The Netherlands is a major financial center and an attractive venue for the laundering of funds generated from a variety of illicit activities. Activities involving money laundering are often related to the sale of heroin, cocaine, cannabis, or synthetic and designer drugs (such as ecstasy). As a major financial center, several Dutch financial institutions engage in international business transactions involving large amounts of United States currency. There are, however, no indications that significant amounts of U.S. dollar transactions conducted by financial institutions in the Netherlands stem from illicit activity. Activities involving financial fraud are believed to generate a considerable portion of domestic money laundering. A recent report by the University of Utrecht commissioned by the Ministry of Finance has found that much of the money laundered in the Netherlands comes from abroad, but did not find evidence that it is predominantly owned by major drug cartels and other international criminal organizations. There are no indications of syndicate-type structures in organized crime or money laundering, and there is virtually no black market for smuggled goods in the Netherlands. Although under the Schengen Accord there are no formal controls on the borders with Germany and Belgium, the Dutch authorities run special operations in the border areas to keep smuggling to a minimum. Reportedly, money laundering amounts to 18.5 million euros (approximately $24.4 million) annually, or five percent of the Dutch GDP. The Netherlands is not an offshore financial center nor are there any free trade zones in the Netherlands.
In 1994, the Government of the Netherlands (GON) criminalized money laundering related to all crimes. In December 2001, the GON enacted legislation specifically criminalizing the facilitating, encouraging, or engaging in money laundering. This eases the public prosecutor's burden of proof regarding the criminal origins of proceeds: under the law, the public prosecutor needs only to prove that the proceeds "apparently" originated from a crime. Self-laundering is also covered. In two cases in 2004 and 2005, the Dutch Supreme Court confirmed the wide application of the money laundering offenses by stating that the public prosecutor does not need to prove the exact origin of laundered proceeds and that the general criminal origin as well as the knowledge of the perpetrator may be deducted from objective circumstances.
The Netherlands has an "all offenses" regime for predicate offenses of money laundering. The penalty for "deliberate acts" of money laundering is a maximum of four years' imprisonment and a maximum fine of 45,000 euros (approximately $59,000), while "liable acts" of money laundering (of people who do not know first-hand of the criminal nature of the origin of the money, but should have reason to suspect it) are subject to a maximum imprisonment of one year and a fine no greater than 45,000 euros (approximately $59,000). Habitual money laundering may be punished with a maximum imprisonment of six years and a maximum fine of 45,000 euros (approximately $59,000), and those convicted may also have their professional licenses revoked. In addition to criminal prosecution for money laundering offenses, money laundering suspects can also be charged with participation in a criminal organization (Article 140 of the Penal Code), violations of the financial regulatory acts, violations of the Sanctions Act, or noncompliance with the obligation to declare unusual transactions according to the Economic Offenses Act.
The Netherlands has comprehensive anti-money laundering legislation. The Services Identification Act and the Disclosure Act set forth identification and reporting requirements. All financial institutions in the Netherlands, including banks, bureaux de change, casinos, life insurance companies, securities firms, stock brokers, and credit card companies, are required to report cash transactions over 15,000 euros (approximately $19,700), as well as any less substantial transaction that appears unusual, a broader standard than "suspicious" transactions, to the Office for Disclosure of Unusual Transactions (MOT), the Netherlands' financial intelligence unit (FIU). In December 2001, the reporting requirements were expanded to include trust companies, financing companies, and commercial dealers of high-value goods. In June 2003, notaries, lawyers, real estate agents/intermediaries, accountants, business economic consultants, independent legal advisers, trust companies and other providers of trust related services, and tax advisors were added. Reporting entities that fail to file reports with the MOT may be fined 11,250 euros (approximately $14,775), or be imprisoned up to two years. Under the Services Identification Act, all those that are subject to reporting obligations must identify their clients, including the identity of ultimate beneficial owners, either at the time of the transaction or prior to the transaction, before providing financial services.
In 2004, an evaluation of the anti-money laundering reporting system, commissioned by the Minister of Justice, was published. In response to the report the GON enacted a number of measures to enhance the effectiveness of the existing system. In November 2005, the Board of Procurators General issued a National Directive on money laundering crime that included an obligation to conduct a financial investigation in every serious crime case, guidelines for determining when to prosecute for money laundering and technical explanations of money laundering offenses, case law, and the use of financial intelligence. A new set of indicators, which determine when an unusual transaction must be filed, also entered into force in November 2005. These new indicators represent a partial shift from a rule-based to a risk-based system and are aimed at reducing the administrative costs of reporting unusual transactions for the reporting institutions without limiting the preventive nature of the reporting system. The Dutch parliament has also approved amendments to the Services Identification Act and Disclosure Act that expand supervision authority and introduce punitive damages. The revised legislation, which became effective on May 1, 2006, incorporates a terrorist financing indicator in the reporting system.
Financial institutions are also required by law to maintain records necessary to reconstruct financial transactions for at least five years after termination of the relationship. There are no secrecy laws or fiscal regulations that prohibit Dutch banks from disclosing client and owner information to bank supervisors, law enforcement officials, or tax authorities. Financial institutions and all other institutions under the reporting and identification acts, and their employees, are specifically protected by law from criminal or civil liability related to cooperation with law enforcement or bank supervisory authorities. Furthermore, current legislation requires Customs authorities to report unusual transactions to the MOT; however, the Netherlands does not currently have a currency declaration requirement for incoming travelers. Under the 2004 Dutch European Union (EU) Presidency, the EU reached agreement on a cash courier regulation, which implements the Financial Action Task Force (FATF) Special Recommendation Nine on terrorist financing. The implementation is expected to occur in the Netherlands mid-2007.
The Money Transfer and Exchange Offices Act, which was passed in June 2001, requires money transfer offices, as well as exchange offices, to obtain a permit to operate, and subjects them to supervision by the Central Bank. Every money transfer client has to be identified and all transactions totaling more than 2,000 euros (approximately $2,630) must be reported to the MOT.
The Central Bank of the Netherlands, which merged with the Pension and Insurance Chamber in April 2004, and the Financial Markets Authority, as the supervisors of the Dutch financial sector, regularly exchanges information nationally and internationally. Sharing of information by Dutch supervisors does not require formal agreements or memoranda of understanding (MOUs).
The financial intelligence unit (FIU) for the Netherlands is a hybrid administrative-law enforcement unit that in 2006 combined the traditional FIU, Meldpunt Onjebruikelijke Transacties (MOT), in English the Office for the Disclosure of Unusual Transactions, with its police counterpart, the Office of Operational Support of the National Public Prosecutor (BLOM). When MOT, established in 1994, and the BLOM merged, the resulting entity was integrated within the National Police (KLPD). The new unit is called the FIU-the Netherlands. This new FIU structure provides an administrative function that receives, analyzes, and disseminates the unusual and currency transaction reports filed by banks and financial institutions. It also provides a police function that serves as a point of contact for law enforcement. It forwards suspicious transaction reports with preliminary investigative information to the Police Investigation Service and to the FIU. This new organization responds to requests from foreign FIUs for financial and law enforcement information. Over the last five years, the MOT and the BLOM cooperated closely in responding to international requests for information, so this merger has not changed the nature of the Dutch reporting system. FIU-the Netherlands is part of the Egmont Group.
The MOT receives over 98 percent of unusual transaction reports electronically through its secure website. In 2004, the MOT received 174,835 unusual transaction reports, totaling over 3.2 billion euros (approximately $4 billion) and forwarded 41,003 to the BLOM and other police services as suspicious transactions for further investigation. In 2005, the MOT received 181,623 reports, totaling over 1.1 billion euros (approximately $1.4 billion), and forwarded 38,481 to the BLOM and other police services. The average amount reported was 29,000 euros (approximately $36,500) in 2005, a decrease from the 79,000 euros (approximately $94,500) average reported in 2004. Reportedly, this significant decrease was due to a few large transactions in the previous year.
In order to facilitate the forwarding of suspicious transactions, the MOT and BLOM created an electronic network called Intranet Suspicious Transactions (IST). Fully automatic matches of data from the police databases are included with the unusual transaction reports forwarded to the BLOM. On January 1, 2003, the MOT and BLOM formed a special unit (the MBA-unit) to work together to analyze data generated from the IST. Once the data is analyzed by the MBA-unit, it forwards reports to the police. Since the money laundering detection system also covers areas outside the financial sector, the system is used for detecting and tracing terrorist financing activity. MOT/BLOM provides the anti-money laundering division of Europol with suspicious transaction reports, and Europol applies the same analysis tools as BLOM.
The Netherlands has enacted legislation governing asset forfeiture. The 1992 Asset Seizure and Confiscation Act enables authorities to confiscate assets that are illicitly obtained or otherwise connected to criminal acts. The GON amended the legislation in 2003 to improve and strengthen the options for identifying, freezing, and seizing criminal assets. The police and several special investigation services are responsible for enforcement in this area. These entities have adequate powers and resources to trace and seize assets. All law enforcement investigations into serious crime may integrate asset seizure.
Authorities may seize any tangible assets, such as real estate or other conveyances that were purchased directly with the proceeds of a crime tracked to illegal activities. Property subject to confiscation as an instrumentality may consist of both moveable property and claims. Assets can be seized as a value-based confiscation. Asset seizure and confiscation legislation also provides for the seizure of additional assets controlled by a drug trafficker. Legislation defines property for the purpose of confiscation as "any object and any property right." Proceeds from narcotics asset seizures and forfeitures are deposited in the general fund of the Ministry of Finance. Dutch authorities have not identified any significant legal loopholes that allow drug traffickers to shield assets.
In order to promote the confiscation of criminal assets, the GON has instituted special court procedures. These procedures enable law enforcement to continue financial investigations in order to prepare confiscation orders after the underlying crimes have been successfully adjudicated. All police and investigative services in the field of organized crime rely on the real time assistance of financial detectives and accountants, as well as on the assistance of the Proceeds of Crime Office (BOOM), a special bureau advising the Office of the Public Prosecutor in international and complex seizure and confiscation cases. To further international cooperation in this area, the Camden Asset Recovery Network (CARIN) was set up in The Hague in September 2004. BOOM played a leading role in the establishment of this informal international network of asset recovery specialists, whose aim is the exchange of information and expertise in the area of asset recovery.
Statistics provided by the Office of the Public Prosecutor show that the amount of assets seized in 2005 amounted to 11 million euros (approximately $14.5 million). The United States and the Netherlands have had an asset-sharing agreement in place since 1994. The Netherlands also has an asset-sharing treaty with the United Kingdom, and an agreement with Luxembourg.
In June 2004, the Minister of Justice sent an evaluation study to the Parliament on specific problems encountered with asset forfeiture in large, complex cases. In response to this report, the GON announced several measures to improve the effectiveness of asset seizure enforcement, including steps to increase expertise in the financial and economic field, assign extra public prosecutors to improve the coordination and handling of large, complex cases, and establish a specific asset forfeiture fund. The Office of the Public Prosecutor has designed a new centralized approach for large confiscation cases and a more flexible approach for handling smaller cases. Both took effect in 2006 and significantly increase BOOM's capacity to handle asset forfeiture cases.
Terrorist financing is a crime in the Netherlands. In August 2004, the Act on Terrorist Crimes, implementing the 2002 EU framework decision on combating terrorism, became effective. The Act makes recruitment for the Jihad and conspiracy with the aim of committing a serious terrorist crime separate criminal offenses. In 2004, the government created a National Counterterrorism Coordinator's Office to streamline and enhance Dutch counterterrorism efforts.
UN resolutions and EU regulations form a direct part of the national legislation on sanctions in the Netherlands. The "Sanction Provision for the Duty to Report on Terrorism" was passed in 1977 and amended in June 2002 to implement European Union (EU) Regulation 2580/2001. United Nations Security Council Resolution (UNSCR) 1373 is implemented through Council Regulation 2580/01; listing is through the "Clearing-House" procedure. The ministerial decree provides authority to the Netherlands to identify, freeze, and seize terrorist finance assets. The decree also requires financial institutions to report to the MOT all transactions (actually carried out or intended) that involve persons, groups, and entities that have been linked, either domestically or internationally, with terrorism. Any terrorist crime will automatically qualify as a predicate offense under the Netherlands "all offenses" regime for predicate offenses of money laundering. Involvement in financial transactions with suspected terrorists and terrorist organizations listed on the United Nations (UN) 1267 Sanctions Committee's consolidated list or designated by the EU has been made a criminal offense. The Dutch have taken steps to freeze the assets of individuals and groups included on the UNSCR 1267 Sanctions Committee's consolidated list. UNSCR 1267/1390 is implemented through Council Regulation 881/02. Sanctions Law 1977 also addresses this requirement parallel to the regulation in the Netherlands.
The Netherlands does not require a collective EU decision to identify and freeze assets suspected of being linked to terrorism nationally. In these cases, the Minister of Foreign Affairs and the Minister of Finance make the decision to execute the asset freeze. Decisions take place within three days after identification of a target. Authorities have used this instrument several times in recent years. In three cases, national action followed the actions taking place on the EU level. In one case, the entity was included on the UN 1267 list and was automatically included in the list that is part of EU regulation 2002/881. In two other cases, the Netherlands successfully nominated the entity/individual for inclusion on the autonomous EU list that is compiled pursuant to Common Position 2001/931.
The Act on Terrorist Offenses took effect on August 10, 2004. The Act introduces Article 140A of the Criminal Code, which criminalizes participation in an organization when the intent is to commit acts of terrorism, and defines participation as membership or providing provision of monetary or other material support. Article 140A carries a maximum penalty of fifteen years' imprisonment for participation in and life imprisonment for leadership of a terrorist organization. The GON is considering new legislation that would expand, among other things, investigative powers and the use of coercive measures in antiterrorist inquiries. In June 2004, the Dutch for the first time successfully convicted two individuals of terrorist activity allowing use of intelligence of the General Intelligence and Security Service (AIVD) as evidence. Nine individuals were convicted in March 2006 on charges of membership in a terrorist organization.
Unusual transaction reports by the financial sector act as the first step against the abuse of religious organizations, foundations and charitable institutions for terrorist financing. No individual or legal entity using the financial system (including churches and other religious institutions) is exempt from the identification requirement. Financial institutions must also inquire about the identity of the ultimate beneficial owners. The second step, provided by Dutch civil law, requires registration of all active foundations in the registers of the Chambers of Commerce. Each foundation's formal statutes (creation of the foundation must be certified by a notary of law) must be submitted to the Chambers. Charitable institutions also register with, and report to, the tax authorities in order to qualify for favorable tax treatment. Approximately 15,000 organizations (and their managements) are registered in this way. The organizations must file their statutes, showing their purpose and mode of operations, and submit annual reports. Samples are taken for auditing. Finally, many Dutch charities are registered with or monitored by private "watchdog" organizations or self-regulatory bodies, the most important of which is the Central Bureau for Fund Raising. In April 2005, the GON approved a plan to replace the current initial screening of founders of private and public-limited partnerships and foundations with an ongoing screening system. The new system will be introduced in 2007 to improve Dutch efforts to fight fraud, money laundering, and terrorist financing.
Data about alternative remittance systems such as hawala or informal banking as a potential money laundering/terrorist financing source is still scarce. Initial research by the Dutch police and Internal Revenue Service and Economic Control Service (FIOD/ECD) indicates that the number of informal banks and hawaladars in the Netherlands is rising. The Dutch Government plans to implement improved procedures for tracing and prosecuting unlicensed informal or hawala-type activity, with the Dutch Central Bank, FIOD/ECD, the Financial Expertise Center, and the Police playing a coordinating and central role. The Dutch Finance Ministry has participated in a World Bank-initiated international survey on money flows by immigrants to their native countries, with a focus on relations between the Netherlands and Suriname. The Dutch Central Bank will also initiate a study into the number of informal banking institutions in the Netherlands. In Amsterdam, a special police unit has been investigating underground bankers. These investigations have resulted in the disruption of three major underground banking schemes.
The Netherlands is in compliance with all FATF Recommendations, with respect to both legislation and enforcement. The Netherlands also complies with the Second and Third EU Money Laundering Directives. The Dutch have implemented some obligations resulting from these directives, such as effective supervision of money transfer offices, trust and service provider companies, and the incorporation of reporting on terrorist financing.
The United States enjoys good cooperation with the Netherlands in fighting international crime, including money laundering. In September 2004, the United States and the Netherlands signed two agreements in the area of mutual legal assistance and extradition, stemming from the agreements that were concluded in 2003 between the EU and the United States. One of the amendments to the existing bilateral agreement is the exchange of information on bank accounts.
The MOT supervised the PHARE Project for the European Union (March 2002-December 2003). The PHARE Project was the European Commission's Anti-Money Laundering Project for Economic Reconstruction Assistance to Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria, Cyprus, and Malta. The purpose of the project was to provide support to Central and Eastern European countries in the development and/or improvement of anti-money laundering regulations. Although the PHARE project concluded in December 2003, the MOT has moved forward with the development of the FIU.NET Project, (an electronic exchange of current information between European FIUs by means of a secure intranet). In March 2006, the Dutch hosted a major international terrorist financing conference.
The Netherlands is a member of the Financial Action Task Force and the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). The Netherlands participates in the Caribbean Financial Action Task Force as a Cooperating and Supporting Nation. As a member of the Egmont Group, MOT has established close links with the U.S Treasury's FinCEN as well as with other Egmont members, and is involved in efforts to expand international cooperation. The Netherlands is a party to the 1988 UN Drug Convention, and the UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime.
The Netherlands should continue with its plans for a screening system for private and public-limited partnerships, and implement requirements for all charities to register with a state or state-sanctioned body that is set up to perform screening. The GON should also devote more resources toward getting better data and a better understanding of alternate remittance systems in the Netherlands, and channel more investigative resources toward underground banks. The Netherlands should also continue to its plans to implement improved procedures for tracing informal bank systems, including prosecution procedures where appropriate, and improve coordination vis-?-vis the responsibilities of the various involved agencies.
The Netherlands Antilles is comprised of the islands of Curacao, Bonaire, Dutch Sint Maarten, Saba, and Sint Eustatius. Though a part of the Kingdom of the Netherlands, the Netherlands Antilles has autonomous control over its internal affairs. The Government of the Netherlands Antilles (GONA) is located in Willemstad, the capital of Curacao, which is also the financial center for the five islands. A significant offshore sector and loosely regulated free trade zones, as well as narcotics trafficking and a lack of border control between Sint Maarten (the Dutch side of the island) and St. Martin (the French side), create opportunities for money launderers in the Netherlands Antilles.
The islands have seven local commercial banks, four foreign commercial banks, 12 credit unions, six specialized credit institutions, one savings bank, four savings and credit funds, 15 consolidated international banks and 19 nonconsolidated international banks. There are 54 institutional investors operating in the Netherlands Antilles, including ten life insurance companies, 20 non-life insurance companies and 24 pension funds. There are also two life captive-insurance businesses, 15 non-life captive-insurance business and four professional re-insurers.
The Netherlands Antilles has a significant offshore financial sector with 229 trust service companies providing financial and administrative services to an international clientele, which includes offshore companies, mutual funds and international finance companies. As of September 2006, there were a total of 15,009 offshore companies registered with the Chamber of Commerce in the Netherlands Antilles, as is required by law. International corporations may be registered using bearer shares. The practice of the financial sector in the Netherlands Antilles is for either the bank or the company service providers to maintain copies of bearer share certificates for international corporations, which include information on the beneficial owner(s). The Netherlands Antilles also permits internet gaming companies to be licensed on the islands. There are currently 32 licensed internet gaming companies.
On February 1, 2001, the GONA approved proposed amendments to the free zone law to allow e-commerce activities into these areas (National Ordinance Economic Zone no.18, 2001). It is no longer necessary for goods to be physically present within the zone as was required under the former free zone law. Furthermore, the name "Free Zone" was changed to "Economic Zone" (e-zone). Seven areas within the Netherlands Antilles qualify as e-zones, five of which are designated for e-commerce. The remaining two e-zones, located at the Curacao airport and harbor, are designated for goods. These zones are minimally regulated; however, administrators and businesses in the zones have indicated an interest in receiving guidance on detecting unusual transactions.
Money laundering is a criminal offence in the Netherlands Antilles. Legislation in 1993 and subsequent interpretations regarding the underlying crime establish that prosecutors do not need to prove that a suspected money launderer also committed an underlying crime in order to obtain a money laundering conviction. Thus, it is sufficient to establish that the money launderer knew, or should have known, of the money's illegal origin. Suspicious transactions are required by law to be reported to the financial intelligence unit (FIU), the Meldpunt Ongebruikelijke Transacties (MOT NA).
In recent years, the GONA has taken steps to strengthen its anti-money laundering regime by expanding suspicious activity reporting requirements to nonfinancial sectors; introducing indicators for the reporting of unusual transactions for the gaming industry; issuing guidelines to the banking sector on detecting and deterring money laundering; and modifying existing money laundering legislation that penalizes currency and securities transactions by including the use of valuable goods. The 2002 National Ordinance on Supervision of Fiduciary Business institutes the Supervisory Board to oversee the international financial sector. At the same time, the GONA imposed know-your-customer rules upon the sector. A GONA interagency anti-money laundering working group cooperates with its Kingdom counterparts.
Both bank and nonbank financial institutions, such as company service providers and insurance companies, are under the obligation to report unusual transactions to the MOT NA. Each financial sector has its own reporting threshold amount. The GONA is currently amending its legislation to add new reporting entities, including lawyers, accountants, notaries, jewelers and real estate agents. It is expected that the legislation will be passed in 2007.
Through October 2006, 10,788 suspicious transaction reports totaling $1.3 billion were received by the MOT NA. Of these, 283 were reported to the relevant law enforcement authorities. The MOT NA currently has a staff of nine, and is engaged in increasing the effectiveness and efficiency of its reporting system. Significant progress has been reported in automating unusual activity reporting. Additionally, the MOT NA has issued a manual for casinos on how to file reports and has started to install software in casinos that will allow reports to be submitted electronically.
The Central Bank of the Netherlands Antilles supervises all banking and credit institutions, including banks for local and international business, specialized credit institutions, savings banks, credit unions, credit funds and pension funds. The laws and regulations on bank supervision provide that international banks must have a physical presence and maintain records on the island. The Central Bank also supervises insurance companies, insurance brokers, mutual funds and administrators of these funds, all of which must be licensed by the Central Bank. As of 2003, supervision of the company service providers in the Netherlands Antilles was transferred to the Central bank.
The Central Bank updated its anti-money laundering guidelines in 2003. These guidelines are more closely focused on banks, insurance companies, pension funds, money transfer services, financial administrators, and company service providers and specifically include terrorism financing indicators. Entities under supervision must submit an annual statement of compliance. The Central Bank has provided training to different sectors on the guidelines. The Central Bank also established the Financial Integrity Unit to monitor corporate governance and market behavior.
As of May 2002, all persons entering or leaving one of the island territories of the Netherlands Antilles shall report money of NAF 20,000 (approximately US$11,300) or more in cash or bearer instruments to Customs officials. This provision also applies to those entering or leaving who are demonstrably traveling together and who jointly carry with them money for a value of NAF 20,000 or more. Declaration of currency exceeding the threshold must include origin and destination. Violators may be fined up to NAF 250,000 (approximately $142,000) and/or face one year in prison.
In 2000, the National Ordinance on Freezing, Seizing and Forfeiture of Assets Derived from Crime was enacted. The law allows the prosecutor to seize the proceeds of any crime proven in court.
Terrorist financing is not a crime in the Netherlands Antilles. However, in January 2002, the GONA enacted legislation allowing a judge or prosecutor to freeze assets related to the Taliban and Usama Bin Laden, as well as all persons and companies connected with them. The legislation contains a list of individuals and organizations suspected of terrorism. The Central Bank instructed financial institutions to query their databases for information on the suspects and to immediately freeze any assets found. In October 2002, the Central Bank instructed the financial institutions under its supervision to continue these efforts and to consult the UN website for updates to the list.
Netherlands Antilles' law allows the exchange of information between the MOT NA and foreign FIUs by means of memoranda of understanding and by treaty. The MOT NA's policy is to answer requests within 48 hours of receipt. A tax information exchange agreement (TIEA) was signed between the Netherlands Antilles and the United States. As of the end of 2006, implementing legislation was pending the GONA parliament to allow this agreement to go into effect. The Mutual Legal Assistance Treaty between the Netherlands and the United States applies to the Netherlands Antilles. The U.S.-Netherlands Agreement Regarding Mutual Cooperation in the Tracing, Freezing, Seizure and Forfeiture of Proceeds and Instrumentalities of Crime and the Sharing of Forfeited Assets also applies to the Netherlands Antilles.
The MOT NA is a member of the Egmont Group. The Netherlands Antilles is also a member of the Caribbean Financial Action Task Force (CFATF), and as part of the Kingdom of the Netherlands, participates in the Financial Action Task Force (FATF). In 1999, the Netherlands extended application of the 1988 UN Drug Convention to the Netherlands Antilles. The Kingdom of the Netherlands became a party to the UN International Convention for the Suppression of the Financing of Terrorism in 2002. In accordance with Netherlands Antilles' law, which stipulates that all the legislation must be in place prior to ratification, the GONA is preparing legislation to ratify the Convention.
The Government of the Netherlands Antilles has demonstrated a commitment to combating money laundering. The Netherlands Antilles should continue its focus on increasing regulation and supervision of the offshore sector and free trade zones, as well as pursuing money laundering investigations and prosecutions. The GONA should criminalize the financing of terrorism and enact the necessary legislation to implement the UN International Convention for the Suppression of the Financing of Terrorism.
Nicaragua is not a regional financial center. Nicaragua is not a major drug producing country, but continues to serve as a significant transshipment point for South American cocaine and heroin destined for the United States and-on a smaller scale-for Europe. There is evidence that the narcotics trade is increasingly linked to arms trafficking. This situation, combined with weak adherence to rule of law, judicial corruption, the politicization of the public prosecutor's office and insufficient funding for law enforcement institutions, makes Nicaragua's financial system an attractive target for narcotics-related money laundering. Nicaraguan officials have expressed concern that, as neighboring countries have tightened their anti-money laundering laws, established financial intelligence units (FIUs) and taken other enforcement actions, more illicit money has moved into the vulnerable Nicaraguan financial system. However, this concern has not translated into an appreciable strengthening of Nicaragua's legal and institutional frameworks to effectively combat money laundering and the financing of terrorism.
Nicaragua's geographical position, with access to both the Atlantic and the Pacific Oceans and porous border crossings to its north and south, makes it an area heavily used by transnational organized crime groups. These groups also benefit from Nicaragua's weak legal system and its ineffective fight against financial crimes, money laundering, trafficking of immigrants and the financing of terrorism.
While Nicaragua has pledged to fight the financing of terrorism, money laundering and other financial crimes, limited resources, corruption (especially in the judiciary), and the lack of political will in some sectors continue to complicate efforts to counteract these criminal activities. Nicaragua has recently made improvements to its oversight and regulatory control of its financial system. The current Prosecutor General and some Supreme Court justices advocate a narrow interpretation of money laundering law, claiming that, as written, Nicaraguan law only penalizes the laundering of proceeds of narcotics trafficking and not of other illegal activities. This position is believed to be politically motivated, as it would provide legal justification to overturn the conviction of former president Arnoldo Aleman for laundering the proceeds of corruption-related offenses. Regardless of this legally erroneous position, the Prosecutor General still refuses to prosecute narcotics offenders for money laundering despite ample evidence to support these types of cases. In the last 18 months, the National Prosecutor's Office has not prosecuted a single money laundering case, including those involving drug traffickers with large stashes of U.S. currency who have been arrested on Nicaraguan soil. This enforcement problem is exacerbated by the fact that the country does not have an operational FIU. All attempts to correct this deficiency have been stalled in the National Assembly, awaiting final resolution of Arnoldo Aleman's money laundering conviction.
A number of foreign institutions own significant shares of the Nicaraguan financial sector. In 2005, GE Consumer Finance, one of the largest financial service firms in the world, bought a 49.99 percent stake in Banco de America Central (BAC), which operates in several Central American countries, including Nicaragua. In October 2006, Citibank purchased a significant share of Grupo Financiero Uno's Central American operations, which include credit cards, commercial banking, insurance and brokerage firms. The deal awaits regulatory approval. Banistmo, a Panamanian bank, operates in Nicaragua. Bancentro/Lafise, a financial institution covering all commercial banking and insurance services, maintains operations in El Salvador, Guatemala and Honduras. The entry into force on April 1, 2006, of the Central America/Dominican Republic Free Trade Agreement (CAFTA-DR) and increased pace of regional integration suggest growing involvement of Nicaraguan financial institutions with international partners and clients. Most large Nicaraguan banks already maintain correspondent relationships with Panamanian institutions.
Nicaragua does not permit direct offshore bank operations, but it does permit such operations through nationally chartered entities. Bank and company bearer shares are permitted. Nicaragua has a well-developed indigenous gaming industry, which remains largely unregulated. Two competing casino regulations bills are currently in the National Assembly; the main difference between the bills is whether regulatory authority will fall under the tax authority or if an independent institution will be established to supervise the industry. There are no known offshore or internet gaming sites in Nicaragua.
In 2005, the National Assembly reformed the law governing Nicaragua's general banks, nonbank financial institutions and financial groups, bringing it in line with Basel II international banking regulations. When enforced properly, the law will hold bank officials responsible for all of their institution's actions, including failure to report money laundering. Article 164 of the law calls for sanctions for financial institutions and professionals of the financial sector, including internal auditors who do not develop anti-money laundering programs or do not report to the appropriate authorities suspicious and unusual transactions that may be linked to money laundering, as required by the anti-money laundering law.
In 1999, Nicaragua passed Law 285, which requires all financial institutions under the supervision of the Superintendence of Banks and Other Financial Institutions (SIBOIF) to report cash deposits over $10,000 and suspicious transactions to the SIBOIF. The SIBIOF then forwards the reports to the Commission of Financial Analysis (CAF). All persons entering or leaving Nicaragua are also required to declare the transportation of currency in excess of $10,000 or its equivalent in foreign currency. Law 285 is not, however, being used as an effective tool against money laundering crimes committed by organized crime groups. The National Prosecutor's and the Attorney General's legal positions on Law 285 differ significantly. The National Prosecutor, who also heads the CAF, has sought to limit the application of the money laundering law to drug crimes. The Attorney General has led President Bolanos's charge against public corruption, and has argued in and out of court that the money laundering law as written applies to public corruption and other nondrug crimes.
On paper, the CAF is composed of representatives from various elements of law enforcement and banking regulators and is responsible for detecting money laundering trends, coordinating with other agencies and reporting its findings to Nicaragua's National Anti-Drug Council. The CAF does not analyze the information received, and is not considered to be a professional or independent unit. It is ineffective due to an insufficient budget, the politicization of its leadership, and a lack of trained personnel, equipment and strategic goals. The CAF is headed by the National Prosecutor, who receives the reports from banks and decides whether to refer them to the Nicaraguan National Police (NNP) for further investigation. The Economics Crimes Unit within the NNP is in charge of investigating financial crimes, including money laundering and terrorist financing. The Nicaraguan Deputy Attorney General is critical of the inactivity and ineffectiveness of the CAF. He has claimed that of the suspicious activity reports received by the CAF from financial institutions, not a single criminal money laundering investigation-including those related to drug trafficking-has been initiated by the National Prosecutor.
Legislation that would improve Nicaragua's anti-money laundering regime has been stalled in the National Assembly for years. There are at least two pending bills: an amended drug and anti-money laundering law which would better define the crime of money laundering, and a special bill to create a central FIU that would replace and enhance the functions of the CAF and establish more stringent reporting requirements.
Draft legislation to criminalize terrorist financing is under consideration by the National Assembly, without any sign of imminent passage. In spite of the lack of terrorist financing legislation, many elements of terrorist financing can theoretically be prosecuted under existing laws. Through five SIBIOF administrative decrees, Nicaragua also has the authority to identify, freeze and seize terrorist-related assets, but has not as yet identified any such active cases. However, Nicaragua has not yet established the financing of terrorism as a criminal offense, placing it in a position of noncompliance with international standards.
Reportedly, there are no hawala or other similar alternative remittance systems operating in Nicaragua, and Nicaragua has not detected any use of gold, precious metals or charitable organizations to disguise transactions related to terrorist financing. However, there are informal "cash and carry" networks for delivering remittances from abroad. Over 300 micro-finance institutions exist in Nicaragua, serving over 300,000 clients, dominating the informal economy and managing a significant portion of the remittances. This sector has grown steadily at about 25 percent per year since 1999. While currently unregulated, a bill to bring this sector under the authority of the SIBOIF will be presented to the National Assembly in 2007.
Corruption within the judiciary is a serious problem: judges often let detained drug suspects go free after a short detention, a practice that puts drug traffickers back on the streets and thus increases the threat of money laundering. In a recent high profile case, judges released over $600,000 of funds from a suspected drug trafficker. From all indications, a number of judges may have been involved in the case and may have received payoffs. In another judicial scandal, two Mexican citizens believed to be involved in drug trafficking were acquitted, and over $300,000 in undeclared currency that Nicaraguan customs seized when they entered the country was returned to them. This case also involved a judge connected to the first drug-money scandal. Several judges have been exposed in the press for allegedly taking bribes to acquit drug traffickers at trials or to set aside their convictions on appeal. Other judges have been known to release drug defendants on bail for unsubstantiated medical reasons. Due to the rampant corruption in the Nicaraguan judiciary, the United States has cut off direct assistance to the Nicaraguan Supreme Court. U.S. anticorruption efforts have focused on creating a vetted Anti-Corruption Unit that would be housed within the NNP and include officials from the Attorney General's Office, with the aim of enhancing investigations and prosecutions of corruption, money laundering and related crimes.
In spite of corruption within the judicial branch, the SIBOIF is considered to be an independent and reputable financial institution regulator. The position of the Superintendent does not enjoy legal immunity, exposing the Superintendent to lawsuits from regulated institutions. Given the corrupt nature of the judicial system, this exposure can limit the willingness of SIBIOF to make "unpopular" decisions; however, the institution's financial experts have reached out to the NNP to work with them. For example, in December 2005, the SIBOIF closed down a business named Agave Azul that was allegedly operating an illegal Ponzi scheme. Agave Azul opened for business in May 2005, and by December 2005, approximately $8 million in U.S. currency had been deposited in its accounts in at least two U.S. banks. The SIBOIF notified the National Prosecutor about the scheme in early August 2005; however, the National Prosecutor has hampered the investigation through failure to act. Efforts to freeze the business' bank accounts in the United States were unsuccessful due to the failure of the NNP to provide complete financial information, and the unwillingness of the National Prosecutor to seek U.S. Government cooperation. Despite these failures, the case demonstrates the willingness of the SIBIOF and NNP to investigate financial crimes, and a substantial level of cooperation between the Attorney General's Office and the NNP on financial crimes and money laundering issues.
Nicaragua is a party to the 1988 United Nations Drug Convention, the UN International Convention on the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. On February 15, 2006, Nicaragua ratified the UN Convention against Corruption. Nicaragua has also ratified the Inter-American Convention on Mutual Legal Assistance in Criminal Matters and the Inter-American Convention against Terrorism. Nicaragua is a member of the Money Laundering Experts Working Group of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) and the Caribbean Financial Action Task Force (CFATF). CFATF, which monitors its members' compliance with the international anti-money laundering and counterterrorist financing standards established by the Financial Action Task Force (FATF), has criticized Nicaragua for its failure to prosecute money laundering beyond drug-related offenses, criminalize terrorist financing or create an effective FIU. Due to Nicaragua's failure to establish a functional FIU, it is the only country in Central America and one of the only countries in the Western Hemisphere that is not a member of the Egmont Group.
The Government of Nicaragua needs to enhance its limited efforts to combat financial crime by expanding the predicate crimes for money laundering beyond narcotics trafficking, criminalizing terrorist financing, allocating the necessary resources to develop an effective financial intelligence unit, and combating corruption. Nicaragua should develop a more effective method of obtaining information and cooperation from foreign law enforcement agencies and banks, take steps to immobilize its bearer shares and adequately regulate its gambling industry. These actions, coupled with increased enforcement, would significantly strengthen the country's financial system against money laundering and terrorist financing, and would bring Nicaragua closer to compliance with relevant international anti-money laundering and counterterrorist financing standards and controls.
The Federal Republic of Nigeria is the most populous country in Africa and is West Africa's largest democracy. Although Nigeria is not an offshore financial center; its large economy is a hub for the trafficking of persons and narcotics. Nigeria is a major drug-transit country and is a center of criminal financial activity for the entire continent. Individuals and criminal organizations have taken advantage of the country's location, weak laws, systemic corruption, lack of enforcement, and poor economic conditions to strengthen their ability to perpetrate all manner of financial crimes at home and abroad. Nigerian criminal organizations are adept at devising new ways of subverting international and domestic law enforcement efforts and evading detection. Their success in avoiding detection and prosecution has led to an increase in many types of financial crimes, including bank fraud, real estate fraud, identity theft, and advance fee fraud. Despite years of government effort to counter rampant crime and corruption, Nigeria continues to be plagued by crime. The establishment of the Economic and Financial Crimes Commission (EFCC) along with the Independent Corrupt Practices Commission (ICPC) and the improvements in training qualified prosecutors for Nigerian courts yielded some successes in 2005 and 2006.
In addition to narcotics-related money laundering, advance fee fraud is a lucrative financial crime that generates hundreds of millions of illicit dollars annually for criminals. Nigerian criminals initially made the advance fee fraud scheme infamous. Today, nationals of many African countries and from a variety of countries around the world also perpetrate advance fee fraud. This type of fraud is referred to internationally as "Four-One-Nine" (419), a reference to the fraud section in Nigeria's criminal code. While there are many variations, the main goal of 419 frauds is to deceive victims into the payment of a fee by persuading them that they will receive a very large benefit in return, or by persuading them to pay fees to "rescue" or help a newly-made "friend" in some sort of alleged distress. . A majority of these schemes end after the victims have suffered monetary losses, but some have also involved kidnapping, and/or murder. Through the internet, businesses and individuals around the world have been, and continue to be, targeted by perpetrators of 419 scams. The EFCC has tried to combat 419-related cyber crimes, but there have only been a few recorded successes as a result of their cyber crime initiatives.
In June 2001, the Financial Action Task Force (FATF) placed Nigeria on its list of noncooperative countries and territories (NCCT) in combating money laundering and in April 2002, the United States issued an advisory to inform banks and other financial institutions operating in the United States of serious deficiencies in the anti-money laundering regime of Nigeria and to warn U.S. banks to give "enhanced scrutiny" to all financial transactions emanating from Nigeria or going to, or through it. In December 2002, Nigeria enacted three pieces of legislation: an amendment to the 1995 Money Laundering Act that extends the scope of the law to cover the proceeds of all crimes; an amendment to the 1991 Banking and Other Financial Institutions (BOFI) Act that expands coverage of the law to stock brokerage firms and foreign currency exchange facilities, gives the Central Bank of Nigeria (CBN) greater power to deny bank licenses, and allows the CBN to freeze suspicious accounts; and the Economic and Financial Crimes Commission (Establishment) Act that establishes the Economic and Financial Crimes Commission (EFCC), that coordinates anti-money laundering investigations and information sharing. The Economic and Financial Crimes Commission Act also criminalizes the financing of terrorism and participation in terrorism. Violation of the Act carries a penalty of up to life imprisonment.
In May 2006, the FATF visited Nigeria to conduct an evaluation of the revisions made to the government's anti-money laundering regime. FATF recognized the progress Nigeria made in implementing AML policies, the establishment of a financial intelligence unit (FIU) and the progress on money laundering investigations, prosecution and convictions. As a result, Nigeria was removed from the NCCT but the FATF enhanced monitoring its efforts for compliance with international standards.
In April 2003, the EFCC was formally constituted, with the primary mandate to investigate and prosecute financial crimes. It has recovered or seized assets from various people guilty of fraud inside and outside of Nigeria, including a syndicate that included highly placed government officials who were defrauding the Federal Inland Revenue Service (FIRS). Several influential individuals have been arrested and are currently awaiting trial. In an effort to expedite the trial process, the Commission has been assigned two high court judges in Lagos and two in Abuja to hear all cases involving financial crimes.
In 2004, the National Assembly passed the Money Laundering (Prohibition) Act (2004), which applies to the proceeds of all financial crimes. It also covers stock brokerage firms and foreign currency exchange facilities, in addition to banks and financial institutions. The legislation gives the CBN greater power to deny bank licenses and freeze suspicious accounts. This legislation also strengthens financial institutions by requiring more stringent identification of accounts, removing a threshold for suspicious transactions, and lengthening the period for retention of records. In November 2004, the EFCC reported that the great majority of Nigeria's banks were not in compliance with the new law, typically by not adhering to the due diligence provisions of the law and by neglecting to file suspicious transactions reports (STRs). The EFCC promised a new initiative to educate bank personnel and the general public about the provisions of the law before imposing sanctions for noncompliance. Nigeria has not yet detected a case of terrorist financing laundered through the banking system. The UNSCR 1267 Sanctions Committee's consolidated list is periodically distributed to Nigerian financial institutions.
Under the 2004 Money Laundering (Prohibition) Act and 1995 Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, money laundering controls apply to nonbanking financial institutions. These institutions include: dealers in jewelry, cars and luxury goods, chartered accountants, audit firms, tax consultants, clearing and settlement companies, legal practitioners, hotels, casinos, supermarkets and other such businesses as the Federal Ministry of Commerce may designate. To date, the oversight of compliance by the Ministry of Commerce has not been very rigorous or effective.
In 2004, the Economic and Financial Crimes Commission (Establishment) Act of 2002 was amended. The 2004 EFCC act enlarged the number of EFCC board members, enabled the EFCC police members to bear arms, and banned interim court appeals that hinder the trial court process. The commission's primary mandate is to investigate and prosecute financial crimes, and in particular to coordinate anti-money laundering investigations and information sharing in Nigeria and internationally.
In 2005, the EFCC established the Nigerian Financial Intelligence Unit (NFIU). The NFIU draws its powers from the Money Laundering (Prohibition) Act of 2004 and the Economic and Financial Crimes Commission Act of 2004. It is the central agency for the collection, analysis and dissemination of information on money laundering and terrorism financing. All financial institutions and designated nonfinancial institutions are required by law to furnish the NFIU with details of their financial transactions. Provisions have been included to give the NFIU power to receive suspicious transaction reports made by financial institutions and nondesignated financial institutions, as well as to receive reports involving the transfer to or from a foreign country of funds or securities exceeding $10,000 in value.
The NFIU is a significant component of the EFCC. It complements the EFCC's directorate of investigations but does not carry out its own investigations. The NFIU fulfills a crucial role in receiving and analyzing STRs. As a result, banks have improved both their timeliness and quality in filing STRs reported to the NFIU. Under the EFCC Act, safe-harbor provisions are provided. Nigeria has no secrecy laws that prevent the disclosure of client and ownership information by domestic financial services companies to bank regulatory and law enforcement authorities. The NFIU has access to records and databanks of all government and financial institutions, and it has entered into memorandums of understandings (MOUs) on information sharing with several other financial intelligence centers. The establishment of the NFIU was part of Nigeria's efforts towards the removal of Nigeria from the NCCT list.
Nigeria criminalized the financing of terrorism under the Economic and Financial Crimes Commission (Establishment) Act of 2004. The EFCC has authority under the act to identify, freeze, seize, and forfeit terrorist finance-related assets. Due to the recent creation of the EFCC, the enactment of new laws, and a successful public enlightenment campaign, crimes such as bank fraud and counterfeiting are being reported and prosecuted for the first time. In addition to the EFCC, the National Drug Law Enforcement Agency (NDLEA), the Independent Corrupt Practices Commission (ICPC), and the Criminal Investigation Department of the Nigeria Police Force (NPF/CID) are empowered to investigate financial crimes. The Nigerian Police Force is incapable of handling financial crimes because of corruption and poor institutional capacity. Currently, the EFCC is the agency most capable of effectively investigating and prosecuting financial crimes, including money laundering and terrorist financing. The EFCC coordinates all other agencies in financial crimes investigations.
In 2005, the EFCC marked significant successes in combating financial crime. Two fraudsters in a Brazilian bank scam involving a total of $242 million in assets were successfully prosecuted and convicted for terms of 25 and 12 years in prison, respectively. Their assets were seized, and they were ordered to give $110 million in restitution to the bank. The EFCC also returned $4.481 million to an elderly woman swindled by a Nigerian 419 kingpin in 1995. The kingpin was arrested, prosecuted, convicted, and is serving his prison sentence. A former inspector general of police was arrested and prosecuted for financial crimes valued at over $13 million. His assets were seized and bank accounts frozen. He is currently serving a prison sentence and still faces 92 charges of money laundering and official corruption. Currently, two sitting state governors are the subject of money laundering investigations. The EFCC, working with the FBI, also has an active case involving a group of money brokers using banks in the United States to launder money. The money laundering legislation of 2004 has given the EFCC the authority to investigate and prosecute such cases. The EFCC also has the authority to prevent the use of charitable and nonprofit entities as laundering vehicles, though no such case has yet been reported. There were 23 money laundering convictions in 2005 and 96 convictions through October 2006. The trial court process has improved after several experienced judges were assigned specifically to handle EFCC cases; this has motivated EFCC officials to bring more cases to court. Since its establishment the EFCC has reportedly seized assets worth $5 billion.
Depending on the nature of the case, the tracing, seizing, and freezing of assets may be done by the NDLEA, NPF, or the ICPC, in addition to the EFCC. The proceeds from seizures and forfeitures are remitted to the federal government, and a portion of the recovered sums is used to provide restitution to the victims of the criminal acts. While the NDLEA has the authority to handle narcotics-related cases, it does not have adequate resources to trace, seize, and freeze assets. Cases of this nature are usually referred to the EFCC. There were no significant narcotics related assets seizures in 2006.
For cases that are investigated by the EFCC, the seizure of property is governed by the EFCC (Establishment) Act of 2004. Section 20 of the act provides for the forfeiture of assets and properties to the federal government after the accused has been convicted of money laundering, including foreign assets acquired as a result of such crime. The properties subject to forfeiture are set forth in Section 24. They include any real or personal property that represents the gross receipts a person obtains directly as a result of the violation of the act or which is traceable to such gross receipts. They also include any property that represents the proceeds of an offense under the laws of a foreign country within whose jurisdiction such offense or activity would be punishable for a term exceeding one year. Section 25 states that all means of conveyance, including aircraft, vehicles, or vessels that are used or intended to be used to transport or in any manner to facilitate the transportation, sale, receipt, possession or concealment of economic or financial crimes would be punishable. Section 26 provides for circumstances under which property subject to forfeiture may be seized. Under the NDLEA act, farms on which illicit crops are cultivated can be destroyed. The banking community is cooperating with law enforcement to trace funds and seize or freeze bank accounts. It should be noted, however, that forfeiture is currently possible only under the criminal law. There is no comparable law governing civil forfeiture, but a committee has been set up by the EFCC to draft such legislation.
Nigeria is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. Nigeria ranks 146 out of 163 countries in Transparency International's 2006 Corruption Perception Index. The United States and Nigeria have a Mutual Legal Assistance Treaty, which entered into force in January 2003. Nigeria has signed memoranda of understanding with Russia, Iran, India, Pakistan and Uganda to facilitate cooperation in the fight against narcotics trafficking and money laundering. Nigeria has also signed bilateral agreements for exchange of information on money laundering with South Africa, the United Kingdom, and all Commonwealth and Economic Community of West African States countries. Nigeria has been instrumental in the establishment of a permanent secretariat for the Intergovernmental Task Force against Money Laundering in West Africa (GIABA). Nigeria has also ratified the African Union Convention on Preventing and Combating Corruption, which was adopted in Mozambique in July 2003.
The Government of Nigeria has done a better job in preventing and pursuing money laundering both within and outside the country in 2006. It should continue to engage with the FATF and other relevant international organizations to identify and eliminate remaining anti-money laundering deficiencies. Nigeria should continue to pursue their anticorruption program and support both the ICPC and EFCC in their mandates to investigate and prosecute corrupt government officials and individuals, while at the same time maintaining the independence of those entities, and prevent political encroachment. The supervision of banking and nonbanking financial institutions should be further strengthened and moved from the Ministry of Commerce. Nigeria should continue towards implementation of a comprehensive anti-money laundering regime that promotes respect the rule of law, willingly shares information with foreign regulatory and law enforcement agencies, is capable of thwarting money laundering and terrorist financing, and maintains compliance with all relevant international standards.
Pakistan is not considered a regional or offshore financial center; however, financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion and corruption are significant problems. Pakistan is a major drug-transit country. As a result of tighter controls in the financial sector, smuggling, trade-based money laundering, hawala, and physical cross-border cash transfers are the common methods used to launder money and finance terrorism in Pakistan. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets. Pakistan has very little control of the border area, which allows the flow of smuggled goods to the Federally Administered Tribal Areas (FATA) and Balochistan. Goods such as foodstuffs, electronics, building materials, and other products that are primarily exported from Dubai to Karachi are falsely documented as destined for Afghanistan under the "Afghan Transit Trade Agreement," which allows goods to pass through Pakistan to Afghanistan exempt from Pakistani duties or tariffs. Through smuggling, corruption, avoidance of taxes, as well as barter deals for narcotics, many of the goods destined for Afghanistan find their way to the Pakistani black market. The proliferation of counterfeit goods and intellectual property rights violations generate substantial illicit proceeds that are laundered. A group of private, unregulated charities has also emerged as a major source of illicit funds for international terrorist networks. Another issue is the use of madrassas as training grounds for terrorists. The lack of control of madrassas, similar to the lack of control of Islamic charities, allows terrorist organizations to receive financial support under the guise of support of Islamic education.
Money laundering and terrorist financing are often accomplished in Pakistan via the alternative remittance system called hundi or hawala. This system is also widely used by the Pakistani people for informal banking and legitimate remittance purposes. Free trade zones do operate in Pakistan. The government established its first Export Processing Zone (EPZ) in Karachi in 1989 and has subsequently created additional EPZs in the Sindh and Balochistan provinces. Although no evidence has emerged of EPZs being used in money laundering, over-or under-invoicing is common in the region and could be used by entities operating out of these zones. Fraudulent invoicing is typical in hundi/hawala countervaluation schemes.
Pakistan has adopted measures to strengthen its financial regulations and enhance the reporting requirements for the banking sector, in order to reduce its susceptibility to money laundering and terrorism financing. For example, financial institutions must report within three days any funds or transactions they believe are proceeds of criminal activity. However, this is largely not observed by financial institutions because. Pakistan has not yet formally established a Financial Intelligence Unit (FIU) to which such reports of suspicious transactions can be filed. Additionally, there is no safe harbor provision for financial institutions to protect them from civil and criminal liability for filing such reports.
Pakistan has had a comprehensive anti-money laundering law under consideration by its parliament since 2005 although such legislation has not yet been enacted. As a result, the offense of money laundering cannot be prosecuted in Pakistan. Several law enforcement agencies have responsibility to enforce laws against financial crimes. The National Accountability Bureau (NAB), the Anti-Narcotics Force (ANF), the Federal Investigative Agency (FIA), and the Customs authorities all oversee Pakistan's law enforcement efforts. The major laws in these areas include: The Anti-Terrorism Act of 1997, which defines the crime of terrorist finance and establishes jurisdiction and punishments; the National Accountability Ordinance of 1999, which requires financial institutions to report corruption related suspicious transactions to the NAB and establishes accountability courts; and The Control of Narcotics Substances Act of 1997, which also requires the reporting of narcotics related suspicious transactions to the ANF, contains provisions for the freezing and seizing of assets associated with narcotics trafficking, and establishes special courts for the offenses (including financing) involving illegal narcotics. Because Pakistan lacks a central repository for the reporting of suspicious transactions, due to confusion over which law enforcement agency should receive reports and the lack of protection from liability for reporting, suspicious transactions go largely unreported. The implementing laws for the law enforcement agencies such as NA, ANF, and FIA include provisions to allow investigators to access financial records and conduct financial investigations. However, none of these laws provides for the establishment and funding of a FIU.
Since 2002, the Ministry of Finance has been coordinating an inter-ministerial effort to draft AML and counterterrorism financing legislation, with the goal of bringing Pakistan into compliance with international standards. As of November 2006, draft AML legislation has been approved by the Cabinet and is currently being reviewed by the Standing Committee on Finance in the National Assembly. The draft law provides for the establishment of an FIU; however, the bill as it currently stands, does not meet international standards in several key respects. One problem is with the asset forfeiture scheme, particularly where its application is dependent upon a prosecution for the predicate offense. Another issue is with the filing of suspicious transactions reports, where the imposition of a threshold requirement-the minimum transaction amount to trigger a report-has yet to be determined. A provision for the exchange of information with the U.S. on all-source money laundering is contained in the draft AML bill.
The State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) are Pakistan's primary financial regulators. Notwithstanding the absence of stand-alone AML legislation, the SBP and SECP have independently established AML units to enhance their oversight of the financial sector. The SBP has introduced regulations intended to be consistent with FATF recommendations in the areas of "know your customer" policy, record retention, due diligence of correspondent banks, and the reporting of suspicious transactions. The SECP, which has regulatory oversight for nonbank financial institutions, has applied "know your customer" regulations to stock exchanges, trusts, and other nonbank financial institutions.
Pakistan's cooperation in the global war on terrorism has brought renewed focus on the role of informal financial networks in financing terrorist activity. In June 2004, the SBP required all hawaladars to register as authorized foreign exchange dealers and to meet minimum capital requirements. Failure to comply was punished by forced closures. However, despite increased enforcement efforts, unregistered hawaladars continue to operate illegally. A large percentage of hawala transfers to Pakistan are for the repatriation of wages from the roughly five million Pakistani expatriates residing abroad. The U.S. Government has observed an increasing migration of transactions from the informal to the formal financial institutions sector, due to countries' increased awareness and regulation of hawala, post-September 11 changes in the behavior patterns of overseas Pakistanis, and a substantial increase in credit available in the formal financial sector.
Pakistan has criminalized the financing of terrorism under its Anti-Terrorism Act of 1997. It includes the provision that it is a crime to enter into or become part of an arrangement that facilitates retention or control of terrorist property by or on behalf of another person, by concealment, removal from the jurisdiction, transfer to nominees, or in any other way. Pakistan, through the SBP, circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee's consolidated list as being linked with Usama Bin Laden, members of the al-Qaida organization or the Taliban. SBP has the ability to freeze bank accounts and property held by these individuals and entities. However, there have been some deficiencies concerning the timeliness and thoroughness of the asset freezing.
The Ministry of Social Welfare is drafting a Charities Registration Act bill. Under this bill, charities would have to prove the identity of their directors and open their financial statements to government scrutiny. Currently, charities can register under one of a dozen different acts, some dating back to the middle of the nineteenth century. The Ministry hopes that when the new legislation is enacted, it will be better able to monitor suspicious charities and ensure that they have no links to designated terrorists or terrorist organizations. The Act is not expected to be passed during the next year
Reportedly, bulk cash couriers are the major source of funding for terrorist activities. According to the Pakistan Central Board of Revenue, cash smuggling is an offense punishable by up to five years in prison. It is illegal for passengers to carry more than $10,000 per person. It is illegal to bring money into Pakistan except through legal banking channels; however, there are no reporting requirements upon entering the country. There are joint counters at international airports staffed by the SBP and Customs to monitor the transportation of foreign currency. However, enforcement is spotty and corruption rampant.
Pakistan enforces existing drug related asset seizure and forfeiture laws. Pakistan's Anti Narcotics Force shares information about seized narcotics assets and the number of arrests with the USG. Section 12 of the Control of Narcotic Substances Act of 1997 criminalizes the acquisition and possession of assets derived from drug money. The Act also makes it an offense to conceal or disguise the true nature, source, location, disposition, movement or ownership of such assets through false declaration. The suspected assets and properties shall also be liable to forfeiture. The SBP has the ability to freeze assets while the NAB, FIA, and ANF have the ability to seize assets.
Pakistan is an active member of the Asia/Pacific Group on Money Laundering (APG), although its failure to enact an AML law has called into question its commitment to membership, since the terms of reference of APG membership require a country to develop, pass and implement anti-money laundering and antiterrorist financing legislation and other measures based on accepted international standards. In 2005, the APG member states conducted a peer review of Pakistan's AML/CTF laws, rules and procedures. APG representatives identified a number of deficiencies and highlighted the need for a comprehensive AML law.
Pakistan is party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Crime and the UN Convention against Corruption. Pakistan is 142 out of 163 countries monitored in Transparency International's 2006 Corruption Perception Index. Pakistan has not signed the UN International Convention for the Suppression of the Financing of Terrorism.
Five years after draft anti-money laundering (AML) legislation was first drafted, the Government of Pakistan should now move quickly to enact an AML law that comports with international standards. It also should issue financial regulations to consolidate and de-conflict the reporting of all suspicious transactions, and establish an FIU consistent with international standards. In addition, in light of the role that private charities have played in terrorist financing, Pakistan should work quickly to develop a system to regulate the finances of charitable organizations and to close those that finance terrorism. Pakistan also needs to exert greater efforts to track and suppress cash couriers. Per FATF Recommendation Nine, Pakistan should implement and enforce cross-border currency reporting requirements at a reporting threshold level that makes sense given the low-per capita income of the Pakistani people. Customs and financial police should be trained in recognizing trade-based money laundering and value transfer. Pakistan should explore establishing a Trade Transparency Unit (TTU) that will work with its major trading partners to examine trade anomalies that may be indicative of customs fraud and/or trade-based-money laundering. The establishment of a TTU could bring needed revenue streams to the government. Pakistan should become a party to the UN Convention against Transnational Organized Crime, the UN International Convention for the Suppression of Terrorist Financing, and the UN Convention against Corruption. Pakistan should take additional steps to address pervasive corruption at all levels of government and commerce.
Palau is an archipelago of more than 300 islands in the Western Pacific with a population of 20,900 and per capita GDP of about $7,267. Upon its independence in 1994, the Republic of Palau entered the Compact of Free Association with the United States. The U.S. dollar is legal tender. Palau is not a major financial center. Nor does it offer offshore financial services. There are no offshore banks, securities brokers/dealers or casinos in Palau. The Authorities report that within the last year at least one trust company has been registered, though the scope and size of its business is unknown. Palauan authorities believe that drug trafficking and prostitution are the primary sources of illegal proceeds that are laundered.
In January 2005, Palau prosecuted its first ever case under the Money Laundering and Proceeds of Crimes Act (MLPCA) of 2001 (MLPCA) against a foreign national engaged in a large prostitution operation. The defendant was convicted on all three counts as well as a variety of other counts. Subsequently, Palau has prosecuted three more money laundering cases obtaining convictions in two of the cases. Two of the cases involved domestic proceeds of crime, while one of the cases involved criminal conduct both within and outside of Palau.
Amid reports in late 1999 and early 2000 that offshore banks in Palau had carried out large-scale money laundering activities, a few international banks banned financial transactions with Palau. In response, Palau established a Banking Law Review Task Force that recommended financial control legislation to the Olbill Era Kelulau (OEK), the national bicameral legislature, in 2001. Following that, Palau took several steps toward addressing financial security through banking regulation and supervision and putting in place a legal framework for an anti-money laundering regime. Several pieces of legislation were enacted in June 2001.
The Money Laundering and Proceeds of Crimes Act (MLPCA) of 2001 criminalized money laundering and created a financial intelligence unit. This legislation imposes suspicious transactions reporting (for suspicious transactions over $10,000) and record keeping requirements for five years from the date of the transaction. Credit and financial institutions are required to keep regular reports of all transactions made in cash or bearer securities in excess of $10,000 or its equivalent in foreign cash or bearer securities. This threshold reporting also covers domestic or international transfers of funds of currency or securities involving a sum greater than $10,000. All such transactions (domestic and/or international) are required to go through a credit or financial institution licensed under the laws of the Republic of Palau.
The Financial Institutions Act of 2001 established the Financial Institutions Commission, an independent regulatory agency, which is responsible for licensing, supervising and regulating financial institutions, defined as banks and security brokers and dealers in Palau. The insurance industry is not currently regulated by the FIC and insurance companies in Palau are primarily agents for companies registered in the U.S. or out of the U.S. Territory of Guam. Currently, there are seven licensed banks in Palau and all are majority foreign owned. On November 7, 2006, the FIC closed the second largest and the only locally owned bank, Pacific Savings Bank, for illiquidity and insolvency. The Receiver has filed several civil actions against former bank insiders and the litigation is ongoing. An amendment intended to strengthen the supervisory powers of the FIC and promote greater financial stability within Palau's bank market passed its first reading in the Senate in January 2005 but the Senate Committee on Ways and Means and Financial Matters did not report out the bill until December 2006 when the bill was referred back to the Committee for further study.
Other entities subject to the provisions of the MLPCA, such as the three money services businesses, four finance companies and five insurance companies, are essentially unsupervised. Once the amendments to the MLPCA are passed, all alternative money remittance systems will be licensed and regulated by the FIC. The amendments to the MLPCA were introduced in the Senate in 2004 and passed in March 2006. The amendments passed their first reading in the House of Delegates in March 2006 and were referred to the House Committee on Ways and Means and Financial Matters where they remain. Credit and financial institutions are required to verify customers' identity and address. In addition, these institutions are required to check for information by "any legal and reasonable means" to obtain the true identity of the principal/party upon whose behalf the customer is acting. If identification cannot, in fact, be obtained, all transactions must cease immediately.
The lack of both and human and fiscal resources has hampered the development of a viable anti-money laundering regime in Palau. The Republic has only recently established a functioning Financial Intelligence Unit (FIU), though its operations are severely restricted by a lack of dedicated human and no dedicated budget. The implementing regulations to ensure compliance with the MLPCA have yet to be written but the authorities have stated that they will be drafted once the revisions to the MLPCA have been passed. The will of the Executive branch to comply with international standards, however, was clearly demonstrated by President Remengesau in 2003, when he vetoed a bill that would have extended the deadline for bank compliance and would have reduced the minimum capital for a bank from $500,000 to $250,000. Additionally, the President established the Anti-Money Laundering Working Group that is comprised of the Office of the President, the FIC, the Office of the Attorney General, Customs, the FIU, Immigration and the Bureau of Public Safety.
Palau has enacted several legislative mechanisms to foster international cooperation. The Mutual Assistance in Criminal Matters Act (MACA), passed in June 2001, enables authorities to cooperate with other jurisdictions in criminal enforcement actions related to money laundering and to share in seized assets. The Foreign Evidence Act of 2001 provides for the admissibility in civil and criminal proceedings of certain types of evidence obtained from a foreign State pursuant to a request by the Attorney General under the MACA. Under the Compact of Free Association with the United States, a full range of law enforcement cooperation is authorized and in 2004 Palau was able to assist the Department of Justice in a money laundering investigation by securing evidence critical to the case and freezing the suspected funds. Palau has also entered into an MOU with the Taiwan, R.O.C. and the Philippines for mutual sharing of information and inter-agency cooperation in relation to financial crimes and money laundering.
Pursuant to the adoption of the Asia/Pacific Group's (APG) mutual evaluation of Palau at its September 2003 Plenary, the Government of Palau (GOP) has proposed amendments to the MLPCA that, if enacted, would strengthen Palau's anti-money laundering regime. Among the more significant proposals are the following: the promulgation of reporting regulations for all covered financial institutions as well as alternative remittance providers; the requirement to obtain the identification of the beneficial owner of any type of account; mandatory reporting of suspicious transaction reports to the FIU regardless of the amount of the transaction; the requirement that any currency transaction over $5000 be done by wire transfer; the requirement that alternative remittance systems providers report any cash remittance over $500; and, a burden shifting regime for the seizure and forfeiture of assets upon a conviction for money laundering.
The President has also recently proposed the Cash Courier Act of 2004 that was drafted by the Palau Anti-Money Laundering Working Group. The bill passed the Senate in March 2006 and went to the House of Delegates where it passed its first reading in the same month and was referred to the House Committee on Ways and Means and Financial Matters where, once again, it remains.
The Counter-Terrorism bill, which also has anti-money laundering provisions, was originally introduced in September 2002, but was not acted on by the Senate. An amended version of the Bill was reintroduced in January 2005 and the Senate passed it in January 2006. The bill is in the House of Delegates. If enacted with changes proposed by the President of the Republic, the Act would comport with current international standards, including provisions for the freezing of assets of entities and persons designated by the United Nations as terrorists or terrorist organizations, provisions for the regulation of nonprofit entities to prevent abuses by criminal organizations and terrorists and provisions for criminalizing the financing of terrorism. The OEK has issued resolutions ratifying Palau's accession to all the United Nation's Conventions and Protocols relating to terrorism.
The Government of Palau has taken several steps toward enacting a legal framework by which to combat money laundering. It has signed Pacific Island Forum anti-money laundering initiatives and as a member of the Asia/Pacific Group on Money Laundering, Palau is committed to implement the Financial Action Task Force Revised Forty Recommendations and its Nine Special Recommendations on Terrorist Financing. As a party to the UN Convention for the Suppression of the Financing of Terrorism, Palau should criminalize the financing of terrorism. In continuing it efforts to comport with international standards, Palau should enact legislation and promulgate implementing regulations to the MLPCA, as recommended by the APG, including but not limited to establishing funding for the FIU, eliminating the threshold for reporting suspicious transactions and beginning a broad-based implementation of the legal reforms already put in place.
Panama is a major drug-transit country, and is particularly vulnerable to money laundering because of its proximity to Colombia and other drug-producing countries. Colombian nationals are able to enter Panama without visas, facilitating the investment of drug money into Panama's economy. The economy of Panama is 80 percent service-based, 14 percent industry and 6 percent agriculture. The service sector is comprised mainly of maritime transportation, commerce, tourism, banking and financial services.
Panama's sophisticated international banking sector, Colon Free Zone (CFZ), U.S. dollar-based economy, and legalized gambling sector are utilized to facilitate potential money laundering. The CFZ serves as an originating or transshipment point for some goods purchased with narcotics proceeds (mainly dollars obtained in the United States) through the Colombian Black Market Peso Exchange. There are approximately 1,400 businesses operating in the CFZ, facilitating opportunities for trade-based money laundering. Reports indicate that the amount of money passing through casinos increased by over 200 percent in 2006. The present construction boom also presents opportunities for money laundering. As many as 150 new high-rise buildings are currently being constructed. Some of the new construction is due to construction tax breaks which ended December 31, 2006.
Panama has the second highest number of offshore-registered companies in the world. Panama's large offshore financial sector includes international business companies, offshore banks, captive insurance companies and fiduciary companies. Law No. 42 of October 2000 requires Panamanian trust companies to identify to the Superintendence of Banks the real and ultimate beneficial owners of trusts. Executive Decree 213 of October 2000, amending Executive Order 16 of 1984 (trust operations), provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities.
Law No. 41 (Article 389) of October 2000 amended the Penal Code by expanding the predicate offenses for money laundering beyond narcotics trafficking, to include criminal fraud, arms trafficking, trafficking in humans, kidnapping, extortion, embezzlement, corruption of public officials, terrorism, and international theft or trafficking of motor vehicles. Law No. 41 establishes a punishment of 5 to 12 years' imprisonment and a fine. In June 2003, the Panamanian Legislative Assembly approved the Financial Crimes Bill (Law No. 45), which established criminal penalties of up to ten years in prison and fines of up to one million dollars for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. The penalties criminalized a wide range of activities related to financial intermediation, including illicit transfers of monies, accounting fraud, insider training, and the submission of fraudulent data to supervisory authorities. Law No. 1 of January 2004 added crimes against intellectual property as a predicate offense for money laundering.
Law No. 42 requires financial institutions to report to Panama's financial intelligence unit (FIU), the Financial Analysis Unit of the Treasury Ministry (Unidad de An?lisis Financiero, or UAF), suspicious financial transactions and currency transactions in excess of $10,000. Casinos, CFZ businesses, the national lottery, real estate agencies and developers, and insurance and reinsurance companies are also required report to the UAF currency or quasi-currency transactions that exceed $10,000. Under Law No. 48 of June 2003 and Law No. 16 of May 2005, money remitters and pawnshops are also subject to anti-money laundering regulations. Resolutions Nos. 327 and 328 of August 2004 of the Ministry of Commerce and Industries similarly require promotional companies and real estate agents to identify their clients, declare cash transactions over $10,000, and report suspicious transactions to the UAF.
In October 2000, Panama's Superintendent of Banks issued Agreement No. 9 that defines requirements that banks must follow for identification of customers, exercise of due diligence, and retention of transaction records. It also increased the number of inspections of finance companies it conducted. In 2005, the Superintendence of Banks modified that Agreement, in order to include fiduciary (offshore) companies within the measures of prevention of illegal use and to bring the Banking Center into line with the highest international standards, thus increasing compliance with the Financial Action Task Force (FATF) Recommendations.
The Autonomous Panamanian Cooperative Institute established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with the requirements of Law No. 42. The National Securities Commission carried out numerous training sessions and workshops for its personnel and regulated entities. The CFZ possesses and issues a procedures manual for the users of the CFZ, outlining their responsibilities regarding prevention of money laundering and requirements under Law No. 42. In 2006, the UAF continued efforts to raise the level of compliance for reporting suspicious financial transactions, particularly by nonbank financial institutions and trading companies within the CFZ.
With support from the Inter-American Development Bank (IDB), the Government of Panama (GOP) is implementing a "Program for the Improvement of the Transparency and Integrity of the Financial System." This Transparency Program is targeted, through enhanced communication and information flow, training programs and technology, at strengthening the capabilities of those government institutions responsible for preventing and combating financial crimes and terrorist financed activities. Employees from 14 different institutions have received training, including bank compliance officials, and representatives of the private sector, stock markets and credit unions. In addition, Panama has launched an educational campaign to prevent money laundering and terrorist financing. The program began in 2002 and is intended to raise consciousness of citizens regarding these crimes. This program has included hosting a hemispheric congress on the prevention of money laundering in 2004 and 2006.
In 2005, a pilot program was developed for money laundering prevention training, which was financed by the IDB and executed by the Caribbean Financial Action Task Force (CFATF). The training has reached over 5,000 public and private sector employees. Participants have been from various financial institutions, insurance companies, the CFZ and money order companies.
To increase GOP interagency coordination, the UAF and the Panamanian Customs are developing an office at the Tocumen International Airport to expedite the entry of customs currency declaration information into the UAF's database. This has enabled the UAF to begin more timely investigations. The creation of a joint airport interdiction task force at Tocumen, made up of members from the Panamanian National Police (PNP), Technical Judicial Police (PTJ), National Air Service (SAN), Customs and Immigration has produced significant seizures of undeclared currency. In 2006, a total of $4.7 million in undeclared currency was seized. The most significant seizures were in two separate incidents where gold bars painted silver were seized from Mexican nationals traveling from Mexico through Panama en route to Colombia. The Task Force also participated in a continuous operation designed to interdict bulk cash smuggling ("Operation Firewall") in coordination with U.S. Embassy Narcotics Affairs Section and U.S. Immigration and Customs Enforcement (ICE).
Executive Order No. 163 of October 2000, which amended the June 1995 decree that created the UAF, allows the UAF to provide information related to possible money laundering directly to the Office of the Attorney General for investigation. Panama has initiated cases for domestic prosecution, and the UAF routinely transfers cases to the PTJ's Financial Investigations Unit for investigation. During 2006, Panama worked with the United States on two large cases. The first involved a gold and jewelry company in the CFZ that was used to launder money. Assets estimated at over $30 million were seized in connection with this case. The second case was connected to an international narcotics trafficking case in which an entire trafficking organization was taken down. In Panama alone an estimated $25 million in assets were seized. Both cases have ongoing investigations as a result of information obtained. Panama assists other Central American countries with investigations. For example, Panama assisted Nicaragua with the corruption case against former Nicaraguan President Arnoldo Aleman. Panama also assisted Costa Rica and Peru in investigating allegations against high ranking political figures in each country.
Panama identified the combating of money laundering as one of five goals in its five-year National Drug Control Strategy issued in 2002. The Strategy commits the GOP to devote $2.3 million to anti-money laundering projects, the largest being institutional development of the UAF. The UAF currently maintains inter-institutional cooperation agreements with the Attorney General's Office and the Superintendence of Banks, and has signed a cooperation agreement with the Public Registry of Panama.
Terrorist financing is a criminal offense in Panama. Decree No. 22 of June 2003 gave the Presidential High Level Commission against Narcotics Related Money Laundering responsibility for combating terrorist financing. Law No. 50 of July 2003 criminalizes terrorist financing and gives the UAF responsibility for prevention of this crime. There are no legal impediments to the GOP's ability to prosecute or extradite suspected terrorists. Public security sources and the judicial system have limited resources to deter terrorists; however, there are several special investigations units capable of carrying out investigations.
In January 2003 the GOP entered into a border security cooperation agreement with Colombia and also increased funds to the Frontier Division of the National Police to assist in border security. The GOP and the Government of Colombia hold quarterly meetings to discuss border security initiatives of mutual interest to the two countries. The GOP has also created the Department of Analysis and Study of Terrorist Activities. This department is tasked with working with the United Nations and the Organization of American States (OAS) to investigate transnational issues, including money laundering. Panama has an implementation plan for compliance with the FATF 40 Recommendations on Money Laundering and Nine Special Recommendations on Terrorist Financing.
In May 2005, the International Monetary Fund (IMF) conducted an assessment of Panama's Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) under the new FATF methodology. The assessment has also been accepted by the CFATF as its mutual evaluation of Panama. Since its assessment, Panama has taken many steps to implement evaluator's recommendations, including providing adequate training to government officials and issuing new regulations to financial institutions to ensure that they continue filing suspicious transaction reports to the UAF.
The GOP remains active in international anti-money laundering efforts, including the multilateral Black Market Peso Exchange Group Directive. In March 2002, the GOP signed the cooperation agreement issued by the working group as part of a regional effort against the black market system. Panama is a member of the OAS Inter-American Drug Abuse Control Commission (CICAD), and served as the Chair of CFATF and the Central American Council of Superintendents of Banks, Insurance Companies and Other Financial Institutions during 2004 and 2005. Panama is currently the vice-president of the Association of Supervisors of Banks in the Americas (ASBA), with the term running through 2007. The GOP is also a member of the Offshore Group of Banking Supervisors. The UAF is a member of the Egmont Group.
Panama is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the Inter-American Convention against Terrorism. Panama is also a signatory to 11 of the UN terrorism conventions and protocols. Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. The GOP has also assisted numerous countries needing help in strengthening their anti-money laundering programs, including Guatemala, Costa Rica, Russia, Honduras, and Nicaragua. Executive Decree No. 163 authorizes the UAF to share information with FIUs of other countries, subject to entering into a memorandum of understanding (MOU) or other information exchange agreement. Panama currently has 37 such MOUs with other countries, including the United States.
During 2006, the Government of Panama has continued to make progress in strengthening its anti-money laundering regime. The GOP has been a cooperating partner to the United States and other countries throughout the world in investigating money laundering crimes that have a nexus in Panama. Panama should continue its regional assistance efforts. It should emphasize effective law enforcement actions that address Panama's continuing vulnerabilities such as smuggling, abuse of the real estate sector, trade-based money laundering, and the proliferation of nontransparent offshore companies.
Paraguay is a principal money laundering center, involving both the banking and nonbanking financial sectors. The multi-billion dollar contraband re-export trade that occurs on the borders shared with Argentina and Brazil, the Triborder Area, facilitates much of the money laundering in Paraguay. Paraguay is a major drug-transit country. The Government of Paraguay (GOP) suspects that proceeds from narcotics trafficking are often laundered, but it is difficult to determine the percentage of the total amount of laundered funds generated from narcotics sales. Weak controls in the financial sector, an open border, and minimal enforcement activity for financial crimes allow money launderers and terrorist financiers to take advantage of Paraguay's financial system. The GOP successfully prosecuted a major money laundering case in 2006 and has demonstrated an increased willingness to press money laundering charges against defendants notwithstanding the limitations of current laws.
Paraguay is particularly vulnerable to money laundering, as little personal background information is required to open a bank account or to conduct financial transactions in Paraguay. Paraguay is an attractive financial center for neighboring countries, particularly Brazil. Foreign banks are registered in Paraguay and nonresidents are allowed to hold bank accounts, but current regulations forbid banks from advertising or seeking deposits from outside the country. Paraguay is not considered to be an offshore financial center, but the GOP does allow representative offices of offshore banks to maintain a presence in the country. Shell companies are not permitted; trusts, however, are permitted and are regulated by the Central Bank. The Superintendence of Banks audits financial institutions and supervises all banks under the same rules and regulations. However, there are few effective controls over businesses, and a large informal economy exists outside the regulatory scope of the GOP. A number of cooperatives function effectively as financial institutions and may have as much as 30 percent of financial system assets. These co-ops, as they are known, are not regulated by the Superintendent of Banks but are instead self-regulated. The industry organization charged with oversight-INCOOP-issues guidelines, but does not have regulatory authority to compel compliance with anti-money laundering or prudential measures.
The multi-billion dollar contraband re-export trade that occurs largely in the Triborder Area shared by Paraguay, Argentina, and Brazil facilitates money laundering in Paraguay. Ciudad del Este (CDE), on the border between Brazil and Paraguay, represents the heart of Paraguay's informal economy. The area is well known for arms and narcotics trafficking, as well as crimes against intellectual property rights. The illicit proceeds from these crimes are an additional source of laundered funds. A wide variety of counterfeit goods, including cigarettes, CDs, DVDs, and computer software, are imported from Asia and transported primarily across the border into Brazil, with a significantly smaller amount remaining in Paraguay for sale in the local economy. Some senior government officials, including members of Congress, have been accused of involvement in the smuggling of contraband or pirated goods. To date, there have been few criminal investigations, much less prosecutions of senior GOP officials' involvement in smuggling contraband or pirated goods. Paraguay has taken some measures to tackle the "gray" economy and to develop strategies to implement a formal, diversified economy. The Ministry of Industry and Commerce's Specialized Technical Unit (UTE), working in close coordination with the Attorney General's Trademarks and Intellectual Property Unit, has effectively opened a number of significant investigations against groups involved in piracy.
On December 6, 2006, the U.S. Department of Treasury designated nine individuals and two entities in the Triborder Area that have provided financial or logistical support to Hizballah. 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 and have been used to generate or move terrorist funds. The GOP has publicly disagreed with the designations, stating that the U.S. has not provided any new information that would prove terrorist financing activity is occurring in the Triborder Area.
Money laundering is a criminal offense under Paraguay's two anti-money laundering statutes, Law 1015 of 1996 and Article 196 of Paraguay's Criminal Code, adopted in 1997. The existence of the two laws has led to substantial confusion due to overlapping provisions. Under Article 196, the scope of predicate offenses includes only offenses that carry a maximum penalty of five years or more; Law 1015 includes additional offenses. Article 196 also establishes a maximum penalty of five years for money laundering offenses, while Law 1015 carries a prison term of two to ten years. This is particularly significant because, under the Criminal Code and Criminal Procedure Code, defendants who accept charges that carry a maximum penalty of five years or less are automatically entitled to a suspended sentence and a fine instead of jail time, at least for the first offense. Since a defendant cannot be charged with money laundering unless he or she has first been convicted of the predicate offense, many judges are apparently reluctant to prosecute defendants on money laundering charges because a sentence has already been issued for a predicate offense.
Law 1015 of 1996 also contains "due diligence" and "banker negligence" provisions and applies money laundering controls to nonbanking financial institutions, such as exchange houses. Bank secrecy laws do not prevent banks and financial institutions from disclosing information to bank supervisors and law enforcement entities. Under Paraguay's Commercial Law 1023 and Law 1015, banks are required to maintain account records for five years, but there is little government enforcement of this regulation. Bankers and others are protected under the anti-money laundering law with respect to their cooperation with law enforcement agencies. Additional provisions of Law 1015 require banks, finance companies, insurance companies, exchange houses, stock exchanges and securities dealers, investment companies, trust companies, mutual and pension funds administrators, credit and consumer cooperatives, gaming entities, real estate brokers, nongovernmental organizations, pawn shops, and dealers in precious stones, metals, art and antiques to know and record the identity of customers engaging in significant currency transactions and to report those, as well as suspicious activities, to Paraguay's financial intelligence unit (FIU), the Unidad de An?lisis Financiera (UAF). The UAF received over 3,000 suspicious activity reports from these entities in 2006, a significant improvement over previous years.
The UAF began operating in 1997 within the Secretariat to Combat Money Laundering (SEPRELAD), under the auspices of the Ministry of Industry and Commerce (MIC). In recent years, the GOP has made significant efforts to strengthen SEPRELAD, and as a result, cooperation between SEPRELAD and other government agencies on anti-money laundering issues has improved. Initially reluctant to seek SEPRELAD's assistance due to past weaknesses, most government entities are increasingly prepared to work with SEPRELAD. SEPRELAD has signed several agreements with other government entities to strengthen interagency cooperation, including memoranda of understanding with the Public Ministry and the Superintendence of Banks. In 2005 the UAF and the Superintendence of Banks' Risk Control Division, which has the primary responsibility of reviewing the records of national financial institutions for suspected terrorist activity and is empowered to coordinate information exchange with the Central Banks of other MERCOSUR countries, signed a memorandum of understanding (MOU) laying out the provisions for increased cooperation. The MOU includes provisions for SEPRELAD to issue regulations for the banking industry, including the designations of a compliance officer and utilizing due diligence and "know your customer" policies, which are included in Resolution 233 of 2005.
The UAF is seeking to strengthen its relationship with other financial intelligence units and has signed agreements for information exchange with regional FIUs. The UAF also increased its role in regional and international anti-money laundering groups, including the Egmont Group and the Financial Action Task Force for South America (GAFISUD). The UAF's director participates in the GAFISUD FIU Working Group and a committee within the Egmont Group, further expanding Paraguay's role in these organizations. GAFISUD conducted its second mutual evaluation of Paraguay in 2005, finding Paraguay to be noncompliant with counterterrorist financing standards and its legal framework for investigating cases deficient.
A new law to improve the effectiveness of Paraguay's anti-money laundering regime was drafted in late 2003 and was formally introduced to Congress in 2004. This legislation has since been broken down and incorporated into three bills emerging through a multi-institutional legal reform commission. Proposed amendments to Paraguay's Penal Code, including enhanced legislation on money laundering, were introduced to Congress in October 2006. The other two bills addressing procedural reform and administrative structures should be introduced in early 2007. The proposed amendments also include legislation criminalizing the financing of terrorism. A bill on terrorist financing had been drafted in 2004, yet was not introduced until the amendments to the Penal Code were proposed.
In addition to confirming the UAF's role as the sole FIU, the new legislation establishes SEPRELAD as an independent secretariat or agency reporting directly to the Office of the President. The amendments to the Penal Code submitted to Congress in October establish money laundering as an autonomous crime punishable by a prison term up to 8 years, terrorism financing up to 15 years and terrorism punishable up to 30 years. It establishes predicate offenses as any crimes that are punishable by a prison term exceeding six months, and specifically criminalizes money laundering tied to the financing of terrorist groups or acts. The full range of covered institutions will be required to maintain registries of large currency transactions that equal or exceed $10,000, in addition to complying with existing suspicious transaction reporting requirements.
Other provisions of the draft bills include penalties for failure to file, falsification of reports, enhanced "know-your-client" provisions, and standardized record keeping for a minimum of five -years. The UAF will continue to refer cases as appropriate for further investigation by Paraguay's Anti-Drug Secretariat (SENAD) and to the Attorney General's Office for prosecution. It will also serve as the central entity for related information exchanges with other concerned foreign entities. The bills further specify that the financial crimes investigative unit of SENAD is the principal authority for carrying out all counternarcotics and other financial investigations, including money laundering, and will also have the authority to initiate investigations on its own.
There are other challenges, however, that the new money laundering legislation, when passed, will not address. With only eight positions available for prosecutors dedicated to financial crimes, of which only six are filled, Paraguay currently has limited resources to investigate and prosecute money laundering and financial crimes. New criteria were issued in 2005 for the selection of judges, prosecutors and public defenders; however, the process remains one that is largely based on politics, nepotism and influence peddling, affording the ruling party an opportunity to manipulate the justice system to its advantage.
Moreover, unless the new legislation is enacted, most judges have little incentive to receive money laundering cases because many believe that sentencing on predicate offenses is sufficient punishment. As it is, those individuals implicated in money laundering are typically prosecuted on tax evasion charges. For example, in May 2004, Assad Barakat-widely alleged to be involved in money laundering and designated by the United States as a financier of terrorism-was convicted of tax evasion and sentenced to six and one-half years in prison. In late 2004, prosecutors began investigating several tax evasion cases involving suspected money laundering by both authorized and unauthorized money exchange offices in Ciudad del Este. A case against Lebanese businessman Kassem Hijazi, suspected of having laundered proceeds from illicit activities in the Triborder Area and sending a portion of those funds to support Lebanese Hizbollah activities, is ongoing on the basis on tax evasion charges, not money laundering.
In spite of limitations in prosecuting Barakat and Hijazi, the GOP is making improvements in its ability to successfully investigate and prosecute some money laundering cases. Daniel Fretes Ventre, a former Inspector General under President Wasmosy in the 1990s, was sentenced by an Appeals Court to 12 years in prison and fined $68,000 for money laundering and other crimes on October 24, 2006. Several members of his family were convicted on the same charges. Fretes and his accomplices laundered money through a family-established college and three family-owned businesses. In addition to the above-noted penalties, authorities confiscated 11 family-owned properties in Asuncion and Ciudad del Este. This case represents the most significant money laundering conviction-from less than a handful to date-and reinforces the fact that convictions are possible, although difficult under the current legal framework. Fretes Ventre has appealed this decision to the Supreme Court.
In cooperation with the U.S. Department of Homeland Security's Office of Immigration and Customs Enforcement (ICE), Paraguay is in the process of developing a Trade Transparency Unit (TTU) that will examine discrepancies in trade data that could be indicative of customs fraud, trade-based money laundering, or the financing of terrorism. The development of such a unit constitutes a positive step with respect to Special Recommendation VI of the Financial Action Task Force (FATF) on the use of alternative remittance systems. Trade-based systems such as hawala and black market exchanges often use fraudulent trade documents and over and under-invoicing schemes to provide counter valuation in transferring value and settling accounts.
Despite its low rating on corruption and other indices that prevented Paraguay from qualifying to participate fully in the Millennium Challenge Account (MCA) Compact Program, Paraguay was invited to participate in the MCA's Threshold Program. In May, Paraguay signed a Threshold Program agreement to receive $34.9 million in assistance to address the problems of impunity and informality, both of which hamper law enforcement efforts and contribute to money laundering. Paraguay's Millennium Challenge Account Threshold Program also supports the continued development of the "maquila" sector, which comprises businesses operating for export (of either goods or services) that enjoy special tax advantages. Since the GOP stepped up promotion beginning in 2004, the sector has experienced rapid growth. The new customs code implemented in early 2004 provides for the creation of formal free trade zones. One zone currently exists in Ciudad del Este and another is planned for the town of Villeta, near Asuncion. Paraguay's customs agency is responsible for monitoring these zones; however, there is little oversight. As a result, the addition of free trade zones may provide additional venues for money laundering.
There are no effective controls or laws that regulate the amount of currency that can be brought into or out of Paraguay. Cross-border reporting requirements are limited to those issued by airlines at the time of entry into Paraguay. Persons transporting $10,000 into or out of Paraguay are required to file a customs report, but these reports are often not actually collected or checked. Customs operations at the airports or land ports of entry provide no control of the cross-border movement of cash. The nonbank financial sector, particularly exchange houses, is used to move illegal proceeds both from within and outside of Paraguay into the formal banking system of the United States. Paraguay exercises a dual monetary system in which most high-priced goods are paid for in U.S. dollars. Large sums of dollars generated from normal commercial activity and suspected illicit commercial activity are transported physically from Paraguay through Uruguay to banking centers in the United States. The GOP is only just beginning to recognize and address the problem of the international transportation of currency and monetary instruments derived from illegal sources. Recently, though, the commercial banks operating in Paraguay have dropped exchange houses as clients based on pressure from either their home offices or correspondent banks in the United States, which have told them that they would sever the relationship if the banks maintained accounts of exchange houses. The principal state-owned bank was also forced to drop the accounts of the exchange houses rather than lose its correspondent relationship with a U.S. bank.
Bank fraud, which has led to several bank failures, and other financial crimes related to corruption, are serious problems in Paraguay. Following bank failures in 2002 and 2003, Paraguay continues to experience problems in the banking industry. The GOP has worked with the U.S. Treasury and Justice Departments to trace, account for, and seek the return of the $16 million diverted in 2002 to private accounts linked to the family of former President Luis Gonzalez Macchi. However, corruption charges against Macchi were dropped in November after the court failed to meet the deadline for hearing full testimony on the accusations. Under the current interpretation of laws, the GOP has limited authority to seize, or forfeit assets of suspected money launderers. In most cases, assets that the GOP is permitted to, seize, or forfeit are limited to transport vehicles, such as planes and cars, and normally do not include bank accounts. However, authorities may not auction off these assets until a conviction is announced by the judicial system. At best, the GOP can establish a "preventative seizure" (which has the same effect as freezing) against assets of persons under investigation for a crime in which the state risks loss of revenue from furtherance of a criminal act, such as tax evasion. However, in those cases the limit of the seizure is set as the amount of liability of the suspect to the government. More recently, SENAD has been permitted to use on a temporary basis assets seized on cases not yet decided provided it pays no maintenance or repair costs. The new anti-money laundering legislation will, when passed, allow prosecutors to recommend that judges seize or confiscate assets connected to money laundering and its predicate offenses. The draft law also provides for the creation of a special asset forfeiture fund to be administered by a consortium of national governmental agencies, which will support programs for crime prevention and suppression, including combating money laundering, and related training.
The GOP currently has no authority to freeze, seize, or forfeit assets related to the financing of terrorism, which is not yet criminalized under current Paraguayan law. However, the Ministry of Foreign Affairs often provides the Central Bank and other government entities with the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee consolidated list. To date, the GOP has not identified, seized, or forfeited any such assets linked to these groups or individuals. The current law also does not provide any measures for thwarting the misuse of charitable or nonprofit entities that can be used as conduits for the financing of terrorism. Following the submission of the draft anti-money laundering law to Congress in May 2004, a working group began drafting legislation to address terrorism, terrorist association and terrorist financing. This draft legislation, also incorporated into the legal reforms to Paraguay's penal, procedural and administrative codes, will allow the GOP to conform to international standards on the suppression of terrorist financing. The anti-money laundering provisions of the proposed legal reforms also specifically criminalize money laundering tied to the financing of terrorist groups or acts.
The GOP 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 on Terrorism, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime. Paraguay participates in the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) money laundering experts working group, and is a member of GAFISUD and the "3 Plus 1" Security Group between the United States and the Triborder Area countries. The UAF has been a member of the Egmont Group since 1998.
While the Government of Paraguay took a number of positive steps in 2006, there are other initiatives that should be pursued to increase the effectiveness of Paraguay's efforts to combat money laundering and terrorist financing. Most important is enactment of legislation that meets international standards and enables law enforcement authorities to more effectively investigate and prosecute money laundering and terrorist financing cases. Paraguay also should continue its efforts to combat corruption and increase information sharing regarding corruption among concerned agencies when and if the corruption issues arises. Paraguay does not have a counterterrorism law or a law criminalizing terrorist financing, and the GOP should take steps as quickly as possible to ensure that comprehensive counterterrorism legislation, including the terrorist financing legislation introduced in October 2006, is passed in the context of the penal and procedural code reform process. Further reforms in the selection of judges, prosecutors and public defenders are needed, as well as reforms to the customs agency in order to allow for increased inspections and interdictions at ports of entry and to develop strategies targeting the physical movement of bulk cash. It is essential that the Unidad de An?lisis Financiera (UAF) continue to receive the financial and human resources necessary to operate as an effective, fully functioning financial intelligence unit capable of effectively combating money laundering, terrorist financing, and other financial crimes. The GOP should also enter into a mutual legal assistance treaty with the United States.
Peru is not a major regional financial center, nor is it an offshore money laundering haven. Peru is a major drug producing and drug-transit country. Narcotics-related and other money laundering does occur, and the Government of Peru (GOP) has taken several steps to improve its money laundering legislation and enforcement abilities in recent years. Nevertheless, more reliable and adequate mechanisms are necessary to better assess the scale and methodology of money laundering in Peru. Peru is the world's second largest producer of cocaine, and, although no reliable figures exist regarding the exact size of the narcotics market in Peru, estimates indicate that the cocaine trade generates in a range of one to two billion dollars per year, or up to 2.5 percent of Peru's GDP. As a result, money laundering is believed to occur on a significant scale in order to integrate these illegal proceeds into the Peruvian economy.
Money laundering has historically been facilitated by a number of factors, primarily Peru's cash-based economy. Peru's economy is heavily dependent upon the U.S. dollar, and approximately 65 percent of the economy is dollarized, allowing traffickers to handle large bulk shipments of U.S. currency with minimal complications. Currently no restrictions exist on the amount of foreign currency an individual can exchange or hold in a personal account, and until recently, there were no controls on bulk cash shipments coming into Peru.
Corruption remains an issue of serious concern in Peru. It is estimated that 15 percent of the public budget is lost due to corruption. A number of former government officials, most from the Fujimori administration, are under investigation for corruption-related crimes, including money laundering. These officials have been accused of transferring tens of millions of dollars in proceeds from illicit activities (e.g., bribes, kickbacks, or protection money) into offshore accounts in the Cayman Islands, the United States, and/or Switzerland. The Peruvian Attorney General, a Special Prosecutor, the office of the Superintendent of Banks (SBS), and the Peruvian Congress have conducted numerous investigations, some of which are ongoing, involving dozens of former GOP officials.
Since June 2002, Peru has adopted substantial changes to its existing anti-money laundering regime, significantly broadening the definition of money laundering beyond a crime associated with narcotics trafficking. Prior to the changes, money laundering was only a crime when directly linked to narcotics trafficking and "narcoterrorism," It also included nine predicate offenses that did not include corruption, bribery or fraud. Under Law 27.765 of 2002, predicate offenses for money laundering were expanded to include the laundering of assets related to all serious crimes, such as narcotics trafficking, terrorism, corruption, trafficking of persons, and kidnapping. However, there remains confusion on the part of some GOP officials and attorneys as to whether money laundering must still be linked to the earlier list of predicate offenses. The law's brevity and lack of implementing regulations are also likely to limit its effectiveness in obtaining convictions. However, reportedly, money laundering is an autonomous offense. There does not have to be a conviction relating to the predicate offense. Rather it must only be established that the predicate offense occurred and that the proceeds of crime from that offense were laundered.
The penalties for money laundering were also revised in 2002. Instead of a life sentence for the crime of laundering money, Law 27.765 sets prison terms of up to 15 years for convicted launderers, with a minimum sentence of 25 years for cases linked to narcotics trafficking, terrorism, and laundering through banks or financial institutions. In addition, revisions to the Penal Code criminalize "willful blindness," the failure to report money laundering conducted through one's financial institution when one has knowledge of the money's illegal source, and imposes a three to six year sentence for failure to file suspicious transaction reports.
Peru's financial intelligence unit, the Unidad de Inteligencia Financiera (UIF) began operations in June 2003 and today has 48 personnel. As Peru's financial intelligence unit, the UIF is the government entity responsible for receiving, analyzing and disseminating suspicious transaction reports (STRs) filed by obligated entities. The entities obligated to report suspicious transactions to the UIF within 30 days include banks, financial institutions, insurance companies, stock funds and brokers, the stock and commodities exchanges, credit and debit card companies, money exchange houses, mail and courier services, travel and tourism agencies, hotels and restaurants, notaries, the customs agency, casinos, auto dealers, construction or real estate firms, notary publics, and dealers in precious stones and metals. The UIF cannot receive STRs electronically; obligated entities must hand-deliver STRs to the UIF. The UIF received 209 STRs in 2004, 796 in 2005 ($442.3 million), and 948 from January through October 2006. The UIF is able to sanction persons and entities for failure to report suspicious transactions, large cash transactions, or the transportation of currency or monetary instruments.
Obligated entities are also required to maintain reports on large cash transactions. Individual cash transactions exceeding $10,000 or transactions totaling $50,000 in one month must be maintained in internal databases for a minimum of five years and made available to the UIF upon request. Non financial institutions, such as exchange houses, casinos, lotteries or others, must report individual transactions over $2,500 or monthly transactions over $10,000. Individuals or entities transporting more than $10,000 in currency or monetary instruments into or out of Peru must file reports with the customs agency, and the UIF may have access to those reports upon request. These reporting requirements are not being strictly enforced by the responsible GOP entities.
The UIF currently does not receive cash transactions reports (CTRs) or reports on the international transportation of currency or monetary instruments. CTRs are maintained in internal registries within the obligated entities, and reports on the international transportation of currency or monetary instruments are maintained by the customs agency. If the UIF receives an STR and determines that the STR warrants further analysis, it contacts the covered entity that filed the report for additional background information-including any CTRs that may have been filed-and/or the customs agency to determine if the subject of the STR had reported the transportation of currency or monetary instruments. Some requests for reports of transactions over $10,000-such as those that are deposits into savings accounts-are protected under the constitution by bank secrecy provisions and require an order from the Public Ministry or SUNAT, the tax authority. A period of 15-30 days is required to lift the bank secrecy restrictions. All other types of cash transaction reports, however, may be requested directly from the reporting institution. There are two bills under consideration in Congress that would make bank secrecy provisions less stringent and strengthen disclosure requirements.
Law 28.306 mandates that obligated entities also report suspicious transactions related to terrorist financing, and expanded the UIF's functions to include the ability to analyze reports related to terrorist financing. Terrorist financing is criminalized under Executive Order 25.475. On July 25, 2006, the Government issued Supreme Decree 018-2006-JUS to better implement Law 28.306. The decree introduces the specific legal framework for the supervision of terrorism financing.
Supreme Decree 018-2006-JUS further strengthened the UIF by allowing it to participate in the on-site inspections performed by the supervisors of obligated entities. The UIF may also conduct the on-site inspections of the obligated entities that do not fall under the supervision of another regulatory body, such as notaries, money exchange houses, etc. The new regulations also detail the procedures by which compliance officials can obtain a secret code from UIF in order to maintain the secrecy of their identities. Supreme Decree 018-2006-JUS contains instructions for supervisors with prior UIF approval to establish which obligated entities must have a full-time compliance official (depending on each entity's size, patrimony, etc.), and allows supervisors to exclude entities with certain characteristics from maintaining currency transaction reports. If an obligated entity does not have a supervisor, the aforementioned faculties fall to the UIF. The UIF can also request that a supervisor review an obligated entity that is not under its supervision. The supervisors of the obligated entities must update their internal regulations with the provisions enacted by Supreme Decree 018-2006-JUS.
To assist with its analytical functions, the UIF may request information from such government entities as the National Superintendence for Tax Administration, Customs, the Securities and Exchange Commission, the Public Records Office, the Public or Private Risk Information Centers, and the National Identification Registry and Vital Statistics Office, among others. However, the UIF can only share information with other agencies-including foreign entities-if there is a joint investigation underway. Once the UIF has completed the analysis process and determined that a case warrants further investigation or prosecution, the case is sent to the Public Ministry.
As of October 31, 2006, the UIF had sent 47 suspected cases (totaling over $565.5 million) of money laundering stemming from STRs to the Public Ministry for investigation (9 in 2006, totaling $13.9 million).Twenty-one of the 47 cases were linked to drug trafficking, seven involved official corruption, six involved tax fraud, and the remaining 13 had fraud, arms trafficking, contraband, kidnapping, or intellectual property violations as the predicate offenses. The UIF has also participated in 18 joint investigations with the Public Ministry. The Public Ministry has so far presented seven money laundering cases to the judiciary (five stemming from STRs and two from the joint investigations), but there have not yet been any convictions.
Within the counternarcotics section of the Public Ministry, two specialized prosecutors are responsible for dealing with money laundering cases. In addition to being able to request any additional information from the UIF in their investigations, the Public Ministry may also request the assistance of the Directorate of Counter-Narcotics (DINANDRO) of the Peruvian National Police. Under Law 28.306, DINANDRO and the UIF may collaborate on investigations, although each agency must go through the Public Ministry in order to do so. DINANDRO may provide the UIF with intelligence for the cases the UIF is analyzing, while it provides the Public Ministry with assistance on cases that have been sent to the Public Ministry by the UIF.
The UIF was given regulatory responsibilities in July 2004 under Law 28.306. Most covered entities fall under the supervision of the Superintendence of Banks and Insurance (banks, the insurance sector, financial institutions), the Peruvian Securities and Exchange Commission (securities, bonds), and the Ministry of Tourism (casinos). All entities that are not supervised by these three regulatory bodies, such as auto dealers, construction and real estate firms, etc., fall under the supervision of the UIF. However, some covered entities remain unsupervised. For instance, the Superintendence of Banks only regulates money remittances that are done through special fund-transfer businesses (ETFs) that do more than 680,000 soles (about $200,000) in transfers per year, and remittances conducted through postal or courier services are supervised by the Ministry of Transportation and Communications. Informal remittance businesses are not supervised. There is also difficulty in regulating casinos, as roughly 60 percent of that sector is informal. An assessment of the gaming industry conducted by GOP and U.S. officials in 2004 identified alarming deficiencies in oversight and described an industry that is vulnerable to being used to launder large volumes of cash. Approximately 580 slot houses operate in Peru, with less than 65 percent or so paying taxes. Estimates indicate that less than 42 percent of the actual income earned is being reported. This billion-dollar cash industry continues to operate with little supervision.
Peru currently lacks comprehensive and effective asset forfeiture legislation. The Financial Investigative Office of DINANDRO has seized numerous properties over the last several years, but few were turned over to the police to support counternarcotics efforts. While Peruvian law does provide for asset forfeiture in money laundering cases, and these funds can be used in part to finance the UIF, no clear mechanism exists to distribute seized assets among government agencies. A bill to amend the asset forfeiture regime is being considered by Congress.
Terrorism is considered a problem in Peru, which is home to the terrorist organization Shining Path. Although the Shining Path has been designated by the United States as a foreign terrorist organization pursuant to Section 219 of the Immigration and Nationality Act and under Executive Order (E.O.) 13224, and the United States and 100 other countries have issued freezing orders against its assets, the GOP has no legal authority to quickly and administratively seize or freeze terrorist assets. In the event that such assets are identified, the Superintendent for Banks must petition a judge to seize or freeze them and a final judicial decision is then needed to dispose of or use such assets. Peru also has not yet taken any actions to thwart the misuse of charitable or nonprofit entities that can be used as conduits for the financing of terrorism.
Foreign Ministry Officials are working with other GOP agencies to complete the necessary legal revisions that will permit asset-freezing actions. The Office of the Superintendent of Banks routinely circulates to all financial institutions in Peru updated lists of individuals and entities that have been included on the UNSCR 1267 Sanctions Committee's consolidated list as being linked to Usama Bin Laden, the Taliban, and al-Qaida, as well as those on the list of Specially Designated Global Terrorist Entities designated by the United States pursuant to E.O. 13224 on terrorist financing. To date, no assets connected to designated individuals or entities have been identified, frozen, or seized.
Peru is a party to the UN International Convention for the Suppression of the Financing of Terrorism and the Inter-American Convention on Terrorism. However, terrorism has not yet been specifically and correctly established as a crime under Peruvian legislation as mandated by the UN Convention. The only reference to terrorism as a crime is in Executive Order 25.475, which establishes the punishment of any form of collaboration with terrorism, including economic collaboration. There are several bills pending in the Peruvian Congress concerning the correct definition of the crime of terrorist financing. Peru is also a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GOP participates in the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Money Laundering Experts Working Group. Peru is also a member of the South American Financial Action Task Force (GAFISUD) and the Egmont Group of financial intelligence units. Although an extradition treaty between the U.S. Government and the GOP entered into force in 2003, there is no mutual legal assistance treaty or agreement between the two countries.
The Government of Peru has made advances in strengthening its anti-money laundering regime in recent years. However, some progress is still required. There are still a number of weaknesses in Peru's anti-money laundering system: bank secrecy must be lifted in order for the Unidad de Inteligencia Financiera to have access to certain cash transaction reports, smaller financial institutions are not regulated, and the UIF is not able to work directly with law enforcement agencies; rather, the Public Ministry must coordinate any collaboration between the UIF and the other agency. There are a number of bills under review in the Peruvian Congress that would lift bank secrecy provisions for the UIF in matters pertaining to money laundering and terrorist financing. Although there is an Executive Order criminalizing terrorist financing, Peru should also pass legislation establishing this particular crime. The Congress is also considering bills regarding the obligation of nongovernmental organizations to report the origins of their funds. Anticorruption efforts in Peru should be a priority, and Peru should also enact legislation that allows for administrative as well as judicial blocking of terrorist assets. These issues should be addressed in order to strengthen Peru's ability to combat money laundering and terrorist financing.
The Philippines is a regional financial center. In the past few years, the illegal drug trade in the Philippines reportedly has evolved into a billion-dollar industry. The Philippines continues to experience an increase in foreign organized criminal activity from China, Hong Kong, and Taiwan. Reportedly, insurgency groups operating in the Philippines fund their activities, in part, through the trafficking of narcotics and arms, as well as engaging in money laundering through alleged ties to organized crime. The proceeds of corrupt activities by government officials are also a source of laundered funds. Most of the chemicals used in narcotics production in the Philippines are purchased using letters of credit. U.S. dollars are the preferred currency for international narcotics transactions. Drugs circulated within the Philippines are usually exchanged for local currency. Remittances and cash smuggling are also sources of money laundering.
In June 2000, the Financial Action Task Force (FATF) placed the Philippines on its list of Non-Cooperative Countries and Territories (NCCT) for lacking basic anti-money laundering regulations, including customer identification and record keeping requirements, and excessive bank secrecy provisions.
The Government of the Republic of the Philippines (GORP) initially established an anti-money laundering regime by passing the Anti-Money Laundering Act of 2001 (AMLA). The GORP enacted Implementing Rules and Regulations (IRR) for the AMLA in April 2002. The AMLA criminalized money laundering, an offense defined to include the conduct of activity involving the proceeds from unlawful activity in any one of 14 major categories of crimes, and imposes penalties that include a term of imprisonment of up to 14 years and a fine no less than 3,000,000 pesos (approximately $60,000); but no more than twice the value or property involved in the offense. The Act also imposed identification, record keeping, and reporting requirements on banks, trusts, and other institutions regulated by the Central Bank, insurance companies, securities dealers, foreign exchange dealers, and money remitters, as well as any other entity dealing in valuable objects or cash substitutes regulated by the Securities and Exchange Commission (SEC).
However, the FATF deemed the original legislation inadequate and pressured the Philippines to amend the legislation to be more in line with international standards. The GORP enacted amendments to the Anti-Money Laundering Act of 2001 in March 2003. The amendments to the AMLA lowered the threshold amount for covered transactions (cash or other equivalent monetary instrument) from 4,000,000 pesos to 500,000 pesos ($80,000 to $10,000) within one banking day; expanded financial institution reporting requirements to include the reporting of suspicious transactions, regardless of amount; authorized the Central Bank (Bangko Sentral ng Pilipinas or BSP) to examine any particular deposit or investment with any bank or nonbank institution in the course of a periodic or special examination (in accordance with the rules of examination of the BSP); ensured institutional compliance with the Anti-Money Laundering Act; and deleted the prohibitions against the Anti-Money Laundering Council's examining particular deposits or investments opened or created before the Act.
The FATF deemed those amendments to have sufficiently addressed the main legal deficiencies in the original Philippines anti-money laundering regime, and decided not to recommend the application of countermeasures. The FATF removed the Philippines from its Non-Cooperating Countries and Territories (NCCT) List in February 2005.
The AMLA established the Anti-Money Laundering Council (AMLC) as the country's financial intelligence unit (FIU). The Council is composed of the Governor of the Central Bank, the Commissioner of the Insurance Commission, and the Chairman of the Securities and Exchange Commission. By law, the AMLC Secretariat is an independent agency responsible for receiving, maintaining, analyzing, evaluating covered and suspicious transactions and investigating reports for possible criminal activity. It provides advice and assistance to relevant authorities and issues relevant publications. The AMLC completed the first phase of its information technology upgrades in 2004. This allowed AMLC to electronically receive, store, and search CTRs filed by regulated institutions. Through 2006, the AMLC had received more than 6200 suspicious transaction reports (STRs) involving 13,474 suspicious transactions, and had received over 72 million covered transaction reports (CTRs). AMLC recently acquired software to implement link analysis and visualization to enhance its ability to produce information in graphic form from the CTRs and STRs filed electronically by regulated institutions.
AMLC's role goes well beyond traditional FIU responsibilities and includes the investigation and prosecution of money laundering cases. AMLC has the ability to seize terrorist assets involved in money laundering on behalf of the Republic of the Philippines after a money laundering offense has been proven beyond a reasonable doubt. In order to freeze assets allegedly connected to money laundering, the AMLC must establish probable cause that the funds relate to an offense enumerated in the Act, such as terrorism. The Court of Appeals then may freeze the bank account for 20 days. The AMLC may apply to extend a freeze order prior to its expiration. The AMLC is required to obtain a court order to examine bank records for activities not listed in the Act, except for certain serious offenses such as kidnapping for ransom, drugs, and terrorism-related crimes. The AMLC and the courts are working to shorten the time needed so funds are not withdrawn before the freeze order is obtained.
The Philippines has no comprehensive legislation pertaining to civil and criminal forfeiture. Various government authorities, including the Bureau of Customs and the Philippine National Police, have the ability to temporarily seize property obtained in connection with criminal activity. Money and property must be included in the indictment, however, to permit forfeiture. Because ownership is difficult to determine in these cases, assets are rarely included in the indictment and are rarely forfeited. The AMLA gives the AMLC the authority to seize assets involved in money laundering operations that may end up as forfeited property after conviction, even if it is a legitimate business. In December 2005, the Supreme Court issued a new criminal procedure rule covering civil forfeiture, asset preservation, and freeze orders. The new rule provides a way to preserve assets prior to any forfeiture action and lists the procedures to follow during the action. The rule also contains clear direction to the AMLC and the court of appeals on the issuance of freeze orders for assets under investigation that had been confused by changes in the amendment to the AMLA in 2003. There are currently 90 prosecutions underway in the Philippine court system that involved AMLC investigations or prosecutions, including 33 for money laundering, 22 for civil forfeiture, and the rest pertaining to freeze orders and bank inquiries. Although some of these cases may conclude shortly, the Philippines had its first conviction for a money laundering offense in early 2006.
Under the AMLA and the bank secrecy act, officers, employees, representatives, agents, consultants, and associates of financial institutions are exempt from civil or criminal prosecution for reporting covered transactions. These institutions must maintain and store records of transactions for a period of five years, extending beyond the date of account or bank closure. The AMLC has frozen funds at the request of the UN Security Council, the United States and other foreign governments. Through November 2006, the AMLC has frozen funds in excess of 500 million Philippine pesos (approximately $10,000,000).
Questions remain regarding the covered institutions fully complying with the Philippine anti-money laundering regime. For example, the BSP does not have a mechanism in place to ensure that the financial community is adhering to the reporting requirements. Banks in more distant parts of the country, especially Mindinao where terrorist groups operate more freely, may feel threatened and inhibited from providing information about financial transactions requested by AMLC. While bank secrecy provisions to the BSP's supervisory functions were lifted in Section 11 of the AMLA, implementation still appears to be incomplete. Due to the Philippines' "privacy issues," examiners of the BSP are not allowed to review documents held by covered institutions in order to determine if the covered institutions are complying with the reporting requirement. BSP examiners are only allowed to ask AMLC, as a result of their examination, if a STR has been filed. If AMLC determines one was not filed, then the AMLC has the responsibility to make inquiries of the covered institution. This process is slow and cumbersome; AMLC is working with the BSP to find ways of streamlining the process.
The AMLC continues to work to bring the numerous foreign exchange offices in the country under its purview. The Monetary Board issued a decision in February 2005 defining the 15,000 exchange houses as financial institutions and instituting a new licensing system to bring them under the provisions of the AMLA. This requirement reduced the number of foreign exchange dealers dramatically as many offices chose to close down rather than seek licensing. The remaining exchange dealers around the country have participated in more than 1500 training programs sponsored by the AMLC. There are still several sectors operating outside of AMLC control, under the revised AMLA. Although the revised AMLA specifically covers exchange houses, insurance companies, and casinos, it does not cover stockbrokers or accountants. Although covered transactions for which AMLC solicits reports include asset transfers, the law does not require direct oversight of car dealers and sales of construction equipment, which are emerging as creative ways to launder money and avoid the reporting requirement.
In 2006, the AMLC requested the chain of casinos operated by the state-owned Philippine Amusement and Gaming Corporation (PAGCOR) to submit covered and suspicious transaction reports, but it has not yet done so. There is increasing recognition that the 15 casinos nationwide offer abundant opportunity for money laundering, especially with many of these casinos catering to international clientele arriving on charter flights from around Asia. Several of these gambling facilities are located near small provincial international airports that may have less rigid enforcement procedures and standards for cash smuggling. PAGCOR is the sole franchisee in the country for all games of chance, including lotteries conducted through cell phones. At present, there are no offshore casinos in the Philippines, though the country is a growing location for internet gaming sites that target overseas audiences in the region.
The Philippines has over 5,000 nongovernmental organizations (NGOs) that do not fall under the requirements of the AMLA. Charitable and nonprofit entities are not required to make covered or suspicious transaction reports. The SEC provides limited regulatory control over the registration and operation of NGOs. These entities are rarely held accountable for failure to provide year-end reports of their activities, and there is no consistent accounting and verification of their financial records. Because of their ability to circumvent the usual documentation and reporting requirements imposed on banks for financial transfers, NGOs could be used as conduits for terrorist financing without detection. The AMLC is aware of the problem and is working to bring charitable and not-for-profit entities under the interpretation of the amended implementing regulations for covered institutions.
There are seven offshore banking units (OBUs) established since 1976. At present, OBUs account for less than two percent of total banking system assets in the country. The Bangko Sentral ng Pilipinas (BSP) regulates onshore banking, exercises regulatory supervision over OBUs, and requires them to meet reporting provisions and other banking rules and regulations. In addition to registering with the SEC, financial institutions must obtain a secondary license from the BSP subject to relatively stringent standards that would make it difficult to establish shell companies in financial services of this nature. For example, a financial institution operating an OBU must be physically present in the Philippines. Anonymous directors and trustees are not allowed. The SEC does not permit the issuance of bearer shares for banks and other companies.
Despite the efforts of the GORP authorities to publicize regulations and enforce penalties, cash smuggling remains a major concern for the Philippines. Although there is no limit on the amount of foreign currency an individual or entity can bring into or take out of the country, any amount in excess of $10,000 equivalent must be declared upon arrival or departure. Based on the amount of foreign currency exchanged and expended, there is systematic abuse of the currency declaration requirements and a large amount of unreported cash entering the Philippines.
The problem of cash smuggling is exacerbated by the large volume of foreign currency remitted to the Philippines by Overseas Filipino Workers (OFWs). The amount of remitted funds grew by 15 percent during the first ten months of 2006, and should exceed $12 billion for the year, equal to 10 percent of GDP. The BSP estimates that an additional $2-3 billion is remitted outside the formal banking system. Most of these funds are brought in person by OFWs or by designated individuals on their return home and not through any alternative remittance system. Since most of these funds enter the country in smaller quantities than $10,000, there is no declaration requirement and the amounts are difficult to calculate. The GORP encourages local banks to set up offices in remitting countries and facilitate fund remittances, especially in the United States, to help reduce the expense of remitting funds.
The Philippines is a member of the Asia/Pacific Group on Money Laundering (APG) and hosted the 9th annual APG plenary in July, 2006. The Philippines FIU became the 101st member of the Egmont Group of FIUs in July 2005. The GORP is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime and to all 12 international conventions and protocols related to terrorism, including the UN International Convention for the Suppression of the Financing of Terrorism). The Anti-Money Laundering Council must obtain a court order to freeze assets of terrorists and terrorist organizations placed on the UN 1267 Sanctions Committee's consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224, and other foreign governments.
For several years, the GORP has realized the need to enact and implement an antiterrorism law that among other things would define and criminalize terrorism and terrorist financing, and give military and law enforcement entities greater tools to detect and interdict terrorist activity. President Arroyo declared in her State of the Nation address in June 2005 that the passage of such a law was one of her priorities for the remainder of the year. Although the Philippine House passed its version of the Anti-Terrorism Law in April 2006, the Senate version remains stalled due to political infighting and fear the government could use certain provisions against political opponents.
In lieu of specific counterterrorist legislation, the government has broadly criminalized terrorist financing through Republic Law legislation, which defines "hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, included those perpetrated by terrorists against noncombatant persons and similar targets" as one of the violations under the definition of unlawful acts. The Revised Implementing Rules and Regulations R.A. No. 9160, as amended by R.A. No.9194, further state that any proceeds derived or realized from an unlawful activity includes all material and monetary effects will be deemed a violation against the law.
The Government of the Republic of the Philippines has made significant progress enhancing and implementing its amended anti-money laundering regime. To fully comport with international standards and become a more effective partner in the global effort to staunch money laundering and thwart terrorism and its financing, it should enact and implement new legislation that criminalizes terrorism and terrorist financing . Additionally, the Central Bank should be empowered to levy administrative penalties against covered entities in the financial community that do not comply with reporting requirements. Stockbrokers and accountants should be required to report CTRS and STRs and AMLC should use its authority to require all casinos to file CTRs and STRs. The GORP should enact comprehensive legislation regarding freezing and forfeiture of assets that would empower AMLC to issue administrative freezing orders to avoid funds being withdrawn before a court order is issued. The creation of an asset forfeiture fund would enable law enforcement agencies to draw on the fund to augment their budgets for investigative purposes. Such a fund would benefit the AMLC and enable it to purchase needed equipment. Finally, AMLC should separate its analytical and investigative responsibilities and establish a separate investigative division that would focus its attention on dismantling money laundering and terrorist financing operations.
Poland's geographic location places it directly along one of the main routes between the former Soviet Union republics and Western Europe that is used by narcotics traffickers and organized crime groups. According to Polish Government estimates, narcotics trafficking, organized crime activity, auto theft, smuggling, extortion, counterfeiting, burglary, and other crimes generate criminal proceeds in the range of $2-3 billion each year. The Government of Poland (GOP) estimates that the unregistered or gray economy, used primarily for tax evasion, may be as high as 13 percent of Poland's $330 billion GDP; it believes the black economy is only one percent of GDP. Poland's entry into the European Union (EU) in May 2004 increased its ability to control its eastern borders, thereby allowing Poland to become more effective in its efforts to combat all types of crime, including narcotics trafficking and organized crime.
Poland's banks serve as transit points for the transfer of criminal proceeds. As of March 2006, 54 commercial banks were licensed for operation in Poland, as were 585 "cooperative banks" that primarily serve the rural and agricultural community. The GOP considers the nation's banks, insurance companies, brokerage houses, and casinos to be important venues of money laundering. According to the GOP, fuel smuggling, by which local companies and organized crime groups seek to avoid excise taxes by forging gasoline delivery documents, is a major source of proceeds to be laundered. Money laundering through trade in scrap metal and recyclable material is also a newly emerging trend. It is also believed that some money laundering in Poland originates in Russia or other countries of the former Soviet Union.
The genesis of Poland's anti-money laundering (AML) regime was November 1, 1992, when the President of the National Bank of Poland issued an order instructing banks how to deal with money entering the financial system through illegal sources. The August 29, 1997 Banking Act was followed by a 1998 Resolution of the Banking Supervisory Commission, adding customer identification requirements and instructions on registering transactions exceeding a certain threshold.
On November 16, 2000, a law went into effect that improves Poland's ability to combat money laundering (entitled the Act of 16 November, or the Act on Counteracting Introduction into Financial Circulation of Property Values Derived from Illegal or Undisclosed Sources and on Counteracting the Financing of Terrorism, as amended). The GOP has updated this law several times to bring it into conformity with EU standards and to improve its operational effectiveness. This law increases penalties for money laundering and contains safe harbor provisions that exempt financial institution employees from normal restrictions on the disclosure of confidential banking information. The law also provides for the creation of a financial intelligence unit (FIU), the General Inspectorate of Financial Information (GIIF), housed within the Ministry of Finance, to collect and analyze large cash and suspicious transactions. Poland has adopted a National Security Strategy that treats the anti-money laundering effort as a top priority. The GOP has worked diligently to bring its laws into full conformity with EU obligations.
The Criminal Code criminalizes money laundering. Article 299 of the Criminal Code addresses self-laundering and criminalizes tipping off. In June 2001, the Parliament passed amendments to the Act of 16 November that broadened the definition of money laundering to encompass all serious crimes. In March 2003, Parliament further amended the law to broaden the definition of money laundering to include assets originating from illegal or undisclosed sources.
A major weakness of Poland's initial money laundering regime was that it did not cover many nonbank financial institutions that had traditionally been used for money laundering. To remedy this situation, between 2002 and 2004, the Parliament passed several amendments to the 2000 money laundering law. The amendments expand the scope of institutions subject to identity verification, record keeping, and suspicious transaction reporting requirements. Financial institutions subject to the reporting requirements prior to March 2004 amendments included banks, the National Depository for Securities, post offices, auction houses, antique shops, brokerages, casinos, insurance companies, investment and pension funds, leasing firms, private currency exchange offices, real estate agencies, and notaries public. The March 2004 amendments to the money laundering law widen the scope of covered institutions to include lawyers, legal counselors, auditors, and charities, as well as the National Bank of Poland in its functions of selling numismatic items, purchasing gold, and exchanging damaged banknotes. The law also requires casinos to report the purchase of chips worth 1,000 euros (approximately $1,200) or more. The law's extension to the legal profession was not without controversy. Lawyers strongly opposed the new amendments, claiming that the law violates attorney-client confidentiality privileges, and the Polish Bar has mounted a challenge to some provisions, and submitted a motion to the Constitutional Tribunal to determine the consistency of certain regulations with ten articles in the Polish Constitution.
In 2002, Parliament adopted measures to bring the nation's anti-money laundering legislation into compliance with EU standards. Poland's customs law was amended in order to require the reporting of any cross-border movement of more than 10,000 euros (approximately $12,000) in currency or financial instruments. Also, in addition to requiring that the GIIF be notified of all financial deals exceeding 15,000 euros (approximately $19,000), covered institutions are also required to file reports of suspicious transactions, regardless of the size of the transaction. Polish law also requires financial institutions to put internal anti-money laundering procedures into effect, a process that is overseen by the GIIF.
The GIIF began operations on January 1, 2001. During its first three years of operation, the GIIF received 3,326 suspicious transaction reports (STRs) which resulted in the development of 370 cases by the Prosecutor's Office. In 2005 and 2006, the number of STRs received by the FIU continued to increase with a total of 1,558 reports forwarded to the FIU, resulting in the development of 175 cases by the Prosecutor's Office. Between January and October 2006, the GIIF received more than 1,200 STRs, resulting in the creation of 182 cases with violations exceeding $210 million. Banks filed ninety percent of the STRs submitted in 2005. At a minimum, all reports submitted by the GIIF to the Prosecutor's Office have resulted in the instigation of initial investigative proceedings. In 2005, the number of convictions for money laundering exceeded 30, a number of which were connected with fuel smuggling. There were four convictions under the money laundering law in 2004. Many of the investigations begun by the GIIF have resulted in convictions for other nonfinancial offenses. The GIIF receives approximately 1.8 million reports per month on transactions exceeding the threshold level.
The vast majority of required notifications to the GIIF are sent through a newly developed electronic reporting system. The system is very well developed and is considered to be one of Europe's finest electronic reporting systems, collecting more information than the paper version of the report. Only a small percentage of notifications are now submitted by paper, mainly from small institutions that lack the equipment to use the electronic system. Although the new system is an important advance for Poland's anti-money laundering program, the efficient processing and analyzing of the large number of reports that are sent to the GIIF continues to be a challenge for the understaffed FIU. To help improve the FIU's efficiency in handling the large volume of reports filed by obliged institutions, the GIIF has initiated work on a specialized IT program that will support complex data analysis and improve the FIU's efficiency in handling the increasing number of reports which it receives.
The GIIF also conducts on-site training and compliance monitoring investigations. In 2005, the GIIF carried out 25 compliance investigations, an increase over the 15 completed in 2004, and received several hundred follow-up reports from institutions responsible for routinely supervising covered institutions. The GIIF has also introduced a new electronic learning course designed to familiarize obliged institutions with Poland's anti-money laundering regulations. In March 2005, an updated version of the course was installed on the Ministry of Finance Website. In 2005, 3,443 individuals (mainly from obligated institutions) participated in the GIIF's new electronic learning course, with a total of 3,032 individuals passing the final test. The Polish Code of Criminal Procedure, Article 237, allows for certain Special Investigative Measures. However, money laundering investigations are not specifically covered, although the organized crime provisions might apply in some cases. Two main police units deal with the detection and prevention of money laundering: the General Investigative Bureau and the Unit for Combating Financial Crime. Overall, both police units cooperate well with the GIIF. The Internal Security Agency (ABW) may also investigate the most serious money laundering cases.
A recognized need exists for an improved level of coordination and information exchange between the GIIF and law enforcement entities, especially with regard to the suspicious transaction information that the GIIF forwards to the National Prosecutor's Office. To alleviate this problem the GIIF and the National Prosecutor's Office signed a cooperation agreement in 2004. The agreement calls for the creation of a computer-based system that would facilitate information exchange between the two institutions. Work on the development of this new system is currently underway. With regard to information exchange with its foreign counterparts, the GIIF remains active. In 2005, it sent official requests to foreign financial intelligence units on 155 cases concerning 284 national and foreign entities suspected of money laundering, while foreign FIUs sent 59 requests to the GIIF, concerning 164 national and foreign entities suspected of attempting to launder proceeds from crime. The most intensive exchange of information was conducted with the United States: In 2005 GIIF submitted 31 requests to the financial intelligence of the United States. The GIIF also actively exchanges with the German, Russian, British, and Ukrainian financial intelligence units.
The total number of suspected transactions sent by obliged institutions in 2005 was approximately 70,000. The GIIF is authorized to put a suspicious transaction on hold for 48 hours. The Public Prosecutor then has the right to suspend the transaction for an additional three months, pending a court decision. In 2004, Article 45 of the criminal code was amended to further improve the government's ability to seize assets. On the basis of the amended article, an alleged perpetrator must prove that his assets have a legal source; otherwise, the assets are presumed to be related to the crime and as such can be seized. Both the Ministry of Justice and the GIIF desire to see more aggressive asset forfeiture regulations. However, because the former communist regime employed harsh asset forfeiture techniques against political opponents, lingering political sensitivities make it difficult to approve stringent asset seizure laws. In 2005, the GIIF suspended five transactions worth $500,000 and blocked 34 accounts worth $ 11 million. In 2006, the GIIF suspended four transactions worth $2.3 million and blocked 85 accounts worth $12.36 million.
The GOP has created an office of counterterrorist operations within the National Police, which coordinates and supervises regional counterterrorism units and trains local police in counterterrorism measures. Poland also has created a terrorist watch list of entities suspected of involvement in terrorist financing. The list contains the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee's consolidated list, the names of Specially Designated Global Terrorists designated by the U.S. pursuant to E.O. 13224, and the names designated by the EU under its relevant authorities. All covered institutions are required to verify that their customers are not included on the watch list. In the event that a covered institution discovers a possible terrorist link, the GIIF has the right to suspend suspicious transactions and accounts. Despite these efforts, Poland has not yet criminalized terrorist financing as is required by UNSCR 1373, arguing that all possible terrorist activities are already illegal and serve as predicate offenses for money laundering and terrorist financing investigations. The Ministry of Justice continues to work on draft amendments to the criminal code that would criminalize terrorist financing as well as elements of all terrorism-related activity.
As a member of the Council of Europe, Poland participates in the Council of Europe's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). In 2006, MONEYVAL conducted its third round mutual evaluation of Poland. The GIIF is an active participant in the Egmont Group and in FIU.NET, the EU-sponsored information exchange network for FIUs. All information exchanged between the GIIF and its counterparts in other EU states takes place via FIU.NET. In 2005, Poland twice hosted law enforcement, FIU and financial sector supervisors from the Former Yugoslav Republic of Macedonia on study visits designed to increase the operational capacities of the agencies and the people staffing them.
A Mutual Legal Assistance Treaty between the United States and Poland came into force in 1999. In addition, Poland has signed bilateral mutual legal assistance treaties with Sweden, Finland, Ukraine, Lithuania, Latvia, Estonia, Germany, Greece, and Hungary. Polish law requires the GIIF to have memoranda of understanding (MOUs) with other international competent authorities before it can participate in information exchanges. The GIIF has been diligent in executing MOUs with its counterparts in other countries, signing a total of 33 MOUs between 2002 and 2005. The MOU between the Polish FIU and the U.S. FIU was signed in fall 2003. The FIU is also currently in the process of negotiating MOUs with FIUs in Canada, Argentina, Turkey, Serbia and Montenegro, Belarus, China and Taiwan. Because Poland is an EU member state, the exchange of information between the GIIF and the FIUs of other member states is regulated by the EU Council Decision of October 17, 2000.
Poland is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the European Convention on Extradition and its Protocols, the European Convention on Mutual Assistance in Criminal Matters, and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Poland is also a party to the UN Convention against Transnational Organized Crime, which was, in part, a Polish initiative.
Over the past several years, the Government of Poland has worked to implement a comprehensive anti-money laundering regime that meets international standards. Further improvements should be made by promoting additional training at the private sector level and by working to improve communication and coordination between the General Inspectorate of Financial Information and relevant law enforcement agencies. The Code of Criminal Procedure should also be amended to allow the use of Special Investigative Measures in money laundering investigations, which would help law enforcement attain a better record of prosecutions and convictions. Poland should also act on the draft amendments to the criminal code and specifically criminalize terrorist financing, as it is obligated to do as a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Portugal is an entry point for narcotics transiting into Europe, and officials of the Government of Portugal (GOP) indicate that most of the money laundered in Portugal is narcotics-related. The GOP also reports that currency exchanges, wire transfers, and real estate purchases are used for laundering criminal proceeds.
Portugal has a comprehensive anti-money laundering regime that criminalizes the laundering of proceeds of serious offenses, including terrorism, arms trafficking, kidnapping, and corruption. Financial and nonfinancial institutions have a mandatory requirement to report all suspicious transactions to the Public Prosecutor regardless of threshold amount. The October 2006 Financial Action Task Force (FATF) Mutual Evaluation of Portugal stated, "the Portuguese legal framework for combating money laundering and terrorist financing is generally comprehensive." The report notes that the Portuguese confiscation and seizure system is also "generally comprehensive."
Act 11/2004, which implements the European Union's Second Money Laundering Directive, broadened the GOP's anti-money laundering regime. Act 11/2004 mandates suspicious transaction reporting by credit institutions, investment companies, life insurance companies, traders in high-value goods (e.g., precious stones, aircraft), and numerous other entities. Portugal employs an all-crimes approach to the predicate offense. "Tipping off" is prohibited and liability protection is provided for regulated entities making disclosures in good faith. Despite Law 5/2002, Article 2, which waives banking secrecy in cases related to organized crime and financial crime, in practice banking secrecy laws made it extremely difficult for investigators to obtain information about bank accounts and financial transactions of individuals or companies without their permission until 2004.
If a regulated entity has knowledge of a transaction likely to be related to a money laundering offense, it must inform the GOP, which may order the entity not to complete the transaction. If stopping the transaction is impossible or likely to frustrate efforts to pursue the beneficiaries of a suspected money laundering operation, the government also may allow the entity to proceed with the transaction but require the entity to provide it with complete details.
All financial institutions must identify their customers, maintain records for a minimum of ten years, and demand written proof from customers regarding the origins and beneficiaries of transactions that exceed 12,500 euros (approximately $16,533). Nonfinancial institutions, such as casinos, property dealers, lotteries and dealers in high-value assets, must also identify customers engaging in large transactions, maintain records, and report suspicious activities to the Office of the Public Prosecutor. However, the 2006 FATF mutual evaluation team reported that the mechanism for determining the beneficial owner does not fully comply with FATF requirements. The National Registry of Legal Persons does not include all information to reveal the beneficial owners of legal persons. Requirements for obliged entities to identify beneficial owners are located in instructions and regulatory standards set forth by the Bank of Portugal (BdP) and the Portuguese Insurance Institute (ISP), and not stipulated by law as required by the Methodology; this raises the question of whether these regulations could be considered secondary legislation or other enforceable means. For some entities in the securities sector subject to the Securities Market Commission (CMVM) regulations rather than those from the BdP, the CMVM regulations do not explicitly comply with requirements regarding the identification of the beneficial owners of legal persons.
Decree-Law 295/2003 of November 2003 sets out reporting requirements for the transportation across borders of cash, nonmanufactured gold, and certain negotiable financial instruments, such as travelers' checks. When a person travels across the Portuguese border with more than 12,500 euros worth of such assets, a declaration must be made to Portuguese customs officials. The GOP expects to approve by year's end national legislation per EC Regulation 1899/2005 to more tightly control the movement of cash across borders.
The November 2003 law also revised and tightened the legal framework for foreign currency exchange transactions, including gold, subjecting them to the reporting requirement for transactions exceeding 12,500 euros. Beyond the requirements to report large transactions, foreign exchange bureaus are not subject to any special requirements to report suspicious transactions. The law does, however, give the GOP the authority to investigate suspicious transactions without notifying targets of the investigation.
New rules that took effect in January 2005 permit tax authorities to lift secrecy rules without authorization from the target of an investigation. The rules require companies to have at least one bank account and, for companies with more than 20 employees, to conduct their business through bank transfers, checks, and direct debits rather than cash. These rules are mainly designed to help the GOP investigate possible cases of tax evasion but may facilitate enforcement of other financial crimes as well.
With regard to nonbanking financial institutions, namely financial intermediaries, the Portuguese Securities Market Commission issued Regulation 7/2005 (amending Regulation 12/2000 on Financial Intermediation), requiring financial intermediaries to submit detailed annual Control and Supervision Reports to the Commission by June 30 of the following year. The regulation entered into force on January 1, 2006. Regulation 2/2006 entered into force on May 26, 2006, further amending Regulation 12/2000, Articles 36 and 36-A (concerning internal auditing and supervision), to require additional information.
The three principal regulatory agencies for supervision of the financial sector in Portugal are the Central Bank of Portugal, the Portuguese Insurance Institute, and the Portuguese Securities Market Commission. The Gambling Inspectorate General, the Economic Activities Inspectorate General, the Registries and Notaries General Directorate, the National Association for Certified Public Accountants and the Association for Assistant Accountants, the Bar Association, and the Chamber of Solicitors also monitor and enforce the reporting requirements of regulated entities, which include casinos, realtors, dealers in precious metals and stones, accountants, notaries, statutory auditors and registry officials. Attorneys and solicitadores became obliged entities in 2004.
Portugal's financial intelligence unit (FIU), known as the Financial Information Unit, or Unidade de Informa??o Financeira (UIF), was established through Decree-Law 304/2002 of December 13, 2002, and operates independently as a department of the Portuguese Judicial Police (Pol?cia Judici?ria). The UIF is comprised of 28 persons and is responsible for gathering, centralizing, processing, and publishing information pertaining to investigations of money laundering and tax crimes. It also facilitates cooperation and coordination with other judicial and supervising authorities. All suspicious transaction reports (STR's) received by the UIF come from the Attorney General's office, as that office is the designated competent authority to receive STRs. At the international level, UIF coordinates with other FIUs. The UIF has policing duties but no regulatory authority.
In 2002, obligated entities filed 166 STRs. In 2005, they had filed 330 STRs and 44,165 currency transaction reports (CTRs). From January to September 2006, UIF received 391 STRs and 13,806 CTRs. Credit institutions and the Central Bank were the source of the vast majority of STRs, with the former submitting 346 and the latter 25. Portugal's Gambling Inspectorate General was the source of 12,599 CTRs, as it reports all transactions at casinos above a certain threshold. In this same time period, UIF sent 203 cases for further investigation to the Judicial Police and other police departments. Most of the case information originated from financial institutions and the Central Bank. Twelve cases resulted in proposals to freeze assets involving over 17 million euro (approximately $22.5 million).
The FATF mutual evaluation report noted that sixteen persons were found guilty and convicted of money laundering from 2002 to 2005, receiving penalties ranging from one year to eight and one-half years' imprisonment. The GOP has not yet released statistics on arrests or prosecutions for money laundering or terrorist financing in 2006. However, the media reported in November that the Judicial Police detained seven individuals suspected of belonging to a money laundering network in 2006. Portuguese authorities believe these individuals were involved in the transfer of funds generated by illegal activities in Mozambique, Angola, and Dubai.
Portuguese laws provide for the confiscation of property and assets connected to money laundering and authorize the Judicial Police to trace illicitly obtained assets (including those passing through casinos and lotteries), even if the predicate offense occurs outside of Portugal. Police may request files of individuals under investigation and, with a court order, can obtain and use audio and videotape as evidence in court. The law allows the Public Prosecutor to request that a lien be placed on the assets of individuals being prosecuted in order to facilitate asset seizures related to narcotics and weapons trafficking, terrorism, and money laundering.
Act 5/2002 shifted the burden of proof in cases of criminal asset forfeiture from the government to the defendant; an individual must prove that his assets were not obtained as a result of his illegal activities. The law defines criminal assets as those owned by an individual at the time of indictment and thereafter. The law also presumes that assets transferred by an individual to a third party within the previous five years still belong to the individual in question, unless proven otherwise. Portugal has comprehensive legal procedures that enable it to cooperate with foreign jurisdictions and share seized assets.
In August 2003, Portugal passed Act 52/2003, which specifically defines terrorist acts and organizations and criminalizes the transfer of funds related to the commission of terrorist acts. It also addresses the criminal liability of legal persons regarding terrorism financing. However, the legislation does not extend the customer due diligence practices to risk association with terrorism financing. While the broadly-worded law covers both illicit and licit funds that support a terrorist act or organization, it does not extend coverage to the provision of funds to an individual terrorist. Portugal has created a Terrorist Financing Task Force that includes the Ministries of Finance and Justice, the Judicial Police, the Security and Intelligence Service, the Bank of Portugal, and the Portuguese Insurance Institution. Names of individuals and entities included on the United Nations Security Council Resolution 1267 Committee's consolidated list, or that the United States and EU have linked to terrorism, are passed to private sector entities through the Bank of Portugal, the Stock Exchange Commission, and the Portuguese Insurance Institution. In practice, the actual seizure of assets would only occur once the EU's clearinghouse process agrees to the EU-wide seizure of assets of terrorists and terrorist-linked groups. While Portugal does not have an administrative procedure to freeze assets independently of the relevant EU directive, judicial procedure exists for the Public Prosecutor to open a special inquiry and to freeze assets at the request of a foreign country. To date, no significant assets have been identified or seized. In its 2006 report on the mutual evaluation of Portugal, the FATF noted that it found "deficiencies in scope and time" as related to the freezing of terrorism-related funds.
The Portuguese Madeira Islands International Business Center (MIBC) has a free trade zone, an international shipping register, offshore banking, trusts, holding companies, stock corporations, and private limited companies. The latter two business groups, similar to international business corporations, account for approximately 6,500 companies registered in Madeira. All entities established in the MIBC will remain tax exempt until 2011. Twenty-seven offshore banks are currently licensed to operate within the MIBC. The Madeira Development Company supervises offshore banks. There is no indication that MIBC has been used for money laundering or terrorist financing.
Companies can also take advantage of Portugal's double taxation agreements. Decree-Law 10/94 permits existing banks and insurance companies to establish offshore branches. Applications are submitted to the Central Bank of Portugal for notification, in the case of EU institutions, or authorization, in the case of non-EU or new entities. The law allows establishment of "external branches" that conduct operations exclusively with nonresidents or other Madeiran offshore entities, and "international branches" that conduct both offshore and domestic business. Although Madeira has some local autonomy, Portuguese and EU legislative rules regulate its offshore sector, and the competent oversight authorities supervise it. Exchange of information agreements contained in double taxation treaties allow for the disclosure of information relating to narcotics or weapons trafficking. Bearer shares are not permitted.
According to the FATF mutual evaluation report, Portugal has undertaken many mutual legal assistance obligations, especially with regard to identification, seizure and confiscation of assets. Portugal is a member of the Council of Europe, the European Union, and the FATF. The GOP 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, and has signed, but not yet ratified, the UN Convention against Corruption. Portugal is also a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Portugal's FIU is a member of the Egmont Group.
The Government of Portugal has put into place a comprehensive and effective regime to combat money laundering. Laws passed in 2002 strengthen its ability to investigate and prosecute, and steps taken in 2003 extended the regime's reach to terrorist financing. Legislative measures adopted in 2004 have consolidated the anti-money laundering legal framework, imposing on financial and nonfinancial institutions obligations to prevent the use of the financial system for the purpose of money laundering. The GOP continued to implement these measures in 2006 to effectively combat money laundering and terrorist financing. However, Portugal should collect and maintain more information and data regarding the number of money laundering and terrorism financing investigations, prosecutions and convictions as well as the amount of property and assets frozen, seized and confiscated as it relates to money laundering and terrorism financing. The GOP should work to correct any identified deficiencies regarding its asset freezing and forfeiture regime, improve its mechanisms to determine the beneficial owners, and ensure that the terrorism financing law covers financing to individuals. Lastly, the FIU should be the competent authority to receive and analyze all STRs.
Qatar has a small population (approximately 850,000 residents) with a low rate of general and financial crime. The financial sector, though modern, is limited in size and subject to strict regulation by the Qatar Central Bank (QCB). There are 16 licensed financial banks, including three Islamic banks and a specialized bank, the Qatar Industrial Development Bank. Qatar Financial Centre (QFC) allows major international financial institutions and corporations to set up offices and operate in a "free zone" environment. The QFC allows full repatriation of profits and 100 percent foreign ownership. Qatar has 19 exchange houses, three investment companies and one commercial finance company. Although Qatar still has a cash-intensive economy, authorities believe that cash placement by money launderers is a negligible risk due to the close-knit nature of the society and the rigorous "know your customer" procedures required by Qatari law.
On September 11, 2002, the Emir of the State of Qatar signed the Anti-Money Laundering Law. According to Article 28, money laundering offenses involve the acquisition, holding, disposing of, managing, keeping, exchanging, depositing, investing, transferring, or converting of funds from illegal proceeds. The law imposes fines and penalties of imprisonment of five to seven years. The law expanded the powers of confiscation to include the identification and freezing of assets as well as the ultimate confiscation of the illegal proceeds upon conviction of the defendant for money laundering. Article Two includes any activities related to terrorist financing. Article 12 authorizes the Central Bank Governor to freeze suspicious accounts for up to ten days and to inform the Attorney General within three days of any action taken. The Attorney General may renew or nullify the freeze order for a period of up to three months.
The law requires all financial institutions to report suspicious transactions and retain records for up to 15 years. The law also gives the QCB greater powers to inspect suspicious bank accounts and grants the authorities the right to confiscate money in illegal transactions. Article 17 permits the State of Qatar to extradite convicted criminals in accordance with international or bilateral treaties.
The Anti-Money Laundering Law established the National Anti-Money Laundering Committee (NAMLC) to oversee and coordinate money laundering combating efforts. It is chaired by the Deputy Governor of the QCB and includes members from the Ministries of Interior, Civil Service Affairs and Housing, Economy and Commerce, Finance, Justice, Customs and Ports Authority and the State Security Bureau.
In February 2004, the Government of Qatar (GOQ) passed the Combating Terrorism Law. According to Article Four of the law, any individual or entity that provides financial or logistical support, or raises money for activities considered terrorist crimes, is subject to punishment. The punishments are listed in Article Two of the law, which include the death penalty, life imprisonment, and 10 or 15 year jail sentences depending on the crime. Qatar has a national committee to review the consolidated UN 1267 terrorist designation lists and to recommend any necessary actions against individuals or entities found in Qatar.
The QCB updates regulations regarding money laundering and financing of terrorism on a regular basis, in accordance with international requirements. The Central Bank aims to increase the awareness of all banks operating in Qatar with respect to anti-money laundering efforts by explaining money laundering schemes and monitoring suspicious activities.
In October, 2004, the GOQ established a Financial Intelligence Unit (FIU) known as the Qatar Financial Information Unit (QFIU). The FIU is responsible for receiving and reviewing all suspicious and financial transaction reports, identifying transactions and financial activities of concern, ensuring that all government ministries and agencies have procedures and standards to ensure proper oversight of financial transactions, and recommending actions to be taken if suspicious transactions or financial activities of concern are identified. The FIU also obtains additional information from the banks and other government ministries. The QCB, Public Prosecutor and the Criminal Investigation Division (CID) of the Ministry of the Interior work together with the FIU to investigate and prosecute money laundering and terrorism finance cases. The FIU also coordinates closely with the Doha Securities Market (DSM) to establish procedures and standards to monitor all financial activities that occur in Qatar's stock market. The FIU coordinates the different regulatory agencies in Qatar. The Qatari FIU became a member of the Egmont Group in 2005.
In December 2004, QCB installed a central reporting system to assist the FIU in monitoring all financial transactions made by banks. All accounts must be opened in person. Banks are required to know their customers; the banking system is considered open in that in addition to Qatari citizens and legal foreign residents, nonresidents can open an account based on a reliable recommendation from his or her primary bank. Hawala transactions are prohibited by law in Qatar.
The Qatar Authority for Charitable Works monitors all charitable activity in and outside of Qatar. The Secretary General of the Authority approves all international fund transfers by the charities. The Authority has primary responsibility for monitoring overseas charitable, development, and humanitarian projects that were previously under the oversight of several government agencies such as the Ministry of Foreign Affairs, the Ministry of Finance and the Ministry of Economy and Commerce. Overseas activities must be undertaken in collaboration with a nongovernmental organization (NGO) that is legally registered in the receiving country. The Authority prepares an annual report on the status of all projects and submits the report to relevant ministries. The Authority also regulates domestic charity collection.
Qatar does not have cross-border reporting requirements for financial transactions. Immigration and customs authorities are reviewing their policies in expanding their ability to enforce money declarations and detect trade-based money laundering.
Qatar is a party to the 1988 UN Drug Convention but not the UN Convention for the Suppression of the Financing of Terrorism or the UN Convention against Transnational Organized Crime. Qatar is one of the original signatories of the memorandum of understanding governing the establishment of the Middle East and North Africa Financial Action Task Force (MENA-FATF), a FATF-style regional body that promotes best practices to combat money laundering and terrorist financing in the region.
The Government of Qatar has demonstrated a willingness to fight financial crimes, including terrorist financing, and to work cooperatively with other countries in doing so. Per FATF Special Recommendation Nine, Qatar should initiate and enforce in-bound and out-bound cross-border currency reporting requirements. The data should be shared with the FIU. The government should continue to work to ensure that law enforcement, prosecutors, and customs authorities receive the necessary training and technical assistance to improve their capabilities in recognizing and pursuing various forms of terrorist financing, money laundering and other financial crimes. Qatar should publish the number of annual money laundering investigations, prosecutions, and convictions. Qatar should become a party to the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime.
Romania's geographic location makes it a natural transit country for trafficking in narcotics, arms, stolen vehicles, and persons. As such, the nation is vulnerable to financial crimes. Romania's central bank, the National Bank of Romania, estimates the dollar amount of financial crimes to range from $1 billion to $1.5 billion per year. Value-added tax (VAT) fraud has fallen to below 10 percent (down from 45 percent in previous years) of this total. Trans-border smuggling of counterfeit goods, fraudulent bankruptcy claims, tax fraud, and fraudulent claims in relation to consumer lending are additional types of financial crimes prevalent in Romania. Romania also has one of the highest occurrences of online credit card fraud in the world.
Laundered money comes primarily from international crime syndicates who conduct their criminal activity in Romania and subsequently launder their illicit proceeds through false limited liability companies. Another source of laundered money is the proceeds of illegally smuggled goods such as cigarettes, alcohol, coffee, and other dutiable commodities. Widespread corruption in Romania's customs and border control and as well in several neighboring Eastern European countries also facilitates money laundering.
Romania first criminalized money laundering with the adoption in January 1999 of Law No. 21/99, On the Prevention and Punishment of Money Laundering. The law became effective in April 1999 and required customer identification, record keeping, suspicious transaction reporting, and currency transaction reporting for transactions (including wire transfers) over 10,000 euros. The list of entities covered by Law No. 21/99 includes banks, nonbank financial institutions, attorneys, accountants, and notaries. Tipping off has been prohibited. Romanian law permits the disclosure of client and ownership information to bank supervisors and law enforcement authorities, and protects banking officials with respect to their cooperation with law enforcement.
In December 2002, Romania issued modifications to its anti-money laundering law with the passage of the Law on the Prevention and Sanctioning of Money Laundering (Law 656/2002). This law changed the list of predicate offenses to an all crimes approach. The 2002 law also expanded the number and types of entities subject to anti-money laundering (AML) regulations. Some of these new entities include art dealers, travel agents, privatization agents, postal officials, money service businesses, and real estate agents. Even though nonbank financial institutions are covered under Romania's money laundering law, regulatory supervision of this sector is weak and not nearly as rigorous as that imposed on banks.
In July 2005, Romania's money laundering law was further modified by the passage of Law 230/2005. The new law provides for a uniform approach to combating and preventing money laundering and terrorist financing. The purpose of the law is to meet the requirements of EU Directive 2001/97/EC and EU Directive 91/308/EEC on Preventing Use of the Financial System for Money Laundering, as well as the requirements of the European Council's Framework Decision of June 2001 on Identification, Search, Seizure, and Confiscation of the Means and Goods Obtained from Such Offenses. The modified law also responds to Financial Action Task Force (FATF) Recommendations and establishes an STR reporting requirement for transactions linked to terrorist financing.
During 2006, several changes were made in Romania's laws in order to bring the country into harmony with FATF recommendations and EU Directives. Specifically, laws were changed to allow an increase in the level of fines in correspondence with the inflation rate; use of undercover investigators; reports to be sent from the FIU to the General Prosecutor's Office in an unclassified manner so that they may be used in operational investigations; confiscation of goods used in or resulting from money laundering activities; an increase in the length of time that bank accounts may be frozen from ten days up to one month.
In keeping with new international standards, Romania has taken steps to strengthen its know-your-customer (KYC) identification requirements. Romania has implemented KYC regulations that mandate identification of the client upon account opening and when single or multiple transactions meet or approach 10,000 euros (approximately $13,000). In December 2003, Romania's central bank, the National Bank of Romania (BNR), introduced Norm No. 3, "Know Your Customer." This regulation strengthens information disclosure for outgoing wire transfers and correspondent banking by requiring banks to include information about the originator's name, address, and account. The same information is required for incoming wires as well. Banks are further required to undertake proper due diligence before entering into international correspondent relations, and are prohibited from opening correspondent accounts with shell banks. In 2006, the BNR widened the scope of its KYC norms by extending their application to all other nonbanking financial institutions falling under its supervision. In 2005, the Insurance Supervision Commission instituted similar regulations for the insurance industry.
Romania's financial intelligence unit (FIU), the National Office for the Prevention and Control of Money Laundering (NOPCML), was established in 1999. All currency transaction reports and suspicious transaction reports must be forwarded to the FIU. The FIU oversees the implementation of anti-money laundering guidelines for the financial sector and works to ensure that adequate training is provided for all domestic financial institutions covered by the law. The FIU is also authorized to participate in inspections and controls in conjunction with supervisory authorities, having carried out 118 on-site inspections during the first ten months of 2006. In July 2006, the FIU Board issued regulations implementing KYC standards for nonfinancial reporting agencies that are not the subject of supervision by other national authorities. These norms are consistent with EU Directives and allow the FIU to increase supervision of entities (casinos, notaries, real estate brokers) previously unsupervised for compliance with AML regulations.
In 2006, the FIU received 46,725 currency transaction reports detailing 8,377,762 transactions exceeding the reporting threshold of 10,000 Euros. Of these transactions, 3.9 percent were carried out by individuals; the remainder was carried out by corporate entities. During the same period, the FIU also received 6,054 reports of foreign banking transfers detailing 753,674 transactions that exceed the reporting threshold. Of these transactions, 5.1 percent were carried out by individuals and the rest by corporations. The total number of suspicious transactions reported to the FIU dropped slightly from 2,826 in the first ten months of 2005 to 2,296 in the first ten months of 2006. Of this figure, reporting by banks and other credit institutions dropped from 1,993 in the first ten months of 2005 to 1,756 in the first ten months of 2006. During the first ten months of 2006, the FIU suspended two suspicious transactions totaling $9.65 million and levied fines totaling $81,273.
Upon completion of its analysis, the FIU forwards its findings to the appropriate government agency for follow-up investigation. During the first ten months of 2006, the number of files sent to the General Prosecutor's Office on suspicion of money laundering was 124, compared to 411 in 2005 and 501 in 2004. During the first ten months of 2006, the number of files sent to the National Anti-Corruption Department on suspicion of money laundering was seven, compared to 41 notifications in the first ten months of 2005, and 22 in 2004. With regard to terrorism financing, the FIU did not send any files to the Romanian Intelligence Service (SRI) during the first ten months of 2006. The FIU also sent six notifications to the Police General Inspectorate, three to the Financial Guard and three to the National Agency for Fiscal Administration in the first ten months of 2006.
Efforts to prosecute these cases have been hampered by a lack of specialization and technical knowledge of financial crimes within the judiciary. Moreover, coordination between law enforcement and the justice system remains limited. Between January 1, 2006 and December 31, 2006, 102 defendants were indicted by the Directorate for the Investigation of Organized Crime and Terrorism Offences (DIICOT) in 22 cases involving money laundering. Between January 1, 2006 and September 30, 2006, four persons received final convictions and one person was acquitted on charges originating in previous years. A conviction is not final in Romania until all appeals remedies have been exhausted.
Since its establishment, the NOPCML has had to deal with numerous operational and political challenges. However, in June 2004, the standing of Romania's FIU began to improve when the Government of Romania (GOR) appointed a new director to head the FIU. The new director significantly improved the office's operational efficiency and brought greater visibility to the importance of AML and counterterrorism financing CTF efforts in Romania. Some significant improvements made include the approval of a new organizational structure for the FIU (as mandated by Governmental Decision No. 1078/2004), as well as the passage of legislation that was designed to improve the procedures for analyzing STR information and the suspension of suspicious accounts and transactions.
In February 2006, the GOR again appointed a new director to head the FIU. The new director and the FIU's supervisory board have worked to improve the quality of cases forwarded to prosecutors for judicial action. While the number of cases forwarded to the General Prosecutor's Office in 2006 has declined, the FIU believes that the number of indictments, and eventually convictions, will increase as the FIU has started to place a greater emphasis on the quality of reports produced as opposed to the quantity of reports forwarded to the Prosecutor's Office. In April 2006, the GOR approved a new organizational charter for the FIU that established a new division (Legal, Methodology, and Control Department) within the FIU and also allowed an increase in the FIU's staff from 84 to 120 people. In July 2006, the FIU moved to new facilities that will better accommodate staff growth and provide improved infrastructure for resource enhancements and security.
In response to the events of September 11, 2001, Romania passed a number of legislative measures designed to sanction acts contributing to terrorism. Emergency Ordinance 141, passed in October 2001, provides that the production or acquisition of means or instruments, with intent to commit terrorist acts, are offenses of exactly the same level as terrorist acts themselves. These offenses are punishable with imprisonment ranging from five to 20 years.
In April 2002, the Supreme Defense Council of the Country (CSAT) adopted a National Security Strategy, which includes a General Protocol on the Organization and Functioning of the National System on Preventing and Combating of Terrorist Acts. This system, effective July 2002 and coordinated through the Intelligence Service, brings together and coordinates a multitude of agencies, including 14 ministries, the General Prosecutor's Office, the central bank, and the FIU. The GOR has also set up an inter-ministerial committee to investigate the potential use of the Romanian financial system by terrorist organizations.
The GOR announced a national anticorruption plan in early 2003 and passed a law criminalizing organized crime in April 2003. A new Criminal Procedure Code was passed and entered into force on July 1, 2003. The new Code contains provisions for authorizing wiretaps and intercepting and recording telephone calls in money laundering and terrorist financing cases.
Romanian law has some limited provisions for asset forfeiture in the Law on Combating Corruption, No. 78/2000, and the Law on Prevention and Combat of Tax Evasion, No. 241, introduced in July 2005. The GOR, and particularly the central bank, has been cooperative in seeking to identify and freeze terrorist assets. Emergency Ordinance 159, passed in late 2001, includes provisions for preventing the use of the financial and banking system to finance terrorist attacks, and sets forth the parameters for the government to combat such use. Emergency Ordinance 153 was passed to strengthen the government's ability to carry out the obligations under UNSCR 1373, including the identification, freezing, and seizure of terrorist funds or assets. Legislative changes in 2005 extended the length of time a suspect account may be frozen. The FIU is now allowed to suspend accounts suspected of money laundering activity for three working days, as opposed to the previous two day limit. In addition, once the case is sent to the General Prosecutor's Office, it may further extend the period by four working days instead of the previously allowed three days.
In November 2004, the Parliament adopted law 535/2004 on preventing and combating terrorism, which abrogates some of the previous government ordinances and incorporates many of their provisions. The law includes a chapter on combating the financing of terrorism by prohibiting financial and banking transactions with persons included on international terrorist lists, and requiring authorization for transactions conducted with entities suspected of terrorist activities in Romania.
The central bank receives lists of individuals and terrorist organizations provided by the United States, the UNSCR 1267 Sanctions Committee, and the EU, and it circulates these to banks and financial institutions. The new law on terrorism provides for the forfeiture of assets used or provided to terrorist entities, together with finances resulting from terrorist activity. To date, no terrorist financing arrests, seizures, or prosecutions have been carried out.
The GOR recognizes the link between organized crime and terrorism. Romania is a member of and host country for the headquarters of the Southeast European Cooperative Initiative's (SECI) Center for Combating Transborder Crime, a regional center that focuses on intelligence sharing related to criminal activities, including terrorism. Romania also participates in a number of regional initiatives to combat terrorism. Romania has worked within SEEGROUP (a working body of the NATO initiative for Southeast Europe) to coordinate counterterrorist measures undertaken by the states of Southeastern Europe. The Romanian and Bulgarian Interior Ministers signed an inter-governmental agreement in July 2002 to cooperate in the fight against organized crime, drug smuggling, and terrorism.
The FIU is a member of the Egmont Group and participates as a member in the Council of Europe's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). A Mutual Legal Assistance Treaty signed in 2001 between the United States and Romania entered into force in October 2001. The GOR has demonstrated its commitment to international anticrime initiatives by participating in regional and global anticrime efforts. Romania is a party to the 1988 UN Drug Convention, the Agreement on Cooperation to Prevent and Combat Transborder Crime, and the UN Convention against Transnational Organized Crime. Romania also is a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime; the Council of Europe's Criminal Law Convention on Corruption; and the UN International Convention for the Suppression of the Financing of Terrorism. On November 2, 2004, Romania became a party to the UN Convention against Corruption. The FIU has signed bilateral memoranda with Spain, Belgium, Poland, Czech Republic, Austria, Croatia, Slovenia, Italy, Serbia, Greece, Bulgaria, Ukraine, Turkey, South Korea, and Thailand. The NOPCML is currently working on finalizing an MOU with the United States. In an EU project completed in July 2005, the FIU worked closely with Italy to improve its efficiency and effectiveness.
Although Romania's AML legislation and regulations are comprehensive in scope, implementation lags. The FIU has improved in its ability to report and investigate cases in a timely fashion, and has improved the quality of its reporting. However, these investigations have resulted in only a handful of successful prosecutions to date. With the conclusion of the Romanian capital account liberalization in 2006, the risk of money laundering through nonbanking entities will increase. Romania should continue its efforts to ensure that nonbank financial institutions are adequately supervised and that the sector is trained on identification of suspicious transaction and reporting and record-keeping responsibilities. Romania should continue to improve communications between reporting and monitoring entities, as well as between prosecutors and the FIU. There is an over-reliance on financial reporting to initiate investigations. More effort should be made by Romanian law enforcement and customs authorities to recognize money laundering. Increased border enforcement and antismuggling measures are necessary. The General Prosecutor's Office should place a higher priority on money laundering cases. Romania should further implement existing procedures for the timely freezing, seizure, and forfeiture of criminal or terrorist-related assets. Romania should take specific steps to combat corruption in commerce and government.
Russia's financial system does not attract a significant portion of legal or illegal depositors, and therefore Russia is not considered an important regional financial center. Criminal elements from Russia and neighboring countries continue to use Russia's financial system to launder money because of familiarity with the language, culture, and economic system. The majority of laundered funds do not appear to be from activities related to narcotics production or trafficking, although these activities occur. Experts believe that most of the illicit funds flowing through Russia derive from domestic criminal or quasi-criminal activity, including evasion of tax and customs duties and smuggling operations. Despite making progress in combating financial crime, Russia remains vulnerable to such activity because of its vast natural resource wealth, the pervasiveness of organized crime, and a high level of corruption. Other factors include porous borders, Russia's role as a geographic gateway to Europe and Asia, a weak banking system with low public confidence in it, and under-funding of regulatory and law enforcement agencies. However, due to rapid economic growth in various sectors, the number of depositors has steadily been increasing.
Russia has recently changed its laws to allow direct foreign ownership and investment in Russian financial institutions. Net private capital inflows for 2006 amounted to $41.6 billion according to the Russian Central Bank, an increase from $1.1 billion in 2005. In contrast to the capital flight that occurred during the 1990s, the majority of more recent outflows involved the legitimate movement of money to more secure and profitable investments abroad, which reflects the maturing of the Russian business sector. However, a portion of this money undoubtedly involved the proceeds of criminal activity. According to official statistics, the trend toward net capital inflows involves the transfer of assets from tax havens, such as Cyprus and the Virgin Islands, previously known to be popular destinations for Russian capital outflows in the 1990s.
Russia has the legislative and regulatory framework in place to pursue and prosecute financial crimes, including money laundering and terrorism finance. The Russian Federation's Federal Law No. 115-FZ "On Combating Legalization (Laundering) of Criminally Gained Income and Financing of Terrorism" became effective on February 1, 2002, with subsequent amendments to the laws on banking, the securities markets, and the criminal code taking effect in October 2002, January 2003, December 2003, and July 2004, respectively. Law RF 115-FZ obligates banking and nonbanking financial institutions to monitor and report certain types of transactions, keep records, and identify their customers.
According to the original language of RF 115-FZ, institutions legally required to report include: banks, credit organizations, securities market professionals, insurance and leasing companies, the federal postal service, jewelry and precious metals merchants, betting shops, and companies managing investment and nonstate pension funds. Amendments to the law that came into force on August 31, 2004 extend the reporting obligation to real estate agents, lawyers and notaries, and to persons rendering legal or accounting services that involve certain transactions (e.g., managing money, securities, or other property; managing bank accounts or securities accounts; attracting or managing money for organizations; or incorporating, managing, and buying or selling organizations).
Various regulatory bodies ensure compliance with Russia's anti-money laundering and counterterrorism finance laws. The Central Bank of Russia (CBR) supervises credit institutions; the Federal Insurance Supervision Service oversees insurance companies; the Federal Service for Financial Markets regulates entities managing nongovernmental pension and investment funds, as well as professional participants in the securities sector; and the Assay Chamber (under the Ministry of Finance) supervises entities buying and selling precious metals or stones.
The CBR has issued guidelines regarding anti-money laundering (AML) practices within credit institutions, including "know your customer" (KYC) and bank due diligence programs. Banks are required to obtain and retain for five years information regarding individuals and legal entities and beneficial owners of corporate entities. Banks must also adopt internal compliance rules and procedures and appoint compliance officers. The amendment to Law 115-FZ has required banks to identify the original source of funds and to report to the financial intelligence unit (FIU) all suspicious transactions since July 2004. Institutions that fail to meet mandatory reporting requirements face revocation of their licenses to carry out relevant activity, limits on certain banking operations, and possible criminal or administrative penalties. An administrative fine of up to $16,700 can be levied against an institution, with a fine of up to $700 on an officer of an institution. The maximum criminal penalty is 10 years in prison with applicable fines.
All obligated financial institutions must monitor and report to the government: any transaction that equals or exceeds 600,000 rubles (approximately $22,700) and involves or relates to cash payments, individuals or legal entities domiciled in states that do not participate in the international fight against money laundering, bank deposits, precious stones and metals, payments under life insurance policies, or gambling; all transactions of "extremist organizations" or individuals included on Russia's domestic list of such entities and individuals; and suspicious transactions.
Since the CBR issued Order 1317-U in August 2003, Russian financial institutions must now report all transactions with their counterparts in offshore zones. In some cases, offshore banks are also subject to enhanced due diligence and maintenance of additional mandatory reserves to offset potential risks undertaken when conducting specific transactions. The CBR has also raised the standards for offshore financial institutions, resulting in a reduction in the number of such institutions. Overall wire transfers from Russian banks to offshore financial centers have dropped significantly as a result of such regulatory measures.
Foreign financial entities, including those from known offshore havens, are not permitted to operate directly in Russia; they must do so solely through subsidiaries incorporated in Russia, which are subject to domestic supervisory authorities. During the process of incorporating and licensing these subsidiaries, Russian authorities must identify and investigate each director of the Russian unit, as nominee or anonymous directors are prohibited under Russian law. In September 2005, the CBR completed its review of all banks that sought admission to the recently established Deposit Insurance System (DIS). To gain admission to the DIS, a bank had to verifiably demonstrate to the CBR that it complies with Russian identification and transparency requirements. Currently, 927 of Russia's estimated 1200 banks have been admitted to the DIS, effectively removing over 200 banks from Russia's banking system.
By law, Russian businesses must obtain government permission before opening operations abroad, including in offshore zones. A department within the Ministry of Economic Development and Trade (MEDT) reviews such requests from Russian firms, and once the MEDT approves, the CBR must then approve the overseas currency transfer. In either case, the regulatory body responsible for the offshore activity is the same as for domestic activity, i.e., the Federal Service for Financial Markets regulates brokerage and securities firms, while the CBR regulates banking activity.
Article 8 of Law 115-FZ provides for the establishment of Russia's FIU, called the Federal Service for Financial Monitoring (FSFM). FSFM is an independent executive agency administratively subordinated to the Ministry of Finance. All financial institutions with an obligation to report certain transactions must report the required information to the FSFM. The FSFM is also the regulator for the real estate and leasing, pawnshops, and gaming services sectors. An administrative unit, it has no law enforcement investigative powers. Depending on the nature of the activity, the FSFM provides information to the appropriate law enforcement authorities for further investigation, i.e., the Economic Crimes Unit of the Ministry of Interior (MVD) for criminal matters, the Federal Drug Control Service (FSKN) for narcotics-related activity, or the Federal Security Service (FSB) for terrorism-related cases.
In June 2005, President Putin approved a national strategy for combating money laundering and terrorism finance, part of which called for the creation of a new Interagency Commission on Money Laundering, comprised of twelve ministries and government departments. In addition to receiving, analyzing and disseminating information from the reporting entities, the FSFM has the responsibility of implementing the state policy to combat money laundering and terrorism financing. The Interagency Commission is chaired by the head of the FSFM and is responsible for monitoring and coordinating the government's activity on money laundering and terrorism financing. FSFM authorities credit cooperation among Commission members for the conviction of 257 individuals on money laundering charges between January and June 2006.
Nearly all financial institutions submit reports to the FSFM via encrypted software provided by the FSFM. According to press reports, Russia's national database contains over four million reports involving operations and deals worth over $877 billion. The FSFM estimates that Russian citizens may have laundered as much as $8 billion in the first three quarters of 2006. The FSFM receives approximately 30,000 transaction reports daily. Of these daily reports, 25 percent result from mandatory (currency) transaction reports, and 75 percent relate to suspicious transactions.
Each of the FSFM's seven territorial offices corresponds with one of the federal districts that comprise the Russian Federation. The Central Federal District office is headquartered in Moscow; the remaining six are located in the major financial and industrial centers throughout Russia (St. Petersburg, Ekaterinburg, Nizhny Novgorod, Khabarovsk, Novosibirsk and Rostov-on-Don). The territorial offices coordinate with regional law enforcement and other authorities to enhance the information flow into the FSFM, and to supervise compliance with anti-money laundering and counterterrorism financing legislation by institutions under FSFM supervision. Additionally, the satellite offices must identify and register at the regional level all pawnshops, leasing and real estate firms, and gaming entities under their jurisdiction. The regional offices also are charged with coordinating the efforts of the CBR and other supervisory agencies to implement anti-money laundering and counterterrorist financing regulations. Russia's anti-money laundering law, as amended, provides the FSFM with the appropriate authority to gather information regarding the activities of investment foundations, nonstate pension funds, gambling businesses, real estate agents, lawyers and notaries, persons rendering legal/accountancy services, and sellers of precious metals and jewelry.
During the first eight months of 2006, the FSFM carried out 2,700 financial investigations, referring 1,050 of them to law enforcement agencies for possible criminal investigations. According to the MVD, in the first half of 2006 Russian law enforcement investigated 6,300 cases of money laundering, sent 3,500 of the cases to court, and convicted 257 individuals on money laundering charges. Both the FSFM and MVD report that the number of suspicious transaction reports in 2006 has grown nearly ten-fold over the previous year, an increase which both agencies attribute to a greater focus government-wide on financial crimes and terrorism financing.
As part of administrative reforms enacted in 2004, the FSKN now has a full division committed to money laundering, staffed by agents with experience in counter narcotics and economic crimes. This division cooperates closely with the FSFM in pursuing narcotics-related money laundering cases. From January through August 2006, the FSKN reportedly initiated 1,332 money laundering cases and referred over 340 of these cases to the General Procuracy for prosecution. Consistent with Financial Action Task Force (FATF) recommendations, the criminal code was amended in December 2003 to remove a specific monetary threshold for crimes connected with money laundering, thus paving the way for prosecution of criminal offenses regardless of the sum involved.
With its legislative and enforcement mechanisms in place, Russia has begun to prosecute high-level money laundering cases. Through September 2006, the CBR revoked the licenses of 48 banks for failing to observe banking regulations. Of these, 25 banks lost their licenses for violating Russia's anti-money laundering laws. First Deputy Chairman Andrey Kozlov led the CBR's efforts to implement stronger anti-money laundering guidelines until his assassination in September 2006. He worked to implement the managerial and reporting requirements that made license revocation politically feasible, and had taken steps to prohibit individuals convicted of money laundering from serving in leadership positions in the banking community. This latter issue remains pending with the CBR. President Putin publicly committed to continuing Kozlov's work to preclude shadow economy groups from finding haven in the country's financial sector.
In October 2006, the Interior Ministry's Department for Economic Security reported that it had shut down a Georgian crime ring that had laundered as much as $9 billion from April 2004 to January 2005 through as many as five Russian banks. The announcement stated that the FSFM's analysis and cooperation with law enforcement authorities in Germany, Austria, Latvia, Lithuania, and Israel provided sufficient information to freeze the crime ring's bank assets. According to Interior Ministry representatives, two of the suspected banks' licenses had been revoked more than a year before the Department of Economic Security action.
Russian legislation provides for the tracking, seizure and forfeiture of criminal proceeds. None of this legislation is specifically tied to narcotics proceeds. Legislation provides for investigative techniques such as search, seizure, and the identification, freezing, seizing, and confiscation of funds or other assets. Authorities can also compel targets to produce documents. Where sufficient grounds exist to suppose that property was obtained as the result of a crime, investigators and prosecutors can apply to the court to have the property frozen or seized. Law enforcement agencies have the power to identify and trace property that is, or may become, subject to confiscation or is suspected of being the proceeds of crime or terrorist financing. The law allows the FSFM, in concert with banks, to freeze possible terrorist-related financial transactions for one week: banks may freeze transactions for two days, and the FSFM may follow up with freezing for an additional five days.
In accordance with its international agreements, Russia recognizes rulings of foreign courts relating to the confiscation of proceeds from crime within its territory and can transfer confiscated proceeds of crime to the foreign state whose court issued the confiscation order. However, Russian law still does not provide for the seizure of instruments of crime. Businesses can be seized only if it can be shown that they were acquired with criminal proceeds. Legitimate businesses cannot be seized solely on the basis that they were used to facilitate the commission of a crime.
The Presidential Administration as well as Russian law enforcement agencies have expressed concern about ineffective implementation of Russia's confiscation laws. The government has proposed amendments that are currently under review by the Duma (Parliament) which would make it easier to identify and seize criminal instrumentalities and proceeds. While Russian law enforcement has adequate police powers to trace assets, and the law permits confiscation of assets, most Russian law enforcement personnel lack experience and expertise in these areas.
The Russian Federation has enacted several pieces of legislation and issued executive orders to strengthen its ability to fight terrorism. On January 11, 2002, President Putin signed a decree entitled "On Measures to Implement the UN Security Council Resolution (UNSCR) No. 1373 of September 28, 2001." Noteworthy among this decree's provisions are the introduction of criminal liability for intentionally providing or collecting assets for terrorist use, and the instructions to relevant agencies to seize assets of terrorist groups. When this latter clause conflicted with existing domestic legislation, the Duma within the year approved an amendment to the anti-money laundering law, resolving the conflict and allowing banks to freeze assets immediately pursuant to UNSCR 1373. Article 205.1 of the criminal code, enacted in October 2002, criminalizes terrorist financing. On October 31, 2002, the Federation Council, Russia's upper house, approved a supplemental article to the 2003 federal budget, allocating from surplus government revenues an additional 3 billion rubles ($1.1 million) in support of federal counterterrorism programs and improvement of national security.
The FSFM reports that in regard to terrorism financing, it has compiled a list of 1,300 organizations and individuals suspected of financing terrorism, 400 of which were foreign. There are five sources of information that may designate entities for inclusion on the FSFM's list of proscribed organizations. International organizations' designations, such as the UN 1267 Sanctions Committee, constitute the first source. Second, Russian court decisions provide a basis for inclusion. Third, resolutions from the Prosecutor General can identify individuals and organizations for inclusion. Fourth, Ministry of Interior investigations serve as a basis for inclusion if subsequent court decisions do not dismiss the investigation's findings. Finally, bilateral agreements, which include information sharing regarding entities on the counterpart's entities list, may provide a basis for inclusion on the FSFM list. As of a year ago, the FSFM has uncovered 113 bank accounts related to organizations and individuals included on Russia's terrorist list.
In February 2003, at the request of the General Procuracy, the Russian Supreme Court issued an official list of 15 terrorist organizations. According to press reports, the financial assets of these organizations were immediately frozen. In addition, Russia has assisted the United States in investigating high profile cases involving terrorist financing. In 2003, Russia provided vital financial documentation and other evidence that helped establish the criminal activities of the Benevolence International Foundation (BIF). In April 2005, a U.S. Federal Court convicted a British national for attempting to smuggle shoulder-held missiles into the U.S. with the intent to sell the weapons to a presumed terrorist group. The subject was arrested in a sting operation that involved 18 months of collaboration among U.S., Russian, and British authorities. He was found guilty on five counts, including material support to terrorists, unlawful arms sale, smuggling, and two counts of money laundering. However, Russia and the U.S. continue to differ about the purpose of the UN 1267 Sanctions Committee's designation process, and such political differences have hampered bilateral cooperation in this forum.
The United States and Russia signed a Mutual Legal Assistance Treaty in 1999, which entered into force on January 31, 2002. The FSFM has signed cooperation agreements with the Financial Intelligence Units (FIUs) of 24 countries, including the United States. The FSFM has been an active member of the Egmont Group since June 2002, having sponsored candidate FIUs from the former Soviet republics, including current FIU members in Ukraine and Georgia. U.S. law enforcement agencies exchange operational information with their Russian counterparts on a regular basis. In 2005, Russian law enforcement agencies cooperated with the U.S. in a high-profile case that led to the conviction of a Russian national in a U.S. District Court on charges that he laundered over $130 million through a Moscow bank. The individual was sentenced to 51 months imprisonment and ordered to pay $17.4 million in restitution to the Russian government. This close cooperation between Russian and U.S. agencies has continued and strengthened in 2006.
Russia became a full member of the Financial Action Task Force in June 2003 and participates as an active member in two FATF-style regional bodies. It is a member of the Council of Europe's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) and was instrumental in the creation of the Eurasian Group on Combating Legalization of Proceeds from Crime and Terrorist Financing (EAG). The EAG Secretariat is located in Moscow. In December 2005, under the auspices of the EAG, the FSFM established the International Training and Methodological Center of Financial Monitoring (ITMCFM). The main function of the Center is to provide technical assistance to EAG member-states, primarily in the form of staff training for FIUs and other interested ministries and agencies involved in AML/CFT efforts. The ITMCFM also conducts research on AML/CFT issues. As Chairman of the EAG, Russia's FIU continues to play a strong leadership role in bringing the region up to international standards in its capacity to fight money laundering and terrorism financing.
Russia ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime in January 2001. Russia is a party to the 1988 UN Drug Convention and on May 26, 2004, became a party to the UN Convention against Transnational Organized Crime. In November 2002, Russia ratified the UN International Convention for the Suppression of the Financing of Terrorism. Russia also became a signatory to, and ratified on May 9, 2006, the UN Convention against Corruption.
Through aggressive enactment and implementation of comprehensive money laundering and counterterrorism financing legislation, Russia now has well-established legal and enforcement frameworks to deal with money laundering and terrorism financing. Given its role in the creation and maintenance of the EAG, Russia has also demonstrated the will and capability to improve the region's capacity for countering money laundering and terrorism financing.
Nevertheless, serious vulnerabilities remain. Russia is among the world's most sophisticated perpetrators of fraud and money laundering through electronic and internet-related means. To meet its goal of combating money laundering and corruption, Russia needs to follow through on its commitment to improve CBR oversight of shell companies and scrutinize more closely those banks that do not carry out traditional banking activities, including making all offshore operations subject to the identical due diligence and reporting requirements as other sectors. To prevent endemic corruption and deficiencies in the business environment from undermining Russia's efforts to establish a well-functioning anti-money laundering and counterterrorism finance regime, Russia should strive to stamp out official corruption, particularly at high levels, and to increase transparency in the financial sector and the corporate environment. Russia should also commit adequate resources to its regulatory and law enforcement entities in order to help them fulfill their responsibilities. Additionally, Russia should work to increase the effectiveness of its confiscation laws and their implementation including enacting legislation providing for the seizure of instruments, in addition to the proceeds, of criminal activity. Finally, Russia should continue to play a leadership role in the region with regard to anti-money laundering and counterterrorist finance regime implementation.
Samoa does not have major organized crime, fraud, or drug problems. The most common crimes that generate revenue within the jurisdiction are primarily the result of low-level fraud and theft. The domestic banking system is very small, and there is relatively little risk of significant money laundering derived from domestic sources. Samoa's offshore banking sector is relatively small. The Government of Samoa (GOS) enacted the Money Laundering Prevention Act (the Act) in 2000. This law criminalizes money laundering associated with numerous crimes, sets measures for the prevention of money laundering and related financial supervision. Newly adopted regulations and guidelines fully implementing this legislation came into force in 2002. Under the Act, a conviction for a money laundering offense is punishable by a fine not to exceed Western Samoa Tala (WST) one million (approximately $354,000), a term of imprisonment not to exceed seven years, or both.
The Act requires financial institutions to report transactions considered suspicious to the Money Laundering Prevention Authority (MLPA), the Samoa Financial Intelligence Unit (FIU) currently working under the auspices of the Governor of the Central Bank. The MLPA receives and analyzes Samoa disclosures, and if it establishes reasonable grounds to suspect that a transaction involves the proceeds of crime, it refers the information to the Attorney General and the Commissioner of Police. The MLPA has received 69 suspicious transaction reports as of September 2006. In 2003, Samoa established an independent and permanent Transnational Crime Unit (TCU) under the authority of the Ministry of the Prime Minister. The TCU is staffed by personnel from the Samoa Police Service, Immigration Division of the Ministry of the Prime Minister, and Division of Customs. The TCU is responsible for intelligence gathering and analysis and investigating transnational crimes, including money laundering, terrorist financing and the smuggling of narcotics and people.
The Act requires financial institutions to record new business transactions exceeding WST 30,000 (approximately $10,000), to retain records for a minimum of seven years, and to identify all parties to the transactions. This threshold reporting system could expose the financial institutions to potential abuse. Nevertheless, Section 43(a) of the Money Laundering Prevention Regulations 2002 requires financial institutions to identify their customers when "there are reasonable grounds for believing that the one-off transaction is linked to one or more other one-off transactions and the total amount to be paid by or to the applicant for business in respect to all of the linked transactions is WST 30,000, or the equivalent in another currency." Proposed amendments to the Act would delete the threshold reporting system, leaving it open for all financial institutions to report any amount or transaction that purports to involve money laundering.
Section 12 of the Act establishes that all financial institutions have an obligation under this law to "develop and establish internal policies, procedures and controls to combat money laundering, and develop audit functions in order to evaluate such policies, procedures and controls." Reportedly, the Regulations and Guidelines that have been developed remedy the lack of specificity in the Act about the obligation of financial institutions to establish the identity of the beneficial owner of an account managed by an intermediary. Specifically, Section 12.06 of the Money Laundering Prevention Guidelines for the Financial Sector provides that "[i]f funds to be deposited or invested are being supplied by or on behalf of a third party, the identity of the third party (the underlying beneficiary) should also be established and verified." The law requires individuals to report to the MLPA if they are carrying with them WST 10,000 (approximately $3,300) or more, in cash or negotiable instruments, upon entering or leaving Samoa.
The Act removes secrecy protections and prohibitions on the disclosure of relevant information. Moreover, it provides protection from both civil and criminal liability for disclosures related to potential money laundering offenses to the competent authority.
The Central Bank of Samoa, the Samoa International Finance Authority, and the MLPA regulate the financial system. There are four locally incorporated commercial banks, supervised by the Central Bank. The Samoa International Finance Authority has responsibility for regulation and administration of the offshore sector. There are no casinos, but two local lotteries are in operation.
Samoa is an international offshore financial center, with six licensed international banks which have offices and employees. For entities registered or licensed under the various Offshore Finance Centre Acts, there are no currency or exchange controls or regulations, and no foreign exchange levies payable on foreign currency transactions. No income tax or other duties, nor any other direct or indirect tax or stamp duty is payable by registered/licensed entities. In addition to the six offshore banks, Samoa currently has 19,000 international business corporations (IBCs), three international insurance companies, six trustee companies, and 175 international trusts. Section 20 of the International Banking Act prohibits any person from applying to be a director, manager, or officer of an offshore bank who has been sentenced for an offense involving dishonesty. The prohibition is also reflected in the application forms and Personal Questionnaire that are completed by prospective applicants that detail the licensing requirements for offshore banks. The application forms list the required supporting documentation for proposed directors of a bank. These include references from a lawyer, accountant, and a bank, police clearances, curriculum vitae, certified copies of passports and personal statements of assets and liabilities (if also a beneficial owner). The Inspector of International Banks must be satisfied with all supporting documentation that a proposed director is fit and proper in terms of his integrity, competence and solvency.
International cooperation can occur only if Samoa has entered into a mutual cooperation agreement with the requesting nation. Under the Act, the MLPA has no powers to exchange information with overseas counterparts. All cooperation under the MLPA is through the Attorney General's Office, which is the Competent Authority under the Act for receiving and implementing information exchange requests. Samoa has reviewed the legal framework for the effective operation of the MLPA in order to further strengthen domestic and international information exchange. In addition, the Office of the Attorney General, in conjunction with the Central Bank, the Ministry of Police and the Division of Customs of the Ministry for Revenue, have prepared amendments to the Money Laundering Prevention Act of 2000 to strengthen and complement legislation that is being drafted or developed, including the Proceeds of Crime Bill, the Mutual Assistance in Criminal Matters Bill, the Extradition Amendment Bill and the Insurance Bill. These Bills are expected to be enacted in the first quarter of 2007.
Samoa is a party to the UN International Convention for the Suppression of the Financing of Terrorism. In 2002, Samoa enacted the Prevention and Suppression of Terrorism Act. The Act defines and criminalizes terrorist offenses, including the financing of terrorist activities. The combined effect of the Money Laundering Prevention Act of 2000 and the Prevention and Suppression of Terrorism Act of 2002 is to make it an offense for any person to assist a criminal in obtaining, concealing, retaining or investing funds, or to finance or facilitate the financing of terrorism.
Since the passage of the Money Laundering Prevention Act in June 2000, Samoa has continued to strengthen its anti-money laundering regime and has issued regulations and guidelines to financial institutions so that they have a clear understanding of their obligations under the Act. Particular emphasis is directed toward regulation of the international financial sector, principally the establishment of due diligence procedures for owners and directors of banks and the elimination of anonymous accounts. The Government of Samoa is strengthening relevant legislation to identify the beneficial owners of IBCs to help ensure that criminals do not use them for money laundering or other financial crimes. Samoa is in the process of adopting amended and additional legislation to allow for international cooperation and information sharing.
The inability of the Money Laundering Prevention Authority simply to exchange information on an administrative level is a material weakness of the current system and is an impediment to international cooperation. To rectify that situation, the Government of Samoa has prepared the necessary changes to the Money Laundering Prevention Act to enable information exchange with overseas counterparts.
Samoa is a member of the Asia/Pacific Group on Money Laundering (APG)_and the Pacific Island Forum. Samoa hosted the annual plenary of the Pacific Island Forum in August 2004. Samoa is a party to the 1988 UN Drug Convention. Samoa has not signed the UN Convention against Transnational Organized Crime.
The Asia Pacific Group on Money Laundering and the Offshore Group of Banking Supervisors (APG/OGBS) undertook a second Mutual Evaluation of Samoa's compliance with international standards in February 2006. The resulting Mutual Evaluation Report (MER) was adopted at the APG Annual Meeting in Manila, the Philippines in July 2006. The MER noted that the GOS has sought to remedy major deficiencies with only partial success. Major deficiencies were noted in the legal and regulatory systems of both the onshore and offshore sectors as well as with what appears to be lack of political will throughout the system. STRs have continuously declined in the past several years and none have been disseminated to the Police for investigation, with the result that there have been no prosecutions or convictions for money laundering. There are serious impediments to exchanging information domestically and internationally. In sum, Samoa's anti-money laundering/counterterrorist regime is not functioning. An offshore sector that enables the anonymous establishment of IBCs violates the fundamental principal of transparency that underlies all international standards. The Government of Samoa should take all necessary steps to establish a regime that comports with all international standards, to which it has committed to adhere by virtue of its membership in the APG. The GOS has stated that the main noncompliance issues raised in the MER will be addressed when the proposed pieces of legislation mentioned above are passed and enacted in early 2007. The Government of Samoa should become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.
Saudi Arabia is a growing financial center in the Gulf Region of the Middle East. There is little money laundering in Saudi Arabia related to traditional predicate offenses. All eleven commercial banks in Saudi Arabia operate as standard "western-style" financial institutions and all banks operate under the supervision of the Central Bank, the Saudi Arabian Monetary Agency (SAMA). Saudi Arabia is not an offshore financial center. There are no free zones for manufacturing, although there are bonded transit areas for the transshipment of goods not entering the country. The money laundering and terrorist financing that does occur in Saudi Arabia are not primarily related to narcotics proceeds.
Saudi donors and unregulated charities have been a major source of financing to extremist and terrorist groups over the past 25 years. However, the Final Report of the National Commission on Terrorist Attacks Upon the United States ("The 9/11 Commission") found no evidence that either the Saudi Government, as an institution, or senior Saudi officials individually, funded al-Qaida.
Following the al-Qaida bombings in Riyadh on May 12, 2003, the Government of Saudi Arabia (GOSA) has taken significant steps to help counteract terrorist financing.
In 2003, Saudi Arabia approved a new anti-money laundering law that for the first time contains criminal penalties for money laundering and terrorist financing. The law bans conducting commercial or financial transactions with persons or entities using pseudonyms or acting anonymously; requires financial institutions to maintain records of transactions for a minimum of ten years and adopt precautionary measures to uncover and prevent money laundering operations; requires banks and financial institutions to report suspicious transactions (STRs); authorizes government prosecutors to investigate money laundering and terrorist financing; and allows for the exchange of information and judicial actions against money laundering operations with countries with which Saudi Arabia has official agreements.
SAMA guidelines correspond to the Recommendations of the Financial Action Task Force (FATF). On May 27, 2003, SAMA issued updated anti-money laundering and counterterrorist finance guidelines for the Saudi banking system. The guidelines require that: banks have mechanisms to monitor all types of "Specially Designated Nationals" as listed by SAMA; fund transfer systems be capable of detecting specially designated nationals; banks strictly adhere to SAMA circulars on opening accounts and dealing with charity and donation collection; and banks be able to provide the remitter's identifying information for all outgoing transfers. The new guidelines also require banks to use software to profile customers to detect unusual transaction patterns; establish a monitoring threshold of SR 100,000 (approximately $26,670); and develop internal control systems and compliance systems. SAMA also issued "know your customer" guidelines, requiring banks to freeze accounts of customers who do not provide updated account information. Saudi law prohibits nonresident individuals or corporations from opening bank accounts in Saudi Arabia without the specific authorization of SAMA. There are no bank secrecy laws that prevent financial institutions from reporting client and ownership information to bank supervisors and law enforcement authorities. The GOSA provides anti-money laundering training for bank employees, prosecutors, judges, customs officers and other government officials.
In 2003, the GOSA established an anti-money laundering unit in SAMA, and in 2005 the GOSA opened the Saudi Arabia Financial Investigation Unit (SA FIU) under the oversight of the Ministry of Interior. Saudi banks are required to have anti-money laundering units with specialized staff to work with SAMA, the SA FIU, and law enforcement authorities. All banks are also required to report any suspicious transactions in the form of an STR to the SA FIU. The SA FIU collects and analyzes STRs and other available information and makes referrals to the Bureau of Investigation and Prosecution, the Mabahith (the Saudi Intelligence Service), and the Public Security Agency for further investigation and prosecution. The SA FIU is staffed by officers from the Mabahith and SAMA. In September 2006, the SA FIU had its final on-site review by FinCEN, one of the Egmont co-sponsors, for possible Egmont membership in 2007.
Hawala transactions outside banks and licensed money changers are illegal in Saudi Arabia. Reportedly, some money laundering cases that SAMA has investigated in the past decade involved the hawala system. In order to help counteract the appeal of hawala, particularly to many of the approximately six million expatriates living in Saudi Arabia, Saudi banks have taken the initiative to create fast, efficient, high quality, and cost-effective fund transfer systems that have proven capable of attracting customers accustomed to using hawala. An important advantage for the authorities in combating potential money laundering and terrorist financing in this system is that the senders and recipients of fund transfers through this formal financial sector are clearly identified. In 2005, in an effort to further regulate the more than $16 billion in remittances that leave Saudi Arabia every year, in 2005 SAMA consolidated the eight largest money changers into a single bank, Bank Al-Bilad.
In late 2005, the GOSA enacted stricter regulations on the cross-border movement of money and precious metals. Money and gold in excess of $16,000 must be declared upon entry and exit from the country. While the regulations were effective immediately, Customs has not issued new declaration forms, and therefore cannot enforce the current regulation.
Contributions to charities in Saudi Arabia usually consist of Zakat, which refers to an Islamic religious duty with specified humanitarian purposes. According to a 2002 report to the United Nations Security Council, over the past decade al-Qaida and other jihadist organizations collected between $300 and $500 million; and the majority of those funds originated from Saudi charities and private donors. The 9/11 Commission Report noted that the GOSA failed to adequately supervise Islamic charities in the country. To help address this problem, in 2002 Saudi Arabia announced its intention to establish the High Charities Commission to oversee Saudi charities with foreign operations. In 2004, the GOSA issued guidelines for the High Charities Commission (also known as the National Commission for Relief and Charitable Work Abroad). As of October 2006, GOSA has stated it is reviewing the role of the High Charities Commission and its relationship to Sharia law. The High Charities Commission has not been formally established, and the GOSA has made no further announcement of structure, leadership or staffing.
As required by regulations in effect for over 20 years, domestic charities in Saudi Arabia are licensed, registered, audited, and supervised by the Ministry of Social Affairs. The Ministry has engaged outside accounting firms to perform annual audits of charities' books and has established an electronic database to track the operations of the charities. Banking rules implemented in 2003 that apply to all charities include stipulations which require charities to: only open accounts in Saudi Riyals; adhere to enhanced identification requirements; utilize one main consolidated account; and make payments only by checks payable to the first beneficiary and deposited in a Saudi bank. Regulations also forbid charities from using ATM and credit cards for charitable purposes, and making money transfers outside of Saudi Arabia. According to GOSA officials, these regulations apply to international charities as well and are being actively enforced.
Saudi Arabia participates in the activities of the FATF through its membership in the Gulf Cooperation Council (GCC). In July 2004, reporting on the results of a mutual evaluation conducted in September 2003, the FATF concluded that the framework of Saudi Arabia's anti-money laundering regime met FATF recommendations for combating money laundering and financing of terrorism, but noted the need to implement these new laws and regulations. Saudi Arabia also supported the creation of the Middle East and North Africa Financial Action Task Force (MENAFATF), a FATF-style regional body inaugurated in Bahrain in November 2004.
Saudi Arabia is working to implement UN Security Council resolutions on terrorist financing. SAMA circulates to all financial institutions under its supervision the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee's consolidated list. In August 2006, the United Nations Security Council Resolution 1267 Sanctions Committee designated the International Islamic Relief Organization's (IIRO) branches in Indonesia and the Philippines, as well as the Kingdom's Eastern Province branch's Director, Abdulhamid Al-Mujil. Saudi Arabia is able to administratively freeze and seize terrorist assets. Saudi Arabia is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime.
The Government of Saudi Arabia is moving to monitor and enforce its anti-money laundering and terrorist finance laws, regulations and guidelines. However, Saudi Arabia should formally establish the High Commission for Charities. As with many countries in this region, there is still an over-reliance on suspicious transaction reporting to generate money laundering investigations. Law enforcement agencies should take the initiative and proactively generate leads and investigations, and be able to follow the financial trails wherever they lead. Saudi Arabia's unwillingness to publicly disseminate statistics regarding money laundering prosecutions impedes the evaluation and design of enhancements to the judicial aspects of its AML system. Charitable donations in the form of gold, precious stones and other gifts should be scrutinized. International charities should be made subject to the same government oversight as domestic charities, including the rules of both SAMA and the Charities Commission. Saudi Customs should issue cross-border currency declaration forms and enforce the reporting requirements. The GOSA should become a party to the UN International Convention for Suppression of the Financing of Terrorism.
Senegal is vulnerable to money laundering. Reportedly, most money laundering involves domestically-generated proceeds from corruption and embezzlement. Dakar's hot real-estate market is largely financed by cash, and ownership of properties is nontransparent. The building boom and high property prices suggest that an increasing amount of funds with an uncertain origin circulates in Senegal. Other areas of concern include: cash, gold and gems transiting Senegal's airport and porous borders; real estate investment in the Petite Cote south of Dakar; and trade-based money laundering centered in the region of Touba, a largely autonomous and unregulated free-trade zone under the jurisdiction of the Mouride religious authority. This latter region reportedly receives between 550 and 800 million dollars per year in funds repatriated by networks of Senegalese vendors abroad. There is some evidence of increasing criminal activity by foreigners, such as drug trafficking by Latin American groups and illegal immigrant trafficking involving Pakistanis.
Seventeen commercial banks operate alongside a thriving micro-credit sector. Western Union, Money Gram and Money Express, associated with banks, are ubiquitous, suggesting that, while informal remittance systems exist, they are not a large threat to the business of the licensed remitters. The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU or UEMOA): Benin, Burkina Faso, Guinea-Bissau, Cote d'Ivoire, Mali, Niger, Senegal and Togo, all of which use the French-backed CFA franc (CFAF) currency, which is pegged to the euro. The Commission Bancaire, responsible for bank inspections, is based in Abidjan.
In 2004, Senegal became the first WAEMU country to enact the WAEMU Uniform Law on Money Laundering (the Uniform Law). The new legislation meets many international standards with respect to money laundering, but does not comply with all Financial Action Task Force (FATF) recommendations concerning politically-exposed persons, and lacks certain compliance provisions for nonfinancial institutions. The law does not deal with terrorist financing.
Senegal's Financial Intelligence Unit (FIU) became operational in August 2005. Since that date it has received 59 (11 in 2005 and 48 in 2006) suspicious declarations and has referred nine cases (three in 2005, six in 2006) to the Prosecutor General. All but two of the declarations have been made by banks. The other two came from Customs. Of the referrals, one concerns drug trafficking, one concerns diamond trafficking, one relates to tax fraud, and three are corruption related. No cases have concluded, although one arrest has been made. The FIU currently has a staff of 23, including six appointed members: the President of the FIU, who by law is chosen from the Ministry of Economy and Finance, and five others detailed from the Customs Service, the BCEAO, the Judicial Police, and the judiciary. The FIU also relies on liaison officers in relevant governmental institutions that can provide information relevant to the FIU's investigations. With French sponsorship, Senegal's FIU is a candidate for membership in the Egmont Group. Its candidacy is on hold pending the adoption of a terrorist financing law.
Official statistics regarding the prosecution of financial crimes are unavailable. There is one known conviction for money laundering since January 1, 2005. The conviction led to the confiscation of a private villa.
The BCEAO is working on a Directive against Terrorist Financing. If adopted, the member states would be directed to enact a law against terrorist financing, which most likely would be presented as a Uniform Law in the same manner as the AML law. Like the AML law, it is a penal law, and each national assembly must then enact enabling legislation to adopt the new terrorist finance law. In addition, the FATF-style regional body for the 15-member Economic Community of Western African States (ECOWAS), GIABA (African Anti-Money Laundering Inter-governmental Group) has drafted a uniform law, which it hopes to have enacted in all of its member states, not just the WAEMU states.
The UN 1267 Sanctions Committee consolidated list is circulated both by the FIU and by the BCEAO to commercial financial institutions. To date, no assets relating to terrorist entities have been identified. The WAEMU Council of Ministers issued a directive in September 2002 requiring banks to freeze assets of entities designated by the Sanctions Committee.
Senegal has entered into bilateral criminal mutual assistance agreements with France, Tunisia, Morocco, Mali, The Gambia, Guinea Bissau, and Cape Verde. Multilateral ECOWAS treaties deal with extradition and legal assistance. Under the Uniform Law, the FIU may share information freely with other FIUs in WAEMU. However, only Senegal and Niger have operational FIUs. The FIU has signed an MOU to exchange information with the FIUs of Belgium and Lebanon, and is working on other accords. In general, the Government of Senegal (GOS) has demonstrated its commitment and willingness to cooperate with United States law enforcement agencies. In the past the GOS has worked with INTERPOL, Spanish, and Italian authorities on international anticrime operations.
Senegal is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the 1999 UN International Convention for the Suppression of the Financing of Terrorism, and the Convention against Corruption. Senegal is listed as 70 out of 163 countries monitored in Transparency International's 2006 Corruption Perception Index.
Senegal has made considerable progress in establishing an operational FIU and raising the awareness of the threat of money laundering. However, a complicated political climate in advance of the 2007 elections, a generally nontransparent police and judiciary, and conflicting governmental interests in the banking sector threaten to retard any efforts to take this progress to the next level of actual prosecutions and convictions. Recent arrests of opposition politicians, journalists, and a corruption scandal that resulted in the early retirement, rather than prosecution, of the implicated judges, illustrate the weakness of the rule of law in Senegal.
The Government of Senegal should continue to work with its partners in WAEMU and ECOWAS to establish a comprehensive anti-money laundering and counterterrorist financing regime. Senegal should work on achieving transparency in its financial and real estate sectors. Senegal and the region should establish better control of cross-border currency transfers. Senegalese law enforcement and customs authorities should take the initiative to identify and investigate money laundering at the street level and informal economy. Senegal should pass an antiterrorist finance law.
Serbia is not a regional financial center. At the crossroads of Europe and on the major trade corridor known as the "Balkan route," Serbia confronts narcotics trafficking, smuggling of persons, drugs, weapons and pirated goods, money laundering, and other criminal activities. Serbia continues to be a significant black market for smuggled goods. Illegal proceeds are generated from drug trafficking, official corruption, tax evasion and organized crime, as well as other types of crimes. Proceeds from illegal activities are invested in all forms of real estate. Trade-based money laundering, in the form of over- and under-invoicing, is commonly used to launder money.
A significant volume of money flows to Cyprus, reportedly as the payment for goods and services. The records maintained by various government entities vary significantly on the volume and value of imports from Cyprus. According to official statistics from the National Bank of Serbia, over $1 billion in payments in 2005, coded as being for goods and services, rank Cyprus among the top five exporters of goods or services to Serbia. The Serbian Statistical Office reflected imports from Cyprus of roughly $40 million in 2005. According to Government of the Republic of Serbia (GOS) officials, much of the difference is due to payments made to accounts in Cyprus for goods, such as Russian oil, that actually originate in a third jurisdiction.
Serbia's banking sector is more than 80 percent foreign-owned. There is no provision in the banking law that allows the establishment of offshore banks, shell companies or trusts. Reportedly, there is no evidence of any alternative remittance systems operating in the country. Nor, reportedly, is there evidence of financial institutions engaging in currency transactions involving international narcotics trafficking proceeds. Serbia has 14 designated free trade zones, three of which are in operation. The free trade zones were established to attract investment by providing tax-free areas to companies operating within them. These companies are subject to the same supervision as other businesses in the country.
As the result of a public referendum on May 21, 2006, the State Union of Serbia and Montenegro (SAM) was dissolved and Montenegro became an independent country. The GOS became the legacy member of the Council of Europe and the United Nations. As a result, all treaties and agreements signed by the State Union are now applicable to Serbia, including the1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. The GOS is a party to all 12 UN Conventions and Protocols dealing with terrorism, including the UN International Convention for the Suppression of the Financing of Terrorism, although domestic implementation procedures do not provide the framework for full application. In December 2005, the GOS ratified the UN Convention against Corruption.
In September 2005, Serbia codified an expanded definition of money laundering in the Penal Code. This legislation gives police and prosecutors more flexibility to pursue money laundering charges, as the law broadens the scope of money laundering and aims to conform to international standards. The penalty for money laundering is a maximum of 10 years imprisonment. Under this law and attendant procedure, money laundering falls into the serious crime category and permits the use of Mutual Legal Assistance (MLA) procedures to obtain information from abroad.
On November 28, 2005, Serbia adopted a revised anti-money laundering law (AMLL), replacing the July 2002 Law on the Prevention of Money Laundering. The revised AMLL expands the number of entities required to collect certain information on all cash transactions over EUR 15,000 (approx. $19,500), or the dinar equivalent, and to file currency transaction reports (CTRs) for all such transactions exceeding this threshold to the financial intelligence unit (FIU). Suspicious transactions in any amount must be reported to the FIU. The law expands those sectors subject to reporting and record keeping requirements, adding attorneys, auditors, tax advisors and bank accountants, currency exchanges, insurance companies, casinos, securities brokers, dealers in high value goods and travel agents to those already required to comply with the AMLL provisions. Required records must be maintained for five years. These entities are protected with respect to their cooperation with law enforcement entities. The AMLL requires obligated entities and individuals to monitor customers' accounts when they have a suspicion of money laundering, in addition to reporting to the FIU. The AMLL also eliminates a previous provision limiting prosecution to crimes committed within Serbian territory. Significant improvement has been noted in financial institution compliance, i.e., gathering and keeping records on customers and transactions. The flow of information to the FIU has been steadily increasing, but not all entities are yet subject to implementing bylaws.
The Law on Foreign Exchange Operations, adopted in 2006, criminalizes the use of false or inflated invoices or documents to effect the transfer of funds out of the country. This law was enacted in part to counter the perceived problem of import-export fraud and money laundering. According to the law, residents and nonresidents are obliged to declare to Customs authorities all currency (foreign or dinars), or securities in amounts exceeding EUR 5,000 being transported across the border.
The National Bank of Serbia (NBS) has supervisory authority over banks, currency exchanges, insurance and leasing companies. The NBS has issued regulations requiring banks to have compliance and know-your-customer (KYC) programs in place and to identify the beneficial owners of new accounts. In June 2006, the NBS expanded its customer identification and record keeping rules by adopting new regulations mandating enhanced due diligence procedures for certain high risk customers and politically exposed persons. Similar regulations are being developed for insurance companies. The Law on Banks includes a provision allowing the NBS to revoke a bank's license for activities related to, among other things, money laundering and terrorist financing. To date, the NBS has not used this revocation authority. The legal framework is in place, but the NBS currently lacks the expertise needed for effective bank supervision. It is building these capacities through training and staff development.
The Securities Commission (SC) supervises broker-dealers and investment funds. The Law on Investment Funds and the Law on Securities and Other Financial Instruments Market provide the SC with the authority to "examine" the source of investment capital during licensing procedures. The SC is also charged with monitoring its obligors' compliance with the AML Laws. Regulations to implement this authority are being developed.
The Administration for the Prevention of Money Laundering serves as Serbia's FIU. The revised AMLL elevates the status of the FIU to that of an administrative body under the Ministry of Finance from its previous status as a "sector" in that Ministry. This provides more autonomy for the agency to carry out its mandate, as well as additional resources. One important change is that the FIU now has its own line item operating budget. The FIU currently has 24 employees. In accordance with the revised AMLL, the FIU developed listings of suspicious activity red flags for banks, currency exchange offices, insurance companies, securities brokers and leasing companies. Other significant changes include the authority of the FIU to freeze transactions for a maximum of 72 hours. The FIU has signed memoranda of understanding (MOU) on the exchange of information with the NBS and Customs and is negotiating one with the Tax Administration.
The FIU received 279 suspicious transaction reports (STRs) in 2005 and 361 through September 1, 2006. Virtually all of the STRs received by the FIU have been filed by commercial banks. Currency exchange offices have filed only seven STRs since 2003, and none in either 2005 or 2006. Since its inception in 2003, the FIU has opened 240 cases, 74 based on the STRs it received and 166 based on CTRs or referrals from other entities; 103 cases were referred to either law enforcement or the prosecutor's office for further investigation. Since 2004, authorities filed 41 criminal charges against 48 persons for money laundering violations. The most common predicate crime is "abuse of office". Of this number, eighteen are currently under investigation, six were dismissed or terminated; fourteen were indicted; and two court decisions have been reached to date. One person has been acquitted and the other was convicted, but has appealed the verdict.
Serbia introduced a value-added tax (VAT) in 2005, and the full impact of refund fraud associated with the administration of the VAT is still not clear. Serbia's Tax Administration lacks the audit and investigative capacity or resources to adequately investigate the large number of suspicious transactions that are forwarded by Serbia's FIU. In addition, current tax law sets a low threshold for auditing purposes and has increased the burden on the Tax Administration. This creates a situation where criminals can spend and invest criminal proceeds freely with little fear of challenge by the tax authorities or other law enforcement agencies.
The difficulty of convicting a suspect of money laundering without a conviction for the predicate crime and the unwillingness of the courts to accept circumstantial evidence to support money laundering or tax evasion charges is hampering law enforcement and prosecutors in following the movement and investment of illegal proceeds and effectively using the anti-money laundering laws. The Suppression of Organized Crime Service (SOCS) of the Ministry of Interior houses a new Anti-Money Laundering Section to better focus financial investigations.
In August 2005, the GOS established the Permanent Coordinating Group (PCG), an interagency working group originally tasked with developing an implementation plan for the recommendations from MONEYVAL's first-round evaluation in October 2003. A subgroup was tasked with drafting a new law to address the procedures needed to comply with UN Security Council resolutions regarding the freezing, seizing and confiscation of suspected terrorist assets, and to require reporting to the FIU of transactions suspected to be terrorist financing. The PCG meets intermittently as required for completing specific tasks. The government still needs better interagency coordination to improve information sharing, record keeping and statistics.
Under Serbian law, assets derived from criminal activity or suspected of involvement in the financing of terrorism can be confiscated upon conviction for an offense. The FIU is charged with enforcing the UNSCR 1267 provisions regarding suspected terrorist lists. A draft law on terrorist financing, now pending Parliamentary approval, will apply all provisions of the AML laws to terrorist financing and will implement a freezing mechanism based on UNSCR provisions. Although the FIU routinely provides the UN list of suspected terrorist organizations to the banking community, examination for suspect accounts have revealed no evidence of terrorist financing within the banking system and no evidence of alternative remittance systems. The SOCS, the Special Anti-Terrorist Unit (SAJ), and Gendarmarie, in the Ministry of Interior, are the law enforcement bodies responsible for planning and conducting the most complex antiterrorism operations. SOCS cooperates and shares information with its counterpart agencies in all of the countries bordering Serbia. Although Serbia has criminalized the financing of terrorism, the freezing, seizing and confiscation of assets of terrorists in accordance with UN Security Council resolutions still lacks a legal basis, pending enactment of the Anti-terrorism Finance legislation.
Serbia has no laws governing its cooperation with other governments related to narcotics, terrorism, or terrorist financing. Bases for cooperation include participation in Interpol, bilateral cooperation agreements, and agreements concerning international legal assistance. There are no laws at all governing the sharing of confiscated assets with other countries, nor is any legislation under consideration.
Serbia does not have a mutual legal assistance arrangement with the United States, but information exchange via a letter rogatory is standard. The 1902 extradition treaty between the Kingdom of Serbia and the United States remains in force. The GOS has bilateral agreements on mutual legal assistance with 31 countries. As a member of the Council of Europe, the GOS is an active member of the Council's MONEYVAL. In July 2003, the FIU became a member of the Egmont Group and actively participates in information exchanges with counterpart FIUs including FinCEN. The Serbian FIU has also signed information sharing memoranda of understanding (MOUs) with Macedonia, Romania, Belgium, Slovenia, Montenegro, Albania, Georgia, Ukraine, Bulgaria, Croatia, and Bosnia and Herzegovina.
Serbia should continue to work toward eliminating the abuses of office and culture of corruption that enables money laundering and financial crimes. Among the pending legal infrastructure necessary for Serbia to be fully compliant with international standards are laws providing for the liability of legal persons for money laundering and terrorist financing; regulations to apply all requirements of the Revised AML Law to covered nonbank financial institutions; legislation to establish a robust asset seizure and forfeiture regime; and legislation providing for the sharing of seized assets. Serbia also needs to enact and implement proposed legislation needed to comply with UN Security Council resolutions regarding the freezing, seizing and confiscation of suspected terrorist assets and require suspicions of terrorist financing to be reported to the FIU.
The National Bank and other supervisory bodies need training and additional staff. The GOS should enforce regulations pertaining to money service businesses and obligated nonfinancial business and professions. The supervisory scheme should be completed, and implementing regulations should be binding, for the insurance and securities sectors. On an operational level, law enforcement needs audit and investigative capacity in order to investigate the STRs that the FIU disseminates. Training is also required for prosecutors and judges. Rather than address specific tasks as an ad hoc group, the PCG should meet on a regular basis to discuss issues and projects, and work to improve interagency coordination in such areas as information sharing, record keeping and statistics.
Seychelles is a not a major financial center. The existence of a developed offshore financial sector, however, makes the country vulnerable to money laundering. The Government of Seychelles (GOS), in efforts to diversify its economy beyond tourism, developed an offshore financial sector to increase foreign exchange earnings and actively markets itself as an offshore financial and business center that allows the registration of nonresident companies. As of September 2006, there were 31,000 registered international business companies (IBCs) and 157 trusts that pay no taxes in Seychelles, and are not subject to foreign exchange controls. The Seychelles International Business Authority (SIBA), a body with board members from both the government and the private sector, licenses and regulates offshore activities. The SIBA acts as the central agency for the registration for IBCs and trusts and regulates activities of the Seychelles International Trade Zone.
In addition to IBCs and trusts, Seychelles permits offshore insurance companies, mutual funds, and offshore banking. The GOS is currently in the process of establishing the Non-Bank Financial Services Authority, which will be responsible for regulating these sectors under the Mutual Funds Act, the Securities Act, and the Insurance Act. Three offshore insurance companies have been licensed: one for captive insurance and two for general insurance. Seychelles has one offshore bank to date: the Barclays Bank (Offshore Unit). The International Corporate Service Providers Act 2003, designed to regulate all activities of corporate and trustee service providers, entered into force in 2004.
In 1996, the GOS enacted the Anti-Money Laundering Act (AMLA), which criminalized the laundering of funds from all serious crimes, required covered financial institutions and individuals to report to the Central Bank transactions involving suspected cases of money laundering, and established safe harbor protection for individuals and institutions filing such reports. The AMLA also imposed record keeping and customer identification requirements for financial institutions, and provided for the forfeiture of the proceeds of crime. In October 2004, the International Monetary Fund (IMF) released a report on its 2002 financial sector assessment of the Seychelles. The IMF report noted deficiencies in the AMLA and practice, and recommended closing existing loopholes as well as updating the AMLA to reflect current international standards and best practices.
In May 2006, the Anti-Money Laundering Act 2006 came into force. This new legislation replaces the AMLA of 1996 and addresses many of the deficiencies cited by the IMF report. Under the new AMLA, money laundering controls, including the obligation to submit suspicious transaction reports (STRs), are applied to the same financial intermediaries as under the 1996 law, as well as nonbanking financial institutions, including exchange houses, stock brokerages, insurance agencies, lawyers, notaries, accountants, and estate agents. Offshore banks are also explicitly covered. Gaming operations, including internet gaming, are also obligated, but the law does not state explicitly that offshore gaming is covered in an identical manner. Currently, no offshore casinos or Internet gaming sites have been licensed to operate. There is no cross-border currency reporting requirement. The 2006 AMLA discusses record-keeping and institutional protocol requirements, sets a maximum delay of two working days to file a suspicious transaction report, criminalizes tipping off, and sets safe harbor provisions. The new law also requires the identification of beneficial owners, but leaves open exceptions for "an existing and regular business relationship with a person who has already produced satisfactory evidence of identity"; for "an occasional transaction under R50,000" ($9,200); and in other cases "as may be prescribed".
Under the AMLA, anyone who engages directly or indirectly in a transaction involving money or other property (or who receives, possesses, conceals, disposes of, or brings into Seychelles any money or property) associated with a crime, knowing or having reasonable grounds to know that the money or property is derived from an illegal activity, is guilty of money laundering. In addition, anyone who aids, abets, procures, or conspires with another person to commit the crime, while knowing, or having reasonable grounds for knowing that the money was derived from an illegal activity, is likewise guilty of money laundering. Money laundering is sanctioned by imprisonment for up to fifteen years and/or R3,000,000 ($554,500) in penalties. While there have been about thirty investigations, there have been no arrests or prosecutions for money laundering or terrorist financing since January 1, 2003. This is problematic.
The Financial Institutions Act of 2004, imposes more stringent rules on banking operations. The law, which was drafted in consultation with the International Monetary Fund, aims to ensure greater transparency in financial transactions and regulating the financial activities of both domestic and offshore banks in line with international standards. One provision of the law requires that banks change their auditors every five years. Auditors must notify the Central Bank if they uncover criminal activity such as money laundering in the course of an audit.
The Central Bank of the Seychelles has been acting as the financial intelligence unit (FIU) for the Seychelles in that it receives and analyzes suspicious activity reports and disseminates them to the competent authorities. It cannot freeze or confiscate property, but can get a court order to effect an asset freeze. The courts have the authority to freeze or confiscate money or property. Section 16 of the 2006 AMLA provides for the creation of an FIU within the Central Bank. This FIU will receive reports, have access to information in public or governmental databases and may request information from reporting entities, supervisory bodies and law enforcement agencies. The FIU will analyze the information and disseminate information to the appropriate entities if the FIU deduces that there is unlawful activity. The law provides for the FIU to have a proactive targeting section that will research trends and developments in not only money laundering, but also terrorism financing. The FIU will also perform examinations of the reporting entities and, in concert with regulators, issue guidance related to customer identification, identification of suspicious transactions, and record keeping and reporting obligations. The law provides for the possibility that the FIU would in the future perform training related to these matters. Authorities are also discussing the establishment of an AML interagency Task Force that would incorporate the FIU, Police, Customs, Immigration, and Internal Affairs.
Judges in the Supreme Court have the authority to restrain a target from moving or disposing of his or her assets, and will do so if a law enforcement officer requests it, provided that the Court is "satisfied that there are reasonable grounds" for doing so. The Court also has the authority to determine the length of time for the restraint order and the disposition of assets, should it become necessary. Should the target violate the order, he or she becomes subject to financial penalties. Law enforcement may seize property subject to this order to prevent property from being disposed of or moved contrary to the order. The Court also is authorized to order the forfeiture of assets.
In 2004, the GOS enacted the Prevention of Terrorism Bill. The legislation specifically recognizes the government's authority to identify, freeze, and seize terrorist finance-related assets. The 2006 AMLA also makes the legal requirements applicable to money laundering applicable to suspected terrorist financing transactions. Assets used in the commission of a terrorist act can be seized and legitimate businesses can be seized if used to launder drug money, support terrorist activity, or support other criminal activities. Both civil and criminal forfeiture are allowed under current legislation.
The Mutual Assistance in Criminal Matters Act of 1995 empowers the Seychelles Central Authority to provide assistance in connection with a request to conduct searches and seizures relating to serious offenses under the law of the requesting state. The Prevention of Terrorism Act extends the authority of the GOS to include the freezing and seizing of terrorism-related assets upon the request of a foreign state. To date, no such assets have been identified, frozen, or seized.
The Government of Seychelles is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. Seychelles underwent a mutual evaluation review conducted by ESAAMLG in November 2006. The Seychelles 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. Seychelles circulates to relevant authorities the updated lists of names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee's consolidated list and the list of Specially Designated Global Terrorists designated by the U.S. pursuant to E.O. 13224.
Seychelles should expand its anti-money laundering efforts by prohibiting bearer shares and clarifying the new legislation regarding the complete identification of beneficial owners. Seychelles should also clarify the legislation to state explicitly that all offshore activity is covered in the same manner and to the same degree as onshore. Seychelles should continue to work towards the establishment of its FIU, ensuring that it develops with a degree of independence and autonomy from its parent agency, the Central Bank. The GOS should also consider codifying the ability to freeze assets rather than issuing restraining orders, and develop a currency reporting requirement for entry into its borders. Seychelles should continue to participate in ESAAMLG, and when the mutual evaluation report is finalized, work to address any further deficiencies outlined therein.
Sierra Leone has a cash-based economy and is not a regional financial center. Government of Sierra Leone (GOSL) officials have reportedly stated that money laundering activities are pervasive, particularly in the diamond sector. Although there have been some attempts at tighter regulation, monitoring, and enforcement, in some areas significant diamond smuggling still exists. Loose oversight of financial institutions, weak regulations, pervasive corruption, and a widespread informal money-exchange and remittance system also work to create an atmosphere conducive to money laundering.
The President signed the Anti-Money Laundering Act (AMLA) in July 2005. The AMLA incorporates international standards, including setting safe harbor provisions, know your customer and identification of beneficial owner requirements, as well as mandatory five-year record-keeping. There is a currency reporting requirement for deposits larger than 25 million leones (approximately $8,330) and no minimum for suspicious transaction reporting. The law requires that international financial transfers over $10,000 go through formal financial institution channels. The AMLA calls for cross-border currency reporting requirements for cash or securities in excess of $10,000. The law designates the Governor of the Bank of Sierra Leone as the national Anti-Money Laundering Authority.
The AMLA applies to Sierra Leone's financial sector institutions such as depository and credit institutions, money transmission and remittance service centers, insurance brokers, investment banks and businesses including securities and stock brokerage houses, and currency exchange houses. Designated nonfinancial businesses and professions such as casinos, realtors, dealers in precious metals and stones, notaries, legal practitioners, and accountants are also included.
A financial intelligence unit (FIU) exists but lacks the capacity to effectively monitor and regulate financial institution operations. Law enforcement and customs have limited resources and lack training. There have reportedly been a small number of arrests under the AMLA but no convictions due to lack of capacity by police investigators and judicial authorities.
The AMLA empowers the courts to freeze assets for seventy-two hours if a suspect has been charged with money laundering or if a charge is imminent. Upon a conviction for money laundering, all property is treated as illicit proceeds and can be forfeited unless the defendant can prove that possession of some or all of the property was obtained through legal means. The AMLA also provides for mutual assistance and international cooperation.
In July 2006, the Bank of Sierra Leone hosted a United Nations Office on Drugs and Crime and Group for Action Against Money Laundering (GIABA)-sponsored training workshop on strategy development for anti-money laundering and combating financing of terrorism. Workshop participants recommended that the Bank of Sierra Leone draft a national strategy and regulations for the operations of the FIU, establish a system for the receipt, analysis, and dissemination of financial disclosures, and develop a formal system to report suspicious financial transactions to the FIU.
Workshop participants also recommended creating a special unit comprised of two staff from the police's organized crime unit and two from the counterterrorism unit to deal with issues pertaining to anti-money laundering issues. They also recommended creating protocols to improve the exchange of information between government offices, including the Attorney General's Office, Police, National Revenue Authority, and Anti-Corruption Commission.
Sierra Leone is member of GIABA. It is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Sierra Leone is a party to the UN Convention against Corruption. Sierra Leone is listed 148 of 162 countries monitored in Transparency International's 2006 Corruption Perception Index.
Although the Government of Sierra Leone has passed anti-money laundering legislation, it remains to be effectively implemented or harmonized with other legislation relating to anti-money laundering and combating financing of terrorism, including the Anti-Corruption Act, National Drug Control Act, and Anti-Terrorism Act. The GOSL should ensure its antiterrorist finance countermeasures adhere to world standards, including the regular distribution to financial institutions of the UNSCR 1267 Sanctions Committee's consolidated list. The GOSL must increase the level of awareness of money laundering issues and allocate the necessary human, technical, and financial resources. Sierra Leone should continue its efforts to counter the smuggling of diamonds. Sierra Leone should take steps to combat corruption at all levels of commerce and government. It needs to ratify the UN Convention against Transnational Organized Crime.
As a significant international financial and investment center and, in particular, as a major offshore financial center, Singapore is vulnerable to potential money launderers. Bank secrecy laws and the lack of routine currency reporting requirements make Singapore an attractive destination for drug traffickers, transnational criminals, terrorist organizations and their supporters seeking to launder money, as well as for flight capital.
Structural gaps remain in financial regulation that may hamper efforts to control these crimes. To address some of these deficiencies, Singapore is beginning to map out legal and regulatory changes to implement the Financial Action Task Force's (FATF) revised recommendations on anti-money laundering (AML) and countering the financing of terrorism (CFT).
Singapore amended the Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) in May 2006 to add 108 new categories to its "Schedule of Serious Offenses." The CDSA criminalizes the laundering of proceeds from narcotics transactions and other predicate offenses, including ones committed overseas that would be serious offenses if they had been committed in Singapore. Included among the new offenses are crimes associated with terrorist financing, illicit arms trafficking, counterfeiting and piracy of products, environmental crime, computer crime, insider trading, and rigging in commodities and securities markets. With an eye on Singapore's two new multibillion-dollar casinos slated to be operational in 2009, the list also addresses a number of gambling-related crimes. However, tax and fiscal offenses are still absent from the expanded list.
Singapore has a sizeable offshore financial sector. As of September 2006, there were 109 commercial banks in operation, including five local and 24 foreign-owned full banks, 45 offshore banks, and 35 wholesale banks. All offshore and wholesale banks are foreign-owned. Singapore does not permit shell banks in either the domestic or offshore sectors. The Monetary Authority of Singapore (MAS), a semi-autonomous entity under the Prime Minister's Office, serves as Singapore's central bank and financial sector regulator, particularly with respect to Singapore's AML/CFT efforts. MAS performs extensive prudential and regulatory checks on all applications for banking licenses, including whether banks are under adequate home country banking supervision. Banks must have clearly identified directors. Unlicensed banking transactions are illegal.
Singapore has increasingly become a center for offshore private banking and asset management. Total assets under management in Singapore grew 26 percent between 2004 and 2005 to $450 billion, according to MAS. Private wealth managers estimate that total private banking and asset management funds increased nearly 300 percent between 1998 and 2004.
Beginning in 2000, MAS began issuing a series of regulatory guidelines ("Notices") requiring banks to apply "know your customer" standards, adopt internal policies for staff compliance and cooperate with Singapore enforcement agencies on money laundering cases. Similar guidelines exist for securities dealers and other financial service providers. Banks must obtain documentation such as passports or identity cards from all personal customers to verify names, permanent contact addresses, dates of births and nationalities, and to check the bona fides of company customers. The regulations specifically require that financial institutions obtain evidence of the identity of the beneficial owners of offshore companies or trusts. They also mandate specific record-keeping and reporting requirements, outline examples of suspicious transactions that should prompt reporting, and establish mandatory intra-company point-of-contact and staff training requirements. Similar guidelines and notices exist for finance companies, merchant banks, life insurers, brokers, securities dealers, investment advisors, futures brokers and advisors, trust companies, approved trustees, and money changers and remitters.
Singapore is in the process of revising its AML/CFT regulations for banks and other financial institutions. The relevant Notices should further align certain parts of Singapore's AML/CFT regime more closely with FATF recommendations. Among the proposed regulations are new provisions that would proscribe banks from entering into, or continuing, correspondent banking relationships with shell banks; require originator information on cross-border wire transfers; clarify procedures for customer due diligence (CDD), including adoption of a risk-based approach; and mandate enhanced CDD for foreign politically exposed persons. Terrorist financing activities will also be addressed in the Notices for the first time. As part of this process, MAS issued for public comments draft regulations for banks in January 2005. In August 2006, it issued for public comments revised draft regulations for banks and new draft regulations for other financial institutions. Singapore is also considering regulations governing designated nonfinancial businesses and professions to bring them into conformity with FATF recommendations.
In addition to banks that offer trust, nominee, and fiduciary accounts, Singapore has 12 trust companies. All banks and trust companies, whether domestic or offshore, are subject to the same regulation, record-keeping, and reporting requirements, including for money laundering and suspicious transactions. In August 2005, Singapore introduced regulations under the new Trust Companies Act (enacted in January 2005 to replace the Singapore Trustees Act) that mandated licensing of trust companies and MAS approval for appointments of managers and directors. In August 2006, MAS issued for public comments draft regulations that would require approved trustees and trust companies to complete all mandated CDD procedures before they could establish relations with customers. Other financial institutions are allowed to establish relations with customers before completing all CDD-related measures.
Singapore amended its Moneylenders Act in April 2006 to require moneylenders under investigation to provide relevant information or documents. The Act imposes new penalties for giving false or misleading information and for obstructing entry and inspection of suspected premises.
In April 2005, Singapore lifted its ban on casinos, paving the way for development of two integrated resorts scheduled to open in 2009. Combined total investment in the resorts is estimated to exceed $5 billion. In June 2006, Singapore implemented the Casino Control Act. The Act establishes the Casino Regulatory Authority of Singapore, which will administer the system of controls and procedures for casino operators, including certain cash reporting requirements. Internet gaming sites are illegal in Singapore.
Any person who wishes to engage in for-profit business in Singapore, whether local or foreign, must register under the Companies Act. Every Singapore-incorporated company is required to have at least two directors, one of whom must be a resident in Singapore, and one or more company secretaries who must be resident in Singapore. There is no nationality requirement. A company incorporated in Singapore has the same status and powers as a natural person. Bearer shares are not permitted.
Financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions and are required to maintain adequate records. However, there is no systematic reporting of large currency transactions. There are no reporting requirements on amounts of currency brought into or taken out of Singapore. Singapore is considering legal changes that would allow for implementation of FATF Special Recommendation Nine, which requires either a declaration or disclosure system for monitoring cross-border movement of currency and bearer negotiable instruments.
The Singapore Police's Suspicious Transaction Reporting Office (STRO) has served as the country's Financial Intelligence Unit (FIU) since January 2000. Procedural regulations and bank secrecy laws limit STRO's ability to provide information relating to financial crimes. In December 2004, STRO concluded a Memorandum of Understanding (MOU) concerning the exchange of financial intelligence with its U.S. counterpart, FinCEN. STRO has also signed MOUs with counterparts in Australia, Belgium, Brazil, Canada, Greece, Hong Kong, Italy, Japan and Mexico. To improve its suspicious transaction reporting, STRO has developed a computerized system to allow electronic online submission of STRs, as well as the dissemination of AML/CFT material. It plans to encourage all financial institutions and relevant professions to participate in this system.
Singapore is an important participant in the regional effort to stop terrorist financing in Southeast Asia. The Terrorism (Suppression of Financing) Act that took effect January 29, 2003, criminalizes terrorist financing, although the provisions of the Act are actually much broader. In addition to making it a criminal offense to deal with terrorist property (including financial assets), the Act criminalizes the provision or collection of any property (including financial assets) with the intention that the property be used (or having reasonable grounds to believe that the property will be used) to commit any terrorist act or for various terrorist purposes. The Act also provides that any person in Singapore, and every citizen of Singapore outside Singapore, who has information about any transaction or proposed transaction in respect of terrorist property, or who has information that he/she believes might be of material assistance in preventing a terrorism financing offense, must immediately inform the police. The Act gives the authorities the power to freeze and seize terrorist assets.
The International Monetary Fund/World Bank assessment of Singapore's financial sector published in April 2004 concluded that, because it is a party to the UN International Convention for the Suppression of the Financing of Terrorism, the country imposes few restrictions on intergovernmental terrorist financing-related mutual legal assistance even in the absence of a Mutual Legal Assistance Treaty. However, the IMF urged Singapore to improve its mutual legal assistance for other offenses, noting serious limitations on assistance through the provision of bank records, search and seizure of evidence, restraints on the proceeds of crime, and the enforcement of foreign confiscation orders.
Based on regulations issued in 2002, MAS has broad powers to direct financial institutions to comply with international obligations related to terrorist financing obligations. The regulations bar banks and financial institutions from providing resources and services of any kind that will benefit terrorists or terrorist financing. Financial institutions must notify the MAS immediately if they have in their possession, custody or control any property belonging to designated terrorists or any information on transactions involving terrorists' funds. The regulations apply to all branches and offices of any financial institutions incorporated in Singapore or incorporated outside of Singapore, but located in Singapore. The regulations are periodically updated to include names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee's consolidated list.
Singapore's approximately 600,000 foreign guest workers are the main users of alternative remittance systems. As of September 2006, there were 395 money-changers and 95 remittance agents. All must be licensed and are subject to the Money-Changing and Remittance Businesses Act (MCRBA), which includes requirements for record-keeping and the filing of suspicious transaction reports. Firms must submit a financial statement every three months and report the largest amount transmitted on a single day. They must also provide information concerning their business and overseas partners. Unlicensed informal networks, such as hawala, are illegal. In August 2005, Singapore amended the MCRBA to apply certain AML/CFT regulations to remittance licensees and money-changers engaged in inward remittance transactions. The Act eliminated sole proprietorships and required all remittance agents to incorporate under the Companies Act with a minimum paid-up capital of S$100,000 (approximately $60,000). In August 2006, MAS issued for public comments draft regulations that would require licensees to establish the identity of all customers; currently, no such identification is mandatory for transactions in aggregate of up to S$5,000 (approximately US$3,000). MAS would also be required to approve any non face-to-face transactions.
Singapore has five free trade zones (FTZs), four for seaborne cargo and one for airfreight, regulated under the Free Trade Zone Act. The FTZs may be used for storage, repackaging of import and export cargo, assembly and other manufacturing activities approved by the Director General of Customs in conjunction with the Ministry of Finance.
Charities in Singapore are subject to extensive government regulation, including close oversight and reporting requirements, and restrictions that limit the amount of funding that can be transferred out of Singapore. Singapore had a total of 1,807 registered charities as of December 2005. All charities must register with the Commissioner of Charities which, since September 1, 2006, has reported to the Minister for Community Development, Youth and Sports instead of the Minister for Finance. Charities must submit governing documents outlining their objectives and particulars of all trustees. The Commissioner of Charities has the power to investigate charities, search and seize records, restrict the transactions into which the charity can enter, suspend staff or trustees, and/or establish a scheme for the administration of the charity. Charities must keep detailed accounting records and retain them for at least seven years.
Singapore will implement tighter regulations under the Income Tax Act governing public fund-raising by charities, effective January 1, 2007. Charities authorized to receive tax-deductible donations will be required to disclose the amount of funds raised in excess of S$1 million (approximately $600,000), expenses incurred, and planned use of funds. Under the Charities (Fund-raising Appeals for Foreign Charitable Purposes) Regulations 1994, any charity or person that wishes to conduct or participate in any fund-raising for any foreign charitable purpose must apply for a permit. The applicant must demonstrate that at least 80 percent of the funds raised will be used in Singapore, although the Commissioner of Charities has discretion to allow for a lower percentage. Permit holders are subject to additional record-keeping and reporting requirements, including details on every item of expenditure, amounts transferred to persons outside Singapore, and names of recipients. The government issued 36 permits in 2005 related to fund raising for foreign charitable purposes. There are no restrictions or direct reporting requirements on foreign donations to charities in Singapore.
To regulate law enforcement cooperation and facilitate information exchange, Singapore enacted the Mutual Assistance in Criminal Matters Act (MACMA) in March 2000. Parliament amended the MACMA in February 2006 to allow the government to respond to requests for assistance even in the absence of a bilateral treaty, MOU or other agreement with Singapore. The MACMA provides for international cooperation on any of the 292 predicate "serious offenses" listed under the CDSA. In November 2000, Singapore and the United States signed the Agreement Concerning the Investigation of Drug Trafficking Offenses and Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking (Drug Designation Agreement or DDA). This was the first agreement concluded pursuant to the MACMA. The DDA, which came into force in early 2001, facilitates the exchange of banking and corporate information on drug money laundering suspects and targets, including access to bank records. It also entails reciprocal honoring of seizure/forfeiture warrants. This agreement applies only to narcotics cases, and does not cover non-narcotics-related money laundering, terrorist financing, or financial fraud.
In May 2003, Singapore issued a regulation pursuant to the MACMA and the Terrorism Act that enables the government to provide legal assistance to the United States and the United Kingdom in matters related to terrorism financing offenses. Singapore concluded mutual legal assistance agreements with Hong Kong in 2003 and with India in 2005. Singapore is a party to the ASEAN Treaty on Mutual Legal Assistance in Criminal Matters along with Malaysia, Vietnam, Brunei. Cambodia, Indonesia, Laos, the Philippines, Thailand, and Burma. The treaty will come into effect after ratification by the respective governments. Singapore, Malaysia, Vietnam and Brunei have ratified thus far.
In addition to the UN International Convention for the Suppression of the Financing of Terrorism, Singapore is also party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. In addition to FATF, Singapore is a member of the Asia/Pacific Group on Money Laundering, the Egmont Group, and the Offshore Group of Banking Supervisors. Singapore hosted the June 2005 Plenary meeting of the FATF, the first time a FATF Plenary was held in Southeast Asia. FATF is slated to review Singapore's AML/CFT regime, most likely in 2007.
Singapore should continue close monitoring of its domestic and offshore financial sectors. As a major financial center, it should also adopt measures to regulate and monitor large currency and bearer negotiable instrument movements into and out of the country, in line with FATF Special Recommendation Nine, adopted in October 2004, that mandates countries implement measures such as declaration systems in order to detect cross-border currency smuggling. Singapore should add tax and fiscal offenses to its schedule of serious offenses.
The conclusion of broad mutual legal assistance agreements is also important to further Singapore's ability to work internationally to counter money laundering and terrorist financing. Singapore should lift its rigid bank secrecy restrictions to enhance its law enforcement cooperation in areas such as information sharing and to conform to international standards and best practices.
Slovakia is not an important regional financial center. The geographic, economic, and legal conditions that shape the money laundering environment in Slovakia are typical of those in other Central European transition economies. Slovakia's location along the major lines of communication connecting Western, Eastern, and Southeastern Europe makes it a transit country for smuggling and trafficking in narcotics, mineral oils, and people. Organized crime activity and the opportunities to use gray market channels also lead to a favorable money laundering environment. Financial crimes such as fraud, tax evasion, embezzlement, and illegal business activity have been quite problematic for Slovak authorities.
In response to these problems, Slovakia has gradually strengthened the financial provisions of its criminal and civil codes through a series of amendments since 2000, which have resulted in an increased number of money laundering prosecutions. In 2006 a new Confiscation Law came into effect, strengthening the government's ability to seize assets gained through criminal activity. However, international monitors have suggested that the new law still contains significant loopholes. Despite a slight decline in staff resources, Slovakia's financial intelligence unit (FIU) and regional financial police have continued to increase filings, inspections, and the number of cases forwarded for prosecution.
Slovakia's original anti-money laundering legislation, Act No. 249/1994 (later amended by Act No. 58/1996) came into effect in 1994. Article 252 of the Slovak Criminal Code, Legalization of Proceeds from Criminal Activity, came into force at the same time. These measures criminalize money laundering for all serious crimes, and impose customer identification, record keeping, and suspicious transaction reporting requirements on banks. A money laundering conviction does not require a conviction for the predicate offense, and a predicate offense does not have to occur in Slovakia to be considered as such. The failure of a covered entity to report a suspicious transaction and "tipping off" are criminal offenses.
As a result of amendments made to the Slovak Civil Code in 2001, all banks in Slovakia were ordered to stop offering anonymous accounts. All existing owners of anonymous accounts were required to disclose their identity to the bank and to close the anonymous account by December 31, 2003. Owners of accounts that were not closed may withdraw money for an additional three-year non-interest-bearing grace period. However, funds remaining after January 1, 2007 will be confiscated and deposited in a fund for the administration of the Ministry of Finance, where they will be available for collection by the account holder for another five years. As of January 1, 2007, bearer passbook accounts will cease to exist.
Act No. 367/2000, On Protection against the Legalization of Proceeds from Criminal Activities, which came into force in January 2001, replaces the standard for suspicious transactions with an expanded definition of unusual business activity. According to this modified definition, an unusual business activity is any transaction that could result in the legalization of income, the source of which is suspected to be criminal. Such transactions include the attempted disposal of income or property with the knowledge or suspicion that it was acquired through criminal activity in Slovakia or a third country. Designated transactions also include the acquisition, possession, or use of real estate, moveable property, securities, money, or any other property with monetary value, for the purpose of concealing or disguising its ownership. However, the Council of Europe's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) sent a team to perform a third-round mutual evaluation in May 2005; the resulting September 2006 Mutual Evaluation Report (MER) called for guidelines for each sector, noting that some sectors, such as gaming, do not have an understanding of what "unusual" is for that sector. The National Bank of Slovakia (NBS) or the Financial Market Authority (FMA), in addition to the Financial Police, have supervisory authority over the various financial institutions.
Act No. 367/2000 also expands the list of entities subject to reporting requirements to include foreign bank subsidiaries, the Slovak Export-Import Bank, nonbank financial institutions such as casinos, post offices, brokers, stock exchanges, commodity exchanges, securities markets, asset management companies, insurance companies, real estate companies, tax advisors, auditors, credit unions, leasing firms, auctioneers, foreign exchange houses, and pawnshops, all of which have been particularly susceptible to money laundering. The 2005 MONEYVAL MER stated that there was generally no reporting on the part of the designated nonfinancial business and professions (DNFBP), and that casinos and exchange houses had not reported at all. The Slovakian FIU estimated that out of approximately 100,000 obliged entities, only the banks and insurance companies have reported regularly, and the securities sector has produced a small number of reports. It is unclear whether the reporting obligations are understood by all the covered entities. Non profit organizations are generally exempt from reporting requirements.
As recommended in 2001 by a previous MONEYVAL (then called PC-R-EV) team in its second-round evaluation of Slovakia, the Government of Slovakia (GOS) amended Act No. 367/2000 in order to address shortcomings of the original legislation, and in order to comply with European Directive 2001/97/EC. As a result, Slovakian legislation is now in full harmony with the Second European Union (EU) Directive. The FATF's 2002-3 Annual Report stated that the amended legislation provided a "basically sound preventive legal structure." However, the recent MONEYVAL MER noted that there was no apparent national strategy and an absence of leadership in the overall national fight against money laundering and terrorist financing.
Amendments to Act No. 367/2000 in 2002 further extend reporting requirements to: antique, art, and collectible brokers; dealers in precious metals or stones, or other high-value goods; legal advisors; consultants; securities dealers; foundations; financial managers and consultants; and accounting services. Covered persons are required to identify all customers, including legal entities, if they find that the customers prepared or conducted transactions deemed to be suspicious, or if a sum or related sums exceeding approximately $19,000 within a 12-month period is involved. Insurance sellers must identify all clients whose premium exceeds approximately $1,200 in a year or whose one-time premium exceeds approximately $3,200. Casinos are obligated to identify all customers. Transactions may be delayed by the covered entities up to 48 hours, with another 24-hour extension allowed if authorized by the Financial Police. If the suspicion turns out to be unfounded, the state assumes the burden of compensation for losses stemming from the delay.
As a result of these modifications, money laundering convictions under Article 252 of the Criminal Code have increased gradually in recent years, with 33 confirmed cases between 2002-2005. Detailed statistics on money laundering convictions are not available, but, according to the financial police, auto theft is the most commonly prosecuted money laundering offense. There were no autonomous cases of money laundering convictions, since the FIU and regional financial police tend to forward for prosecution money laundering cases that are tied with broader organized crime activities. Corporate liability for money laundering is still inapplicable in Slovakia.
Slovak law is less than effective regarding the beneficial ownership of legal persons. The 2005 MONEYVAL MER stated that "Slovakian law does not require adequate transparency concerning beneficial ownership and control of legal persons." The law does not mandate identification on the Commercial Register for beneficial owners of a company purchasing or holding shares in another registered company, and information is unavailable for foreign companies registered in Slovakia. According to the MER, corporate liability is inapplicable under Slovakian law. There is no broad requirement to give any special attention to business relationships or transactions with legal or actual persons from countries not applying, or insufficiently applying, the FATF recommendations.
Spravodasjak? Jednotka Financnej Policie, was established on November 1, 1996, as a law enforcement style financial intelligence unit within the Police. Under a 2005 police reorganization, the FIU, which had been a department within the Financial Police, was downgraded to one of eight divisions of the Bureau of Organized Crime. As a result, it is no longer headed at the director level, and has seen its numbers of staff decrease. The MONEYVAL team questioned the degree of autonomy and operational independence of the FIU since the change.
The FIU, or the Office to Fight Organized Crime (OFOC), focuses on all forms of organized crime, including narcotics, money laundering, human trafficking, and prostitution. The OFOC has four regional units of financial police, each responsible for a different part of Slovakia (Bratislava, Eastern Slovakia, Western Slovakia, and Central Slovakia), and four substantive units: the unusual business transactions unit, the obliged entities supervision unit, the unit for international cooperation and the unit for property checks. The FIU has jurisdictional responsibility over money laundering violations, receives and evaluates suspicious transaction reports (STRs), and collects additional information to establish the suspicion of money laundering. If justified, the unit forwards the case to one of the regional financial police units. All supervisory authorities must inform the FIU of any violation immediately upon discovery. Once enough information has been obtained to warrant suspicion that a criminal offense has occurred, the FIU takes appropriate measures, including asking a financial institution or bank to delay business or a financial transaction for 48 hours; however, the decision to delay transactions comes at the discretion of the financial institution and authorities acknowledge that transactions are rarely delayed. The FIU can also submit the case to the state prosecutor's office for investigation and prosecution. The MONEYVAL team found that the FIU's powers and duties were not clearly defined in legislation and not made distinct from other police powers and duties.
In 2005, the FIU received 1,273 reports alleging unusual financial transactions worth $341 million. It submitted 16 proposals for criminal prosecution (including six from previous years) with a value of $612 million and 341 proposals for tax prosecution (including 137 from previous years). In addition, the Financial Police regional units submitted 159 proposals for criminal prosecutions. In 2005, the OFOC conducted or started 97 on-site inspections of "obliged persons" and levied penalties in 36 cases with a total value of $143,000. Most criminal prosecution cases involved credit fraud. Most tax prosecution and on-site inspections uncovered abuse of Slovakia's value added tax system by local business owners.
Through the first ten months of 2006, the FIU received 1,158 reports with a total value of $315,000. Eight of these cases were submitted for prosecution, plus two outstanding cases from 2005. Financial Police regional units have submitted a further 177 cases for prosecution. A growing number of these cases involve organized groups transferring funds from neighboring countries (primarily Ukraine and Hungary) to Slovakia. The OFOC has carried out 68 on-site inspections during this timeframe, resulting in fines with a total value of $45,000.
The OFOC also has a supervisory role. Under section 10 of the AML law, the FIU has supervisory duty over the implementation of AML measures in financial institutions, and to this end, inspects these institutions. It also has sole supervisory authority over designated nonfinancial covered entities. The FIU has six officers in this unit, exercising supervisory responsibility over 100,000 institutions.
The Public Prosecutor Service is independent from executive power and supervises criminal prosecution measures performed by police and investigators. According to the MONEYVAL team, there is some cooperation and coordination taking place at the working level, but overall, this is a weakness in Slovakia's AML regime. The team also concluded that law enforcement is empowered, but needs more training, as well as policy and practical guidance, to ensure proactive financial investigations as well as to generate more cases and obtain convictions and confiscation orders.
In 2003, a law amending and supplementing the Criminal Procedure Code and Criminal Code entered into force. The amendment strengthens the competencies of law enforcement by granting investigators the authority to conduct sting operations and introduces provisions regarding corporate criminal liability. In addition, crown witnesses (a criminal who voluntarily opts to cooperate with law enforcement bodies) are now protected by the law and can be granted immunity or receive a shortened sentence. This rule does not apply to those that organized or instigated the crime. To clarify ambiguities related to inter alia seizure and confiscation of proceeds, Slovakia amended both the Criminal Procedure Code and the Criminal Code in late 2005. The new law provides for mandatory forfeiture of proceeds of crime. It does not, however, allow for forfeiture from third party beneficiaries, and there are some concerns about the legal structure of the asset freezing and seizure regime to ensure that all indirect proceeds may be liable for confiscation. Shortly after the law entered into force on January 1, 2006, police officers involved with criminal investigations, as well as prosecutors and judges, were trained in substantive provisions of the new laws. The new laws also provides for specific sentencing guidelines for crimes, including 2-20 years for legalization of proceeds from criminal activity, and 2-8 years for not reporting unusual business transactions by obliged persons. No criminal prosecutions under the new law have been completed as of yet, though several have been forwarded by the FIU this year.
The Public Prosecutor Service also provides orders for the seizure of accounts within the pre-trial proceedings stage, and can order the use of information technology for enhanced investigations under Criminal Procedure Code Articles 79c,88 and 88e. There is also a Special Prosecutor Office and a Special Court, established by Act 258/2003 and which began operations on September 1, 2004. Act 258/2003 amends the Criminal Procedure Code to give this new Special Prosecutor jurisdiction over public officials, but also over the general public, for corruption; establishing, plotting, and supporting criminal and terrorist groups; extremely serious criminal offenses including those committed with a terrorist group; and economic criminal offense in excess of a designated threshold. Some money laundering cases have met these parameters and have been adjudicated by the Special Prosecutor's Office.
On June 23, 2005, Parliament approved the Law on Proving the Origin of Property, which came into force on September 1, 2005. According to the law, an undocumented increase in property exceeding an amount 200 times the minimum monthly wage would be scrutinized and could be considered illegal. Anyone who has suspicions that property that may have been acquired illegally may report it to the police. The police are then obliged to investigate the allegations, ultimately reporting to the Office of the Attorney General if findings are conclusive. The Attorney General's Office may then order the property to be confiscated. Despite its approval, the new law was still controversial, and its implementation was frozen by the Constitutional Courts on October 6, 2005. The Constitutional Court has not yet taken a final decision on this law.
Slovakia has responded to the problem of the financing of terrorism by amending its money laundering law with Act No. 445/2002, which criminalizes terrorist financing and obliges covered entities to report transactions possibly linked to terrorist financing. However, the reporting obligation with respect to terrorist financing is not sufficiently clear in the law. In addition, covered institutions have not received any guidance and no reports involving terrorist financing have been filed. The Criminal Code provides for an offense covering someone who "supports" a terrorist group. Authorities have acknowledged the possibility of proceeding for the aiding and abetting an offense of terrorism or the establishment of a terrorist group, but there is no jurisprudence on these points. The MONEYVAL team advised the authorities that the criminalization of terrorist financing solely on aiding and abetting is not in line with the standards set forth in the methodology. The MER also stated that the provisions are not wide enough to clearly criminalize collections of funds: with intention to carry out terrorist acts (whether they are used or not), for any activities undertaken by terrorist organizations, and with unlawful intent to be used by an individual terrorist.
All competent authorities in the Slovak Republic have full power to freeze or confiscate terrorist assets consistent with UNSCR 1373. According to Act No. 367/2000 and its later amendments, financial institutions are required to report to the regional financial police when they freeze or identify suspected terrorist-linked assets. The Government of Slovakia (GOS) has agreed to freeze immediately all accounts owned by entities listed on the UNSCR 1267 Sanctions Committee's, the EU's consolidated lists, and those provided by the United States. The lists, however, are not distributed, but posted online. Obliged institutions have the responsibility to look at the names on the website and report if they have a match to any names on the list. Guidance and communication with the financial intermediaries and DNFBP community is weak. No terrorist finance-related accounts have been frozen or seized in Slovakia, but were a terrorism-related account to be identified, the financial police could hold any related financial transaction for up to 48 hours, and then gather evidence to freeze the account and seize any assets.
The GOS is a party to all 12 of the UN conventions and protocols against terrorism. However, as reported in its 2004 self-assessment questionnaire on anti-money laundering efforts for the Council of Europe (COE), Slovakia is still not fully compliant with the Financial Action Task Force's (FATF's) Special Recommendations on Terrorist Financing. The COE's Committee of Experts gave Slovakia a rating of "partial compliance" in 2004 with regard to Special Recommendation I (Implementation of UNSCR 1373) and Special Recommendation VII (enhanced scrutiny of transfers lacking originator information).
In late 2005, following its official release, Slovak authorities started to prepare for implementation of the Third EU Money Laundering Directive. After consultations with the Ministry of Finance, the Ministry of Interior, and the National Bank of Slovakia, the FIU has been tasked with drafting new legislation to comply with the Third Directive. The new legislation would also grant the FIU broader authority to work directly with prosecutors, tax authorities, and the regular police.
In 2002, the GOS ratified the UN International Convention for the Suppression of the Financing of Terrorism. The provisions of the Convention have been incorporated into amendments of the Bank Act, Penal Code, and Act No. 367/2000 and in March 2003, Slovakia elected to fully incorporate into its laws several optional terms of the convention. The FIU is a member of the Egmont Group and has signed memoranda of understanding (MOUs) with the FIUs of Slovenia, Monaco, Ukraine, Australia, Belgium, Poland, and the Czech Republic. The GOS also hopes to sign MOUs with Albania and Taiwan in 2006. Slovakia's FIU is the responsible authority for international exchange of information regarding money laundering under the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
Slovakia is a party to the European Convention on Mutual Legal Assistance in Criminal Matters, the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, the 1988 UN Drug Convention, and the UN Convention against Transnational Organized Crime. In June 2006, it also ratified the UN Convention against Corruption. Slovakia became a member of the Organization for Economic Cooperation and Development (OECD) in December 2000, thereby expanding its opportunities for multilateral engagement.
Slovakia is a member of the Group of States Against Corruption (GRECO), a platform of the Council of Europe to fight against corruption. GRECO carried out its Second Evaluation Round in early 2006, based on 17 recommendations made by GRECO in 2004. In its report issued in May 2006, GRECO concluded that Slovakia had implemented satisfactorily or dealt with in a satisfactory manner just under half of the 17 recommendations made by GRECO in 2004. GRECO evaluators were particularly concerned with the lack of mechanisms to fight corruption in the public sphere. Slovakia is a member of the Council of Europe and since 1997 has actively participated in the MONEYVAL Committee.
The Government of Slovakia (GOS) should continue to improve its anti-money laundering regime. Continued implementation of the provisions of Slovakia's anti-money laundering legislation will give the Slovak financial system greater protection by helping it prevent and detect money laundering in all financial sectors. Authorities should ensure that property and proceeds are equivalent in Article 252 and that this definition is contained in the law to avoid confusion on this issue. Slovakia should also provide guidance to, and improve supervision of its nonfinancial sectors to ensure that reporting requirements are followed. Slovakia should implement formal AML supervision for exchange houses. Slovakia should provide adequate resources to assure that its FIU, law enforcement, and prosecutorial agencies are adequately funded and trained to effectively perform their various responsibilities, and work to enhance cooperation and coordination among these agencies and other competent authorities. Although all supervisory authorities need more staff and training, the FIU in particular needs to increase the number of staff so that the staffing is commensurate with its supervisory role. Slovakia should also take steps to include in its legislative framework the FATF-prescribed definition and treatment of beneficial owners. Authorities should consider criminal, civil or administrative sanction for money laundering in relation to legal persons.
With regard to fighting terrorism financing, the GOS should hone its legal framework to clarify the reporting obligation with respect to terrorist financing and issue guidance to covered institutions. Authorities can also amend the Criminal Code to ensure that criminalization of terrorist financing parallels international standards, including widening the parameters to sanction criminally collections of funds: with intention to carry out terrorist acts (used or not), for any activities undertaken by terrorist organizations, and with unlawful intent to be used by an individual terrorist.
In addition, the GOS can make the lists produced and circulated by the UN and the U.S. more readily accessible to obliged institutions by distributing them to the institutions instead of posting them online. This would also serve to enhance communication and provide an opportunity to give guidance to covered institutions.
South Africa's position as the major financial center in the region, its relatively sophisticated banking and financial sector, and its large cash-based market, all make it a very attractive target for transnational and domestic crime syndicates. Nigerian, Pakistani, and Indian drug traffickers, Chinese triads, Taiwanese groups, Lebanese trading syndicates, and the Russian mafia have all been identified as operating in South Africa, along with South African criminal groups. The fact that a high number of international crime groups operate in South Africa and that there are few reported money laundering prosecutions indicate that South Africa remains a money laundering jurisdiction of concern. Although the links between different types of crime have been observed throughout the region, money laundering is primarily related to the illicit narcotics trade. Other common types of crimes related to money laundering are: fraud, theft, corruption, currency speculation, illicit dealings in precious metals and diamonds, human trafficking, stolen cars, and smuggling. Most criminal organizations are also involved in legitimate business operations. There is a significant black market for smuggled goods.
South Africa is not an offshore financial center, nor does it have free trade zones. It does, however, operate Industrial Development Zones (IDZs). The South African revenue service monitors the customs control of these zones. Imports and exports that are involved in manufacturing or processing in the zone are duty-free, provided that the finished product is exported. South Africa maintains IDZs in Port Elizabeth, East London, Richards Bay, and Johannesburg International Airport.
The Proceeds of Crime Act (No. 76 of 1996) criminalizes money laundering for all serious crimes. This act was supplemented by the Prevention of Organized Crime Act (no. 121 of 1998), which confirms the criminal character of money laundering, mandates the reporting of suspicious transactions, and provides a "safe harbor" for good faith compliance. Violation of this act carries a fine of up to rand 100 million (approximately $16,700,000) or imprisonment for up to 30 years. Regulations require suspicious transaction reports to be sent to the South African financial intelligence unit (FIU), the Financial Intelligence Centre (FIC). Both of these Acts contain criminal and civil forfeiture provisions.
In 2005, the Protection of Constitutional Democracy Against Terrorist and Related Activities Act came into effect. The Act criminalizes terrorist activity and terrorist financing and gave the government investigative and asset seizure powers in cases of suspected terrorist activity. The Act is applicable to charitable and nonprofit organizations operating in South Africa. The Act requires financial institutions to report suspected terrorist activity to the FIC. The FIC distributes the list of individuals and entities included on the United Nations 1267 Sanctions Committee's consolidated list.
The FIC began operating in February 2003. The mandate of the FIC is to coordinate policy and efforts to counter money laundering activities. The FIC similarly acts as a centralized repository of information and statistics on money laundering. The FIC is a member of the Egmont Group of financial intelligence units. In addition to the FIC, South Africa has a Money Laundering Advisory Council (MLAC) to advise the Minister of Finance on policies and measures to combat money laundering.
The Financial Intelligence Centre Act (FICA) requires a wide range of financial institutions and businesses to identify customers, maintain records of transactions for at least five years, appoint compliance officers to train employees to comply with the law, and report transactions of a suspicious or unusual nature. Regulated businesses include companies and firms considered particularly vulnerable to money laundering activities, such as banks, life insurance companies, foreign exchange dealers, casinos, and real estate agents. If the FIC has reasonable grounds to suspect that a transaction involves the proceeds of criminal activities, it forwards this information to the investigative and prosecutorial authorities. If there is suspicion of terrorist financing, that information is to be forwarded to the National Intelligence Service. There are no bank secrecy laws in effect that prevent the disclosure of ownership information to bank supervisors and law enforcement authorities. However, the lack of actual cases prosecuted indicates problems in reporting process, analysis, investigations, and/or commitment.
From March 2005 through March 2006, the FIC received 19,793 suspicious transaction reports (STRs), an increase of 25 percent from the previous year's 15,757 STRs. The FIC reports that this increase is due to the development and distribution of its batch-reporting tool and not related to an increase in financial institutions detecting suspicious transactions. Precise information is not available on how many of these STRs led to criminal investigations. However, the number of financial crime and terrorist finance investigations, prosecutions, and convictions is believed to be extremely low. In addition, the quality and consistency of the STRs remains uneven. This is problematic for a country which has vast experience in implementing international banking standards. The FIC and South Africa's banks struggle to provide effective and comprehensive training programs relating to STR reporting and there has been no evidence of an increase in the quality of suspicious transaction reports. This calls into question the political will of the South African government towards implementing an effective and transparent AML/CFT regime
Many banks state that the reporting requirements hamper their efforts to attract new customers. For example, if the customer has never traveled outside the country, they may not have supporting documentation (no driver's license or passport) to properly satisfy the due diligence laws. Also, retroactive due diligence requirements mean those account holders who do not present identifying documents in person risk having their accounts frozen. These requirements were fully implemented in September 2006, after which date transactions with accounts owned by still-unidentified persons were blocked. Reporting requirements were specifically waived for brokers assisting clients with a one-time amnesty offer according to the Exchange Control and Amnesty and Amendment of Taxation Laws of 2003.
Because of the cash-driven nature of the South African economy, alternative remittance systems that bypass the formal financial sector exist, used largely by the strong local Islamic community. Hawala networks in South Africa have direct ties to South Asia and the Middle East. Currently, there is no legal obligation requiring alternative remittance systems to report cash transactions within the country. The South African Revenue Service (SARS) requires large cash amounts to be declared only at entry and exit points. Smuggling and border enforcement are major problems in South Africa.
The Financial Action Task Force (FATF) conducted a mutual evaluation of South Africa in 2003 and made several recommendations regarding controls on cross-border currency movement, thresholds, and amendments to the Exchange Control Act. While legislation has been adopted in response to the recommendations, full implementation has yet to take place.
South Africa has cooperated with the United States in exchanging information related to money laundering and terrorist financing. The two nations have a mutual legal assistance treaty and a bilateral extradition treaty. In June 2003, South Africa became the first African nation to be admitted into the Financial Action Task Force (FATF), and it held the FATF Presidency for the period June 2005-June 2006. South Africa is also an active member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body.
South Africa is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.
The South African Government should implement FATF Special Recommendation Nine and establish control over cross-border currency movement. It should regulate and investigate the country's alternative remittance systems. South Africa should increase steps to bolster border enforcement and should examine forms of trade-based money laundering and informal value transfer systems. It should fully implement the new law (Protection of Constitutional Democracy against Terrorist and Related Activities Act) against terrorist activity and terrorist financing. South Africa should publish the annual number of money laundering and terrorist financing investigations, prosecutions, and convictions.
Tax evasion in internal markets and smuggling of goods along the coastline also continue to be sources of illicit funds in
An unknown percentage of the proceeds from drug-trafficking is invested in Spanish real estate, particularly in the booming coastal areas in the south and east of the country. Twenty-five percent of the 500 euro notes in use in Europe are in circulation in
In September 2006, Spanish police arrested eight people of Spanish and Colombian nationality for drug trafficking and money laundering. Government of Spain (GOS) officials estimate that the individuals may have laundered more than 13.5 million euro (approximately 17.8 million dollars). The investigation began at the end of 2003 after a money laundering organization was dismantled when a vessel carrying 412 kilos of cocaine was intercepted in
In May 2006, 21 people were arrested and accused of being members of an international money laundering and drug-trafficking gang. Police seized 193 kilos of cocaine, weapons, money, and luxury vehicles imported from
Although little of the money laundered in
Money laundering was criminalized by Article 301 of the Penal Code. The criminalization of money laundering was added to the penal code in 1988 when laundering the proceeds from narcotics trafficking was made a criminal offense. The law was expanded in 1995 to cover all serious crimes that required a prison sentence greater than three years. Amendments to the code on November 25, 2003, which took effect on October 1, 2004, made all forms of money laundering financial crimes; any property, of any value, can form the basis for a money laundering offence, and a conviction or a prosecution for a predicate offense is not necessary to prosecute or obtain a conviction for money laundering. The penal code can also apply to individuals in financial firms if their institutions have been used for financial crimes. An amendment to the penal code in 1991 made such persons culpable for both fraudulent acts and negligence connected with money laundering. Spanish authorities can also prosecute money laundering from a predicate offense in another country, if the offense would be illegal in
Law 19/2003 regulating the movements of capital and foreign transactions implements the European Union (EU) Money Laundering Directive. The law obligates financial institutions to make monthly reports on large transactions. Banks are required to report all international transfers greater than 30,000 euros (approximately $39,600). The law also requires the declaration and reporting of internal transfers of funds greater than 80,500 euros (approximately $106,300). Individuals traveling internationally are required to report the importation or exportation of currency greater than 6,000 euros (approximately $7,900). Foreign exchange and money remittance entities must report on transactions above 3,000 euro (approximately $3,960). Reporting on transactions exceeding 30,000 euro from or with persons in countries or territories considered to be tax havens is also required. Law 19/2003 allows the seizure of up to 100 percent of the currency if illegal activity under financial crimes ordinances can be proven. Spanish authorities claim they have seen a drop in cash couriers since the law's enactment in July 2003. For cases where the money cannot be connected to criminal activity, and has not been declared, the authorities may seize the money until the origin of the funds is proven.
The financial sector is required to identify customers, keep records of transactions, and report suspicious financial transactions. Spanish banks are required by law to maintain fiscal information for five years and mercantile records for six years.
Money laundering controls apply to most entities active in the financial system, including banks, mutual savings associations, credit companies, insurance companies, financial advisers, brokerage and securities firms, postal services, currency exchange outlets, casinos, and individuals and unofficial financial institutions exchanging or transmitting money. The 2003 amendments add lawyers and notaries as covered entities. Previously, notaries and lawyers were required to report suspicious cases, but now they are considered part of the financial system that is under the supervision of appropriate regulators. As of April 2005, most categories of designated nonfinancial businesses and professions (DNFBP) are subject to the same core obligations as the financial sector. The list of DNFBPs includes casinos, realty agents, dealers in precious metals and stones, as well as in antiques and art, legal advisors, accountants and auditors.
Article 3.2 of Law 19/1993 mandates that reporting entities should examine and commit to writing the results of an examination of any transaction, irrespective of amount, which by its nature may be linked to laundering of proceeds. Law 12/2003 reaffirms the obligation of reporting suspicious activities. Reporting entities are required to report to suspicious individual transactions to the Financial Intelligence Unit, or FIU. Financial institutions also have an obligation to undertake systematic reporting of unusual transactions, including physical movements of cash, travelers' checks, and other bearer instruments/checks drawn on credit institutions above 30,000 euro (approximately $39,600). The reporting obligation applies to the laundering of proceeds of all illicit activity punishable by a minimum of three years imprisonment, including terrorism or terrorist financing. Non Bank Financial Institutions (NBFIs) such as insurers, investment services firms, collective investment schemes, pension fund managers, and others are subject to these requirements.
Article 4 of Law 19/1993 and Article 15 of RD 925/1995 protect financial institutions and their staff for breach of any restriction on disclosure of information when reporting suspicious transactions. Reporting units must also take appropriate steps to conceal the identity of employees or managers making suspicious transaction reports.
Law 19/1993 and RD 925/1995 established The Executive Service of the Commission for the Prevention of Money Laundering (SEPBLAC), to act as
SEPBLAC coordinates the fight against money laundering in
In June 2006, the Financial Action Task Force (FATF) released the third-round mutual evaluation report (MER) for
SEPBLAC has access to the records and databanks of other government entities, financial institutions, and has formal mechanisms in place to share information domestically and with other FIUs, including FINCEN. SEPBLAC has been an active member of the Egmont Group since 1995. SEPBLAC received 493 requests for information from other FIUs in 2005, and made 143 requests to Egmont members. SEPBLAC received 2,502 suspicious transaction reports (STRs) in 2005. Thirty-seven STRs were used to initiate investigations.
Any member of the Commission may request an investigation. However, the FATF MER noted some concerns about the effectiveness of SEPBLAC's investigations, stating that at certain stages of the investigative process, obtaining account files can be time-consuming. The National Police and Anticorruption Police informed the evaluation team that they receive too many reports, and the reports they do receive are not adequate to serve as the basis for an investigation. SEPBLAC delegates responsibility to two additional organizations. The first is a secretariat in the Treasury, located in the Ministry of Economy. Following investigation and a guilty verdict by a court, this regulating body carries out penalties. Sanctions can include closure, fines, account freezes, or seizures of assets. Law 19/2003 allows seizures of assets of third parties in criminal transactions, and a seizure of real estate in an amount equivalent to the illegal profit.
Under
All legal charities are placed on a register maintained by the Ministry of Justice. Responsibility for policing registered charities lies with the Ministry of Public Administration. If the charity fails to comply with the requirements, sanctions or other criminal charges may be levied.
The Penal Code provides for two types of confiscation: generic (Article 127) and specific, for drug-trafficking offences (Article 374). Article 127 of the Penal Code allows for broad confiscation authorities by applying it to all crimes or summary offenses under the Code. The effects, instruments used to commit the offense, and the profits derived from the offence can all be confiscated. Article 127 also provides for the confiscation of property intended for use in the commission of any crime or offence. It also applies to property that is derived directly or indirectly from proceeds of crime, regardless of whether the property is held or owned by a criminal defendant or by a third party. Article 374 of the Penal Code calls for the confiscation of goods acquired through drug trafficking-related crimes, and of any profit obtained. This allows for the confiscation of instruments and effects used for illegal drug dealing, as well as the goods or proceeds obtained from the illicit traffic. Consequently, all assets held by a person convicted of drug trafficking may be confiscated if those assets are the result of unlawful conduct.
A judge may impose provisional measures concerning seizures from any type of offense by virtue of the code of criminal procedure. Effects may be seized and stored by the judicial authorities at the beginning of an investigation. The Fund of Seized Goods of Narcotics Traffickers receives seized assets. This agency was established under the National Drug Plan. The proceeds from the funds are divided, with equal amounts going to drug treatment programs and to a foundation that supports officers fighting narcotics trafficking. The division of assets from seizures involving more than one country depends on the relationship with the country in question. EU working groups determine how to divide the proceeds for member countries. Outside of the EU, bilateral commissions are formed with countries that are members of Financial Action Task Force (FATF), FATF-like bodies, and the Egmont Group, to deal with the division of seized assets. With other countries, negotiations are conducted on an ad hoc basis.
The banking community cooperates with enforcement efforts to trace funds and seize/freeze bank accounts. The law is unclear as to whether or not civil forfeitures are allowed. The GOS enforces existing drug-related seizure and forfeiture laws.
The FATF MER team noted some shortcomings in the areas of customer due diligence, beneficial ownership of legal persons, and bearer shares. Anonymous accounts and accounts in fictitious names are precluded by Spanish legislation. Bearer shares are permitted in
The FATF MER gives
As with all of the European Union countries, the obligation to freeze assets under UNSCR 1267 has also been implemented through the Council.
The GOS has signed criminal mutual legal assistance agreements with
The scale of money laundering and the sophisticated methods used by criminals create a significant law enforcement problem in
The Government of St. Kitts and Nevis (GOSKN) is a federation composed of two islands in the Eastern Caribbean. The federation is at major risk for corruption and money laundering, due to the high volume of narcotics trafficking activity and the presence of known traffickers on the islands. The offshore financial sectors of both islands are vulnerable to money laundering. An inadequately regulated economic citizenship program compounds the problem.
Each island has the authority to organize its own financial structure. As a Federation, there is offshore legislation governing both St. Kitts and Nevis. However, with most of the offshore financial activity concentrated in Nevis, it has developed its own offshore legislation independently. As of September 2006, Nevis has one offshore bank (a subsidiary of a domestic bank), 61 licensed insurance companies, 1,014 international trusts, 29 foundations and 54 corporate service providers. There are two types of international companies eligible for incorporation: international business companies (IBCs) and limited liability companies (LLCs). Current figures indicate there are 12,773 IBCs and 3,732 LLCs registered in Nevis. Reports from 2006 indicate that St. Kitts' offshore sector consists of 1,019 exempt companies, 203 exempt foundations, four trust companies, two investment companies, 21 corporate service providers, and three licensed internet gaming companies that must incorporate as IBCs. According to reports from 2004-2005, St. Kitts also has four domestic banks, 120 credit unions, four domestic insurance companies, and two money remitters. There are no free trade zones in St. Kitts and Nevis.
The GOSKN licenses offshore banks and businesses. Bearer shares are permitted, provided that bearer share certificates are retained in the safe custody of persons or financial institutions authorized by the Minister of Finance as approved custodians. Authorized service providers serve as a company's first directors or trustees; this information is made public. Subsequent to incorporation or registration, the authorized persons transfer such duties to other persons. This information is restricted to only the regulator and authorized persons who have access to the information. Reportedly, extensive background checks on all proposed licensees are conducted by a third party on behalf of the GOSKN before a license is granted. Under the Nevis Offshore Banking Ordinance 1996, as amended in 2002, the Eastern Caribbean Central Bank (ECCB) is required to review all applications for licenses and report its recommendations to the Minister of Finance prior to consideration of the application. By law, all licensees are required to have a physical presence in St. Kitts and Nevis. All authorized persons are required to obtain proper documents on shareholders or beneficial owners before incorporating IBCs or other offshore companies.
The Proceeds of Crime Act (POCA) 2000 criminalizes money laundering for serious offenses and imposes penalties ranging from imprisonment to monetary fines. The POCA also overrides secrecy provisions that may have constituted obstacles to the access of administrative and judicial authorities to information with respect to account holders or beneficial owners. Other anti-money laundering measures include the Financial Services Commission Act 2000, the Nevis Offshore Banking (Amendment) 2000, the Anti-Money Laundering Regulations 2001, the Companies (Amendment) Act 2001, the Anti-Money Laundering (Amendment) Regulations 2001, the Nevis Business Corporation (Amendment) 2001, and the Nevis Offshore Banking (Amendment) 2001.
The ECCB has direct responsibility for regulating and supervising the offshore bank in Nevis, as it does for domestic banks in St. Kitts and Nevis, and for making recommendations regarding approval of offshore bank licenses. The St. Kitts and Nevis Financial Services Commission, with regulators on both islands, regulates nonbank financial institutions for anti-money laundering compliance. The GOSKN has issued regulations requiring financial institutions to identify their customers upon request, maintain a record of transactions for up to five years, report suspicious transactions, and establish anti-money laundering training programs. The Financial Services Commission has issued guidance notes on the prevention of money laundering, pursuant to the Anti-Money Laundering Regulations. The Commission is authorized to carry out anti-money laundering examinations. The St. Kitts and Nevis Gaming Board is responsible for ensuring compliance of casinos.
The Financial Intelligence Unit (FIU) Act No. 15 of 2000 authorized the creation of an FIU. The FIU began operations in 2001 and receives, analyzes and investigates suspicious activity reports (SARs) from reporting entities in both St. Kitts and Nevis. All financial institutions, including nonbank financial institutions, are required by law to report suspicious transactions. Anti-money laundering regulations and the FIU Act provide protection for reporting entities and its employees, officers, owners or representatives who forward SARs to the FIU. In 2006, the FIU received 50 SARs. Of these, 20 SARs were referred to law enforcement for appropriate action. There have been no reports of further action taken on these referrals. The Royal St. Kitts and Nevis Police Force is responsible for investigating financial crimes, but does not have adequate staff or training to effectively execute its mandate. The FIU has direct and indirect access to records of other government agencies through memoranda of understanding (MOU). The FIU Act has provisions for sharing information, both domestically and with foreign counterparts and law enforcement agencies.
Under the POCA legitimate businesses can be seized by the FIU if proven to be connected to money laundering activities. The FIU can freeze an individual's bank account for a period not to exceed five days in the absence of a court order. The freeze orders obtained from the court at times ascribe an expiration of six months or more. The law only allows for criminal forfeiture; civil forfeiture is considered unconstitutional. The POCA provides for a forfeiture fund under the administration and control of the Financial Secretary in St. Kitts and the Permanent Secretary in the Ministry of Finance in Nevis. All monies and proceeds from the sale of property forfeited or confiscated are placed in the fund to be used for the purpose of anti-money laundering activities in both St. Kitts and Nevis.
The POCA limits and monitors the international transportation of currency and monetary instruments. Any person importing or exporting a value exceeding US$10,000 or its equivalent in Eastern Caribbean currency needs to declare it with Customs. In addition, the Customs Control and Management Act criminalizes cash smuggling. Customs and law enforcement share cash smuggling reports.
St. Kitts and Nevis enacted the Anti-Terrorism Act (ATA) No. 21, effective November 27, 2002. Sections 12 and 15 of the Act criminalize the financing of terrorism. Under the ATA, the FIU and Director of Public Prosecutions have the authority to identify, freeze, and/or forfeit assets related to terrorist financing. The ATA also implements various UN Conventions against terrorism. The GOSKN circulates to financial institutions the names of individuals and entities that have been included on the UN 1267 Sanctions Committee's lists. To date, no terrorist-related funds have been identified. The ATA does not provide the FIU with the authority to receive disclosures relating to potential financing of terrorism from reporting entities. The GOSKN has some existing controls that apply to alternative remittance systems, but has not undertaken initiatives that apply directly to the potential terrorist misuse of charitable and nonprofit entities.
A Mutual Legal Assistance Treaty (MLAT) between the GOSKN and the United States entered into force in early 2000, but cooperation over the last three years has been stalled by the GOSKN. St. Kitts and Nevis is a member of the Caribbean Financial Action Task Force (CFATF) and the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. St. Kitts and Nevis is a party to the UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime. The GOSKN has signed, but not yet ratified, the Inter-American Convention against Terrorism, and has neither signed nor ratified the UN Convention against Corruption. The FIU became a member of the Egmont Group in 2004.
St. Kitts and Nevis should devote sufficient resources to effectively implement its anti-money laundering regime, giving particular attention to its offshore financial sector. St. Kitts and Nevis should determine the exact number of Internet gaming companies present on the islands and provide the necessary oversight of these entities. St. Kitts and Nevis should amend the Anti-Terrorism Act to provide the FIU with the authority to receive disclosures relating to potential financing of terrorism from reporting entities. Additionally, St. Kitts and Nevis should improve its cooperation with foreign counterparts, particularly the timely information sharing on money laundering and financial crime activity and the implementation of bilateral agreements. St. Kitts should become a party to the UN Convention against Corruption.
St. Lucia has developed an offshore financial service center that increases the island's vulnerability to money laundering and other financial crimes. Transshipment of narcotics (cocaine and marijuana), unregulated money remittance businesses, cash smuggling, and bank fraud, such as counterfeit U.S. checks and identity theft, are among the other primary vulnerabilities for money laundering in St. Lucia.
Currently, St. Lucia has four offshore banks, 1,912 international business companies (IBCs), seven private mutual funds, two public mutual funds, 43 international trusts, 24 international insurance companies, 24 trust companies, two money remitters, three mutual fund administrators, 13 registered agents and four registered trustees (service providers), and a total of 30 domestic financial institutions. Shell companies are not permitted. The Government of St. Lucia (GOSL) also has one free trade zone where investors may establish businesses and conduct trade and commerce within the free trade zone or between the free trade zone and foreign countries. There are no casinos or internet gaming sites in St. Lucia. Reportedly, the GOSL does not plan to consider the establishment of gaming enterprises.
In 1999, the GOSL enacted a comprehensive inventory of offshore legislation, consisting of the International Business Companies (IBC) Act, the Registered Agent and Trustee Licensing Act, the International Trusts Act, the International Insurance Act, the Mutual Funds Act and the International Banks Act. An IBC may be incorporated under the IBC Act. Only a person licensed under the Registered Agent and Trustee Licensing Act as a licensee may apply to the Registrar of IBCs to incorporate and register a company as an IBC. The registration process involves submission of the memorandum and articles of the company by the registered agent, payment of the prescribed fee, and the Registrar's determination of compliance with the requirements of the IBC Act. IBCs can be registered online through the GOSL's web page. IBCs intending to engage in banking, insurance or mutual fund business may not be registered without the approval of the Minister responsible for international financial services. An IBC may be struck off the register on the grounds of carrying on business against the public interest.
The GOSL established the Committee on Financial Services in 2001. The Committee, which meets monthly, is designed to safeguard St. Lucia's financial services sector. The Committee is composed of the Minister of Finance, the Attorney General, the Solicitor General, the Director of Public Prosecutions, the Director of Financial Services, the Registrar of Business Companies, the Commissioner of Police, the Deputy Permanent Secretary of the Ministry of Commerce, the police officer in charge of the Special Branch, the Comptroller of Inland Revenue and others. The GOSL announced in 2003 its intention to form an integrated regulatory unit to supervise the onshore and offshore financial institutions the GOSL currently regulates. As of October 31, 2006, administrative procedures were implemented, but the unit is not yet fully functional. The Eastern Caribbean Central Bank regulates St. Lucia's domestic banking sector.
The 1993 Proceeds of Crime Act criminalizes money laundering with respect to narcotics. The Proceeds of Crime Act also provides for a voluntary system of reporting account information to the police or prosecutor when such information may be relevant to an investigation or prosecution. Reporting individuals (bankers and other financial institutions) are protected by the law with respect to their cooperation with law enforcement entities. In addition, the Act requires financial institutions to retain information on new accounts and transactions for seven years. In September 2003, legislation was adopted that extends anti-money laundering compliance requirements to credit unions, money remitters and pawnbrokers, as well as strengthens criminal penalties for money laundering.
Many of the 1993 Proceeds of Crime Act provisions are superseded by the 1999 Money Laundering (Prevention) Act (MLPA), which criminalizes the laundering of proceeds with respect to 15 predicate offenses, including abduction, blackmail, counterfeiting, extortion, firearms and narcotics trafficking, forgery, corruption, fraud, prostitution, trafficking in persons, tax evasion, terrorism, gambling and robbery. The MLPA mandates suspicious transaction reporting requirements and imposes record keeping requirements. In addition, the MLPA imposes a duty on financial institutions to take reasonable measures to establish the identity of customers, and requires accounts to be maintained in the true name of the holder. It also requires an institution to take reasonable measures to identify the underlying beneficial owner when an agent, trustee or nominee operates an account. These obligations apply to domestic and offshore financial institutions, including credit unions, trust companies, and insurance companies. In April 2000, the Financial Services Supervision Unit issued detailed guidance notes, entitled "Minimum Due Diligence Checks, to be conducted by Registered Agents and Trustees." Currently steps are being taken to implement legislation to regulate money remitters.
The Financial Intelligence Authority Act No. 17 of 2002 authorizes the establishment of St. Lucia's financial intelligence unit (FIU), which became operational in October 2003. Pursuant to legislation passed in September 2003, the Money Laundering (Prevention) Authority, which had previously been responsible for monitoring compliance with the anti-money laundering provisions of the MLPA, was merged with the FIU. The FIU is responsible for receiving, analyzing and disseminating suspicious transaction reports (STRs) from obligated financial institutions, and has regulatory authority to monitor compliance with anti-money laundering requirements. The FIU is also able to compel the production of information necessary to investigate possible offenses under the 1993 Proceeds of Crime Act and the MLPA. Failure to provide information to the FIU is a crime, punishable by a fine or up to ten years imprisonment. The Financial Intelligence Authority Act permits the sharing of information obtained by the FIU with foreign FIUs. The FIU has access to relevant records and databases of all St. Lucian government entities and financial institutions. However, no formal agreement exists for sharing information domestically and with other FIUs.
In 2006, the FIU received 27 STRs. There are no recorded cases of money laundering within St. Lucia's banking sector for 2006. However, there has been an increase in bank fraud, such as counterfeit U.S. checks and identity theft.
Customs laws criminalize cash smuggling, and customs officials are aware of cash courier problems. Cash smuggling reports are shared with the FIU, Police, Director of Public Prosecutions and the Attorney General.
Under current legislation, instruments of crime, such as conveyances, farms, and bank accounts, can be seized by the FIU. Substitute assets can also be seized. The legislation also applies to legitimate businesses if used to launder drug money, support terrorist activity, or are otherwise used in a crime. There is no legislation for civil forfeiture or sharing of seized narcotics assets. If the individual or business is not charged, then assets must be released within seven days. Approximately $100,000 of nonterrorist related assets were frozen in 2006.
The GOSL has not criminalized the financing of terrorism. However, St. Lucia circulates lists to financial institutions of terrorists and terrorist organizations on the UN 1267 Sanctions Committee's consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O 13224. The Government of St. Lucia has the legislative power to freeze, seize and forfeit terrorist finance related assets. To date, no accounts associated with terrorists or terrorist entities have been found in St. Lucia. The GOSL has not taken any specific initiatives focused on the misuse of charitable and nonprofit entities.
The GOSL has been cooperative with the USG in financial crime investigations. In February 2000, St. Lucia and the United States brought into force a Mutual Legal Assistance Treaty. St. Lucia also has a Tax Information Exchange Agreement with the United States.
St. Lucia is a member of the Caribbean Financial Action Task Force (CFATF) and the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. The FIU is not yet a member of the Egmont Group. St. Lucia is a party to the 1988 UN Drug Convention and has signed, but has not yet ratified, the UN Convention against Transnational Organized Crime and the Inter-American Convention against Terrorism. The GOSL has not signed the UN International Convention for the Suppression of the Financing of Terrorism or the UN Convention against Corruption.
The Government of St. Lucia should become a party to the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. In order to meet international standards, St. Lucia should criminalize the financing of terrorism. The GOSL should continue to enhance and implement its money laundering legislation and programs, including adopting civil forfeiture legislation and ensuring that its FIU meets the Egmont Group membership requirements. The rapid expansion of the island's offshore financial services sector should be counterbalanced by efforts that increase transparency. The GOSL also needs to improve their record of investigating, prosecuting and sentencing money launderers and those involved in other financial crimes.
St. Vincent and the Grenadines
As a result of their status as a transit point for illicit narcotics and its growing offshore sector, St. Vincent and the Grenadines (SVG) are vulnerable to money laundering and other financial crimes. Money laundering is most often associated with the production and trafficking of marijuana in SVG, as well as the trafficking of other narcotics from South America. The illicit narcotics proceeds are laundered through various financial institutions, including banks (both domestic and offshore), money remitters, cash couriers and casinos. Over the past year, there has been an increase in fraud and the use of counterfeit instruments, such as tendering counterfeit checks or cash.
The domestic sector is comprised of two commercial banks, a development bank, two savings and loan banks, a building society, 16 insurance companies, 10 credit unions and two money remitters. The offshore sector includes 6 offshore banks; 7,655 international business corporations (IBCs), an increase of more than 1,000 IBCs since 2005; 16 offshore insurance companies; 39 mutual funds; 33 registered agents; and 126 international trusts. No physical presence is required for offshore financial institutions and businesses. Nominee directors are not mandatory except when an IBC is formed to carry out banking business. Bearer shares are permitted for IBCs but not for banks. There are no free trade zones in SVG. There are no offshore casinos, and no internet gaming licenses have been issued. The Government of St. Vincent and the Grenadines (GOSVG) eliminated its economic citizenship program in 2001.
The Eastern Caribbean Central Bank (ECCB) supervises SVG's domestic banks. The International Banks (Amendment) Act 2002 provides the ECCB with the authority to review and make recommendations regarding the approval of offshore bank licenses. The International Financial Services Authority (IFSA) regulates the international financial sector and oversees the process of licensing and supervision of the sector, which includes conducting on-site inspections to evaluate the financial soundness and anti-money laundering programs of offshore banks.
The International Banks (Amendment) Act of October 2000 provides the GOSVG with access to the name or title of a customer account and any other confidential information about the customer that is in the possession of a licensee. In 2002, the International Business Companies Amendment Act No. 26 of 2002 was enacted to immobilize and register bearer shares. The Exchange of Information Act No. 29 of 2002 authorizes and facilitates the exchange of information, particularly among regulatory bodies.
The Proceeds of Crime and Money Laundering (Prevention) Act 2001 criminalizes money laundering, and requires financial institutions and other regulated businesses to report suspicious transactions. Customers are required to complete a source of funds declaration for any cash transaction over $10,000 ECD (approximately $3,800). However, it is not mandatory to report other noncash transactions exceeding $10,000 ECD. The Proceeds of Crime (Money Laundering) Regulations were published in January 2002 and establish mandatory record keeping rules and limited customer identification requirements. Financial institutions are required to maintain all records relating to transactions for a minimum of seven years.
The Financial Intelligence Unit Act No. 38 of 2001 (FIU Act) establishes the financial intelligence unit (FIU). Operational as of 2002, the FIU investigates and prosecutes money laundering cases. As of November 2006, the FIU had received 97 suspicious transaction reports (STRs) for the year and almost 600 STRs since its inception. The FIU is also the main body that supervises the compliance of financial and nonfinancial institutions with anti-money laundering and counterterrorist financing laws and regulations. The FIU conducts anti-money laundering and counterterrorist financing awareness training to educate these entities of the legal reporting requirements. Reporting entities are protected by law if fully cooperative with the FIU. There were five money laundering cases pending in 2005. Two of these cases resulted in convictions in 2006.
The FIU Act, as amended, permits the sharing of information at the investigative or intelligence stage, but the FIU does not have direct access to the records or databases of other government agencies. The FIU Act allows for the exchange of information with other FIUs. An updated extradition treaty and a Mutual Legal Assistance Treaty (MLAT) between the United States and the GOSVG entered into force in September 1999. The FIU executes the MLAT requests. In 2003, the GOSVG reintroduced a customs declaration form to be completed by incoming travelers. Incoming travelers are required to declare currency over $10,000 ECD (approximately $3,800).
Existing anti-money laundering legislation allows for the forfeiting of intangible and tangible property. Drug trafficking offenses may also be liable to forfeiture pursuant to the Drug (Prevention and Misuse) Act and the Criminal Code. There is no period of time during which the assets must be released. Frozen assets are confiscated by the FIU upon conviction of the defendant. Proceeds from asset seizures and forfeitures are placed by the FIU into the Confiscated Assets Fund established by the Proceeds of Crime and Money Laundering (Prevention) Act. Legitimate businesses can also be seized if used to launder drug money, support terrorist activity, or are otherwise used in a crime. At this time, only criminal forfeiture is permitted; however, a civil forfeiture bill is currently being debated. In 2006 the GOSVG froze or seized approximately 666,693 ECD (approximately $251,600) in assets. Of this amount, approximately 51,000 ECD ($19,200) worth of assets were forfeited.
The GOSVG enacted the United Nations Terrorism Measures Act in 2002. In July 2006, parliament enacted amendments to the Act and the FIU Act to ensure compliance with international standards and require financial institutions to report suspicious activity related to the financing of terrorism to the FIU. The GOSVG circulates lists of terrorists and terrorist entities to all financial institutions in SVG. To date, no accounts associated with terrorists have been found. The GOSVG has not undertaken any specific initiatives focused on the misuse of charitable and nonprofit entities.
The GOSVG is a member of the Caribbean Financial Action Task Force (CFATF) and the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. The FIU became a member of the Egmont Group in 2003. The GOSVG is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. The GOSVG has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and the Inter-American Convention against Terrorism. The GOSVG has not signed the UN Convention against Corruption.
The GOSVG has strengthened its anti-money laundering regime through legislation and the establishment of an effective FIU. The GOSVG should insist that the beneficial owners of IBCs are known and listed in a registry available to law enforcement; immobilize all bearer shares; and properly supervise and regulate all aspects of its offshore sector. The GOSVG should continue to provide training to its regulatory, law enforcement, and FIU personnel in money laundering operations and investigations. The GOSVG should pass civil forfeiture legislation and consider the utility of special investigative techniques.
Switzerland is a major international financial center, with some 338 banks and a large number of nonbank financial intermediaries. Authorities suspect that Switzerland is vulnerable at the layering and integration stages of the money laundering process. Switzerland's central geographic location, relative political, social, and monetary stability, wide range and sophistication of available financial services, and long tradition of bank secrecy-first codified in 1934-are all factors that make Switzerland a major international financial center. These same factors also make Switzerland attractive to potential money launderers. However, Swiss authorities are aware of these issues and are sensitive to the importance of financial services to the Swiss economy. Total assets and liabilities in Swiss banking institutions were over 2.4 trillion Swiss francs ($1.8 trillion) in 2004, with foreigners accounting for over half of this figure. By comparison, Switzerland's GDP in 2004 was approximately $250 billion.
Reporting indicates that criminals attempt to launder proceeds in Switzerland from a wide range of illegal activities conducted worldwide, particularly financial crimes, narcotics trafficking, arms trafficking, organized crime, terrorism financing, and corruption. Although both Swiss and foreign individuals or entities conduct money laundering activities in Switzerland, narcotics-related money laundering operations are largely controlled by foreign narcotics trafficking organizations, often from the Balkans or Eastern Europe. Some of the money generated by Albanian narcotics trafficking rings in Switzerland has been funneled to armed Albanian extremists in the Balkans.
Swiss bank accounts also frequently figure in investigations of fraud and corruption of government officials and leaders, most often from foreign countries. Due to the large amount of foreign asset management within Switzerland, the likelihood of illicit funds being held in Switzerland is relatively high, despite measures taken to combat this phenomenon. Recent examples of public figures that have been the subject of money laundering allegations or investigations include a former President of Kyrgyzstan, a former Russian Minister of Atomic Energy, and the family of the Nigerian dictator Sani Abacha in connection with the funds (approximately$748 million) that Abacha had hidden in Swiss banks between 1993 and 1998. In June 2005, the former Swiss Ambassador to Luxembourg was sentenced to three and a half years in jail for money laundering and other crimes.
The Financial Action Task Force (FATF) conducted a mutual evaluation of Switzerland's anti-money laundering and counterterrorist financing regime in 2005. The mutual evaluation report (MER) concluded that Switzerland was at least partially compliant in most areas. However, the evaluators found Switzerland's anti-money laundering regime to be less than compliant with respect to correspondent banking and cash couriers.
Money laundering has been a criminal offense in Switzerland since 1998, when the Federal Act on the Prevention of Money Laundering in the Financial Sector (MLA) entered into effect. Swiss law, however, currently does not recognize certain types of criminal offenses as part of the eighty "serious crimes" that serve as predicate offenses for money laundering, including illegal trafficking in migrants, counterfeiting and pirating of products, smuggling, insider trading, and market manipulation. The adoption of anti-money laundering (AML) regulations planned for 2007 will make these crimes predicate offenses. Fiscal offenses do not constitute "serious crimes," so they are not considered to be predicate offenses.
Switzerland has significant AML legislation in place, subjecting banks and other financial intermediaries to strict know-your-customer (KYC) and reporting requirements, including the requirement to identify the beneficial owner of accounts. Negligence in this area is punishable under Swiss law. Switzerland has also implemented legislation for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets. Legislation that aligns the Swiss supervisory arrangements with the Basel Committee's "Core Principles for Effective Banking Supervision" is contained in the Swiss Money Laundering Act.
Swiss money laundering laws and regulations apply to both banks and nonbank financial institutions. The Federal Banking Commission (FBC), the Federal Office of Private Insurance, and the Swiss Federal Gaming Board serve as the primary oversight authorities for a number of financial intermediaries, including banks, securities dealers, insurance institutions, and casinos. Other financial intermediaries are required to either come under the direct supervision of the Money Laundering Control Authority (MLCA) of the Federal Finance Department or join an accredited self-regulatory organization (SRO). SROs are nongovernmental self-regulating organizations authorized by the Swiss government to oversee implementation of AML measures by their members. SROs must be independent of the management of the intermediaries they supervise and must enforce compliance with due diligence obligations. Noncompliance can result in a fine or a revoked license. About 6,000 financial intermediaries are associated with SROs; the majority of these are financial management companies.
The Swiss Bankers Association (SBA) had employed customer due diligence (CDD) provisions as part of the industry standard in its Code of Conduct prior to any anti-money laundering legislation. The Code of Conduct was implemented by the SBA and enforced by the FBC, the supervisory authority over the banks. The FBC later implemented a "Policy on Prevention and Fight Against Money Laundering," establishing guidelines for the banking industry to employ in fighting money laundering. With the MLA, the Code of Conduct, CDD provisions and money laundering policy were extended to the entire financial sector. The Swiss Federal Banking Commission's AML regulations were revised in 2002 and became effective in 2003. These regulations, aimed at the banking and securities industries, codify a risk-based approach to suspicious transaction and client identification and install a global know-your-customer risk management program for all banks, including those with branches and subsidiaries abroad. In the case of higher-risk business relationships, additional investigation by the financial intermediary is required. The regulations require increased due diligence in the cases of politically exposed persons by ensuring that decisions to commence relationships with such persons be undertaken by at least one member of the senior executive body of a firm. All provisions apply to correspondent banking relationships as well. Swiss banks may not maintain business relationships with shell banks (banks with no physical presence at their place of incorporation), but there is no requirement that banks ensure that foreign clients do not authorize shell banks to access their accounts in Swiss banks.
The 2002 Banking Commission regulations mandate that all cross-border wire transfers must contain identifying details about the funds' remitters, though banks and other covered entities may omit such information for "legitimate reasons." The Federal Banking Commission has said that there are no plans at the moment to follow EU regulations aimed at registering names, addresses, and account numbers of those making even small money transfers between EU member states.
In July 2003, the government-sponsored Zimmerli Commission, tasked by the Department of Finance with examining reform of finance market regulators, presented 46 recommendations. Among the most far-reaching of these was the recommendation to merge the Federal Banking Commission and the Federal Office for Private Insurance-the institutions supervising the banking and insurance sectors-into a single, integrated financial market supervision body, to be called FINMA. In November 2004, the Cabinet instructed the Department of Finance to draft a parliamentary bill providing for the establishment of FINMA. Under the Cabinet's proposal, MLCA would also be included within FINMA. The draft bill is expected to be adopted by Parliament during the 2007 winter session, and enforced 12-18 months later, possibly by the end of 2008.
Switzerland's banking industry offers the same account services for both residents and nonresidents. Banks offer certain well-regulated offshore services, including permitting nonresidents to form offshore companies to conduct business, which can be used for tax reduction purposes. Pursuant to an agreement signed by the EU and Switzerland in 2004, EU residents have tax withheld on interest payments from savings accounts. This measure, enacted in concert with the EU's Savings Directive (2003/48/EC), was implemented on July 1, 2005, and may reduce the use of Swiss bank accounts by EU residents.
Swiss commercial law does not recognize any offshore mechanism per se and its provisions apply equally to residents and nonresidents. The stock company and the limited liability company are two standard forms of incorporation offered by Swiss commercial law. The financial intermediary is required to verify the identity of the beneficial owner of the stock company and must also be informed of any change regarding the beneficial owner. Bearer shares may be issued by stock companies but not by limited liability companies.
Switzerland has duty free zones. The customs authorities supervise the admission into and the removal of goods from customs warehouses. Warehoused goods may only undergo manipulations necessary for their maintenance, such as repacking, splitting, sorting, mixing, sampling and removal of the external packaging. Any further manipulation is subject to authorization. Goods may not be manufactured in the duty free zones. Swiss law has full force in the duty free zones; for example, export laws on strategic goods, war material, and medicinal products, as well as laws relating to anti-money laundering prohibitions, all apply. In view of the fact that customs authorities may and frequently do enter any customs warehouse area they choose, they believe they would be aware of the nature of any "value added" activity taking place in duty free zones.
Switzerland ranks fifth in the highly profitable artwork trading market, exporting $686 million worth of artwork worldwide in 2004. The Swiss market offers opportunities for organized crime to transfer stolen art or to use art to launder criminal funds. The United States is Switzerland's most important trading partner in this area, having purchased $253 million worth of art from Swiss sources in 2004. The 2003 Cultural Property Transfer Act, implemented in 2005, codifies in Swiss law elements of the 1970 United Nations Educational, Scientific, and Cultural Organization (UNESCO) Convention. This measure increases from five to thirty years the time period during which stolen pieces of art may be confiscated from those who purchased them in good faith. The law also allows police forces to search bonded warehouses and art galleries.
In January 2005, the Federal Council submitted a proposal for revisions based on the amended FATF Recommendations; the Federal Council revised this proposal in September. The October FATF mutual evaluation followed, and identified areas for improvement. In September 2006, the Federal Council instructed the Federal Department of Finance (FDF) to submit two papers addressing the FATF's proposal for improvements in the Swiss system; the proposal is designed to keep Swiss money laundering legislation current in the face of new challenges posed by international financial crime and to allow Swiss legislation to more thoroughly conform to international standards. The first paper, released at the end of 2006, addressed the proposal for revision of insider criminal law provisions on an accelerated basis. The second, due in mid-2007, will address other points from the FATF proposal. These points include: the creation of new predicate offenses for money laundering; the extension of the MLA to terrorist financing; the introduction of the obligation to report, if money laundering is suspected, that which prevents the establishment of a business relationship; and better legal protections against reprisals for financial intermediaries who report suspected money laundering. The paper also seeks to add some measures, including the introduction of an information system on cross-border transportation of currency valued in excess of CHF 25,000 ($20,500); the obligation to verify identification for financial intermediaries of representatives of legal entities; the obligation for the financial intermediary to establish the purpose and nature of the business relationship desired by the customer; and unlimited extension of the ban on tipping-off.
Established in 1998 by the MLA, the Money Laundering Reporting Office Switzerland (MROS) is Switzerland's financial intelligence unit (FIU), charged with receiving, processing and disseminating suspicious transaction reports (STRs). Although it is located in the Federal Office of Police, MROS is an administrative unit and does not have any investigative powers of its own, nor can it obtain additional information from reporting entities after receiving a STR. Under the MLA, MROS has five working days to process reports. In 2005, MROS received 729 reports involving approximately $536 million, an 11.2 per cent decrease in the number of reports compared to 2004. Whereas the decline in the number of reports in 2004 was mainly in the category of money transmitters, the decrease in 2005 was evident in nearly all categories of regulated entities. Unlike in the period 2002-2004, in 2005 the number of STRs filed by banks decreased.
Under the 2002 Efficiency Bill, the Swiss Attorney General is vested with the power to prosecute crimes addressed by Article 340bis of the Swiss Penal Code, which also covers money laundering offenses. In the past, the individual cantons (administrative components of the Swiss Confederation) were charged with investigating money laundering offenses. Additional legislation, effective January 1, 2002, increased the effectiveness of the prosecution of organized crime, money laundering, corruption, and other white-collar crime, by increasing the personnel and financing of the criminal police section of the federal police office. The law confers on the federal police and Attorney General's Office the authority to take over cases that have international dimensions, involve several cantons, or which deal with money laundering, organized crime, corruption, or white collar crime.
If financial institutions determine that assets were derived from criminal activity, the assets must be frozen immediately until a prosecutor decides on further action. Examining magistrates may order accounts to be frozen. Under Swiss law, suspect assets may be frozen for five days while a prosecutor investigates the suspicious activity. Since the MLA entered into force, CHF 423m ($348 million) have been frozen. Articles 58-60 of the Criminal Code outline measures relation to the confiscation of illicitly-obtained assets. Switzerland cooperates with the United States to trace and seize assets, and has shared a large amount of funds seized with the U.S. Government (USG) and other governments. The Government of Switzerland has worked closely with the USG on numerous money laundering cases.
Revisions to the Swiss Penal Code regarding terrorist financing entered into force on October 1, 2003. Article 260quinquies of the Penal Code provides for a maximum sentence of five years' imprisonment for terrorist financing. Article 100quater of the Penal Code, also added in 2003, extends criminal liability for terrorist financing to include companies. The FATF 2005 mutual evaluation team found Switzerland to be "largely compliant" with FATF Special Recommendation II regarding the criminalization of terrorist financing. The FATF team noted, however, that the Swiss Penal Code criminalizes the financing of an act of criminal violence but not the financing of an individual, independent of a particular act.
Since September 11, 2001, Swiss authorities have been alerting Swiss banks and nonbank financial intermediaries to check their records and accounts against lists of persons and entities with links to terrorism. The accounts of these individuals and entities are to be reported to the Ministry of Justice as suspicious transactions. Based on the "state security" clause of the Swiss Constitution, the authorities have ordered banks and other financial institutions to freeze the assets of suspected terrorists and terrorist organizations on the United Nations Security Council Resolution 1267 Sanctions Committee's consolidated list.
Along with the U.S. and UN lists, the Swiss Economic and Finance Ministries have drawn up their own list of approximately 44 individuals and entities connected with international terrorism or its financing. Swiss authorities have thus far blocked about 82 accounts totaling $25 million from individuals or companies linked to Usama Bin Laden and al-Qaida under relevant UN resolutions. Switzerland has also participated in joint task forces targeting the financing of al-Qaida cells. The Swiss Attorney General also separately froze 41 accounts representing approximately $25 million on the grounds that they were related to terrorism financing, but the extent to which these funds overlap with the UN consolidated list is not clear.
MROS received 20 STRs relating to terrorist financing in 2005; the aggregate sum of money associated with these reports was 46 million Swiss francs (approximately$58 million). This represents an increase over the 11 reports related to terrorist financing submitted in 2004; these 11 reports involved a total of 900,000 Swiss francs (approximately $700,000). The higher number of reports in 2005 can be explained by the fact that several reports involved the same people or families and that one report alone involved 28.5 million Swiss francs (approximately $36 million). With the exception of 2 cases, MROS forwarded all the reports to the respective law enforcement agencies, which, in 6 of the 18 cases, did not investigate further.
Switzerland has ratified the Council of Europe's Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime and is a party to the UN International Convention for the Suppression of the Financing of Terrorism. Switzerland ratified the 1988 UN Drug Convention on September 14, 2005, and the UN Convention against Transnational Organized Crime on October 27, 2006. Switzerland has signed, but not yet ratified, the UN Convention against Corruption and the International Convention for the Suppression of Acts of Nuclear Terrorism.
Swiss authorities cooperate with counterpart bodies from other countries. Switzerland has a mutual legal assistance treaty in place with the United States, and Swiss law allows authorities to furnish information to U.S. regulatory agencies, provided it is kept confidential and used for law enforcement purposes. Switzerland has been a member of FATF since its inception, and helped to shape the CDD and identification standards that the FATF adopted. Switzerland is also actively involved with the Basel Committee on Banking Supervision, establishing through it in 1988 the first international code of conduct for banks to prevent abuse of the industry by money laundering. MROS is a member of the Egmont Group. Swiss legislation permits "spontaneous transmittal," a process allowing the Swiss investigating magistrate to signal to foreign law enforcement authorities the existence of evidence in Switzerland. The Swiss used this provision in 2001 to signal Peru that they had uncovered accounts linked to former Peruvian presidential advisor Vladimiro Montesinos. However, on the principles of dual criminality, Switzerland has no legal basis to grant mutual legal assistance to foreign states where money laundering is based on fiscal offenses, because these do not serve as predicate offenses for money laundering in Switzerland.
The Government of Switzerland has stated that it hopes to correct the country's image as a haven for illicit banking services and works to improve its oversight on the banking and financial service sectors . The Swiss believe that their system of self-regulation, which incorporates a "culture of cooperation" between regulators and banks, equals or outperforms that of other countries. The primary orientation of the Swiss system is the aversion of risk at the account-opening phase, where due diligence and know-your-customer procedures address the issues, rather than relying on an early-warning system on all filed transactions. The Swiss Government believes that because of the due diligence approach the Swiss have taken, there are fewer STRs filed than in some other countries. At the same time, in 2005 MROS forwarded 69 percent of the STRs to law enforcement for further investigation.
While generally positive, Switzerland's recent FATF mutual evaluation report nonetheless identified weaknesses in the Swiss anti-money laundering and counterterrorist financing regime, including problems with correspondent banking, identification of beneficial owners, and the cross-border transportation of currency. The Government of Switzerland should continue to improve on its regime by enacting the revisions developed in response to the FATF mutual evaluation. Switzerland should also continue to work toward full implementation of existing laws and regulations and should ratify the UN Convention against Corruption.
Syria is not an important regional or offshore financial center, due primarily to its still under-developed private banking sector and the fact that the Syrian pound is not a fully convertible currency. However, there continue to be significant money laundering and terrorism financing vulnerabilities in Syria's financial and nonbank financial sectors that have not been addressed by necessary legislation or other government action. In addition, Syria's black market moneychangers are not adequately regulated, and the country's borders remain porous. Regional hawala networks are intertwined with smuggling and trade-based money laundering and raise significant concerns, including involvement in the finance of terrorism. Most of the indigenous money laundering threat involves Syria's political and business elite, whose corruption and extra-legal activities represent the biggest obstacle to Syria fully choking off money laundering and terrorist financing activities. Syria is ranked 97 out of 163 countries on Transparency International's 2006 Corruption Perception Index. The U.S. Department of State has designated Syria as a State Sponsor of Terrorism.
Syria's free trade zones also may provide an easy entry or transit point for the proceeds of criminal activities. There are seven free zones in Syria, serviced mostly by subsidiaries of Lebanese banks, including BLOM Bank, BEMO (Banque Europeenne Pour le Moyen-Orient Sal), and BBAC (Bank of Beirut and Arab Countries), with four additional public free zones scheduled to begin operation in 2007, including in Homs, Dayr al Zu, the Port of Tartous, and al-Hasakeh near the northeastern segment of the Syrian-Iraqi border.
An Iranian free trade zone is to be co-located within the Homs free trade zone, and a Chinese free trade zone will shortly be operating within the Adra free trade zone. In May 2005 the first private free zone was licensed to be established in al-Kesweh, a Damascus areas suburb, but has not started operations. The volume of goods entering the free zones is estimated to be in the billions of dollars and is growing, especially with the increasing demand for automobiles and automotive parts, which enter the zones free of customs tariffs before being imported into Syria. While all industries and financial institutions in the free zones must be registered with the General Organization for Free Zones, which is part of the Ministry of Economy and Trade, the Syrian General Directorate of Customs continues to lack strong procedures to check country of origin certification or the resources to adequately monitor goods that enter Syria through the zones. There are also continuing reports of Syrians using the free zones to import arms and other goods into Syria in violation of USG sanctions under the Syrian Accountability and Lebanese Sovereignty Act.
The banking sector is dominated by the Commercial Bank of Syria (CBS), which holds approximately 75 percent of all deposits and controls most of the country's foreign currency reserves. With growing competition from the private banks, the CBS and the country's four other specialized public banks-the Agricultural Cooperative Bank, the Industrial Bank, the Real Estate Bank, and the People's Credit Bank-have been preparing a broader range of retail services and more competitive interest rates.
However, these banks still primarily focus on financing Syria's ill-performing public enterprises. In April 2006 the U.S. Department of Treasury issued a final ruling that imposes a special measure against the CBS, along with its subsidiary, the Syrian Lebanese Commercial Bank, as a financial institution of "primary money laundering concern," pursuant to Section 311 of the USA PATRIOT Act, due to information that the CBS has been used by terrorists or persons associated with terrorist organizations, as a conduit for the laundering of proceeds generated from the illicit sale of Iraqi oil, and continued concerns that the CBS is exploited by criminal enterprises.
The Syrian Arab Republic Government (SARG) began taking steps to develop a private banking sector in April 2001, with Law No. 28, which legalized private banking, and Law No. 29, which established rules on bank secrecy. Bank of Syria and Overseas, a subsidiary of Lebanon's BLOM Bank, was the first private bank to open in Syria in January 2004. There are now seven private banks, including Banque BEMO Saudi Fransi, the International Bank for Trade and Finance, Bank Audi, Arab Bank, Byblos Bank, and Syria Gulf Bank. The sector's total capitalization is more than approximately $300 million, reported an approximate 95 percent in growth in 2006 in their deposit accounts, and are playing an increasing role in providing the business sector with foreign currency to finance imports and as a source of credit for businesses and individuals. However, the sector's development is hampered by the continuing lack of human capacity in the finance sector, regulations that limit Syrian banks' ability to make money on their liquidity, and restrictions on foreign currency transactions. A new law was enacted in May 2005 that allows for the establishment of Islamic banks, and three have already obtained licenses, including the Syrian International Islamic Bank, the Al-Sham Islamic Bank, and the Al-Baraka Bank. While these Islamic banks are expected to begin operations by early 2007, they potentially face problems because of the lack of an adequate regulatory and auditing structure in Syria's finance sector.
Legislation approved in the last few years provides the Central Bank of Syria with new authority to oversee the banking sector and investigate financial crimes. The SARG passed Decree 59 in September 2003 to criminalize money laundering and create an Anti-Money Laundering Commission (Commission), which was established in May 2004. In response to international pressure to improve its anti-money laundering and counterterrorism financing (AML/CTF) regulations, the SARG passed Decree 33 in May 2005, which strengthens the Commission and empowers it to act as a Financial Intelligence Unit (FIU). The Decree finalized the Commission's composition to include the Governor of the Central Bank, a Supreme Court Judge, the Deputy Minister of Finance, the Deputy Governor for Banking Affairs, the SARG's Legal Advisor, and will include the Chairman of the Syrian Stock Market once the Market is operational.
Under Decree 33, all banks and nonfinancial institutions are required to file Suspicious Activity Reports (SARs) with the Commission for transactions over $10,000, as well as suspicious transactions regardless of amount. They are also required to use "know your customer" (KYC) procedures to follow up on their customers every three years and maintain records on closed accounts for five years. The chairmen of Syria's private banks continue to report that they are employing internationally recognized KYC procedures to screen transactions and also employ their own investigators to check suspicious accounts. Nonbank financial institutions must also file SARs with the Commission, but many of them continue to be unfamiliar with the requirements of the law. The Commission has organized workshops for these institutions over the past year, but more time is needed for the information to penetrate the market.
Once a SAR has been filed, the Commission has the authority to conduct an investigation, waive bank secrecy on specific accounts to gather additional information, share information with the police and judicial authorities, and direct the police to carry out a criminal investigation. In addition, Decree 33 empowers the Governor of the Central Bank, who is the chairman of the Commission, to share information and sign Memoranda of Understanding (MOUs) with foreign FIUs. In November 2005, the Prime Minister announced that the Commission had completed an internal reorganization, creating four specialized units to: oversee financial investigations; share information with other SARG entities including customs, police and the judiciary; produce AML/CTF guidelines and verify their implementation; and develop a financial crimes database.
Decree 33 provides the Commission with a relatively broad definition of what constitutes a crime of money laundering, but one that does not fully meet international standards. The definition includes acts that attempt to conceal the proceeds of criminal activities, the act of knowingly helping a criminal launder funds, and the possession of money or property that resulted from the laundering of criminal proceeds. In addition, the law specifically lists thirteen crimes that are covered under the AML legislation, including narcotics offenses, fraud, and the theft of material for weapons of mass destruction. It is unclear whether terrorist financing is a predicate offense for money laundering or otherwise punishable under Decree 33.
While a SAR is being investigated, the Commission can freeze accounts of suspected money launderers for a nonrenewable period of up to eighteen days. The law also stipulates the sanctions for convicted money launderers, including a three to six-year jail sentence and a fine that is equal to or double the amount of money laundered. Further, the law allows the SARG to confiscate the money and assets of the convicted money launderer. The Commission circulates among its private and public banks the names of suspected terrorists and terrorist organizations listed on the UNSCR 1267 Sanction Committee's consolidated list, and it has taken action to freeze the assets of designated individuals, including freezing the assets of one Syrian individual listed on the 1267 list in 2006.
In the first 11 months of 2006, the Commission reported 162 suspicious transactions cases, 24 from banks, up from approximately 90 cases in 2005. The Commission has investigated and sent approximately 5 cases from 2005 and 33 cases in 2006 to the court system; however, all of these cases are still pending and there have not yet been arrests or convictions. Most Syrian judges are not yet familiar with the evidentiary requirements of the law. Furthermore, the slow pace of the Syrian legal system and political sensitivities are delaying quick adjudication of these issues. The Commission itself continues to be seriously hampered by human resource constraints, although it has increased its staff from six in 2005 to ten in 2006, and hopes to expand to 30 by the end of 2007. The Commission has also organized multiple training sessions, including with the World Bank, over the course of 2006, in Syria and abroad, on issues of AML/CTF detection. A small number of customs officials attended these sessions. However, the lack of expertise on AML/CTF issues, further undermined by a lack of political will, continues to impede effective implementation of existing AML/CTF regulations.
Although Decree 33 provides the Central Bank with a foundation to combat money laundering, most Syrians still do not maintain bank accounts or use checks, credit cards, or ATM machines. The Syrian economy remains primarily cash-based, and Syrians use moneychangers, some of whom also act as hawaladars, for many financial transactions. Estimates of the volume of business conducted in the black market by Syrian moneychangers range between $15-70 million a day. Even the SARG admits that it does not have visibility into the amount of money that currently is in circulation. The SARG has begun issuing new regulations to entice people to use the banking sector, including offering high interest certificates of deposit and allowing Syrians to access more foreign currency from banks when they are traveling abroad. The SARG also passed a Moneychangers Law in 2006 to try to regulate the sector, requiring moneychangers to receive a license. However, it is unlikely that black market currency transactions will enter the formal sector because the SARG has still not offered adequate incentives; there is a 25 percent tax on these transactions, inadequate enforcement mechanisms, and continuing restrictions on foreign currency transfers. The Commission does have the authority to monitor the sector under Decree 33, but it reports that as moneychangers have until the end of 2006 to license their operations, they have not yet begun investigating these operations. The hawaladars in Syria's black market remain a source of concern for money laundering and terrorist financing.
The SARG has not updated its laws regarding charitable organizations to include strong AML/CTF language. A promised updated draft law is still pending. The SARG decided at the end of 2004 to restrict charitable organizations to only distributing nonfinancial assistance, but the current laws do not require organizations to submit detailed financial information or information on their donors. While the Commission says that it is seeking to increase cooperation with the Ministry of Social Affairs and Labor, which is supposed to approve all charitable transactions, to-date this remains a largely unregulated area.
While the SARG maintains strict controls on the amount of money that individuals can take with them out of the country, there is a high incidence of cash smuggling across the Lebanese, Iraqi, and Jordanian borders. Most of the smuggling involves the Syrian pound, as a market for Syrian currency exists among expatriate workers and tourists in Lebanon, Jordan, and the Gulf countries. U.S. dollars are also commonly smuggled in the region. Some of the smuggling may involve the proceeds of narcotics and other criminal activity. In addition to cash smuggling, there also is a high rate of commodity smuggling out of Syria, particularly of diesel fuel, prompted by individuals buying diesel domestically at the low subsidized rate and selling it for much higher prices in neighboring countries. There are reports that some smuggling is occurring with the knowledge of or perhaps even under the authority of the Syrian security services.
The General Directorate of Customs lacks the necessary staff and financial resources to effectively handle the problem of smuggling. And while it is has started to enact some limited reforms, including the computerization of border outposts and government agencies, problems of information-sharing remain. Customs also announced in 2005 that it planned to develop a special office to combat AML/CTF in coordination with the Ministry of Finance and Syria's security services, but this has not yet become operational. Additionally, Customs currently lacks the infrastructure to effectively monitor or control even the legitimate movement of currency across its borders. The Commission and Customs have developed a joint form for individuals to declare currency when entering or exiting the country, but it has not yet been implemented. Additionally, once the new form is in place, it will remain a voluntary procedure. To combat corruption among customs officers, the General Directorate of Customs announced in December 2005 that it planned to ban all cash transactions at the borders, including the payment of customs duties, and will replace cash transactions with a system that utilizes pre-paid cards; however these programs have still not been realized.
Syria is one of the fourteen founding members of the Middle East and North Africa Financial Action Task Force (MENAFATF), a FATF-style regional body. In 2006, Syria underwent a mutual evaluation by its peers in MENAFATF which will be released shortly. Syria participated as an observer at the Egmont Group meeting in June 2006 and has formally applied to become a full member. Syria is a party to the 1988 UN Drug Convention. In April 2005, it became a party to the International Convention on the Suppression of the Financing of Terrorism. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.
While Syria has made some effort in 2006 to implement AML/CTF regulations that govern its formal financial sector, including ratifying a law to regulate black market currency transactions, nonbank financial institutions and the black market continue to be vulnerable to money laundering and terrorist financiers. Syria should continue to modify its AML/CTF legislation and enabling regulations so that they adhere to global standards. The General Directorate of Customs, the Central Bank, and the judicial system in particular continue to lack the resources and the political will to effectively implement AML/CTF measures. Although the SARG has stated its intention to create the technical foundation through which different government agencies could share information about financial crimes, this does not exist to date. Syria should ratify the UN Convention against Transnational Organized Crime. It should criminalize terrorist financing. In addition, it is doubtful that the SARG has the political will to punish terrorist financing, to classify what it sees as legitimate resistance groups as terrorist organizations, or to address the corruption that exists at the highest levels of government and business. All these issues remain obstacles to developing a comprehensive and effective AML/CTF regime in Syria.
Taiwan's modern financial sector and its role as a hub for international trade make it susceptible to money laundering. Its location astride international shipping lanes makes it vulnerable to transnational crimes such as narcotics trafficking and smuggling. There is a significant volume of informal financial activity through unregulated nonbank channels. Most illegal or unregulated financial activities are related to tax evasion, fraud, or intellectual- property violations. According to suspicious activity reports (SARs) filed by financial institutions on Taiwan, the predicate crimes commonly linked to SARs include financial crimes, corruption, and other general crimes.
Taiwan's anti-money laundering legislation is embodied in the Money Laundering Control Act (MLCA) of April 23, 1997, which was amended in 2003. Its major provisions include a list of predicate offenses for money laundering, customer identification and record keeping requirements, disclosure of suspicious transactions, international cooperation, and the creation of a financial intelligence unit, the Money Laundering Prevention Center (MLPC). In 2006, the Ministry of Justice began drafting another amendment to the MLCA, which would revise the scope of predicate crimes for money laundering, among other proposed changes.
The Legislative Yuan (parliament) amended the MLCA in 2003 to expand the list of predicate crimes for money laundering, widen the range of institutions subject to suspicious transaction reporting, and mandate compulsory reporting to the MLPC of significant currency transactions of over New Taiwan Dollars (TDW)1 million (approximately $30,000). Between August 2003, when the amended MLCA came into force, and May 31, 2004, the MLPC received over one million such reports on currency transactions-with 99 percent of them reported electronically. In 2005, the MLPC received 1,028,834 currency transaction reports. As a result of the 2003 MLCA amendments, the list of institutions subject to reporting requirements was expanded, to include casinos, automobile dealers, jewelers, boat and plane dealers, real estate brokers, credit cooperatives, consulting companies, insurance companies, and securities dealers, as well as traditional financial institutions.
Taiwan also set up a single financial regulator, the Financial Supervisory Commission (FSC) on July 1, 2004. The FSC consolidates the functions of regulatory monitoring for the banking, securities, futures and insurance industries, and also conducts financial examinations across these sectors. In mid-December 2005, the FSC began an incentive program for the public to provide information on financial crimes. The reward for information on a financial case with fines of TDW 10 million (approximately $300,000) or at least a one-year sentence is up to TDW 500,000 (approximately $15,000). The reward for information on a case with a fine of between TDW 2-10 million (approximately $60,000-$300,000) or less than a one-year sentence is up to TDW 200,000 (approximately $6,000).
Two new articles added to the 2003 amendments to the MLCA granted prosecutors and judges the power to freeze assets related to suspicious transactions and gave law enforcement more powers related to asset forfeiture and the sharing of confiscated assets. The proposed second amendment to the MLCA would prolong the permitted period of freezing the proceeds of money laundering from 6 months to 1 ? years. In terms of reporting requirements, financial institutions are required to identify, record, and report the identities of customers engaging in significant or suspicious transactions. There is no threshold amount specified for filing suspicious transaction reports. The time limit for reporting cash transactions of over TDW 1 million (approximately $39,000) is within five business days. Banks are barred from informing customers that a suspicious transaction report has been filed. Reports of suspicious transactions must be submitted to the MLPC within 10 business days after the transaction took place. From January to October 2006, the MLPC received 1,085 suspicious transaction reports and 443 of them resulted in prosecutions.
Institutions are also required to maintain records necessary to reconstruct significant transactions, for an adequate amount of time. Bank secrecy laws are overridden by anti-money laundering legislation, allowing the MPLC to access all relevant financial account information. Financial institutions are held responsible if they do not report suspicious transactions. In May 2004, the Ministry of Finance issued instructions requiring banks to demand two types of identification and to retain photocopies of the identification cards when bank accounts are opened upon request for a third party, in order to prove the true identity of the account holder. Individual bankers can be fined TDW 200,000-1 million ($7,800-$39,000) for not following the MLPA.
All foreign financial institutions and offshore banking units follow the same regulations as domestic financial entities. Offshore banks, international businesses, and shell companies must comply with the disclosure regulations from the Central Bank, Bureau of Monetary Affairs (CB), and MLPC. These supervisory agencies conduct background checks on applicants for banking and business licenses. Offshore casinos and internet gambling sites are illegal. According to Taiwan's Central Bank of China (CBC), from January to August 2006, Taiwan hosted 33 local branches of foreign banks, two trust and investment companies, and 67 offshore banking units.
On January 5, 2006, the Offshore Business Unit (OBU) Amendment was ratified to allow expansion of OBU operations to the same scope as Domestic Business Units (DBU). This was done to assist China-based Taiwan businesspeople in financing their offshore business operations. DBUs engaging in cross-strait financial business must follow the regulations of the "Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area" and "Regulations Governing Approval of Banks to Engage in Financial Activities between the Taiwan Area and the Mainland Area." The Competent Authority, as referred to in these Regulations, is the Ministry of Finance.
Taiwan prosecuted 688 cases involving money laundering from January to October 2006, compared with 947 cases involving financial crimes during the same period of 2005. Among the 688 cases, 631 involved unregistered stock trading, credit card theft, currency counterfeiting or fraud. Among the 57 other money laundering cases, 11 were corruption-related and one was drug-related.
Individuals are required to report currency transported into or out of Taiwan in excess of TDW 60,000 (approximately $1,850); or $10,000 in foreign currency; 20,000 Chinese renminbi; or gold worth more than $20,000. When foreign currency in excess of TDW 500,000 (approximately $15,400) is brought into or out of Taiwan, the bank customer is required to report the transfer to the Central Bank, though there is no requirement for Central Bank approval prior to the transaction. Prior approval is required, however, for exchanges between New Taiwan dollars and foreign exchange when the amount exceeds $5 million for an individual resident and $50 million for a corporate entity. Effective September 2003, the Directorate General of Customs assumed responsibility for providing the MLPC on a monthly basis with electronic records of travelers entering and exiting the country carrying any single foreign currency amounting to TDW 1.5 million (approximately $58,500). Starting August 1, 2006, those who transfer funds over TDW 30,000 at any bank in Taiwan must produce a photo ID and the bank must record the name, ID number and telephone number of the client.
The authorities on Taiwan are actively involved in countering the financing of terrorism. In 2003, a new "Counter-Terrorism Action Law" (CTAL) was drafted, although as of July 2006 it was still under review by the Legislative Yuan. The new law would explicitly designate the financing of terrorism as a major crime. Under the proposed CTAL, the National Police Administration, the MJIB, and the Coast Guard would be able to seize terrorist assets even without a criminal case in Taiwan. Also, in emergency situations, law enforcement agencies would be able to freeze assets for three days without a court order.
Assets and income obtained from terrorist-related crimes could also be permanently confiscated under the proposed CTAL, unless the assets could be identified as belonging to victims of the crimes. Taiwan officials currently have the authority to freeze and/or seize terrorist-related financial assets under the MLCA promulgated in 1996 and amended in February 2003 to cover terrorist finance activities. Under the Act, the prosecutor in a criminal case can initiate freezing assets, or without criminal charges, the freezing/seizure can be done in response to a request made under a treaty or international agreement.
The Bureau of Monetary Affairs (BOMA) has circulated to all domestic and foreign financial institutions in Taiwan the names of individuals and entities included on the UN 1267 Sanctions Committee's consolidated list. Taiwan and the United States have established procedures to exchange records concerning suspicious terrorist financial activities. After receiving financial terrorist lists from the American Institute in Taiwan, BOMA conveys the list to relevant financial institutions. Banks are required to file a report on cash remittances if the remitter/remittee is on a terrorist list. Although as noted above Taiwan does not yet have the authority to confiscate the assets, the MLCA was amended to allow the freezing of accounts suspected of being linked to terrorism.
Alternative remittance systems, or underground banks, are considered to be operating in violation of Banking Law Article 29. Authorities in Taiwan consider these entities to be unregulated financial institutions. Foreign labor employment brokers are authorized to use banks to remit income earned by foreign workers to their home countries. These remittances are not regulated or reported. Thus, money laundering regulations are not imposed on these foreign labor employment brokers. However, if the brokers accept money in Taiwan dollars for delivery overseas in another currency, they are violating Taiwan law. It is also illegal for small shops to accept money in Taiwan dollars and remit it overseas. Violators are subject to a maximum of three years in prison, and/or forfeiture of the remittance and/or a fine equal to the remittance amount.
Authorities in Taiwan do not believe that charitable and nonprofit organizations in Taiwan are being used as conduits for the financing of terrorism, and there are currently no plans to investigate such entities further for terrorist financing. Such organizations are required to register with the government. The Ministry of Interior (MOI) is in charge of overseeing foundations and charities. In 2004 and in 2006, the MOI assigned public accountants to audit the financial management of nationwide foundations.
Article 3 of Taiwan's Free Trade Zone Establishment and Management Act defines a Free Trade Zone (FTZ) as a controlled district of an international airport or an international seaport approved by the Executive Yuan. The FTZ coordination committee, formed by the Executive Yuan, has the responsibility of reviewing and examining the development policy of the FTZ; the demarcation and designation of FTZs; and inter-FTZ coordination.
There are five FTZs in Taiwan which have opened since 2004, including Taipei Free Trade Zone, Taichung Free Trade Zone, Keelung Free Trade Zone, Kaohsiung Free Trade Zone, and Taoyuan Air Cargo Free Trade Zone. These FTZs were designated with different functions, so that Keelung and Taipei FTZs focus on international logistics; Taoyuan FTZ on adding value to high value added industries; Taichung FTZ on warehousing, transshipment and processing of cargo; and Kaohsiung FTZ on mature industrial clusters. According to the Center for Economic Deregulation and Innovation (CEDI) under the Council for Economic Planning & Development, by September 2006 there were 11 shipping and logistics companies listed in the Kaohsiung Free Trade Zone, seven logistics companies in Taichung Free Trade Zone, eight logistics and shipping companies in Keelung Free Trade Zone, one logistics company in Taipei Free Trade Zone, and 46 manufacturers and enterprises in Taoyuan Air Cargo Free Trade Zone. There is no indication that FTZs in Taiwan are being used in trade-based money laundering schemes or by the financiers of terrorism. According to Article 14 of the Free Trade Establishment and Management Act, any enterprise applying to operate within an FTZ shall apply to the management authorities of the particular FTZ by submitting a business operation plan, the written operational procedures for good control, customs clearance, and accounting operations, together with relevant required documents. Financial institutions may apply to establish a branch office inside the FTZ and conduct foreign exchange business, in accordance with the Banking Law of the ROC, Securities and Exchange Law, Statute Governing Foreign Exchange, and the Central Bank of China Act.
According to Taiwan's Banking Law and Securities Trading Law, in order for a financial institution to conduct foreign currency operations, Taiwan's Central Bank must first grant approval. The financial institution must then submit an application to port authorities to establish an offshore banking unit (OBU) in the free-trade zone. No financial entity has yet applied to establish such an OBU in any of the five free trade zones. An offshore banking unit may operate a related business under the Offshore Banking Act, but cannot conduct any domestic financial, economic, or commercial transaction in New Taiwan Dollars.
Taiwan has promulgated drug-related asset seizure and forfeiture regulations which provide that in accordance with treaties or international agreements, Taiwan's Ministry of Justice shall share seized assets with foreign official agencies, private institutions or international parties that provide Taiwan with assistance in investigations or enforcement. Assets of drug traffickers, including instruments of crime and intangible property, can be seized along with legitimate businesses used to launder money. The injured parties can be compensated with seized assets. The Ministry of Justice distributes other seized assets to the prosecutor's office, police or other anti-money laundering agencies. The law does not allow for civil forfeiture. In March, 2006, Taiwan authorities announced that they had confiscated $625 million, arrested 22 men and had frozen approximately NT$1.7 billion ($438 million), in the island's largest money laundering operation, A mutual legal assistance agreement between the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) entered into force in March 2002. It provides a basis for the law enforcement agencies of the people represented by AIT and TECRO to cooperate in investigations and prosecutions for narcotics trafficking, money laundering (including the financing of terrorism), and other financial crimes.
Although Taiwan is not a UN member and cannot be a party to the 1988 UN Drug Convention, the authorities in Taiwan have passed and implemented laws in compliance with the goals and objectives of the Convention. Similarly, Taiwan cannot be a party to the UN International Convention for the Suppression of the Financing of Terrorism, as a nonmember of the United Nations, but it has agreed unilaterally to abide by its provisions. Taiwan is a founding member of the Asia/Pacific Group on Money Laundering (APG) and in 2005, was elected to the APG steering committee. The MLPC is a member of the Egmont Group of Financial Intelligence Units. The Investigation Bureau of the Ministry of Justice expanded information exchanges with various countries/jurisdictions from 17 jurisdictions in 2004 to 20 in 2005.
Over the past five years, Taiwan has created and implemented an anti-money laundering regime that comports with international standards. The MLCA amendments of 2003 address a number of vulnerabilities, especially in the area of asset forfeiture. The authorities on Taiwan should continue to strengthen the existing anti-money laundering regime as they implement the new measures. Taiwan should endeavor to pass the proposed Counter-Terrorism Action Law to better address terrorist financing issues. The authorities on Taiwan should also enact legislation regarding alternate remittance systems. Taiwan should enact legislation pending since 2003 that explicitly criminalizes the financing of terrorism.
Tanzania is not an important regional financial center. Tanzania, however, is vulnerable to money laundering. Tanzania has weaknesses in its anti-money laundering/counterterrorism financing (AML/CTF) regime, specifically in its financial institutions and law enforcement capabilities. A weak financial sector along with an under-trained, under-funded law enforcement apparatus and the lack of a functioning financial intelligence unit (FIU) make money laundering impossible to track and prosecute. Real estate and used car businesses appear to be vulnerable trade industries involved in money laundering. With little or lax regulations and enforcement, the emerging casino industry is becoming an area of concern for money laundering. Money laundering is even more likely to occur in the informal nonbank financial sector, as opposed to the formal sector, which is largely undeveloped. Front companies are used to launder funds including hawaladars and bureaux de change, especially on the island of Zanzibar, where few federal regulations apply. Officials indicate that money laundering schemes in Zanzibar generally take the form of foreign investment in the tourist industry and bulk cash smuggling. The likely sources of illicit funds are from Asia and the Middle East and, to a lesser extent, Europe. Such transactions rarely include significant amounts of U.S. currency. There are no indications that Tanzania's two free trade zones are being used in trade-based money laundering schemes or by financiers of terrorism.
The Proceeds of Crime Act of 1991 criminalizes narcotics-related money laundering; however, the Act does not adequately define money laundering. The law has been used only to prosecute corruption cases and over the past year there have been no arrests or prosecutions for money laundering or terrorist financing. The law requires financial institutions to maintain records of financial transactions exceeding 100,000 shillings (approximately $109) for a period of 10 years.
Current law does not include due diligence or negligence laws for banks. If an institution has reasonable grounds to believe that a transaction relates to money laundering, it may communicate this information to the police for investigation, although such reporting is voluntary, not mandatory. The Central Bank, the Bank of Tanzania (BOT), has issued regulations requiring financial institutions to file suspicious transaction reports (STRs), but this requirement is not being enforced, and no mechanism currently exists for receiving and analyzing the STRs.
The 2002 Prevention of Terrorism Act criminalizes terrorist financing. It requires all financial institutions to inform the government each quarter in a calendar year of any assets or transactions that may be associated with a terrorist group. The implementing regulations for this provision have not yet been drafted. Under the Act, the government may seize assets associated with terrorist groups. The BOT circulates to Tanzanian financial institutions the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanction Committee's consolidated list, but to date no assets have been frozen under this provision. In 2004, the Government of Tanzania (GOT) took action against one charitable organization on the list by closing its offices and deporting its foreign directors; however, it is not clear whether Tanzania has the investigative capacity to identify and seize related assets. Tanzania has cooperated with the U.S. in investigating and combating terrorism and exchanges counterterrorism information. There are no specific laws in place allowing Tanzania to exchange records with the U.S. on narcotics transactions or narcotics-related money laundering.
Tanzania made progress in 2006 with its proposed anti-money laundering (AML) legislation. The national multi-disciplinary committee, established with the help of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), finalized the AML bill in 2005 after gaining input from a wide range of stakeholders. In June 2006, President Kikwete's Cabinet approved the AML bill and tabled it in Parliament. Reportedly, officials expect Parliament to pass the bill by February 2007. Among its other provisions, the proposed legislation provides for the creation of a FIU that will collect mandatory suspicious transaction reporting from financial institutions and will be empowered to share this information with other FIUs and foreign law enforcement agencies.
Money laundering controls and reporting requirements do not currently apply to nonbank financial institutions, such as cash couriers, casinos, hawaladars and bureaux de change. The draft AML bill includes the expansion of money laundering controls to cover such institutions. Currently, the BOT supervises bureaux de change through the use of annual audits and inspections, while the National Gaming Authority supervises casinos and other gaming activities involving large sums of money, including lotteries. There are no legal requirements for nonbank financial institutions to report suspicious transactions. There is currently no cross-border currency reporting requirement, even for cash couriers, although the Proceeds of Crime Act does characterize cash smuggling as a "predicate offense." The draft AML bill includes strengthened provisions to criminalize cash smuggling in and out of Tanzania.
The GOT 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 Corruption. In May 2006, the GOT became a party to the UN Convention against Transnational Organized Crime. In 2006, Tanzania was listed 93 out of 163 countries in Transparency International's Corruption Perception Index. Tanzania is a member of ESAAMLG and continues to play a leading role in the operation of this FATF-style regional body. Tanzania also continues to host the annual ESAAMLG task force meetings and has detailed personnel to the ESAAMLG Secretariat which it hosts.
The Government of Tanzania should enact and implement the anti-money laundering law that has been under review for several years. Tanzania should also increase the reporting requirements for informing the government of assets or transactions that may be associated with a terrorist group. Currently the GOT requires quarterly reporting requirements regarding terrorist financing. The importance of stopping terrorist acts should mandate a shorter reporting interval in this arena. The GOT should continue to work through the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) to establish the FIU mandated in the draft law and to develop a comprehensive anti-money laundering regime that comports with international standards. Per the Financial Action Task Force Special Recommendation Nine, the GOT should enact mandatory cross-border currency reporting requirements. Tanzania should also enact and enforce anti-money laundering regulations within the casino industry.
Thailand is vulnerable to money laundering from its significant underground economy as well as from all types of cross-border crime including illicit narcotics, contraband, and smuggling. Money launderers use both the banking and nonbanking financial institutions and private businesses to move funds from narcotics trafficking and other criminal enterprises. As the amount of opium and heroin produced in the Golden Triangle region of Burma, Laos, and Thailand decreased during the past decade, drug traffickers transitioned to importing and distributing methamphetamine tablets, and began using commercial banks to hide and move their proceeds. Thailand is a significant destination and source country for international migrant smuggling and trafficking in persons, a production and distribution center for counterfeit consumer goods, and increasingly a center for the production and sale of fraudulent travel documents. Banks and alternative remittance systems are illegally used to shelter and move funds produced by all of these activities as well as by illegal gambling and prostitution. The majority of reported money laundering cases is narcotics-related, and there is no pervasive evidence of money laundering ties in Thailand with international terrorist groups. The Thai black market for smuggled goods includes pirated goods as well as automobiles from neighboring nations.
Thailand's anti-money laundering legislation, the Anti-Money Laundering Act (AMLA) B.E. 2542 (1999), criminalizes money laundering for the following predicate offenses: narcotics trafficking, trafficking in women or children for sexual purposes, fraud, financial institution fraud, public corruption, customs evasion, extortion, public fraud, blackmail, and terrorist activity. On August 11, 2003, as permitted by the Thai constitution, the Royal Thai Government (RTG) issued two Emergency Decrees to enact measures related to terrorist financing that had been under consideration by the Executive Branch and Parliament for more than a year and a half. The first of these Decrees amended Section 135 of the Penal Code to establish terrorism as a criminal offense. The second Decree amended Section 3 of the AMLA to add the newly established offense of terrorism and terrorist financing as an eighth predicate offense for money laundering. The Decrees took effect when they were published. Parliament endorsed their status as legal acts in April 2004.
The current list of predicate offenses in the AMLA does not comport with international best practices, consistent with Recommendations 1 and 2 of the Forty Recommendations of the Financial Action Task Force (FATF), to apply the crime of money laundering to all serious offenses or with the minimum list of acceptable designated categories of offenses. Additionally, the definition of "property involved in an offense" in the AMLA is limited to proceeds of predicate offenses and does not extend to instrumentalities of a predicate offense or a money laundering offense. Proposed amendments pending with the Cabinet since 2004 would expand the list of predicate offenses to include environmental crimes, foreign exchange violations, illegal gambling, arms trafficking, labor fraud, bid rigging, share manipulation, and excise tax offenses. However, even with the enactment of these additional predicate offenses, the list will still be deficient under international standards as it excludes, among other crimes, murder, migrant smuggling, counterfeiting, and intellectual property rights offenses. The proposed amendments to AMLA would also create a forfeiture fund and authorize international asset sharing with cooperating jurisdictions.
The AMLA created the Anti-Money Laundering Office (AMLO). Among other functions it serves as Thailand's financial intelligence unit (FIU), which became fully operational in 2001. When first established, AMLO reported directly to the Prime Minister. In October 2002, pursuant to a reorganization of the executive branch following criticisms that AMLO had been politicized, AMLO was designated as an independent agency under the Minister of Justice. AMLO receives, analyzes, and processes suspicious and large transaction reports, as required by the AMLA. In addition, AMLO is responsible for investigating money laundering cases for civil forfeiture and for the custody, management, and disposal of seized and forfeited property. AMLO is also tasked with providing training to the public and private sectors concerning the AMLA. The law also created the Transaction Committee, which operates within AMLO to review and approve disclosure requests to financial institutions and asset restraint/seizure requests. The AMLA also established the Anti-Money Laundering Board, which is comprised of ministerial-level officials and agency heads and serves as an advisory board that meets periodically to set national policy on money laundering issues and to propose relevant ministerial regulations.
AMLO, the Royal Thai Police (RTP) Special Branch, and the Royal Thai Police Crimes Suppression Division are responsible for investigating financial crimes. They initiated 1,215 financial crimes investigations in 2005 resulting in a total of 57 convictions. During the 2006 fiscal year (10/05-09/06), AMLO prosecuted 79 cases of civil asset forfeiture and realized Bt459 million or $11.8 million. Eleven cases remain under investigation. In criminal cases, the forfeiture and seizure of assets is governed by the 1991 Act on Measures for the Suppression of Offenders in an Offense relating to Narcotics (Assets Forfeiture Law). The Property Examination Committee has filed 1,865 cases with assets valued at 1.64 billion baht (approximately $4 million) and 1,644 cases are on trial. Thai authorities seized the equivalent of $18.7 million in nonterrorist assets during 2005, compared to $16.52 million in 2004, and $56.3 million in 2003. The high success rate in 2003 occurred during the Prime Minister's much-criticized war on drugs that year, in which more than 2,000 extra-judicial killings occurred.
The Ministry of Justice also houses a criminal investigative agency, the Department of Special Investigations (DSI), which is separate from the RTP although many DSI personnel originally were RTP officers. DSI has responsibility for investigating the criminal offense of money laundering (as distinct from civil asset forfeiture actions carried out by AMLO), and for many of the money laundering predicates defined by the AMLA, including terrorism. The DSI, AMLO, and the RTP all have authority to identify, freeze, and/or forfeit terrorist finance-related assets.
AMLO shares information with other Thai law enforcement agencies and vice versa. It has a memorandum of understanding with the Royal Thai Customs, pursuant to which Royal Thai Customs shares information and evidence of smuggling and customs evasion involving goods or cash exceeding Bt 1 million (approximately USD25,600).
The AMLA requires customer identification, record keeping, the reporting of large and suspicious transactions, and provides for the civil forfeiture of property involved in a money laundering offense. Financial institutions are also required to keep customer identification and specific transaction records for a period of five years from the date the account was closed, or from the date the transaction occurred, whichever is longer. Reporting individuals (banks and others) who cooperate with law enforcement entities are protected from liability. Thailand does not have stand-alone secrecy laws but the Commercial Bank Act B.E. 2505 (1962), regulated by Bank of Thailand, has a provision providing for bank secrecy to prevent disclosure of client financial information. However, AMLA overrides this provision. Therefore, financial institutions must disclose their client and ownership information to AMLO if requested. .
The Bank of Thailand (BOT), Securities and Exchange Commission (SEC), and AMLO are empowered to supervise and examine financial institutions for compliance with anti-money laundering/counterterrorist financial laws and regulations. Although the Bank of Thailand regulates financial institutions in Thailand, bank examiners are prohibited, except under limited circumstances, from examining the financial transactions of a private individual. This prohibition acts as an impediment to the BOT's auditing of a financial institution's compliance with the AMLA or BOT regulations. Besides this lack of power to conduct transactional testing, BOT does not currently examine its financial institutions for anti-money laundering compliance. The BOT is working closely with AMLO to train officers in conducting compliance audits, and in 2007 AMLO is expecting to setup an on-and-off site audit team with assistance from the BOT, although no such audits have yet to occur.
Anti-money laundering controls are also enforced by other Royal Thai Government regulatory agencies, including the Board of Trade and the Department of Insurance. Financial institutions that are required to report suspicious activities are broadly defined by the AMLA as any business or juristic person undertaking banking or nonbanking business. The land registration offices are also required to report on any transaction involving property of Bt5 million or greater, or a cash payment of Bt2 million or greater, for the purchase of real property.
The Exchange Control Act of B.E. 2485 (1942) states that foreign currencies can be brought into Thailand without limit. However, any person receiving foreign currencies is required to surrender foreign currencies to an authorized bank or to deposit the same in a foreign currency account within 7 days from receipt, except foreigners temporarily staying in Thailand for not more than three months, foreign embassies, and international organizations. (In November 2006, the BOT amended the surrender period from 7 days to 15 days but the amendment is pending the Ministry of Finance's approval.) Meanwhile, there is no restriction on the amount of Thai currency (Baht) that may be brought into the country. However, a person traveling to Thailand's bordering countries including Vietnam is allowed to take out Thai Baht up to Bt500,000 or $12,820 and to other countries up to Bt50,000 ($1,282) without authorization.
Thailand is not an offshore financial center nor does it host offshore banks, shell companies, or trusts. Licenses were first granted to Thai and foreign financial institutions to establish Bangkok International Banking Facilities (BIBFs) in March 1993. BIBFs may perform a number of financial and investment banking services, but can only raise funds offshore (through deposits and borrowing) for lending in Thailand or offshore. The United Nations Drug Control Program and the World Bank listed BIBFs as potentially vulnerable to money laundering activities, because they serve as transit points for funds. BIBFs are subject to the AMLA. However, in mid October 2006, the last BIBF license was returned to the Bank of Thailand due to the BOT's "one presence" policy for all financial institutions. Some of these qualified stand alone BIBFs have upgraded to either full branches or subsidiaries, while Thai commercial banks with BIBF licenses had to surrender their licenses to the BOT. Most BIBFs simply exited the market.
The Stock Exchange of Thailand (SET) requires securities dealers to have "know your customer" procedures; however, the SET does not check anti-money laundering compliance during its reviews. The Department of Insurance (DOI), under the Ministry of Commerce, is responsible for the supervision of insurance companies, which are covered under the AMLA definition of a financial institution, but there are no anti-money laundering regulations for the insurance industry. Similarly, the Cooperative Promotion Department (CPD) is responsible for supervision of credit cooperatives, which are required under the Cooperatives Act to register with the CPD. Currently, around 6,000 cooperatives are registered, with approximately 1,348 thrift and credit cooperatives engaged in financial business. Thrift and credit cooperatives are engaged in deposit taking and providing loans to the members, and are covered under the definition of a financial institution, but, as with the securities and insurance sectors, there are no anti-money laundering compliance mechanisms currently in place.
Financial institutions (such as banks, finance companies, savings cooperatives, etc.), land registration offices, and persons who act as solicitors for investors, are required to report significant cash, property, and suspicious transactions. Reporting requirements for most financial transactions (including purchases of securities and insurance) exceeding Bt2 million (approximately $52,000), and property transactions exceeding Bt5 million (approximately $130,000), have been in place since October 2000. In 2007, the AMLO Board will again consider the issuance of an announcement or regulation to subject gold shops, jewelry stores, and car dealers to either mandatory transactional reporting requirements and/or suspicious transactions reporting requirements. Previous proposals would have imposed mandatory reporting requirements regarding transactions with nonregular customers involved in business transactions worth more than Bt1 million (or $25,600) or would have imposed mandatory reporting requirements on shops engaging in annual transactions in excess of Bt 100 million (or $2,560,000). The relevant ministries and regulatory authorities would then issue orders consistent with the AMLO Board pronouncement. Thailand has mor