Germany has one of the largest financial centers in Europe, and German authorities have taken several steps in recent years to diminish the risks of money laundering and terrorism financing. Germany is not a major drug trafficking country, nor is it an offshore financial center. Most money laundering in Germany is related to white collar crime, but Eastern European and Turkish crime groups and narcotics traffickers launder their illicit proceeds in Germany. About three-fourths of the suspicious activity reports filed in Germany cite suspected fraud, forgery and tax evasion, according to the German financial intelligence unit’s 2004 annual report.

Germany’s legislation has fully incorporated the Financial Action Task Force (FATF) Forty Recommendations on Money Laundering and takes active measures to combat terrorist financing. In 2002, the Government of Germany (GOG) enacted a number of laws to improve authorities’ ability to combat money laundering and terrorist financing. These 2002 measures brought German laws into line with the first and second European Union money laundering directives (Directive 1991/308/EEC on The Prevention of The Use of The Financial System for The Purpose of Money Laundering, as revised by Directive 2001/97/EC). Germany’s Money Laundering Act, amended by the Act on the Improvement of the Suppression of Money Laundering and Combating the Financing of Terrorism of August 8, 2002, criminalizes money laundering related to narcotics trafficking, fraud, forgery, embezzlement, and membership in a terrorist organization. It also increases due diligence and reporting requirements for banks and financial institutions, and requires financial institutions to obtain customer identification for transactions conducted in cash or precious metals exceeding 15,000 euros (approximately $17,800). The legislation also calls for stiffer background checks for owners of financial institutions and tighter rules for credit card companies. Banks must report suspected money laundering to the financial intelligence unit within the Federal Criminal Investigative Service (Bundeskriminalamt or BKA), as well as to the State Attorney (Staatsanwaltschaft), who can order a freeze of the account in question.

The first and second EU money laundering directives, which Germany’s 2002 amendments incorporated, mandate that member states standardize and expand suspicious activity reporting requirements to include information from notaries, accountants, tax consultants, casinos, luxury item retailers, and attorneys. Since 1998, the GOG has licensed and supervised money transmitters, has shut down thousands of unlicensed money remitters, and has issued anti-money laundering guidelines to the industry. A 1998 German law requires individuals to declare when they are entering, departing, or transiting the country with over 15,000 euros (approximately $17,800) in cash. A new EU-wide law expected to take effect in June 2007 will lower this amount to 10,000 (approximately $11,850) euros.

In May 2002, the German banking, securities, and insurance industry regulators were merged into a single financial sector regulator known as the Federal Financial Supervisory Authority (BaFIN). Germany’s anti-money laundering legislation requires the BaFIN to compile a centralized register of all bank accounts in Germany, including 300 million deposit accounts. As a result, in 2003, the BaFIN established a central database, which has electronic access to all key account data held by banks in Germany. Banks cooperate with authorities and use computer-aided systems to analyze their customers and their financial dealings to identify suspicious activity. Many of Germany’s banks have independently developed risk assessment software to screen potential and existing clients and to monitor transactions for suspicious activity. In 2002, Germany established a single, centralized, federal financial intelligence unit (FIU) within the Federal Criminal Police. The FIU functions as an administrative unit and is staffed with financial market supervision, customs, and legal experts. The FIU is responsible for developing a central database for analyzing cases and responding to reports of suspicious transactions. Another unit under the Federal Criminal Investigative Service, the Federal Financial Crimes Investigation Task Force, has 20 Federal Criminal Investigative Service officers and customs agents. Germany plans to add seven or eight more investigators to the task force in 2006.

In 2004, more than 8,000 suspicious activity reports (SARs) were submitted to the FIU. Over one-third of the persons cited in Germany’s SARs were non-German nationals. Eighty-five percent of the reports resulted in further investigative proceedings. As with other crimes, actual enforcement under the German federal system is carried out at the state (sub-federal) level. Each state has a joint customs/police/financial investigations unit (GFG), which works closely with the federal FIU. In 2003, the last year that data is available, the number of money laundering convictions totaled 128. U.S. authorities have conducted joint investigations with GFGs on a number of transnational cases.

BaFIN’s system allows for immediate identification of financial assets for potential freezes. In cases where law enforcement authorities seize assets for evidentiary purposes, German law requires a direct link to the crime before seizures are allowed. Law enforcement authorities can freeze accounts for up to nine months, but the money cannot be seized until it is proven in court that the funds were derived from criminal activity or intended for terrorist activity. UN sanctions are an exception to the rule, and Germany freezes indefinitely the assets of anyone appearing on a UN list. In the first nine months of 2005, only $12,000 had been found and frozen in connection with names appearing on the UNSCR 1267 consolidated list. Proceeds from asset seizures and forfeitures are paid into the government treasury. German authorities cooperate with U.S. authorities to trace and seize assets to the full extent that German law allows. The GOG investigates leads from other countries. However, German law does not allow for sharing forfeited assets with other countries.

In 2002, the GOG added terrorism and terrorist financing as a predicate offense for money laundering, as defined by Section 261 of the Federal Criminal Code. A 2002 amendment of the Criminal Code also allows for prosecution of members of terrorist organizations based outside of Germany. Previously, German authorities could only prosecute a member of a foreign-based terrorist organization if that group had some organized presence within Germany.

The GOG moved quickly after September 11, 2001, to identify and correct weaknesses in Germany’s laws that permitted terrorists to live and study in Germany prior to that date. The first reform package closed loopholes in German law that permitted members of foreign terrorist organizations to raise money in Germany, e.g., through charitable organizations, and extremists to advocate violence in the name of religion. Germany has stepped up its legislative and law enforcement efforts to prevent the misuse of charitable entities. Germany has used its Law on Associations (Vereinsgesetz) to ban by administrative action extremist associations that threaten the constitutional order.

The second reform package, which went into effect January 1, 2002, enhances the capabilities of federal law enforcement agencies, and improves the ability of intelligence and law enforcement authorities to coordinate their efforts and to share information on suspected terrorists. The new law provides Germany’s internal intelligence service with access to information from banks and financial institutions, postal service providers, airlines, and telecommunication and Internet service providers.

Germany is an active participant in UN and EU processes to monitor and freeze the assets of terrorists and possesses the regulatory and legislative framework to identify and freeze rapidly the assets of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list and those designated by the EU, and/or German authorities. A November 2003 amendment to the Banking Act creates a broad legal basis for the BaFIN to order freezing of assets of suspected terrorists who are EU residents. The EU Council continually updates, reviews, and issues revised lists, and Germany adheres to these lists and ensures their circulation to financial institutions. Germany and several other EU member states have taken the view that the EU Council Common Position 2001/931/CSFP requires at a minimum a criminal investigation to establish a sufficient legal basis for freezes under the EU Clearinghouse process. Germany loosened this stance in 2005 when it sought and obtained an EU asset freeze for a German association that the German Federal Interior Ministry had banned.

The GOG has responded quickly to freeze over 30 accounts of entities associated with terrorists. After September 11, 2001, Germany froze many millions of euros of Taliban-era Afghan assets, but these accounts have been unfrozen and made available to the new Government of Afghanistan.

Germany considers informal money transfer schemes, such as "hawala," to be banking activities. Accordingly, German authorities require banking licenses for money transfer services, allowing them to prosecute unlicensed operations and to maintain close surveillance over authorized transfer agents. The BaFIN has investigated more than 2,500 cases of unauthorized financial services since 2003. There are 47 legally licensed money transfer services.

Germany, as a member of the EU, is legally bound to implement a recent EU regulation requiring accurate originator information on funds transfers—but only for transfers into or out of the EU, not within the EU. FATF Special Recommendation Seven on Terrorist Financing, governing wire transfers, however, requires such information on all cross-national-border transfers, including intra-EU transfers.

A new immigration law that went into effect in January 2005 complements counterterrorism laws. It contains provisions designed to facilitate deporting foreigners who support terrorist organizations. Furthermore, a third counterterrorism package is currently under discussion within the government

Germany continues to be an active partner in the fight against money laundering and participates actively in a number of international fora. The FIU exchanges information with its counterparts in other countries. The GOG exchanges information with the United States through bilateral law enforcement agreements and other informal mechanisms. German law enforcement authorities also cooperate closely at the EU level, such as through Europol. Germany also has Mutual Legal Assistance Treaties (MLATs) with numerous countries. Germany and the United States signed a MLAT in October 2003. At the beginning of 2006, the U.S.-German MLAT was before the German Bundestag and the U.S. Senate for ratification. In addition, the U.S.-EU Agreements on Mutual Legal Assistance and Extradition are expected to improve further U.S.-German legal cooperation. Negotiations for the bilateral instrument to implement the treaty are complete; the document is currently awaiting signature.

Germany is a member of the FATF, the EU, the Council of Europe, and in 2003 became a member of the Egmont Group. Germany 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. Germany signed, but has not yet ratified, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. After signing the UN International Convention for the Suppression of the Financing of Terrorism in 2000, Germany ratified the instrument, effective July 17, 2004.

The Government of Germany’s new anti-money laundering laws and its ratification of international instruments underline Germany’s commitment to combat money laundering and to cooperate with the international community. Germany should continue to enhance its anti-money laundering regime and continue its active participation in international fora. It should ratify the UN Convention against Transnational Organized Crime.

Gibraltar

Gibraltar is a largely self-governing overseas territory of the United Kingdom (UK), which assumes responsibility for Gibraltar’s defense and international affairs. As part of the European Union (EU), Gibraltar is required to implement all relevant EU directives, including those relating to anti-money laundering.

The Drug Offenses Ordinance (DOO) of 1995 and Criminal Justice Ordinance of 1995 criminalize money laundering related to all crimes, and mandate reporting of suspicious transactions by any person who becomes concerned about the possibility of money laundering. The DOO covers such entities as banks, mutual savings companies, insurance companies, financial consultants, postal services, exchange bureaus, attorneys, accountants, financial regulatory agencies, unions, casinos, charities, lotteries, car dealerships, yacht brokers, company formation agents, dealers in gold bullion, and political parties.

Gibraltar was one of the first jurisdictions to introduce and implement money laundering legislation that covered all crimes. The Gibraltar Criminal Justice Ordinance to Combat Money Laundering, which related to all crimes, entered into effect in 1996. Comprehensive anti-money laundering Guidance Notes (which have the force of law) were also issued to clarify the obligations of Gibraltar’s financial service providers.

The Financial Services Commission (FSC) is responsible for regulating and supervising Gibraltar’s financial services industry. It is required by statute to match UK supervisory standards. Both onshore and offshore banks are subject to the same legal and supervisory requirements. All relevant financial records are required to be retained for at least five years from the date of completion of the business. If the obligated institution has submitted a Suspicious Activity Report to the Gibraltar financial intelligence unit (FIU) or when it knows that a client or transaction is under investigation, it is required to maintain any relevant record even if the five year limit has been reached. If the law enforcement agency investigating a money laundering case cannot link the funds passing through the financial system with the original criminal money, then the funds cannot be confiscated.

The FSC also licenses and regulates the activities of trust and company management services, insurance companies, and collective investment schemes. Internet gaming is permitted by the Government of Gibraltar (GOG), and is subject to a licensing regime. Gibraltar has guidelines for correspondent banking, politically exposed persons, bearer securities, and "know your customer" procedures, and, has implemented the FATF Special Recommendations on Terrorist Financing.

The 2001 Terrorism (United Nations Measures) (Overseas Territories) Order makes the financing of terrorism a criminal offence. The Order requires a bank to report to the Governor, where it knows or suspects that a person is or has been a customer of that institution or with whom the institution has had dealings with is a terrorist, or a person who receives funds in relation to terrorism or makes funds available for terrorism.

In 1996, Gibraltar established the Gibraltar Coordinating Center for Criminal Intelligence and Drugs (GCID) to receive, analyze, and disseminate information on financial disclosures filed by institutions covered by the provisions of Gibraltar’s anti-money laundering legislation. The GCID serves as Gibraltar’s FIU and is a sub-unit of the Gibraltar Criminal Intelligence Department. The GCID consists mainly of police and customs officers but is independent of law enforcement.

In 2003, the GOG adopted and implemented the European Union Money Laundering Directive 91/308/EEC on the Prevention of the Use of the Financial System for the Purpose of Money Laundering. The GOG has implemented the 1988 UN Drug Convention pursuant to its Schengen obligations. However, the Convention has not yet been extended to Gibraltar by the United Kingdom. The Mutual Legal Assistance Treaty between the United States and the United Kingdom also has not been extended to Gibraltar. However, application of a 1988 U.S.-UK agreement concerning the investigation of drug-trafficking offenses and the seizure and forfeiture of proceeds and instrumentalities of drug-trafficking was extended to Gibraltar in 1992. Also, the DOO of 1995 provides for mutual legal assistance with foreign jurisdictions on matters related to narcotics trafficking and related proceeds. Gibraltar has passed legislation as part of the EU decision on its participation in certain parts of the Schengen arrangements, to update mutual legal assistance arrangements with the EU and Council of Europe partners. Gibraltar is a member of the Offshore Group of Banking Supervisors (OGBS); and, in 2004, the GCID became a member of the Egmont Group.

The Government of Gibraltar should continue its efforts to implement a comprehensive anti-money laundering regime capable of thwarting terrorist financing. Gibraltar should put in place reporting requirements for cross-border currency movements.

Greece

While not a major financial center, Greece is vulnerable to money laundering related to narcotics trafficking, prostitution, contraband cigarette smuggling, and illicit gambling activities conducted by criminal organizations originating in former constituent republics of the Soviet Union, as well as in Albania, Bulgaria, Romania, and other Balkan countries. Money laundering in Greece is controlled by organized local criminal elements associated with narcotics trafficking, and narcotics are a primary source of laundered funds. Most of the funds are not laundered through the banking system. Rather, they are most commonly invested in real estate, hotels, and consumer goods such as automobiles. Implementation of regulatory requirements documenting the flow of large sums of cash through financial and other institutions—such as Greece’s five private and two state-owned casinos—is weak. The cross-border movement of illicit currency and monetary instruments is a continuing problem.

Greece is not considered an offshore financial center, and there are no offshore financial institutions or international business companies (IBCs) operating within Greece. However, Greek law allows banking authorities to check transactions of companies established within Greece with offshore operations elsewhere. Senior Government of Greece (GOG) officials are not known to engage in or facilitate money laundering. Reportedly, currency transactions involving international narcotics trafficking proceeds are not believed to include significant amounts of U.S. currency.

Greece has three free trade zones, located at the ports of Piraeus, Thessalonica, and Heraklion, where foreign goods may be brought in without payment of customs duties or other taxes if they are subsequently transshipped or re-exported. There is no indication that these zones are being used in trade-based money laundering or in the financing of terrorism.

The GOG criminalizes money laundering derived from all crimes in the 1995 Law 2331/1995. That law, "Prevention of and Combating the Legalization of Income Derived from Criminal Activities," imposes a penalty for money laundering of up to ten years in prison and confiscation of the criminally derived assets. The law also requires that banks and non-bank financial institutions file suspicious transaction reports (STRs). Legislation passed in March 2001 targets organized crime by making money laundering a criminal offense when the property holdings being laundered are obtained through criminal activity or cooperation in criminal activity. Money laundering became an offense in Greece under Presidential Decree 2181/93.

In 2003 Greece enacted legislation (Law 3148) that incorporates European Union (EU) provisions in directives dealing with the operation of credit institutions and the operation and supervision of electronic money transfers. Under this legislation, the Bank of Greece has direct scrutiny and control over transactions by credit institutions and entities involved in providing services for fund transfers. The Bank of Greece issues operating licenses after a thorough check of the institutions, their management, and their capacity to ensure the transparency of transactions.

Law 3259/August 2004 allows individuals and legal entities that pay taxes in Greece to repatriate capital from any bank account held outside Greece by paying a three percent tax on the transferred funds within six months (later extended to nine months). The Bank of Greece, the nation’s Central Bank, has issued a circular to financial institutions that receive repatriated funds, instructing them on how to scrutinize the transfers for possible money laundering. The Ministry of Economy and Finance has issued detailed instructions on the documentation and auditing procedures required for repatriating capital. According to the Bank of Greece, about 500 million euros have actually been transferred back to Greece under this law, considerably less than anticipated.

In November 2005, the GOG enacted new legislation that revised Law 2331/1995 to bring it in line with European Union (EU) Directive 2001/97/EC (EU Second Money Laundering Directive). The new law, 3424/2005, extends the predicate offenses for money laundering to include terrorist financing, trafficking in persons, electronic fraud, and stock market manipulation. It also extends the suspicious transaction reporting (STR) requirement to include more professionals such as auction dealers and accountants. In addition, it broadens the powers of the supervisory authorities and clarifies previous legislation by ending a conflict between confidentiality rules and anti-money laundering regulations imposed on banks and other financial institutions. The law also provides supervisory authorities with greater authority to block transactions where money laundering is suspected.

The Bank of Greece (through its Banking Supervision Department), the Ministry of National Economy and Finance (which supervises the Capital Market Commission), and the Ministry of Development (through its Directorate of Insurance Companies) supervise and closely monitor credit and financial institutions. Supervision includes the issuance of guidelines and circulars, as well as on-site examinations aimed at checking compliance with anti-money laundering legislation. Supervised institutions must send to their competent authority a description of the internal control and communications procedures they have implemented to prevent money laundering. In addition, banks must undergo internal audits. Bureaux de change are required to send to the Bank of Greece a monthly report on their daily purchases and sales of foreign currency.

Under Decree 2181/93, banks in Greece must demand customer identification information when opening an account or conducting transactions that exceed 15,000 euros. If there is suspicion of illegal activities, banks can take reasonable measures to gather more information on the identification of the person. Greek citizens must provide a tax registration number if they conduct foreign currency exchanges of 1,000 euros or more, and must provide full identification, including the name of the recipient, in exchanges involving 12,500 euros (approximately $18,050) or more. Banks and financial institutions are required to maintain adequate records and supporting documents for at least five years after ending a relationship with a customer, or, in the case of occasional transactions, for five years after the date of the transaction.

Every bank and credit institution is required by law to appoint an officer to who all other bank officers and employees must report any transaction they consider suspicious. Reporting obligations also apply to government employees involved in auditing, including employees of the Bank of Greece, the Ministry of Economy and Finance, and the Capital Markets Commission. Reporting individuals are required to furnish all relevant information to the prosecuting authorities. Reporting individuals are protected by law.

Greece has adopted banker negligence laws under which individual bankers may be held liable if their institutions launder money. Banks and credit institutions are subject to heavy fines if they breach their obligations to report instances of money laundering; bank officers are subject to fines and a prison term of up to two years. In November 2005, the Bank of Greece announced that so far in 2005, it had imposed fines totaling 8.8 million euros against 13 credit institutions and seven bureaux de change and had revoked the license of one bureau de change for violations of anti-money laundering laws. The Bank had imposed similar fines and administrative sanctions, including prohibiting the opening of new branches, in previous years as well. There have been no objections from banking and political groups to the GOG’s policies and laws on money laundering.

All persons entering or leaving Greece must declare to the authorities any amount they are carrying over 2,000 euros (approximately $2,400). Reportedly, however, cross-border currency reporting requirements are not uniformly enforced at all border checkpoints.

Law 2331/1995 establishes the Competent Committee (CC) to receive and analyze STRs and to function as Greece’s financial intelligence unit (FIU). The CC is chaired by a senior judge and includes representatives from the Bank of Greece, the nation’s Central Bank; various government ministries; and the stock exchange. If the CC believes that an STR warrants further investigation, it forwards the STR to the Financial Crimes Enforcement Unit, a multi-agency group that functions as the CC’s investigative arm. In 2004, the Financial Crimes Enforcement Unit was renamed the Special Control Directorate (YPEE) and placed under the direct supervision of the Ministry of Economy and Finance. The CC is also responsible for preparing money laundering cases on behalf of the Public Prosecutor’s Office.

Law 3424 passed in November 2005 upgrades the CC to an independent authority with access to public and private files, with no tax confidentiality restrictions. The law also broadens the CC’s authority in the evaluation of information it receives from various organizations within Greece as well as from international organizations. The Committee is now authorized to block suspects’ funds and to impose penalties on those who fail to report suspicious transactions. It must also provide feedback to banks by informing them of actions taken with regard to STRS, in order to enhance continuity. There have been several arrests for money laundering since January 2002. These involved the Greek owners (and their spouses) of vessels transporting cocaine from Colombia and other Western Hemisphere countries. The guilty parties received five-year sentences.

With regard to the freezing of accounts and assets, Law 3424/2005 harmonizes Greece’s laws with relevant EU legislation. It incorporates elements of the EU Framework Decision on the freezing of funds and other financial assets, as well as the EU Council Regulation on the financing of terrorism. The GOG says it will promulgate implementing regulations to Law 3424/2005 in the first quarter of 2006. YPEE has established a mechanism for identifying, tracing, freezing, seizing, and forfeiting assets of narcotics-related and other serious crimes, the proceeds of which are turned over to the GOG. According to the 1995 law, all property and assets used in connection with criminal activities are seized and confiscated by the GOG following a guilty verdict. Legitimate businesses can be seized if used to launder drug money. The GOG has not enacted laws for sharing seized narcotics-related assets with other governments.

In March 2001, the Ministry of Justice unveiled legislation on combating terrorism, organized crime, money laundering, and corruption. Parliament passed the legislation in July 2002. Under a new counterterrorism law (Law 3251/July 2004), anyone who provides financial support to a terrorist organization faces imprisonment of up to ten years. If a private legal entity is implicated in terrorist financing, it faces fines of between 20,000 and 3 million euros (approximately $24,070 and $3,610,000), closure for a period of two months to two years, and ineligibility for state subsidies. The law incorporates the first eight of the Financial Action Task Force (FATF) Special Recommendations on Terrorist Financing, and Law 3424/2005 completes the process by revising the old law. According to the GOG, it plans to adopt FATF’s Special Recommendation Nine on cash couriers at a later date, following the issuance of a relevant EU directive.

The Bank of Greece and the Ministry of National Economy and Finance have the authority to identify, freeze, and seize terrorist assets. The Bank of Greece has circulated to all financial institutions the list 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 al-Qaida organization, or the Taliban, or that the EU has designated under relevant authorities. Suspect accounts (of small amounts) have been identified and frozen.

There are no known plans on the part of the GOG to introduce legislative initiatives aimed at regulating alternative remittance systems. Illegal immigrants or individuals without valid residence permits are known to send remittances to Albania and other destinations in the form of gold and precious metals, which are often smuggled across the border in trucks and buses. The financial and economic crimes police as well as tax authorities closely monitor charitable and nongovernmental organizations; there is no evidence that such organizations are being used as conduits for the financing of terrorism.

Greece is a member of the FATF, the EU, and the Council of Europe. The CC is a member of the Egmont Group. The GOG is a party to the 1988 UN Drug Convention and in December 2000 became a signatory to the UN Convention against Transnational Organized Crime. On April 16, 2004, Greece became a party to the UN International Convention for the Suppression of the Financing of Terrorism. Greece has signed bilateral police cooperation agreements with Egypt, Albania, Armenia, France, the United States, Iran, Israel, Italy, China, Croatia, Cyprus, Lithuania, Hungary, Macedonia, Poland, Romania, Russia, Tunisia, Turkey, and Ukraine. It also has a trilateral police cooperation agreement with Bulgaria and Romania, and a bilateral agreement with Ukraine to combat terrorism, drug trafficking, organized crime, and other criminal activities.

Greece exchanges information on money laundering through its Mutual Legal Assistance Treaty (MLAT) with the United States, which entered into force November 20, 2001. The Bilateral Police Cooperation Protocol provides a mechanism for exchanging records with U.S. authorities in connection with investigations and proceedings related to narcotics trafficking, terrorism, and terrorist financing. Cooperation between the U.S. Drug Enforcement Administration and YPEE has been extensive, and the GOG has never refused to cooperate. The CC can exchange information with other FIUs, although it prefers to work with a memorandum of understanding in such exchanges.

The Government of Greece has made significant progress in expanding and adjusting its legislation to international standards by gradually incorporating all EU directives on money laundering and terrorist financing. However, in 2006 Greece must begin aggressive implementation of the legislative tools it now has at its disposal. Additionally, Greece should ensure uniform enforcement of its cross-border currency reporting requirements and take steps to deter the smuggling of precious gems and metals across its borders.

Grenada

Like many other Caribbean jurisdictions, the Government of Grenada (GOG) raises revenue from the offshore sector by imposing licensing and annual fees upon offshore entities. After being placed on the Financial Action Task Force’s (FATF) list of non-cooperative countries and territories (NCCT) in the fight against money laundering in September 2001, the GOG implemented and strengthened its legislation and regulations necessary for adequate supervision of Grenada’s offshore sector, which prompted the FATF to remove Grenada’s name from the NCCT list in February 2003. As of November 2005, Grenada has one inactive offshore bank, one trust company, one management company, and one international insurance company. Grenada is reported to have over 20 Internet gaming sites. There are also 810 international business companies (IBCs). The domestic financial sector includes six commercial banks, 26 registered domestic insurance companies, two credit unions, and four or five money remitters. The GOG has repealed its economic citizenship legislation.

Grenada’s Money Laundering Prevention Act (MLPA) of 1999 criminalizes money laundering related to offenses under the Drug Abuse (Prevention and Control) Act, whether occurring within or outside of Grenada, or other offenses occurring within or outside of Grenada, punishable by death or at least five years’ imprisonment in Grenada. The MLPA also establishes a Supervisory Authority to receive, review, and forward to local authorities suspicious activity reports (SARs) from covered institutions, and imposes customer identification requirements on banking and other financial institutions. Financial institutions must report SARs to the Supervisory Authority within 14 days of the date that the transaction was determined to be suspicious. A financial institution or an employee who willfully fails to file a SAR or makes a false report is liable to criminal penalties that include imprisonment or fines up to ECD $250,000 ($93,000), and possibly revocation of the financial institution’s license to operate. The Proceeds of Crime (Amendment) Act of 2003 extends anti-money laundering responsibilities to a number of non-bank financial institutions.

The Supervisory Authority issues anti-money laundering guidelines, pursuant to Section 12(g) of the MLPA, that direct financial institutions to maintain records, train staff, identify suspicious activities, and designate reporting officers. The guidelines also provide examples to help bankers recognize and report suspicious transactions. The Supervisory Authority is authorized to conduct anti-money laundering inspections and investigations. The Supervisory Authority can also conduct investigations and inquiries on behalf of foreign counterpart authorities and provide them with the results. Financial institutions could be fined for not granting access to Supervisory Authority personnel.

The Grenada International Financial Services Authority (GIFSA) monitors and regulates offshore banking. GIFSA makes written recommendations to the Minister of Finance in regard to the revocation of offshore entities’ licenses and issues certificates of incorporation to IBCs. The GIFSA was brought under stricter management with an amendment to the GIFSA Act (No. 13 of 2001) that eliminated the regulator’s role in marketing the offshore sector. In the future, GIFSA is expected to assume authority for regulating both onshore and offshore institutions, in some areas sharing supervision with the Eastern Caribbean Central Bank (ECCB). It is expected that GIFSA will be renamed the Grenada Authority for the Regulation of Financial Institutions. Legislation implementing the Grenada Authority for the Regulation of Financial Institutions as the new regulatory body was defeated in the Senate; however, the legislation will be reintroduced in 2006.

The International Companies Act regulates IBCs and requires registered agents to maintain records of the names and addresses of directors and beneficial owners of all shares, as well as the date the person’s name was entered or deleted on the share register. Currently, there are 15 registered agents licensed by the GIFSA. There is an ECD $30,000 ($11,500) penalty, and possible revocation of the registered agent’s license, for failure to maintain records. The International Companies Act also gives GIFSA the authority to conduct on-site inspections to ensure that records are being maintained on IBCs and bearer shares. GIFSA began conducting inspections in August 2002.

The International Financial Services (Miscellaneous Amendments) Act 2002 requires all offshore financial institutions to recall and cancel any issued bearer shares and to replace them with registered shares. The holders of bearer shares in non-financial institutions must lodge their bearer share certificates with a licensed registered agent. These agents are required by law to verify the identity of the beneficial owners of all shares and to maintain this information for seven years. GIFSA was given the authority to access the records and information maintained by the registered agents, and can share this information with regulatory, supervisory, and administrative agencies.

The Minister of Finance has signed a memorandum of understanding (MOU) with the ECCB that grants the ECCB oversight of the offshore banking sector in Grenada. Legislation that would incorporate the ECCB’s new role into existing offshore banking legislation was adopted in 2003, but is not in effect. The ECCB will have the authority to share bank and customer information with foreign authorities. The ECCB already provides similar regulation and supervision to Grenada’s domestic banking sector.

Grenada’s legal framework effectively enables GIFSA to obtain customer account records from an offshore financial institution upon request, and to share the customer account information that regulated financial institutions must maintain under due diligence requirements with other regulatory, supervisory, and administrative bodies. GIFSA also has the ability to access auditors’ working papers, and can share this information as well as examination reports with relevant authorities.

In June 2001, the GOG established a Financial Intelligence Unit (FIU) headed by a prosecutor from the Attorney General’s office; the staff includes an assistant superintendent of police, four additional police officers, and two support personnel. In 2003, Grenada enacted an FIU Act (No. 1 of 2003). The FIU, which operates within the police force but is assigned to the Supervisory Authority, is charged with receiving SARs from the Supervisory Authority and with investigating alleged money laundering offenses. By November 2005, the FIU had received 39 SARs, which resulted in the investigations of 29 SARs. Two arrests were made on drug-related money laundering charges, and the two cases are currently pending before the court. Approximately ECD $9,000 ($3,300) was seized in 2005. The FIU can provide information concerning SARs to any foreign FIU. Grenada has cooperated extensively with U.S. law enforcement in numerous money laundering and other financial crimes investigations. As a result, several subjects in the United States were successfully prosecuted.

In 2003, Grenada enacted counterterrorist financing (CFT) legislation, which provides authority to identify, freeze, and seize terrorist assets. The CFT legislation allows for the exchange of information with another country regardless of the existence of a mutual legal assistance treaty. The GOG circulates lists of terrorists and terrorist entities to all financial institutions in Grenada. There has been no known identified evidence of terrorist financing in Grenada. Money laundering in Grenada is primarily tied to narcotics proceeds. To date the GOG has not identified any indigenous alternative remittance systems, but suspect there are some in operation. Grenada has not taken any specific initiatives focused on alternative remittance systems or the misuse of charitable and nonprofit entities.

During 2003, the GOG passed the Exchange of Information Act No. 2 of 2003, which will strengthen the GOG’s ability to share information with foreign regulators. A Mutual Legal Assistance Treaty and an Extradition Treaty have been in force between Grenada and the United States since 1999. Grenada also has a Tax Information Exchange Agreement with the United States. Grenada’s cooperation under the Mutual Legal Assistance Treaty has recently been excellent. Grenada also has demonstrated consistently good cooperation with the U.S. Government by responding rapidly to requests for information involving money laundering cases. Grenada is an active member of the Caribbean Financial Action Task Force (CFATF), and underwent a second CFATF mutual evaluation in September 2003. Grenada became a member of the Egmont Group in June 2004. Grenada is a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Grenada is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime.

Although the Government of Grenada has strengthened the regulation and oversight of its financial sector, it must remain alert to potential abuses and must steadfastly implement the laws and regulations it has adopted. Grenada should also continue to enhance its information sharing, particularly with other Caribbean jurisdictions. The GOG should also move forward in adopting civil forfeiture legislation.

Guatemala

Guatemala is a major transit country for illegal narcotics from Colombia and precursor chemicals from Europe. Those factors, combined with historically weak law enforcement and judicial regimes, corruption, and increasing organized crime activity, lead authorities to suspect that significant money laundering occurs in Guatemala. According to law enforcement sources, narcotics trafficking is the primary source of money laundered in Guatemala; however, the laundering of proceeds from other illicit sources, such as human trafficking, contraband, kidnapping, tax evasion, vehicle theft, and corruption, is substantial. Officials of the Government of Guatemala (GOG) believe that couriers, offshore accounts, and wire transfers are used to launder funds, which are subsequently invested in real estate, capital goods, large commercial projects, and shell companies, or are otherwise transferred through the financial system.

Guatemala is not considered a regional financial center, but it is an offshore center. Exchange controls have largely disappeared and dollar accounts are common, but some larger banks conduct significant business through their offshore subsidiaries. The Guatemalan financial services industry is comprised of 26 commercial banks (three more in the process of liquidation); approximately 11 offshore banks (all affiliated, as required by law, with a domestic financial group); 6 licensed money exchangers (hundreds exist informally); 27 money remitters, including wire remitters and remittance-targeting courier services; 18 insurance companies; 17 financial societies (bank institutions that act as financial intermediaries specializing in investment operations); 15 bonded warehouses; 213 cooperatives, credit unions, and savings and loan institutions; 11 credit card issuers; seven leasing entities; 12 finanzas (financial guarantors); and 1 check-clearing entity run by the Central Bank.

The Superintendence of Banks (SIB), which operates under the general direction of the Monetary Board, has oversight and inspection authority over the Bank of Guatemala, as well as over banks, credit institutions, financial enterprises, securities entities, insurance companies, currency exchange houses, and other institutions as may be designated by the Bank of Guatemala Act. Guatemala’s relatively small free trade zones target regional maquila (assembly line industries) and logistic center operations, and are not considered by GOG officials to be a money laundering concern; although proceeds from tax-related contraband are probably laundered through them.

The offshore financial sector initially offered a way to circumvent currency controls and other costly financial regulations. However, financial sector liberalization has largely removed many incentives for legitimate businesses to conduct offshore operations. All offshore institutions are subject to the same requirements as onshore institutions. In June 2002, Guatemala enacted the Banks and Financial Groups Law (No. 19-2002), which places offshore banks under the oversight of the SIB. The law requires offshore banks to be authorized by the Monetary Board and to maintain an affiliation with a domestic institution. It also prohibits an offshore bank that is authorized in Guatemala from doing business in another jurisdiction; however, banks authorized by other jurisdictions may do business in Guatemala under certain limited conditions.

Guatemala completed the process of reviewing and licensing its offshore banks in 2004, which included performing background checks of directors and shareholders. In order to authorize an offshore bank, the financial group to which it belongs must first be authorized, under a 2003 resolution of the Monetary Board. Eleven offshore banks have been authorized. By law, no offshore financial services businesses other than banks are allowed, but there is evidence that they exist in spite of that prohibition. In 2004, the SIB and Guatemala’s financial intelligence unit, the Intendencia de Verificación Especial, concluded a process of reviewing and licensing all offshore entities, a process which resulted in the closure of two operations. No offshore trusts have been authorized, and offshore casinos and Internet gaming sites are not regulated.

There is continuing concern over the volume of money passing informally through Guatemala. Much of the more than $2.8 billion in remittance flows pass through informal channels, although sector reforms are leading to the increasing use of banks and other formal means of transmission. Implementing regulations for the recently passed terrorism finance legislation include measures to increase reporting requirements on remittance transmitters. Money seized at the airports, approximately $275,000 in 2005, suggest that proceeds from illicit activity are regularly hand carried over Guatemalan borders. Increasing financial sector competition should continue to expand services and bring more people into the formal banking sector, isolating those who abuse informal channels.

In June 2001, the Financial Action Task Force (FATF) placed Guatemala on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. Since that time, authorities have implemented the necessary reforms to bring Guatemala into compliance with international standards, including the creation of a financial intelligence unit (FIU) and the passage of comprehensive anti-money laundering legislation. An inspection in May 2004 by a FATF review team found that the GOG had made excellent progress, and Guatemala was removed from the NCCT list at the FATF plenary in June 2004.

In November 2001, Guatemala enacted Decree 67-2001, the "Law Against Money and Asset Laundering," to address several of the deficiencies identified by the FATF. Article 2 of the law expands the range of predicate offenses for money laundering from drug offenses to any serious crime. Individuals convicted of money or asset laundering are subject to a non-commutable prison term ranging from six to 20 years, and fines equal to the value of the assets, instruments, or products resulting from the crime. Convicted foreigners will be expelled from Guatemala. Conspiracy and attempt to commit money laundering are also penalized.

Over time, the GOG has taken important steps to reform its anti-money laundering program. On April 25, 2001, the Guatemalan Monetary Board issued Resolution JM-191, approving the "Regulation to Prevent and Detect the Laundering of Assets" (RPDLA) submitted by the Superintendence of Banks. The RPDLA, effective May 1, 2001, requires all financial institutions under the oversight and inspection of the SIB to establish anti-money laundering measures, and introduces requirements for transaction reporting and record keeping. Covered institutions must establish money laundering detection units, designate compliance officers, and train personnel to detect suspicious transactions. The Guatemalan financial sector has largely complied with these requirements and has a generally cooperative relationship with the SIB.

Decree 67-2001 adds record keeping and transaction reporting requirements to those already in place as a result of the RPDLA. These new requirements apply to all entities under the oversight of the SIB, as well as several other entities, including credit card issuers and operators, check cashers, sellers or purchasers of travelers’ checks or postal money orders, and currency exchangers. The law establishes that owners, managers, and other employees are expressly immune from criminal, civil, or administrative liability when they provide information in compliance with the law. However, it holds institutions and businesses responsible, regardless of the responsibility of owners, directors, or other employees, and they may face cancellation of their banking licenses and/or criminal charges for laundering money or allowing laundering to occur. The requirements also apply to offshore entities that are described by the law as "foreign-domiciled entities" that operate in Guatemala but are registered under the laws of another jurisdiction.

Covered institutions are prohibited from maintaining anonymous accounts or accounts that appear under fictitious or inexact names. However, non-banks may issue bearer shares, and there is limited banking secrecy. Covered entities are required to keep a registry of their customers as well as of the transactions undertaken by them, such as the opening of new accounts, the leasing of safety deposit boxes, or the execution of cash transactions exceeding approximately U.S. $10,000. Under the law, covered entities must maintain records of these registries and transactions for five years.

Decree 67-2001 also obligates individuals and legal entities to report to the competent authorities cross-border movements of currency in excess of approximately $10,000. At Guatemala City airport, a new special unit was formed in 2003 to enforce the use of customs declarations upon entry to and exit from Guatemala. Compliance is not regularly monitored at land borders.

Decree 67-2001 establishes an FIU, the Intendencia de Verificación Especial (IVE), within the Superintendence of Banks, to supervise covered financial institutions and ensure their compliance with the law. The IVE began operations in 2002 and has a staff of 26. The IVE has the authority to obtain all information related to financial, commercial, or business transactions that may be connected to money laundering. Covered entities are required to report to the IVE any suspicious transactions within 25 days of detection and to submit a comprehensive report every trimester, even if no suspicious transactions have been detected. Entities also must maintain a registry of all cash transactions exceeding approximately $10,000 or more per day, and report these transactions to the IVE.

The IVE conducts inspections on the covered entities’ management, compliance officers, anti-money laundering training programs, "know-your-client" policies, and auditing programs. The IVE may impose sanctions on financial institutions for noncompliance with reporting requirements, and has imposed over $100,000 in civil penalties to date. Terrorist finance legislation passed in August 2005 requires remitters to maintain the sender’s name and address information (principally U.S.-based) on transfers equal to or over an amount to be determined by implementing regulations.

Since its inception, the IVE has received approximately 1,600 suspicious transaction reports (STRs) from the 400 covered entities in Guatemala. All STRs are received electronically, and the IVE has developed a system of prioritizing them for analysis. After determining that an STR is highly suspicious, the IVE gathers further information from public records and databases, other covered entities and foreign FIUs, and assembles a case. Bank secrecy can be lifted for the investigation of money laundering crimes. Once the IVE has determined a case warrants further investigation, the case must receive the approval of the SIB before being sent to the Anti-Money or Other Assets Laundering Unit (AML Unit) within the Public Ministry. Under current regulations, the IVE cannot directly share the information it provides to the AML Unit with any other special prosecutors (principally the anticorruption or counternarcotics units) in the Public Ministry. The IVE also assists the Public Ministry by providing information upon request for other cases the prosecutors are investigating.

Sixteen cases have been referred by the IVE to the AML Unit, four of which stem from public corruption. In several cases, assets have been frozen. Nine money laundering prosecutions have been concluded, all of which resulted in a conviction. A sentence has been rendered in one case, with the remaining eight cases awaiting the completion of appeals. Additional cases have been developed with the cooperation of the Public Ministry and the IVE. The Public Ministry’s AML Unit had initiated 197 cases as of December 2005. In addition, 93 cases were dismissed and 66 cases are either under continuing investigation or in initial stages of the trials, and the remaining cases were transferred to other offices for investigation and prosecution (such as the anticorruption unit) due to the nature of their particular predicate offenses. Several high profile cases of laundering proceeds from major corruption scandals involving officials of the previous government are currently under investigation and have resulted in arrests and substantial seizures of funds and assets. These seizures have been supported by the cooperating financial institutions along with the vast majority of public and political interests.

Under current legislation, any assets linked to money laundering can be seized. Within the GOG, the IVE, the National Civil Police, and the Public Ministry have the authority to trace assets; the Public Ministry can seize assets temporarily or in urgent cases; and the Courts of Justice have the authority to permanently seize assets. The GOG passed reforms in 1998 to allow the police to use narcotics traffickers’ seized assets. These provisions also allow for 50 percent of the money to be used by the IVE and others involved in combating money laundering. In 2003, the Guatemalan Congress approved reforms to enable seized money to be shared among several GOG agencies. Nevertheless, the Constitutional Court ruled that forfeited currency remains under the jurisdiction of the Supreme Court of Justice.

An additional problem is that the courts do not allow seized currency to benefit enforcement agencies while cases remain open. For money laundering and narcotics cases, any seized money is deposited in a bank safe and all material evidence is sent to the warehouse of the Public Ministry. There is no central tracking system for seized assets, and it is currently impossible for the GOG to provide an accurate listing of the seized assets in custody. In 2005, Guatemalan authorities seized more than U.S. $6.5 million in bulk currency, significantly less that the $20 million seized in 2003 (although one case alone in 2003 accounted for more than $14 million). The lack of access to the resources of seized assets outside of the judiciary has made sustaining seizure levels difficult for the resource-strapped enforcement agencies.

In June 2005, the Guatemalan Congress passed antiterrorist finance legislation. Implementing regulations were submitted to the Monetary Board in December 2005. According to the GOG, Article 391 of the penal code already sanctioned all preparatory acts leading up to a crime and financing would likely be considered a preparatory act. Technically, both judges and prosecutors could have issued a freeze order on terrorist assets, but no test case ever validated these procedures. The new Terrorism Finance legislation removed potential uncertainty regarding the legality of freezing assets when no predicate offense had been legally established but the assets have been determined destined to terrorists or to support terrorist acts. The GOG has been cooperative in looking for terrorist financing funds. The new legislation is intended to bring Guatemala into compliance with the Nine FATF Special Recommendations on Terrorist Financing and the UNSCR 1373.

The SIB, through the IVE, has signed Memoranda of Understanding (MOUs) with Argentina, the Bahamas, Barbados, Bolivia, Brazil, Colombia, Costa Rica, the Dominican Republic, El Salvador, Honduras, Mexico, Montserrat, Panama, Peru, Spain and Venezuela. During 2004, the SIB signed MOUs with Belgium, France, South Korea and the United States. Guatemala signed MOUs with Albania, Saint Vincent and the Grenadines, Haiti, Bermuda, Italy, Chile, the Lesser Antilles, Lebanon, Ukraine, Romania, and Bulgaria. Guatemalan law enforcement is actively cooperating with U.S. Government law enforcement agencies on cases of mutual interest.

Guatemala is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime. The GOG has signed, but not yet ratified, the UN Convention against Corruption. Guatemala is a party to the Central American Convention for the Prevention of Money Laundering and Related Crimes, and is a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD) and the Caribbean Financial Action Task Force (CFATF). In 2003, the IVE became a member of the Egmont Group.

Corruption and organized crime remain strong forces in Guatemala and may prove to be the biggest hurdles facing the GOG in the long term. Guatemala has made efforts to comply with international standards and improve its anti-money laundering regime. In 2004, Guatemalan authorities completed implementation of new procedures to license and monitor offshore banks, and demonstrated that they could use anti-money laundering laws to successfully target criminals. In 2005 there was a deepening of this implementation and improvement of monitoring procedures, including expanded antiterrorism finance tools. However, Guatemala should take steps to immobilize bearer shares, and to identify and regulate offshore financial services and gaming establishments.

Guatemala should continue efforts to improve enforcement and implementation of needed reforms. Cooperation between the IVE and the Public Ministry has improved since the new administration took office in January 2004, and several investigations have led to prosecutions. However, Guatemala should continue to focus its efforts on boosting its ability to successfully investigate and prosecute money launderers and on distributing seized assets to law enforcement agencies to assist in the fight against money laundering and other financial crime.

Guernsey

The Bailiwick of Guernsey (the Bailiwick) covers a number of the Channel Islands (Guernsey, Alderney, Sark, and Herm in order of size and population). The Islands are a Crown Dependency because the United Kingdom (UK) is responsible for their defense and international relations. However, the Bailiwick is not part of the UK. Alderney and Sark have their own separate parliaments and civil law systems. Guernsey’s parliament legislates criminal law for all of the islands in the Bailiwick. The Bailiwick alone has competence to legislate in and for domestic taxation. The Bailiwick is a sophisticated financial center and, as such, it continues to be vulnerable to money laundering at the layering and integration stages.

There are approximately 16,000 companies registered in the Bailiwick. Non-residents own approximately half of the companies, and they have an exempt tax status. These companies do not fall within the standard definition of an international business company (IBC). Local residents own the remainder of the companies, including trading and private investment companies. Exempt companies are not prohibited from conducting business in the Bailiwick, but must pay taxes on profits of any business conducted on the islands. Companies can be incorporated in Guernsey and Alderney, but not in Sark, which has no company legislation. Companies in Guernsey may not be formed or acquired without disclosure of beneficial ownership to the Guernsey Financial Services Commission (the Commission).

Guernsey has 54 banks, all of which have offices, records, and a substantial presence in the Bailiwick. The banks are licensed to conduct business with residents and non-residents alike. Although total deposits into the financial institutions of the Bailiwick have remained constant, deposits from Switzerland have increased from one percent in 2003 to four percent in 2004; the increase appears to continue in 2005. There are approximately 650 international insurance companies and approximately 700 collective investment funds. There are also approximately 20 bureaux de change, which file accounts with the tax authorities. Many are part of a licensed bank, and it is the bank that publishes and files accounts.

Guernsey has put in place a comprehensive legal framework to counter money laundering and the financing of terrorism. The Proceeds of Crime (Bailiwick of Guernsey) Law 1999, as amended, is supplemented by the Criminal Justice Proceeds of Crime (Bailiwick of Guernsey) Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Regulations, 2002. The legislation criminalizes money laundering for all crimes except drug-trafficking, which is covered by the Drug Trafficking (Bailiwick of Guernsey) Law, 2000. The Proceeds of Crime Law and the Regulations are supplemented by Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism, issued by the Commission. There is no exemption for fiscal offenses. The 1999 law creates a system of suspicious transaction reporting (including tax evasion) to the Guernsey Financial Intelligence Service (FIS). In 2003, Guernsey incorporated amendments to the Banking Supervision Law and began publishing the Code of Practice for Banks. The Bailiwick narcotics trafficking, anti-money laundering, and terrorism laws designate the same foreign countries as the UK to enforce foreign restraint and confiscation orders.

The Drug Trafficking (Bailiwick of Guernsey) Law 2000 consolidates and extends money laundering legislation related to narcotics trafficking. It introduces the offense of failing to disclose the knowledge or suspicion of drug money laundering. The duty to disclose extends beyond financial institutions to cover others as well, for example, bureaux de change and check cashers.

In addition, the Bailiwick authorities recently enacted the Prevention of Corruption (Bailiwick of Guernsey) Law of 2003. They have also resolved to merge existing drug trafficking, money laundering and other crimes into one statute, and to introduce a civil forfeiture law.

On April 1, 2001, the Regulation of Fiduciaries, Administration Businesses, and Company Directors, etc. (Bailiwick of Guernsey) Law of 2000 ("the Fiduciary Law") came into effect. The Fiduciary Law was enacted to license, regulate and supervise company and trust service providers. Under Section 35 of the Fiduciary Law, the Commission creates Codes of Practice for corporate service providers, trust service providers and company directors. Under the law, the Commission must license all fiduciaries, corporate service providers and persons acting as company directors of any business. In order to be licensed, these agencies must pass strict tests. These include "know your customer" requirements and the identification of clients. These organizations are subject to regular inspection, and failure to comply could result in the fiduciary being prosecuted and/or its license being revoked. The Bailiwick is fully compliant with the Offshore Group of Banking Supervisors Statement of Best Practice for Company and Trust Service Providers.

Since 1988, the Commission has regulated the Bailiwick’s financial services businesses. The Commission regulates banks, insurance companies, mutual funds and other collective investment schemes, investment firms, fiduciaries, company administrators and company directors. The Bailiwick does not permit bank accounts to be opened unless there has been a "know your customer" inquiry and verification details are provided. The AML/CFT Regulations contain penalties to be applied when financial services businesses do not follow the requirements of the Regulations. Company incorporation is by act of the Royal Court, which maintains the registry. All first-time applications to form a Bailiwick company have to be made to the Commission, which then evaluates each application. The court will not permit incorporation unless the Commission and the Attorney General or Solicitor General has given prior approval. The Commission conducts regular on-site inspections and analyzes the accounts of all regulated institutions. In 2004, the Commission conducted 124 on-site inspections of financial institutions to insure compliance with the AML/CFT legislation.

On July 1, 2005, the European Union Savings Tax Directive (ESD) came into force. The ESD is an agreement between the Member States of the European Union (EU) to automatically exchange information with other Member States about EU tax resident individuals who earn income in one EU Member State but reside in another. Although not part of the EU, the three UK Crown Dependencies (Guernsey Jersey, and Isle of Man), have voluntarily agreed to apply the same measures to those in the ESD and have elected to implement the withholding tax option (also known as the "retention tax option") within the Crown Dependencies.

Under the retention tax option, each financial services provider will automatically deduct tax from interest and other savings income paid to EU resident individuals. The tax will then be submitted to local and Member States tax authorities annually. The tax authorities receive a bulk payment but do not receive personal details of individual customers. If individuals elect the exchange of information option, then no tax is deducted from their interest payments but details of the customer’s identity, residence, paying agent, level and time period of savings income received by the financial services provider will be reported to local tax authorities where the account is held and then forwarded to the country where the customer resides.

The Guernsey authorities have established a forum, the Crown Dependencies Anti-Money Laundering Group, where the Attorneys General from the Crown Dependencies, Directors General and other representatives of the regulatory bodies, and representatives of police, Customs, and the FIS meet to coordinate the anti-money laundering and counterterrorism policies and strategy in the Dependencies.

The FIS operates as the Bailiwick’s financial intelligence unit (FIU). The FIS began operations in April 2001, and is currently staffed by Police and Customs/Excise Officers. The FIS is directed by the Service Authority, which is a small committee of senior Police and Customs Officers who co-ordinate with the Bailiwick’s financial crime strategy and report to the Chief Officers of Police and Customs/Excise. The FIS is mandated to place specific focus and priority on money laundering and terrorism financing issues. Suspicious Transaction Reports (STRs) are filed with the FIS, which is the central point within the Bailiwick for the receipt, collation, evaluation, and dissemination of all financial crime intelligence. The FIS received 777 STRs in 2002, 705 STRs in 2003, and 757 STRs in 2004.

In November 2002, the International Monetary Fund (IMF) undertook an assessment of Guernsey’s compliance with internationally accepted standards and measures of good practice relative to its regulatory and supervisory arrangements for the financial sector. The IMF report states that Guernsey has a comprehensive system of financial sector regulation with a high level of compliance with international standards. As for AML/CFT, the IMF report highlights that Guernsey has a developed legal and institutional framework for AML/CFT and a high level of compliance with the FATF Recommendations.

There has been counterterrorism legislation covering the Bailiwick since 1974. The Terrorism and Crime (Bailiwick of Guernsey) Law, 2002, replicates equivalent UK legislation.

The Criminal Justice (International Cooperation) (Bailiwick of Guernsey) Law, 2000, furthers cooperation between Guernsey and other jurisdictions by allowing certain investigative information concerning financial transactions to be exchanged. Guernsey cooperates with international law enforcement on money laundering cases. In cases of serious or complex fraud, Guernsey’s Attorney General can provide assistance under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law 1991. The Commission also cooperates with regulatory/supervisory and law enforcement bodies.

On September 19, 2002, the United States and Guernsey signed a Tax Information Exchange Agreement, which is not yet in force. The agreement provides for the exchange of information on a variety of tax investigations, paving the way for audits that could uncover tax evasion or money laundering activities. Currently, similar agreements are being negotiated with other countries, among them members of the European Union.

After its extension to the Bailiwick, Guernsey enacted the necessary legislation to implement the Council of Europe Convention on Mutual Assistance in Criminal Matters, the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, and the 1988 UN Drug Convention. The 1988 Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to the Bailiwick in 1996. The Bailiwick has requested that the UK Government seek the extension to the Bailiwick of the UN International Convention for the Suppression of the Financing of Terrorism.

The Attorney General’s Office is represented in the European Judicial Network and has been participating in the European Union’s PHARE anti-money laundering project. The Commission cooperates with regulatory/supervisory and law enforcement bodies. It is a member of the International Association of Insurance Supervisors, the Offshore Group of Insurance Supervisors, the Association of International Fraud Agencies, the International Organization of Securities Commissions, the Enlarged Contact Group for the Supervision of Collective Investment Funds, and the Offshore Group of Banking Supervisors. The FIS is a member of the Egmont Group.

Guernsey has put in place a comprehensive anti-money laundering regime, and has demonstrated its ongoing commitment to fighting financial crime. Bailiwick officials should continue both to carefully monitor Guernsey’s anti-money laundering program to assure its effectiveness, and to cooperate with international anti-money laundering authorities. The Bailiwick should work with the UK to extend the UN International Convention for the Suppression of the Financing of Terrorism to Guernsey.

Guyana

Guyana is neither an important regional financial center nor an offshore financial center, nor does it have any notable offshore business sector or free trade zones. However, the scale of money laundering is thought to be large relative to the size of the economy, with some experts estimating that the informal economy is forty to sixty percent of the size of the formal sector. Money laundering has been linked to trafficking in drugs, firearms and persons, as well as corruption and fraud. Drug trafficking and money laundering appear to be propping up the Guyanese economy. Known drug traffickers have acquired substantial landholdings and timber concessions, are building large hotel and housing developments, and own retail businesses that sell imported goods at impossibly low prices. Political instability, government inefficiency, an internal security crisis, and a lack of resources have significantly impaired Guyana’s efforts to bolster its anti-money laundering regime. Investigating and trying money laundering cases is not a priority for law enforcement. The Government of Guyana (GOG) made no arrests or prosecutions for money laundering in 2005 due to lack of adequate legislation, regulations, and resources, as well as the apparent lack of political resolve to tackle money laundering as a serious crime.

The Money Laundering Prevention Act passed in 2000 is not yet fully in force, due to inadequate implementing regulations, difficulties associated with finding suitable personnel to staff the Financial Investigations Unit (FIU), and the Bank of Guyana’s lack of capacity to fully execute its mandate. Crimes covered by the Money Laundering Prevention Act include narcotics trafficking, illicit trafficking of firearms, extortion, corruption, bribery, fraud, counterfeiting, and forgery. The law also requires that incoming or outgoing funds over $10,000 be reported. Licensed financial institutions are required to report suspicious transactions, although banks are left to determine thresholds individually according to banking best practices. Financial institutions must keep suspicious activity reports for seven years. The legislation also includes provisions regarding confidentiality in the reporting process, good faith reporting, penalties for destroying records related to an investigation, asset forfeiture, and international cooperation.

The Government of Guyana established a financial intelligence unit (FIU) within the Ministry of Finance in 2003. The FIU is currently staffed by a director and a police investigator. Building on assistance from U.S. funding through July 2005, the Government of Guyana (GOG) currently funds salaries and operating expenses. As of December 2005, the FIU has conducted preliminary investigations on approximately 36 cases. In addition to the FIU, government bodies responsible for investigating financial crimes include the Guyana Revenue Authority, the Customs Anti-Narcotics Unit, the Attorney General, and the Director for Public Prosecutions.

The Money Laundering Act of 2000 provides for seizure of assets derived as proceeds of crime, including money, investments, and real and personal property, but the guidelines for implementing seizures/forfeitures have not been finalized. The FIU has prepared drafts of legislation related to terrorist finance and money laundering. This more robust legislation is currently under review and is expected to be presented to parliament in spring of 2006. The new legislation is also expected to provide for oversight of export industries, real estate, and alternative remittance systems.

The Ministry of Foreign Affairs and the Bank of Guyana (the Central Bank), continue to assist U.S. efforts to combat terrorist financing by working towards coming into compliance with relevant United Nations Security Council Resolutions (UNSCRs). In 2001 the Bank of Guyana, the sole financial regulator as designated by the Financial Institutions Act of March 1995, issued orders to all licensed financial institutions expressly instructing the freezing of all financial assets of terrorists, terrorist organizations, individuals, and entities associated with terrorists and their organizations. Guyana has no domestic laws authorizing the freezing of terrorist assets, but the government created a special committee on the implementation of UNSCRs, co-chaired by the Head of the Presidential Secretariat and the Director General of the Ministry of Foreign Affairs. To date the procedures have not been tested, as no terrorist assets have been identified as located in Guyana. The FIU Director also disseminates the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list to relevant financial institutions.

Guyana is a member of the OAS’ Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. A 2002 CICAD review of Guyana’s efforts against money laundering noted numerous deficiencies in implementation, resources, and political will. Guyana is also a member of the Caribbean Financial Action Task Force (CFATF), and recently participated in CFATF’s first mutual evaluation process. Guyana is a party to the 1988 UN Drug Convention. Guyana became a party to the UN Convention against Transnational Organized Crime by accession on September 14, 2004. Guyana has not signed the UN International Convention for the Suppression of the Financing of Terrorism.

Guyana should publish regulations to implement its money laundering law and provide greater autonomy for the FIU by making it an independent unit with its own budget. Guyana should also provide appropriate resources and awareness training to its regulatory, law enforcement and prosecutorial personnel. Guyana should criminalize terrorist financing and adopt measures that would allow it to block terrorist assets.

Haiti

Haiti is not a major regional financial center, and, given Haiti’s dire economic condition and unstable political situation, it is doubtful that it will become a major player in the region’s formal financial sector in the near future. Money laundering and other financial crimes occur in the banking system and in casinos, foreign currency, and real estate transactions. Money laundering activity is linked to the drug trade as Haiti continues to be a major drug-transit country. While the informal economy in Haiti is significant and partly funded by narcotics proceeds, smuggling is historically prevalent and predates narcotics trafficking. Flights to Panama City, Panama, remain the main identifiable mode of transportation for money couriers. Usually travelers, predominantly Haitian citizens, hide large sums, $30,000-$100,000 on their persons. Haitian narcotics officers interdicting these outbound funds often collect a 6-12 percent fee and allow the couriers to continue without arrest. During interviews, couriers usually declare that they intend to use the large amounts of U.S. currency to purchase clothing and other items to be sold upon their return to Haiti, a common practice in the informal economic sector. Further complicating the picture is the cash that is routinely transported to Haiti from Haitians and their relatives in the United States in the form of remittances, representing an estimated 30 percent of Haiti’s gross domestic product (GDP).

In March 2004, an interim government was established in Haiti following former President Jean Bertrand Aristide’s resignation and departure. The Interim Government of Haiti (IGOH) has taken initiatives to establish improvements in economic and monetary policies as well as working to improve governance and transparency. In response to the corruption that continues to plague Haiti, the IGOH created an Anti-Corruption Unit as well as a commission to examine transactions conducted by the government from 2001 through February 2004. The commission published its report in July 2005, but to date the IGOH has not submitted for prosecution any cases based on the information provided in the report.

Despite political instability, Haiti has taken steps to address its money laundering and financial crimes problems. Since 2001, Haiti has used the Law on Money Laundering from Illicit Drug Trafficking and other Crimes and Punishable Offenses (AML Law) as its primary anti-money laundering tool. All financial institutions and natural persons are subject to the money laundering controls of the AML Law. The AML Law criminalizes money laundering and applies to a wide range of financial institutions—including banks, money changers, casinos, and real estate agents. Insurance companies are not covered; however, they are only nominally represented in the Haitian economy. The AML Law requires financial institutions to establish money laundering prevention programs and to verify the identity of customers who open accounts or conduct transactions that exceed 200,000 gourdes (approximately $4,760). It also requires exchange brokers and transfer bureaus to obtain declarations identifying the source of funds exceeding 200,000 gourdes or its equivalent in foreign currency. The nonfinancial sector, nonetheless, remains largely unregulated.

In 2002, Haiti formed a National Committee to Fight Money Laundering, the Comité National de Lutte Contre le Blanchiment des Avoirs (CNLBA). The CNLBA is in charge of promoting, coordinating, and recommending policies to prevent, detect, and suppress the laundering of assets obtained from the illicit trafficking of drugs and other serious offenses. The financial intelligence unit (FIU) created in 2003, the Unite Centrale de Renseignements Financiers (UCREF), is responsible for receiving and analyzing reports submitted in accordance with the law. The UCREF was expanded since its creation from 8 to 42 employees, including 25 investigators. Entities are required to report to the UCREF any transaction involving funds that appear to be derived from a crime, as well as those exceeding 200,000 gourdes. Failure to report such transactions is punishable by more than three years’ imprisonment. Banks are required to maintain records for at least five years and are required to present this information to judicial authorities and UCREF officials upon request. Bank secrecy or professional secrecy cannot be invoked as grounds for refusing information requests from these authorities.

The UCREF assisted in obtaining, validating and certifying Haitian bank records for use as exhibits in U.S. court proceedings. In 2005, UCREF confiscated $800,000 and froze $2.86 million related to money laundering offenses. Approximately 400 investigations were underway in 2005. Data provided largely by UCREF in 2005 resulted in the freezing of $17.6 million in assets of convicted drug trafficker Serge Edouard. The UCREF also assisted the IGOH in filing the first-ever civil lawsuit in a U.S. court for reparation of Haitian Government funds diverted through U.S. banks and businesses. Though these 2005 achievements of the UCREF are a marked improvement, the CNLBA is still not fully functional or funded, and many of the UCREF’s employees still lack experience and the ability to independently investigate cases, which translates into slow progress in moving cases into the judicial system.

The AML Law has provisions for the forfeiture and seizure of assets; however the government cannot declare the asset or business forfeited until there is a conviction. The inability to seize or freeze assets early in the judicial process reduces the government’s authority and resources to pursue cases. The IGOH is supportive of a stronger, more proactive asset seizure law, yet its temporary governmental mandate does not allow for the passage of new laws. The IGOH has set-up a Financial Crimes Task Force under the auspices of the Ministries of Justice, Finance, and the Central Bank, charged with identifying and investigating major financial crimes and coordinating with the UCREF in recommending prosecutions.

Supported by the U.S. Embassy Narcotics Affairs Section (NAS) and the U.S. Treasury Office of Technical Assistance (OTA), this task force and UCREF cooperated with the U.S. Internal Revenue Service in 2005 to investigate several significant cases of U.S. tax fraud. One major case developed by the task force, without U.S. assistance, is presently being prosecuted. At least six other significant cases are currently under investigation. With U.S. guidance and support, the IGOH took steps to reorganize the UCREF and the Financial Crimes Task Force. Efforts were underway at the end of 2005 to separate the intelligence gathering and investigative functions to provide for essential checks and balances and reduce the potential for internal fraud abuses.

The UCREF has three memoranda of understanding with the Dominican Republic, Panama and, Honduras. The UCREF has not yet been accepted and accredited to the Egmont Group. Haiti is a member of the OAS/CICAD Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force. Haiti is a party to the 1988 UN Drug Convention. Haiti has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. Haiti still has not passed legislation specifically criminalizing the financing of terrorists and terrorism, nor has it signed the UN International Convention for the Suppression of the Financing of Terrorism. The AML Law provides for investigation and prosecution in all cases of illegally derived money. Under this law, terrorist finance assets may be frozen and seized. Currently, there is no indication of terrorist financing.

Presidential elections are scheduled for early 2006; the incoming administration should work diligently and expeditiously to fully implement and enforce the AML Law, which will require them to confront the rampant corruption present in almost all public institutions. Haiti should also further strengthen the organizational structures and personal skills of employees both in the UCREF and the Financial Crimes Task Force. The Government of Haiti should criminalize terrorist financing and become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Honduras

Three years after passing a new law against money laundering, the Government of Honduras (GOH) has made considerable progress in implementing the law, establishing and training the entities responsible for the investigation of financial crimes, and improving cooperation among these entities. Sustained progress will depend upon increased commitment from the government to aggressively prosecute financial crimes.

Honduras is not an important regional or offshore financial center and is not considered to have a significant black market for smuggled goods, though there have been recent high-profile smuggling cases involving gasoline and other consumer goods. Money laundering takes place, primarily through the banking sector, but also through currency exchange houses and front companies. The vulnerabilities of Honduras to money laundering stem primarily from significant trafficking of narcotics, particularly cocaine, throughout the region; the smuggling of contraband may also generate funds that are laundered through the banking system. Money laundering in Honduras derives both from domestic and foreign criminal activity, and the proceeds are controlled by local drug trafficking organizations and organized crime syndicates. Honduras is not experiencing an increase in financial crimes such as bank fraud. Corruption remains a serious problem, particularly within the judiciary and law enforcement sectors.

Money laundering has been a criminal offense in Honduras since 1998, when the passage of Law No. 27-98 criminalized the laundering of narcotics-related proceeds and introduced various record keeping and reporting requirements for financial institutions. However, weaknesses in the law, including a narrow definition of money laundering, make it virtually impossible to successfully prosecute the crime.

In 2002, Honduras passed Decree No. 45-2002, which greatly strengthened its legal framework and available investigative and prosecutorial tools to fight money laundering. Under the new legislation, the definition of money laundering was expanded to include under the crime of money laundering the transfer of assets that proceed directly or indirectly from trafficking of drugs, arms, human organs or persons, auto theft, kidnapping, bank and other forms of financial fraud, and terrorism. The penalty for money laundering is a prison sentence of 15-20 years. The law also requires all persons entering or leaving Honduras to declare cash and convertible securities (títulos valores de convertibilidad inmediata) that they are carrying if the amount exceeds $10,000 or its equivalent.

Decree No. 45-2002, created the financial intelligence unit (FIU), Unidad de Informacion Financiera, within the National Banking and Securities Commission. Banks and other financial institutions are required to report to the FIU currency transactions over $10,000 in dollar denominated accounts in local currency accounts. The law requires the FIU and reporting institutions to keep a registry of reported transactions for five years. Banks are required to know the identity of all their clients and depositors, regardless of the amount of a client’s deposits and to keep adequate records of the information. The law also includes banker negligence provisions that make individual bankers subject to two-to-five-year prison terms if, by "carelessness, negligence, inexperience or non-observance of the law, they permit money to be laundered through their institutions." All of the above requirements apply to all financial institutions that are regulated by the National Banking and Securities Commission, including state and private banks, savings and loan associations, bonded warehouses, stock markets, currency exchange houses, securities dealers, insurance companies, credit associations, and casinos. The law does not, however, extend to the activities of lawyers or accountants.

Decree No. 45-2002 requires that a public prosecutor be assigned to the FIU. In practice, two prosecutors are assigned to the FIU, each on a part-time basis, with responsibility for specific cases divided between them depending on their expertise. The prosecutors, under urgent conditions and with special authorization, may subpoena data and information directly from financial institutions. Public prosecutors and police investigators are permitted to use electronic surveillance techniques to investigate money laundering.

Under the Criminal Procedure Code, officials responsible for filing reports on behalf of covered entities are protected by law with respect to their cooperation with law enforcement authorities. However, some have alleged that their personal security is put at risk if the information they report leads to the prosecution of money launderers. This issue has not been present in 2005, however, as only cases originating from the police and prosecutors have been presented in court.

There had been some ambiguity in Honduran law concerning the responsibility of banks to report information to the supervisory authorities, and the duty of these institutions to keep customer information confidential. A new law passed in September 2004, the Financial Systems Law (Decree No. 129-2004), clarifies this ambiguity, explicitly stating that the provision of information requested by regulatory, judicial, or other legal authorities shall not be regarded as an improper divulgence of confidential information.

In late December 2004, Decree No. 24-2004 created the Interagency Commission for the Prevention of Money Laundering and Financing of Terrorism (CIPLAFT). The group was tasked as the coordinating entity responsible for ensuring that all anti-money laundering and anti-financing of terrorism organizations operate efficiently and consistent with all relevant laws, regulations, resolutions, and directives. The group meets every three months and includes representatives from the FIU, the Prosecutor’s Office, the police and other offices that touch on the subject of money laundering and terrorist financing.

Prior to 2004, there had been no successful prosecutions of money laundering crimes in Honduras. In 2004, however, Honduran authorities arrested 16 persons for money laundering crimes, issued six additional outstanding arrest warrants, and secured five convictions. Six additional convictions were achieved in 2005.

The GOH has been supportive of counterterrorism efforts. Decree No. 45-2002 states that an asset transfer related to terrorism is a crime; however, terrorist financing has not been identified as a crime itself. This law does not explicitly grant the GOH the authority to freeze or seize terrorist assets; however, under separate authority, the National Banking and Insurance Commission has issued freeze orders for suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224.

The Ministry of Foreign Affairs is responsible for instructing the Commission to issue freeze orders. The Commission directs Honduran financial institutions to search for, hold, and report on terrorist-linked accounts and transactions, which, if found, would be frozen. The Commission has reported that to date no accounts linked to the entities or individuals on the lists have been found in the Honduran financial system.

While Honduras is a major recipient of flows of remittances (estimated at U.S. $1.5 billion in 2005), there has been no evidence to date linking these remittances to the financing of terrorism. Remittances primarily flow from Hondurans living in the United States to their relatives in Honduras. Most remittances are sent through wire transfer or bank services, with some cash probably being transported physically from the United States to Honduras. There is no significant indigenous alternative remittance system operating in Honduras, nor is there any evidence that charitable or non-profit entities in Honduras have been used as conduits for the financing of terrorism.

Under Honduran legislation, companies may register for "free trade zone" status, and benefit from the associated tax benefits, regardless of their location in the country. Companies that wish to receive free trade zone status must register within the Office of Productive Sectors within the Ministry of Industry and Commerce. The majority of companies with free trade zone status operate mostly in the textile and apparel industry. There is no indication that these free trade zone companies are being used in trade-based money laundering schemes or by the financiers of terrorism.

Honduras cooperates with U.S. investigations and requests for information pursuant to the 1988 United Nations Drug Convention. Honduras has signed memoranda of understanding to exchange information on money laundering investigations with Panama, El Salvador, Guatemala, Mexico, Peru, Colombia, and the Dominican Republic. Honduras strives to comply with the Basel Committee’s "Core Principles for Effective Banking Supervision," and the new Financial System Law, Decree No. 129-2004, is designed to improve compliance with these international standards At the regional level, Honduras is a member of the Central American Council of Bank Superintendents, which meets periodically to exchange information.

Honduras is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime, and the UN International Convention for the Suppression of the Financing of Terrorism. In November 2004, Honduras became a party to the Organization of American States (OAS) Inter-American Convention on Terrorism. Honduras is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Group of Experts to Control Money Laundering, and the Caribbean Financial Action Task Force (CFATF). In mid-2005, the Honduran FIU was admitted as a member in the Egmont Group.

No specific written agreement exists between the United States and Honduras to establish a mechanism for exchanging adequate records in connection with investigations and proceedings relating to narcotics, terrorism, terrorist financing, and other crime investigations. However, Honduras has cooperated, when requested, with appropriate law enforcement agencies of the U.S. Government and other governments investigating financial crimes.

The Honduran Congress first enacted an asset seizure law in 1993 that subsequent Honduran Supreme Court rulings substantially weakened. Decree No. 45-2002 strengthens the asset seizure provisions of the law, establishing an Office of Seized Assets (OABI) under the Public Ministry. The law authorizes the OABI to guard and administer "all goods, products or instruments" of a crime, and states that money seized or money raised from the auctioning of seized goods should be transferred to the public entities that participated in the investigation and prosecution of the crime. Under the Criminal Procedure Code, when goods or money are seized in any criminal investigation, a criminal charge must be submitted against the suspect within 60 days of the seizure; if one is not submitted, the suspect has the right to demand the release of the seized assets.

Decree No. 45-2002 is not entirely clear on the issue of whether a legitimate business can be seized if used to launder money derived from criminal activities. The chief prosecutor for organized crime maintains that the authorities do have this power, because once a "legitimate" business is used to launder criminal assets, it ceases to be "legitimate" and is subject to seizure proceedings. However, this authority is not explicitly granted in the law, and there has been no test case to date which would set an interpretation. There are currently no new laws being considered regarding seizure of forfeiture of assets of criminal activity.

The total value of assets seized since the 2002 law came into effect is estimated at $6.4 millions in seized assets (cars, houses, boats, etc.) as of December 2005. The lack of clear records, and differences in accounting between OABI, the Police and the Investigators Office, make prior year comparisons difficult. Most of these seized assets are alleged to have derived from crimes related to drug trafficking; none are suspected of being connected to terrorist activity. The law allows for both civil and criminal forfeiture, and there are no significant legal loopholes that allow criminals to shield their assets.

OABI has not yet established firm control over the asset seizure and forfeiture process. Implementation of the existing law, as well as the process of equipping the OABI to maintain control over seized assets and effectively dispose of them, has been slow and ineffective. The implementing regulations governing the OABI were not finalized and published until more than a year after the passage of the law, and the key regulation that governs the distribution of assets is still pending action by the Attorney General. Plans to build separate offices and a warehouse for this entity are still incomplete, resulting in seized assets currently being kept in various locations under dispersed authority. Money seized is also kept in a variety of accounts without clear records of control, or kept in cash as evidence. Due to the absence of approved implementing regulations on distribution of assets, the Public Ministry on several occasions used seized cash to pay certain employees’ salaries, without the money’s first having passed through a proper legal process for disposition. Similarly, assets such as vehicles, properties, and boats that are seized are in many cases are left unused, rather than being distributed for use by government agencies.

In 2005, the Government of Honduras continued its positive steps to implement Decree No. 45-2002. However, the different units involved in the fight against money laundering continue to suffer from lack of resources and limited interagency communication. Further progress in implementing the new money laundering legislation will depend on the training and retention of personnel familiar with money laundering and financial crimes and an improved ability to target and pursue more cases that have a higher probability of success. Key to enabling these agencies is to free more resources from OABI. The GOH should continue to support the developing government entities responsible for combating money laundering and other financial crimes, and ensure that resources are available to strengthen its anti-money laundering regime.

Hong Kong

Hong Kong is a major international financial center. Its low taxes and simplified tax system, sophisticated banking system, the availability of secretarial services and shell company formation agents, and the absence of currency and exchange controls, facilitate financial activity but also make it vulnerable to money laundering. The primary sources of laundered funds are narcotics trafficking (particularly heroin, methamphetamine, and ecstasy), tax evasion, fraud, illegal gambling and bookmaking, and commercial crimes. Laundering channels include Hong Kong’s banking system, and its legitimate and underground remittance and money transfer networks.

Hong Kong is substantially in compliance with the Financial Action Task Force’s (FATF) Forty Recommendations on Money Laundering, and has pledged to adhere to the revised FATF Forty Recommendations. Overall, Hong Kong has developed a strong anti-money laundering regime, though improvements should be made. It is a regional leader in anti-money laundering efforts. Hong Kong has been a member of the FATF since 1990.

Money laundering is a criminal offense in Hong Kong under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and the Organized and Serious Crimes Ordinance (OSCO). The money laundering offense extends to the proceeds of drug-related and other indictable crimes. Money laundering is punishable by up to 14 years’ imprisonment and a fine of HK$5,000,000 (approximately $643,000).

Money laundering ordinances apply to covered institutions including banks and non-bank financial institutions, as well as to intermediaries such as lawyers and accountants. All persons must report suspicious transactions of any amount to the Joint Financial Intelligence Unit (JFIU). The JFIU does not investigate suspicious transactions itself, but receives, stores, and disseminates suspicious transactions reports (STRs) to the appropriate investigative unit. Typically, STRs are passed to either the Narcotics Bureau or the Organized Crime and Triad Bureau of the Hong Kong Police Force, or to the Customs Drug Investigation Bureau of the Hong Kong Customs and Excise Department.

Financial regulatory authorities issued anti-money laundering guidelines reflecting the revised FATF Forty Recommendations on Money Laundering to institutions under their purview, and monitor compliance through on-site inspections and other means. Hong Kong law enforcement agencies provide training and feedback on suspicious transaction reporting.

Financial institutions are required to know and record the identities of their customers and maintain records for five to seven years. The filing of a suspicious transaction report cannot be considered a breach of any restrictions on the disclosure of information imposed by contract or law. Remittance agents and money changers must register their businesses with the police and keep customer identification and transaction records for cash transactions equal to or over HK$20,000 (approximately $2,564).

Hong Kong does not require reporting of the movement of currency above any threshold level across its borders, or reporting of large currency transactions above any threshold level. However, the Narcotics Division is preparing a consultation paper regarding proposed money laundering legislation that it plans to introduce to the legislature. The proposed legislation would likely authorize Hong Kong Customs officials to stop and question passengers about money they are bringing into or taking out of Hong Kong. The draft bill would also mandate that Customs officials maintain records of individuals carrying more than $15,000 across the border, even if it is not related to a crime.

The bill would not likely mandate currency declarations at the border, but would widen the Hong Kong Government’s ability to seize cash being laundered from all "serious crimes," instead of only cash stemming form narcotics trafficking or related to terrorism. Under the bill, bankers, lawyers, accountants, real estate agents, precious metals dealers, and other professionals would face criminal sanctions if they assisted in money laundering through a failure to "know their customers." The new bill would involve a statutory requirement to obtain sufficient information about the client-including the beneficial ownership of corporate clients and the source of wealth of individuals. This measure would make the failure of nonfinancial firms to report suspicious transactions an offense.

There is no distinction made in Hong Kong between onshore and offshore entities, including banks, and no differential treatment is provided for nonresidents, including on taxes, exchange controls, or disclosure of information regarding the beneficial owner of accounts or other legal entities. Hong Kong’s financial regulatory regimes are applicable to residents and nonresidents alike. The Hong Kong Monetary Authority (HKMA) regulates banks. The Insurance Authority and the Securities and Futures Commission regulate insurance and securities firms, respectively. All three impose licensing requirements and screen business applicants. There are no legal casinos or Internet gambling sites in Hong Kong.

In Hong Kong, it is not uncommon to use solicitors and accountants, acting as company formation agents, to set up shell or nominee entities to conceal ownership of accounts and assets. Hong Kong registered 7,279 new international business companies (IBCs) in 2005. Many of the more than 500,000 IBCs created in Hong Kong are owned by other IBCs registered in the British Virgin Islands. Many of the IBCs are established with nominee directors. The concealment of the ownership of accounts and assets is ideal for the laundering of funds. Additionally, some banks permit the shell companies to open bank accounts based only on the vouching of the company formation agent. In such cases, the Hong Kong Monetary Authority’s anti-money laundering guidelines require banks to verify the identity of the owners of the company, including beneficial owners. The bank should also assess whether the intermediary is "fit and proper". However, solicitors and accountants have filed a low number of suspicious transaction reports in recent years, and consequently have become a focus of attention to improve reporting through regulatory requirements and oversight.

The open nature of Hong Kong’s financial system has long made it the primary conduit for funds being transferred out of China, which maintains a closed capital account. Hong Kong’s role has been evolving as China’s financial system gradually opens. On February 25, 2004, Hong Kong banks began to offer Chinese currency- (renminbi or RMB-) based, deposit, exchange, and remittance services. Later in the year, Hong Kong banks began to issue RMB-based credit cards, which could be used both in mainland China and in Hong Kong shops that had signed up to the Chinese payments system, China UnionPay. In November 2005, Hong Kong banks were permitted modest increases in the scope of RMB business they can offer to clients. The new provisions raised daily limits and expanded services. Making loans in Hong Kong in RMB, however, is still not permitted for any bank. This change brought many financial transactions related to China out of the money-transfer industry and into the more highly regulated banking industry, which is better equipped to guard against money laundering.

Under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and the Organized and Serious Crimes Ordinance (OSCO), a court may issue a restraining order against a defendant’s property at or near the time criminal proceedings are instituted. Both ordinances were strengthened in January 2003, through a legislative amendment lowering the evidentiary threshold for initiating confiscation and restraint orders against persons or properties suspected of drug trafficking. Property includes money, goods, real property, and instruments of crime. A court may issue confiscation orders at the value of a defendant’s proceeds from illicit activities. Cash imported into or exported from Hong Kong that is connected to narcotics trafficking may be seized, and a court may order its forfeiture.

As of September 1, 2005, the value of assets under restraint was $187 million, and the value of assets under confiscation order, but not yet paid to the government, was $14.45 million, according to figures from the JFIU. It also reported that as of September 1, 2005, the amount confiscated and paid to the government since the enactment of DTRoP and OSCO was $52.5 million, and a total of 126 persons had been convicted of money laundering over that period. Hong Kong has shared confiscated assets with the United States.

In July 2002, the legislature passed several amendments to the DTRoP and OSCO to strengthen restraint and confiscation provisions. These changes, which became effective on January 1, 2003, include the following: there is no longer a requirement of actual notice to an absconded offender; there is no longer a requirement that the court fix a period of time in which a defendant is required to pay a confiscation judgment; the court is allowed to issue a restraining order against assets upon the arrest (rather than charging) of a person; the holder of property is required to produce documents and otherwise assist the government in assessing the value of the property; and an assumption is created under the DTRoP, to be consistent with OSCO, that property held within six years of the period of the violation by a person convicted of drug money laundering is proceeds from that money laundering.

Since legislation was adopted in 1994 mandating the filing of suspicious transaction reports (STRs), the number of STRs received by JFIU has generally increased. In the first nine months of 2005, a total of 10,354 STRs were filed, compared to a total of 14,029 for the twelve months of 2004 and 11,671 for the twelve months of 2003.

A new Financial Investigations Division, established in the Narcotics Bureau, is supporting the investigations of STRs. The new division contains a section dedicated to money laundering investigations related to drug trafficking and terrorist financing. The division provides the main link with overseas and local law enforcement agencies on investigations and intelligence exchange concerning money laundering and terrorist finance. It also contains the JFIU, including a new intelligence analysis team.

The new division will analyze STRs to develop information that could aid in prosecuting money laundering cases, the number of which has also increased since 1996, soon after the passage of OSCO (1994). In terms of actual prosecutions for money laundering, there were 35 during the first 8 months of 2005, compared to 40 for the entire year of 2004 and 29 for 20