Every year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in 200 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions involving proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.
The 2009 INCSR identified money laundering priority jurisdictions and countries using a classification system that consists of three different categories: Jurisdictions of Primary Concern, Jurisdictions of Concern, and Other Jurisdictions Monitored.
“Jurisdictions of Primary Concern” are those that are identified, pursuant to INCSR reporting requirements, as “major money laundering countries.” A major money laundering country is defined by statute as one “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.” However, the complex nature of money laundering transactions today makes it difficult in many cases to distinguish the proceeds of narcotics trafficking from the proceeds of other serious crime. Moreover, financial institutions engaged in transactions that involve significant amounts of proceeds from other serious crimes are vulnerable to narcotics-related money laundering. The category “Jurisdiction of Primary Concern” recognizes this relationship by including all countries and other jurisdictions whose financial institutions engage in transactions involving significant amounts of proceeds from all serious crimes. Thus, the focus in considering whether a country or jurisdiction should be included in this category is on the significance of the amount of proceeds laundered, not of the anti-money laundering measures taken. This is a different approach taken than that of the Financial Action Task Force’s Non-Cooperative Countries and Territories (NCCT) exercise, which focuses on a jurisdiction’s compliance with stated criteria regarding its legal and regulatory framework, international cooperation, and resource allocations.
All other countries and jurisdictions evaluated in the INCSR are separated into the two remaining groups, “Jurisdictions of Concern” and “Other Jurisdictions Monitored,” on the basis of several factors that may include: (1) whether the country’s financial institutions engage in transactions involving significant amounts of proceeds from serious crimes; (2) the extent to which the jurisdiction is or remains vulnerable to money laundering, notwithstanding its money laundering countermeasures, if any (an illustrative list of factors that may indicate vulnerability is provided below); (3) the nature and extent of the money laundering situation in each jurisdiction (e.g., whether it involves drugs or other contraband); (4) the ways in which the U.S. Government (USG) regards the situation as having international ramifications; (5) the situation’s impact on U.S. interests; (6) whether the jurisdiction has taken appropriate legislative actions to address specific problems; (7) whether there is a lack of licensing and oversight of offshore financial centers and businesses; (8) whether the jurisdiction’s laws are being effectively implemented; and (9) where U.S. interests are involved, the degree of cooperation between the foreign government and the USG. Additionally, given concerns about the increasing interrelationship between inadequate money laundering legislation and terrorist financing, terrorist financing is an additional factor considered in making a determination as to whether a country should be considered a “Jurisdiction of Concern” or an “Other Jurisdiction Monitored.” A government (e.g., the United States or the United Kingdom) can have comprehensive anti-money laundering laws on its books and conduct aggressive anti-money laundering enforcement efforts but still be classified a “Primary Concern” jurisdiction. In some cases, this classification may simply or largely be a function of the size of the jurisdiction’s economy. In such jurisdictions, quick, continuous and effective anti-money laundering efforts by the government are critical. While the actual money laundering problem in jurisdictions classified as “Jurisdictions of Concern” is not as acute, they too must undertake efforts to develop or enhance their anti-money laundering regimes. Finally, while jurisdictions in the “Other Jurisdictions Monitored” category do not pose an immediate concern, it is nevertheless important to monitor their money laundering situations because, under certain circumstances, virtually any jurisdiction of any size can develop into a significant money laundering center.
Vulnerability Factors
The current ability of money launderers to penetrate virtually any financial system makes every jurisdiction a potential money laundering center. There is no precise measure of vulnerability for any financial system, and not every vulnerable financial system will, in fact, be host to large volumes of laundered proceeds. A checklist of what drug money managers reportedly look for, however, provides a basic guide. The checklist includes:
- Failure to criminalize money laundering for all serious crimes or limiting the offense to narrow predicates.
- Rigid bank secrecy rules that obstruct law enforcement investigations or that prohibit or inhibit large value and/or suspicious or unusual transaction reporting by both banks and nonbank financial institutions.
- Lack of or inadequate “know your customer” requirements to open accounts or conduct financial transactions, including the permitted use of anonymous, nominee, numbered or trustee accounts.
- No requirement to disclose the beneficial owner of an account or the true beneficiary of a transaction.
- Lack of effective monitoring of cross-border currency movements.
- No reporting requirements for large cash transactions.
- No requirement to maintain financial records over a specific period of time.
- No mandatory requirement to report suspicious transactions or a pattern of inconsistent reporting under a voluntary system and a lack of uniform guidelines for identifying suspicious transactions.
- Use of bearer monetary instruments.
- Well-established nonbank financial systems, especially where regulation, supervision, and monitoring are absent or lax.
- Patterns of evasion of exchange controls by legitimate businesses.
- Ease of incorporation, in particular where ownership can be held through nominees or bearer shares, or where off-the-shelf corporations can be acquired.
- No central reporting unit for receiving, analyzing, and disseminating to the competent authorities information on large value, suspicious or unusual financial transactions that might identify possible money laundering activity.
- Lack of or weak bank regulatory controls, or failure to adopt or adhere to Basel Committee’s “Core Principles for Effective Banking Supervision,” especially in jurisdictions where the monetary or bank supervisory authority is understaffed, under-skilled or uncommitted.
- Well-established offshore financial centers or tax-haven banking systems, especially jurisdictions where such banks and accounts can be readily established with minimal background investigations.
- Extensive foreign banking operations, especially where there is significant wire transfer activity or multiple branches of foreign banks, or limited audit authority over foreign-owned banks or institutions.
- Jurisdictions where charitable organizations or alternate remittance systems, because of their unregulated and unsupervised nature, are used as avenues for money laundering or terrorist financing.
- Limited asset seizure or confiscation authority.
- Limited narcotics, money laundering, and financial crime enforcement, and lack of trained investigators or regulators.
- Jurisdictions with free trade zones where there is little government presence or other supervisory authority.
- Patterns of official corruption or a laissez-faire attitude toward business and banking communities.
- Jurisdictions where the U.S. dollar is readily accepted, especially jurisdictions where banks and other financial institutions allow dollar deposits.
- Well-established access to international bullion trading centers in New York, Istanbul, Zurich, Dubai, and Mumbai.
- Jurisdictions where there is significant trade in or export of gold, diamonds, and other gems.
- Jurisdictions with large parallel or black market economies.
- Limited or no ability to share financial information with foreign law enforcement authorities.
Changes in INCSR Priorities for 2008
Countries moving to the “Jurisdictions of Primary Concern” category from the “Jurisdictions of Concern” category: Bolivia, Guinea-Bissau, and Zimbabwe.
Countries moving to the “Jurisdictions of Concern” category from the “Other Jurisdictions Monitored” category: Azerbaijan and Trinidad and Tobago.
Country moving to “Other Jurisdictions Monitored” category from the “Jurisdictions of Concern” category: Dominica
In the Country/Jurisdiction Table on the following page, “major money laundering countries” that are in the “Jurisdictions of Primary Concern” category are identified for purposes of INCSR statutory reporting requirements. Identification as a “major money laundering country” is based on whether the country or jurisdiction’s financial institutions engage in transactions involving significant amounts of proceeds from serious crime. It is not based on an assessment of the country or jurisdiction’s legal framework to combat money laundering; its role in the terrorist financing problem; or the degree of its cooperation in the international fight against money laundering, including terrorist financing. These factors, however, are included among the vulnerability factors when deciding whether to place a country or jurisdiction in the “Jurisdictions of Concern” or “Other Jurisdictions Monitored” category.
Note: Country reports are provided for only those countries and jurisdictions listed in the “Primary Jurisdictions of Concern” and “Jurisdictions of Concern” categories.
Country/Jurisdiction Table
Countries/Jurisdictions of Primary Concern | Countries/Jurisdictions of Concern | Other Countries/Jurisdictions Monitored | |||
Afghanistan | Panama | Albania | Peru | Andorra | Mali |
Antigua and Barbuda | Paraguay | Algeria | Poland | Anguilla | Malta |
Australia | Philippines | Angola | Portugal | Armenia | Marshall Islands |
Austria | Russia | Argentina | Qatar | Benin | Mauritania |
Bahamas | Singapore | Aruba | Romania | Bermuda | Mauritius |
Belize | Spain | Azerbaijan | Samoa | Botswana | Micronesia FS |
Bolivia | Switzerland | Bahrain | Saudi Arabia | Brunei | Mongolia |
Brazil | Taiwan | Bangladesh | Senegal | Burkina Faso | Montenegro |
Burma | Thailand | Barbados | Serbia | Burundi | Montserrat |
Cambodia | Turkey | Belarus | Seychelles | Cameroon | Mozambique |
Canada | Ukraine | Belgium | Sierra Leone | Cape Verde | Namibia |
Cayman Islands | United Arab Emirates | Bosnia and Herzegovina | Slovakia | Central African Republic | Nauru |
China, People Rep | United Kingdom | British Virgin Islands | South Africa | Chad | Nepal |
Colombia | United States | Bulgaria | St. Kitts & Nevis | Congo, Dem Rep of | New Zealand |
Costa Rica | Uruguay | Chile | St. Lucia | Congo, Rep of | Niger |
Cyprus | Venezuela | Comoros | St. Vincent | Croatia | Niue |
Dominican Republic | Zimbabwe | Cook Islands | Suriname | Cuba | Norway |
France | Cote d’Ivoire | Syria | Denmark | Oman | |
Germany | Czech Rep | Tanzania | Djibouti | Papua New Guinea | |
Greece | Ecuador | Trinidad and Tobago | Dominica | Rwanda | |
Guatemala | Egypt | Turks and Caicos | East Timor | San Marino | |
Guernsey | El Salvador | Uzbekistan | Equatorial Guinea | Sao Tome & Principe | |
Guinea-Bissau | Ghana | Vanuatu | Eritrea | Slovenia | |
Haiti | Gibraltar | Vietnam | Estonia | Solomon Islands | |
Hong Kong | Grenada | Yemen | Ethiopia | Sri Lanka | |
India | Guyana | Fiji | Swaziland | ||
Indonesia | Honduras | Finland | Sweden | ||
Iran | Hungary | Gabon | Tajikistan | ||
Isle of Man | Iraq | Gambia | Togo | ||
Israel | Ireland | Georgia | Tonga | ||
Italy | Jamaica | Guinea | Tunisia | ||
Japan | Jordan | Iceland | Turkmenistan | ||
Jersey | Korea, North | Kazakhstan | Uganda | ||
Kenya | Korea, South | Kosovo | Zambia | ||
Latvia | Kuwait | Kyrgyz Republic | |||
Lebanon | Laos | Lesotho | |||
Liechtenstein | Malaysia | Liberia | |||
Luxembourg | Moldova | Libya | |||
Macau | Monaco | Lithuania | |||
Mexico | Morocco | Macedonia | |||
Netherlands | Netherlands Antilles | Madagascar | |||
Nigeria | Nicaragua | Malawi | |||
Pakistan | Palau | Maldives | |||
Introduction to Comparative Table
The comparative table that follows the Glossary of Terms below identifies the broad range of actions, effective as of December 31, 2008, that jurisdictions have, or have not, taken to combat money laundering. This reference table provides a comparison of elements that includes legislative activity and other identifying characteristics that can have a relationship to a jurisdiction’s money laundering vulnerability.
Glossary of Terms
1. “Criminalized Drug Money Laundering”: The jurisdiction has enacted laws criminalizing the offense of money laundering related to drug trafficking.
2. “Criminalized Beyond Drugs”: The jurisdiction has extended anti-money laundering statutes and regulations to include nondrug-related money laundering.
3. “Record Large Transactions”: By law or regulation, banks are required to maintain records of large transactions in currency or other monetary instruments.
4. “Maintain Records Over Time”: By law or regulation, banks are required to keep records, especially of large or unusual transactions, for a specified period of time, e.g., five years.
5. “Report Suspicious Transactions”: By law or regulation, banks are required to record and report suspicious or unusual transactions to designated authorities. On the Comparative Table the letter “M” signifies mandatory reporting; “P” signifies permissible reporting.
6. “Financial Intelligence Unit”: The jurisdiction has established an operative central, national agency responsible for receiving (and, as permitted, requesting), analyzing, and disseminating to the competent authorities disclosures of financial information concerning suspected proceeds of crime, or required by national legislation or regulation, in order to counter money laundering. These reflect those jurisdictions that are members of the Egmont Group.
7. “System for Identifying and Forfeiting Assets”: The jurisdiction has enacted laws authorizing the tracing, freezing, seizure, and forfeiture of assets identified as relating to or generated by money laundering activities.
8. “Arrangements for Asset Sharing”: By law, regulation or bilateral agreement, the jurisdiction permits sharing of seized assets with third party jurisdictions that assisted in the conduct of the underlying investigation.
9. “Cooperates w/International Law Enforcement”: By law or regulation, banks are permitted/required to cooperate with authorized investigations involving or initiated by third party jurisdictions, including sharing of records or other financial data.
10. “International Transportation of Currency”: By law or regulation, the jurisdiction, in cooperation with banks, controls or monitors the flow of currency and monetary instruments crossing its borders. Of critical weight here is the presence or absence of wire transfer regulations and use of reports completed by each person transiting the jurisdiction and reports of monetary instrument transmitters.
11. “Mutual Legal Assistance”: By law or through treaty, the jurisdiction has agreed to provide and receive mutual legal assistance, including the sharing of records and data.
12. “Nonbank Financial Institutions”: By law or regulation, the jurisdiction requires nonbank financial institutions to meet the same customer identification standards and adhere to the same reporting requirements that it imposes on banks.
13. “Disclosure Protection Safe Harbor”: By law, the jurisdiction provides a “safe harbor” defense to banks or other financial institutions and their employees who provide otherwise confidential banking data to authorities in pursuit of authorized investigations.
14. “States Parties to 1988 UN Drug Convention”: States parties to the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.
15. “Criminalized the Financing of Terrorism”: The jurisdiction has criminalized the provision of material support to terrorists and/or terrorist organizations.
16. “States Parties to the UN International Convention for the Suppression of the Financing of Terrorism”: States parties to the International Convention for the Suppression of the Financing of Terrorism, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.
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