In 1994, the Government of the Netherlands (GON) criminalized money laundering related to all crimes. In December 2001, the GON enacted legislation specifically criminalizing 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 broad application of the money laundering provisions by stating that the public prosecutor does not need to prove the exact origin of laundered proceeds for conviction, and that the general criminal origin as well as the knowledge of the perpetrator may be deduced 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 U.S. $66,000), while “liable acts” of money laundering (by 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 U.S. $66,000). Habitual money launderers may be punished with a maximum imprisonment of six years and a maximum fine of 45,000 euros (approximately U.S. $66,000), 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 (AML) 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 certain thresholds (varying from 2,500 to 15,000 euros or approximately U.S. $3,670 to $21,000), as well as any less substantial transaction that appears unusual (applying a broader standard than “suspicious” transactions) to the Netherlands’ financial intelligence unit (FIU-the Netherlands). Reporting requirements have been expanded to include financing companies, commercial dealers of high-value goods, notaries, lawyers, real estate agents/intermediaries, accountants, business economic consultants, independent legal advisers, tax advisors, trust companies and other providers of trust-related services. In 2007, the notary sector supervisor, BFT, reported that seven notaries allegedly violated AML rules but due to client confidentiality, the names of the notary firms were not released, . Reportedly, the agencies received cash payments above the reporting threshold and failed to report, and facilitated quick transfers of ownership for property. BFT investigators found 192 suspicious cases in 2004 and 2005, and a similar number in 2006 and 2007. The BFT has requested amended legislation.

Since 2005, the GON has implemented measures to enhance the effectiveness of its AML regime. A November 2005 National Directive on money laundering crimes mandates a financial investigation in every serious crime case, sets guidelines for determining when to prosecute for money laundering and provides technical explanations of money laundering offenses, case law, and the use of financial intelligence. Revised indicators determine when an unusual transaction report must be filed. The indicators reflect a partial shift from a rule-based to a risk-based system and are aimed at reducing the administrative costs of reporting unusual transactions without limiting the preventive nature of the reporting system. Amendments to the Services Identification Act and Disclosure Act expand supervision authority and institute punitive damages. The revised legislation, which became effective on May 1, 2006, also incorporates a terrorist-financing indicator in the reporting system.

Financial institutions are required by law to maintain records necessary to reconstruct financial transactions for 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. All 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. The Money Transfer and Exchange Offices Act, 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 must be identified and all transactions totaling more than 2,000 euros (approximately U.S. $2,935) must be reported to the FIU. Sharing of information by Dutch supervisors does not require formal agreements or memoranda of understanding (MOUs).

The FIU for the Netherlands is a hybrid administrative-law enforcement unit that in 2006 combined the original, administrative FIU MOT (Meldpunt Ongebruikelijke Transacties, or 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 BLOM merged, the resulting entity was integrated within the National Police (KLPD). The new unit, FIU-the Netherlands, not only provides an administrative function that receives, analyzes, and disseminates the unusual and currency transaction reports filed by banks, financial institutions and other reporting entities, but it also provides a police function that serves as a point of contact for law enforcement. It forwards suspicious transaction reports (STRs) with preliminary investigative information to the Police Investigation Service. Over the last five years, the MOT and the BLOM have responded to international requests for financial and law enforcement information, including those from counterpart FIUs, so this merger has not changed the nature of the Dutch reporting system with respect to international cooperation. FIU-the Netherlands is a member of the Egmont Group.

Obliged entities that fail to file reports with the FIU-the Netherlands can be prosecuted in two ways. One of the four supervisory bodies, depending on the entity, may impose an administrative fine of up to 32,670 euros (approximately U.S. $47,905), depending on the size of the entity. The Dutch Tax Administration supervises commercial dealers; the Bureau Financieel Toezicht (BFT or Office for Financial Oversight) supervises notaries, lawyers, real estate agents, and accountants; de Nederlandsche Bank (Dutch Central Bank) supervises trust companies, casinos, banks, bureaux de change, and insurance companies; and the Authority for Financial Markets supervises clearinghouses, brokers, and securities firms. The public prosecutor may fine nonreporting entities 11,250 euros (approximately $16,495), or charge individuals failing to report with prison terms of up to two years. Under the Services Identification Act, those subject to reporting obligations must identify their clients, including the identity of beneficial owners, either at the time of the transaction or prior to the transaction, before providing financial services.

The FIU receives every unusual transaction report electronically through its secure website. In 2005, the FIU-the Netherlands received 181,623 reports and forwarded 38,481, totaling over 1.1 billion euros (approximately U.S. $1.6 billion), to enforcement agencies such as the police, fiscal police, and public prosecutor. In 2006, the FIU-the Netherlands received 172,865 unusual transaction reports and forwarded 34,531, totaling over 9.2 billion euros (approximately U.S. $13.5 billion) to enforcement agencies as suspicious transactions for further investigation. The average amount reported was 26,870 euros (approximately U.S. $39,400) in 2006, a decrease from the 28,945 euros (approximately U.S. $42,440) average reported in 2005. Approximately 89 percent of the transactions are in euros, 8 percent are in other European currency (of which 5 percent are in English Pounds) and finally 3 percent of the transactions are in U.S. dollars.

To facilitate the forwarding of STRs, the FIU 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 enforcement agencies. On January 1, 2003, the former MOT and BLOM organizations together created a special unit (the MBA unit) to analyze data generated from the IST. Under the new FIU-the Netherlands structure, the MBA continues to analyze IST data and 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. The FIU-the Netherlands provides the AML division of Europol with suspicious transaction reports, and Europol applies the same analysis tools as the FIU.

Current legislation requires Customs authorities to report unusual transactions to the FIU-the Netherlands. On June 15, 2007, EU regulation 1889/2005 on Liquid Assets Control introduced a currency declaration requirement for amounts valued over 10,000 euros for travelers entering and leaving Schengen-agreement countries. Travelers crossing Dutch borders must complete a declaration form. The Dutch use specially trained dogs at ports and airports to identify cash smugglers in 2006 finding four million euros (approximately $5.9 million) in passenger luggage at Schiphol airport.

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 proceeds tracked to illegal activities. Both moveable property and claims are subject to confiscation. Assets can be seized as a value-based confiscation. Legislation defines property for the purpose of confiscation as “any object and any property right” and provides for the seizure of additional assets controlled by a drug trafficker. Proceeds from narcotics asset seizures and forfeitures are deposited in the general fund of the Ministry of Finance.

To facilitate the confiscation of criminal assets, the GON has instituted special court procedures that enable law enforcement to continue financial investigations 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, BOOM played a leading role in the creation of an informal international network of asset recovery specialists aiming to exchange information and share expertise. Known as the Camden Asset Recovery Network (CARIN), this network was established in The Hague in September 2004. .

Statistics provided by the Office of the Public Prosecutor show that the assets seized in 2006 amounted to 17 million euros (approximately U.S. $24.9 million). This compares with 11 million euros in 2005 and 11 million euros in 2004 (approximately U.S. $14.5 million and U.S. $13 million respectively, based on the exchange rates at the time). 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 authorities 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 designed a centralized approach for large confiscation cases and a more flexible approach for handling smaller cases. The improvements took effect in 2006 and have significantly increased 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 jihad, and conspiracy to commit a terrorist act, 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,” passed in 1977, was 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 EU Clearinghouse process. 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 FIU all transactions (actually carried out or intended) involving persons, groups, and entities that have been linked, either domestically or internationally, with terrorism. Any terrorist crime automatically qualifies 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. 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 Dutch have taken steps to freeze the assets of individuals and groups included on the UNSCR 1267 Sanctions Committee’s consolidated list.

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 a target is identified. 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 thus included in the list that circulated pursuant to 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 2004 Act on Terrorist Offenses introduced Article 140A of the Criminal Code, which criminalizes participation in a terrorist organization, 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. Nine individuals were convicted in March 2006 on charges of membership in a terrorist organization. Legislation expanding the use of special investigative techniques was enacted in February 2007.

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 client 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 with 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 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 improve Dutch efforts to fight fraud, money laundering, and terrorist financing by replacing the current initial screening of founders of private and public-limited partnerships and foundations with an ongoing screening system. The GON aimed to introduce the new system in 2007.

Certain groups of immigrants use informal banks to send money to their relatives in their countries of origin. However, indicators point to the misuse of these informal banks for criminal purposes, including a small number of informal bankers deliberately engaging in money laundering transactions and cross-border transfers of criminal money. 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 has initiated 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 EU Money Laundering Directive and plans to implement the Third EU Money Laundering Directive through the adoption of a new act on combating money laundering and terrorist financing that will enter into force in 2008.

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 bilateral implementing instruments for the U.S.-EU mutual legal assistance and extradition treaties; the agreements have not yet been ratified. One provision of the U.S.-EU legal assistance agreement would facilitate the exchange of information on bank accounts. In 2007, the Dutch Ministry of Justice and the Dutch National Police began working two operational money laundering initiatives with U.S. law enforcement authorities in the Netherlands. This is the first time that such operations have been attempted in the Netherlands.

The FIU supervised the PHARE Project for the European Union. The PHARE Project was the European Commission’s Anti-Money Laundering Project for Economic Reconstruction Assistance and provided support to Central and Eastern European countries in the development and/or improvement of AML regulations. When the PHARE project concluded in December 2003, the FIU 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), which the FIU continues to use.

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 was a founding member of the CARIN asset-recovery network, and participates in the Caribbean Financial Action Task Force as a Cooperating and Supporting Nation. As a member of the Egmont Group, the FIU 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, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime.

The Netherlands should continue its shift to the risk-based approach throughout its regulatory and AML/CTF regime, as well as proceed with enacting its new AML/CTF legislation. The GON should continue with its plans implementing a screening system for private and public-limited partnerships, including attendant requirements for all charities to register with a supervisory state or state-sanctioned body. The Netherlands should obtain statistics and examine the progress that has been achieved since the improvements in the asset forfeiture regime have been implemented. The GON should devote more resources toward getting better data and a better understanding of alternate remittance systems in the Netherlands, and channel more investigative resources toward tracing informal bank systems.

Netherlands Antilles

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 Netherlands Antilles’ banking sector consists of seven local general banks, 14 investment institutions, one subsidiary of a foreign general banks, two branches of foreign general banks, 12 credit unions, six specialized credit unions, one savings bank, four savings and credit funds, 15 consolidated international banks, 18 nonconsolidated international banks, and 22 pension funds. The laws and regulations on bank supervision provide that international banks must have a physical presence and maintain records on the island. There are multiple insurance companies, including three subsidiaries of foreign life insurance companies, seven branches of foreign life insurance companies, six subsidiaries of foreign nonlife insurance companies, six branches of foreign insurance companies, and six independent insurance companies. In addition, there are two captive life insurance companies, 13 captive nonlife insurance companies, four professional reinsurance companies, and one other health insurance company.

The Netherlands Antilles has an offshore financial sector with 84 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 2007, there were a total of 14,191 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 four-operator member and nine-nonoperator member licensed Internet gaming companies.

In February 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 offense in the Netherlands Antilles under the 1993 National Ordinance on the penalization of money laundering (O.G. 1993, no. 52), as amended by a 2001 National Ordinance (O.G. 2001, no. 77). This legislation establishes that prosecutors do not need to prove that a suspected money launderer also committed an underlying crime to obtain a money laundering conviction. 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. 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 required by law to report suspicious transactions to the financial intelligence unit (FIU), the Meldpunt Ongebruikelijke Transacties (MOT NA). Obligated entities are also required to report all transactions over NAF 250,000 (approximately U.S. $142,000). Banks are required to maintain records for ten years and all other financial intermediaries must maintain records for five years. The GONA is currently amending its legislation to add designated nonfinancial businesses and professions as reporting entities, including lawyers, accountants, notaries, jewelers and real estate agents. It is expected that the legislation will be passed in 2008. Obligated entities are required to report suspected terrorist financing activity to the MOT NA as well, although terrorist financing is not a criminal offense in the Netherlands Antilles.

The MOT NA was established under the Ministry of Finance in 1997. Through October 2006, the MOT NA received 10,788 suspicious transaction reports totaling U.S. $1.3 billion. Of these, 283 were reported to the relevant law enforcement authorities. No statistics are currently available for 2007. The MOT NA currently has a staff of nine, and is engaged in increasing the effectiveness and efficiency of its reporting system. Progress has been reported in automating suspicious 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 MOT NA hosted a Kingdom of the Netherlands seminar in October 2007. The Government of the Netherlands plans to provide technical support to the MOT NA to improve their analytical capabilities with regard to terrorist financing.

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 Central Bank also supervises insurance companies, insurance brokers, mutual funds and administrators of these funds, and company service providers, all of which must be licensed by the Central Bank. The Central Bank has issued anti-money laundering guidelines for banks, insurance companies, pension funds, money transfer services, financial administrators, and company service providers. The guidelines also specifically include terrorist 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 must report of the transportation of NAF 20,000 (approximately U.S. $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 U.S. $142,000) and/or face one year in prison.

In 2000, the GONA enacted the National Ordinance on Freezing, Seizing and Forfeiture of Assets Derived from Crime. The law allows the prosecutor to seize the proceeds of any crime proven in court. Civil forfeiture is not permitted.

Terrorist financing is not a separate crime in the Netherlands Antilles, although acts that can be considered to support terrorism are criminalized in Articles 49 and 50 of the Criminal Code. Although terrorist financing is not per se a crime, the GONA enacted legislation in 2002 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) between the Netherlands and the United States with regard to the Netherlands Antilles, signed in 2002, entered into force in March 2007. The Mutual Legal Assistance Treaty between the Netherlands and the United States applies to the Netherlands Antilles; however, the treaty is not applicable to requests for assistance relating to fiscal offenses addressed 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 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). The Netherlands Antilles is also a member of the Offshore Group of Banking Supervisors. The Kingdom of the Netherlands has extended its ratification 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 enable the Netherlands to extend ratification of the Convention to the Netherlands Antilles. Likewise, the Kingdom of the Netherlands has not yet extended ratification of the UN Convention against Transnational Organized Crime or the UN Convention against Corruption to the Netherlands Antilles.

The Government of the Netherlands Antilles has demonstrated a commitment to combating money laundering. However, 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. The Netherlands Antilles should also 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 ensure that anti-money laundering regulations and reporting requirements are extended to designated nonfinancial businesses and professions.

Nicaragua

Nicaragua is not a regional financial center or a major drug producing country. However, it 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 the rule of law, judicial corruption, the politicization of the public prosecutor’s office and the Supreme Court, and insufficient funding for law enforcement institutions, makes Nicaragua’s financial system an attractive target for money laundering. Nicaragua’s geographical position—with access to both the Atlantic and the Pacific Oceans, porous border crossings to its north and south, and a lightly inhabited and underdeveloped Atlantic Coast area—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, human trafficking, and the financing of terrorism. 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.

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 regulation 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.

A number of foreign institutions own significant shares of the Nicaraguan financial sector. In 2008, GE Consumer Finance, one of the largest financial service firms in the world, will become the owner of Banco de America Central (BAC), which operates in several Central American countries, including Nicaragua. In 2007, HSBC purchased Banistmo, a Panamanian bank, and now operates under that name in Nicaragua. Most large Nicaraguan banks already maintain correspondent relationships with Panamanian institutions.

The entry into force of the Central America/Dominican Republic Free Trade Agreement (CAFTA-DR) in 2006 and the increased pace of regional integration suggest growing involvement of Nicaraguan financial institutions with international partners and clients. A new free trade agreement (FTA) with Taiwan will go into effect in 2008, which should expand Nicaragua’s financial relationships with Asia. Nicaragua also just concluded FTA negotiations with Panama and, along with its Central American neighbors, is expected to begin negotiating an FTA with the EU.

As of January 2007, a total of 109 companies operate in 38 designated free trade zones (FTZs) in Nicaragua. As of December 2006, an estimated 80,000 persons were employed by companies operating in FTZs, producing a total of $900 million in export sales. The National Free Trade Zone Commission (CNZF), a state-owned corporation, regulates all FTZs and the companies located in them. The Nicaraguan Customs Agency also monitors all imports and exports of FTZ companies. While there is no indication that these FTZs are being used in trade-based money laundering schemes or by the financiers of terrorism, a June 2007 inspection by U.S. Customs agents uncovered evidence of transshipments of Chinese-made apparel.

On November 13, 2007, Nicaragua’s National Assembly passed a new penal code that criminalizes terrorist financing, bulk cash smuggling, and money laundering beyond drug-related offenses. The penal code also expands legal protection for the financial sector, and defines crimes against the banking and financial system. When implemented, the new penal code should bring Nicaragua’s anti-money laundering and counter-terrorist financing regime into greater compliance with the international standards of the Financial Action Task Force. However, the penalty for committing money laundering is still relatively low by international standards, with a sentence of five to seven years. The new penal code does not provide for the creation of an FIU.

While the adoption of the new penal code demonstrates the Government of Nicaragua’s (GON) commitment to fight the financing of terrorism, money laundering, and other financial crimes, limited resources, corruption (including 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. Although the current Prosecutor General once advocated a narrow interpretation of money laundering law that only would penalize the laundering of proceeds from narcotics trafficking and not from other illegal activities, he now supports the formation of an FIU and by extension the prosecution of a wider range of money laundering-related offenses. However, the National Prosecutor’s Office has still failed to prosecute a single money laundering case. This enforcement problem is exacerbated by the fact that the country does not have an operational FIU. The National Prosecutor’s Office has prosecuted at least four cases of cash smuggling, although these crimes are currently considered only customs violations.

Law 285 of 1999 requires all financial institutions (including stock exchanges and insurance companies) 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 and to keep records for five years. 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 U.S. $10,000 or its equivalent in foreign currency. All financial institutions not supervised by SIBIOF are required to report suspicious transactions directly to the CAF. Bank officials are held responsible for all of their institution’s actions, including failure to report money laundering, and sanctions may be imposed on 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.

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. Officers in financial institutions charged with reporting suspicious transactions to the SIBOIF are also unprotected legally with regard to their cooperation. Given the corruption in 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 Nicaraguan National Police (NNP) to work with them. The SIBIOF has regularly fined banks for not reporting suspicious transactions. 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, has resulted in a greater adherence by banks to the reporting requirements contained in Law 285.

On paper, the CAF is comprised 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 fully dedicated, trained personnel, equipment and strategic goals. All of its members have primary responsibilities in their parent institutions, which take precedence over CAF duties. The CAF is headed by the National Prosecutor, who receives the reports from banks and decides whether to refer them to the NNP for further investigation.

The NNP’s Economics Crimes Unit and the Office of the National Prosecutor are in charge of investigating financial crimes, including money laundering and terrorist financing. The Office of the National Prosecutor is in the process of creating its Economic Crimes Unit to work in tandem with the NNP. The United States has successfully supported the creation of a vetted unit within the NNP. The unit has been conducting investigations into money laundering and drug related crimes since March 2007 and is expected to work closely with the Attorney General’s office.

In October 2007, following publicity that highlighted the consequences of Nicaragua’s being one of the few countries in Latin America without an FIU, the National Assembly renewed debate on a 2004 bill creating an independent FIU. The 2004 bill creates a central, independent FIU that would replace and enhance the functions of the CAF and establish more stringent reporting requirements. In August 2007, the SIBIOF suggested amendments to the bill before the National Assembly that would bring the proposed FIU into compliance with all Egmont Group of FIUs requirements.

Under the new penal code adopted by the National Assembly in November 2007, terrorism and its financing are now crimes in Nicaragua. Through five SIBIOF administrative decrees, the GON also has the authority to identify, freeze, and seize terrorist-related assets, but has not as yet identified any such active cases. Reportedly, there are no hawala or other similar alternative remittance systems operating in Nicaragua, and the GON 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.

There are over 300 micro-finance institutions (MFI) in Nicaragua, serving over 300,000 clients and handling over U.S. $400 million. MFIs in Nicaragua dominate the informal economy and manage a significant portion of the remittances. Over half of this market is handled by five institutions that have now converted to become formal banks. One institution, Banco Pro-Credit, is a branch of a German MFI institution that also has branches in Eastern Europe and Africa. The MFI sector has grown steadily at about 25 percent per year since 1999. While the five MFIs that are now formal banks are regulated by the SIBIOF, all the others are currently unregulated. These institutions are, however, still subject to the reporting requirements in Law 285 and to financial crimes listed in the current Penal Code. Any crimes committed fall under the jurisdiction of the Economic Crimes unit of the National Police and the National Prosecutor’s Office.

Nicaragua is a party to the 1988 United Nations Drug Convention, the UN International Convention on the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GON 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). 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 Americas that does not have an FIU and is not a member of the Egmont Group of FIUs. Due to corruption in the Nicaraguan judiciary, the United States has cut off direct assistance to the Nicaraguan Supreme Court.

The Government of Nicaragua has made progress in its efforts to combat financial crime by expanding the predicate crimes for money laundering beyond narcotics trafficking and criminalizing terrorist financing. However, the GON also needs to allocate the necessary resources to develop an effective financial intelligence unit, and combat 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 counter-terrorist financing standards and controls.

Nigeria

Although the Federal Republic of Nigeria is not an offshore financial center, Nigeria’s 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, reportedly 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 socioeconomic conditions to strengthen their ability to perpetrate 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, and identity theft. In addition, advance fee fraud, also referred to internationally as “419” fraud, in reference to the fraud section in Nigeria’s criminal code, is a lucrative financial crime that generates hundreds of millions of illicit dollars annually for criminals. 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 2006 and 2007.

In June 2001, the Financial Action Task Force (FATF) placed Nigeria on its list of noncooperative countries and territories (NCCT). In December 2002, Nigeria enacted two pieces of legislation to remedy the deficiencies. It passed an amendment to the 1995 Money Laundering Act extending the scope of the law to cover the proceeds of all crimes. The Government of Nigeria (GON) also passed an amendment to the 1991 Banking and Other Financial Institutions (BOFI) Act expanding coverage of the law to stock brokerage firms and foreign currency exchange facilities, giving the Central Bank of Nigeria (CBN) greater power to deny bank licenses, and allowing the CBN to freeze suspicious accounts. The third piece of legislation, the 2004 Economic and Financial Crimes Commission (Establishment) Act, established the Economic and Financial Crimes Commission (EFCC), the body that investigates and prosecutes money laundering and other financial crimes, and coordinates 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 AML regime. FATF recognized that the GON had remedied the major deficiencies in its anti-money laundering (AML) regime and removed Nigeria from the NCCT list.

Since its inception in April 2004, the EFCC has had the mandate to investigate and prosecute financial crime. It has recovered or seized assets from people guilty of fraud both 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. EFCC members also embarked upon a campaign to identify and prosecute former officials. Some EFCC members have been killed for their efforts to expose and enforce the laws against corruption and financial crime.

The National Assembly passed the Money Laundering (Prohibition) Act (2004), which applies to the proceeds of all financial crimes. Nigeria also employs the 1995 Foreign Exchange (Monetary and Miscellaneous Provisions) Act. 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. Money laundering controls apply to banks and other financial institutions, including stock brokerages and currency exchange house, as well as designated nonfinancial businesses and professions (DNFBPs). 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 businesses that the Federal Ministry of Commerce designates as obliged. The EFCC Act provides safe-harbor provisions to obliged entities. 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 Special Control Unit Against Money Laundering (SCUML), is a special unit in the Ministry of Commerce which monitors, supervises, and regulates the activities of all DNFBPs. Oversight, however, has reportedly not been very rigorous or effective. Amendments to the 2004 EFCC Act gave the EFCC the authority to investigate and prosecute money laundering, 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 Nigerian Financial Intelligence Unit (NFIU), established in 2005, derives its powers from the Money Laundering (Prohibition) Act of 2004 and the Economic and Financial Crimes Commission Act of 2004. Housed within the EFCC, it is the central agency for the collection, analysis and dissemination of information on money laundering and terrorist financing. The NFIU is a significant component of the EFCC, complementing the EFCC’s directorate of investigations. It does not carry out its own investigations. Legal provisions give the NFIU power to receive suspicious transaction reports (STRs) submitted by financial institutions and designated nonfinancial businesses and professions. The NFIU also receives reports involving the transfer to or from a foreign country of funds or securities exceeding U.S. $10,000 in value. All financial institutions and designated nonfinancial institutions are required by law to furnish the NFIU with details of these financial transactions.

The NFIU fulfills a crucial role in receiving and analyzing STRs. As a result of the NFIU’s activities, banks have improved both their timeliness and quality in filing STRs reported to the NFIU. The NFIU has access to records and databanks of all government and financial institutions, and it has entered into memoranda of understandings (MOUs) on information sharing with several other FIUs. In 2006, the NFIU received 3,772,843 currency transaction reports (CTRs). Out of the 47 cases the NFIU developed, 12 investigations are ongoing, and the NFIU disseminated 18 and placed 10 under monitoring. The NFIU closed seven in-house cases. Because the disseminated cases are still under investigation, no formal feedback came from stakeholders in either 2006 or 2007. There were 73 money laundering convictions from January 2005 through October 2006. The trial court process has improved after several experienced judges received assignations specifically to handle EFCC cases; encouraged, EFCC officials have brought more cases to court. Additional information for 2007 is not available.

Due to the EFCC’s activities, the enactment of new laws, and a public enlightenment campaign, crimes such as bank fraud and counterfeiting have been reported and prosecuted, sometimes for the first time. The EFCC is the agency with the most capacity to effectively investigate and prosecute financial crimes, including money laundering and terrorist financing. The EFCC coordinates agencies’ efforts in pursuing financial crime investigations. 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. Reportedly, the Nigerian Police Force is incapable of handling financial crimes because of alleged corruption and poor institutional capacity.

In 2007, the EFCC marked significant successes in combating financial crime. Through EFCC efforts, a former inspector general of police was arrested and prosecuted for financial crimes valued at over U.S. $13 million. The GON seized his assets and froze his bank accounts. Currently serving a prison sentence, he still faces 92 charges of money laundering and official corruption. Five former state governors are under investigation for money laundering. The EFCC is working with the FBI on a case involving a group of money brokers laundering money through banks in the United States. In 2006, the EFCC received a surge of petitions and leads provided by whistleblowers. Reportedly, many of these alleged abuses of office involved politically exposed persons (PEPs) and/or their collaborators. As the period coincided with preparations for the general elections in 2007, some of the investigations were politically charged. The Legal and Prosecution Unit, responsible for the prosecution of all cases, is examining 437 of these cases for possible prosecution.

The Unit prosecuted several high profile cases involving powerful and well connected persons and their associates. The EFCC filed 588 cases between 2006 and mid-2007. In 2007, the Legal Unit had obtained 53 convictions by mid-year. Investigations led to the recovery of approximately 30 billion naira (approximately U.S. $259 million). Suspects returned several other billions of naira when it became apparent that the Commission was about to expose the abuses. Some governors were arrested for laundering their state government funds. The Executive Chairman, appearing before the Senate to present a report of the Commission’s activities, revealed allegations of corrupt practices and abuse of office reportedly associated with 31 out of the 36 then serving Governors. Some of the Governors had constitutional immunity that expired in May 2007. They are now standing trial in various courts for various offenses including money laundering.

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. Depending on the nature of the case, the tracing, seizing, and freezing of assets may be executed by the EFCC, NDLEA, NPF, or the ICPC. The proceeds from seizures and forfeitures pass to the federal government, and the GON uses a portion of the recovered sums to provide restitution to the victims of the criminal acts. The banking community is cooperating with law enforcement to trace funds and seize or freeze bank accounts. Since its establishment the EFCC has reportedly seized assets worth $5 billion.

Section 20 of the 2004 EFCC Act provides for the forfeiture of assets and properties to the federal government after a money laundering conviction. Foreign assets are also subject to forfeiture. The properties subject to forfeiture are set forth in EFCC Act Sections 24-26, and include any real or personal property representing the gross receipts a person obtains directly as a result of the violation of the act, or traceable to such receipts. They also include any property representing the proceeds of an offense under the laws of a foreign country within which the offense or activity would be punishable for more than one year. All means of conveyance, including aircraft, vehicles, or vessels used or intended to be used to transport or facilitate the transportation, sale, receipt, possession or concealment of the economic or financial crimes is likewise subject to forfeiture. Forfeiture is possible only as part of a criminal prosecution. There is no comparable law providing for civil forfeiture independent of a criminal prosecution, but the EFCC has established a committee addressing this deficiency by drafting legislation.

The EFCC has the authority to prevent the use of charitable and nonprofit entities as money laundering vehicles, although it has not reported any cases involving these entities.

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. 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. Perpetrators use the Internet to target businesses and individuals around the world.

The Government of Nigeria continued throughout 2007 with its efforts to eradicate 419 crimes. GON efforts previously led to the successful prosecution and conviction of a number of them, but the problem is far from over. Following the promulgation of the Advance Fee Fraud Act 2006 the EFCC held an interactive session with stakeholders. The EFCC also briefed cyber cafe operators, business centers, Internet service providers, telecommunication companies and banks on their responsibilities under the new law. One of their requirements is to register their businesses with the EFCC. To keep pace with the sophistication with which the fraudsters operate, the EFCC deployed interception technology to enhance the investigation of crimes, particularly those committed through cyberspace. The Advance Fee Fraud Unit burst several employment, credit card, and e-payment scams, shut down several domains and cloned websites, raided residential houses, seized computers, and blocked fraudulent e-mail addresses, telephone lines and faxes associated with cybercrimes. Despite the progress the EFCC has made, there have been few recorded successes as a result of the EFCC’s cybercrime initiatives.

The EFCC’s success in investigating and prosecuting financial crime, especially high-level corruption, has brought it both the support of the international community and the ire of corrupt officials. In December 2007, the Government of Nigeria reassigned the EFCC Chairman, the country’s highest ranking and most publicly visible anti-corruption official, Nuhu Ribadu, to a year-long training course. This reassignment coincides with the high-profile trials of several officials, including seven former governors. Ribadu has served as the face of Nigerian AML/CTF efforts, and his removal could undermine the perception of the GON’s commitment to fighting corruption. The reassignment of Ribadu may also impact the NFIU’s autonomy and its ability to act independently.

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. Nigerian financial institutions periodically receive the UNSCR 1267 Sanctions Committee’s consolidated list, but have not yet detected a case of terrorist financing within the banking system.

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 has also ratified the African Union Convention on the Prevention and Combating of Terrorism and the African Union Convention on Preventing and Combating Corruption. Nigeria ranks 147 out of 180 countries in Transparency International’s 2007 Corruption Perceptions 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. The EFCC worked with foreign partners to raid notorious cyber cafes to curtail the activities of the 419 fraudsters. The EFCC collaborated with the United States Postal Service and the UK Serious and Organized Crime Agency (SOCA) to intercept over 15,000 counterfeit checks. A collaboration scheme between the EFCC, the United States, the UK and the Dutch was constituted to more effectively address the problem of international fraud, including identity theft and e-marketing fraud. Nigeria is a member of the Intergovernmental Task Force against Money Laundering in West Africa (GIABA), a FATF-style regional body. During 2007, Nigeria held the Directorship General of GIABA. The NFIU is a member of the Egmont Group.

The Government of Nigeria continued to pursue money laundering both within and outside the country in 2007. Nigeria should continue to pursue its anti-corruption program and support both the ICPC and EFCC in their mandates to investigate and prosecute corrupt government officials and individuals. Nigeria should take steps to ensure the autonomy and independence of those entities. GON should strengthen the authority of the SCUML to supervise designated nonfinancial businesses and professions by moving the Special Control Unit out from under the Ministry of Commerce. The GON should continue to engage with the FATF and other relevant international organizations to identify and eliminate remaining anti-money laundering deficiencies. Nigeria should ensure that the Police Force has the capacity to function as an investigative partner in financial crime cases, as well as work to eradicate any corruption that might exist within that and other law enforcement bodies. Nigeria should continue to support the EFCC’s efforts, including drafting a law for civil forfeiture provisions to the AML/CTF framework, and pursuing those who commit financial crime, regardless of political status. Nigeria should continue towards implementation of a comprehensive AML 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

Pakistan is not considered a regional or offshore financial center; however, financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion, corruption and fraud are significant problems. Pakistan is a major drug-transit country. The abuse of the charitable 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 does not have firm control of its borders with Afghanistan, Iran and China, facilitating the flow of smuggled goods to the Federally Administered Tribal Areas (FATA) and Baluchistan. Some goods such as foodstuffs, electronics, building materials, and other products transiting Pakistan duty-free under the Afghan Transit Trade Agreement are sold illegally in Pakistan. Counterfeit goods generate substantial illicit proceeds that are laundered. Private unregulated charities are also a major source of illicit funds for international terrorist networks. Madrassas have been used as training grounds for terrorists and for terrorist funding. The lack of control of madrassas, similar to the lack of control of Islamic charities, allows terrorist and jihadist 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 purposes, although controls have been significantly tightened since 2002. In June 2004, the State Bank of Pakistan required all hawaladars to register as authorized foreign exchange dealers and to meet minimum capital requirements. Despite the State Bank of Pakistan’s efforts, unlicensed hawaladars still operate illegally in parts of the country (particularly Peshawar and Karachi), and authorities have taken little action to identify and enforce the regulations prohibiting nonregistered hawaladars. Most illicit funds are transacted through these unlicensed operators. Fraudulent invoicing is typical in hundi/hawala counter valuation schemes. However, legitimate remittances from the roughly five million Pakistani expatriates residing abroad, sent via the hawala system prior to 2001, now flow mostly through the formal banking sector and have increased significantly to U.S. $5.5 billion in 2006-2007.

Pakistan has established a number of Export Processing Zones (EPZs) in all four of the country’s provinces. Although no evidence has emerged of EPZs being used in money laundering, inaccurate invoicing is common in the region and could be used by entities operating out of these zones. In 2007, the Directorate General of Customs Intelligence (DGCI) investigated a well-known Pakistani business group involved with trade-based money laundering. The business over-invoiced the value and quantity of the exports of garments and textiles to Dubai and Saudi Arabia. The chairman of the business group and his partners held 49 percent shares in the Dubai-based company that imported many of the goods. The investigation also revealed that the business group used hawala to transfer large amounts of money and value through a prominent foreign exchange company based in Karachi. From 2001-2007, the value of the trade consignments totaled U.S. $330 million.

Pakistan has adopted measures to strengthen its financial regulations and enhance the reporting requirements for the banking sector to reduce its susceptibility to money laundering and terrorist financing. For example, financial institutions are required to follow “know your customer” provisions and must report within three days any funds or transactions they believe are proceeds of criminal activity.

Pakistan became a member of the Asia/Pacific Group on Money Laundering (APG) in 2000, therefore accepting the APG requirement that members develop, pass and implement anti-money laundering and counter-terrorist financing legislation and other measures based on accepted international standards. A high-level APG delegation visited Pakistan in early July 2007 to discuss Pakistan’s long-delayed passage of comprehensive anti-money legislation. At its July plenary, APG members agreed that unless Pakistan enacts and proclaims into force consolidated AML legislation or issues a Presidential Ordinance prior to December 31, 2007, Pakistan’s membership could be suspended.

On September 8, President Musharraf signed an ordinance to implement the long-awaited AML bill through a presidential ordinance. While creating this ordinance averted suspension of membership in the APG, Pakistan still has work ahead to meet international standards, especially the core FATF Recommendations related to the criminalization of money laundering and suspicious transaction reporting.

Some of the weaknesses identified in the new AML Ordinance include the following: Not all of the FATF designated categories of offenses (e.g., smuggling, racketeering, trafficking in persons, sexual exploitation, arms trafficking, and environmental crime) are covered as predicate offenses. The intent and knowledge requirement required to prove the offense of money laundering is not consistent with the standards set out in the Vienna and Palermo Conventions. Only the concealment of criminal proceeds is an offense, not the transfer of legitimate money to promote criminal activity. The definition of what constitutes a suspicious transaction is not adequate as it does not cover cases where an individual “suspects” or “has reason to suspect” that funds are the proceeds of criminal activity. The Ordinance also does not contain any specific requirement to report transactions in relation to terrorist financing. The forfeiture procedures set forth in the law are cumbersome and will inhibit the successful seizure and confiscation of property involved in offenses. Lastly, the reporting structure of the Financial Monitoring Unit may affect its independence and effectiveness.

The AML ordinance formally establishes a Financial Monitoring Unit (FMU) to monitor suspicious transactions. However, it is subject to the supervision and control of the General Committee, comprised of several Government of Pakistan (GOP) cabinet secretaries, thus limiting its independence. Because Pakistan has lacked a central repository for the reporting of suspicious transactions and the lack of protection from liability for reporting, very few suspicious transactions have been reported or utilized. From July 2006 through June 2007, 22 suspicious transactions were reported to the State Bank of Pakistan by various banks and five referred to law enforcement agencies for investigation. Currently, the FMU has yet to be fully staffed and investigators have not been adequately trained.

Several law enforcement agencies are responsible for enforcing financial crimes laws. The National Accountability Bureau (NAB), the Anti-Narcotics Force (ANF), the Federal Investigative Agency (FIA), and the Directorate of Customs Intelligence and Investigations (CII) all oversee Pakistan’s financial enforcement efforts. In addition to the 2007 Anti-Money Laundering Ordinance, 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 criminalizes acts of money laundering associated with drug offenses and requires the reporting of narcotics related suspicious transactions. The NAB, FIA, ANF and customs have the ability to seize assets whereas the State Bank of Pakistan has the ability to freeze assets. The ANF shares information about seized narcotics assets and the number of arrests with the USG.

Pakistan has also adopted measures to strengthen its financial regulations and enhance the reporting requirements for the financial sector to reduce its susceptibility to money laundering and terrorist financing. The State Bank of Pakistan and the Securities and Exchange Commission of Pakistan (SECP) are the country’s primary financial regulators. They have established AML units to enhance financial sector oversight. However, these units often lack defined jurisdiction and adequate resources to effectively supervise the financial sector on AML/CTF controls. The State Bank of Pakistan has introduced regulations on AML that are generally consistent with the FATF recommendations in the areas of “know your customer” and enhanced due diligence procedures, record retention, the prohibition of shell banks, and the reporting of suspicious transactions. The Securities and Exchange Commission of Pakistan, which has regulatory oversight for nonbank financial institutions, has also applied “know your customer” regulations to stock exchanges, trusts, and other nonbank financial institutions.

Pakistan has specifically criminalized various forms of terrorist financing under the Anti-Terrorism Act (ATA) of 1997. Sections 11H-K provide that a person commits an offence if he is involved in fund raising, uses and possesses property, or is involved in a funding arrangement intending that such money or other property should be used, or has reasonable cause to suspect that they may be used, for the purpose of terrorism. Pakistan has the ability to freeze bank accounts and property held by terrorist individuals and entities. Pakistan has issued freezing orders for terrorists’ funds and property in accordance with UN Security Council Resolutions 1267 and 1373. The State Bank of Pakistan circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee’s consolidated list. The ATA of 1997 also allows the government to proscribe a fund, entity or individual on the grounds that it is involved with terrorism. This done, the government may order the freezing of its accounts. Section 11B of the ATA specifies that an organization is proscribed or listed if the GOP has reason to believe that it is involved with terrorism. In 1997, 16 names were listed in annex to the ATA; none have been added since. As of 2006, bank accounts of 43 individuals and entities had been frozen under various UNSCRs. However, there have been some deficiencies concerning the timeliness and thoroughness of the asset freezing.

A Charities Registration Act has been under consideration by the Ministry of Welfare for some time. Currently, the Economic Affairs Division of the Ministry of Finance is reviewing the draft text and will then forward the bill to the Ministry of Law for review. The bill will then require approval by the cabinet and National Assembly, unless issued as a Presidential Ordinance by the President. 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 of Social Welfare 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.

Current efforts to crack down on the flow of illicit funds via charitable organizations are limited to closure of the charity. There is little follow-up on suspect individuals associated with charities in question, thus allowing them to operate freely under alternate names. The court system has also failed to affirm Pakistan’s international obligations and maintain closure of UN-proscribed charitable organization. In one such case, a provincial court in Karachi permitted a charity to continue operating in the face of a closure order, provided the charity in question only engaged in humanitarian operations. The GOP failed to aggressively appeal this court decision.

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. The State Bank of Pakistan legally allows individuals to carry up to U.S. $10,000 in dollars or the foreign currency equivalent. In tracking the cross border movement of currency Pakistan currently has reporting requirements only for the exportation of currency not the importation of currency. Although there is no requirement for the inbound reporting of currency, Pakistan is in compliance with FATF’s Special Recommendation IX as they have the ability to ask anyone entering Pakistan if they are bringing in any currency. There are joint counters at international airports staffed by the State Bank of Pakistan and Customs to monitor the transportation of foreign currency. As a result of cash courier training received by Pakistan in 2006, their efforts to stop and seize the illicit cross-border movement of cash have increased. For example, during 2007 authorities made a number of significant cash seizures at the international airports in Karachi, Lahore and Peshawar as well as land border crossings.

Pakistan is party to the 1988 UN Drug Convention and the UN Convention against Corruption and has signed, but not ratified, the UN Convention against Transnational Crime. Pakistan is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. Pakistan is ranked 138 out of 180 countries monitored in Transparency International’s 2007 Corruption Perception Index.

Although the Government of Pakistan has adopted a long-awaited AML ordinance by presidential decree after years of delay and stall tactics, the GOP needs to amend the current AML Ordinance or pass additional legislation to remedy the number of deficiencies which exist, ensure that the legal provisions are made permanent, and make it fully compliant with international standards. The Presidential Ordinance was valid for only four months and was due to expire in early January 2008. At expiry, the AML Ordinance must be “re-enacted” or ratified by the National Assembly. Pakistan’s Financial Monitoring Unit (FMU) needs to be further staffed and strengthened and should be given operational autonomy rather than subject to the supervision and control of the General Committee, comprised of political ministers. The GOP should also issue implementing regulations to consolidate and de-conflict the reporting obligations of suspicious transactions contained in various laws and regulations. Since few suspicious transaction reports are filed, Pakistan should not become dependent on these reports to initiate investigations but rather law enforcement authorities should be proactive in pursuing money laundering in their field investigations. In light of the role that private charities have played in terrorist financing, Pakistan must work quickly to conduct outreach, supervise and monitor charitable organizations and activities, and close those that finance terrorism. In accordance with FATF Special Recommendation IX, Pakistan should implement and enforce cross-border currency reporting requirements and focus greater efforts in identifying and targeting illicit cash couriers. Pakistan should also become a party to the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of Terrorist Financing.

Palau

Palau is an archipelago of more than 300 islands in the Western Pacific with a population of 20,900 (approximately 5,000 of which are foreign guest workers) and per capita GDP of about U.S. $7,000 (a large percentage of which comes from international financial assistance).

Upon its independence in 1994, the Republic of Palau entered the Compact of Free Association with the United States. The U.S. dollar is the legal tender used by the country, though it is not the official currency of Palau. 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. Palauan authorities 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, human 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 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. Two years after the introduction of proposed amendments, an amended MLPCA was signed into law on December 19, 2007.

The original act did not establish requirements for the recording of cash and bearer securities transactions of U.S. $10,000 and above, and only required the reportage of suspicious transactions in excess of U.S. $10,000. The MLPCA did mandate that records be kept for five years from the date of the transaction. All such transactions (domestic and international) are required to go through a credit or financial institution licensed under the laws of the Republic of Palau. 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 be confirmed, the transaction must cease immediately.

The amended MLPCA, in addition to generally tightening up the original law, now sets higher standards for record keeping, requires the recording of cash and bearer securities transactions in excess of U.S. $10,000, removes the dollar threshold on suspicious transactions and requires “alternative remittance systems” to be licensed and maintain records of all transactions in excess of U.S. $1,000. The amendment also requires currency transactions over U.S. $5,000 to be effected by wire transfer and also authorizes the Financial Institutions Commission (FIC) to conduct random compliance audits on credit or financial institutions. Palau also monitors cross border transportation of currency through a declaration form requiring travelers to declare U.S. $10,000 or more.

The MLPCA defined offenses of money laundering as: 1) conversion or transfer of property for the purpose of concealing its illegal origin; 2) concealing or disguising the illegal nature, source, location, disposition, or ownership of property; and 3) acquisition, possession, or control of property by any person who knows that the property constitutes the proceeds of crime as defined in the law. The law provides for penalties of a fine not less than U.S. $5,000, nor more than double the amount the convicted individual laundered or attempted to launder, whichever is greater, or imprisonment of not more than 10 years, or both. Corporate entities or their agents are subject to a fine double that specified for individuals. The law protects individuals who report suspicious transactions.

The Financial Institutions Act of 2001 established the Financial Institutions Commission (FIC), an independent regulatory agency, which is responsible for licensing, supervising and regulating financial institutions, defined as banks and security brokers and dealers in Palau. An amendment intended to strengthen the supervisory powers of the FIC and promote greater financial stability within Palau’s banking sector passed its first reading in the Senate in January 2005. The Senate Committee on Ways and Means and Financial Matters did not report out the bill until December 2006 when it merely referred it back to the Committee for further study. This amendment still has not become law. The insurance industry is not currently regulated by the FIC. Most insurance companies in Palau are companies registered in the U.S. or the U.S. Territory of Guam.

The Free Trade Zone Act of 2003 created the Ngardmau Free Trade Zone (NFTZ). A public corporation, Ngardmau Free Trade Zone Authority, was established to oversee the development of the NFTZ. The Authority also issues licenses for businesses to operate within the free trade zone. Businesses licensed to operate within the free trade zone will not be subject to the requirements of the Foreign Investment Act and will be exempt from certain import and export taxes. No development has taken place within the area designated for the free trade zone and the NFTZ directors continue to search for developers and investors.

Currently there are seven licensed banks in Palau, the majority ownership of which is primarily foreign. The three largest retail banks—Bank of Hawaii, Bank of Guam and BankPacific are all branches of American banks. In addition there are three banks chartered in Palau (Asia Pacific Commercial Bank, First Fidelity Bank and Palau Construction Bank) and one chartered in Taiwan (First Commercial Bank.)

On November 7, 2006, the FIC closed the second largest and the only locally owned bank, Pacific Savings Bank (PSB), for illiquidity and insolvency. The Receiver and a Special Prosecutor hired specifically for the purpose of developing cases related to the failure of PSB have filed a number of civil and criminal actions against former bank managers and insiders. An additional five to ten cases are currently being prepared. Investigations and litigation, though hampered by lack of resources, continue.

With the legal framework now being made more robust, the weakest link in Palau’s money laundering prevention regime is the paucity of human and fiscal resources. The operations of the government’s Financial Intelligence Unit (FIU) are severely restricted by a lack of dedicated human resources and no dedicated budget. The FIU works under the Office of the Attorney General and is responsible for receiving, analyzing, and processing suspicious transaction reports, and disseminating the reports as necessary. In addition, the FIU is responsible for tracing, seizing, and freezing assets.

Another impediment to enforcement is the lack of implementing regulations to ensure compliance with the amended MLPCA. With the passage of the 2007 amendment, however, these can now be developed.

The will of the Executive branch to comply with international standards 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 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 Taiwan and the Philippines for mutual sharing of information and interagency cooperation in relation to financial crimes and money laundering.

In 2004 The President also sent the Cash Courier Act, drafted by the Palau Anti-Money Laundering Working Group, to the legislature. 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, like the bill intended to strengthen the FIC, it remains.

The Counter-Terrorism Act of 2007 includes 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 Counter-Terrorism Act specifically addresses Palau’s obligation under UN Security Council Resolution 1373. Palau is a party to the UN International Convention for the Suppression of the Financing of Terrorism. Under the Act, acts of terrorism that cause loss of life are punishable by a prison term of 20 years to life and a maximum fine of U.S. $1,000,000. All other acts of terrorism are punishable by a prison term of 10 years to life and a maximum fine of U.S. $1,000,000.

Donations over U.S. $5,000 to any nonprofit organization are to be recorded. The organization must maintain the record for 3 years and must provide it to the FIU upon request. Donations over U.S. $10,000 are to be reported to the Office of the Attorney General and FIU. Any suspicious donations are also to be reported to the Office of the Attorney General and FIU. Penalties for violations are: 1) a fine not to exceed U.S. $10,000; 2) a temporary ban on operations for up to 2 years; or 3) the dissolution of the organization.

The Government of Palau (GOP) has taken several steps toward enacting a legal framework by which to combat money laundering. The GOP should circulate the UNSCR 1267 Sanctions Committee Consolidated list of terrorist entities. The GOP should provide more resources to its FIU, and provide more assistance to and proactively support the work of the Pacific Savings Bank Special Prosecutor. The GOP should enact the Cash Courier Act and carefully monitor its border points of entry and exit to protect against the smuggling of bulk cash, narcotics and other contraband. The GOP should also implement all aspects of the legal reforms already in place.

Panama

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. Panama is also an important regional financial center. Panama’s economy is 77 percent service-based, 15 percent industry and 8 percent agriculture. The maritime sector, construction, tourism, and banking are among Panama’s most important and fastest growing sectors. Panama has had one of the fastest growing economies in the Western Hemisphere over the last 15 years, and is estimated to have the fastest growing economy in the region during 2007, with GDP growth approaching 10 percent. The funds generated from illegal activity are susceptible of being laundered through a wide variety of methods in Panama, including the banking system, casinos, bulk cash shipments, pre-paid telephone cards, debit cards, ATM machines, insurance companies, and real estate projects and agents.

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 is the world’s second largest free zone after Hong Kong, and 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. The CFZ has over 2,600 business, 25 bank branches, and employs approximately 25,000 personnel. The CFZ is estimated to have imported and re-exported over U.S. $15 billion in goods during 2007. The ports of Panama handle over 4 million twenty-foot equivalent units (TEUs) of container traffic per year. The CFZ has limited resources to conduct supervisory programs and monitor for illegal activities, with a legal staff of approximately five people who, among other things, oversee efforts to detect money laundering, transshipment, goods smuggling, counterfeit products and intellectual property rights violations.

Panama is one of the world’s largest offshore financial centers. Panama’s offshore financial sector includes international business companies, offshore banks, captive insurance companies and fiduciary companies. Approximately 34,800 new offshore corporations were registered in Panama in 2007, as of October 2007. As of June 2007, Panamas had 85 commercial banks: 2 official banks, 14 local banks of general license, 26 foreign banks of general license, 34 banks of international license, and nine representative offices. Shell companies are permitted and have been used by a wide range of criminal groups around the world. Bearer shares are permitted for corporations and nominee directors and trustees as are allowed by law. The Government of Panama (GOP) regulates casinos, but does not regulate Internet gaming sites.

Law No. 42 of 2000 requires Panamanian trust companies to identify to the Superintendence of Banks the real and ultimate beneficial owners of trusts. Executive Decree 213 of 2000, amending Executive Order 16 of 1984, provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities. Both the onshore and offshore financial entities are subject to similar regulation by the Superintendence of Banks. The onshore and offshore registration of corporations is also handled by the Public Registry. There are no differing regulations governing onshore and offshore corporations. The application process for a banking license in favor of a bank to be constituted in Panama and a banking license in favor of a foreign bank are substantially the same.

Panama’s construction sector, which is growing at double-digit rates, is also susceptible to money laundering activities. In Panama City alone, there is either in process or approved the construction of over 150 buildings of twenty stories or greater. It is estimated that approximately 20,000 high-end condominium units will enter the Panamanian real estate market within the next five years. The bulk of these units are for purchase by foreigners. The developer of one residential project (Resort Paraiso Las Perlas on Isla Chapera in the Gulf of Panama), Jose Nelson Urrego Cardenas, was arrested in 2007 on drug money laundering charges.

Money laundering is a criminal offense in Panama under Law No. 41 of October 2000. Law 41 amends 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. 1 of 2004 also adds crimes against intellectual property as a predicate offense for money laundering. In May 2007, Law No. 14 was adopted, establishing terrorist financing as a predicate offense for money laundering. Law 41 establishes a 5 to 12 year prison sentence, plus possible fines. Law No. 45 of 2003 also establishes criminal penalties of up to ten years in prison and fines of up to one million dollars for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. This law criminalizes a wide range of activities related to financial intermediation, including the following: illicit transfers of monies, accounting fraud, insider trading, and the submission of fraudulent data to supervisory authorities.

Law No. 42 of 2000 requires financial institutions (banks, trust companies, money exchangers, credit unions, savings and loans associations, stock exchanges and brokerage firms, and investment administrators) to report currency transactions in excess of U.S. $10,000 and suspicious financial transactions to Panama’s financial intelligence unit, the Unidad de Análisis Financiero (UAF). Law 42 also mandates casinos, CFZ businesses, the national lottery, real estate agencies and developers, and insurance and reinsurance companies report to the UAF currency transactions that exceed U.S. $10,000. Furthermore, Law 42 requires Panamanian trust companies to identify to the Superintendent of Banks the beneficial owners of trusts. Additionally, Law 16 of 2005, which regulates the activities of pawnshops, requires such enterprises to report suspicious transactions to the UAF. Financial institutions are prohibited from informing their client or third parties that they have transmitted any information regarding such transactions to the UAF. Law 42 protects reporting entities from civil and criminal suits with respect to providing the information required by the law and otherwise cooperating with law enforcement entities.

The Superintendent of Banks is responsible for supervising both onshore and offshore financial institutions with regard to their anti-money laundering and counter-terrorist financing (AML/CTF) requirements. In 2000, Panama’s Superintendence of Banks issued Agreement No. 9 of 2000 that defines requirements that banks must follow for identification of customers, exercise of due diligence, and retention of transaction records and increased the number of finance company inspections. In 2005, the Superintendence of Banks modified that Agreement, to include fiduciary companies within the prevention measures and to bring the banking center into line with international standards and Financial Action Task Force (FATF) recommendations. Financial institutions must have sufficient information to adequately identify their customers. They must examine every cash (or cash equivalent) transaction in excess of $10,000 or a series of transactions that in the aggregate exceed U.S. $10,000 in any given week. Additionally, they must examine with special attention, any transaction, regardless of amount, which could be related to money laundering activity. Financial institutions must also establish procedures and mechanisms for internal controls to prevent money laundering related activities. Financial institutions must also insure that their employees are aware of these laws and regulations.

A number of other supervisory bodies have regulatory responsibility for AML/CTF compliance purposes. The Ministry of Commerce and Industry is responsible for supervising money remittance houses, financing companies, real estate promoters and agents, pawnshops, and companies located in enterprise processing zones. The Panamanian Autonomous Cooperative Institute supervises savings and loan cooperatives, and has established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with Law 42. The National Securities Commission supervises securities firms, stockbrokers, stock exchanges and investment managers, and carries out various training sessions and workshops for its personnel and related entities. The Gaming Commission supervises casinos and other establishments dedicated to betting and games of chance. The Colon Free Zone Authority supervises the companies and activity within the CFZ, and has issued a procedures manual for all CFZ businesses, outlining their responsibilities regarding the prevention of money laundering and the requirements of Law 42. The Superintendence of Insurance supervises insurance companies, reinsurance companies, and insurance brokers.

Executive Decree No. 136 of 1995 establishes the UAF. The UAF falls under the jurisdiction of the GOP’s Council for Security and National Defense within the Ministry of the Presidency. The UAF currently has approximately 25 employees. During 2007, the UAF reinforced the analysis department by hiring two new accountants, a financial analyst, and a lawyer. Also, the statistics and typology departments have newly trained personnel. Despite these additions, the UAF is overworked and understaffed, lacks adequate resources, and suffered the loss of experienced personnel in 2007.

The UAF works with other GOP agencies to identify new methods of money laundering and terrorist financing, and participates in the training of financial and nonfinancial sector employees in detecting and preventing money laundering and terrorist financing. During the first six months of 2007, the UAF trained 1,476 individuals, 59 percent of which were banking employees, 29 percent of which were government employees, and 12 percent of which were financial service employees.

The UAF has access to the records or databases of other government entities that have public websites or public investigative offices. The UAF has online access with other GOP entities to access information from the public registry, traffic department, electoral tribunal, as well as information on immigration movements and travelers’ declarations of the cross-border transportation of currency. The UAF may also request additional information from financial institutions in writing.

Once the UAF has reviewed all cash transaction reports (CTRs) or suspicious transaction reports (STRs) and gathered any other relevant information from reporting institutions and other government agencies, the UAF provides information related to possible money laundering or terrorist financing to the Office of the Attorney General for investigation. Money laundering cases involving narcotics are handled by the Drug Prosecutor’s Office within the Office of the Attorney General. The Judicial Technical Police (Sección de Investigaciones Financieras, or SIF, similar in function to the Federal Bureau of Investigation) provides expert assistance to the prosecutors. The UAF routinely transfers cases to the financial investigations unit of the SIF for investigation.

As of November, the UAF received 1,012 STRs in 2007, of which 170 were sent to the Attorney General’s Office for further action. During all of 2006, the UAF investigated 935 suspicious transaction reports (843 from banks), of which 158 were sent to the Attorney General’s Office. During the second quarter of 2007, the UAF received 63,752 CTRs, a 3.8 percent increase from the same period in 2006. The total amount reported via CTRs during the first six months of 2007 was $2.7 billion, a 46.9 percent increase from the same period in 2006. Approximately 91 percent of the reports came from banks, and 4.5 percent from exchange houses. The UAF attributes the increase in CTRs to the growth in the Panamanian economy. As of October, the Drug Prosecutor’s Office reported 43 drug-related money laundering arrests in 2007.

Under Panamanian customs regulations, any individual bringing cash in excess of $10,000 into Panama must declare such monies at the point of entry. If such monies are not declared, they are confiscated and are presumed to relate to money laundering. Some GOP officials have expressed concern at the millions of dollars in cash they have seen brought into Panama from Colombia. The actual movement/transfer of this cash is legal insofar that it was declared to both Colombian and Panamanian customs. However, the GOP maintains that it cannot vouch for the legitimate origins of said cash. All instances of cash smuggling are required to be reported into a database maintained by Panamanian customs.

On August 10, 2007, Law 38 entered into force. Law 38 provides for the seizure of assets derived from criminal activity. Upon an arrest, assets are frozen and seized. The assets are released upon a judge’s order to the defendant in the event of a dismissal of charges or acquittal. In the event of a conviction, assets derived from money laundering activity related to narcotics trafficking are delivered to the National Commission for the Study and Prevention of Narcotics Related Crimes (CONAPRED) for administration and distribution among various GOP agencies. Seized perishable assets may be sold and the proceeds deposited in a custodial account with the National Bank. Responsibility for tracing, seizing and freezing assets lies principally with the Drug Prosecutor’s Office of the Attorney General’s Office. The GOP has not enacted legislation allowing for civil forfeiture or the sharing of seized assets with other governments.

Law 50 of 2003 criminalizes the financing of terrorism. Under Law 14 of May 2007, terrorist financing and terrorist acts, among other offenses, are now predicate offenses for money laundering. Panama circulates to its financial institutions the list of individuals and entities included on the United Nations Security Council Resolution 1267 Sanctions Committee list. The Ministry of Foreign Relations sends the UAF and the Superintendence of Banks a copy of a diplomatic note or letter with the names of terrorist organizations or financiers designated by the U.S. Government or the UN. The UAF in turn sends it to the appropriate regulators, who in turn send it to the regulated entities. The GOP does not have an independent national system or mechanism for freezing terrorist assets.

Executive Decree 524 of 2005, as amended by Executive Decree 627 of 2006, establishes procedures to regulate, supervise, and control nongovernmental organizations and charities, including regulatory procedures to combat terrorism and prevent terrorist financing. Press reports, however, have questioned the degree to which the nongovernmental organizations are complying with their reporting and registration requirements.

Decree No. 22 of June 2003, gave the Presidential High Level Commission against Narcotics Related Money Laundering responsibility for combating terrorist financing. The Panama Public Force (PPF) and the judicial system have limited resources to deter terrorists, due to insufficient personnel and lack of expertise in handling complex international investigations. The GOP has a border security cooperation agreement with Colombia, and has also increased funds to the PPF to help secure the frontier. The GOP also created within the Ministry of Foreign Affairs 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 to investigate transnational issues, including money laundering. Panama has an implementation plan for compliance with the FATF Forty Recommendations on Money Laundering and its Nine Special Recommendations on Terrorist Financing.

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 or other information exchange agreement. The UAF has signed more than 43 memoranda of understanding with foreign FIUs, including the Financial Crimes Enforcement Network (FinCEN), the U.S. FIU.

Panama is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD), and the Caribbean Financial Action Task Force. Panama is also a member of the Offshore Group of Banking Supervisors, and 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.

The Government of Panama has a comprehensive legal framework to detect, prevent, and combat money laundering and terrorist financing, and cooperates with the United States and other countries with criminal investigations of drug trafficking, money laundering, and financial crimes. Panama nonetheless remains vulnerable to money laundering owing to its lack of adequate enforcement, personnel and resources, the sheer volume of economic transactions, its location as a major drug transit country, and corruption. The GOP should consider adopting legislation that allows for civil forfeiture and the freezing of terrorist assets, and enhance law enforcement efforts to address such vulnerabilities as smuggling, abuse of the real estate sector, trade-based money laundering, and the proliferation of nontransparent offshore companies. The GOP should also ensure that the UAF and other law enforcement and regulatory entities have sufficient personnel and resources.

Paragua