanctions for compliance violations.
UAE anti-money laundering measures can be found in a series of rules and regulations issued by the CB, and thus are generally applicable to those financial entities that fall under its supervision. There are a number of circulars issued by the CB requiring customer identification and providing for a basic suspicious transaction-reporting obligation. When suspicious activity is reported from a financial institution, the Central Bank is able to freeze suspect funds, make appropriate inquiries, and coordinate with law enforcement officials.
In July 2000, the UAE established the National Anti-Money Laundering Committee, under the Chairmanship of the Central Bank?s Governor, with representatives from the Ministries of Interior, Justice, Finance, and Economy, the National Customs Board, the Secretary General of the Municipalities, the Federation of the Chambers of Commerce, and five major banks and money exchange houses (as observers). It has overall responsibility for coordinating anti-money laundering policy.
Following a review of current practices by the Committee, in November 2000 the CB issued Circular 24/2000, which consolidates and expands anti-money laundering requirements for the financial sector. The circular, which is applicable to all banks, money exchanges, finance companies, and other financial institutions operating in the UAE, provides the procedures to be followed for the identification of natural and juridical persons, the types of documents to be presented, and rules on what customer records must be maintained on file at the institution. Other provisions of Circular 24/2000 call for customer records to be maintained for a minimum of five years, and further require that they be periodically updated as long as the account is open.
With implementation of Law 4/2002 came the establishment of the Anti-Money Laundering and Suspicious Case Unit (AMLSCU), which is located within the CB and acts as the financial Intelligence unit (FIU). Financial institutions under the supervision of the CB are required to report suspicious transactions to the AMLSCU, which is charged with examining them and coordinating the release of information with law enforcement and judicial authorities. It has the authority to request information from foreign regulatory authorities in carrying out its preliminary investigation of suspicious transaction reports. Officials indicate that exchanges with foreign financial intelligence units are possible, provided the exchanges are conducted on a basis of reciprocity. The AMLSCU, which is a member of the Egmont Group, is exploring areas of information sharing with other financial intelligence units. AMLSCU has provided information relating to investigations carried out by international authorities. The Central Bank conducted 58 workshops on money laundering and terrorist finance for banks and other financial institutions in 2003.
The National Anti-Money Laundering Committee issued a Cautionary Notice in the local press to make the general public aware of the possibilities through which terrorist financing could be transacted, and has urged avoidance of such possibilities. UAE has extended full support and cooperation to the UN and U.S. authorities in their efforts to track the accounts of terrorists. Under UNSCR 1267/1390, UAE has frozen accounts of certain organizations and individuals with amounts equal to approximately $3 million. In addition, a number of money laundering cases involving foreign nationals have been referred to courts. Some cases ended in convictions.
The UAE authorities have arrested two individuals on suspicion of money laundering. This is the first time that the UAE has arrested suspected money launderers since the legislation went into effect; however, the UAEG has frozen financial assets under the law. Likewise, 23 other suspected money laundering cases have been referred to the public prosecutor?s office for further review.
The CB has circulated to all financial institutions under its supervision the lists of individuals and entities suspected of terrorism and terrorist financing, included in UN Security Council resolutions. To date, the Central Bank has frozen a total of $3.13 million in 18 bank accounts in the UAE since 9/11. Additionally, the AMLSCU has provided international organizations and its counterpart FIUs data on 172 cases related to terrorist financing.
In 2002, the UAEG worked in partnership with the United States to block terrorist financing, and froze the assets of more than 150 named terrorist entities?including significant assets in the UAE belonging to the Al-Barakat terrorist financing group.
The UAEG monitors registered charities in the country and requires them to keep records of donations and beneficiaries. The Ministry of Labor and Social Affairs regulates charities and charitable organizations in the UAE. The UAEG is much more sensitive post-9/11 to the oversight of charities and accounting of transfers aboard. In 2002, the UAEG mandated that all licensed charities interested in transferring funds overseas must do so via one of three umbrella organizations: the Red Crescent Authority, the Zayed Charitable Foundation, or the Muhammad Bin Rashid Charitable Trust. These three quasi-governmental bodies are properly managed, and in a position to ensure that overseas financial transfers go to legitimate parties. As an additional step, the UAEG has contacted the governments in numerous aid receiving countries to compile a list of recognized, acceptable recipients for UAE charitable assistance.
The UAE is noted for its growing free trade zones (FTZs). There are well over a hundred multinational companies located in the FTZs with thousands of individual trading companies. The FTZs permit 100 percent foreign ownership, no import duties, full repatriation of capital and profits, no taxation, and easily obtainable licenses. Companies located in the free trade zones are treated as being offshore or outside the UAE for legal purposes. There is little Customs scrutiny of goods going into and out of the free trade zones. The UAE is not an offshore financial center; nonresidents are not permitted to open bank accounts here and offshore banking is prohibited. The UAE is a party to the 1988 UN Drug Convention, and it has entered into a series of bilateral agreements on mutual legal assistance. The UAE is a member of the Gulf Cooperation Council, which is a member of the Financial Action Task Force (FATF). The UAE has been generally receptive to U.S. Government overtures to cooperate on money laundering issues, and has welcomed money laundering-related training and visits by U.S. officials.
The United States and the UAE continue to share information on exchanging records in connection with terrorist financing and other money laundering cases on an ad hoc basis. A Mutual Legal Assistance Treaty (MLAT), which will codify that cooperation, is in the process of being negotiated.
The UAE Government has begun constructing a far-reaching anti-money laundering program. The UAE government has sought to crack down on potential vulnerabilities in the financial markets and is cooperating in the international effort to prevent money laundering, particularly by terrorists. However, there remain areas requiring further action. Law enforcement and customs officials should begin to take the initiative to recognize money laundering activity and proactively develop cases without waiting for referrals from the AMLSCU. UAE officials should give greater scrutiny to trade based money laundering in all of its forms. The Central Bank should to be more diligent in its efforts to encourage hawala dealers to participate in the registration program. The AMLSCU should take a more active role in participating in international anti-money laundering gatherings and increasing its ties with other FIUs.
United Kingdom
The United Kingdom (UK) plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets. Although drugs are still a major source of illegal proceeds for money laundering, the proceeds of other offenses, such as financial fraud and the smuggling of people and goods, have become increasingly important. The past few years have witnessed the movement of cash placement away from High Street banks and mainstream financial institutions. Criminals continue to use bureaux de change, cash smuggling into and out of the UK, gatekeepers (including solicitors and accountants), and the purchase of high-value assets as disguises for illegally obtained money.
The UK has implemented the provisions of the European Union?s two Directives on the prevention of the use of the financial system for the purpose of money laundering and the Financial Action Task Force (FATF) Forty Recommendations on Money Laundering. Narcotics-related money laundering has been a criminal offense in the UK since 1986. The laundering of proceeds from other serious crimes is criminalized by subsequent legislation. Banks and nonbank financial institutions in the UK must report suspicious transactions.
In November 2001, money laundering regulations were extended to money service bureaus (e.g., bureaux de change, money transmission companies). As of January 1, 2004, more sectors are subject to formal suspicious transaction reporting (STR) requirements, including attorneys, solicitors, accountants, real estate agents, and dealers in high-value goods such as cars and jewelry. Sectors of the betting and gaming industry that are not currently regulated are being encouraged to establish their own codes of practice, including a requirement to disclose suspicious transactions.
On July 24, 2002, the Proceeds of Crime Act 2002 was enacted, and it went into force on January 1, 2003. The final regulations will take effect on March 1, 2004. It creates, for the regulated sector, a new imprisonable offense of failing to disclose suspicious transactions in respect to all crime, not just narcotics- or terrorism-related crimes, as was the case previously. Along with the Act came an expansion of investigative powers relative to large movements of cash in the United Kingdom. In light of this, Her Majesty?s (HM) Customs has increased its national priorities to include investigating the movement of cash through money exchange houses, and identifying unlicensed money remitters. A total of $28.5 million in cash seizures was made under the new act in 2003.
The UK?s banking sector provides accounts to residents and nonresidents, who can open accounts through private banking activities and various intermediaries that often advertise on the Internet and also offer various offshore services. Private banking constitutes a significant portion of the British banking industry. Both resident and nonresident accounts are subject to the same reporting and record keeping requirements. Individuals typically open nonresident accounts for a tax advantage or for investment purposes.
Bank supervision falls under the Financial Services Authority (FSA). The FSA?s primary responsibilities are in areas relating to the safety and soundness of the institutions in its jurisdiction. The FSA also plays an important part in the fight against money laundering through its continued involvement in the authorization of banks, and investigations of money laundering activities involving banks. The FSA administers a civil-fines regime and has prosecutorial powers. The FSA has the power to make regulatory rules with respect to money laundering, and to enforce those rules with a range of disciplinary measures (including fines) if the institutions fail to comply.
In December 2003, the FSA fined Abbey National, the UK?s sixth largest bank, 2.3 million British pounds (approximately $4.2 million), for ?extremely serious failings? in its anti-money laundering procedures during the period 2001-2003. According to the FSA, Abbey National was cited for failure to report suspicious banking transactions in a timely manner, as well as failure to carry out proper identity checks on new customers.
STRs are filed with the Financial Intelligence Division (FID), formerly the Economic Crime Bureau, of the National Criminal Intelligence Service (NCIS). The NCIS serves as the UK?s financial intelligence unit (FIU). The FID analyzes reports, develops intelligence, and passes information to police forces and HM Customs and Excise for investigation. In 2001, the FID received approximately 32,000 STRs, and 65,000 STRs in 2002. The FID estimates it will receive roughly 100,000 STRs in 2003.
The Proceeds of Crime Act 2002 enhances the efficiency of the forfeiture process and increases the recovered amount of illegally obtained assets. The Act consolidates existing laws on forfeiture and money laundering into a single piece of legislation, and, perhaps most importantly, creates a civil asset forfeiture system for the proceeds of unlawful conduct. It also creates the Assets Recovery Agency (ARA), to enhance the financial investigators? power to request information from any bank about whether it holds an account for a particular person. The Act provides for confiscation orders related to people who benefit from criminal conduct, and for restraint orders to prohibit dealing with property. It also allows for the recovery of property that is, or represents, property obtained through unlawful conduct, or that is intended to be used in unlawful conduct. Furthermore, the Act shifts the burden of proof to the holder of the assets (for example, to prove that the assets were acquired through lawful means). In the absence of such proof, assets may be forfeit, even without a criminal conviction. The Act gives standing to overseas requests and orders concerning property believed to be the proceeds of criminal conduct. The Act also provides the ARA with a national standard for training investigators, and gives greater powers of seizure at a lower standard of proof. Officials at the ARA reported that a total of $28.5 million (16.2 million British pounds) in cash seizures had been made under the Act as of December 2003.
The Terrorism (United Nations Measures) Order 2001 makes it an offense for any individual, without a license from the Treasury, to make any funds for financial or related services available, directly or indirectly, to, or for the benefit of, a person who commits, attempts to commit, facilitates, or participates in the commission of acts of terrorism. The Order also makes it an offense for a bank or building society to fail to disclose to the Treasury a suspicion that a customer or entity, with whom the institution has had dealings since October 10, 2001, is attempting to participate in acts of terrorism. The Anti-Terrorism, Crime, and Security Act 2001 provides for the freezing of assets.
As a direct result of the events of September 11, 2001, the FID established a separate Terrorist Finance Team (TFT) to maximize the effect of reports from the regulated sector. The TFT chairs a law enforcement group to provide outreach to the financial industry concerning requirements and typologies. The operational unit that responds to the work and intelligence development of the TFT has seen a threefold increase in staffing levels directly due to the workload. The Metropolitan Police responded to the growing emphasis on terrorist financing by expanding the focus and strength of its specialist financial unit dedicated to this area of investigations. This unit is now called the National Terrorist Financing Investigative Unit (NTFIU).
In 2003, the UK issued 21 terrorist asset freeze orders on 72 individuals and 16 organizations. Two of the orders implemented the European Union?s September 2003 decision to freeze all funds, other financial assets, and economic resources of Hamas. On November 19, 2002, Chancellor Gordon Brown ordered financial institutions in the UK to freeze funds belonging to the Benevolence International Foundation (BIF). BIF?s Chief Executive, Enaam Arnaout, a Syrian-born U.S. citizen, was indicted in the United States for running a racketeering enterprise, conspiracy to launder money, money laundering, wire and mail fraud, and providing material support to organizations, including Usama Bin Ladin?s terror network.
The UK cooperates with foreign law enforcement agencies investigating narcotics-related financial crimes. The UK is a party to the 1988 UN Drug Convention. The UK ratified the UN International Convention for the Suppression of the Financing of Terrorism on March 7, 2001. In December 2000, the UK signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. The UK is a member of the FATF and the European Union. The NCIS is an active member of the Egmont Group and has information sharing arrangements in place with the FIUs of the United States, Belgium, France, and Australia. The Mutual Legal Assistance Treaty (MLAT) between the UK and the United States has been in force since 1996. The United States and UK recently negotiated an asset sharing agreement that is awaiting signature by the appropriate parties. The UK also has an MLAT with the Bahamas. Additionally, there is an MOU between the U.S. Customs Service and HM Customs and Excise.
The UK should continue the strong enforcement of its comprehensive anti-money laundering/counterterrorist financing program and its active participation in international organizations to combat the domestic and global threat of money laundering and the support and financing of terrorists and their organizations.
Uruguay
In the past, Uruguay?s strict bank secrecy laws, liberal currency exchange regulations, and overall economic stability made it vulnerable to money laundering, although its extent and exact nature were unknown. In 2002, however, banking scandals and mismanagement, along with massive withdrawals of Argentine deposits led to a near collapse of the Uruguayan banking system, and an end to Uruguay?s role as a regional financial center. The near collapse likely explains the diminished attractiveness of Uruguayan financial institutions to money launderers in the region.
Over the last five years, the Government of Uruguay (GOU) has instituted several legislative and regulatory reforms in connection with the further consolidation of its anti-money laundering program. In May 2001, it enacted Law 17,343, which extended the predicate offenses for money laundering beyond narcotics trafficking and corruption to include terrorism, smuggling (above the threshold of $20,000); illegal trafficking in weapons, explosives and ammunition; trafficking in human organs, tissues or medications; trafficking in human beings; extortion; kidnapping; bribery; trafficking in nuclear and toxic substances; and illegal trafficking in animals or antiques. The courts have the power to seize and later confiscate property, products or financial instruments linked to money laundering activities. In December 2003, the Uruguayan Chamber of Representatives approved a bill designed to limit bank secrecy and confidentiality. The bill is specifically intended to increase credit transparency by eliminating bank secrecy for information pertaining to personal loans, financial credits, mortgages, or similar obligations. The bill does not, however, lift bank secrecy for law enforcement investigations regarding money laundering or terrorist finance.
Several government bodies seek to combat money laundering. The President?s Vice-Minister of the Presidency heads the National Drug Board, which is the senior authority directing anti-money laundering policy. The Center for Training on Money Laundering serves as a forum for discussion and advice on policy as well as allowing private sector input. In 2000, the Financial Information and Analysis Unit (UIAF), was created within the Superintendence of Financial Intermediation Institutions that has the responsibility of coordinating all anti-money laundering efforts. The UIAF is Uruguay?s? Financial Intelligence Unit (FIU). It receives, analyzes, and remits to judicial authorities suspicious transaction reports for possible investigation. Central Bank Circular 1722 enables the UIAF to respond to requests from foreign analogs.
The Ministry of Finance and Economics, the Ministry of the Interior (via the police force), and the Ministry of Defense (via the Naval Prefecture) also participate in anti-money laundering efforts. The private sector has also developed self-regulatory measures against money laundering such as the Codes of Conduct approved by the Association of Banks and the Chamber of Financial Entities (in 1997), the Association of Exchange Houses (2001), and the Securities Market (2002).
Money laundering is considered a crime separate from underlying crimes such as narcotics trafficking, administrative corruption, terrorism or smuggling, which are formally listed in the legal statutes. The court can confiscate or preventively impound assets; proceeds or instruments used or intended to be used in money laundering crimes. Real estate ownership is registered in the name of the titleholder. However, ownership of a specific property cannot not be traced unless the ?pardon??the identification number of the property in the registry?is known. This system makes tracking money laundering in this important sector extremely difficult, particularly in the partially foreign-owned tourist industry around Punta del Este.
Safeguarding the financial sector from money laundering activities is a priority for the GOU. A series of Central Bank regulations require banks (including offshore), currency exchange houses, and stockbrokers to implement anti-money laundering policies, including the recording in internal databases transactions over $10,000, and the reporting of suspicious transactions to the UIAF. In addition, the insurance and reinsurance sector, stock market, and currency exchange houses must know and thoroughly identify their customers, and report suspicious financial transactions to UIAF. The insurance sectors are further required to maintain a registry of ?relevant? transactions, such as payments of insurance premiums of $10,000 or more, while stock and investment fund administrators must maintain a registry of individuals and entities exchanging currency or other valuables in amount greater than $10,000. There are twelve offshore banks and six offshore mutual fund companies.
The offshore banks are subject to the same laws and regulations as local banks, and are required to be licensed by the GOU?a process involving background checks on license applicants. There are no records of the number of Uruguayan offshore firms or shell companies, although, a large number are believed to exist. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank.Uruguay has been a member of the Financial Action task force for South America (GAFISUD) since its inception in December 2000 and served as its President in 2003. GAFISUD Mutual evaluation report stated that Uruguay?s anti-money laundering regime meets the FATF 40 recommendations. The report also recognized Uruguay?s efforts to train public and private sector players in money laundering-related issues. While Uruguay?s past role as a financial center put it at risk of becoming a money laundering center, the mutual evaluation team did not find any major money laundering criminal activity producing economic profits The report included several suggestions to expand the scope of Uruguayan money laundering legislation as it relates to gambling, real estate, certain professions (primarily in the legal and financial services sectors), and the smuggling of cash and securities. It also suggested the Government of Uruguay
Uruguay remains active in international anti-money laundering efforts. In addition to its membership in GAFISUD, Uruguay is also a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. The USG and the GOU are parties to an extradition treaty and a mutual legal assistance treaty that entered into force in 1984 and 1994, respectively. It is a party to the 1988 UN Drug Convention. Uruguay has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and became a party to the UN International Convention for the Suppression of the Financing of Terrorism on January 8,2004. In addition, for 2004 Uruguay holds the presidency of the Interamerican Committee against Terrorism (CICTE).
The GOU should take steps necessary to bring it into compliance with the FATF Special Eight Recommendations on Terrorist Financing including the criminalizing of terrorist financing. The GOU should enact legislation that requires the identification and registration of real estate?a sector particularly vulnerable to money laundering. Effective implementation and enforcement of anti-money laundering measures must remain a priority for the GOU in order to eliminate the potential for money laundering and terrorist financing activities throughout its financial sector. Uruguay should become a party to the UN Convention against Transnational Organized Crime.
Uzbekistan
Uzbekistan is not considered an important regional financial center and does not have a developed financial system. Reportedly, Uzbek citizens and residents attempt to avoid using the official banking system for transactions, except when required by law. There is little trust in current financial controls and fear that the Government of Uzbekistan (GOU) may seize one?s assets. In Uzbekistan, the majority of the population holds savings in the form of cash stored at home. There is a significant black market for smuggled goods in Uzbekistan. Contraband and narcotics smuggling generates illicit funds that are not laundered through the official banking system. Since the GOU imposed a restrictive trade and import regime in mid-2002, the smuggling of consumer goods increased dramatically. Many Uzbek citizens make a living by shuttle-trading goods from neighboring countries, Iran, the Middle East, India, Korea, Europe, and the United States. The basically un-reported and un-monitored trade is very susceptible to trade-based money laundering. According to the GOU, nonbank financial crimes, such as the over invoicing for procurements, have increased substantially. It is thought that narcotic traffickers also exchange their proceeds on the black market, allowing small-scale business people access to drug dollars. As in neighboring countries, narcotics can also act as a commodity, and they are frequently bartered or traded for desired goods. Illicit proceeds are often carried across Uzbekistan?s borders for deposit in other countries? banking systems, such as in Kazakhstan, Russia, or the United Arab Emirates. The proceeds of narcotics trafficking are controlled by local and regional drug-trafficking organizations.
Though Uzbekistan has formally removed currency exchange controls, in practice, obtaining currency conversion for a moderate to large sum of money remains difficult. This system inadvertently encourages the use of alternate remittance systems. Cash proceeds of crime denominated in the local currency, the soum, can easily be converted into other currencies on the black market. Residents and nonresidents may bring the equivalent of $10,000 into the country tax-free. Amounts in excess of this limit are assessed a one percent duty. Nonresidents may take out as much currency as they brought into the country. However, residents are limited to the equivalent of $1,500. Nonetheless, foreign currency is readily available to criminals, via the thriving black market.
There appears to be little money laundering through formal financial institutions in Uzbekistan in large part due to the extremely high degree of supervision and control exercised by the Central Bank of Uzbekistan, the Ministry of Finance, and the state-owned and controlled banks. The GOU has anti-money laundering legislation. Though not legislatively mandated, banks are required to know, record and report the identity of customers engaging in significant transactions, including the recording of large currency transactions at thresholds appropriate to Uzbekistan?s economic situation. The Central Bank unofficially requires commercial banks to report on private transfers to foreign banks that exceed $10,000. Institutions must report suspicious transactions immediately, via phone call and follow up memorandum to the Central Bank of Uzbekistan. Depending on the type of transaction, banks are required to maintain records for time deposits for a minimum of three years, generally not an adequate period to reconstruct suspect transactions. Money laundering controls are not applied to nonbanking financial institutions such as exchange houses, stock brokerages, casinos, insurance companies or professional intermediaries such as lawyers and accountants.
In September 2003, Uzbekistan enacted a bank secrecy law that prevents the disclosure of client and ownership information to bank supervisors and law enforcement authorities for domestic and offshore financial services companies. Private bank information can be disclosed to prosecution and investigative authorities, provided there is a criminal investigation underway. The information can be provided to the courts on the basis of a written request in relation to cases currently under consideration. Protected banking information can also be disclosed to tax authorities in cases involving the taxation of a bank?s client.
Article 41 of the Law on Narcotic Drugs and Psychotropic substances (1999) stipulates that any institution may be closed for performing a financial transaction for the purpose of legalizing (laundering) proceeds derived from illicit traffic in narcotic drugs and psychotropic substances. Article 243 of the Criminal Code imposes penalties for the legalization of proceeds derived from criminal activity, i.e. five to ten years of imprisonment. This article also defines the act of money laundering. It includes transfer, conversion, exchange, as well as concealing of origin, true nature, source, location, disposition, movement and rights with respect to the assets derived from criminal activity as punishable acts.
In accordance with Uzbekistan?s Code of Criminal Procedure, investigation of money laundering offenses falls under the jurisdiction of the Ministry of Internal Affairs. The Department of Investigation of Economic Crimes within the Ministry conducts investigations of all types of economic offenses. There are also specialized structures within the National Security Service and the Department on Combating Economic Crimes and Corruption in the Office of the Prosecutor-General, which are also authorized to conduct investigation of, inter alia, money laundering offenses.
Uzbekistan has established systems for identifying, tracing, freezing, seizing, and forfeiting proceeds of narcotics and other money laundering related crimes. Since 2000, at least 200 million soum in assets have been seized. At that time, a special fund was established that directs the assets derived from the sale of confiscated proceeds and instruments of drug related offenses. The fund supports entities of the National Security Service, the Ministry of Interior, the State Customs Committee, and the Border Guard Committee, all of which are directly involved in combating illicit drug trafficking. A total of 42 million soum (approximately $35-40,000) has been distributed by this fund since it was established.
Article 155 of Uzbekistan?s criminal code and Law Number 167 ?On Fighting Terrorism? of 15 December 2000 criminalizes terrorist financing. These laws were designed to provide for the security of individuals, society, and the state from terrorism; protection of territorial integrity and state sovereignty; preserving civil peace; and preventing ethnic strife. The National Security Service (NSS), the Ministry of Internal Affairs (MVD) the Committee on the Protection of State Borders, the State Customs Committee, the Ministry of Defense and the Ministry for Emergency Situations are designated as responsible for implementing the antiterrorist legislation. The law names the NSS as the coordinator for government agencies fighting terrorism.
The GOU has the authority to identify, freeze, and seize terrorist assets. The banking community, which is entirely state controlled and, with few exceptions, state-owned, generally cooperates with efforts to trace funds and seize accounts. Uzbekistan has circulated to its financial institutions the list of individuals and entities that have been included on the UN 1267 sanction list.
Uzbekistan is a party to the International convention for the Suppression of the Financing of Terrorism. Uzbekistan is a party to the UN 1988 Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Uzbekistan should continue to refine its anti-money laundering and terrorist financing legislation to world standards. Uzbekistan should establish a suspicious activity reporting system from bank and nonbank financial institutions and a Financial Intelligence Unit (FIU) to analyze the reports and disseminate them for investigation. Uzbekistan authorities need to do more to combat smuggling and trade based money laundering.
Vanuatu
Vanuatu?s offshore sector is vulnerable to money laundering, as it has historically maintained strict secrecy provisions that have the effect of preventing law enforcement agencies from identifying the beneficial owners of offshore entities registered in the sector. Due to allegations of money laundering, a few United States-based banks announced in December 1999 that they would no longer process U.S. dollar transactions to or from Vanuatu. The Government of Vanuatu (GOV) responded to these concerns by introducing reforms designed to strengthen domestic and offshore financial regulation.
Vanuatu?s financial sector includes five licensed banks (that carry on domestic and offshore business) and 60 credit unions, regulated by the Reserve Bank of Vanuatu. The Financial Services Commission (FSC) regulates the offshore sector that includes 55 banks and approximately 2,500 ?international companies? (i.e., international business companies or IBCs), as well as offshore trusts and captive insurance companies. IBCs may be registered using bearer shares, shielding the identity and assets of beneficial owners of these entities. Secrecy provisions protect all information regarding IBCs and provide penal sanctions for unauthorized disclosure of information. These secrecy provisions, along with the ease and low cost of incorporation, make IBCs ideal mechanisms for money laundering and other financial crimes.
As of January 1, 2003, the Reserve Bank of Vanuatu has regulated Vanuatu?s 55 offshore banks, formerly regulated by the FSC. This requirement was one of many recommendations of the 2002 International Monetary Fund Module II Assessment Report (IMFR) that found Vanuatu?s onshore and offshore sectors to be ? non