The State Department web site below is a permanent electronic archive of information released prior to January 20, 2001.  Please see www.state.gov for material released since President George W. Bush took office on that date.  This site is not updated so external links may no longer function.  Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

International Narcotics Control Strategy Report, 1999 Released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State Washington, DC, March 2000

Country Reports

Afghanistan (Other). Afghanistan's importance as an opium poppy production center is not paralleled in the money laundering sector: Afghanistan is not a center for money laundering. Financial institutions barely exist. The country is neither an important regional financial center nor an offshore financial center.

Afghanistan does play a key role in the heroin trade, the proceeds of which appear to be laundered outside the country, particularly in the United Arab Emirates, or through the hawala alternative remittance system. Reports indicate that the Taliban, the Northern Alliance, and other factions are involved in narcotics trafficking.

The hawala (or hundi) alternative remittance system is known to be used to remit money to Afghanistan. Although most remittances represent money being sent home by Afghan expatriates, some may represent the sale of narcotics produced in or moved through Afghanistan as part of a larger money laundering scheme.

Contraband smuggling, including the smuggling of narcotics, generates funds. Private investment of drug trafficking profits reportedly contributed to a surge in building construction and other licit commercial activity in Kandahar City during 1998. Profits are also invested in improving trafficking capabilities by purchasing fast, all-terrain vehicles and acquiring more potent weaponry.

There are no U.S. training or other programs aimed at combating money laundering in Afghanistan. Albania (Concern). The significant presence of organized crime and the weakness of government structures make Albania a transit country for narcotics and arms trafficking, as well as for the smuggling of contraband goods and illegal aliens, all of which put Albania at risk for money laundering. Organized crime groups use Albania as a base of operations for criminal activities in other countries. Criminal proceeds are easily laundered in Albania, since official corruption is rife and government enforcement controls are weak or nonexistent. Albania's government is still in the process of asserting its authority in many areas of the country following the collapse of the Albanian economy and ensuing civil strife of 1997.

Article 287 of the Albanian Criminal Code of 1995 criminalized all types of money laundering. With the assistance of several European regional organizations, Albania is drafting comprehensive anti-money laundering legislation that should meet international standards. Albania participates in the Council of Europe's PC-R-EV. In September 2000, Albania will undergo a mutual evaluation conducted by the PC-R-EV. The report may provide detailed suggestions to improve Albania's anti-money laundering program.

As Albania considers adopting anti-money laundering legislation, it must deal with more fundamental issues such as establishing enforcement and judicial systems capable of supporting an effective anti-money laundering regime. It also faces huge obstacles in reigning in the influence of organized crime that generates money laundering proceeds, and corruption that could undermine the best of anti-money laundering measures.

Algeria (Other). There is no evidence of widespread money laundering in Algeria, although there are unofficial reports of money laundering being carried out in conjunction with various types of smuggling. Algeria has not enacted any type of anti-money laundering legislation. There is a requirement that a declaration be made of any type of foreign currency brought into the country, but it is not clear how strictly this regulation is enforced.

Algeria is a party to the 1988 UN Drug Convention.

Anguilla (Other). Anguilla is a United Kingdom Caribbean Overseas Territory (COT), and therefore subject to the laws of the United Kingdom. Anguilla has a small offshore financial services sector, which includes offshore banks, trusts and international business companies. For its 8,000 inhabitants, Anguilla has 2 offshore banks, both subsidiaries of major banks, and 1,500 international business companies.

The extent of money laundering in Anguilla is unknown, but the relatively large size of this tiny Caribbean island's offshore financial sector makes it an attractive location for money laundering. Rumors of bulk currency transport persist.

Legislation adopted in 1995 brought Anguilla into compliance with the requirements of the 1988 UN Drug Convention. The legislation includes provisions for asset seizure and forfeiture. Anguilla, along with its COT brethren, has increased its regulation over its financial sector; for instance, it has promulgated guidelines stating that new bank licenses will be issued only to subsidiaries of established banks with effective parent-bank supervision. Anguilla's existing anti-money laundering regime and practices will be assessed against international standards under a contract signed in 1999 with an international consulting firm, providing for an independent, in-depth review of financial regulatory practices.

Anguilla is subject to the U.S./UK MLAT and the U.S./UK extradition treaty. Its operational contact with the United States and the other United Kingdom Overseas Territories is close and effective. Anguilla, through the UK, is a party to the 1988 UN Drug Convention. Anguilla is also a member of the CFATF.

Antigua and Barbuda (Primary). Until early 1997, Antigua and Barbuda had an active and virtually unregulated offshore financial service industry, which, combined with stringent bank secrecy, made the country an attractive site for money launderers. The country took steps in 1997 and 1998 to address problems and assert control by passing sound anti-money laundering legislation. However, in October 1998, individuals suspected of involvement in money laundering and other illicit economic activities used their considerable financial influence to weaken Antigua's anti-money laundering legislation. Certain amendments to the Money Laundering (Prevention) Act and the 1982 International Business Corporations (IBC) Act distorted the regulatory regime and undermined the ability of law enforcement to investigate and prosecute financial crimes.

These developments resulted in the issuance of a financial advisory by the U.S. Treasury Department in April 1999. Shortly thereafter the United Kingdom issued a similar advisory, and France publicly expressed its concerns. The U.S. Advisory, which advised financial institutions to give "enhanced scrutiny to all financial transactions routed into or out of Antigua and Barbuda," was issued because changes in Antigua and Barbuda's money laundering laws threatened to "create a 'haven' whose existence will undermine international efforts of the United States and other nations to counter money laundering and other criminal activity, a concern of which the United States has repeatedly made the Government of Antigua and Barbuda aware".

Since the issuance of the advisories, the Government of Antigua and Barbuda (GOAB) has rescinded most of the objectionable legislation and enacted most of the new legislation which, if effectively implemented, would bring the GOAB into compliance with international norms governing offshore financial services. Additionally, the GOAB is taking other steps to clean up its financial services sector. As a result of an intensive two year review of the licensed offshore banks, the GOAB revoked the licenses of approximately two-thirds of the offshore banks for failing to provide an approved financial audit and to meet the increased capitalization requirements, and, more importantly, for participating in illegal activities such as fraud and money laundering. Numerous criminal investigations in the United States have revealed that several of the offshore banks, most of which have been closed, engaged in financial transactions with funds of questionable origin. Currently there are about 18 offshore banks operating in Antigua and Barbuda, down from about 47 in 1998.

During 1999, the GOAB also increased its bilateral and multilateral cooperation on various law enforcement initiatives. In July 1999, the GOAB became the first country in the eastern Caribbean to bring the new Extradition Treaty and MLAT with the United States into force. Despite difficulties and delays in 1998, the GOAB has provided substantive assistance to U.S. law enforcement and prosecutors investigating and prosecuting fraud and money laundering cases involving the Antiguan-licensed Caribbean American Bank and European Union Bank. A request for the extradition of William Cooper, a director of Caribbean American Bank and owner of Antiguan American International Bank, is currently pending. The GOAB also worked closely with Canadian authorities in the investigation and successful prosecution of a major money laundering case, receiving over $400,000 in shared forfeited assets. Additionally, the GOAB has instituted its own case against former Ukrainian Prime Minister Lazarenko for money laundering. Lazarenko allegedly used an Antiguan offshore bank to conceal monies stolen from the Ukrainian government.

The GOAB created and staffed the Supervisory Authority mandated by the Money Laundering (Prevention) Act and issued regulations to implement the mandated suspicious financial transaction reporting system. In accordance with these new regulations, the Supervisory Authority has received a number of reports of suspicious activity. However, Internet gambling is largely unregulated in Antigua, although the GOAB has indicated it is developing regulations to control this burgeoning industry.

During the past year, the GOAB has amended its Money Laundering (Prevention) Act and IBC Act to correct deficiencies and bring them into compliance with international standards. GOAB cooperation in investigative and forfeiture matters has also improved. The new laws, combined with an increase in resources allocated to regulation of the international financial services sector and a demonstrated willingness to investigate and prosecute suspect individuals and transactions, suggest that the GOAB is now committed to creating a regulatory and anti-money laundering regime which meets international standards. In the future, GOAB must focus its efforts on fully implementing the Money Laundering (Prevention) Act, ensuring compliance with the new regulations of the IBC Act, and enhancing international cooperation on law enforcement matters.

Argentina (Concern). Argentina is neither an important regional financial center, a significant tax haven nor an offshore banking center. Until recently most of the money laundering occurring in Argentina was believed to be primarily related to bribery, contraband and tax evasion. However, there is increasing evidence that cells of the powerful Colombian and Mexican drug cartels are laundering millions of dollars in Argentina, particularly through the purchase of diverse and lavish real estate properties. The ongoing investigation into the financial activities of Maria Henao Vallejos, widow of Colombia drug lord Pablo Escobar, while residing in Argentina may confirm long-term suspicions of narcotics-related funds being laundered in Argentina. As a ramification of the U.S. Customs Service Operation Casablanca, an international investigation is being conducted into the Buenos Aires-based bank Mercado Abierto on suspicions that it may have laundered millions of dollars for the late Mexican drug kingpin Amado Carrillo Fuentes. It is believed that most of the laundered funds had been sent to Argentina through various U.S. banks, and once the funds arrived into an account at Mercado Abierto they were invested in luxury apartments and cattle ranches in Argentina. These investigations continue with the full cooperation of the Government of Argentina (GOA).

Argentina's current anti-money laundering program is based on Drug Law No. 3,737 of October 1989, which criminalized narcotics-related money laundering, and a series of communications issued by the central bank of Argentina aimed at the prevention and detection of money laundering activities through the financial sector. Among other things, these communications require banks and non-banks to identify customers; discontinue accounts with parties using obviously fictitious names; prohibit the payment by tellers of checks above $50,000 issued to third parties; report to the central bank personal data on account holders where cash over $50,000 is deposited monthly, or $200,000 annually; and report suspicious transactions. Compliance with the requirement to report suspicious transactions remains low.

The GOA has made several attempts at expanding the scope of this legislation and at creating a financial intelligence unit (FIU). In September 1999, the House approved a bill proposing to expand the list of predicate offenses beyond narcotics-related activities to include terrorism, trafficking in arms, human beings and human organs, crimes against the public administration, extortion, and kidnapping for ransom. The bill would also create a multi-agency autonomous FIU that would act in coordination with the Office of the Public Prosecutor sector. However, this bill remains under review by the Senate, where a Committee has weakened some of the provisions already approved by the House. The Senate version of the bill eliminates penalties for negligent or imprudent behavior resulting in money laundering, requires that criminal intent be demonstrated, and proposes that the FIU destroy all case records if a year passes without any action being taken in an investigation. The jurisdiction of the FIU continues to generate debate: the House bill makes it into a multi-agency autonomous body, while the Senate version gives the central bank control of the proposed unit.

The United States will continue to support the GOA's effort to join the FATF, since this signals Argentina's commitment to join the international community's fight against money laundering. However, it is imperative that Argentina enact a comprehensive anti-money laundering program in the very near future, since failure to do so could become a roadblock to future full FATF membership. Argentina is a party to the 1988 UN Drug Convention and an active participant in the OAS/CICAD. Argentina has bilateral agreements for financial information exchange with over 25 countries, including the United States. In September 1999, Argentina was accepted as an observer member of the FATF, and will undergo FATF's evaluation of its anti-money laundering program in early 2000. Armenia (Other). Armenia is a transit country for narcotics trafficking and smuggling, due to lax border controls between Commonwealth of Independent States (CIS) countries and Armenia's location along an important Iran-CIS trade route. The primary destinations are Western Europe and other CIS countries. While its current economic situation creates a favorable money laundering environment, Armenia is not a major financial or money laundering center.

Economic crime is primarily connected to smuggling, tax evasion, looting of privatized companies, embezzlement of state funds and diversion of foreign assistance. High unemployment, low salaries, a large underground economy, corruption, and organized crime provide classic conditions for money laundering. Criminal groups operating in Armenia maintain ties to those in other CIS countries and with Armenian communities abroad.

Although there is no evidence that foreign illegal proceeds are laundered in Armenia, Armenian authorities admit that enforcement agencies have not focused on investigating money laundering operations. Investigators have a poor understanding of the concept of money laundering and inadequate resources to pursue cases. Schemes to launder domestically generated illegal funds include the under-invoicing of imports, false invoicing, double bookkeeping, and use of the banking system.

The government has made the prosecution of economic crimes a government priority as part of an ongoing reform process. A new criminal procedure code went into effect on January 12, 1999. There are no anti-money laundering measures applicable to either banks or non-bank financial institutions but a complete new criminal code, including provisions dealing with economic crime (such as the criminalization of money laundering), is expected to be passed in 2000.

Bank secrecy laws create difficulties in obtaining bank records for investigations. In addition, the gray economy affects the banking system due to the dollarization of the economy (forty percent of public expenditures are derived from foreign remittances) and the magnitude of cash circulating outside the banking sector. Even if anti-money laundering regulations are introduced, they would regulate only a fraction of Armenia's domestic financial transactions.

Armenia is a party to the 1988 UN Drug Convention.

Aruba (Concern). Aruba, with its free zones, casinos, and especially its growing offshore industry, is vulnerable to being used for money laundering. The Government of Aruba (GOA) has undertaken a number of measures in recent years to strengthen its anti-money laundering system. Money laundering is a criminal offense in Aruba, and money laundering offenses extend to all predicate offenses, including tax offenses. Aruban anti-money laundering legislation provides for the creation of a financial intelligence unit (MOT Aruba), which became operational in 1996. The legislation also specified know your customer requirements, requirements for the reporting of unusual transactions, and record-keeping requirements. However, the money laundering law requires proof of an underlying crime, a standard that has so far proven extremely difficult for police, who lack the sophisticated methods necessary to build a successful case. The GOA also established four committees, consisting of representatives of both Aruba and The Netherlands, to review specific industries and make recommendations. Each of the initial committees has completed its work. The GOA has approved the recommendations and appointed implementation committees, and the necessary legislation has been drafted and is being discussed. The four committees are the following:

The Mixed Committee Gaming Industry, which recommended bringing casinos under the Reporting and Identification Ordinances and the creation of an independent Gaming Board;

The Mixed Committee Aruba Free Zone, which compiled recommendations to monitor the free zone. These recommendations will be put in place soon;

A Mixed Committee to assess the system of organization, registration and supervision of legal entities in Aruba. This Committee seeks to address the supervision of the Aruba offshore sector by ensuring that the identity of the ultimate beneficial owner is known to the trust company, and that know your customer policies are implemented; and

A Mixed Committee to implement a system requiring the reporting of imported or exported cash or monetary instruments of more than $10,000.

A new asset seizure law is in effect in Aruba that currently states that the prosecution must prove that the defendant knew the assets came from illegal activities, in addition to proving the underlying crime.

The Director of the Free Zone Aruba has worked to keep money laundering activities from shifting from the recently regulated financial sector into the still largely unregulated trade sector. He has prepared standards that could ultimately be used to deter corruption in free zones throughout the Caribbean.

Aruba is rapidly developing as an international financial services center. Services include finance companies, offshore banking companies, royalty companies, investment and holding companies, and the Aruba Exempt Company (AVV). Aruba introduced the concept of the AVV in 1988 to enhance the attractiveness of the approximately 3,000 offshore companies in Aruba, which are represented by 100 trust companies. The most important feature of the AVV is its complete exemption from all taxes. Instead, a registration fee of $280 is charged each year. The capital of an AVV may be divided by the designation of stock shares. Registered shares as well as bearer shares are allowed, and preference shares may also be issued. The minimum authorized capital for an AVV is $5,600. The AVV cannot participate in the economy of Aruba. The AVV is exempt from several obligations, including the filing of an annual financial statement and currency restrictions. These advantages, combined with the general tax exemption, make the AVV a very attractive entity in the offshore sector. The trust offices provide a wide range of corporate management and professional services to the AVVs. The trust offices also look after the interests of the shareholders, stockholders, or other creditors of the AVVs.

The Aruban banking sector is small, consisting of 15 financial institutions: six onshore commercial banks, two offshore banks, two mortgage banks, two credit unions, and three other credit institutions (an investment company, a finance company and a local governmental bank). All 15 institutions are under the direct supervision of the Central Bank of Aruba (CBA). There are also ten life insurance companies and seven general insurance companies. The CBA supervises the life insurance companies, whereas the general insurance companies are unsupervised. There are also 11 casinos, all of which belong to hotels.

The Aruba MOT has an extremely capable and dedicated staff. The Aruba MOT faces the same problems as its counterpart, the Netherlands Antilles MOT, in that both are understaffed and risk becoming overwhelmed with the huge volume of unusual transactions they must process. Both units need to develop more on-line databases, instead of relying on manually inputting voluminous data. As part of the Kingdom of the Netherlands, Aruba is a member of the FATF. Aruba underwent a second mutual evaluation report by the FATF in January 1999. Aruba is also an active member of the CFATF. The Aruba MOT is a member of the Egmont Group.

The Netherlands and the United States have an MLAT that applies to Aruba. Aruban judicial authorities have maintained an excellent record of cooperating with the United States under the MLAT.

Despite the progress it has made in its anti-money laundering regime, Aruba has not yet successfully prosecuted any money laundering cases. The U.S. continues to urge that the GOA amend its anti-money laundering legislation to shift the burden of proof from the prosecutor to the defense With this amendment, and once Aruba's anti-money laundering program is fully implemented, successful prosecutions of money launderers should follow.

Australia (Primary). Financial fraud and narcotics trafficking are the major sources of criminal proceeds laundered in Australia. A comprehensive money laundering study commissioned by the Australian government in 1995 estimated that approximately $ 2.8 billion is laundered in or through Australia, or offshore, each year. Organized crime groups involved in narcotics trafficking launder a large part of these proceeds. Besides domestic Australian groups, ethnic Chinese, Italian, Colombian, Japanese, Lebanese, Vietnamese, and Romanian organized crime groups are known to operate in Australia. Alternative remittance systems are used by some of the organized crime groups to move and launder their funds. Detecting and investigating the movement or laundering of funds through these alternative remittance systems is extremely difficult. Other major money laundering methods include the use of wire transfers structured below the threshold required for mandatory reporting, large wire transfers, cross border exports of cash, representative offices of foreign banks, currency exchange businesses, and real estate purchases.

Three legislative acts form the basis of Australia's anti-money laundering regime. These are the Proceeds of Crime Act (POCA) of 1987, the Mutual Assistance in Criminal Matters Act (MA) of 1987, and the Financial Transaction Reports Act (FTR) of 1988. The POCA criminalized money laundering for all serious offenses. It contains provisions to assist in the collection of evidence for money laundering investigations and prosecutions in the form of production orders, search warrants, and monitoring orders. The MA allows Australian authorities to assist other countries in identifying, freezing, seizing, and confiscating the proceeds of crime.

The purpose of the FTR is to discourage financially motivated criminals and to provide financial intelligence to law enforcement and revenue collection agencies. It specifies anti-money laundering measures applicable to the financial sector. The provisions of the Act apply to financial institutions; insurance businesses; securities dealers; trustees; sellers of monetary instruments; bullion dealers; gaming establishments and services; persons who collect, hold, or deliver currency on behalf of others; and persons who prepare payrolls for others in whole or in part from collected currency. These are required to report suspicious transactions, cash transactions of approximately $8,000 or more, and international funds transfers into or out of Australia. The FTR contains provisions for customer identification requirements for account holders.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the agency created to receive and process reports required under the FTR. It is Australia's financial intelligence unit. The FTR assigns AUSTRAC a regulatory role vis a vis the wider financial services sector of the Australian economy. AUSTRAC also monitors the movement of currency across Australia's borders.

AUSTRAC supports Australian law enforcement and revenue agencies by monitoring, analyzing and disseminating financial intelligence. Partner agencies have online access to AUSTRAC's database. AUSTRAC produces specialized reports based on in-house software applications to extract information from its database. In addition, AUSTRAC runs automated monitoring of its database to identify financial activity that indicates money laundering, other serious crime and tax evasion. AUSTRAC's database can also provide an alert system to its partner agencies when a report matching specific criteria enters the database.

Australia plays a very active role in international anti-money laundering fora. It is a member of the FATF and has implemented the FATF Forty Recommendations for combating money laundering. Australia continues to promote the adoption of anti-money laundering systems by countries in the Asia/Pacific region through its funding and hosting of the Secretariat of the Asia/Pacific Group on Money Laundering and by raising the issue of money laundering to a priority concern by the Asia Pacific Economic Cooperation Forum. AUSTRAC has provided assistance to a number of countries such as Poland, Thailand, South Africa, Japan, Canada, and Korea to establish anti-money laundering systems and to develop their financial intelligence units.

An MLAT is in force between the United States and Australia. AUSTRAC and FinCEN have signed an MOU for the exchange of information. Australia also has bilateral agreements with the UK, New Zealand, Belgium, France and Denmark, allowing the exchange of information on money laundering.

Australia has a comprehensive and an effective anti-money laundering regime. It fully complies with the FATF Forty Recommendations. Australia is studying possible amendments to its legislation in order to keep up with the rapidly changing financial services sector and to counter the opportunities that new technologies may offer criminal enterprise, especially in the evolving field of electronic commerce. Australia's approach to combating money laundering and its demonstrated ability to adapt to change serve as a model for other countries to emulate.

Austria (Primary). Austria is not an important regional financial or banking center but it is a potentially attractive site for money laundering due to the existence of Sparbuch (literal meaning: "savings book") accounts. Austria's failure to terminate these anonymous accounts has led the FATF to threaten to suspend Austria's membership after June 15, 2000 if Austria fails to take decisive action against the Sparbuch accounts. Russian organized criminal groups have established front and shell companies through Austrian fiduciaries to launder money.

Money laundering was added to Austria's Penal Code as a criminal offense in 1993. Austria's Banking Act of 1994 also prohibits money laundering, and requires customer identification for bank transactions involving over $15,000 for customers without a permanent business relationship with the bank. Banking records must be maintained for at least five years after termination of the business relationship with the customer. In 1998, Austria tightened its money laundering regulations in both the Act and the Penal Code. Banks, insurers and bureaux de change are currently required to report suspicious transactions to Austria's financial intelligence unit (FIU), the Central Department for Combating Organized Crime (Reporting Office) (EDOK). The FIU is located in the Federal Ministry of Internal Affairs and participates in the Egmont Group. During 1998, Austria's banks reported 254 suspicious transactions, of which 16 resulted in criminal proceedings. Of the proceedings initiated in 1998, only two resulted in convictions; the low number was primarily due to lack of evidence. During the first ten months of 1999, banks reported 177 suspicious transactions.

Austria has legislation allowing freezing and forfeiture of assets. However, there is little evidence of enforcement to date. Legislation implemented in 1999 provides for asset seizure and forfeiture of illegal proceeds. Courts may freeze assets in the early stages of an investigation. The amended extradition and judicial assistance law provides for expedited extradition, expanded judicial assistance and acceptance of foreign investigative findings in the course of criminal investigations, as well as enforcement of foreign court decisions. Austria has not enacted laws for sharing narcotics-related assets with other governments, but MLATs can be used as an alternative vehicle to accomplish equitable distribution of forfeited assets.

The Sparbuch anonymous accounts violate the EU anti-money laundering directive and are not in full compliance with the FATF Forty Recommendations. Although Sparbuch accounts are technically available only to residents of Austria, no identification is required to open the account. The account can be opened in any name; in fact, a common name in which these accounts are opened is "Überbringer" (passbook holder). The account has an identifying number assigned by the bank. Access to the account is controlled by a password selected by the owner of the account. Anyone presenting the passbook and knowing the password can withdraw funds.

However, two additional and significant restrictions on these accounts make them less attractive to potential money launderers. First, all transactions must be made in person-wire transfers of deposits or withdrawals are not permitted. Second, all settlements from Sparbuch accounts must be made in cash. The requirement for in-person transactions greatly reduces the Sparbuch's utility as a money laundering tool. In many money laundering schemes, funds are wired to an anonymous account for subsequent layering and integration. This is obviously not possible with the Sparbuch account. In addition, the requirement for cash settlements makes it difficult if not impossible to use the account to convert cash into another form, a common use of accounts in money laundering schemes. Sparbuch accounts are offered or brokered (in probable violation of the Austrian residency requirement) by many businesses on the Internet. Banks oppose the elimination of Sparbuch accounts out of fear that account holders will transfer money out of Austria to avoid taxes, and because the task of identifying ownership of the 26 million Sparbuch accounts is formidable.

Despite the availability and anonymity of the Sparbüch accounts, U.S. law enforcement agencies indicate there is no evidence that these accounts are being used to launder drug money. Even though the restrictions on the Sparbüch accounts do not hinder their typical use (such as the use of several Sparbuch accounts to pay different bills or having a separate Sparbuch for each grandchild), they do, in fact, make them less than attractive as a money laundering vehicle. Austria is a party to the 1988 UN Drug Convention and a member of the FATF. In 1996, Austria abolished anonymous securities accounts, in compliance with the FATF Forty recommendations and EU regulations. In 1997, it tightened restrictions on trustee accounts. However, the FATF decided at its February 2000 meeting to suspend Austria's membership as of June 15, 2000, unless the Austrian government, by May 20, 2000, (1) commits to eliminating the system of anonymous passbooks by the end of June 2002 and (2) introduces and supports legislation to prohibit the opening of new passbooks and to eliminate the existing passbooks.

An Austria-U.S. MLAT has been in force since August 1, 1998. Austrian cooperation with U.S. investigative efforts has been excellent.

The Government of Austria should come to terms with the commitments it has made to the EU and the FATF. Both of these organizations have called on the Austrian government to eliminate Sparbuch accounts.

Azerbaijan (Other). Azerbaijan is not an important center for narcotics-related money laundering. There is presently little or no laundering taking place in Azerbaijan on behalf of international narcotics groups. However, because of Azerbaijan's geographic location, drug trafficking and the related movement of drug proceeds in or through the country may increase. Banking in Azerbaijan is still in its nascent stages and is in many cases unreliable. Banking laws are changing on a regular basis; many banks are forcibly closed because they fail to meet minimum capital requirements. The two largest state-owned banks of Azerbaijan are presently being privatized. Neither would be attractive as establishments to deposit or launder funds. Large scale money laundering by local businesses to avoid invasive taxes and customs fees is probably done primarily in the non-bank financial system and black markets, not in banking. The transportation of illegal source currency falls within the purview of the Organized Crime Division of the Interior Ministry as well as the Ministry of National Security. However, they appear to be more concerned about the transport of such funds for anti-state activities (anti-government propaganda, terrorism) than for their connection with money laundering.

Azerbaijan's current legislation does not prohibit money laundering and is inadequate to combat police and judicial corruption effectively. Parliament is currently debating a new criminal code that will authorize the police to retain seized assets used in the commission of a crime and assets acquired as a result of criminal activity.

Azerbaijan is a party to the 1988 UN Drug Convention.

The Commonwealth of The Bahamas (Primary). The Bahamas is an important regional financial and offshore center. Its bank secrecy laws and liberal international business company (IBC) regime make it vulnerable to money laundering and other financial crimes. Bahamian central bank officials have stated that in the recent past Russian banks have applied for offshore banking licenses, but were rejected. There is a strong suspicion on the part of government officials that the insurance sector may also be used for laundering funds.

International Business Companies (about 67,000) and offshore banks (about 400) are two of the several services available in the Bahamas' offshore financial sector. Under the 1989 International Business Companies Act, investors can operate an IBC as long as it does not carry on any business with Bahamian residents or own interest in real estate in the Bahamas. An IBC cannot be a bank, insurance or trust company. It does not require a license and normally takes a day to form upon reserving the name, and presenting a Memorandum and Articles of Association to the Registrar General. A minimum of two shareholders is required, although the shares can be transferred to a single person. The shareholders can be nominees; therefore, the name of the beneficial owner never appears on the register. An annual report must be filed containing information on shareholders, number of shares, amount of capital, and the names, addresses and occupations of the directors and managers, but the annual report does not have to include financial statements. The annual reports, accounts, and the names of the director, officers or shareholders do not need to be public knowledge, and the books and records do not have to be maintained in the Bahamas. The offshore banks are governed by the 1992 Companies Act and can be public or private. All offshore banks must submit annual statements that do not have to include financial statements. The banks' records can be maintained anywhere. The shareholders can be nominees, but in applying to the Central Bank of Bahamas for non-resident status, the name of the beneficial owner must be disclosed.

Overall, with the passage of the Money Laundering (Proceeds of Crime) Act (1996), its December 1996 regulations, and the 1996 Central Bank of The Bahamas Guidance Notes, the Bahamas now has a comprehensive anti-money laundering regime in place. Under these legislative and regulatory mechanisms, the Bahamas criminalized the laundering of the proceeds of serious crimes and required banks and other financial institutions (including insurance companies, casinos, credit card issuers, money transmitters, trust companies and securities dealers) to identify customers and maintain records of significant transactions ($20,000 or above) for five years.

Banks are required to report suspicious financial transactions to the Bank Supervision Department of the Central Bank of The Bahamas, which, after review and analysis, forwards any relevant disclosures to the Director of Public Prosecutions (DPP) of the Attorney General's Office. The 1996 Central Bank Guidance Notes provide a definition of money laundering, assist in interpreting the 1996 Act and its regulations, describe examples of what may constitute suspicious transactions, and discuss the internal controls and procedures that should be implemented. These Guidance Notes are not mandatory, although a court, in deciding whether an individual or institution has complied with the 1996 Regulations, may take them into account.

The Bahamas is party to the 1988 UN Drug Convention and a member of the CFATF, and continues to express interest in furthering its anti-money laundering efforts by creating a financial intelligence unit (FIU) and joining the Egmont Group of FIUs. Given the size and diversity of The Bahamas' financial sector, the government should expedite efforts to create a separate FIU that would collect and analyze financial information and exchange information with similar units worldwide in the pursue of money laundering investigations.

Bahrain (Concern). Bahrain is a regional financial and offshore center and as such is potentially vulnerable to money laundering. The Government of Bahrain (GOB) has provided a number of incentives to foreign investment, including the elimination of corporate withholding taxes and the removal of restrictions on the repatriation of profits (including those of offshore companies). According to a press report of June 1999 quoting a Canadian money laundering consultant, the Bahraini Ministries of Interior and Commerce and the Bahrain Monetary Agency (BMA), which functions as the central bank, have identified and collected information on money laundering schemes in Bahrain, but the lack of an anti-money laundering law has made it difficult for authorities to follow through on prosecution. The most common sources of illegal proceeds include narcotic trafficking, fraud, and illegal trade involving sanctions evasions. Another major source of illegal money flow results from the sale of oil reserves outside of OPEC production agreements.

Bahrain has not yet criminalized money laundering. However, banking laws require the reporting of suspicious transactions to the BMA and establishment of know-your-customer rules. It is not known how strictly these regulations are enforced. The BMA is expected to introduce legislation to combat money laundering sometime in 2000, and to issue even tighter banking regulations. These regulations are reportedly to address such areas as the reporting of large transactions, providing specific guidelines for accepting transactions, and more monitoring of banking activity. While details of the proposed legislation are not available, it is expected to enable the filing of criminal charges against institutions and individuals in cases of money laundering.

Bahrain is known for its offshore banking units (OBUs), which currently number 49. The BMA licenses the OBUs, which must be audited yearly by outside firms that have been approved by the BMA. OBUs may deal only with non-residents (except for agencies of the GOB and all their activities must be in a foreign currency. With the approval of the BMA, OBUs may participate in domestic development projects. OBUs must be fully staffed, and the majority of the staff must be Bahraini nationals. All books and records must be available at all times for examination by the BMA. OBUs must submit half-yearly statistical returns. They are exempt from taxes and are not subject to any restrictions involving foreign exchange payments or receipts.

The GOB also permits international business companies (IBCs) with limited liability from parent companies. There are two types of IBCs in Bahrain: the first is the offshore resident company, whose principal offices are in Bahrain but which operates exclusively offshore. Such a company must be a joint stock company with a minimum capital of $54,000. If it deals in financial activities, it requires a license from the BMA. The second type of IBC is the offshore non-resident company. This category consists of joint stock companies other than those involved in insurance or investments. These may be exempted from the requirement of maintaining an office in Bahrain, and may instead appoint a law or auditing firm in Bahrain as their resident address. Such firms require a minimum capital of $6,750. Registration of an IBC can take as little as seven days. There are no restrictions on remittances sent abroad. The government-sponsored offshore services are advertised on the Internet.

Bahrain is represented at the FATF by the GCC, of which it is a member. Bahrain is a member of the OGBS and has agreed to undergo a mutual evaluation by this body. No date for the evaluation has yet been set. Bahrain is a party to the 1988 UN Drug Convention.

Bahrain should act expeditiously to enact anti-money laundering legislation and should ensure that its offshore sector is subject to prudent supervision.

Bangladesh (Other). Bangladesh is not an important regional financial center, or an offshore financial center. Money laundering activities here are not primarily related to drug trafficking but rather to evasion of Bangladesh income taxes and illegal import of consumer goods. There is no evidence that proceeds from drug trafficking are laundered in Bangladesh.

Bangladesh has not criminalized money laundering. Banking regulation and enforcement is spotty. Goods are readily smuggled across Bangladesh's long and porous borders, and black market goods are available in the local market. Some illegal drugs are also smuggled across the border. Bangladesh laws allow for the seizure of assets related to illegal smuggling or corruption.

Bangladesh is a party to the 1988 UN Drug Convention, and is a member of the Asia/Pacific Group on Money Laundering.

Barbados (Concern). The Government of Barbados (GOB) has taken several steps to provide a defense against the threat of money laundering, including enacting offshore banking laws and oversight and comprehensive anti-money laundering legislation, but it must fully enforce these measures to protect the nation's domestic and offshore financial sectors.

In December 1998, the Parliament enacted the Prevention of Money Laundering Bill, criminalizing any transaction involving, or possession or concealment of, money or property that is the proceeds of crime. The law creates a centralized unit, the Anti-Money Laundering Authority, to supervise financial institutions in accordance with the Act. Penalties for money laundering include up to 25 years in prison and a $1 million fine. The law also contains asset seizure and forfeiture provisions.

The law applies to a wide range of institutions, including domestic and offshore banks, international business companies (IBCs), and insurance companies. These institutions are required to identify customers, maintain records, and report suspicious transactions and transactions exceeding $5,000 to the Anti-Money Laundering Authority. After reviewing these disclosures, the Authority will forward this information to the Commissioner of Police if it has reasonable grounds to suspect money laundering. The Authority may also issue training requirements and regulations for institutions. Although the legislation is officially in force, the Anti-Money Laundering Authority has not yet been established and no regulations have been issued.

The GOB criminalized money laundering in 1990 in its Proceeds of Crime Act, No. 13. This law authorizes asset confiscation and forfeiture and provides a disclosure protection safe harbor for individuals reporting suspicious activities. In 1997, the central bank issued its Anti-Money Laundering Guidelines for Licensed Financial Institutions. The Guidelines follow international standards against money laundering, but lack any enforcement authority.

Barbados is an offshore center, offering offshore banking, international trusts, exempt insurance companies, international business companies (IBCs) and foreign sales corporations (FSCs), which are specialized companies permitting persons to engage in foreign trade transactions from within Barbados. Unofficial sources report Barbados has about 40 offshore banks, 360 exempt insurance companies, and at least 2,000 IBCs and 1,800 FSCs. In 1998 the GOB indicated it had $10 billion in offshore deposits.

The Off-Shore Banking Act (1980) gives the central bank authority to supervise and regulate offshore banks, in addition to the nine domestic commercial banks. The Ministry of Finance issues licenses after the central bank receives and reviews applications and recommends applicants for licensing. Offshore banks must submit quarterly statements of assets and liabilities, and annual balance sheets to the central bank. Profits from offshore banks are subject to 2.5% tax rate for profits up to $5 million and less, but not less than 1%, for greater profits. In late 1999, the GOB proposed new legislation designed to facilitate access by regulators to offshore bank records. It broadens the central bank's ability to share information on licensees with regulators in jurisdictions where the licensees have a holding company, subsidiary, or affiliate.

The International Business Companies Act (1992) provides for general administration of IBCs. The Ministry of International Trade and Business vets and grants licenses to IBCs after applicants register with the Registrar of Corporate Affairs. Barbadian IBC's must pay a 2.5 percent tax on profits up to $7.5 million, plus a one percent tax on profits in excess of $7.5 million. Bearer shares are not allowed, and financial statements of IBCs are audited if total assets exceed $500,000. Barbados has bilateral tax treaties that eliminate or reduce double taxation with the UK, Canada, Finland, Norway, Sweden, Switzerland, and the United States. Canada's treaty allows IBC and offshore banking profits to be repatriated to Canada tax-free after paying the 2.5% tax in Barbados. As a result, the Barbadian offshore financial services industry continues to expand, driven largely by Canadian-based companies.

In 1996, the United States and Barbados signed an MLAT and an extradition treaty. The United States ratified both treaties in January 1999, and the GOB has signaled that it is prepared to exchange instruments of ratification, the final step necessary to bring the treaties into force.

The GOB needs to maintain strict control over vetting and licensing of offshore entities, and pass legislation to facilitate compliance by offshore banks to prevent abuse of the offshore sector. It should also establish the Anti-Money Laundering Authority, provide it the necessary resources to enforce compliance by financial and commercial sectors, and enable it to fully cooperate with foreign authorities to investigate and prosecute money laundering and other financial crimes.

Belarus (Other). Belarus is neither a major regional or international finance center, nor a significant country for drug-money laundering. The money laundering environment in Belarus shares many of the same characteristics found in the Baltic States and Russia. Financial institutions used to launder proceeds include banks and non-bank financial institutions such as casinos, currency exchanges, real estate companies and businesses that receive large deposits. Common methods used to launder assets continue to be false invoicing schemes, keeping double books, and contract fraud. The absence of anti-money laundering laws and the failure to criminalize money laundering will significantly hinder the attempts made to combat money laundering and any associated crimes.

Local authorities do not believe that money laundering is an immediate problem. However, they state that bank secrecy and the lack of money laundering legislation may in the future attract drug traffickers to launder their profits in local casinos.

Current Belarusian laws used to combat money laundering focus on the underlying crime that generates illegal proceeds. Belarus requires banks to report transactions of more than $10,000, and to maintain records on customer identification and transactions indefinitely. However, banks are not required to report or record unusually large or suspicious transactions. Belarusian banks are not presently required to develop anti-money laundering programs but would be required to do so by an anti-money laundering law currently being drafted. No specific laws establishing and regulating non-bank financial institutions have been passed to replace the 1996 Temporary Regulations on Non-Banking Financial Institutions in the Republic of Belarus.

Belarusian law does not provide for the seizure of assets resulting from illicit gain. Belarus is a party to the 1988 UN Drug Convention.

Belgium (Concern). Belgium is a country of concern for money laundering, primarily because of its role as a transit country for narcotics trafficking. Although narcotics trafficking proceeds constitute the major source of criminal proceeds, other sources include tax evasion, organized crime, financial fraud, and commercial fraud. The main money laundering methods identified by Belgian authorities include the use of currency exchange bureaus, international wire transfers, and deposits into bank accounts. Many instances of money laundering in Belgium are internationally connected. Narcotics traffickers from the Netherlands, Africa, South Asia, and South America operate and launder their proceeds in Belgium. Belgian authorities have identified organized crime networks involving nationals, residents, or financial institutions from Central and Eastern Europe and countries of the former Soviet Union.

Belgium criminalized money laundering by supplementing Article 505 of Belgium's Penal Code dealing with the receiving of criminal proceeds. The supplemental provisions of 1990 broadened the concept to one of "extended" receiving of criminal proceeds. The Act of 11 January 1993, On Preventing the Financial System From Being Used for Money Laundering Purposes, codified most of the provisions of the FATF Forty Recommendations. These concern customer identification, record keeping requirements, suspicious transaction reporting, a financial intelligence unit, and internal anti-money laundering procedures and training for all Belgian banks and non-bank financial institutions.

As provided for in the Law of 11 January 1993, the Financial Intelligence Processing Unit (CTIF-CFI) came into existence on 1 December 1993. The organization is an independent administrative authority that is supervised by the Belgian Ministries of Justice and Finance. Its mission is to receive and analyze all suspicious transaction reports made by financial institutions (and other persons and entities as specified by the law) subject to the reporting requirements. CTIF-CFI operates as a filter between financial institutions and judicial authorities. Upon identifying credible indicators of money laundering relating to specific predicate offenses among the disclosures it receives, CTIF-CFI reports these cases the Crown Prosecutor in Brussels.

When a financial institution knows or has reason to suspect that a transaction relates to money laundering, it must inform CTIF-CFI before executing the financial operation and indicate, when possible, the deadline for completing the operation. After analyzing all data and finding credible indications of money laundering, CTIF-CFI will submit the information, along with appropriate justifications, to the Crown Prosecutor in Brussels for further investigation and/or prosecution. In order to safeguard the integrity of money or property that is linked to instances of money laundering (and thus subject to seizure by judicial authorities), CTIF-CFI has the authority to block the completion of a suspect financial transaction before the deadline indicated by the reporting institution. The delay may extend to a period of up to 24 hours.

CTIF-CFI is composed of six financial experts, including three magistrates (prosecutors) appointed by the King. A magistrate serves as president of the organization. Besides a secretariat with personnel to provide administrative support, the organization has its own investigations department consisting of six inspectors. CTIF-CFI also has three liaison officers (from the Gendarmerie and Judicial Police) responsible for maintaining contacts with various law enforcement agencies. The strict confidentiality to which CTIF-CFI members and staff are subject does not apply in the same way to communications made in the framework of international cooperation. Exchange of information may take place on the basis of international treaties to which Belgium is signatory or by reciprocity with foreign counterpart agencies possessing secrecy obligations analogous to those of CTIF-CFI.

Belgium is a member of FATF, and CTIF-CFI is a member of the Egmont Group. Belgium has implemented the EU Directive on Money Laundering.

Belgium and the United States signed an MLAT in 1988. It was ratified by the United States in 1989 and by Belgium in March 1998, and entered into force in January 2000.

Belgium has a very effective and consistent anti-money laundering regime that meets, and in some areas exceeds, international standards. Belgium is considering additional legislative measures aimed at improving what is already a well-planned anti-money laundering system.

Belize (Concern). Belize authorities have expressed concern over the increase during the past year in the number of individuals found bringing large amounts of currency into the country in briefcases or concealed under clothing. Authorities have also detected instances of Belize-flagged ships being used to transport drugs and violate UN sanctions. A better understanding of Belize's money laundering dynamics may surface once the Money Laundering Unit being created within the Police Department starts its fieldwork.

Belize's August 1996 Money Laundering Prevention Act meets most of the standards prescribed by the CFATF, which Belize joined in October 1996. The Act criminalized the laundering of proceeds derived from narcotics trafficking, blackmail, counterfeiting, extortion, false accounting, forgery, fraud, illegal deposit taking, robbery and theft involving more than $10,000, terrorism, arms trafficking, and kidnapping. It also introduced the mandatory reporting of suspicious financial transactions by banks and other financial institutions. The Central Bank of Belize, as the supervisory authority designated to receive the reports of suspicious transactions and monitor compliance with the law, issued the implementing regulations in January 1998. Although the laundering of proceeds derived from numerous illicit activities was criminalized in August 1996, law enforcement authorities have yet to try a single case under this law.

Belize's August 1996 offshore banking legislation is the latest in a series of laws to establish an offshore sector that began with the passage of the International Business Companies (IBC) Act in 1990 and the Offshore Trusts Act in 1992. However, Belize remains a minor player in the offshore banking arena. The central bank has received numerous inquiries about offshore banking licenses, and in August 1997 two Central American banks received conditional approval for licensing; however, they never started operations. In August 1998, the central bank approved an offshore banking license for Provident Bank and Trust Limited, which started operation in September 1998.

There are approximately 11,000 registered international business companies (IBC's) in Belize, up from 8,000 last year. While there is no requirement to file audited accounts with the authorities, an IBC is required to keep records that reflect the financial position of the company. There is no disclosure of the beneficial ownership to the authorities. Even though the IBC Act prohibits IBCs from engaging in banking or insurance, an IBC may own and control a bank, since the ultimate ownership of the bank is obscured. IBC records are maintained by Belize International Services Limited, a subsidiary of CHI Corporation, traded on the NASDAQ and formerly known as BHI Corporation. Central bank officials have stated that the system of accounts for the IBCs, for which the central bank of Belize keeps no record, represents a loophole that might allow for money laundering. Although the central bank is required to regularly report the total amount of all IBC account holdings, the patterns and changes of individual accounts are not seen by any central bank authorities unless ordered. There is no registry at all for offshore trusts, since the Offshore Trust Law did not specify an oversight or regulatory body, thus making it impossible to determine the beneficial owners of an offshore trust. In May 1999, Belize created the International Financial Services Commission to regulate and supervise the offshore activities; however; the vast majority of the Commission is composed of offshore practitioners themselves.

The Government of Belize needs to remain vigilant of its growing offshore financial sector, particularly the regulatory authorities. It should also consider establishing a financial intelligence unit to receive suspicious transactions.

Bermuda (Other). A British Overseas Territory, Bermuda remains one of the world's premier offshore international financial and business centers, with a large number of international business companies (IBCs). The Government of Bermuda (GOB) has made considerable progress in combating financial crime in recent years. Both the proceeds of Crime Act 1997 and the Proceeds of Crime Act Regulations 1998 came into force in January 1998. These measures criminalized money laundering, mandated the reporting of suspicious transactions, provided safe harbor protection for those making such disclosures, mandated customer identification and cash transaction record keeping procedures, and developed internal reporting procedures. The GOB issued extensive guidance notes to all financial institutions subject to the laws.

The Proceeds of Crime Act is being amended to include offenses that were not covered as indictable crimes under the original legislation. Implementation is being deferred pending resolution of concerns expressed by the international business community. Additionally, an extension to the Proceeds of Crime Act is being discussed that would substantially increase the amount of reporting, internal controls, and training that must be implemented. It would also provide the Bermuda Monetary Authority (BMA), Bermuda's central bank, with the authority to investigate the finances of a convicted person and to confiscate crime-related cash and property. A National Anti-Money Laundering Committee, chaired by the GOB's Financial Secretary, is focusing on enhancing public awareness of financial crime.

The Financial Investigation Unit within the Bermuda Police Service, which serves as Bermuda's financial intelligence unit, has been receiving a steady stream of suspicious activity reports and investigating money laundering activity since early 1998.

In 1998, the offshore banking sector in Bermuda consisted of approximately three offshore banks and 37 trust companies. As in the case of domestic banks, the BMA has regulatory authority over these entities. Authority to issue licenses for the offshore sector is vested with the Minister of Finance, who may seek the advice and assistance of the BMA. Approximately 10,000 IBCs are registered in Bermuda. The GOB has always been aware of the potential use of IBCs for money laundering, and scrutinizes closely all applications for the incorporation of new IBCs.

Continued supervision and enforcement of rules in the offshore banking sector in Bermuda are necessary to discourage infiltration by organized crime and money launderers. The GOB is paying close attention to this issue, with an eye to full compliance with international standards of financial activity as mandated by the 1999 United Kingdom White Paper on Overseas Territories.

Bolivia (Concern). Most money laundering occurring in Bolivia is related to contraband smuggling rather than to narcotics trafficking. Still, Bolivia's tradition of bank secrecy facilitates the laundering of illegally obtained earnings and the evasion of taxes. The Government of Bolivia (GOB) is making efforts to implement and enforce the anti-money laundering measures available under the Controlled Substances Law No. 1008, and the March 1997 reforms made to the Penal Code (Law 1768) that criminalized the laundering of proceeds related to illicit narcotics, organized crime and public corruption. In June 1999, the Bolivian Special Narcotics Task Force arrested former military official Marino Diodato and members of his ring believed to have connections to a major Italian Mafia organization dealing in, among other things, narcotics, arms trafficking, and money laundering. The Diodato investigation continues, and over $5.7 million of the organization's assets have been seized, raising serious concerns about the extent of the Mafia presence in Bolivian society.

Bolivia is six months into the transition for full implementation of the new Code of Criminal Procedures enacted in 1999, and progress is already noticeable, particularly in the selection and training of judges, prosecutors and police. This new Code established an accusatorial, oral, public criminal procedure designed to be more rapid and transparent and to improve the judicial system and administration of justice through public proceedings and citizens' participation. It also enhances the abilities of law enforcement bodies by allowing the use of undercover agents and controlled deliveries of narcotics in criminal investigations.

Anti-money laundering regulations issued in July 1997 (Decree 24771) introduced mandatory customer identification and record keeping (10 years) requirements, and the reporting of unusual and/or suspicious financial transactions to the Financial Investigations Unit (FIU) created in late 1998 within the Superintendency of Banks and Financial Institutions. Efforts to staff and equip the unit continue, albeit at a slow pace.

Prior to December 1995, the GOB's seizure and disposition of the assets of individuals accused and/or convicted of narcotics-related crimes was governed by the Controlled Substances Law No. 1008, which permitted the sale of seized property upon Supreme Court affirmation of the conviction of the defendant. To accelerate the disposition process, in 1995 Supreme Decree No. 24196 was issued, which permitted the sale of seized assets with the consent of the accused and in certain other limited circumstances. Overall, judges have refused to enforce Decree No. 24196 on the basis that it is unconstitutional, since it deprives the accused of his/her property without due process, i.e., without a final Supreme Court determination that the accused was guilty. It was hoped that provisions contained in the 1999 Code of Criminal Procedures would remedy the situation by permitting the sale of certain types of property with or without the consent of the accused, on the grounds that the asset might lose value or cost too much to maintain. However, the Constitution does not make distinctions between the types of property. Therefore, these provisions in the new Criminal Code do not further the Government's efforts. The GOB should quickly resolve the internal conflicts and ambiguities afflicting the FIU and the seized assets program, both essential components of an effective anti-money laundering program.

Bosnia and Herzegovina (Other). A significant hub for narcotics transshipment to Western Europe, Bosnia is nevertheless neither a regional financial nor a money laundering center. Cooperation between Bosnian Serb and Croat law enforcement agencies is improving and has resulted in several major drug seizures and exposed some official corruption. However, the growing narcotics trade remains closely linked to organized crime, public sector corruption and ethnic extremism.

Although local banking laws generally conform to the Basle Committee's core principles, Bosnian participation in international financial fora is extremely limited. Bosnia's anti-money laundering legislation, which includes requirements to report suspicious transactions and to conduct due diligence, is stringent on paper. In practice, the law is not enforced in this primarily cash-based and largely unregulated economy.

As a result, government control over the banking industry is tenuous at best and the potential for financial crime is widespread (indeed, the banking system in Bosnia is very underdeveloped and lacks many of the attributes of a normal banking regime). Capitalizing on the prevalence of public sector corruption and the absence of the political will necessary to institute and enforce meaningful reforms, criminal elements linked to narcotics trafficking have engaged in major financial crimes, including bank fraud and money laundering. Regulatory officials have been subject to threats in the course of their duties.

Botswana (Other). Despite the government's keen interest in making it one, Botswana is not a financial center. Botswana is not a money laundering center either. Botswana has tough legislation against illicit drug production and trafficking, as well as against money laundering associated with the drug trade. In this connection, Botswana has implemented legislation that allows the courts to identify, freeze and require the forfeit of drug-related assets. The Bank of Botswana has the power to provide information regarding large currency transactions to law enforcement agencies.

Botswana law enforcement authorities have reacted positively to U.S. Government-sponsored anti-narcotics training and have expressed interest in the high-technology training necessary to combat bank fraud and money laundering.

Brazil (Primary). Money laundering related to drug trafficking and white-collar crime continues to be a problem in Brazil. The highly developed financial sector, increasing local drug consumption and trafficking, and the absence of laws against money laundering until 1998 all have contributed to make Brazil a money laundering center. The administration of President Ferdinand Enrique Cardoso has demonstrated a firm commitment to fighting this problem, and implemented regulations in 1999 to increase the effectiveness of Brazil's anti-money laundering regime.

In 1998, Brazil passed the comprehensive Law 9613, criminalizing money laundering for various offenses, penalizing offenders with up to 16 years in prison, expanding asset seizure and forfeiture provisions, and providing a "safe harbor" for good-faith compliance. It also created the Council for the Control of Financial Activities (COAF) as the country's financial intelligence unit (FIU). The COAF is housed within the Ministry of Finance and is composed of 21 members, consisting of 13 permanent personnel and 8 representatives from other regulatory and law enforcement agencies, including the central bank and Federal Police.

In 1999, Brazil began to fully implement this law by issuing twelve regulations pertaining to a wide array of financial and commercial sectors. The COAF issued eight regulations which pertain to: real estate, factoring companies, gaming and lotteries, dealers in jewelry and precious metals, bingos, credit cards, commodities trading, and dealers in art and antiques. The existing regulatory bodies (the central bank, the Securities and Exchange Commission (CVM), the Examiner of Private Insurance Companies (SUSEP), and the Office of Supplemental Pension Plans [PC] ), issued four parallel regulations. These regulations require customer identification, record keeping, and reporting of suspicious transactions. The central bank, CVM, and SPC regulations also require reporting of large transactions. All of the above regulations include a list of guidelines that may indicate the occurrences of criminal activities. By the end of 1999, the COAF had already received over 250 reports of suspicious transactions. A similar regulation pertaining to the commodities and futures market is to be issued in early 2000. The central bank also established a dedicated financial crimes unit in the bank's audit department.

Regulations issued in October 1998 require that individuals transporting more than $5,500 in cash, checks or traveler's checks across the Brazilian border fill out a customs declaration that is sent to the central bank. Financial institutions remitting more than $5,500 must also make a declaration to the central bank.

Recognizing these efforts, the FATF invited Brazil to become a member in June 1999. In May 1999 the COAF was also admitted as a member of the Egmont Group of FIUs.

Throughout 1999, media attention in Brazil has been dominated by the Panel of Congressional Inquiry (CPI) investigations that have exposed widespread criminal networks operating in at least 14 of Brazil's 26 states, connecting drug trafficking networks, judges, members of Parliament and the police, and related money laundering schemes. Although the commission has no official powers of arrest, it does have strong investigative powers that have enabled it to get waivers of bank secrecy rules and to track bank, tax and telephone records. The CPI estimated that $28 billion a year in drug money moves through Brazil, and indicated that the town of Campinas, near São Paulo, was the center for money laundering activity.

A two-year Federal Police investigation, "Operation Northeast", uncovered what was believed to be the largest money laundering scheme in northeastern Brazil, in the state of Ceará. The case involves a local businessman who allegedly used his 15 companies to launder at least $150 million-the same companies linked to previous investigations. As a result of the evidence already uncovered, the central bank canceled the authorization for these companies to operate in the exchange market and suspended an application by the group to set up a finance and investment company. A Federal Police task force is also working on this ongoing investigation.

The border region with Paraguay also remains a center for the laundering of proceeds, mainly from illegal operations in nearby Ciudad del Este, through local businesses and exchange houses. Officials stated that nearly 40 percent of the businesses in Foz de Iguazu were companies created as fronts to launder profits by local organized crime. A central bank official indicated that $18 million was being laundered daily in banking agencies in Foz de Iguazu. One method is to employ Paraguayans and Brazilians living in Brazil to open special non-resident, "CC-5" accounts, which can legally send money abroad, in the Brazilian border cities. Criminals also employ "laranjas" (oranges), poor people who essentially sell the use of their names to illegal businesses. The public prosecutor in the town of Cascavel identified the accounts of 310 such poor people from whose accounts $5 billion was transferred out of the country. Documents showed that in 1997, $18 million was transferred abroad from the account of one man alone, who earns $150 per month.

In the face of the CPI and Federal Police investigations in 1999, several exchange houses in Foz de Iguazu shut down operations. Although some agencies may still operate illegally, increased scrutiny has resulted in a decrease in the number of exchange houses authorized by the central bank from 40 to 15.

Although the laundering of proceeds from drugs and other crimes remains a major problem in Brazil, recent efforts by the government show that Brazil is taking the problem seriously. High-profile Congressional investigations have led to dozens of arrests and brought new energy and enthusiasm for rooting out drug trafficking, corruption and related money laundering. In October 1997, Brazil and the United States signed an MLAT that has been ratified by the United States but is not yet in force. New financial regulations should help the COAF, central bank, and other regulatory agencies collect and track information, and investigate and successfully prosecute financial crimes. When fully implemented, these new measures should demonstrate Brazil to be a regional leader in the global fight against money laundering.

British Virgin Islands (Concern). The British Virgin Islands (BVI), a United Kingdom (UK) Caribbean Overseas Territory (COT), is one of the larger offshore financial centers in the Caribbean. Money laundering occurs in the BVI, particularly at the layering and integration stages. UK Foreign Secretary Robin Cook has directed the UK overseas territories to enforce the highest international standards of financial regulation to preclude their being used for money laundering. The BVI continues to focus its efforts on thwarting money laundering.

On September 29, 1999, the Anti-Money Laundering Code of Practice 1999 was approved by the Governor-in-Council of the BVI. The Code provides guidance for all licensed financial service activities and establishes clear and definite procedures for the identification and verification of clients, maintenance and retention of records, and maintenance of a register of money laundering inquiries. The Code also makes relevant institutions and persons subject to due diligence audits by the Director of Financial Services or other designated individuals, to ensure compliance with the Code. Previously, these audits were conducted informally. The Code also mandates the appointment of compliance officers, establishing internal reporting procedures for identifying and reporting transactions, and training staff. The Code complements the Anti-Money Laundering Guidance Notes for the BVI Financial Sector prepared by the Territory's Joint Anti-Money Laundering Coordinating Committee.

The Proceeds of Criminal Conduct (Designated Countries and Territories) Order, 1999 was also approved on September 29, 1999 by the Executive Council of the BVI. The Order provides that, subject to certain modifications, the Proceeds of Criminal Conduct Act, 1997, applies to an order made by a court in a designated country or territory for the purpose of recovering payments or other rewards received in connection with money laundering or their value. It also applies to proceedings that have been, or are to be, instituted in a designated country or territory and may result in an order being made there. The Order also provides that the value of any property recovered in a designated country or territory for assistance in the enforcement of an order is to be treated as reducing the amount payable in the territory under a confiscation order made by the High Court.

The Proceeds of Criminal Conduct Act expands the scope of anti-money laundering legislation to cover the proceeds of all serious crime. The Act is closely modeled on British law and creates four types of offenses: assisting another to retain the benefit of the proceeds of criminal conduct; acquisition, possession or use of the proceeds of criminal conduct; concealing or transferring the proceeds of criminal conduct; and tipping off. Under the Act, suspicious currency transactions must be forwarded to a Reporting Authority, whose chairman is the director of the Financial Services Department.

The Financial Investigations Unit (FIU) within the Financial Services Department is responsible for the investigation of fraud and money laundering. Three individuals staff the Unit: an Inspector detailed from the UK police force (the Head of the Unit), a Sergeant and an Acting Sergeant. The FIU receives reports of suspicious transactions from the Reporting Authority, individuals and businesses. The reports are analyzed at the FIU. Most investigations relate to international business companies (IBCs) and other offshore entities. The FIU has an excellent relationship with other BVI government agencies and has no difficulty obtaining information from these agencies on suspects in investigations. The FIU was admitted to the Egmont Group at the Plenary meeting in Bratislava on May 27, 1999.

There have been no prosecutions for money laundering in the BVI.

Financial services remain the largest sector of the BVI economy. The BVI has developed as an important jurisdiction for international finance and commerce, the incorporation and management of offshore companies, and the provision of offshore financial and corporate services. There are now over 300,000 IBCs registered in the BVI. A 1988 amendment permits a bank, insurance, or reinsurance company to be an IBC, but does not allow a registry agent forming other companies to be one. A company that is not an IBC must be established under the stricter Companies Act and is taxed at a rate of 15 percent. An IBC can be used for investment and property holding and for financial management, including offshore banking, trading, copyrighting, licensing, unit trusts, mutual funds, and personal trusts. IBCs can have offices in the BVI and be managed from within the Islands without being subject to BVI income taxes and stamp duties. An IBC is not allowed to do business with individuals who reside in the BVI.

Offshore banks can be formed in the British Virgin Islands only by backers who are financially strong and are willing to file and publish audited financial statements. There are currently 13 offshore banks in the BVI. Registered agents adhere to a strict Code of Conduct, which is being given statutory authority by the BVI government. The Code covers know-your-customer procedures, reporting requirements and record keeping procedures. All banking institutions and trusts must obtain a license from the Government before doing business. BVI policy with respect to bank licensing is that, unless the bank is predominantly locally owned and doing business in the BVI, offshore banking activities will not be permitted unless the bank is a branch, subsidiary or affiliate of a well established bank with a proven track record that is subject to effective supervision by the bank supervisory authority. Such banks must have a principal office on the Islands and appoint at least two directors and two individuals who will serve as authorized agents and as intermediaries between the licensee and the Governor or Inspector of Banks and Trust Companies.

In addition to banking institutions and trusts, insurance companies in the BVI must be licensed. Insurance companies are discouraged from selling directly to the public, but re-insurers and captive insurance companies (an insurance company owned by the entity it insures) are attracted by the BVI's quick and easy organization procedures. Captives may be taken over "off the shelf." The absence of controls on the types of insurance captives may write has drawn many companies interested in self-insuring to the BVI.

The BVI's 1992 Trustee (Amendment) Act made trusts more attractive. The Act releases the settler from forced or statutory inheritance provisions by stating that he is not bound by any rule of inheritance or succession laws of the country in which he is domiciled. The life of the trust can be up to 100 years. The law also grants complete exemption from BVI taxation to non-residents of the BVI unless a trust asset is land or a business conducted in the territory.

To ensure that international criminals do not abuse its territories, the UK has proposed that a study be conducted of its Overseas Territories' financial services industries. The Government of the BVI has joined the Governments of Bermuda, the Cayman Islands, Anguilla, the Turks and Caicos Islands, and Montserrat in requesting a review. The study will cover all banking practices and banking legislation.

As a member of the CFATF, the BVI underwent a CFATF mutual evaluation in July 1999, and assumed the CFATF chairmanship in October 1999.

The MLAT between the United States and the United Kingdom concerning the Cayman Islands was made applicable to the BVI in 1990.

The BVI's regulatory legislation meets international standards, such as those established by the FATF and the OGBS. However, the BVI must fully implement its Proceeds of Criminal Conduct Act to have an effective anti-money laundering program.

Brunei (Other). Brunei is neither an illicit drug consumer nor trafficking country, and there are no strong indications that Brunei is being used for money laundering. Nevertheless, the Government of Brunei (GOB) has in place a strong anti-drug program, and has drafted anti-money laundering legislation. The legislation was still undergoing legal review in late 1999 but the GOB announced that the law would be put into place soon. Anticipating such a law, in 1999 Brunei authorities initiated a cooperative effort with regional U.S. anti-drug officials to investigate a potential money laundering scheme.

Asset forfeiture laws are used in Brunei's drug-related cases.

Brunei is a party to the 1988 UN Drug Convention.

Bulgaria (Concern). The economic factors associated with Bulgaria's transition to a market economy, and the resulting instability, have created favorable conditions for financial crime and money laundering to flourish, especially in the mid- and late-1990s. Bulgaria serves as a major narcotics transit country along the Balkan Route, especially for narcotics destined to Western Europe through Romania. Both foreign and domestic sources of illegal proceeds are laundered in Bulgaria. Foreign sources of suspected illegal proceeds transit Bulgarian banks and are eventually transferred abroad. These transactions are conducted in violation of Bulgarian foreign exchange and other laws. Bulgarian banks are used as conduits for funds that are suspected of being connected to drug trafficking or other crimes committed abroad. Besides narcotics trafficking, the major sources of criminal proceeds laundered in Bulgaria have included smuggling, financial institution fraud, auto theft, alien smuggling, prostitution, tax evasion, tax fraud and extortion.

The types of financial institutions used to launder proceeds have included banks, casinos, currency exchanges, real estate companies, used car dealerships, and non-bank financial institutions such as brokerage firms and insurance companies. Bulgarian banks are used to launder funds from foreign sources, especially from former socialist countries of Eastern Europe and the former Soviet Union, Turkey and other Middle Eastern countries. The types of monetary instruments used to launder proceeds include cash-primarily U.S. dollars and German marks-bank drafts, travelers' checks, and wire transfers.

Bulgaria's anti-money laundering legislation, Law on Measures against Money Laundering, became effective on July 24, 1998. Money laundering was simultaneously criminalized by the addition of Articles 253 and 253a to the Bulgarian Criminal Code. The criminal provisions apply to all proceeds derived from all serious crimes.

The anti-money laundering law provides for a definition of money laundering, the types of transactions and financial institutions covered by the law, customer identification, recordkeeping requirements, suspicious transaction reporting, a financial intelligence unit, and the establishment of internal rules for financial institutions to implement an anti-money laundering program.

The Bureau of Financial Intelligence (BFI) of the Ministry of Finance is Bulgaria's financial intelligence unit and has jurisdictional responsibly for money laundering violations. The BFI is a member of the Egmont Group. Ministry of Finance "Decree on the Structure and the Organization of Bureau of Financial Intelligence Activities" formally established the functions of the BFI. The BFI is an administrative agency composed of three main divisions. One division collects, processes, analyzes and stores suspicious transaction reports. The second division is responsible for international relations and the international exchange of information. The third division exchanges information with Bulgarian agencies.

Bulgaria is a member of the Council of Europe and participates in the Council of Europe's PC-R-EV. In November 1999, Bulgaria underwent a mutual evaluation by the PC-R-EV. The evaluation provided detailed suggestions to improve Bulgaria's anti-money laundering program.

Bulgaria has made commendable progress in adopting and implementing anti-money laundering legislation. As Bulgaria continues to implement its anti-money laundering regime, taking into account the recommendations of the PC-R-EV report will give Bulgaria a more effective regime that fully meets international standards for combating money laundering.

Burma (Primary). The sheer volume of proceeds derived from narcotics production and trafficking, and official toleration of the laundering of narcotics proceeds, make Burma a country of major concern for money laundering. Narcotics proceeds figure prominently in the Burmese economy. Although there is no reliable information on the extent of money laundering, some insurgent groups fund their activities through proceeds derived from narcotics trafficking. Domestic narcotics proceeds and proceeds laundered abroad are very significant factors in the overall Burmese economy, and widely and openly invested in business, real estate and infrastructure projects. In some cases, investments of narcotics proceeds in public works projects supplement government expenditures. Such flows may be a dominant element in some local areas. The Burmese government has encouraged ethnic cease-fire groups that have been involved in narcotics trafficking to invest in legitimate businesses instead of narcotics. However, the government has not instituted a system of safeguards to prevent the investment of drug-related proceeds.

Burma is a predominately cash-based economy, and the state controls major sectors of the economy. The state-dominated financial sector is underdeveloped by international standards. The official exchange rate of the local currency to the U.S. dollar is overvalued by 60 times the black market exchange rate. Due to strict foreign exchange controls, the non-convertibility of the Burmese currency and the pervasiveness of narcotics trafficking, ethnically based alternative remittance systems (ARSs) operate throughout Burma.

The ARS, in conjunction with import/export business, is probably the most prevalent mechanism for laundering money in Burma today. In a typical case, money earned from the sale of illicit narcotics (or black market gems or precious metals) is deposited into the underground banker's account in Thailand. The money is then either exchanged and given out by his associate (in Burmese currency) to the source of supply in Burma, or it may be used to pay off import/export debts in another country, such as Singapore. Burmese import/export companies generally deal in such items as cigarettes, electronics or fabrics, and they are often owned by underground bankers who knowingly facilitate drug traffickers' proceeds in order to expedite payment to their sister companies abroad.

Burma criminalized narcotics-related money laundering with the adoption of its 1993 Narcotics Drugs and Psychotropic Substances law. The law also allows for the seizure of assets derived from narcotics trafficking. Burmese officials admit their difficulty in implementing provisions of this law due to a lack of understanding of money laundering concepts and their inability to investigate financial crimes. Burma does not have a financial intelligence unit, nor is it active in international or regional anti-money laundering fora.

The challenge before Burma is to criminalize money laundering to include all serious crimes that generate criminal proceeds and adopt legislation that provides measures for detecting, monitoring, and enforcing money laundering activity. It should enforce existing anti-money laundering measures and should cooperate more fully with international attempts to prosecute narcotics traffickers and their money laundering operations.

Cambodia (Concern). Cambodia is not a major domestic or offshore financial center, but crime, corruption, and money laundering are on the rise. Cambodia is a source country for marijuana, and serves as a transit country for heroin trafficking from the Golden Triangle. Cambodia has experienced an increased presence of foreign organized crime activity, and narcotics-related money laundering is a growing problem. The Cambodian alternative remittance system allows criminals to easily hide and transfer their proceeds without official scrutiny. Enforcement personnel are untrained to investigate financial crimes and money laundering. Official corruption plays a major role facilitating criminal activity.

The primary sources of criminal proceeds include narcotics trafficking, smuggling, prostitution, illegal gambling, alien smuggling, and corruption. Criminal proceeds are laundered in a variety of ways, including the use of financial institutions, cross border currency movements, the purchase of real estate, investments in businesses, and credit transactions. Cambodia's growing casino industry is particularly vulnerable to money laundering because of the volume of cash turnover and connections to organized crime.

Banks play a minor financial role in Cambodia's economy-there are 30 in the country and only a few conduct significant volumes of domestic business. Cambodia is a cash intensive economy and in some regions of the country, gold is used instead of currency. The public has little confidence in the commercial banking system, and fees can be prohibitive for the average Cambodian. An alternative remittance system is available for Cambodians to transfer funds internationally. It is also an effective mechanism to transfer and launder criminal proceeds. In the early 1980s, its use became widespread by expatriate Cambodians living abroad to send earnings to their families in Cambodia. It is identical to the Chinese and Indian systems developed centuries ago to remit funds and send letters between these countries and expatriate communities established abroad. The system relies on a network of businesses such as jewelry stores, travel agencies, money exchangers, finance companies, and import/export companies. The system, which operates throughout Asia, is successful because it operates on the principle of trust that is enforced by family, social, ethnic, commercial, and organized crime ties.

Cambodia criminalized narcotics-related money laundering with the adoption in 1996 of its Law on Drug Control. Although this law focuses on narcotics trafficking, it includes general anti-money laundering provisions for customer identification, suspicious transaction reporting and the establishment of an Anti-Money Laundering Commission subordinate to the Prime Minister's Office to process these reports, record keeping requirements, and provisions for anti-money laundering training in Cambodian financial institutions The composition and functions of the Anti-Money Laundering Commission were to be promulgated through decree at a later date. These measures have not yet been implemented.

In practical terms, agency jurisdiction to enforce money laundering has yet to be determined and the Anti-Money Laundering Commission has yet to be established. Money laundering offenses are investigated by the agency charged with enforcing the predicate crimes that generate the illegal proceeds. Unfortunately, the Cambodian institutions required to effectively counter money laundering-the enforcement agencies, the courts, and financial institutions-are not trained to detect, investigate, and prosecute money laundering. For this reason, money laundering is for the most part left unchecked by Cambodian authorities.

Cambodia is a member of the Asia/Pacific Group on Money Laundering and has assisted neighboring countries in investigating money laundering operations.

Cambodia is aware of the need to enforce its anti-money laundering legislation and to take the appropriate measures to combat money laundering. It should make efforts to educate its officials and financial institutions in anti-money laundering methods and implement existing measures to monitor and enforce money-laundering activity.

Cameroon (Other). Cameroon is not a major drug-producing country, nor is it a regional or international financial center. Illicit drugs transit Cameroon, but there is no information to indicate this has led to significant money laundering activity.

Cameroon's banking system is controlled by a regional central bank serving the six member countries of the Central African subregion.

Cameroon is a party to the 1988 UN Drug Convention. There is no information indicating the status of Cameroon's compliance with the money laundering precepts of the Convention. The government initiated no new actions in 1999 to meet the Convention's goals and objectives.

Canada (Primary). Canada remains vulnerable to money laundering due to its advanced financial services, lack of reporting requirements for suspicious financial transactions, and heavy cross-border flow of currency and monetary instruments. Canada is home to virtually every ethnic organized crime group in the world. Numerous Russian organized crime figures live in or visit Toronto, Montreal, and Ottawa to launder criminal proceeds through financial institutions or stock exchanges. Italian organized crime syndicates-particularly the Sicilian Mafia-are heavily involved in drug trafficking, money laundering, gambling and extortion in Canada. Asian organized crime groups, which have been active in Canada for three decades, are involved in a variety of criminal activities such as drug trafficking and money laundering-including the use of an underground banking system to launder criminal proceeds. Canada has financial institutions which engage in currency transactions involving international narcotics proceeds that include significant amounts of U.S. dollars.

Canada's Proceeds of Crime Act, which came into force in March of 1993, contains anti-money laundering sections but criminalizes money laundering only for drug offenses and enterprise crimes. It lacks both cross-border currency reporting requirements and suspicious activity reporting (SAR) requirements (the reporting of SARs is strictly voluntary.) The legislation also lacks a currency transaction reporting (CTR) requirement. The depositor and the financial institution are only required to maintain a record of any CTR at or above $6,890 for five years. The CTRs are not forwarded to authorities unless they are requested through a subpoena. These reports are merely intended to preserve the audit trail for investigators and prosecutors.

Canada is in the process of strengthening its defense against money laundering. In 1999, the Government of Canada (GOC) introduced legislation on money laundering to address some of the FATF Forty Recommendations on countering money laundering. The legislation, currently before Parliament, will bring Canada's money laundering laws into further compliance with FATF requirements. The draft rules are the government's latest step toward stricter monitoring of large financial transactions, following years of criticism from the United States and other countries that already possess tough measures. The draft regulations contain mandatory suspicious transaction reporting requirements, reporting requirements for currency transactions exceeding $6,890, and requirements to report currency and monetary instruments in excess of $10,344 transported across the border. A new government body, the Financial Transactions and Reports Analysis Centre (FTRAC), will collect and analyze reports of suspicious transactions from financial institutions and financial intermediaries. This proposed financial intelligence unit (FIU) will make the determination as to which SARs merit investigation.

Under the proposed law, currency transactions of $6,890 or more would have to be reported to the Centre by deposit-taking institutions, currency exchanges, securities dealers, life insurance companies and casinos. Reporting requirements would also apply if an individual transacted two or more payments, totaling $6,890 or more, on a single day, as well as transactions involving five or more C$ 1,000 ($689) bills. Many dealings involving payment for professional fees or services would be exempt from the reporting regime. Transition teams to set up this agency were already in place by the end of 1999.

The GOC intends to have FTRAC recognized by the Egmont Group as an FIU. The new anti-money laundering regulations will authorize FTRAC to negotiate and set guidelines so that it can share information with foreign counterparts.

Canada is a member of the FATF, and underwent a second FATF mutual evaluation in May 1997. Canada also participates in the CFATF as a Cooperating and Supporting Nation.

Canada has long-standing agreements on law enforcement cooperation with the United States, including extradition and Mutual Legal Assistance Treaties.

Canada should be encouraged to expeditiously enact the regulations requiring the mandatory reporting of suspicious transactions, large currency transactions, cross-border movements of currency and monetary instruments, and the establishment of an FIU. The Government should ensure that the FIU meets Egmont standards, especially with regard to information sharing. Canada also needs to expand money-laundering offenses beyond drug offenses and enterprise crimes to include all serious crimes.

Cayman Islands (Primary). The Cayman Islands, a UK Caribbean Overseas Territory (COT), has an extremely large offshore sector and thus remains vulnerable to money laundering. In March 1999, UK Foreign Secretary Robin Cook released a White Paper directing Britain's Overseas Territories to bring their financial and criminal legislation in line with that of the UK, as part of an agreement granting UK citizenship to citizens of Britain's Overseas Territories. In response, the Government of the Cayman Islands has taken new steps to strengthen its defenses against money laundering. In 1999, an anti-money laundering committee, consisting of representatives of both the public and the private sector, completed a code of practice, which was sent to the Executive Council for final approval. Additionally, the banking industry and the mutual funds industry drafted codes of conduct focusing on know-your-customer issues, suspicious activity and money laundering. The insurance sector and the companies management sector (which regulates registration of international business companies) are expected to write their drafts in early 2000. Included in the drafts is the stipulation that the Cayman Islands Monetary Authority (CIMA) will supervise building societies, credit unions and money service providers, which will have to follow the same know-your-customer procedures as those laid out in the code of practice and code of conduct for the other financial institutions. CIMA will regulate and supervise these sectors to ensure that they are following the same procedures as the rest of the financial services industry. CIMA was originally established in 1997 with regulatory and supervisory authority over the financial industry. In addition to regulating the financial services industry, CIMA also manages currency and reserves.

In December 1998, the Assembly removed a clause from its Proceeds of Criminal Conduct Law that had prevented the Cayman authorities from cooperating with other jurisdictions on financial offenses. The change states that, provided the offense is a crime under Cayman law, the Islands' authorities will cooperate in the investigation and prosecution of fraud, money laundering, drug trafficking and other offenses. However, the Cayman Islands will not cooperate in investigating tax evasion, since there is no direct taxation there.

The Cayman Islands' Proceeds of Criminal Conduct Law, which criminalized money laundering from all crimes, was considered a monumental step when it was enacted in 1996. The law extended the principles of the Misuse of Drugs Law to all serious crimes and created four new offenses: money laundering, assisting in money laundering, receiving the proceeds of another's criminal conduct, and tipping off. It provided for the freezing and forfeiture of the assets of those who have engaged in criminal conduct and their recipients. The law also established an Authority to which suspicious transactions are to be reported. The Authority has the power to disclose to foreign regulators information necessary to enable those regulators to carry out functions similar to those conducted by the Authority. The law has a provision for a Code of Practice, which will set forth the practical aspects of due diligence procedures and record keeping.

The Cayman Islands had no prosecutions in courts for money laundering in 1999, but individuals have been arrested for suspicion of money laundering. The Government of the Cayman Islands has been cooperative with U.S. law enforcement in financial investigations not involving tax offenses.

The Cayman Islands has a large offshore financial sector offering strict confidentiality, and has thus historically been attractive to money launderers. There are approximately 584 offshore banks on the Islands, including a number of the world's 50 largest banks. The Cayman Islands' financial sector provides a wide range of services, including private banking, brokering, mutual funds, establishment of various types of trusts, and company management. More than 44,000 international business companies are registered in the Cayman Islands.

There are several types of offshore banking licenses available in the Caymans. The most popular type of arrangement is a private bank holding a restricted "B" license. These banks can receive or request funds only when doing business with people named on a list accompanying the application. A private bank has the power to issue letters of credit and bank guarantees and to carry on business free of taxation and currency restrictions. This permits U.S. investors to trade in Eurodollar markets freely without having to provide an accounting to the U.S. Government. A restricted "B" license is granted only to a bank or trust with a net worth of at least $34,000, or more if required by the Governor. A much higher net worth ($480,000) is required for an unrestricted "B" license, which allows the holder to conduct business freely with any client outside the Cayman Islands. Applications for this type of license are normally accepted only from a branch, subsidiary or affiliate of a major international bank with substantial capital. This type of offshore bank pays $18,290 for a banking or a combined banking and trust license, and the same amount for an annual fee. An "A" or full-service bank, allowed to conduct banking business inside and outside the Cayman Islands, must pay $97,560 annually for a license. Approval is usually granted only to international banks with a sterling reputation that are subject to consolidated supervision in another reputable jurisdiction. Cayman Islands Government policy is to grant these licenses only to major international corporations in relation to their in-house banking business.

The Governor-in-Council can refuse to grant or revoke a banking license, on advice from the regulator, if he believes the licensee is conducting business in an illegal manner or in a manner that is harmful to his clients. The application for a banking license requires a substantial amount of information, including information on investors and shareholders. Banks are required to have their accounts audited by an approved firm on an annual basis, and CIMA can require repeat audits.

The Cayman Islands and the Caribbean's other offshore financial centers have been concerned over the listing by the Organization for Economic Cooperation and Development (OECD) of 21 jurisdictions in the region (among 47 worldwide) which OECD says have harmful tax regimes. The OECD wants a review of the taxation regimes of jurisdictions that appear to offer an unfair advantage, and which might be open to international financial crimes. The Cayman Islands and Britain's other Overseas Territories in the region have accepted a proposal from London that independent experts be used to conduct a study of all banking practices and banking legislation in their financial services sectors to ensure that the sectors are not being abused by international criminals. This includes legislation on the offshore insurance industry, securities sector, companies and trusts, independent regulatory authorities, international cooperation and anti-money laundering legislation and preventive measures.

Despite close supervision, the Cayman Islands offshore sector remains vulnerable to abuse. An investigation of Eurobank in the Cayman Islands is still underway. In this case, individuals fraudulently billed customers' credit cards. CIMA shut Eurobank down on the grounds that the bank did not have strong know-your-customer procedures in place. The bank's assets are currently being liquidated. The investigation extends to the United States and relies on the Proceeds of Criminal Conduct law for evidence from the United States.

Recently, the Cayman Islands was involved in the laundering operations of Mexican bankers who were arrested in Operation Casablanca by the U.S. Customs Service. Mexico's Bancomer entered a guilty plea to U.S. charges that its employees laundered drug money through Bancomer's Cayman Islands subsidiary, Mercury Bank & Trust, Ltd.

A Cayman Islands institution was identified in the U.S. General Accounting Office's (GAO) investigation of alleged money laundering by Raul Salinas through accounts at Citibank. In a report of October 1998, the GAO said Citibank formed a private investment company (Trocca) for Salinas through its Cayman Islands affiliate, Cititrust. According to the Citibank representative, Trocca was set up primarily for secrecy, tax advantages, and facilitating the distribution of assets to Mr. Salinas's family in the event of his death.

In recent developments, possible ties between two Cayman Islands bank accounts and the Russian money laundering inquiry have emerged. Thomas Renyi, Chairman and Chief Executive of the Bank of New York, confirmed that two accounts at a Cayman Islands branch were linked to Leonid Dyachenko, the husband of former Russian president Boris Yeltsin's daughter Tatyana. CIMA said that investigators would cooperate with the U.S. Federal Reserve Bank, the regulator for the Bank of New York.

The Cayman Islands is an active member of the CFATF, and the Caymanian Financial Secretary was Chairman of the CFATF from 1998-99.

The Cayman Islands is a party to the 1988 UN Drug Convention and has an MLAT with the United States. The United States and the Cayman Islands have begun negotiations to expand the existing MLAT to cover criminal tax matters. The Cayman Islands is a member of the OGBS and serves on the informal advisory board of the UN Offshore Forum.

Due to its popular offshore banking industry and confidentiality laws, it is essential that the Cayman Islands continues its diligence in regulating and enforcing its anti-money laundering program. The Cayman Islands should be encouraged to implement its new code of practice and to expeditiously complete, and implement, its codes of conduct for its financial services industry.

Chile (Concern). Chile has a dynamic market-oriented economy and a relatively well-developed financial sector, but it has not yet become a major regional financial center, nor is it an important tax haven or offshore banking center. Money laundering remains a threat due to inadequate laws. All known cases of money laundering have been related to the narcotics-trafficking activities of Mexican cartels attempting to launder their profits through the banking sector and through investments in construction projects.

Despite arrests and investigations carried out during the past two years by the Council for the Defense of the State (CDE), the agency with jurisdiction over money laundering investigations, not a single conviction on money laundering charges has been obtained. This is due mostly to the inadequacies of the law, which requires actual seizures of drugs in Chile. In January 1995, Chile enacted Counternarcotics Law No. 19366, which criminalized money laundering related to the illicit narcotics trade. The law allows banks to report suspicious activities to the CDE, but does not require them to do so. The Law does not contain safe harbor provisions to protect banks from liability for reporting suspicious transactions, and as a result, banks rarely do so. In October 1995 a Financial Investigations Unit (FIU) was established within the CDE to receive the reports of suspicious transactions and conduct money laundering investigations. The Unit (Department for the Control of Illicit Drug Trafficking) was admitted into the Egmont Group of FIUs in 1998.

Under the 1995 Narcotics Law, the Council (for up to 60 days) and a judge (for an indefinite period) can seize assets derived from narcotics-related activities. A judge can seize narcotics-related assets and temporarily turn them over to the CDE or law enforcement until a conviction is obtained. After conviction, the assets pass to the Ministry of National Property where non-liquid assets are sold at public auction. The Law does not address sharing seized narcotics assets with other governments.

Since March 1996, currency exchange houses have been required to issue a receipt and to keep records identifying both the buyer and seller on all foreign exchange transactions over $10,000. Copies of the receipts are sent to the Internal Tax Service; the information is also available to the CDE. Failure to complete the invoice and report the transaction carries criminal sanctions. In March 1997, the Chilean Superintendency of Banks and the U.S. Federal Reserve Board of Governors entered into an agreement to cooperate in the supervision of cross-border branches and other establishments of banking organizations incorporated in both Chile and the United States. Each regulator has undertaken to notify the other of applications filed by banking organizations from the other country and of any supervisory concerns with respect to the local operations of banking organizations from the other country, and to exchange other information relevant to their ongoing supervision of operations from the other country. They will also cooperate in carrying out on-site inspections of cross-border establishments in the host country and may share information on the results of audits or examinations.

As a result of the Judicial Reform Law enacted in September 1997, Chile continues the transition from an inquisitorial to an adversarial judicial system The law also established a new Attorney General's office.

The Government of Chile (GOC) is making a concerted effort to address the inadequacies in its Narcotics Law. There is consensus among the Government agencies on the need to criminalize the laundering of proceeds from other serious crimes and to require the reporting of suspicious financial transactions. There is also consensus about the possible need for an FIU with different functions and expanded resources. As a result, the present FIU may be expanded, or a new one created under another government entity. Strengthening anti-money laundering efforts has finally received the attention of the highest levels of the GOC, including that of the new Administration. Acting on this realization will further protect Chilean financial institutions and society from the ravages of money laundering.

China (Primary). China's introduction of free-market reforms to its centrally planned economy has created new conditions for financial crime and money laundering to thrive. Legal reforms have been slow to keep pace with the rapidly evolving criminal sector. The availability of anonymous bank accounts and the Chinese underground banking system allow criminals to hide and transfer their proceeds with impunity. In addition, enforcement personnel are understaffed and underpaid, and are not trained to investigate financial crimes and money laundering Official corruption plays a major role in facilitating criminal activity and in obstructing investigations. Crime rates are spiraling with increases in narcotics trafficking, smuggling, auto theft, alien smuggling, racketeering, and intellectual property counterfeiting. Tax evasion, banking fraud, and the theft of state-owned assets have also increased. The laundering of criminal proceeds from these predicate crimes has become a particularly acute enforcement concern. Although crime rates in China are low in comparison with those of the United States and other Western countries, their growth threatens China's economic security and undermines future economic reforms.

Organized crime groups from Hong Kong, Macau, Taiwan and Japan are known to launder money through joint ventures and real estate purchases in China. Other methods used to move and launder criminal proceeds include bulk smuggling of currency, invoice manipulation, letters of credit, front companies, casinos, and the purchase of precious gems. In other schemes, illegally acquired state-owned funds are transferred to Hong Kong through gray market channels and reinvested in China as foreign capital. Not only is the Chinese state initially defrauded of its own funds through financial manipulation or outright theft, but the funds are then laundered through Hong Kong and invested in China, taking advantage of foreign investment programs that further deprive the state of revenue.

Banks play a dominant role in financing China's economy. China's state-owned banks are involved in financing up to 90 percent of Chinese business ventures This level of financial activity makes the banking system subject to theft, fraud, corruption, and other criminal activities. Local politicians direct banks within their jurisdictions to grant credit for their favored projects regardless of the merits of the venture. Inadequate regulation and supervision by the central bank, combined with government manipulation of credit transactions, are the major factors influencing bank losses.

A money laundering method widely used by ethnic Chinese communities throughout the world-and is used throughout Asia-is the underground banking system. It is the Chinese version of alternative remittance systems or parallel banking that originated in Asia centuries ago. Where the Chinese system is unavailable, the Indian version, hawala, is used to transmit money to China. Third countries such as Thailand or Singapore, where both systems are present, act as transit points. Chinese overseas workers originally used this remittance system to send earnings to their families in China. The system was established through the network of shops and commercial shipping routes of Chinese merchants who traveled throughout Asia. The network remitted funds and letters between China and Chinese communities abroad.

The underground banking system can transfer large sums of money efficiently and quickly without leaving financial records tied to the transactions. The paper trail is eliminated by avoiding official reporting requirements to Customs authorities that bulk cash or monetary instruments would attract at the border, and commercial bank reporting requirements that cash or suspicious transactions require. The system is still used for its traditional purpose, however, it is also used for tax evasion and as a means to move and launder criminal proceeds. Chinese underground banking is successful since it operates on the principle of trust that is enforced by family, social, ethnic, commercial, and organized crime ties.

China has taken modest steps to respond to money laundering. With the adoption of its Criminal Code in 1997, China criminalized money laundering for the proceeds of narcotics, organized crime, and smuggling under Article 191. Although Chinese authorities have successfully prosecuted several cases under this Article, this statute is limited in addressing China's money laundering problem. For Article 191 to be an effective enforcement tool, it must address the entire spectrum of serious crimes generating the proceeds laundered in China. Furthermore, China has yet to adopt comprehensive anti-money laundering legislation establishing the requisite mechanisms to effectively prevent and detect money-laundering activities.

Despite China's weak anti-money laundering statute, the government is adopting and examining measures to address financial crimes and money laundering. These efforts are connected to capital flight, illegal foreign exchange trading, and reforms in the banking sector.

The State Administration of Foreign Exchange with the General Administration of Customs issued a regulation that took effect in August 1999 requiring the licensing of exports of $10,000 or more in foreign currency by Chinese citizens. This regulation was issued to rein in the transfer of illegal proceeds masquerading as capital flight. These schemes include proceeds from invoice manipulation of trade goods, illegal trade in foreign exchange, falsification of foreign trade statistics, and other questionable transactions. In October 1999, the Ministry of Public Security announced the recovery in 1998 of $10 billion in illegally converted yuan, the local currency. Fearing a yuan devaluation, Chinese companies, many of them owned by state or local administrations, illegally exchanged these funds for foreign currency. Although the bulk of these funds may at first glance be attributed to capital flight, the proceeds of crime are sure to figure into these statistics. The distinction between the two is hard to determine given the shades of illegality of the funds' origins, methods of currency conversion and transfer, and the use of document falsification.

The state agencies that enforce foreign exchange laws have cracked down on illegal foreign exchange trading during 1999 through a series of enforcement operations. Under China's foreign exchange system, the government strictly regulates the exchange of yuan to foreign currency. Since 1994, only authorized banks have been permitted to conduct currency exchange. The foreign exchange is held in accounts strictly regulated by the central bank. To circumvent government scrutiny of the exchange of yuan proceeds derived from crime and other illegal activities within China, a black market in currency trading developed. Criminal proceeds in yuan must be exchanged into a convertible foreign currency to be of use outside China.

Starting in 1998 and throughout 1999, several government agencies, among them the central bank, proposed abolishing the use of anonymous accounts, a feature of China's centrally planned economy. During this era of collective ownership of property, individuals opened accounts associated with their household or family enterprise rather than under their own name. Commercial banks allowed individuals to choose obviously fictitious names when opening accounts. Neither the central bank nor any other regulatory agency exercises control over the registration of these accounts. In addition, these accounts are fully transferable. As a result, proving the beneficial ownership of these accounts is nearly impossible. On January 20, the head of the People's Bank of China (China's central bank) stated that the Bank planned to adopt a "real name system" for deposit accounts sometime in 2000 in order to aid tax collection and fight corruption. However, he added, the proposed rule change will apply only to new accounts, in order to avoid "serious disruption" to the banking system.

Private firms and state-owned banks use these accounts for purely economic reasons. They hold reserve cash accounts at more favorable interest rates than those offered by official central bank accounts sanctioned by the government. These accounts, however, facilitate tax evasion, payment of bribes, money laundering, and other illegal activities. Although China is concerned about the misuse of these accounts, the government has not yet abolished their use. The reasons cited by government officials include the lack of automation within many Chinese banks and the banking system's general lack of development.

In 1998 and 1999 China instituted a number of banking reforms to improve supervision of the banking system, including the reorganization of the central bank into nine regional branches patterned after the U.S. Federal Reserve System. The new regional branches were granted regulatory authority to prevent manipulation of credit by local politicians, and to prevent financial crime within the banking system. In addition, the performance rating of regional directors of the central bank branches is directly tied to deterring and preventing financial scandals. The central bank was also forced to divest itself of direct operation in the thousands of associated businesses it owned. Although the purpose of these reforms was to modernize the banking sector, these changes will facilitate the implementation of anti-money laundering measures in China's financial institutions, once China adopts anti-money laundering legislation consistent with international practice. The shedding of central bank's business connections will allow it to perform its supervisory functions more objectively by eliminating conflict of interest concerns.

China does not have a financial intelligence unit, although the Economic Crimes Investigations Department (ECID) of the Ministry of Public Security is charged with investigating incidents of money laundering and other financial crimes such as counterfeiting, underground banking, and tax fraud. In November 1999, an ECID delegation visited the United States to discuss money laundering and financial crime issues with a variety of agencies from the Departments of State, Justice, and Treasury. The major focus of their visit was to establish working relationships with U.S. agencies and to gather information to improve China's ability to combat money laundering and financial crimes. Money laundering topics of discussion included legislation, information automation, and suspicious transaction reporting, as well as other anti-money laundering measures.

The United States and China continue to hold discussions on cooperation in such fields as combating international organized crime, narcotics trafficking, alien smuggling, counterfeiting, and money laundering through the auspices of the U.S.-PRC Joint Liaison Group (JLG) on law enforcement cooperation. The JLG was established in May 1998 on the basis of a memorandum of understanding. The next JLG meeting will be held in Beijing in early to mid 2000.

In March 1999, during the second round of discussions of the JLG, the question of Chinese membership in the FATF was referred to Chinese government representatives for consideration. The Chinese government raised several political issues regarding FATF membership and requested additional information on the FATF that was forwarded to them in April 1999. The FATF cooperates closely with international and regional organizations concerned with combating money laundering, including the Asia/Pacific Group on Money Laundering (APG). China participated in the initial meeting of the APG and hosted the first round of working group meetings in Beijing in July 1997. However, China has not attended subsequent meetings of the APG

The United States and China are near completion of a framework for mutual legal assistance. Both sides signed a Customs Mutual Assistance Agreement in 1998 that speeds communication and enhances the flow of counternarcotics intelligence.

China does not allow the licensing of banks or corporations for offshore operations. Hong Kong, a premier offshore center, continues to service China's offshore needs. China's Special Economic Zones (SEZs) are frequently confused with offshore centers. During the early 1980s, China established four SEZs along the southeastern coast near Hong Kong and Taiwan and granted them legislative autonomy in passing laws favorable to foreign investment, as well as generous government funding for development. By 1993, thousands of SEZs were in existence, rendering the designation meaningless. The government finally revoked the preferential tax treatment of all the SEZs with the adoption of a uniform national tax code in 1994. However, with relative autonomy from Beijing in adopting economic legislation, some SEZs went quite far in embracing capitalism. The SEZ's may offer anonymous accounts, a convenient avenue for money laundering.

As first steps in combating money laundering, China must expand its money laundering legislation to include all serious crimes that generate criminal proceeds. It must also abolish the use of anonymous, numbered, or pseudonym accounts that shield the beneficial owner of the funds. Legislation that provides for controls in detecting