Afghanistan is not a regional financial or banking center. However, its formal financial system is growing rapidly while its traditional informal financial system remains significant in reach and scale. Afghanistan is a major drug trafficking and drug producing country and the illicit narcotics trade is the primary source of laundered funds. Afghanistan passed anti-money laundering and terrorist financing legislation in late 2004, and efforts are being made to strengthen police and customs forces. However, there remain few resources and little expertise to combat financial crimes. The most fundamental obstacles continue to be legal, cultural and historical factors that conflict with more Western-style proposed reforms to the financial sector.

According to United Nations statistics, in 2005 and 2006, opium production increased and today Afghanistan accounts for over 90 percent of the world's opium production. Opium gum itself is sometimes used as a currency, especially by rural farmers, and it is used as a store of value in prime production areas. It is estimated that at least one third of Afghanistan's (licit plus illicit) GDP is derived directly from narcotics activities, and proceeds generated from the drug trade have reportedly fueled a growing real estate boom in Kabul, as well as a sharp increase in capital investment in rural poppy growing areas.

Much of the recent rise in opium production comes from Taliban strongholds in the southern part of the country. There are reports that the Taliban impose taxes on narcotics dealers, which undoubtedly helps finance their terrorist activities. Additional revenue streams for the Taliban and regional warlords come from "protecting" opium shipments, running heroin labs, and from "toll booths" established on transport and smuggling routes.

Afghan opium is refined into heroin by production labs, more of which are being established within Afghanistan's borders. The heroin is then often broken into small shipments and smuggled across porous borders for resale abroad. Payment for the narcotics outside the country is facilitated through a variety of means, including through conventional trade and the traditional hawala system that uses trade as the primary medium to balance accounts. In addition, the narcotics themselves are often used as tradable goods and as a means of exchange for automobiles, construction materials, foodstuffs, vegetable oils, electronics, and other goods between Afghanistan and neighboring Pakistan. Many of these goods are smuggled into Afghanistan from neighboring countries, particularly Iran and Pakistan, or enter via the Afghan Transit Trade without payment of customs duties or tariffs. Most of the trade goods imported into Afghanistan originate in Dubai. Invoice fraud, corruption, indigenous smuggling networks, underground finance, and legitimate commerce are all intertwined.

Afghanistan is widely served by the hawala system, which provides a range of financial and nonfinancial business services in local, regional, and international markets. Financial activities include foreign exchange transactions, funds transfers (particularly to and from neighboring countries with weak regulatory regimes for informal remittance systems), micro and trade finance, as well as some deposit-taking activities. While the hawala network may not provide financial intermediation of the same type as the formal banking system (i.e., deposit-taking for lending and investing purposes based on the assessment, underwriting, and pricing of risks), it is a traditional form of finance and deeply entrenched and widely used throughout Afghanistan and the neighboring region.

There are over 200 known hawala dealers in Kabul, with 100-300 additional dealers in each province. These dealers are loosely organized into informal provincial unions or guilds whose members maintain a number of agent-principal and partnership relationships with other dealers throughout the country and internationally. Their record keeping and accounting practices are robust, efficient, and take note of currencies traded, international pricing, deposit balances, debits and credits with other dealers, lending, cash on hand, etc. Hawaladars are supposed to be licensed; however the licensing regime that existed from April 2004 until September of 2006 was overly burdensome and resulted in issuance of few licenses. In September of 2006, Da Afghanistan Bank (DAB)-Afghanistan's Central Bank-issued a new money service provider regulation that streamlined the licensing process and substantially reduced the licensing and ongoing compliance burden for hawaladars. The regulatory focus of the new regulation is on AML and CTF. The regulation requires and provides standard mechanisms for record keeping and reporting of large transactions. DAB has provided training sessions on the new regulation and has developed a streamlined application process. Several licenses have already been issued under the new regulation, with the majority of Kabul area hawaladars expected to obtain licenses in the near-term as a result of DAB outreach, law enforcement actions, pressure from commercial banks where they hold accounts, and customer demand for licensed providers. Options for strengthening the hawaladar unions and promoting self regulation are also being studied.

In early 2004, DAB worked in collaboration with international donors to establish the legislative framework for anti-money laundering and the suppression of the financing of terrorism. Although Afghanistan was unable to meet its initial commitment to enact both pieces of legislation by September 30, 2004, they were both finalized and signed into law by late October 2004.

The Anti-Money Laundering (AML) and Proceeds of Crime and Combating the Financing of Terrorism (CTF) laws incorporate provisions that are designed to meet the recommendations of the Financial Action Task Force (FATF) and address the criminalization of money laundering and the financing of terrorism, customer due diligence, the establishment of a Financial Intelligence Unit (FIU), international cooperation, extradition, and the freezing and confiscation of funds. The AML law also includes provisions to address cross-border currency reporting, and establishes authorities to seize and confiscate monies found to be undeclared or falsely declared, or determined to be transferred for illicit purposes. However, the capability to enforce these provisions is nearly non-existent, and furthermore, these provisions are largely unknown in many parts of the country.

Under the new AML law, an FIU has been established and is functioning as a semi-autonomous unit within DAB. Banks and other financial and nonfinancial institutions are required to report suspicious transactions and all cash transactions as prescribed by DAB to the FIU, which has the legal authority to freeze assets for up to 7 days. Currently, in excess of four thousand electronically formatted cash transaction reports are being received and processed each month. The FIU, originally set to be established in January 2005, was actually initiated in October 2005 with assignment of a General Director, office space, and other resources. At present the formal banking sector consists of three recently re-licensed state-owned banks, five branches of foreign banks, and six additional domestic banks. AML examinations have been conducted in half of these banks. The result is a growing awareness of AML requirements and deficiencies among the banks and a building of AML capacity. Additionally, the Central Bank has worked with the banking community to develop several ongoing topical working groups focused on AML issues (e.g. "know your customer" provisions and reporting of suspicious transactions).

The Supervision Department within the DAB was formed at the end of 2003, and is divided into four divisions: Licensing, General Supervision (which includes on-site and off-site supervision), Special Supervision (which deals with special cases of problem banks), and Regulation. The Department is charged with administering the AML and CTF legislation, conducting examinations, licensing new institutions, overseeing money service providers, and liaising with the commercial banking sector generally. The effectiveness of the Supervision Department in the AML area remains limited due to staffing, organization, and management issues.

The Ministry of Interior and the Attorney General's Office are the primary financial enforcement authorities. However, neither is able to conduct financial investigations, and both lack the training necessary to follow potential leads generated by an FIU, whether within Afghanistan or from international sources. Pursuant to the Central Bank law, a Financial Services Tribunal will be established to review certain decisions and orders of DAB. There is a need for significant training for judges and administrative staff before the Tribunal will be effective. The Tribunal will review supervisory actions of DAB, but will not prosecute cases of financial crime. At present, all financial crime cases are being forwarded to the Kabul Provincial Court, where there has been little or no activity in the last three years. The process to prosecute and adjudicate cases is long and cumbersome, and significantly underdeveloped.

Border security continues to be a major issue throughout Afghanistan. At present there are 21 border crossings that have come under central government control, utilizing international donor assistance as well as local and international forces. However, many of the border areas continue to be un-policed and therefore susceptible to illicit cross-border trafficking and trade-based money laundering. Many regional warlords also continue to control the international borders in their provincial areas, causing major security risks. Customs authorities, with the help of outside assistance, have made significant strides, but much work remains to be done. Customs collection has improved, but smuggling and corruption continue to be major concerns, as well as trade fraud, which includes false and over-and-under invoicing. Thorough cargo inspections are not conducted at any gateway. A pilot program for declaring large, cross-border currency transactions has been developed for the Kabul International Airport, but has not yet been implemented. If successful, this prototype will serve as the foundation for expansion to other crossings.

Under the Law on Combating the Financing of Terrorism, any nonprofit organization that wishes to collect, receive, grant, or transfer funds and property must be entered in the registry with the Ministry of Auqaf (Islamic Affairs). All nonprofit organizations are subject to a due diligence process which includes an assessment of accounting, record keeping, and other activities. However, the capacity of the Ministry to conduct such examinations is nearly non-existent, and the reality is that any organization applying for a registration is granted one. Furthermore, because no adequate enforcement authority exists, many organizations operating under a "tax-exempt" nonprofit status in Afghanistan go completely unregistered, and illicit activities are suspected on the part of a number of organizations.

The Government of Afghanistan (GOA) has now become a party to 12 of the UN conventions and protocols against terrorism and is a signatory to the International Convention for the Suppression of Acts of Nuclear Terrorism. Afghanistan 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. In July 2006, Afghanistan became a member in the Asia Pacific Group, a Financial Action Task Force Style Regional Body (FSRB), and has obtained observer status in the Eurasian Group, another FSRB. Additionally the FIU has initiated the process for joining the Egmont Group of Financial Intelligence Units.

The Government of Afghanistan has made progress over the past year in developing its overall AML/CTF regime. Improvement has been seen in development of the FIU, the reporting of financial intelligence, participation in international AML bodies, improvement in bank AML compliance awareness, systems, and reporting, and in efforts to bring money service providers into a legal and regulatory framework that will result in meaningful AML compliance. However, much work remains to be done. Afghanistan should develop secure, reliable, and capable relationships among departments and agencies involved in law enforcement. Afghanistan should develop the investigative capabilities of law enforcement authorities in the areas of financial crimes, particularly money laundering and terrorist finance. Judicial authorities should also be trained in money laundering prosecutions. Afghan customs authorities should implement cross-border currency reporting and be trained to recognize forms of trade-based money laundering. Border enforcement should be a priority, both to enhance scarce revenue and to disrupt narcotics trafficking and illicit value transfer. Afghan authorities should work to address widespread corruption in commerce and government. Afghanistan should ratify the UN Convention against Corruption.

Albania

As a transit country for trafficking in narcotics, arms, contraband, and humans, Albania remains at significant risk for money laundering. Major sources of criminal proceeds are drug-related crimes, robberies, customs offenses, prostitution, trafficking in weapons and automobiles, official corruption, tax crimes and fraud. Organized crime groups use Albania as a base of operations for conducting criminal activities in other countries, often sending the illicit funds back to Albania. The proceeds from these activities are easily laundered in Albania because of the lack of a strong formal economy and weak government controls. Money laundering is believed to be occurring through the investment of tainted money in real estate and business development projects. Customs controls on large cash transfers are not believed to be effective, due to a lack of resources and corruption of customs officials.

Albania's economy remains primarily cash-based. Electronic and ATM transactions are relatively few in number, but are growing rapidly as more banks introduce this technology. The number of ATMs rapidly expanded following the decision of the Government of Albania (GOA) to deliver salaries through electronic transfers. By the end of 2005, all central government institutions had converted to electronic pay systems. Credit card usage has also increased in Albania. However, thus far a small number of people possess them and usage is primarily limited to a few large vendors.

There are 17 banks in Albania, but only five of them are considered to have a significant national presence. According to the Bank of Albania (the Central Bank), 25 percent of the money in circulation is outside of the banking system, compared to an average of 10 percent in other Central and Eastern European transitioning economies. Albania is not considered an offshore financial center, nor do its current laws facilitate such types of activity. Although current law permits the operation of free trade zones, the GOA has not pursued the implementation of them and none are currently in operation.

The Albanian economy is particularly vulnerable to money laundering activity because it is a cash-based economy. The GOA estimates that proceeds from the informal sector account for approximately 30-60 percent of Albania's GDP. Albania collects 10 to 15 percent less of GDP in taxes than neighboring countries. Relatively high levels of foreign trade activity, coupled with weak customs controls, presents a gateway for money laundering in the form of fake imports and exports. The Bankers Association estimates that only 20-30 percent of transactions with trading partners take place through formal banking channels, encompassing only a small portion of total imports. Likewise, a significant portion of remittances enters the country through unofficial channels. It is estimated that only half of total remittances enter Albania through banks or money transfer companies. Black market exchange is still present in the country, especially in Tirana, despite repeated efforts by GOA institutions (Ministry of Interior, Bank of Albania, and Ministry of Finance) to impede such exchanges. There have been court decisions against illegal money remitters based on information received from foreign financial intelligence units (FIUs).

Albania criminalized money laundering in Article 287 of the Albanian Criminal Code of 1995, consolidated version as of December 1, 2004. However, the law was largely ineffectual as it required proof of a predicate offense.

Albania's original money laundering law was On the Prevention of Money Laundering, or Law No. 8610 of 17 May 2000. In June 2003, Parliament approved Law No. 9084, which strengthened the old Law No. 8610, and improved the Criminal Code and the Criminal Procedure Code. The new law redefined the legal concept of money laundering, harmonizing the Albanian definition with that of the European Union (EU) and international conventions. Under the revised Criminal Code many powers were expanded and improved upon. The new law also revised the definition of money laundering, outlawed the establishment of anonymous accounts, and permitted the confiscation of accounts. Albania's money laundering law places reporting requirements on both financial institutions and individuals. Financial institutions are required to report to an anti-money laundering agency all transactions that exceed approximately $200,000 as well as those that involve suspicious activity. Private individuals (both Albanian and foreign) are required to report to customs authorities all cross-border transactions that exceed approximately $10,000. Declaration forms are available at border crossing points. The law also mandates the identification of beneficial owners. Banks and other institutions are required to maintain records of suspicious transaction reports (STRs) for ten years. All other reports are subject to a five-year record retention period. There have been cases of individuals sentenced for illegal transfer of money based on information from foreign FIUs, and the Albanian FIU occasionally shares cash smuggling reports with its counterparts in Turkey, Bulgaria, and Macedonia.

Financial institutions are required to report transactions within 48 hours if the origin of the money cannot be determined. In addition, there are requirements to report all financial transactions that exceed certain thresholds. However, financial institutions have no legal obligation to identify customers prior to opening an account. While most banks have internal rules mandating customer identification, Albania's money laundering law only requires customer identification prior to conducting transactions that exceed approximately $20,000 or when there is a suspicion of money laundering.

Albania's laws set forth an "all crimes" definition for the offense of money laundering. However, an issue of concern is the fact that the Albanian court system applies a difficult burden of proof in that it requires a prior or simultaneous conviction for the predicate crime before an indictment for money laundering can be issued. According to the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) mutual evaluation report (MER), whose team conducted the evaluation in September 2005, and which accepted the MER in July 2006, Albanian authorities estimated that Albania had two cases of money laundering and five convictions, with another five cases at the prosecutor's office. There is no information available regarding cases, prosecutions or convictions of money laundering offenses for 2006.Albanian law also has no specific laws pertaining to corporate criminal liability, however it may be possible (though unlikely) for legal entities to be prosecuted for money laundering under Article 45 of the Criminal Code.

In the case of intermediaries, it is the responsibility of the appropriate licensing authority to supervise such entities for compliance (e.g., Ministry of Justice for notaries, Ministry of Finance for accountants). Although regulations also cover nonbank financial institutions, enforcement has been poor in practice. There is an increasing number of STRs coming from banks as the banking sector becomes more mature, although the majority continues to come from tax and customs authorities and foreign counterparts. Currently, no law criminalizes negligence by financial institutions in money laundering cases. However, the Bank of Albania has established a task force to confirm banks' compliance with customer verification rules. Reporting individuals and entities are protected by law with respect to their cooperation with law enforcement agencies. However, given leaks of information from other agencies, reporting entities complain that reporting requirements compromise their client confidentiality.

Albania's money laundering law also mandates the establishment of an agency to coordinate the GOA's efforts to detect and prevent money laundering. Albania's FIU, the General Directorate for the Prevention of Money Laundering (DPPP), falls under the control of the Ministry of Finance and evaluates reports filed by financial institutions. If the agency suspects that a transaction involves the proceeds of criminal activity, it must forward the information to the prosecutor's office. In 2006, there were a total of 15 suspicious activity reports that the FIU acted upon, out of a total of 46,630 reports received.

Law No. 9084 clarifies and improves the role of the FIU and increases its responsibility. It has been given additional status by its designation as the national center to combat money laundering. Also, the duties and responsibilities for the FIU have been clarified. The law also establishes a legal basis for increased cooperation between the FIU and the General Prosecutor's Office, while creating an oversight mechanism to ensure that the FIU fulfills, but does not exceed, its responsibilities and authority. Previously, coordination against money laundering and terrorist financing among agencies was sporadic. The new law establishes coordination on the both the policy and the technical level. On the policy level, an inter-ministerial group was established. The group is headed by Albania's Prime Minister and includes the participation of the Central Bank Governor and the General Prosecutor. On the technical level, a group of experts was established. The Albanian government is reportedly in the process of preparing a new draft law on money laundering.

In addition to the FIU, the government bodies responsible for investigating financial crimes are the Ministry of Interior (through its Organized Crime and Witness Protection Departments), the General Prosecutor's Office, and the State Intelligence Service. Money laundering and terrorist financing are relatively new issues for GOA institutions, and responsible agencies are neither adequately staffed nor fully trained to handle money laundering and terrorist financing issues.

Albanian law also allows freezing or blocking of financial transactions believed to involve money laundering. In 2004, Albania passed a comprehensive anti-Mafia law, Law No. 9284, which contains strong civil asset seizure and forfeiture provisions, subjecting the assets of suspected persons, their families, and close associates to seizure. The law also places the burden to prove a legitimate source of funding for seized assets on the defendant.

Until 2004, the GOA used its anti-money laundering law to freeze the assets of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions committee's consolidated list. In 2004, Law No. 9258, "On Measures Against Terrorist Financing," was enacted, criminalizing the financing of terrorism and mandating strong penalties for any actions or organizations linked with terrorism. The law permits the GOA to administratively sequester or freeze assets of any terrorist designated pursuant to Security Council resolutions, as well as pursuant to certain bilateral or multilateral requests. The Ministry of Finance has already implemented this law. In addition to the one freeze action conducted in 2004, the GOA has frozen the assets of seven additional individuals or entities in 2005, and supports USG and UN designation efforts.

The Ministry of Finance is the main entity responsible for issuing freeze orders. The order is executed by the Minister of Finance and then delivered by the FIU to other government agencies that take action to freeze any assets found belonging to the named individual or entity. In the case of individuals or entities whose names appear on the UNSCR 1267 consolidated list, the sequestration orders remain in force as long as their names remain on the list. In the case of individuals under investigation or prosecution for money laundering, their assets may remain frozen until a court decision to the contrary is issued (such investigative freezes may not exceed three years). If a person is found guilty, his assets are ordered confiscated and any proceeds are transferred to the state budget. The Agency for the Administration of Sequestered and Confiscated Assets (AASCA) was established in June 2005, following a Council of Ministers decision. The purpose of the agency is to safeguard sequestered assets and to dispose of assets ordered confiscated. After a difficult start, the GOA first staffed the AASCA in early December 2005. However, the agency receives little support from the Ministry of Finance and has also experienced a large turnover in staffing.

Between 2001 and 2005, the GOA seized $4.72 million in liquid criminal and terrorist assets ($3.14 million for terrorism financing and $1.58 million for money laundering) and about $5 million in real estate ($2.3 million in 2005). In 2005, the previous freezing orders were converted under the new law against terrorism financiers. As of 2005, there have been eight freeze orders issued, involving 56 bank accounts frozen in six different commercial banks. Fifty-four of these are related to terrorist financing. Each of the eight freeze orders issued by the Ministry of Finance in relation to persons involved in terrorism financing has been referred to the Prosecutor's Office for further investigation.

Although the GOA has not passed specific legislation addressing alternative remittance systems or charitable organizations, officials state that such informal transactions are covered under recent laws. Additionally, although the GOA does not normally monitor the use of funds by charitable organizations, the Ministry of Finance has explored additional legislation that would include such oversight. As of 2006, charitable organizations are required to present their books to the tax office. The GOA has aggressively acted against charities that are suspected of wrongdoing, resulting in the removal of three of them from the country.

Albania is a member of MONEYVAL and participates in the Southeastern Europe Cooperative Initiative (SECI). The Albanian FIU is a member of the Egmont Group, and continues to enlarge its cooperation with regional counterparts. The FIU has the ability to enter into bilateral or multilateral information sharing agreements on its own authority and has signed MOUs with 29 countries. Most recently, in February 2006, the Albanian FIU signed an MOU with its Kosovo counterpart that will allow the two FIUs to share information relating to money laundering. The FIU also participates in regional anti-money laundering seminars and conferences.

Albania is a party to the UN International Convention for the Suppression of the Financing of Terrorism; the UN Convention against Transnational Organized Crime; and the 1988 UN Drug Convention. In May 2006, Albania ratified the UN Convention against Corruption.

The Government of Albania has enhanced its anti-money laundering/counterterrorist financing regime; however, additional improvements are greatly needed. Albania should amend Article 287 of the Criminal Code to allow authorities to prosecute money laundering without first obtaining a conviction for a predicate offense. The FIU should create or obtain a database to allow analysis of the large volume of currency transaction reports (CTRs) and suspicious transaction reports received so that these reports currently received in hard copy can be analyzed. Training for the FIU should also be a high priority, as its staff is largely new and inexperienced. Training and modernization for the other facets of financial crime investigation should also be in order. The Albanian police force still has no central database and its investigators lack training in modern financial investigation techniques. The Prosecutor's Office also lacks well-trained prosecutors to effectively manage and try cases. Albania should also incorporate into its anti-money laundering legislation specific provisions regarding corporate criminal liability, customer identification procedures, and the adequate oversight of money remitters and charities.

Algeria

Algeria is not a regional financial center or an offshore financial center. The extent of money laundering through formal financial institutions is thought to be minimal due to stringent exchange control regulations and an antiquated banking sector. The partial convertibility of the Algerian dinar enables the Bank of Algeria (Algeria's Central Bank) to monitor all international financial operations carried out by public and private banking institutions.

Algeria first criminalized terrorist financing through the adoption of Ordinance 95.11 on February 24, 1994, making the financing of terrorism punishable by five to ten years of imprisonment. On February 5, 2005, Algeria enacted public law 05.01, entitled "The Prevention and Fight against Money Laundering and Financing of Terrorism." The law aims to strengthen the powers of the Cellule du Traitement du Renseignement Financier (CTRF), an independent financial intelligence unit (FIU) within the Ministry of Finance (MOF) created in 2002. This law seeks to bring Algerian law into conformity with international standards and conventions. It offers guidance for the prevention and detection of money laundering and terrorist financing, institutional and judicial cooperation, and penal provisions.

Algerian financial institutions, as well as Algerian customs and tax administration agents, are required to report any activities they suspect of being linked to criminal activity, money laundering, or terrorist financing to CTRF and comply with subsequent CTRF inquiries. They are obligated to verify the identity of their customers or their registered agents before opening an account; they must furthermore record the origin and destination of funds they deem suspicious. In addition, these institutions must maintain confidential reports of suspicious transactions and customer records for at least five years after the date of the last transaction or the closing of an account.

The new legislation extends money laundering controls to specific, nonbank financial professions such as lawyers, accountants, stockbrokers, insurance agents, pension managers, and dealers of precious metals and antiquities. Provided information is shared with CTRF in good faith, the law offers immunity from administrative or civil penalties for individuals who cooperate with money laundering and terrorist finance investigations. Under the law, assets may be frozen for up to 72 hours on the basis of suspicious activity; such freezes can only be extended with judicial authorization. Financial penalties for noncompliance range from 50,000 to 5 million Algerian dinars (approximately U.S. $700 to U.S. $70,000). In addition to its provisions pertaining to money laundered from illicit activities, the law allows the investigation of terrorist-associated funds derived from "clean" sources.

The law also provides significant authority to the Algerian Banking Commission, the independent body established under authority of the Bank of Algeria to supervise banks and financial institutions, to inform CTRF of suspicious or complex transactions. The law furthermore gives the Algerian Banking Commission, CTRF, and the Algerian judiciary wide latitude to exchange information with their foreign government counterparts in the course of money laundering and terrorist finance investigations, provided confidentiality for suspected entities is insured. A clause excludes the sharing of information with foreign governments in the event legal proceedings are already underway in Algeria against the suspected entity, or if the information is deemed too sensitive for national security reasons.

On November 14, 2005, the Government of Algeria issued Executive Decree 05-442, establishing a deadline of September 1, 2006 after which all payments in excess of $70,000 must be made by check, wire transfer, payment card, bill of exchange, promissory note, or other official bank payment. While nonresidents are exempt from this requirement, they must (like all travelers to and from the country) report foreign currency in their possession to the Algerian Customs Authority. The government suspended the deadline in September 2006, however, in response to the slow implementation of a nation-wide electronic check-clearing system that failed to gain the confidence of the Algerian business community.

The Ministry of Interior is charged with registering foreign and domestic nongovernmental organizations in Algeria. While the Ministry of Religious Affairs legally controls the collection of funds at mosques for charitable purposes, some of these funds probably escape the notice of government monitoring efforts.

There are reports that Algerian customs and law enforcement authorities are increasingly concerned with cases of customs fraud and trade-based money laundering. Algerian authorities are taking steps to coordinate information sharing between concerned agencies.

In November 2004, Algeria became a member of the Middle East and North Africa Financial Action Task Force (MENA FATF). Algeria is a party to the UN Convention against Transnational Organized Crime, the UN Convention for the Suppression of the Financing of Terrorism, and the 1988 UN Drug Convention. In addition, Algeria is a signatory to various UN, Arab, and African conventions against terrorism, trafficking in persons, and organized crime. The Ministry of Justice is expected to create a pool of judges trained in financial matters.

Over the last three years, Algeria has taken significant steps to enhance its statutory regime against anti-money laundering and terrorist financing. It needs to move forward now to implement those laws and eliminate bureaucratic barriers among various government agencies by empowering CTRF, which in 2006 investigated only 15 suspicious transactions, to be the focal point for the AML/CTF investigations. In addition, given the scope of Algeria's informal economy, it should renew its initiative to limit the size of cash transactions. Algerian law enforcement and customs authorities should be trained in recognizing and investigating trade-based money laundering, value transfer, and bulk cash smuggling used for financing terrorism and other illicit financial activities.

Angola

Angola is not a regional or offshore financial center and has not prosecuted any known cases of money laundering. The laundering of funds derived from continuous and widespread high-level corruption is a concern, as is the use of diamonds as a vehicle for money laundering. The Government of the Republic of Angola (GRA) has taken steps to guard against money laundering in the diamond industry by participating in the Kimberley Process, an international certification scheme designed to halt trade in "conflict" diamonds in countries such as Angola. Angola has implemented a control system in accordance with the Kimberley Process. However, through the method of "mixing parcels" of licit and illicit diamonds, the Kimberly certification process can be compromised. Corruption and Angola's long and porous borders further facilitate smuggling and the laundering of diamonds.

Angola currently has no comprehensive laws, regulations, or other procedures to detect money laundering and financial crimes, although some related crimes are addressed through other provisions of the criminal code. Additional laws remain in draft form only. Legislation governing foreign exchange controls allows the Central Bank's Supervision Division, the governmental entity charged with money laundering issues, to exercise some authority against illicit banking activities. The Central Bank of Angola has the authority to freeze assets, but Angola does not presently have an effective system for identifying, tracing, or seizing assets. Instead, such crimes are addressed through other provisions of the criminal code. For example, Angola's counter narcotics laws criminalize money laundering related to narcotics trafficking. One of three draft laws designed to reform the banking sector specifically targets money laundering. The money laundering bill, which is currently under consideration in the Angolan Congress, was drafted with the assistance of the World Bank.

The high cash flow in Angola makes its financial system an attractive site for money laundering. Because of a lack of a domestic interbank dollar clearing system, even dollar transfers between domestic Angolan banks are logged as "international" transfers, thus creating an incentive to settle transfers in cash. The local banking system imports approximately $200-300 million in currency per month, largely in dollars, without a corresponding cash outflow. Local bank representatives have reported that clients have walked into banks with up to $2 million in a briefcase to make a deposit. There are no currency transaction reports that cover these large cash transactions. Massive cash flows occur in a banking system ill-equipped to detect and report suspicious activity. The Central Bank has no workable data management system and only rudimentary analytic capability. It cannot develop suspicious transaction reports (STRs), much less analyze them or search for patterns.

Corruption is a pervasive problem in Angolan society and is found in commerce and at the highest levels of government. Angola is rated 142 out of 163 countries in Transparency International's 2006 International Corruption Perception Index.

Angola is party to the 1988 UN Drug Convention and the UN Convention against Corruption. Angola has signed but not yet ratified the UN Convention against Transnational Organized Crime. Angola has not signed the UN International Convention for the Suppression of the Financing of Terrorism.

The Government of Angola should pass its pending legislation and criminalize money laundering beyond drug offenses and terrorist financing. As part of legislation that adheres to world standards, the GRA should establish a system of financial transparency reporting requirements and a corresponding Financial Intelligence Unit. The GRA should then move quickly to implement the legislation and bolster the capacity of law enforcement to investigate financial crimes. Angola's judiciary should prioritize the prosecution of financial crimes, including corruption. The GRA should become a party to both the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism. The GRA should increase efforts to combat official corruption, including an effective system to identify, trace, seize, and forfeit assets.

Antigua and Barbuda

As with other countries in the region, illicit proceeds from the transshipment of narcotics are laundered in Antigua and Barbuda. However, its offshore financial sector as well as its internet gaming industry remain primary vulnerabilities in Antigua and Barbuda. In 2006, Antigua and Barbuda reported 16 offshore banks, two offshore trusts, two offshore insurance companies, 6,303 international business corporations (IBCs), and 30 internet gaming companies. Antigua and Barbuda has five domestic casinos that also are vulnerable to money laundering.

The International Business Corporations Act 1982 (IBCA), as amended, is the governing legal framework for offshore businesses in Antigua and Barbuda. The IBCA requires offshore banks to maintain full details of all transactions in relation to deposits and withdrawals, and to retain the information obtained for a period of six years. No offshore bank may serve as the originator or recipient in the transfer of funds on behalf of an entity who is not an account holder. Bearer shares are permitted through a registered agent. However, the registered agent must maintain a register that includes such information as the names of the beneficial owners and the number of shares issued. Failure to do so could result in a fine of $50,000. Any entity licensed under the IBCA must maintain a physical presence with at least one full-time employee, and maintain all files and records for the company. Internet gaming companies must incorporate as an IBC, while land-based casinos must incorporate as a domestic company. As such, internet gaming companies must also meet the physical presence requirement, and are considered to have physical presence when the primary server is located in Antigua and Barbuda. Deemed a financial institution under the IBCA, internet gaming companies are also required to enforce know-your-customer verification procedures and maintain records relating to all gaming and financial transactions of each customer for six years. In addition, internet gaming companies must submit quarterly financial statements in addition to annual statements.

The Eastern Caribbean Central Bank (ECCB) supervises Antigua and Barbuda's domestic banking sector. In 2002, the IBCA was amended to create the Financial Services Regulatory Commission (FSRC) as the regulatory and supervisory authority that oversees offshore financial sectors, including internet gaming companies. The FSRC is an autonomous body supervised by a four-member Board comprised of public officials, and is presently chaired by the Solicitor General. The FSRC is also responsible for issuing IBC licenses and maintaining the register for all corporations. The FSRC is funded through the revenue generated by registration and licensing fees. Amendments to the IBCA in 2005 provide the FSRC with the ability to decline or revoke a license if it has reason to suspect that the corporation may be used for criminal purposes. To ensure compliance with legislation and regulations, the FSRC conducts annual on-site examinations and off-site examinations of offshore financial institutions as well as certain domestic nonbanking financial institutions, such as insurance companies, trusts, and money remitters.

The Government of Antigua and Barbuda (GOAB) reportedly receives approximately $2.8 million per year from license fees and other charges related to the internet gaming industry. A nominal free trade zone in the country also seeks to attract investment in priority areas of the GOAB. Casinos and sports book-wagering operations in Antigua and Barbuda's Free Trade Zone are supervised by the Office of National Drug Control Policy (ONDCP) and the Directorate of Offshore Gaming (DOG), a department within the FSRC. In 2001, the DOG issued Interactive Gaming and Interactive Wagering Regulations in order to establish regulations for the licensing of the industry and address possible money laundering through client accounts of internet gambling operations.

The Money Laundering Prevention Act (MLPA) 1996, as amended, is the cornerstone of Antigua and Barbuda's anti-money laundering legislation. The MLPA makes it an offense for any person to obtain, conceal, retain, manage, or invest illicit proceeds or bring such proceeds into Antigua and Barbuda if that person knows or has reason to suspect that they are derived directly or indirectly from unlawful activity. The MLPA covers institutions defined under the Banking Act, IBCA, and the Financial Institutions (Non-Banking) Act, which include offshore banks, IBCs, money service businesses, credit unions, building societies, trust businesses, casinos, internet gaming companies, and sports betting companies. Intermediaries such as lawyers and accountants are not included in the MLPA. The MLPA requires reporting entities to report suspicious activity suspected to be related to money laundering, whether a transaction was completed or not. There is no reporting threshold imposed on banks and financial institutions except for internet gaming companies, which are required to report to all payouts over $25,000. The MLPA also requires banks to monitor transactions involving individuals, businesses, and other financial institutions from countries that have not adopted a comprehensive anti-money laundering regime.

The Office of National Drug Control and Money Laundering Policy (ONDCP) Act 2003 establishes the ONDCP as the financial intelligence unit (FIU) of Antigua and Barbuda. An independent organization, the ONDCP is under the Ministry of National Security and is primarily responsible for the enforcement of the MLPA and for directing the GOAB's anti-money laundering efforts in coordination with the FSRC. The ONDCP assumes the role and fulfills the responsibilities of the Supervisory Authority as described in the MLPA, which includes the supervision of all financial institutions in respect to filing suspicious activity reports (SARs). As of October 2006, the ONDCP received 52 SARs of which 20 were investigated. In addition to receiving SARs, auditors of financial institutions review their compliance program and submit reports to the ONDCP for analysis and recommendations. The director of the ONDCP has the ability to appoint law enforcement officers to investigate narcotics trafficking, fraud, money laundering, and terrorist financing offenses. In 2005, two arrests were made on money laundering charges, but no arrests, prosecutions or convictions were reported in 2006.

In 2002, the ONDCP published guidelines which detail reporting entities' responsibilities including internal controls, customer identification, record keeping, reporting SARs, and anti-money laundering training for staff. The ONDCP has developed an anti-money laundering awareness training program and has trained a number of financial institutions, GOAB officials, and law enforcement officials with respect to their duties and responsibilities under the law.

The ONDCP has the ability to direct a financial institution to freeze property up to seven days, while it makes an application for a freeze order. A freeze order is made based upon a defendant being charged or about to be charged with a money laundering offense, or if the defendant is suspected of engaging in money laundering activity. Under the MLPA, a freeze order will lapse after 30 days unless charges are brought against the defendant, or an application for a civil forfeiture order has been filed. The Misuse of Drugs Act empowers the court to forfeit assets related to drug offenses. Forfeited assets are placed into the Forfeiture Fund and can be used by the ONDCP. The GOAB is currently working on asset forfeiture agreements with other jurisdictions. An MOU was recently signed with Canada. Regardless of its own civil forfeiture laws, currently the GOAB can only provide forfeiture assistance in criminal forfeiture cases.

In the past few years, the GOAB has frozen approximately $6 million in Antigua and Barbuda financial institutions as a result of U.S. requests and has repatriated approximately $4 million. On its own initiative, the GOAB froze over $90 million believed to be connected to money laundering cases still pending in the United States and other countries. In 2005, the GOAB cooperated extensively with U.S. law enforcement in an investigation that resulted in a seizure of $1.022 million.

The ONDCP, with Cabinet approval, may enter into written agreements with other government agencies and foreign counterparts. Currently, the ONDCP has memoranda of understanding (MOUs) with the Royal Antigua and Barbuda Police Force, Customs, Immigration, and the Antigua and Barbuda Defense Force. The ONDCP also has an MOU with the FSRC, and expects to sign an MOU with the ECCB in 2007.

All travelers are required to fill out a Customs declaration form indicating if they are carrying in excess of $10,000 in cash or currency. The GOAB Customs Department maintains statistics on cross-border cash reports and seizures for failure to report. This information is shared with the ONDCP and the Police.

The GOAB enacted the Prevention of Terrorism Act 2001, amended in 2005, to implement the Counter Terrorism Conventions of the United Nations. The Act empowers the ONDCP to nominate any entity as a "terrorist entity" and to seize and forfeit terrorist funds. The law covers any finances in any way related to terrorism. The Act also provides the authority for the seizure of property used in the commission of a terrorist act; seizure and restraint of property that has been, is being or may be used to commit a terrorism offence; forfeiture of property on conviction of a terrorism offence; and forfeiture of property owned or controlled by terrorists. The Act requires financial institutions to report every three months whether they are in possession of any property owned or controlled by or on behalf of a terrorist group. In addition, financial institutions must report every transaction that is suspected to be related to the financing of terrorism to the ONDCP.

The Attorney General may revoke or deny the registration of a charity or nonprofit organization if it is believed funds from the organization are being used for financing terrorism. The GOAB circulates lists of terrorists and terrorist entities to all financial institutions in Antigua and Barbuda. No known evidence of terrorist financing has been discovered in Antigua and Barbuda to date. The GOAB has not undertaken any specific initiatives focused on the misuse of charities and nonprofit entities

The GOAB continues its bilateral and multilateral cooperation in various criminal and civil investigations and prosecutions. The amended Banking Act of 2004 enables the ECCB to share information directly with foreign regulators through an MOU. In 1999, a Mutual Legal Assistance Treaty (MLAT) and an Extradition Treaty with the United States entered into force. An extradition request related to a fraud and money laundering investigation remains pending under the treaty. The GOAB signed a Tax Information Exchange Agreement with the United States in December 2001. Because of such assistance, the GOAB has benefited through an asset sharing agreement and has received asset sharing revenues from the United States.

Antigua and Barbuda is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD), and the Caribbean Financial Action Task Force (CFATF). The ONDCP joined the Egmont Group in June 2003. Antigua and Barbuda is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN International Convention for the Suppression of the Financing of Terrorism. On June 21, 2006 Antigua and Barbuda acceded to the UN Convention against Corruption.

The GOAB should implement and vigorously enforce all provisions of its anti-money laundering legislation including the strict and effective supervision of its offshore sector and gaming industry. Despite the comprehensive nature of the law, Antigua and Barbuda has yet to prosecute a money laundering case. Moreover, there is an over-reliance on SARs to initiate investigations. Law enforcement and customs authorities should be trained to recognize money laundering typologies that fall outside the formal financial sector. The GOAB should vigorously enforce its anti-money laundering laws by actively prosecuting money laundering and other financial crimes.

Argentina

Argentina is neither an important regional financial center nor an offshore financial center. Money laundering related to narcotics trafficking, corruption, contraband and tax evasion is believed to occur throughout the financial system, in spite of the efforts of the Government of Argentina (GOA) to stop it. The financial sector's gradual recovery from the 2001-02 financial crisis and post-crisis capital controls may have reduced the incidence of money laundering through the banking system. However, transactions conducted through nonbank sectors and professions, such as the insurance industry, financial advisors, accountants, notaries, trusts and companies, real or shell, remain viable mechanisms to launder illicit funds. Tax evasion is the predicate crime in the majority of Argentine money laundering investigations. Argentina has a long history of capital flight and tax evasion, and Argentines hold billions of dollars offshore, much of it legitimately earned money that was never taxed.

The GOA took several important steps to combat money laundering in 2006, including enacting amendments to its money laundering legislation with the passage of Law 26.087 in March, granting greater authority to Argentina's financial intelligence unit (the Unidad de Información Financiera, or UIF), creating a new National Coordination Unit in the Ministry of Justice and Human Rights to oversee and manage overall GOA anti-money laundering efforts, and creating a Special Prosecutors Unit within the Attorney General's Office for money laundering and terrorism finance cases. In addition, the Central Bank of Argentina (BCRA) completed plans for a specialized bank examination unit, announced in 2005, devoted specifically to money laundering and terrorism finance. On December 20, 2006, President Kirchner approved Argentina's long-awaited draft antiterrorism and counterterrorism financing law, which he sent to Congress for approval on the same day

Argentina's primary anti-money laundering legislation is Law 25.246 of May 2000. Law 25.246 expands the predicate offenses for money laundering to include all crimes listed in the Penal Code, sets a stricter regulatory framework for the financial sectors, and creates the UIF under the Ministry of Justice and Human Rights. The law requires customer identification, record keeping, and reporting of suspicious transactions by all financial entities and businesses supervised by the Central Bank, the Securities Exchange Commission (Comisión Nacional de Valores, or CNV), and the Superintendence for Insurance (Superintendencia de Seguros de la Nación, or SSN). The law forbids institutions to notify their clients when filing suspicious transaction reports (STRs), and provides a safe harbor from liability for reporting such transactions. Reports that are deemed by the UIF to warrant further investigation are forwarded to the Attorney General's Office. As of October 31, 2006, the UIF had received 2174 reports of suspicious or unusual activities since its inception in 2002, forwarded 136 suspected cases of money laundering to prosecutors for review, and assisted prosecutors with 107 cases. There have been only two money laundering convictions in Argentina since money laundering was first criminalized in 1989, and none since the passage of Law 25.246 in 2000.

On March 29, 2006, the Argentine Congress passed Law 26.087, amending and modifying Law 25.246, in order to address Financial Action Task Force (FATF) concerns regarding the inadequacies in Argentine money laundering and terrorism financing legislation and enforcement. The FATF conducted a mutual evaluation of Argentina in October 2003, which was accepted at the FATF plenary in June 2004 and at the plenary meetings of the Financial Action Task Force for South America (GAFISUD) in July 2004. While the evaluation of Argentina showed the UIF to be functioning satisfactorily, it identified weaknesses in Argentina's anti-money laundering legislation, as well as the lack of terrorist financing legislation or a national anti-money laundering and counterterrorist financing coordination strategy.

Law 26.087 responds to many of the deficiencies noted by the FATF. It makes substantive improvements to existing law, including lifting bank, stock exchange and professional secrecy restrictions on filing suspicious activity reports; partially lifting tax secrecy provisions; clarifying which courts can hear requests to lift tax secrecy requests, and requiring decisions within 30 days. Law 26.087 also lowers the standard of proof required before the UIF can pass cases to prosecutors, and eliminates the so-called "friends and family" exemption contained in Article 277 of the Argentine Criminal Code for cases of money laundering, while narrowing the exemption in cases of concealment. Overall, the law clarifies the relationship, jurisdiction, and responsibilities of the UIF and the Attorney General's Office, and improves information sharing and coordination. The law also reduces restrictions that have prevented the UIF from obtaining information needed for money laundering investigations by granting greater access to STRs filed by banks. However, the law does not lift financial secrecy provisions on records of large cash transactions, which are maintained by banks when customers conduct a cash transaction exceeding 10,000 pesos (approximately $3,225). Also in response to FATF concerns, as noted in the mutual evaluation report, the Argentine government established a new National Coordination Unit in the Ministry of Justice and Human Rights. The National Coordination Unit represents Argentina at the FATF and GAFISUD, has the lead in developing money laundering and terrorism financing legislation, and manages the government's overall anti-money laundering and counterterrorist financing efforts.

The UIF, which began operating in June 2002, has issued resolutions widening the range of institutions and businesses required to report on suspicious or unusual transactions to the UIF beyond those identified in Law 25.246. Obligated entities include the tax authority (Administración Federal de Ingresos Publicos, or AFIP), Customs, banks, currency exchange houses, casinos, securities dealers, insurance companies, postal money transmitters, accountants, notaries public, and dealers in art, antiques and precious metals. The resolutions issued by the UIF also provide guidelines for identifying suspicious or unusual transactions. All suspicious or unusual transactions, regardless of the amount, must be reported directly to the UIF. Prior to the passage of Resolution 4/2005 in 2005, only suspicious or unusual transactions that exceeded 50,000 pesos (approximately $16,130) had to be reported; prior to 2004, suspicious transactions that were below a 500,000 peso threshold were first reported to the appropriate supervisory body for pre-analysis. Obligated entities are required to maintain a database of information related to client transactions, including suspicious or unusual transaction reports, for at least five years and must respond to requests from the UIF for further information within 48 hours.

In September 2006, Congress passed Law 26.119, which amends Law 25.246 to modify the composition of the UIF. The new law reorganizes the UIF's executive structure, changing it from a five-member directorship with rotating presidency to a structure that has a permanent, politically-appointed president and vice-president. Law 26.119 also establishes a UIF Board of Advisors, comprised of representatives of key government entities, including the Central Bank, AFIP, the Securities Exchange Commission, the national counternarcotics secretariat (SEDRONAR), and the Justice, Economy, and Interior Ministries. The Board of Advisors' opinions on UIF decisions and actions are nonbinding.

The Central Bank requires by resolution that all banks maintain a database of all transactions exceeding 10,000 pesos, and periodically submit the data to the Central Bank. Law 25.246 requires banks to make available to the UIF upon request records of transactions involving the transfer of funds (outgoing or incoming), cash deposits, or currency exchanges that are equal to or greater than 10,000 pesos. The UIF further receives copies of the declarations to be made by all individuals (foreigners or Argentine citizens) entering or departing Argentina with over US$10,000 in currency or monetary instruments. These declarations are required by Resolutions 1172/2001 and 1176/2001 issued by the Argentine Customs Service in December 2001. In 2003, the Argentine Congress passed Law 22.415/25.821, which would have provided for the immediate fine of 25 percent of the undeclared amount, and for the seizure and forfeiture of the remaining undeclared currency and/or monetary instruments. However, the President vetoed the law because it allegedly conflicted with Argentina's commitments to MERCOSUR (Common Market of the Southern Cone).

Argentina's Narcotics Law of 1989 authorizes the seizure of assets and profits, and provides that these or the proceeds of sales will be used in the fight against illegal narcotics trafficking. Law 25.246 provided that proceeds of assets forfeited under this law can also be used to fund the UIF.

Although Law 25.246 of 2000 expands the number of predicate offenses for money laundering beyond narcotics-related offenses and created the UIF, it limits the UIF's role to investigating only money laundering arising from six specific crimes. The law also defines money laundering as an aggravation after the fact of the underlying crime. A person who commits a crime cannot be prosecuted for laundering money obtained from the crime; only someone who aids the criminal after the fact in hiding the origins of the money can be guilty of money laundering. Another impediment to Argentina's anti-money laundering regime is that only transactions (or a series of related transactions) exceeding 50,000 pesos can constitute money laundering. Transactions below 50,000 pesos can constitute only concealment, a lesser offense.

Terrorism and terrorist acts are not yet criminalized under Argentine law. Because these acts are not autonomous offenses, terrorist financing is not a predicate offense for money laundering. During 2005 and 2006, several bills were introduced in the Congress to implement the provisions of international treaties on terrorist financing under Argentine law. Various ministries in the government, as well as the "Comisión Mixta" (Mixed Commission-comprised of the Central Bank, Congress, Ministry of Economy, SEDRONAR, and Judicial branch), also developed draft counterterrorism finance laws. Argentina's new National Coordinator reviewed and harmonized the draft laws, and completed a final draft for the President to submit to Congress. The President approved the draft and sent it to Congress on December 20, 2006. Congress will consider it in March 2007, or in February if the President calls an extraordinary session. The draft law criminalizes both acts of terrorism and the financing of terrorism, and if approved, would provide the legal foundation for the UIF, Central Bank, and other law enforcement bodies to investigate and prosecute such crimes. FATF members will review either the draft or the newly enacted law during the February 2007 FATF Plenary to determine whether it meets international standards.

In the absence of terrorist financing legislation, the Central Bank issued Circular A 4273 in 2005 (titled "Norms on ‘Prevention of Terrorist Financing'"), requiring banks to report any detected instances of the financing of terrorism. The Central Bank has regularly updated and modified the original Circular, with the most recent modification being Circular A 4599 of November 17, 2006. Bankers complain that the regulation is not backed by any legal definition of what constitutes terrorist financing in Argentina, and that the absence of domestic legislation means that they are not protected from lawsuits by clients if they report suspected cases of terrorist financing. The draft counterterrorism law currently before Congress would provide the necessary legal backing for the Central Bank's administrative measures. The Central Bank of Argentina also issued Circular B-6986 in 2004, instructing financial institutions to identify and freeze the funds and financial assets of the individuals and entities listed on the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224. It modified this circular with Resolution 319 in October 2005, which expands Circular B-6986 to require financial institutions to check transactions against the terrorist lists of the United Nations, United States, European Union, Great Britain, and Canada. No assets have been identified or frozen to date.

On December 6, 2006, the U.S. Department of Treasury designated nine individuals and two entities in the Triborder Area between Argentina, Brazil and Paraguay that have provided financial or logistical support to Hizballah. According to the designation, the nine individuals operate in the Triborder Area and all have provided financial support and other services for Specially Designated Global Terrorist Assad Ahmad Barakat, who was previously designated by the U.S. Treasury in June 2004 for his support to Hizballah leadership. The two entities, Galeria Page and Casa Hamze, are located in Ciudad del Este, Paraguay, and have been utilized in generating or moving terrorist funds. The GOA has publicly disagreed with the designations, stating that the United States has not provided any new information that would prove terrorist financing activity is occurring in the Triborder Area.

Working with the U.S. Department of Homeland Security's Office of Immigration and Customs Enforcement (ICE), Argentina has established a Trade Transparency Unit (TTU). The TTU examines anomalies in trade data that could be indicative of customs fraud and international trade-based money laundering. The TTU will generate, initiate, and support investigations and prosecutions related to trade-based money laundering and the movement of criminal proceeds across international borders. One key focus of the TTU, as well as of other TTUs in the region, will be financial crimes occurring in the Triborder Area, which is bound by Puerto Iguazu, Argentina, Foz do Iguacu, Brazil, and Ciudad del Este, Paraguay. The creation of the TTU was a positive step towards complying with FATF Special Recommendation VI on Terrorist Financing via alternative remittance systems. Trade- based systems such as hawala often use fraudulent trade documents and over and under invoicing schemes to provide counter valuation in value transfer and settling accounts.

The GOA remains active in multilateral counternarcotics and international anti-money laundering organizations. It is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering, FATF and GAFISUD. The GOA is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the Inter-American Convention against Terrorism, and the UN Convention against Transnational Organized Crime. Argentina ratified the UN Convention against Corruption on August 28, 2006. Argentina participates in the "3 Plus 1" Security Group (formerly the Counter-Terrorism Dialogue) between the United States and the Triborder Area countries. The UIF has been a member of the Egmont Group since July 2003, and has signed memoranda of understanding regarding the exchange of information with a number of other financial intelligence units. The GOA and the USG have a Mutual Legal Assistance Treaty that entered into force in 1993, and an extradition treaty that entered into force in 2000.

With strengthened mechanisms available under Laws 26.119, 26.087 and 25.246, the ratification of the UN International Convention for the Suppression of the Financing of Terrorism, a reorganized UIF, and enhanced enforcement capability via the Special Prosecutors Unit and Central Bank's specialized bank examination unit, Argentina has the legal and regulatory capability to prevent and combat money laundering more effectively. Additional legislative and regulatory changes would significantly improve the anti-money laundering and counterterrorist financing regime in Argentina, particularly the passage of the domestic legislation criminalizing the financing of terrorism that is currently before Congress. The GOA should enact legislation to expand the UIF's role to enable it to investigate money laundering arising from all crimes, rather than just six enumerated crimes; establish money laundering as an independent offense; and eliminate the currently monetary threshold of 50,000 pesos required to establish a money laundering offense. To comply with the latest FATF recommendation on the regulation of bulk money transactions, Argentina will also need to review the legislation vetoed in 2003 to find a way to regulate such transactions consistent with its MERCOSUR obligations. Continuing priorities are the effective sanctioning of officials and institutions that fail to comply with the reporting requirements of the law, the pursuit of a training program for all levels of the criminal justice system, and the provision of the necessary resources to the UIF to carry out its mission. There is also a need for increased public awareness of the problem of money laundering and its connection to narcotics, corruption and terrorism. Finally, the new National Coordinator's Office should alleviate the past problems of inadequate coordination and cooperation between government agencies.

Aruba

Aruba is an autonomous and largely self-governing Caribbean island under the sovereignty of the Kingdom of the Netherlands; foreign, defense and some judicial functions are handled at the Kingdom level. Due to its geographic location and excellent infrastructure, Aruba is both attractive and vulnerable to money launderers and narcotics trafficking.

Aruba has four commercial and two offshore banks, one mortgage bank, two credit unions, an investment bank, a finance company, eleven credit institutions and eleven casinos. The island also has six registered money transmitters, two exempted U.S. money transmitters (Money Gram and Western Union), eight life insurance companies, fourteen general insurance companies, two captive insurance companies, and eleven company pension funds. As of October 27, 2006, there were 5,343 limited liability companies (NVs), of which 372 were offshore limited liability companies or offshore NVs, which may operate until 2007-2008. In addition, there are approximately 2,763 Aruba Exempt Companies (AECs), which mainly serve as vehicles for tax minimization, corporate revenue routing, and asset protection and management.

The offshore NVs and the AECs are the primary methods used for international tax planning in Aruba. The offshore NVs pay a small percentage tax and are subject to more regulation than the AECs. The AECs pay an annual $280 registration fee and must have a minimum of $6,000 in authorized capital. Both offshore NVs and AECs can issue bearer shares. A local managing director is required for offshore NVs. The AECs must have a local registered agent, which must be a trust company.

In 2001, the Government of Aruba (GOA) made a commitment to the Organization for Economic Cooperation and Development (OECD), in connection with the Harmful Tax Practices initiative, to modernize fiscal legislation in line with OECD standards. In 2003, the GOA introduced a New Fiscal Regime (NFR) containing a dividend tax and imputation credits. As of July 1, 2003, the incorporation of low tax offshore NVs was halted. The NFR contains a specific exemption for the AEC. Nevertheless, as a result of commitments to the OECD, the regime was brought in line with OECD standards as of January 2006. As a result of the NFR, Aruba's offshore regime will cease operations by the end of 2008.

Aruba currently has three designated free zones: Oranjestad Free Zone, Bushiri Free Zone and the Barcadera Free Zone, which are managed and operated by Free Zone Aruba (FZA) NV, a government limited liability company. Originally, only companies involved in trade or light industrial activities, including servicing, repairing and maintenance of goods with a foreign destination, could be licensed to operate within the free zones. However, State Ordinance Free Zones 2000 extended licensing to service-oriented companies (excluding financial services). Before being admitted to operate in the free zone, companies must submit a business plan along with personal data of managing directors, shareholders and ultimate beneficiaries, and must establish a limited liability company founded under Aruban law intended exclusively for free zone operations. Aruba took the initiative in the Caribbean Financial Action Task Force (CFATF) to develop regional standards for free zones in an effort to control trade-based money laundering. The guidelines were adopted at the CFATF Ministerial Council in October 2001. Free Zone Aruba NV is continuing the process of implementing and auditing the standards that have been developed.

Aruba was co-chair for the CFATF Typology on International Trade, which took place in Guatemala City in October 2006. Aruba presented the integrity system developed by Free Zone Aruba NV for the free trade zones, and requested feedback from the participating countries and international organizations. Resulting from Aruba's proposed typology is research on free trade zones in the region in order to identify vulnerabilities, which should lead to an update of the CFATF Guidelines and provide important information for the Financial Action Task Force (FATF) work that is being done to counter trade-based money laundering.

The Central Bank of Aruba is the supervisory and regulatory authority for credit institutions, insurance companies, company pension funds and money transfer companies. The State Ordinance on the Supervision of Insurance Business (SOSIB) and the Implementation Ordinance on SOSIB brought insurance companies under the supervision of the Central Bank and require those established after July 1, 2001, to obtain a license. The State Ordinance on the Supervision of Money-Transfer Companies, effective August 12, 2003, places money transfer companies under the supervision of the Central Bank. Quarterly reporting requirements became effective in 2004. A State Ordinance on the supervision of trust companies, which will designate the Central Bank as the supervisory authority, is currently being drafted.

The anti-money laundering legislation in Aruba extends to all crimes that have a potential penalty of more than four years' imprisonment, including tax offenses. Aruba's criminal code allows for conviction-based forfeiture of assets. All financial and nonfinancial institutions are obligated to identify clients that conduct transactions over 20,000 Aruban guilders (approximately $11,300), and report suspicious transactions to Aruba's financial intelligence unit, the Meldpunt Ongebruikelijke Transacties (MOT). Obligated entities are protected from liability for reporting suspicious transactions. On July 1, 2001, reporting and identification requirements were extended by law to casinos and insurance companies.

The MOT is authorized to inspect all banks, money remitters, casinos, insurance companies and brokers for compliance with reporting requirements for suspicious transactions and the identification requirements for all financial transactions. The MOT is currently staffed by 12 employees. By September 2006, the MOT received 5,017 suspicious transaction reports, resulting in 86 investigations conducted and 22 cases transferred to the appropriate authorities. In June 2000, Aruba enacted a State Ordinance making it a legal requirement to report the cross-border transportation of currency in excess of 20,000 Aruban guilders to the customs department. The law also applies to express courier mail services. Reports generated are forwarded to the MOT to review, and in 2005, approximately 872 such reports were submitted. No data was provided for 2006.

The MOT shares information with other national government departments. On April 2, 2003, the MOT signed an information exchange agreement with the Aruba Tax Office, which is in effect and being implemented. Recently, the MOT and the Central Bank signed an information exchange memorandum of understanding (MOU), effective January 2006. The MOT is not linked electronically to the police or prosecutor's office. The MOT is a member of the Egmont Group and is authorized by law to share information with members of the Egmont Group through MOUs.

Aruba signed a multilateral directive with Colombia, Panama, the United States and Venezuela to establish an international working group to fight money laundering occurring through the Black Market Peso Exchange (BMPE). The final set of recommendations on the BMPE was signed on March 14, 2002. The working group developed policy options and recommendations to enforce actions that will prevent, detect and prosecute money laundering through the BMPE. The GOA is in the process of implementing the recommendations.

In 2004, the Penal Code of Aruba was modified to criminalize terrorism, the financing of terrorism, and related criminal acts. The Kingdom of the Netherlands is party to the UN International Convention for the Suppression of the Financing of Terrorism; however, its ratification extends only to the Kingdom in Europe.

Aruba participates in the FATF and the FATF mutual evaluation program through representation in the Kingdom of the Netherlands. The GOA has a local FATF committee comprised of officials from different departments of the Aruban Government, under the leadership of the MOT, to oversee the implementation of FATF recommendations. The local FATF committee reviewed the GOA anti-money laundering legislation and proposed, in accordance with the nine FATF Special Recommendations on Terrorist Financing, amendments to existing legislation and introduction of new laws. Currently, Aruba is in compliance with seven of the nine FATF Special Recommendations. Aruba plans to introduce the Sanctions Ordinance to become fully compliant with the Special Recommendations. The GOA and the Netherlands formed a separate committee in 2004 to ensure cooperation of agencies within the Kingdom of the Netherlands in the fight against cross-border organized crime and international terrorism.

In 1999, the Netherlands extended application of the 1988 UN Drug Convention to Aruba. The Mutual Legal Assistance Treaty between the Netherlands and the United States applies to Aruba, though it is not applicable to requests for assistance relating to fiscal offenses addressed to Aruba. The Tax Information Exchange Agreement with the United States, signed in November 2003, became effective in September 2004. The GOA is a member of CFATF. The MOT became a member of the Egmont Group in 1997.

The Government of Aruba has shown a commitment to combating money laundering by establishing an anti-money laundering regime generally consistent with the recommendations of the FATF and the CFATF. Aruba should immobilize bearer shares under its fiscal framework and should enact its long-pending ordinance addressing the supervision of trust companies. Aruba should introduce the Sanctions Ordinance to become fully compliant with the FATF Special Recommendations on Terrorist Financing.

Australia

Australia is one of the major centers for capital markets in the Asia-Pacific region. Annual turnover across Australia's over-the-counter and exchange-traded financial markets was AUD82 trillion (approximately $61.50 trillion) in 2005. Australia's total stock market capitalization is over AUD1.2 trillion (approximately $905 billon), making it the eighth largest market in the world, and the third largest in the Asia-Pacific region behind Japan and Hong Kong. Australia's foreign exchange market is ranked seventh in the world by turnover, with the U.S. dollar and the Australian dollar the fourth most actively traded currency pair globally. While narcotics offences provide a substantial source of proceeds of crime, the majority of illegal proceeds are derived from fraud-related offences. One Australian Government estimate suggested that the amount of money laundered in Australia ranges between AUD2-3 billion (approximately $1.5-$2.25 billion) per year.

The Government of Australia (GOA) has maintained a comprehensive system to detect, prevent, and prosecute money laundering. The last four years have seen a noticeable increase in activities investigated by Australian law enforcement agencies that relate directly to offenses committed overseas. Australia's system has evolved over time to address new money laundering and terrorist financing risks identified through continuous consultation between government agencies and the private sector.

In March 2005, the Financial Action Task Force (FATF) conducted its on-site Mutual Evaluation (FATFME) of Australia's anti-money laundering/counterterrorism financing (AML/CTF) system. Australia is one of the first member countries to be evaluated under FATF's revised recommendations. The FATF's findings from the mutual evaluation of Australia were published in October 2005 and Australia was found to be compliant or largely complaint with just over half of the FATF Recommendations. The FATFME noted that although Australia "has a comprehensive money laundering offense… the low number of prosecutions …indicates…that the regime is not being effectively implemented."

In response, the GOA has committed to reforming Australia's AML/CTF system to implement the revised FATF Forty plus Nine recommendations. The Attorney General's Department (AGD) is coordinating this process, now underway, which is expected to significantly reshape Australia's current AML/CTF regime in line with current international best practices.

Australia criminalized money laundering related to serious crimes with the enactment of the Proceeds of Crime Act 1987. This legislation also contained provisions to assist investigations and prosecution in the form of production orders, search warrants, and monitoring orders. It was superseded by two acts that came into force on January 1, 2003 (although proceedings that began prior to that date under the 1987 law will continue under that law). The Proceeds of Crime Act 2002 provides for civil forfeiture of proceeds of crime as well as for continuing and strengthening the existing conviction-based forfeiture scheme that was in the Proceeds of Crime Act 1987. The Proceeds of Crime Act 2002 also enables freezing and confiscation of property used in, intended to be used in, or derived from, terrorism offenses. It is intended to implement obligations under the UN International Convention for the Suppression of the Financing of Terrorism and resolutions of the UN Security Council relevant to the seizure of terrorism-related property. The Act also provides for forfeiture of literary proceeds where these have been derived from commercial exploitation of notoriety gained from committing a criminal offense.

The Proceeds of Crime (Consequential Amendments and Transitional Provisions) Act 2002 (POCA 2002), repealed the money laundering offenses that had previously been in the Proceeds of Crime Act 1987 and replaced them with updated offenses that have been inserted into the Criminal Code. The new offenses are graded according both to the level of knowledge required of the offender and the value of the property involved in the activity constituting the laundering. As a matter of policy all very serious offenses are now gradually being placed in the Criminal Code. POCA 2002 also enables the prosecutor to apply for the restraint and forfeiture of property from proceeds of crime. POCA 2002 further creates a national confiscated assets account from which, among other things, various law enforcement and crime prevention programs may be funded. Recovered proceeds can be transferred to other governments through equitable sharing arrangements.

Underneath the framework of offenses, the Financial Transaction Reports Act (FTR Act) of 1988 was enacted to combat tax evasion, money laundering, and serious crimes. The FTR Act requires banks and nonbanking financial entities (collectively referred to as cash dealers) to verify the identities of all account holders and signatories to accounts, and to retain the identification record, or a copy of it, for seven years after the day on which the relevant account is closed. A cash dealer, or an officer, employee, or agent of a cash dealer, is protected against any action, suit, or proceeding in relation to the reporting process. The FTR Act also establishes reporting requirements for Australia's financial services sector. Required to be reported are: suspicious transactions, cash transactions equal to or in excess of AUD10,000 (approximately $7,500), and all international funds transfers into or out of Australia, regardless of value. The FTR Act also obliges any person causing an international movement of currency of Australian AUD10,000 (or a foreign currency equivalent) or more, into or out of Australia, either in person, as a passenger, by post or courier to make a report of that transfer.

FTR Act reporting also applies to nonbank financial institutions such as money exchangers, money remitters, stockbrokers, casinos and other gambling institutions, bookmakers, insurance companies, insurance intermediaries, finance companies, finance intermediaries, trustees or managers of unit trusts; issuers, sellers, and redeemers of travelers checks, bullion sellers, and other financial services licensees. Solicitors (lawyers) also are required to report significant cash transactions. Accountants do not have any FTR Act obligations. However, they do have an obligation under a self-regulatory industry standard not to be involved in money laundering transactions.

The FTR Act established the Australian Transaction Reports Analysis Centre (AUSTRAC), Australia's financial intelligence unit (FIU). AUSTRAC collects, retains, compiles, analyzes, and disseminates FTR information. AUSTRAC is Australia's AML/CTF regulator. AUSTRAC also provides advice and assistance to revenue collection, social justice, national security, and law enforcement agencies, and issues guidelines to cash dealers regarding their obligations under the FTR Act and regulations. As such, AUSTRAC plays a central role in Australia's AML system both domestically and internationally. During the 2005-06 Australian financial year, AUSTRAC's FTR information was used in 1,582 operational matters. Of these, in 431 matters FTR information was identified as being very valuable to outcomes. Results from the Australian Taxation Office shows that the FTR information contributed to more than AUD90.7 million (approximately $68 million) in Australian Taxation Office assessments during the year. In 2005-06, AUSTRAC received 13,880,944 financial transaction reports, with 99.6 percent of the reports submitted electronically through the EDDS Web system. AUSTRAC received 24,801 suspect transaction reports (SUSTRs), an increase of 44.1 percent from the precious year.

In 2006, there was a significant increase in the total number of financial transaction reports received by AUSTRAC. Significant cash transactions reports (SCTRs) account for 17 percent of the total number of FTRs reported to AUSTRAC in the 2005-06 Australian financial year and are reported by cash dealers and solicitors. In 2005-06, AUSTRAC received 2,416,427 SCTRs, an increase of 5.6 percent from the previous year. Cash dealers are required to report all international funds transfer instructions (IFTIs) to AUSTRAC. Cash dealers reported 11,411,961 IFTIs to AUSTRAC-a 11.4 percent increase from 2005. International currency transfer reports (ICTR) are primarily declared to the Australian Customs Service by individuals when they enter or depart from Australia. AUSTRAC received 27,755 ICTRs-a 6.0 percent increase from the previous year. In April 2005, the Minister for Justice and Customs launched AUSTRAC's AML eLearning application. This application has been well received by cash dealers as a tool in providing basic education on the process of money laundering, the financing of terrorism, and the role of AUSTRAC in identifying and assisting investigations of these crimes

APRA is the prudential supervisor of Australia's financial services sector. AUSTRAC regulates anti-money laundering/counterterrorist financing (AML/CTF) compliance. AUSTRAC's powers include criminal but not administrative sanctions for noncompliance. AUSTRAC has conducted very few compliance audits in recent years and places a great deal of emphasis on educating and continuously engaging the private sector regarding the evolution of AML/CTF regime and the attendant reporting requirements. The FATFME noted that a comprehensive system for AML/CTF compliance for the entire financial sector needed to be established by the GOA, as does an administrative penalty regime for AML/CTF noncompliance.

In June 2002, Australia passed the Suppression of the Financing of Terrorism Act 2002 (SFT Act). The aim of the SFT Act is to restrict the financial resources available to support the activities of terrorist organizations. This legislation criminalizes terrorist financing and substantially increases the penalties that apply when a person uses or deals with suspected terrorist assets that are subject to freezing. The SFT Act enhances the collection and use of financial intelligence by requiring cash dealers to report suspected terrorist financing transactions to AUSTRAC, and relaxes restrictions on information sharing with relevant authorities regarding the aforementioned transactions. The SFT Act also addresses commitments Australia has made with regard to the UNSCR 1373 and is intended to implement the UN International Convention for the Suppression of the Financing of Terrorism. Under this Act three accounts related to an entity listed on the UNSCR 1267 Sanction Committee's consolidated list, the International Sikh Youth Federation, were frozen in September 2002. There have been no arrests or prosecutions under this legislation. The Security Legislation Amendment (Terrorism) Act 2002 also inserted new criminal offenses in the Criminal Code for receiving funds from, or making funds available to, a terrorist organization

The Anti-Terrorism Act (No.2) 2005 (AT Act), which took effect on December 14, 2006, amends offenses related to the funding of a terrorist organization in the Criminal Code so that they also cover the collection of funds for or on behalf of a terrorist organization. The AT Act also inserts a new offense of financing a terrorist. The SFT Act amendments to the FTR Act were a significant milestone in the enhancement of AUSTRAC's international efforts. These amendments gave the Director of AUSTRAC the right to establish agreements with international counterparts to directly exchange intelligence, spontaneously and upon request. A review of the FTR Act is currently being undertaken to improve procedures, implement international best practices, and address further aspects of terrorist financing, including alternative remittance systems.

Investigations of money laundering reside with the Australian Federal Police (AFP) and Australian Crime Commission (Australia's only national multi- jurisdictional law enforcement agency). The AFP is the primary law enforcement agency for the investigation of money laundering and terrorist-financing offences in Australia at the Commonwealth level and has both a dedicated Financial Crimes Unit and Financial Investigative Teams (FIT) consisting of 44 members with primary responsibility for asset identification/restraint and forfeiture under the POCA 2002. The Commonwealth Director of Public Prosecutions (CDPP) prosecutes offences against Commonwealth law and to recover proceeds of Commonwealth crime. The main cases prosecuted by the CDPP involve drug importation and money laundering offences. No convictions for money laundering have been reported for 2006.

In April 2003, the AFP established a Counter Terrorism Division to undertake intelligence-led investigations to prevent and disrupt terrorist acts. Eleven Joint Counter Terrorism Teams (JCTT), including investigators and analysts with financial investigation skills and experience, are conducting a number of investigations specifically into suspected terrorist financing in Australia. The AFP also works closely with overseas counterparts in the investigation of terrorist financing, and has worked closely with the FBI on matters relating to terrorist financing structures in South East Asia. In 2006, AFP introduced mandatory consideration of potential money laundering and crime proceeds into its case management processes, thereby ensuring that case officers explore the possibility of money laundering and crime proceeds actions in all investigations conducted by the AFP.

A draft AML/CTF bill developed by the AGD and a package of draft AML/CTF Rules, developed by AUSTRAC, were released for public comment in December 2005 and received Royal Assent on December 12, 2006. The AML/CTF Act covers the financial sector, gambling, bullion dealing and any other professionals or businesses that provide particular designated services and imposes a number of obligations including customer due diligence, reporting requirements, record keeping, and establishing AML/CTF programs. The Act will implement a risk-based approach to regulation. Implementation will occur over a two-year period and include consultation with reporting entities. Under the Act, AUSTRAC will now have an expanded role as the national AML/CTF regulator with supervisory, monitoring and enforcement functions over a diverse range of business sectors.

The package of draft legislation and rules formed the basis for consultations on proposed enhancements to current customer due diligence, reporting and record keeping obligations, and deficiencies in regulatory coverage identified in Australia's FATF Mutual Evaluation Report. The consultation package represented a first tranche of reforms. The final component of the first tranche commences in December 2008.

Once the first tranche of AML/CTF reforms are implemented. the Australian Government will consider a second tranche of reforms (to begin in 2007), extending to real estate agents, jewelers, and specified nonfinancial legal and accounting services. Lawyers and accountants are also included in the first tranche, but only where they compete with the financial sector and not for general services, which will be included in the second tranche. The proposed legislative framework authorizes operational details to be settled in AML/CTF Rules, which will be developed by (AUSTRAC) in consultation with industry.

Australia is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime and its protocol on migrant smuggling. In September, 1999, a Mutual Legal Assistance Treaty between Australia and the United States entered into force. Australia participates actively in a range of international fora including the FATF, the Pacific Islands Forum, and the Commonwealth Secretariat. Through its funding and hosting of the Secretariat of the Asia/Pacific Group on Money Laundering, of which it serves as permanent co-chair, the GOA has elevated money laundering and terrorist financing issues to a priority concern among countries in the Asia/Pacific region. AUSTRAC is an active member of the Egmont Group of Financial Intelligence Units (FIUs). AUSTRAC has signed exchange Instruments, mostly in the form of Memoranda of understanding (MOUs) allowing the exchange of financial intelligence with FinCEN and the FIUs of 45 other countries.

Following the bombings in Bali in October 2002, the Australian Government announced an AUD10 million (approximately $7.5 million) initiative managed by the Australian Agency for International Development (AusAID), to assist in the development of counterterrorism capabilities in Indonesia. As part of this initiative, the AFP has established a number of training centers such as the Jakarta Centre for Law Enforcement Cooperation. As part of Australia's broader regional assistance initiatives, AUSTRAC continued its South East Asia Counter Terrorism Program of providing capacity building assistance to 10 South East Asian nations, to develop capacity in detecting and dealing with terrorist financing and money laundering. AUSTRAC is also providing further assistance in terms of IT system enhancement to the Indonesian FIU, PPATK (Indonesian Financial Transaction Reports and Analysis Center). AUSTRAC has provided training and other technical assistance to other developing FIUs in Southeast Asia. In the Pacific region, AUSTRAC has developed and provided unique software and training for personnel to five nascent Pacific island FIUs to fulfill their domestic obligations and share information with foreign analogs. AUSTRAC is also providing a larger scale information management system solution for the Fiji FIU to enable the collection and analysis of financial transaction reports. The AGD received a grant of AUD 7.7 million (approximately $5.75) to develop a four year program to enhance AML/CTF regimes for the Pacific island jurisdictions. The AGD's program will work cooperatively with the U.S. Department of State-funded Pacific Islands Anti-Money Laundering Program (PALP). The PALP, a four-year program, will be managed by the Pacific Islands Forum (PIF) and will employ residential mentors to develop or enhance existing AML/CTF regimes in the fourteen non-FATF member states of the PIF.

The GOA continues to pursue a comprehensive, anti-money laundering/counterterrorist financing regime that meets the objectives of the revised FATF Forty Recommendations and Nine Special Recommendations on Terrorist Financing. To enhance its AML/CTF regime, as noted in the FATF mutual evaluation, AUSTRAC has been provided with substantially increased powers to ensure compliance. There will be more on-site compliance audits and AUSTRAC can require regular compliance reports from reporting entities; can initiate monitoring orders and statutory demands for information and documents; can seek civil penalty orders, remedial directions and injunctions; and, can require a reporting entity to subject itself to an external audit of its AML/CTF program. The AML/CTF Act also provides for greater coordination amongst the regulatory agencies of its financial, securities and insurance sectors.

The GOA is continuing its exemplary leadership role in emphasizing money laundering/terrorist finance issues and trends within the Asia/Pacific region and its commitment to providing training and technical assistance to the jurisdictions in that region. Having significantly enhanced its increased focus on AML/CTF deterrence, the Government of Australia should increase its efforts to prosecute and convict money launderers.

Austria

Austria is not an important financial center, offshore tax haven, or banking center, but Austrian banking groups control significant shares of the banking markets in Central, Eastern and Southeastern Europe. According to the 2004 IMF Financial Stability Assessment report, Austria also has one of the highest numbers of per capita bank and branches in the world, with about 900 banks and one bank branch for every 1500 people. Austria does not have a reputation as a major money laundering country. However, like any financial marketplace, Austria's financial and nonfinancial institutions are vulnerable to money laundering. The percentage of undetected organized crime is thought to be enormous, with much of it coming from the former Soviet Union. Money that organized crime launders derives primarily from serious fraud, corruption, narcotics trafficking and trafficking in persons.

Money laundering occurs within the Austrian banking system as well as in nonbank financial institutions and businesses. Criminal groups seem increasingly to use money transmitters and informal money transfer systems to launder money. The Internet and offshore companies also play an important role in such crime.

Austria criminalized money laundering in 1993. Predicate offenses include terrorist financing and many other serious crimes. Regulations are stricter for money laundering by criminal organizations and terrorist "groupings," because in such cases the law requires no proof that the money stems directly or indirectly from prior offenses.

Amendments to the Customs Procedures Act and the Tax Crimes Act, effective May 1, 2004, address the problem of cash couriers and international transportation of currency and monetary instruments from illicit sources. Austrian customs authorities do not automatically screen all persons entering Austria for cash or monetary instruments. However, if asked, anyone carrying 10,000 euros (approximately $12,400) or more must declare the funds and provide information on their source and use. To implement the new European Union (EU) regulation on controls of cash entering or leaving the EU, the Government of Austria (GOA) recently amended the Customs Procedures Act and the Tax Crimes Act, lowering the threshold for the "if asked" declaration obligation to 10,000 euros from 15,000 euros ($18,600) as of August 1, 2006. Spot checks for currency at border crossings will continue. Customs officials have the authority to seize suspect cash at the border. An increasing problem is the use of prepaid cards and credit cards loaded with cash.

The Banking Act of 1994 creates customer identification, record keeping, and staff training obligations for the financial sector. Entities subject to the Banking Act include banks, leasing and exchange businesses, safe custody services, and portfolio advisers. The law requires identification of all customers when entering an ongoing business relationship. This would include all cases of opening a checking account, a passbook savings account, a securities deposit account, etc. In addition, the Banking Act requires customer identification for all transactions of more than 15,000 euros ($18,600) for customers without a permanent business relationship with the bank. The law also requires banks and other financial institutions to keep records on customers and account owners. The Securities Supervision Act of 1996, which covers trade of securities, shares, money market instruments, options and other instruments listed on an Austrian stock exchange or any regulated market in the EU, refers to the Banking Act's identification regulations. The Insurance Act of 1997 includes similar regulations for insurance companies underwriting life policies. Since January 1, 2004, money remittance businesses require a banking license from the Financial Market Authority (FMA) and are subject to supervision. Informal remittance systems like hawala exist in Austria but are subject to administrative fines for carrying out banking business without a license.

The Banking Act protects bankers and all other reporting individuals (auctioneers, real estate agents, lawyers, notaries, etc.) with respect to their cooperation with law enforcement agencies. They are also not liable for damage claims resulting from delays in completing suspicious transactions. There is no requirement for banks to report large currency transactions, unless they are suspicious. The Austrian Financial Intelligence Unit (AFIU), however, regularly provides information to banks to raise awareness of large cash transactions.

Since October 2003, financial institutions have adopted tighter identification procedures, requiring all customers appearing in person to present an official photo identification card. These procedures also apply to trustees of accounts, who must disclose the identity of the account beneficiary. However, the procedures still allow customers to carry out non-face-to-face transactions, including Internet banking, on the basis of a secure electronic signature or a copy of a picture ID and a legal business declaration submitted by registered mail.

The Banking Act includes a due diligence obligation, and the law holds individual bankers responsible if their institutions launder money. In addition, banks have signed a voluntary agreement to prohibit active support of capital flight. The Federal Economic Chamber's Banking and Insurance Department, in cooperation with all banking and insurance associations, has also published an official Declaration of the Austrian Banking and Insurance Industries to Prevent Financial Transactions in Connection with Terrorism.

Amendments in 2003 to the Austrian Gambling Act, the Business Code, and the Austrian laws governing lawyers, notaries, and accounting professionals introduced additional money laundering regulations. The legislation concerns identification, record keeping, and reporting of suspicious transactions for dealers in high-value goods (such as precious stones or metals, or works of art), auctioneers, real estate agents, casinos, lawyers, notaries, certified public accountants, and auditors.

During Austria's EU Presidency in the first half of 2006, the GOA, in various EU committees and bodies, facilitated the implementation of guidelines for the Financial Action Task Force's (FATF) Special Recommendation VII on wire transfers as well as the EU's Third Money Laundering Directive (Directive 2005/60/EC). The EU regulation on wire transfers entered into force on January 1, 2007, and became immediately and directly applicable in Austria. The GOA also hosted a workshop on nonprofit organizations, terrorism financing and financial sanctions.

Since 2002, the AFIU, the central repository of suspicious transaction reports, has been a section of the Austrian Interior Ministry's Bundeskriminalamt (Federal Criminal Intelligence Service). According to Interpol's General Secretariat, 40 percent of queries that Austria sends have resulted in positive leads. During the first nine months of 2006, the AFIU received 521 suspicious transaction reports from banks and fielded requests for information from Interpol, Europol, members of the Egmont Group, and other authorities. This represents an increase from the 467 suspicious transactions reported in 2005, which led to three convictions for money laundering. Criminals are often convicted for other crimes, however, with money laundering serving as additional grounds for conviction. In 2005, authorities instituted legal proceedings for money laundering in 13 cases, but data on convictions are not yet available. According to the AFIU, the increase in suspicious transaction reports in the first nine months of 2006 is due to higher sensitivity to money laundering, an improved reporting attitude, and the reporting of problems with "phishing" e-mails.

Legislation implemented in 1996 allows for asset seizure and the forfeiture of illegal proceeds. The banking sector generally cooperates with law enforcement efforts to trace funds and seize illicit assets. The distinction between civil and criminal forfeiture in Austria is different from that in the U.S. legal system. However, Austria has regulations in the Code of Criminal Procedure that are similar to civil forfeiture. In connection with money laundering, organized crime and terrorist financing, all assets are subject to seizure and forfeiture, including bank assets, other financial assets, cars, legitimate businesses, and real estate. Courts may freeze assets in the early stages of an investigation. In the first eight months of 2006, Austrian courts froze assets worth 24 million euros (approximately $30 million). In 2005, courts froze assets worth 99.2 million euros (approximately $124.0 million).

The amended Extradition and Judicial Assistance Law provides for expedited extradition, expanded judicial assistance, and acceptance of foreign investigative findings in the course of criminal investigations, as well as enforcement of foreign court decisions. Austria has strict bank secrecy regulations, though bank secrecy can be lifted in cases of suspected money laundering. Moreover, bank secrecy does not apply in cases in which banks and other financial institutions must report suspected money laundering. Such cases are subject to instructions of the authorities (i.e., AFIU) with regard to processing such transactions.

The 2002 Criminal Code Amendment introduced the following new criminal offense categories: terrorist "grouping," terrorist criminal activities, and financing of terrorism. The Criminal Code defines "financing of terrorism" as a separate criminal offense category in the Criminal Code, punishable in its own right. Terrorism financing is also included in the list of criminal offenses subject to domestic jurisdiction and punishment, regardless of the laws where the act occurred. Furthermore, the money laundering offense is expanded to terrorist "groupings." The law also gives the judicial system the authority to identify, freeze, and seize terrorist financial assets. With regard to terrorist financing, forfeiture regulations cover funds collected or held available for terrorist financing, and permit freezing and forfeiture of all assets that are in Austria, regardless of the place of the crime and the whereabouts of the criminal.

The Austrian authorities have circulated to all financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee's consolidated list, the list of Specially Designated Global Terrorists that the United States has designated pursuant to E.O. 13224, and EU lists. According to the Ministry of Justice and the AFIU, no accounts found in Austria ultimately have shown any links to terrorist financing. The AFIU immediately shares all reports on suspected terrorism financing with the Austrian Interior Ministry's Federal Agency for State Protection and Counterterrorism (BVT). Figures on suspected terrorism financing transaction reports in 2005 and 2006 are not yet available. There were no convictions for terrorism financing in 2005.

The GOA has undertaken important efforts that may help thwart the misuse of charitable or nonprofit entities as conduits for terrorist financing. The GOA has generally implemented the FATF's Special Recommendation on Terrorist Financing regarding nonprofit organizations. The Law on Associations (Vereinsgesetz, published in Federal Law Gazette No. I/66 of April 26, 2002), which has been in force since July 1, 2002, covers charities and all other nonprofit associations in Austria. The law regulates the establishment of associations, bylaws, organization, management, association registers, appointment of auditors, and detailed accounting requirements. On January 1, 2007, special provisions will become effective for associations whose finances exceed a certain threshold. Each association must appoint two independent auditors and must inform its members about its finances and the auditors' report. Associations with a balance sheet exceeding 3 million euros ($3.72 million) or annual donations of more than 1 million euros ($1.24 million) have to appoint independent auditors to review and certify the financial statements. Public collection of donations requires advance permission from the authorities. Since January 1, 2006, the newly established Central Register of Associations (Zentrales Vereinsregister) offers basic information on all registered associations in Austria free of charge via the Internet. The FMA recently announced intentions to employ 45 additional auditors to focus on combating money laundering, terrorist financing, as well as to better monitor offshore banking and charitable foundations.

Another law, the Law on Responsibility of Associations (Verbandsverantwortlichkeitsgesetz, published in Federal Law Gazette No.I/151 of December 23, 2005), came into force on January 1, 2006, and introduced criminal responsibility for all legal entities, general and limited commercial partnerships, registered partnerships and European Economic Interest Groupings, but not charitable or nonprofit entities. The law covers all crimes listed in the Criminal Code, including corruption, money laundering and terrorist financing.

Austria has not yet enacted legislation that provides for sharing forfeited narcotics-related assets with other governments. A bilateral U.S.-Austria agreement on sharing of forfeited assets remains under negotiation. In addition to the exchange of information with home countr