Money Laundering and Financial Crimes
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Overall anti-money laundering efforts in the year 2000 made progress across two broad fronts. The international community demonstrated its resolve to confront money laundering by showing a strong commitment to work collectively to address the problem while seeking to isolate those countries and jurisdictions that lack this commitment. In this regard, the year 2000 marked a milestone in international cooperation on fighting money laundering as the Financial Action Task Force publicly released a list of 15 countries and territories that were found to be non-cooperative in the international fight against money laundering. At the conclusion of its June 2000 plenary meeting, the FATF published a report that stated that these 15 countries and territories had “serious systemic problems with money laundering controls and that they must improve their rules and practices as expeditiously as possible or face possible sanctions.” Following publication of this report, the United States, its G-7 partners and other FATF members issued advisories, notices or other various communications alerting the financial institutions in their countries about the money laundering risks they face in the “non-cooperating” jurisdictions.
The publication of the FATF report represents the first step in an ongoing process to bring international financial centers into compliance with international anti-money laundering standards. The development of a consensus among the FATF membership was the result of a five-month process in which FATF evaluated the anti-money laundering systems of numerous countries in order to identify those anti-money laundering efforts that fail to meet international norms. The willingness of the FATF members to agree on this list demonstrates the seriousness of the money laundering problem in those jurisdictions and the commitment of the members to address it in a meaningful way.
This exercise has already shown positive results. Since the list was published, seven of the 15 jurisdictions have enacted all or almost all of the legislation needed to address deficiencies identified by the FATF, and now must demonstrate effective implementation of the legislation. Several other jurisdictions have enacted some relevant legislation to address the deficiencies identified by FATF. These jurisdictions are commended for beginning their legislative processes, and are encouraged to continue to work toward developing comprehensive anti-money laundering regimes that meet international standards. The FATF will be assessing the progress made by all listed jurisdictions to determine whether any should be removed from the list and will also continue its review process to determine whether any new countries should be added.
Further international commitment was reflected in additional advances by FATF and FATF-like regional bodies. Three countries—Argentina, Brazil and Mexico—joined FATF, increasing its membership to 29 nations. In addition, two new regional FATF-like bodies were created to extend the fight against money laundering. The Financial Action Task Force against Money Laundering in South America and the Eastern and Southern African Anti-Money Laundering Group were formed in 2000, increasing the number of regional bodies to five.
The December 2000 signing of the United Nations Convention against Transnational Organized Crime in Palermo, Italy represents another significant development in the effort to promote international cooperation against money laundering and other forms of organized crime. The Convention was signed by over 125 countries, including the United States, and will enter into force after forty have become parties. This Convention includes many significant provisions with respect to money laundering and international cooperation in financial investigations. Once again, the drafting and signing of this Convention demonstrate the recognition by the international community that it must stand together to effectively fight international organized crime and money laundering.
The Financial Action Task Force on Money Laundering is an inter-governmental body whose purpose is the development and promotion of policies to combat money laundering.
The relationship between money laundering and foreign corruption was highlighted in the U.S. National Money Laundering Strategy for 2000, which called for numerous actions to be taken in this area. Most significantly, the Department’s of Treasury and State, and the federal bank regulators issued guidance to help U.S. financial institutions avoid transactions that may involve the proceeds of foreign official corruption. The importance of such guidance was reinforced by the publication last year of a report by the Swiss Federal Banking Commission. The report detailed how 19 banks that operate in Switzerland handled almost $1 billion in funds relating to corruption by the former ruler of Nigeria, General Sani Abacha. The report criticized several of the banks for weaknesses in their account-opening procedures or monitoring and reporting mechanisms. The report noted that “he Abacha case is a clear example of the international dimensions of the issue of the deposit of corruption proceeds in the financial system.”
In 2000, the political and diplomatic anti-money laundering efforts were complemented by an initiative from the private sector. In October 2000, eleven world money center banks agreed to a set of anti-money laundering guidelines—the “Wolfsberg Anti-Money Laundering Principles”—for private banking activities. The guidelines state at the outset that “bank policy will be to prevent the use of its world-wide operations for criminal purposes.” The participating banking organizations are hopeful that other banking organizations and financial institutions will adopt the anti-money laundering principles that have been developed.
The FATF initiatives, the United Nations Convention against Transnational Organized Crime and the Wolfsberg Principles were some of the highlights from 2000 that have made contributions to stemming the flow of illegal proceeds around the globe. These international efforts should yield even greater results in the year to come.
Money laundering is necessitated by the requirement for criminals, be they drug traffickers, organized criminals, terrorists, arms traffickers, blackmailers, or credit card swindlers, to disguise the origin of their criminal money so that they can use it more easily. Money laundering generally involves a series of multiple transactions used to disguise the source of financial assets so that those assets may be used without compromising the criminals who are seeking to use the funds. These transactions typically fall into three stages: Placement, the process of placing, through deposits, wire transfers, or other means, unlawful proceeds into financial institutions; Layering, the process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions; and Integration, the process of using an apparently legitimate transaction to disguise the illicit proceeds. Through this process the criminal tries to transform the monetary proceeds derived from illicit activities into funds with an apparently legal source.
Money laundering has devastating social consequences and is a threat to national security. It provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt public officials and other criminals to operate and expand their criminal enterprises. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex, due to rapid advances in technology and the globalization of the financial services industry. Modern financial systems, in addition to facilitating legitimate commerce, permit criminals to order the transfer of millions of dollars instantly, using personal computers and satellite dishes. The criminal’s choice of money laundering vehicles is limited only by his or her creativity. Money is laundered through currency exchange houses, stock brokerage houses, gold dealers, casinos, automobile dealerships, insurance companies, and trading companies. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing all have the ability to mask illegal activities. In doing so, criminals manipulate financial systems in the United States and abroad.
Unchecked, money laundering can erode the integrity of a nation’s financial institutions. Due to the high integration of capital markets, money laundering could also adversely affect currencies and interest rates as launderers reinvest funds where their schemes are less likely to be detected, rather than where rates of return are higher.
Ultimately, this laundered money flows into global financial systems where it could undermine national economies and currencies. Money laundering is thus not only a law enforcement problem but poses a serious national and international security threat as well.
There is now worldwide recognition that we must deal firmly and effectively with increasingly elusive, well-financed and technologically adept criminals who are determined to use every means available to subvert the financial systems that are the cornerstone of legitimate international commerce. The continued abuse of some offshore financial centers, the proliferation of on-line Internet banking and Internet gambling have further enhanced the need to scrutinize new technologies to combat money laundering schemes.
Money launderers also negatively impact jurisdictions by reducing tax revenues through underground economies, competing unfairly with legitimate businesses, damaging financial systems, and disrupting economic development. Money laundering is now being viewed as a central dilemma in dealing with all forms of international organized crime because financial gain means power. Fighting money launderers not only reduces financial crime; it also deprives criminals and terrorists of the means to commit other serious crimes.
The United States and other nations are victims of tax evasion schemes that use various financial centers around the world and their bank secrecy laws to hide money from tax authorities, thus undermining legitimate tax collection. Financial centers that have strong bank secrecy laws and weak corporate formation regulations, and that do not cooperate in tax inquiries from foreign governments, are found worldwide. These financial centers, known as “tax havens,” thrive in providing sanctuary for the deposit of monies from individuals and businesses that evade the payment of taxes in their home jurisdictions and allow them to keep the money they have deposited from the knowledge of tax authorities. Billions of funds on which tax is properly due, denominated in various currencies, are held on deposit in these tax havens.
Both tax evasion and money laundering are activities that are aided by financial centers that have strong bank secrecy laws and a policy of non-cooperation with foreign law enforcement authorities, as is the case with some jurisdictions with offshore financial centers.
Nearly sixty jurisdictions, scattered around the globe, comprise the constantly expanding offshore financial services sector. A recent study found that by the end of 1997, the share of cross-border assets held in the offshore sector accounted for more than half of all cross-border assets held globally.
Luca Errico and Alberto Musalem, Working paper of the International Monetary Fund, “Offshore Banking: An Analysis of Micro-and Macro-Prudential Issues”, 1999, p.10.
The attention of many multilateral entities concerned with global financial stability in an increasingly interdependent financial system has been focused on more than just the sheer volume of cross-border assets held by the offshore financial centers . While this discussion is not intended to suggest that OFCs, as a class, are all unregulated or all centers of illegal financial activity, the nature of the regulatory and legal regimes in a number of OFCs can be viewed as problematic, as are some of the services and products provided in many OFCs. In particular, the lack of transparency that characterizes many of the OFCs has acted as a powerful magnet attracting governments, groups and individuals desiring to hide their financial activity from public scrutiny.
Although there is little consensus regarding the exact definition of an offshore financial center, certain characteristics distinguish traditional onshore financial centers from those termed “offshore.” First, offshore financial centers are in almost all cases, segregated from the normal banking structure of the jurisdiction. The vast majority of jurisdictions offering offshore financial services restrict access to these services and products to non-residents, thereby creating a parallel system within their own borders. Many jurisdictions with OFCs conduct financial transactions only in currencies other than the local currency. OFCs also differ from onshore jurisdictions in their regulatory regimes and in their legal frameworks. Many OFCs lack the stringent regulatory and supervisory regimes found in developed onshore jurisdictions. In the majority of OFCs, banks are not required to adhere to a wide range of regulations normally imposed on onshore banks.
Formation of a bank is more easily accomplished in most OFCs; it is even reported that in some jurisdictions a bank can be formed, registered and its ownership placed in the hands of nominee directors via the Internet. However formed, there are few, if any, disclosure requirements; bank transactions are free of exchange and interest rate restrictions; minimal or no capital reserve requirements are required; and transactions are mostly tax-free.
Some 4000 banks are thought to have been licensed and registered globally in the offshore sector by December 1998. How many are merely “plaque banks,” is not currently known, although the United Nations Global Program Against Money Laundering is currently collecting that data. In many OFCs, non-bank financial industries, such as the insurance and securities industries, are subject to even less, if any, regulation than is the banking industry.
While there are many well-regulated OFCs, a principal attraction is often the existence of legal frameworks designed to obscure the identity of the beneficial owner, to promote regulatory and supervisory arbitrage, and to provide mitigation or evasion of home-country tax regimes. Some of these OFCs offer the ability to form and manage confidentiality of a variety of international business companies and exempt companies, trusts, investment funds and insurance companies, many with nominee directors, nominee officeholders and nominee shareholders. When combined with the use of bearer shares and “mini-trusts” , IBCs can present impenetrable barriers to law enforcement.
The term “offshore financial center” is generally thought to describe an entire jurisdiction. However, there are important OFCs located with the borders of jurisdictions. “OFC” in this report is used to describe both cases. OFCs maintain that their carefully crafted laws and regulations provide beneficial business and financial planning options for their clients. These include, but are not limited to: sophisticated trade financing; estate planning for high net worth individuals; tax mitigation for individuals and corporations; avoidance of exchange controls; liability containment for ships and airplanes; sophisticated insurance management options; investment opportunities that transcend home country marketing regulations; preservation of assets; investment of overnight funds; and freedom from certain home country regulatory requirements.
Working paper of the United Nations Office for Drug Control and Crime Prevention, “The United Nations Forum”, January 2000, p6. Of all offshore banks, 42% are located in the Caribbean and Latin America, 29% in Europe, 19 % in Asia and the Pacific and 10% in Africa and the Middle East.
“IBC” is the term used to describe a variety of offshore corporate entities, which are restricted to transacting business outside the jurisdiction in which they are formed. IBCs are characterized by rapid formation, at low cost, with broad powers, low to no taxation, minimal or non-existent reporting requirements and secrecy. Many OFCs permit IBCs to issue bearer shares. The “UN Offshore Forum” paper estimated that of the nearly 2.5 million IBCs registered globally, 38% were registered in the Caribbean and Latin America, 25% in Europe, 29% in Asia and the Pacific and 8% in Africa and the Middle East.
This lack of transparency, coupled with a concomitant reluctance or refusal of many OFCs to cooperate with regulators and law enforcement officials from other jurisdictions, attracts those with both legitimate and illegitimate purposes. Drug traffickers, terrorists, money launderers, tax evaders and other criminals have found the OFCs a particularly inviting venue in which to conduct and conceal their activities.
The opacity of many offshores sector makes financial supervision difficult. The Errico and Musalem 1999 working paper of the International Monetary Fund concluded that the OFCs of Uruguay, Malaysia and Thailand contributed to the recent financial crises of Latin America and Asia by providing a hiding place for losses from loans of the international financial institutions. Another recent study demonstrates how the Russian Central Bank used an IBC formed in the Jersey OFC to mislead the IMF into thinking that Russia’s currency reserves were higher than they actually were.
The increased opportunities new technology provides to those who wish to use the offshore sector for criminal purposes have galvanized intensive scrutiny of the offshore sector—generally by a variety of international organizations and multilateral task forces and bodies. Two prominent international bodies, the Financial Stability Forum and the Financial Action Task Force, published reports in 2000 that have already had a dramatic impact on the offshore sector.
Although IBCs have served as the predominant instruments for committing financial crimes, a variety of types of trusts play important roles as well. One form of trust, the Asset Protection Trust , protects the assets of individuals from civil judgments in their home countries. A common provision of APTs is that challenges or claims against the assets of the trust must be brought before the courts of the jurisdiction of the APT domicile within a relatively short period of time . Many APTs contain “flee clauses” providing for funds to be immediately transferred to another OFC if the APT is threatened by inquiry. Used in combination, IBCs, mini-trusts, bearer shares and APTs make it nearly impossible for competent authorities to generate paper trails or to identify beneficial owners of companies, while they simultaneously protect those engaging in serious financial crime from civil or criminal prosecution.
Other practices found in some OFCs cause problems for law enforcement. One such practice, well advertised on the Internet, is the selling of “economic citizenship”—a practice that enables individuals suspected of committing crimes to purchase citizenship in an OFC jurisdiction that does not have an extradition agreement with the purchaser’s original home country. Currently five Caribbean Basin OFCs are actively selling economic citizenships: Belize, Dominica, Grenada, St. Kitts/Nevis and St. Vincent and the Grenadines. In the Pacific region, economic citizenships are for sale in Nauru.
Internet gaming executed via the use of credit cards and offshore banks represents yet another powerful vehicle for criminals to launder funds from illicit sources as well as to evade taxes. Advertised on the Internet as being located primarily in the Caribbean Basin, virtual casinos can be extremely profitable for governments that sell the licenses and likely share in the operator’s profits. By the end of December 2000, Antigua and Barbuda, for example, reportedly had licensed more than 80 Internet gaming websites at a cost of $75,000-$85,000 for a sports betting shop and $100,000 for a virtual casino. As the Offshore Financial Services chart indicates, with the exception of St. Vincent and the Grenadines, all Caribbean Basin OFCs that sell “economic citizenships” also sell virtual casino licenses. In the Pacific region, only the Palau and Vanuatu OFCs are reported to sell gaming licenses . Neither Palau nor Vanuatu sell economic citizenships.
Errico and Musalem analyze the role of the OFCs in the Asian and Latin American crises, pp. 37-38. The PricewaterhouseCoopers, “Report to V.V. Gerashenko, Central Bank of Russia, re: FIMACO”, August 1999. Commissioned by the IMF, the report leads to the conclusion that the Russian Central Bank used FIMACO to anonymously purchase Russian government debt.
See the Offshore Financial Services Chart at the end of this section.
With the advent of the Internet and other technological advances, monies can be quickly transferred around the globe, providing further opportunities to engage in the placement and layering of illicitly gained funds. There is a growing concern that criminals are increasingly enlisting the services of unethical lawyers, accountants and other professionals to help them discover and manipulate new money laundering opportunities afforded by the new technologies.
In recent years, various bodies have examined the threats presented by a lack of transparency and oversight posed to an increasingly interdependent global financial system. Two initiatives, The Financial Stability Forum’s Offshore Working Group and the Financial Action Task Force’s Non-Cooperative Countries and Territories Initiative, have had a direct impact on the offshore financial services industry in 2000. These initiatives have drawn distinctions between the better-regulated and cooperative jurisdictions and those that are not. Both initiatives have focused a great deal of attention on the OFCs although the FATF initiative addresses jurisdictions beyond OFCs.
The Financial Stability Forum Working Group on Offshore Financial Centers
The Financial Stability Forum was convened in 1999 at the request of the G-7 Finance Ministers to promote international financial stability through information exchange and international cooperation in financial supervision and surveillance. At its first meeting in April 1999, the FSF established the Working Group on Offshore Financial Centers. The working group was comprised of officials of industrial and emerging market economies, international institutions and international regulatory and supervisory groupings.
The FSF Working Group’s mandate was to consider the significance of OFCs in relation to global financial stability. In April, the FSF Working Group issued a report concluding that a number of the OFCs were perceived as having weaknesses in financial supervision, cross-border cooperation and transparency. In order to prioritize the jurisdictions for eventual IMF assessment, OFCs were divided into three categories: Group I , Group II and Group III .
The OFCs in Group I, Hong Kong, Luxembourg, Singapore and Switzerland, were “generally perceived as having legal infrastructures and supervisory practices, and/or a level of resources devoted to supervision and co-operation relative to the size of their financial activities, and/or a level of cooperation that are largely of a good quality and better than in other OFCs.” The OFCs of Guernsey, Ireland, the Isle of Man and Jersey were also generally viewed in the same light “though continuing efforts to improve the quality of supervision and co-operation should be encouraged in these jurisdictions.”
Financial Stability Forum press release, May 26, 2000. The Report of the Working Group on Offshore Financial Centers is located at the FSF’s website: sforum.org.
OFCs in Group II , Macao, Malta and Monaco) were considered to be of lower quality than Group I but higher than the OFCs in Group III.
OFCs listed in Group III were Anguilla, Antigua and Barbuda, Aruba, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Cyprus, Lebanon, Liechtenstein, Marshall Islands, Mauritius, Nauru, Netherlands Antilles, Niue, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, Seychelles, the Bahamas, Turks and Caicos, and Vanuatu. These jurisdictions were generally perceived as having legal infrastructures and supervisory practices, and/or level of resources devoted to supervision and co-operation relative to the size of their activity, and/or level of co-operation that are largely of a lower quality than in Group II.
The report concluded that the perceived deficiencies in Groups II and III OFCs could allow financial market participants to engage in regulatory arbitrage of several forms, thereby undermining efforts to strengthen the global financial system. As a result, the FSF in May released the groupings of the OFCs by category, requesting that the IMF develop, organize and conduct assessments of OFC adherence to international financial standards, including several of the FATF 40 Recommendations. The FSF recommended giving “highest priority to those in Group II” and “high priority to those OFCs in Group III whose scale of financial activity has the greatest potential impact on global financial stability.”
The IMF agreed in July to a program that contemplates three levels of assessment that review principally the supervisory and regulatory arrangements in place for banking, securities and insurance activities. The first level is a self-assessment, the second is an assessment led by the IMF and the third, a more complex assessment, will also be led by the IMF. Participation in the program is voluntary and no IMF assessment will be made public unless the assessed jurisdiction voluntarily agrees to its release
The Financial Action Task Force on Money Laundering
Non-Cooperative Countries and Territories Initiative
In response to the G-7 Finance Ministers 1998 Birmingham Summit, the FATF formally created the Ad Hoc Group on Non-Cooperative Countries and Territories In 1999, this group developed twenty-five criteria for the purpose of determining which jurisdictions weakened the global effort to combat money laundering. These criteria encompass four broad areas:
FATF initiated a review of a first tranche of jurisdictions in February 2000. After a through review and dialogue with these jurisdictions, the FATF at its June 2000 Plenary identified fifteen jurisdictions as non-cooperative in the international fight against money laundering. Those fifteen were as follows: the Bahamas, the Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis, and St. Vincent and the Grenadines. All but Israel, Lebanon and Russia are OFCs.
Fourteen other jurisdictions, all OFCs, were identified as having deficiencies, but were not placed on the non-cooperative list. Those jurisdictions are as follows: Antigua and Barbuda, Belize, Bermuda, British Virgin Islands, Cyprus, Gibraltar, Guernsey, the Isle of Man, Jersey, Malta, Mauritius, Monaco, Samoa and St. Lucia. The reviews of two other OFC jurisdictions, Vanuatu and the Seychelles, were not completed at the June Plenary, but at the October Plenary neither jurisdiction was determined to be non-cooperative.
At the July G-7 Finance Ministers Summit held in Japan, the United States along with its partners, issued formal advisories or notices notifying all financial institutions in G-7 countries of the FATF’s issuance of Recommendation 21. The U.S. Department of Treasury issued individual advisories regarding each of the fifteen named NCCTs to all U.S. financial institutions. The advisories advised financial institutions to “give enhanced scrutiny” to transactions involving the named jurisdictions.
The report, Offshore Financial Centers, The Role of the IMF , can be found at sec/nb/2000/nb0062.htm.
FATF Recommendation 21 states: Financial institutions should give special attention to business relations and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply these Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies.
The FATF’s NCCT exercise, while not designed to focus on OFCs, has had a significant impact on the OFCs and other jurisdictions around the globe. For more information on this initiative see the discussion of the NCCT process in the Multilateral Section—FATF overview—in this report.
Explanatory Notes To the Offshore Financial Services Chart
Public information regarding offshore financial centers can be difficult to obtain. Industry publications, discussions with regulators of the OFCs, foreign government finance officials, embassy reports, analyses from United States Government agencies, international organizations, and secondary sources provided the data for the chart.
Excluded are jurisdictions that provide low or no taxes to individuals but offer no other services or products normally associated with the offshore financial service sector. Also excluded are jurisdictions that have established OFCs but for which the USG has little or no information regarding the operations of the OFC. Within most categories presented on the chart, the designations Y and N are used to denote the existence or the non-existence of the entity or service in a specific jurisdiction. Where there is no information regarding specific categories, the corresponding cells on the chart are left blank. In some categories, symbols other than or in addition to Y or N are used. Explanations for additional symbols are provided below.
Explanations of the categories themselves are either provided in the preceding text, are considered to be self-evident, or are provided below.
Category Designations on the Offshore Financial Services Chart
Offshore Banks: The number is provided if known. A Y indicates that although a jurisdiction that offers offshore financial services licenses offshore banks, the number of such banks is not known. An N indicates that no offshore banks are known to be licensed in the jurisdiction. A blank cell indicates that the USG does not know if offshore banks are offered within the OFC.
Trust and Management Companies: These are companies that provide fiduciary services, as well as serving as marketing agents, representatives, lawyers, accountants, trustees, nominee shareholders, directors, and officers of international business companies.
International Business Companies & Exempt Companies: Numbers are provided when known and public; in many cases, the numbers are significantly underreported.
Bearer Shares: Share certificates can be issued without the name of the beneficial owner. A Y indicates that the OFC offers bearer shares; an N indicates that it does not; and a blank cell indicates that the USG does not know if bearer shares are offered within the OFC.
Asset Protection Trusts : Trusts that protect assets from civil judgement. A Y indicates that the OFC offers APTs; an N indicates that it does not; and a blank cell indicates that the USG does not know if APTs are offered within the OFC.
Insurance and Re-insurance Company Formation: A Y indicates that the OFC allows formation of insurance and re-insurance companies; an N indicates that it does not; and a blank cell indicates that the USG does not know if insurance and re-insurance companies are allowed within the OFC.
Sells “Economic Citizenship”: A Y indicates that the OFC sells economic citizenships; an N indicates that it does not; and a blank cell indicates that the USG does not know if the OFC sells economic citizenships.
Internet Gaming: Licenses granted by jurisdictions that enable grantees to establish “virtual casinos” on the Internet, in which customers can pay via credit card. A Y indicates that the OFC licenses Internet gaming; an N indicates that it does not; and a blank cell indicates that the USG does not know if Internet gaming is offered within the OFC.
Criminalized Drug Money Laundering. A D indicates that the OFC has a law criminalizing narcotics-related money laundering only. A BD indicates that crimes other than those related to narcotics are considered to be predicate crimes for money laundering in the OFC. An N indicates that there is no legislation criminalizing money laundering in the OFC.
Reports Suspicious Activities: An M indicates that reporting suspicious activities to law enforcement by banks, and in some OFCs and other financial institutions, is mandatory. A P indicates that such reporting is voluntary. An N indicates that there is no requirement to report suspicious activities.
Financial Stability Groupings: This column provides the grouping provided by the Financial Stability Forum. Group I OFCs are OFCs with generally good supervision and are generally cooperative with foreign supervisors and law enforcement agencies; Group II OFCs are OFCs in which supervision and/or cooperation and/or human resources is of a lesser quality than OFCs in Group I; Group III OFCs are OFCs that lack the political will and/or resources to adhere to international standards and norms and to cooperate with the international financial community in combating money laundering. A blank cell indicates that the jurisdiction was not reviewed.
Financial Action Task Force Non-Cooperative Exercise: This column provides the FATF finding. NC indicates the jurisdiction was determined to be noncooperative; R indicates that the jurisdiction was reviewed and determined not to be noncooperative; a blank cell indicates that the jurisdiction was not reviewed.
Membership in International Organizations: This cell lists the multinational organizations that have been formed to combat money laundering and/or to establish a sound supervisory regime in which the OFC participates.
As in previous years, money launderers have demonstrated a great deal of creativity in combining traditional money laundering techniques into complex money laundering schemes designed to thwart the ability of authorities to prevent, detect and prosecute money laundering. Increasingly, however, money launderers are modifying traditional techniques to take advantage of developments and technologies designed to streamline the process as well as employing the services of professionals such as lawyers and accountants to help launder illicit proceeds. Below are some examples of various money laundering typologies and a review of statistical information on U.S. money laundering trends for 2000.
Statistical Overview of U.S. Money Laundering Trends
Suspicious Activity Reporting: Suspicious Activity Reports continue to play a critical role in U.S. anti-money laundering efforts. Similar types of reporting systems are in operation throughout the world and are a key component in global anti-money laundering efforts as well. In addition to their importance to law enforcement efforts to combat money laundering, SAR reporting can also provide important information on current money laundering trends and typologies. This information can then be used by authorities to develop more effective countermeasures. The following statistical overview is derived from aggregate totals for Suspicious Activity Reports filed by depository institutions from the U.S. SAR system. A small part of the total volume relates to reports filed by affiliates of depository institutions or, in some cases, filed voluntarily by brokers and dealers in securities, money service businesses, or gaming businesses.
Chart 1: U.S. Suspicious Activity Report Filings by Year and Month
Represents those SARs currently in the system as of 31 August 2000.
Underlying suspicious activity identified in SARs data is provided in rank order in Chart 2. It should be noted that for the largest number of filings , structuring activity comprises about 50 percent of the SARs identified under this category. Chart 3 breaks out the overall data by violation/year.
Chart 2: SAR Filings Ranked by Type of Violation
The Bank Secrecy Act and related rules and regulations require the filing of reports of certain financial transactions.
The Unknown/Blank classification encompasses those SARs that do not correspond to an established violation or where the violation is not specified.
Violation did not appear until issuance of the Revised SAR Form in June 2000.
Chart 3: SAR Filings by Characterization of Suspicious Activity
Represents those SARs currently in the system as of August 31, 2000.
Developments in Analyzing U.S. National SAR Data
The size of the U.S. national SAR database presents special opportunities for developing analytic approaches to the data set. Analysis of the data set has enabled FinCEN to provide banks with important feedback regarding examples and patterns of suspicious activity.
Wire Transfers and Shell Company Activity
SARs filed during the first half of 2000 reflect several complex activities involving suspicious wire transfer patterns. As reported in the SAR narratives, many of these suspicious wire transfer patterns involve shell companies— i.e. , corporations that engage in no apparent business activity and that only serve as a conduit for funds or securities. Often the activities also involve foreign transactors located in jurisdictions considered non-cooperative in the fight against global money laundering.
Several complex suspicious wire transfer transactions have been observed, each involving geographically complicated wire transfer routing and/or geographically complex originator and beneficiary activity. More than $500 million in suspicious wire transfers have been reported in connection with this type of activity.
These activities display common patterns of underlying suspicious activity:
A lack of evidence of legitimate business activity, or any business operations undertaken by many of the companies;
Increased SAR Reporting Involving Mexico
Law enforcement information and SARs filed by U.S. financial institutions confirm a shift in suspected money laundering activity involving Mexico. Rather than transiting through Mexico en route to Colombia or other Central and South American destinations, often drug proceeds are now cycled through Mexico directly back into the United States. SARs have revealed patterns of large wire transactions moving funds to U.S. payees from Mexican money exchange houses and other financial institutions, which may at least, in part, be attributable to changes in the laundering cycle. Such changes in patterns are believed to stem from the heightened profile of Mexico-based criminal groups in drug trafficking in the U.S., which creates a corresponding increased threat of money laundering activity linked to Mexico.
The 2000 National Money Laundering Financial Sector Strategy Conference , co-sponsored by the U.S. Departments of Treasury and Justice, provided a forum for discussing recently observed trends pertaining to the use of money remitters for illicit funds transfer and money laundering.
There was a general consensus among the conference participants that there are three major categories of remitters currently operating: a) money remitters that are corrupt and are working directly with the money launderers and drug dealers; b) money remitters that might not be directly involved with the illicit proceeds, but are “willfully blind” to these activities and transactions; and c) money remitters that are not necessarily aware of nor “willfully blind” to the illicit activities.
Various schemes appear primarily designed to evade federal and industry practice that is mandated by record keeping, reporting, and customer identification requirements. These varied activities include basic structuring of money transfer transactions below the reporting and identification dollar amount thresholds mandated by government; the use of multiple money transfer agent businesses and/or parent remitter companies to avoid overall monitoring and detection by the industry; and frequent use of falsified names, addresses, and receipts as a “cover” justification for the substantial illicit funds transfers.
As DEA also points out, “In some cases, the agent may represent a variety of remittance companies. When this is the case, the agent may suggest dividing the deposit, sending a portion with each of the represented businesses . Thus, detection is increasingly challenging.”
Federal authorities at the conference also highlighted the recent growth of smaller independent remitters , particularly of those providing service to and from Mexico. DEA reported that although these remitters provide important legitimate services to migrant worker populations, the location of these businesses, “do not necessarily parallel the employment centers for these laborers. Rather, it appears that the agent locations are primarily located in states without regulations governing the money services industry.”
Update on Suspicious Automated Teller Machine Activity
Analysis of SAR reporting on ATM transactions confirms a continuing trend in suspicious transactions in which funds are wired to/through a U.S. financial institution from a foreign source and then withdrawn in cash in a third country using ATMs. SARs indicate such ATM withdrawals in at least 57 nations, with the highest incidence in Colombia , followed by Venezuela , Mexico , and Argentina . The wire transfers that start the cycle originate primarily in Switzerland, Italy, Germany, and England. Amounts up to several hundred thousand dollars have been withdrawn over several months using this method.
Other Money Laundering Trends and Typologies
The Black Market Peso Exchange System is a trade-based system that depends on commercial traffic between the U.S. and Colombia to launder profits from the sale of illegal drugs in the United States. The BMPE is a significant money laundering conduit used by Colombian narcotics traffickers in repatriating revenues to Colombia. The process begins when a Colombian drug organization arranges the shipment of drugs to the United States. The drugs are sold in the U.S. in exchange for U.S. currency that is then sold to a Colombian black market peso broker’s agent in the United States. The U.S. currency is sold at a discount because the broker and his agent must assume the risk of evading the Bank Secrecy Act reporting requirements when later placing the dollars into the U.S. financial system.
Once the dollars are delivered to the U.S.-based agent of the peso broker, the peso broker in Colombia deposits the agreed upon equivalent in Colombian pesos into the organization’s account in Colombia. At this point, the organization has laundered its money because it has successfully converted its drug dollars into pesos, and the Colombian broker and his agent now assume the risk for introducing the laundered drug dollars into the U.S. banking system, usually through a variety of surreptitious transactions. Having introduced the dollars into the U.S. banking system, the Colombian black market peso broker now has a pool of laundered dollars to sell to Colombian importers. These importers then use the dollars to purchase goods, either from the U.S. or from other markets, which are transported to Colombia, often via smuggling in order to avoid applicable Colombian law.
The exact size and structure of the BMPE system cannot be determined with any degree of precision. However, based on anecdotal law enforcement evidence, informants’ statements, and Colombian law enforcement and intelligence officials, it is believed that between $3 billion and $6 billion is laundered annually. Other sources of demand for BMPE dollars include capital outflows by Colombian residents, who seek either to conceal the funds from the Colombian authorities or simply to take advantage of the favorable BMPE exchange rate.
To combat the BMPE, the U.S. Department of Treasury has instituted an interagency working group that has aggressively attacked this problem and whose efforts have resulted in better coordinated and integrated anti-BMPE investigations and increased successful prosecutions. Treasury’s outreach programs to educate U.S. exporters of the operations of and their vulnerability to the BMPE have also achieved success. During the past year, high level U.S. Government officials met with senior officials of U.S. companies whose products are vulnerable to the BMPE to explain the system and to encourage them to develop programs to counter the BMPE.
In addition to these domestic outreach efforts, the United States, Colombia, Panama, Venezuela and Aruba have formed an international working group of experts to combat this money laundering system. This working group is to study the BMPE, report its findings, and recommend policy options and actions that can be taken by the governments against the BMPE.
On October 21, 2000, a task force composed of U.S. Treasury Department and Department of Justice officials and government officials from Aruba, Colombia, Panama, and Venezuela participated in the first meeting of this working group. At the meeting, the 30 experts discussed how the BMPE money laundering system affected each of their respective countries. Topics of discussion included the BMPE steps, documentation of international commercial transactions, the problems with existing paper trails and laws, and ways to improve international cooperation. The group’s work is planned to continue in meetings to be held in Colombia, Panama, and Venezuela during the course of 2001.
The hawala alternative remittance system continues to be a key factor in money laundering and other financial crimes committed in and associated with South Asia. It is closely related to the “black” or “off the books” economies in the region. The size of the underground economies in South Asia are estimated to be 50 to 100 percent the size of the “white” or “documented” economies.
Hawala operates on trust and connections . Customers trust hawala “bankers” or “operators” who use their connections to facilitate money movement worldwide. Hawala transfers take place with little, if any, paper trail; and, when records are kept, they are usually kept in code. Contrary to various media reports, hawala is an ancient system; it was the primary money transfer mechanism used in South Asia prior to the introduction of Western banking. Today, hawala continues to be used for many legitimate transfers for cultural and financial reasons; and it also often operates in conjunction with Western banking operations.
Dubai, India and Pakistan form a “hawala triangle” responsible for significant international money laundering activities that go far beyond South Asia. While interdiction of non-bank money laundering systems, such as hawala, is difficult enough in itself, this difficulty is sometimes compounded by ineffective money laundering countermeasures in Dubai and the other Emirates.
Internet gambling is illegal in the United States. A joint FBI-IRS Internet gambling investigation recently targeted a Sports Tout Service which was providing its services via the Internet, as well as functioning as an Internet Service Provider . The STC service collected, collated and analyzed statistical and other information relative to sporting events, and then in turn sold this information to subscribers who factored it into their betting decisions. The STC/ISP also included two offshore gambling operations located in the Caribbean, both of which accepted wagers via the Internet or toll-free telephone numbers. Law enforcement personnel were successful in infiltrating the operation.
To launder the proceeds from their illegal Internet gambling activities, the subjects of this investigation employed the services of an attorney. The attorney devised an elaborate scheme in which the STC/ISP leased its services to the subjects of the investigation for a specified amount. Proceeds were also laundered through a series of bank accounts in the Caribbean and eventually funneled back to U.S. banking institutions. Investigators estimate that approximately $178 million was wagered through the STC/ISP annually. It is anticipated that subjects in this investigation will be charged with gambling, money laundering, tax evasion and RICO-related offenses.
Lawyers/Notaries, Accountants and Other Non-Financial Professionals
United States law enforcement authorities have observed that as money laundering schemes become more complex, the perpetrators turn to the learned expertise of attorneys, accountants, consultants and agent representatives to aid them in the movement of illegal currency. These professionals, using shell corporations, nominees and fictitious records, devise elaborate paper trails to disguise the true source of illegal income. During Fiscal Years 1999 and 2000, 131 attorneys, accountants and consultants were sentenced as a result of money laundering convictions.
The Market for Gold and other Precious Metals
Gold is known to play a significant role in international money laundering. Gold, just like certain currencies is a nearly universal commodity for international commerce. The attractiveness and value of a particular currency depend on a complex and often unstable variety of political and economic conditions. Gold has been a key medium of exchange since antiquity and will, in fact, most likely always enjoy this position, as it appears nearly immune to the consequences of changing global fortunes.
Gold serves as both a commodity and, to a lesser extent, a medium of exchange in money laundering conducted in Latin America, the United States, Europe and Asia. In this cycle, for example, gold bullion makes its way to Italy via Swiss brokers. There it is made into jewelry, much of which is then shipped to Latin America. In Latin America, this jewelry then becomes one, if not the most important, of the commodities in the black market peso exchange.
In a recent case, United States law enforcement authorities identified a money laundering system that makes use of the legitimate gold trade to launder money through black market currency exchanges. In this system, gold jewelry is sold in the Panama Colon Free Trade Zone to Colombians . The jewelry is smuggled into Colombia through the city of Bucaramanga. The jewelry is then melted and formed to resemble gold from mines, fabricated into pigment and then shipped to the U.S. for refining. The “gold pigment” arrives in the U.S. but is instead entered as “bullion”, which does not qualify for the export credit. The gold is refined and sold in the U.S. and then smuggled back to South America. The resulting loss to the Colombian government is estimated to be over $20 million. A variant of this scheme has the refined gold being exported to Switzerland for sale to Italian jewelry manufacturers for delivery to Panama. In all cases, it is believed that the same gold is being recycled throughout each step of the scheme.
Structured Postal Money Orders—Alien Smuggling Proceeds
An anti-smuggling task force consisting of U.S. Postal Inspectors and special agents from the Immigration and Naturalization Service and Internal Revenue Service executed a federal warrant at the Bank of America in New York City to seize the contents of an account maintained by an international exchange firm located in the United Arab Emirates. The investigation indicated that the account contained alien smuggling proceeds, in the form of structured postal money orders and other monetary instruments. These proceeds were being moved through the exchange company’s account to members of alien smuggling organizations in India and, as reimbursement for smuggling fees, to relatives in India who helped with the operation.
Structured Postal Money Orders—Illicit Drug Proceeds
A multi-agency task force consisting of U.S. Postal Inspectors from the North Jersey/Caribbean Division and special agents from the Internal Revenue Service, Federal Bureau of Investigation and U.S. Customs Service arrested nine members of a narcotics and money laundering ring known as the “Dussan Organization.” The ring operated in Northern New Jersey, New York and Colombia and was charged with money laundering and structuring transactions to avoid currency transaction reporting requirements. Members of the group allegedly structured postal and commercial money orders at various post offices and convenience stores in New Jersey and New York, and used express mail services to send the money orders to various businesses in the United States and South America. It is estimated that the ring laundered at least $3 million in illegal proceeds.
Suspicious Financial Activity in Casinos
A review of SARs filed by gaming establishments reveals patterns of suspicious activity in which casino accounts are used to transfer significant amounts of funds through non-bank financial transaction channels. The funds are cashed out by the client or moved to other accounts with minimal or no gaming activity. Variations on this theme involved an initial deposit by wire or bank cashiers check, but then the funds would be wired out to another account. The funds were then stored for a period of time in a casino safety deposit box or held in the form of safekeeping markers, and then cashed out. In several instances the client was observed transferring chips to other individuals to cash out, as well as cashing out a greater amount than held on deposit .
Trusts, Other Non-Corporate Entities and Money Laundering
One multi-agency task force investigation focused on a scheme where an investment consultant had formed a management group under the laws of Anguilla and offered investment services to citizens of the United States. A confidential informant , cooperating with law enforcement, advised the offshore consultant of the CI’s desire to launder drug proceeds. The consultant offered to set up an off shore trust for the CI and withhold the CI’s identity from the trust records, thereby distorting the true illegal source of the funds.
Due to the U.S. Customs Service requirement of filing an International Transportation of Currency Report, the consultant required delivery of the funds by a courier to an international airport in Canada before the consultant actually took possession of the funds. In Toronto, Canada the consultant took delivery of $100,000 in unsigned traveler checks, promising to deposit the checks in Caribbean bank accounts and to wire transfer the money back to the CI, less commissions. The consultant then traveled to St. Maarten and Anguilla and established the promised accounts. These accounts were opened at Barclays Bank, Anguilla and Chase Manhattan, St. Maarten. The funds were then wire transmitted back to the U.S.
Upon his return to the United States, the subject was arrested. The subject was indicted on six counts of money laundering and Customs violations. Through plea negotiations, the subject received 18 months incarceration.
On October 15, 1998, Congress passed the Money Laundering and Financial Crimes Strategy Act of 1998. The Act called upon the President, acting through the Secretary of the Treasury and in consultation with the Attorney General, to develop a national strategy for combating money laundering and related financial crimes. The Act called for the first national strategy to be sent to Congress in 1999, and updated annually for the following four consecutive years. The first annual strategy was released on September 23, 1999. The National Money Laundering Strategy for 2000 was released on March 8, 2000, at a press conference co-chaired by the Deputy Attorney General and Deputy Treasury Secretary.
The 2000 Strategy is organized according to the four following overarching goals: to strengthen domestic enforcement in order to disrupt the flow of illegal money; to enhance regulatory and cooperative public-private efforts to prevent money laundering; to strengthen partnerships with state and local governments to fight money laundering throughout the United States; and to strengthen international cooperation in order to disrupt the global flow of illicit money.
These four goals are supported by identified objectives which, in turn, are to be accomplished through approximately 65 specific action items set out in the strategy.
The following are summaries of the most significant action items:
Designation of High Intensity Financial Crime Areas : The designation of HIFCAs was mandated by the 1998 legislation and was the first action item in the 1999 Strategy. HIFCAs are defined as special, high-risk areas or sectors where law enforcement will concentrate its resources and energy to combat money laundering. The Justice and Treasury Departments led a process to identify and designate the first HIFCAs. As part of this process, the two departments convened an interagency HIFCA Working Group to collect and analyze relevant information and make recommendations to the Deputy Attorney General and the Deputy Treasury Secretary for the HIFCA designations. The 2000 Strategy designated the first HIFCAs: New York City/Northern New Jersey area; the Los Angeles, California, metropolitan area; San Juan, Puerto Rico; and a “systems” HIFCA to focus and enhance current efforts addressing the problem of cross-border currency smuggling/movements between Mexico and Texas and Arizona. The HIFCA program is intended to concentrate law enforcement efforts at the federal, state, and local levels to combat money laundering in the designated high-intensity money laundering zones. Future HIFCAs will be selected from applications received from prospective areas or from candidates proposed by the Secretary of the Treasury or the Attorney General.
In conjunction with the announcement of the 2000 Strategy, on March 7, 2000, the Attorney General and the Secretary of the Treasury issued a joint memorandum to all U.S. Attorneys and the heads of all of the federal law enforcement agencies emphasizing the importance of anti-money laundering enforcement. In addition it requested the implementation of several action items recommended in the 1999 Strategy.
Specifically, the memorandum urged the USAs and the law enforcement agencies:
to encourage below-threshold investigations and prosecutions that potentially have a systemic or financial sector-wide effect on money laundering;
The 2000 Strategy set out a far-reaching and highly ambitious regimen of action items and milestones to be addressed and accomplished during 2000. The implementation of the Money Laundering Strategy is being guided by an interagency Steering Committee co-chaired by the Deputy Secretary of the Treasury and the Deputy Attorney General, with the participation of relevant departments and agencies. The Steering Committee has the responsibility of tracking and identifying progress toward fulfillment of the goals and objectives identified in the 2000 Strategy and this progress will be reported in the 2001 Strategy.
At the fiftieth anniversary of the United Nations in 1995, the President of the United States broadened the definition of what constitutes a national security threat to include international crime. Shortly thereafter, in October of that year, PDD-42 was signed, directing a cooperative federal effort against international criminal organizations and money laundering. The U.S. Departments of Justice, State and the Treasury as well as the U.S. Coast Guard, the National Security Council, intelligence agencies and other federal entities were instructed to work together to confront and counter this threat to U.S. national security and international stability.
PDD-42 directs the agencies to cooperate to accomplish the following objectives: produce greater results in this area by increasing the priority and resources devoted to this effort; achieve increased effectiveness and synergy by improving coordination among agencies and across the types of international criminal activity; assist and work more closely with other governments to create a global response and to eliminate this threat and to eliminate sanctuaries; and use creatively and aggressively all legal means available to the government to combat international organized crime.
The year 2000 saw progress on all of these fronts with notable success achieved in developing a global response identifying money laundering vulnerabilities and encouraging compliance with international anti-money laundering standards. A United States interagency group worked with the Financial Action Task Force in its groundbreaking effort to name non-cooperative countries and territories in the fight against money laundering. As noted previously in this report, the FATF developed a set of twenty-five criteria to be used in determining whether a jurisdiction had an acceptable or deficient anti-money laundering regime and issued a report listing fifteen jurisdictions as having serious deficiencies.
The FATF non-cooperative countries and territories exercise encompasses some of the essential tenets of PDD-42. It has brought together the 29 FATF member nations in a multilateral effort to not only define what makes a country vulnerable to money laundering but to then clearly identify those nations whose substandard anti-money laundering regimes attract illegal proceeds that underwrite international criminal activity. The United States, in making its contribution to FATF, draws upon the collective expertise of the federal interagency community. That community has played a vital role by assessing the money laundering threat in various regions, analyzing the shortcomings in existing national laws, regulations and practices, crafting countermeasures and providing training and technical assistance to identified jurisdictions making a conscientious effort at improvement. During 2000, this integrated federal effort in support of the FATF initiative on non-cooperative jurisdictions has focused international attention and brought unprecedented progress in dealing with the global challenge of money laundering.
Another key component of the International Crime Control Strategy and PDD-42 has been the imposition of sanctions under the International Emergency Economic Powers Act . The U.S. now has at its disposal two powerful economic sanctions options against narcotics traffickers, the entities they own or control, and those persons acting for them or supporting their narcotics trafficking activities.
In addition to IEEPA, the U.S. Government also is using the Foreign Narcotics Kingpin Designation Act . In December of 1999, the President signed into law the Kingpin Designation Act, which provides him with a statutory framework for imposing sanctions against foreign drug kingpins when such sanctions are appropriate. Twelve foreign persons were identified as appropriate for sanctions on June 1, 2000 and others will be designated by June 1, 2001. Of those twelve foreign persons, six were from Mexico , two were from the Caribbean , two were from Nigeria and two were from Asia .
The Kingpin Designation Act is modeled after the highly effective Specially Designated Narcotics Traffickers program that Treasury’s Office of Foreign Assets Control administers against the Colombian cartels pursuant to Executive order 12978, which was issued in October 1995 under the authority of IEEPA. Nearly 600 individuals and entities have been identified as SDNTs since the Colombia program’s inception.
Both the Kingpin Designation Act and the IEEPA-SDNT program prohibit U.S. persons from engaging in transactions, trade and services involving foreign narcotics kingpins and derivative designees. The objective of both laws is to deny drug kingpins, their businesses and their agents access to the U.S. financial system and to the benefits of trade and transactions involving U.S. businesses and individuals. The long-term effectiveness of designations under the Kingpin Designation Act, as well as designations under an IEEPA program, depends heavily upon Treasury’s authority to make derivative designations of entities and individuals, as is being done in the IEEPA-SDNT program against Colombian cartels.
The Kingpin Designation Act moves beyond the IEEPA-SDNT Colombia model to target the activities of significant foreign narcotics traffickers and their organizations on a worldwide basis. In keeping with PDD-42’s emphasis on interagency cooperation, the Kingpin Designation Act requires that the Departments of Treasury, Justice, State, and Defense and the CIA coordinate to develop a list of recommended kingpins for presidential designation by June 1 of each year. The statute permits kingpin designations at other times as well.
In accordance with PDD-42’s emphasis on international cooperation and collaborations, to the extent feasible, the United States will continue to coordinate carefully with host governments concerning drug kingpins. Furthermore, the United States will continue to work cooperatively with appropriate host government authorities to pursue additional measures and leads against those significant foreign narcotics traffickers. An example of the importance of this cooperation has been the success the Government of Colombia has had in applying the IEEPA-SDNT program against narcotics cartels in that country.
This case involved 19 individuals in the Home Health Care service, one being both an attorney and accountant. This indictment contained 123 counts involving conspiracy, false claims, wire fraud and money laundering. The false claims involved fictitious patient claims and claims for services which were not provided.
The two primary subjects employed an attorney to incorporate four interrelated shell corporations as the controlling entities. In addition, eight nominee corporations were created to generate fictitious health care service records reflecting in-home therapy and nursing care. Health care providers including therapists, registered nurses and physicians operated the nominee corporations. To keep the health care billing, tax return filings and bank account records synchronized, the two main subjects relied on the attorney/accountant defendant.
In excess of $4 million was laundered through bank accounts in New York, Florida and suspected offshore accounts in connection with this scheme. Numerous accounts were created at four or five separate banks for purposes of amassing and moving these funds. Cashier’s checks often were purchased and even negotiated through the attorney/accountant’s trust account to conceal property acquisition. This defendant was sentenced to two years in jail.
Both primary defendants were ordered to forfeit real and personal property, including the $4 million and purchased property. They received five- and two-year prison sentences respectively. Two related case defendants laundered an additional $2 million and were charged in a separate 33 count indictment. They were ordered to forfeit $95,000 in currency.
The Department of Justice announced in November 2000 that Jose Stroh, of Cali, Colombia, pled guilty to conspiring to launder in excess of $129 million of narcotics proceeds for various drug cartels in Colombia between 1986 and 1992.
Stroh, a fugitive Colombian national, was apprehended by the DEA in early February 2000 while attempting to pass through Panamanian customs. He was transported to Miami and eventually Connecticut to face charges.
Stroh was charged with operating a money laundering enterprise which was responsible for turning millions of dollars of proceeds generated from cocaine sales in New York, New Jersey, Connecticut, California and Mexico into Colombian pesos which he returned to the Cali narcotics traffickers.
Stroh, operating from Colombia, opened bank accounts in Panama into which the drug proceeds were delivered in the form of money orders, checks and wire transfers. Cash was transferred in suitcases, boxes, bags, and other containers. Money launderers then would convert the cash to checks or deposit it into accounts where it could be transferred anywhere in the world. Some of these funds were wired to bank accounts in Israel and Germany where the laundered funds were subsequently moved to one of two Panamanian shell corporations that Stroh controlled. Often times, the money orders were concealed inside of magazines and shipped out of the U.S. through various courier services in New Jersey to Stroh’s businesses in Panama.
At the same time Stroh was negotiating with Cali Cartel intermediaries for the purchase of dollars in the United States, he was also negotiating with others for the sale of these dollars in exchange for Colombian pesos. Stroh often sold dollars to “legitimate” businesses in Colombia that needed dollars for transactions in the United States.
Stroh is scheduled for sentencing in February 2001. He faces a maximum term of imprisonment of five years, and $5,000,000 in fines. As part of his agreement with the Government, Stroh agreed to relinquish $930,000 in several accounts that he held at Lehman Brothers brokerage house in Miami, Florida.
Dinero Express Inc. is a Dominican money remitter licensed in the states of New York, Massachusetts, New Jersey, Rhode Island, Florida, and Puerto Rico. In August 1996, three Dinero Express employees were arrested and pled guilty to money laundering violations. In addition to these arrests, two search warrants were executed on Dinero Express locations. Analysis of the search warrant documents, as well as documents provided by a cooperating defendant, revealed a money laundering operation, responsible for the laundering of approximately $10.1 million in criminally derived proceeds through an elaborate structuring scheme.
On April 18, 2000, at the conclusion of a 7 year investigation, a Federal Grand Jury empanelled within the Southern District of New York, issued an indictment charging Dinero Express Inc., and its President, Roberto Beras with 82 counts of money laundering and currency reporting violations. The indictment went on to charge Luis Francisco Soriano, a manager of Dinero Express, with 4 counts of money laundering and currency reporting violations, as well as Maria Mendoza, clerk of Dinero Express, who was charged with 35 counts of currency reporting violations.
On December 5, 2000, the Jury ordered forfeiture of $10 million against Dinero Express Inc. and Roberto Beras.
Operation Cashback is one of the largest investigations of the Black Market Peso Exchange System ever undertaken by the Internal Revenue Service . It culminated with the indictment of 60 individuals for money laundering in the Miami area. Of the 60 people charged, 16 defendants were Colombian nationals who were pesos brokers or business owners, 9 defendants were Colombian couriers residing in the United States, and 35 defendants were employees of 16 businesses located in the South Florida area. Since the indictments, 50 individuals have pled guilty or were found guilty. In addition to the indictments, the United States is pursuing the forfeiture of over $3.6 million, which represented the monies associated with the laundering scheme.
The centerpiece of this investigation was an undercover storefront in operation for approximately 3 years. IRS undercover agents staffed the storefront and acted as an intermediary for Colombian money brokers to launder narcotics proceeds. The undercover agents arranged with the brokers to have couriers deliver the narcotics proceeds to the storefront. A significant portion of the money delivered was used to purchase merchandise from businesses in the Miami area. The merchandise was shipped to Colombia to complete the BMPE cycle.
In an effort to attack the illegal exportation of unreported currency derived from suspected illicit activities, Customs initiated two currency smuggling investigative efforts known as Operations Powerplay and Pressure Point. These two nationally coordinated operations focused on identifying, arresting, and prosecuting violators involved with transporting proceeds out of the United States. As a result of these two operations, Customs made 525 currency seizures totaling over $16.8 million, resulting in 224 arrests. Customs special agents and inspectors intensified their outbound enforcement operations by targeting air, sea, and land passengers, air cargo, sea cargo, courier hubs, courier bags, inbound mail facilities, and land borders in search of unreported currency in violation of federal law.
Customs officers identified and seized bulk cash shipments concealed in automobiles, trailers, bicycle tires, food products, stereo equipment, internal body carriers, clothing, shoes, luggage, and express courier parcels. To assist in their outbound enforcement efforts, Customs used canines specially trained to sniff out cash as well as x-ray technology to scan large pieces of cargo and containers.
Customs determined that 38 percent of the seizures occurred at airports, 27 percent at land borders, 21 percent from couriers, 13 percent as result of investigations, and 1 percent from seaports. More than half of all the seized cash was destined for Mexico, the Dominican Republic, Israel, Colombia, Guatemala, and Jamaica.
In August 1998, the FBI initiated a nationwide investigation code named “Operation Southwest Express” targeting the San Diego-based drug trafficking organization of Omar Rocha Soto . This multi-jurisdictional/multi-divisional investigation was carried out in conjunction with the Drug Enforcement Administration, Internal Revenue Service, Immigration and Naturalization Service, and other federal, state and local law enforcement agencies.
During the course of the operation, investigations were conducted in San Diego, California; El Paso, Texas; Houston, Texas; Cleveland, Ohio; Nashville, Tennessee; Chicago, Illinois; Boston, Massachusetts; and New York City and Utica, New York.
The Rocha organization was believed to be associated with the smuggling of ton quantities of cocaine and marijuana through Mexico, with distribution networks throughout the United States. In particular, the Rocha organization was believed to have been one of the twenty largest drug distribution organizations in the United States. The Rocha organization also laundered large quantities of U.S. currency in an attempt to disguise the profits derived from their illegal activities. Furthermore, this group utilized automobiles, tractor-trailers, and railway systems to transport illegal drugs and money to and from major American cities such as Houston, Chicago, and New York.
When Operation Southwest Express was concluded in August 1999, more than 100 subjects were indicted throughout the United States. The arrested individuals faced charges including money laundering, drug distribution, and conspiracy. During this investigation, more than 4,100 pounds of marijuana, 2,700 kilograms of cocaine, and $1 million were seized. Additionally, the majority of the indicted subjects have either pled guilty or been convicted by federal juries.
In February 2000, a couple pled guilty in a Manhattan federal court to a variety of charges, including conspiracy to commit money laundering, operating an unlawful banking and money transmitting business and aiding and abetting Russian banks in conducting unlawful and unlicensed banking activities in the United States. A large number of Russian individuals and businesses used this illegal banking operation to transfer and receive money in violation of Russian currency control limitations and to promote a variety of schemes to defraud the Russian government of customs duties and taxes.
This particular operation was originally centered upon a company called Benex International, Inc., in Forest Hills, Queens. Benex was small, but despite its size, it intersected in a number of ways with a world wide money laundering infrastructure. Benex had an account at the Bank of New York and during one eighteen month period, it moved more than $4.2 billion through the account, utilizing over 8,000 monthly transactions. The head of this operation was Peter Berlin, a Russian who married a United States citizen named Lucy Edwards.
Their scheme began in late 1995, when Berlin and his wife, who then worked for the Bank of New York in Manhattan, entered into a pact with certain individuals who controlled the Russian bank DKB . Berlin opened an account at the Bank of New York, and, with his wife’s help, gained access to electronic banking software available to certain select customers. With this software Berlin and his associates were able to direct wire transfers in their account at the Bank of New York.
By early 1996, Berlin had access to the software and his wife installed it in the Forest Hills offices. Those offices served DKB. Using several Russian correspondent bank accounts opened at the Bank of New York, DKB transferred funds into the Benex account in bulk amounts on a continuous basis. DKB then issued daily instructions from its offices in Moscow to the employees in the Benex offices to transfer funds out of the Benex account, using the software, to a large number of third parties around the world.
By the fall of 1998, Berlin and Edwards had established two additional corporations to move money. Benex, BECS and Lowland were not licensed to act as money-transmitting businesses nor were they authorized to conduct banking operations in the United States on behalf of foreign banks, but offered a back-channel method of secretly and illegally transferring funds in and out of Russia.
Ultimately, more than $7 billion moved through the Bank of New York accounts of Benex, BECS and Lowland from February 1996 to August 1999. During this time, Berlin and Edwards received a total of approximately $1.8 million in commissions, much of which they laundered and funneled into foreign bank accounts. In excess of $15 million has been seized by authorities and litigation continues. The case is ongoing and many matters remain to be adjudicated.
Sergio Rubalcava Sandoval Drug Trafficking Organization
This investigation originated in August 1997 as part of the FBI undercover operation entitled “Crosswire.” Sergio Rubalcava Sandoval was identified as a large-scale drug trafficker and former Baja California State Judicial Police officer with close ties to Ismael Higuera-Guerrero, a command and control figure of the Arellano-Felix Drug Cartel.
Through various investigative methods, agents determined that Sandoval, his wife, and several of his associates in the United States purchased land, houses, boats and helicopters as a means to launder drug proceeds generated by the organization. The FBI obtained a federal indictment for Sandoval and fifteen of his associates, charging each with several counts including drug trafficking and money laundering.
On March 21, 2000, Sandoval and his wife pled guilty to drug trafficking and money laundering charges bringing the total of subjects convicted in the case to thirteen. The FBI documented over $10 million in laundered proceeds and seized over $1 million in assets.
In 1999, terrorists launched 392 attacks, killing 233 people and wounding 706 others worldwide. Many of the terrorist organizations responsible for these acts are believed to have financial support infrastructures in the United States and in many other developed countries. Legislation enacted in 1996 enables us to better detect, deter and punish those who finance terrorism. United States law enforcement authorities are now aggressively using the newest tools available in the fight against terrorist financing, including laws that make it a crime to knowingly provide material support or resources to a designated foreign terrorist organization.
Patterns of Global Terrorism—1999 , United States Department of State Publication 10687, April 2000.
A wide-ranging joint FBI and Department of Treasury investigation into interstate cigarette smuggling, involving a suspected Hizballah terrorist cell operating in Charlotte, North Carolina, led to the July 21, 2000 arrest by U.S. authorities of 18 individuals. Ten days later a federal grand jury in North Carolina indicted these individuals, including seven suspected Hizballah supporters, for immigration fraud and related bribery and conspiracies; conspiring to smuggle contraband cigarettes; and conspiring to launder money. Many of the defendants continue to be detained prior to trial, while the investigation continues.
At least seven of the defendants are suspected members of, or sympathetic to Hizballah, a foreign terrorist organization designated as such under U.S. law in 1997 and again in 1999. These seven defendants appear to be providing material support or resources to Hizballah in violation of U.S. law.
The indictment alleges that seven of the indicted defendants entered into fraudulent marriages with United States citizens in order to obtain permanent resident status, which would permit them to remain indefinitely in the United States. Having arranged for presence in the United States between March 1996 and July 2000, several of the defendants smuggled large quantities of contraband cigarettes, purchasing them in North Carolina, where the state cigarette tax is $0.50 per carton, and illicitly transporting them to Michigan for resale, where the state cigarette tax is $7.50 per carton. During the same period, these defendants laundered the funds involved in and derived from the conspiracy through various bank and credit card accounts.
The defendants are each facing substantial periods of incarceration, criminal fines and asset forfeiture. Among the assets that may be subject to forfeiture are two residences, a BP service station, an undetermined amount of U.S. currency, five late model vehicles and 30 bank accounts. At the request of the defense, the trial will likely be continued to April 2001.
During 2000, a number of U.S. law enforcement and regulatory agencies provided training and technical assistance on money laundering countermeasures and financial investigations to their law enforcement, financial regulatory, and prosecutorial counterparts around the globe. These courses have been designed to give financial investigators, bank regulators, and prosecutors the necessary tools to recognize, investigate, and prosecute money laundering, financial crimes, and related criminal activity. Courses have been provided in the U.S. as well as in the jurisdictions where the programs are targeted.
The Department of State’s Bureau of International Narcotics and Law Enforcement Affairs developed a fiscal year 2000 $4.0 million program for providing law enforcement, prosecutorial and central bank training to countries around the globe. A prime focus of the training program was a multi-agency approach to develop or enhance financial crime and anti-money laundering regimes in selected jurisdictions. Supported by and in coordination with INL, the Department of Justice, Treasury Department component agencies, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, and non-government organizations offered law enforcement, regulatory and criminal justice programs worldwide.
During 2000, INL funded over 60 programs to combat international financial crimes and money laundering in 35 countries. Nearly every federal law enforcement agency assisted in this effort by providing basic and advanced training courses in all aspects of financial criminal activity. In addition, funds were made available for intermittent posting of financial advisors at selected overseas locations. The advisors work directly with the host government to assist in the creation, implementation, and enforcement of anti-money laundering and financial crime legislation. Further, several federal agencies were provided funding to conduct multiagency financial crime training assessments and develop specialized training in specific jurisdictions worldwide to combat money laundering.
In addition to funding specific training and technical assistance anti-money laundering courses around the globe, INL provided funding for other important anti-money laundering projects in 2000. For example, funding assistance was provided for the October Pacific Rim Money Laundering and Financial Crimes Conference held in Vancouver, Canada.
Also, INL continues to fund the Caribbean Anti-Money Laundering Programme along with funding from the European Union and the Government of the United Kingdom. The objectives of CALP are to reduce the incidence of the laundering of the proceeds of all serious crime by facilitating the prevention, investigation, and prosecution of money laundering. CALP also seeks to develop a sustainable institutional capacity in the Caribbean region to address the issues related to anti-money laundering efforts at a local, regional and international level.
INL continues to provide significant financial support for many of the anti-money laundering bodies around the globe. During 2000, support was furnished to the Asia/Pacific Group on Money Laundering, CFATF, COE, and the FATF. In 2000, additional support was provided to the APG and COE to conduct mutual evaluation training programs for their members.
As in previous years, INL training programs continue to focus on the interagency approach and bringing together, where possible, foreign law enforcement, judicial and central bank authorities in assessments and training programs. This allows for an extensive dialogue and exchange of information. This approach has been used successfully in Asia, Central and South America, Russia, the New Independent States of the former Soviet Union, and Central Europe. INL also provides funding for many of the regional training and technical assistance programs offered by the various law enforcement agencies, including those at the International Law Enforcement Academies .
The following summary provides a glimpse of training activities undertaken in 2000 by U.S. law enforcement agencies.
Board of Governors of the Federal Reserve System
The Federal Reserve has a long-standing commitment to combating money laundering and ensuring compliance with the Bank Secrecy Act and related suspicious activity reporting requirements by the domestic and foreign banking organizations that it supervises. Federal Reserve staff has provided training in anti-money laundering procedures to foreign law enforcement officials and central bank supervisory personnel in dozens of jurisdictions each year. Some examples include: Argentina, Brazil, Chile, Czech Republic, Ecuador, Poland, Russia, South Pacific jurisdictions, United Arab Emirates and Uruguay. In addition, training has been provided by Federal Reserve staff to U.S. law enforcement agencies including programs at the U.S. Department of the Treasury’s Federal Law Enforcement Training Center and at the FBI Academy, as well as regular and frequent training for the U.S. Drug Enforcement Administration, U.S. Secret Service and the U.S. Customs Service.
International Asset Forfeiture and Money Laundering Seminars are a part of the U.S. Department of Justice Asset Forfeiture Program conducted by the Drug Enforcement Administration’s Office of Training, International Training Section. The intent of these seminars is to share, compare, and contrast U.S. legislation with that of other countries, building relationships and fostering communications with foreign narcotics enforcement and prosecutorial personnel. On average, the yearly budget allotted is $420,000 to complete five seminars. Each seminar provides instruction to 35 to 50 high-level foreign drug law enforcement and money-laundering specialists.
DEA’s primary focus for its training courses includes specialized training for foreign central bank regulators, police and customs officials, and prosecutors. Course materials include training in U.S. asset forfeiture laws, asset and financial gathering techniques, financial investigation techniques, case studies, document exploitation, and international banking.
Training is designed for one-week seminars involving lectures, presentations, case studies, and practical application exercises. Guest lecturers from various areas of the U.S. Government participate, including from the Department of Justice, the U.S. Customs Service, the U.S. Marshal Service, Board of Governors of the Federal Reserve as well as from various divisional offices of DEA.
This training is focused on cultures with economic systems developed enough to accommodate money laundering activities. All seminars are conducted in the host country. During 2000, seminars were conducted in the following locations: Hungary, Panama, Peru, Singapore, South Africa and Spain. In addition, DEA conducted a money laundering training session in Brasilia, Brazil, which was funded by the Department of State.
The FBI Money Laundering Unit conducts training with the goal of providing international law enforcement with the ability to adequately investigate various methods of money laundering. The training emphasizes the techniques that money launderers use to conceal or disguise the true nature of illicit cash proceeds and provides law enforcement with the ability to trace the location, source, or ownership of these proceeds.
The FBI has either exclusive or concurrent jurisdiction over 150 of the 176 “Specified Unlawful Activities” under the United States money laundering statutes. This expansive jurisdiction has allowed the FBI to gain extensive experience in unconventional money laundering methodologies associated with various SUAs in areas such as organized crime, drugs, violent crime, and white collar crime. This experience places the FBI in a unique position to provide expert training in traditional and non-traditional money laundering investigations across a broad spectrum of SUAs.
The FBI has also provided experts for advanced training in areas of traditional and emerging technologies such as digital cash, smart cards, Internet banking, the Black Market Peso Exchange, and bulk cash shipments. Further, the FBI provides technical assistance for the new tools that law enforcement are using to investigate money laundering activities such as geographic targeting orders, the International Emergency Economic Powers Act, and Suspicious Activity Report Task Forces.
The FBI provides training independently and in conjunction with other federal, state, and local agencies within the United States and internationally. The FBI’s money laundering unit has worked with the United Nations in conferences to provide a United States perspective on successful tactics used to disrupt and dismantle money laundering industries and facilities. On other occasions, the FBI has provided independent money laundering training and briefings at the FBI Academy in Quantico, Virginia and at FBI headquarters in Washington, D.C.
During 2000, the FBI participated in money laundering and financial crimes training courses in: Chisinau, Moldova; Islamabad, Pakistan; Panama City, Panama; Warsaw, Poland; Volgograd, Russia; Irkutsk, Russia; Bratislava, Slovakia; Kiev, Ukraine; and Hanoi, Vietnam.
FinCEN, the U.S. financial intelligence unit , has an international training program that focuses on providing training and technical assistance to a broad spectrum of foreign government officials, financial regulators, law enforcement personnel, and bankers. This training covers a wide variety of topics, including money laundering typologies, the creation and operation of FIUs, assistance in the establishment of comprehensive anti-money laundering regimes, computer systems architecture and operations, and assessments of country-specific money laundering regimes and regulations. FinCEN also works closely with the Egmont Group of FIUs to provide training and technical assistance to various jurisdictions for establishing and operating their own FIUs.
FinCEN participated in four seminars in El Salvador in 2000 to train Salvadoran officials on anti-money laundering techniques. Seminars in March and May focused on training personnel of the newly formed financial intelligence unit. A July seminar trained members of the banking Superintendency, as well as compliance officers from various private banks, on money laundering and compliance issues and in September a seminar focused on training tax auditors and investigators.
FinCEN conducted two personnel exchanges with the Korean and Belgian FIUs. Additionally, FinCEN provided financial intelligence unit and money laundering briefings to visitors from a number of jurisdictions including Argentina, Armenia, Australia, the Bahamas, Brazil, Canada, China, Costa Rica, Dominican Republic, Germany, Greece, Hong Kong, India, Indonesia, Isle of Man, Jamaica, Jersey, Kazakhstan, Lebanon, Italy, Liechtenstein, Nauru, Netherlands, Palau, Russia, Seychelles, Switzerland, St. Vincent and the Grenadines, Taiwan, Thailand, Tonga, and the United Kingdom.
In May 2000, FinCEN was invited by the UN Global Programme against Money Laundering to give several presentations at a weeklong joint UN/GCC seminar on money laundering that was held in Abu Dhabi. In August 2000, FinCEN organized and took part in a three-day seminar in Montevideo for 60 Uruguayan bankers, prosecutors, and law enforcement officials. FinCEN also participated in several U.S. Secret Service organized financial crimes training seminars in Russia and China during the year.
FinCEN participated in an interagency team visit to the South Pacific to assess the feasibility of creating a regional Financial Intelligence Unit there. The assessment team also included representatives from the Asia Pacific Group on Money Laundering, South Pacific Forum Secretariat, Australia and New Zealand. The team visited Fiji, the Cook Islands, Vanuatu and Samoa.
FinCEN hosted three visits in 2000 by members of the task force setting up Korea’s FIU. The first visit in May focused on orientation; the second visit in July covered information technology experts who will develop systems to store and exploit SAR and CTR data envisioned in Korea’s anti-money laundering legislation. The third visit, which occurred in October 2000, was a financial analysis course for Korean FIU analysts and investigators.
During the week of October 30, a FinCEN analyst traveled with a State Department INL representative to Paraguay to assess the status of the country’s anti-money laundering program. The team conducted meetings with Paraguay’s FIU, the antidrug secretariat, the Attorney General, the central bank President, and the Superintendent of Banks. FinCEN also conducted two briefings for private banking officials.
In October, FinCEN participated in an interagency money laundering training assessment trip to China. The delegation met with senior officials of the Ministry of Public Security, People’s Bank of China, Supreme People’s Procuraturate, National Audit Office, Ministry of Finance and the State Administration of Taxation, along with Beijing-based executives of some U.S. banks.
As follow-on to the China visit, the U.S. Consul General in Hong Kong requested that the China assessment delegation visit Macau to discuss the jurisdiction’s anti-money laundering regime. Macau agencies visited included the Macau Association of Banks, Judiciary Police, Monetary Authority of Macau, Macau Special Administrative Region’s Legislative Affairs Office, and unofficial meetings with a casino representative and a Macanese police officer.
In December, FinCEN hosted delegations from Nigeria, Tanzania, and South Africa for discussions on anti-money laundering legislation. The participants were briefed on U.S. laws, regulations and programs of implementation. Individual meetings were held with each delegation to consult on its country’s efforts in this area. The intent of the program was to provide each country with a clearer understanding of the requirements of current anti-money laundering recommendations and to develop an understanding of the political climate and legislative processes in each country.
The Internal Revenue Service , Criminal Investigations Division, International Training Program is one segment of the IRS international strategy. IRS focuses its training on investigative techniques courses involving financial crime and money laundering. The goal of this training is to provide assistance to foreign governments in establishing or enhancing money laundering, criminal, tax and asset forfeiture laws. In addition, the training program provides assistance in the investigation of violations of these laws and promotes enhanced anti-money laundering regimes that conform to international standards.
IRS develops and conducts training courses independently, as well as with other agencies. In some instances these courses are developed jointly with other law enforcement agencies to address a specific need. IRS participates on an ad hoc basis with other agencies as part of their curricula and invites other agencies to participate in IRS training.
Training led by IRS during 2000 included:
Financial Investigative Techniques training in Lagos, Nigeria, Ufa, Russia and Budapest, Hungary.
IRS participates in the core course program at ILEA Budapest and ILEA Bangkok. IRS also participated in training sponsored by other USG agencies in Romania, Costa Rica, and Russia. In addition, the IRS took part in a training needs assessment in Dar es Salaam, Tanzania.
The Overseas Prosecutor Development and Training Section of the Criminal Division is the primary source for the training of foreign prosecutors, judges and law enforcement for the Department of Justice. During 2000, OPDAT sponsored 13 seminars throughout the world that dealt in whole or in part with money laundering and asset forfeiture issues. Approximately 800 students received training in transnational money laundering, international asset forfeiture and asset sharing. Additionally, the Asset Forfeiture and Money Laundering Section conducted an Asset Forfeiture and Money Laundering conference in Buenos Aires, Argentina which included approximately 200 prosecutors and law enforcement officials from Argentina, Brazil, Paraguay, Uruguay and Bolivia.
The Secret Service continues to be extensively involved in training foreign government officials and law enforcement in the areas of financial fraud schemes and counterfeit U.S. currency investigations. In 2000, the Secret Service taught foreign officials to identify and investigate violations that impact on their jurisdictions as well as those of the Secret Service. Specific financial fraud schemes involving credit cards, smart cards, electronic fund transfers, fictitious financial instruments, “” advance fee fraud, cellular telephone fraud, skimming, telemarketing fraud, identity theft and other types of schemes were highlighted. These crimes represent the underlying Specific Unlawful Activities that provide the nexus for the Secret Service to conduct money laundering investigations.
The goal of the Secret Service foreign training program is to train and assist the foreign participants with their financial systems, and to establish a permanent conduit for information exchange and liaison. The previously mentioned SUA’s were highlighted in an effort to concentrate all available resources on the root of the criminal activity.
Training programs have varied depending on the foreign participants. The training initiative throughout 2000 proved invaluable in fostering a heightened awareness for foreign government officials and law enforcement in the identification of systemic weaknesses within financial systems. In training foreign law enforcement officials, the Secret Service conducted comprehensive programs that included an emphasis on crimes involving electronic commerce.
Smart cards, generally issued by non-banking financial service providers such as large brokerage houses, operate completely outside of any U.S. government regulations. This lack of regulatory oversight creates vulnerability as no record is created or maintained on the transfer of data. In theory, financial information and monetary funds can be accessed, manipulated, and transferred to or from an account, or from card to card, with no “footprint” being made. Systems that support this industry can move billions of dollars a day through computer networks that often are not regulated or controlled by any government entity.
Skimming is the unauthorized capture and replication of data from a person’s credit card through the use of a small, hand-held device, which can later be used to download the information for illicit purposes. The ease and speed with which information can be gathered and used for illegal purposes in a skimming operation represents a threat to financial institutions around the world. The Secret Service has trained foreign law enforcement officials about the type of equipment, manner of operation, and distribution methods for the information taken from unsuspecting credit card holders. Industry sources have estimated that skimming outside of the United States alone affects approximately one hundred seventy five different businesses per week. This large number of compromised points of sale has the potential to cause many millions of dollars in fraud losses.
During 2000, the Secret Service, using INL-provided funds, conducted training for foreign law enforcement and financial institutions in China, Nigeria, Bulgaria, and Lithuania. Additional presentations were made at the ILEAs in Budapest, Hungary and Bangkok, Thailand. The Secret Service provided independent classes in Greece, Romania, Mexico, Italy, Bulgaria, Columbia, and at the Interpol conference in Lyon, France.
One of the more notable examples of interagency cooperation occurred when the Senior Special Agent assigned to the U.S. Embassy in Lagos, Nigeria, working with the embassy’s country team, collaborated on an investigation into a “” type financial crime. A bank in North Carolina had been victimized when approximately $425,000 was wired to Lagos. Thanks to the swift and aggressive action by the Secret Service and Department of State, the entire amount of the fraud scheme was recovered and returned to North Carolina.
The U.S. Customs Service , Office of Investigations, Financial Investigations Division continues to be extensively involved in the INL-sponsored multi-agency international money laundering training programs. Drawing on its expertise in undercover drug money laundering as well as traditional money laundering investigations, the USCS strives to impart its considerable experience to law enforcement, regulatory, and banking officials identified by INL.
As host or co-host with numerous other federal agencies, the USCS conducted anti-money laundering and financial crime seminars domestically and abroad for officials from sixteen nations. Approximately 725 representatives from foreign nations received USCS anti-money laundering training in FY2000.
United States Department of Treasury Office of Technical Assistance
Treasury’s Office of Technical Assistance is located within the Office of the Assistant Secretary for International Affairs. The office delivers interactive, advisor-based assistance to senior level representatives in various ministries and central banks in the areas of tax reform, government debt issuance and management, budget policy and management, financial institution reform, and more recently, law enforcement reforms related to money laundering and other financial crimes.
In 1997, the Enforcement Program was added to Treasury’s advisory office. It is a long-term, advisor-based program developed out of concern that financial crime, corruption, organized criminal enterprises, and other criminal activities were undermining economic reforms promoted by the Department of the Treasury. The Enforcement Program essentially focuses on the development of legal foundations, policies, and organizations in three areas: money laundering and other financial crimes, organized crime and corruption, and the reorganization of law enforcement and financial entities in developing economies to help them prevent, detect, investigate and prosecute sophisticated international financial crime. The Enforcement Program relies on intermittent advisory trips to deliver its technical assistance. It works with embassy staff and host country clients on long-term projects designed to promote systemic changes and new organizational structures. The program receives most of its funding and outside guidance from the State Department’s Bureau of International Narcotics and Law Enforcement Affairs . Originally operating in only two countries using Treasury funds, the last two years have seen a rapid expansion of the program with the support of INL funding. The program has now given technical assistance to over a dozen countries throughout the world. The demands on the program are likely to increase even further as international anti-money laundering efforts increase.
The Enforcement Program is comprised of a group of approximately 30 highly experienced advisors with backgrounds in various areas of financial and economic crimes such as money laundering, white collar crime, organized crime, securities fraud, internal affairs and corruption, criminal law, and organization administration. Most advisors have previously held responsible positions with U.S. law enforcement and regulatory organizations or prosecutors with the Department of Justice. In addition, the office cooperates closely in its programs with all components of Treasury and Justice law enforcement, especially FinCEN, IRS, USSS and USCS.
During 2000 extensive projects were conducted in a number of countries. For example in Armenia the “Armenia” Enforcement Team provided technical assistance in the areas of financial crimes, organized crime, gaming crimes, and insurance fraud. To assist in establishing an effective liaison with U.S. law enforcement, the Enforcement Team arranged for the Armenian Prosecutor General and other assistants to meet with appropriate U.S. officials in Washington, DC and in Los Angeles. Finally, the team facilitated the assessment of a program to develop a centralized computer system for the Office of the Prosecutor General and Directorate Six.
The Enforcement Team also played a significant part in drafting and implementing the anti-money laundering law in El Salvador. It has helped to design, staff and build the El Salvador Financial Investigation Unit , under the direction of the Attorney General. The team sponsored a visit by members of the FIU and the Attorney General to the FIUs in Mexico and Costa Rica so they could learn from their regional counterparts. The team then helped train the members of the FIU, along with some judges and prosecutors, in aspects of money laundering and financial crimes investigation. Additionally, training courses on Financial Crimes were provided to the Superintendent of Banking and the Finance Ministry.
In Georgia, the “Georgia” Enforcement Team in cooperation with USAID, the U.S. Department of Justice, and the U.S. Securities and Exchange Commission, completed a report on the enforcement authorities of the National Securities Exchange. Working cooperatively with the U.S. Department of Justice, it has assessed the adequacy of Georgia’s Law on Conflict of Interest and Corruption, and the practical application of its reporting regime.
The Enforcement Team developed and delivered two separate training programs designed to enhance the forensic accounting abilities of the Indonesian Bank Restructuring Agency personnel and to provide knowledge and abilities relating to financial investigations and asset recovery. The first program addressed the needs of attendees as they related to anti-corruption and general forensic accounting and financial crime investigative principles and techniques. The second addressed these principles and techniques along with asset recovery techniques as they related to specific cases being investigated by IBRA, as well as providing specific case direction and investigative and prosecutorial strategies. Assistance was centered on methods of identifying assets constituting bank fraud proceeds, tracing such proceeds to the U.S., and repatriating those assets once identifications were complete. The Indonesians also met with the FBI, DOJ prosecutors, Customs, Interpol and other U.S. government representatives regarding cooperation and coordination of future assistance that may be useful in detecting, investigating and prosecuting violations of U.S. law as well as repatriating the proceeds from Indonesian bank fraud.
In Moldova, the Enforcement Team provided technical assistance to the drafters of the economic and financial crime section of the criminal procedure code currently under consideration in Parliament. The team also provided technical assistance to the drafters of the proposed anti-money laundering law. The team assisted the Finance Ministry in organizing a tax evasion enforcement unit and a bank fraud working group. The team also provided specialized forensic training and assistance in combating credit card fraud, document fraud, and developing the capabilities of the government’s forensic laboratories.
Advisors from the Enforcement Team also made visits to Peru and Malaysia to assist in drafting and discussing proposed anti-money laundering legislation.
The ILEA training academies around the globe conduct a variety of law enforcement courses to mid-level managers. Core law enforcement training courses include modules on financial crime and money laundering. In addition, financial crime and money laundering seminars for senior law enforcement officials have been conducted in 2000.
The ILEA in Budapest, Hungary offers a core law enforcement training course targeted at mid-level managers in the police and criminal justice services of Central Europe and the New Independent States. Over 1,300 officials from 25 countries have successfully completed this course. In addition to this program, ILEA Budapest also offers regional seminars and specialized training courses. More than 3,500 criminal justice officials have participated in such courses.
The ILEA for Southeast Asia opened in March 1999, in Bangkok, Thailand. The curriculum and structure of this Academy is similar to that in Budapest, except for the duration of the core course and an added emphasis in narcotics matters. ILEA Bangkok also offers specialized courses in a wide range of topics. Over 1,000 officials from 10 Southeast Asian nations have attended these courses.
For the Western Hemisphere, we offered a core course similar to Bangkok’s—tailored to regional needs—for officials from Central America and the Dominican Republic. Two pilot courses were conducted in Panama in 1997 at a temporary site. Sixty-four participants attended these courses. All activities of this Academy have been temporarily suspended, pending a review to determine its permanent location.
The interagency group responsible for the ILEAs is taking steps aimed at the establishment and operation of an ILEA for Southern Africa, to be located in Gaborone, Botswana. The overall format for this new Academy will be similar to the other three, adjusted to suit the needs of the region.
Treaties, Agreements, and Other Mechanisms for Information Exchange
Mutual Legal Assistance Treaties allow generally for the exchange of evidence and information in criminal and ancillary matters. In money laundering cases, they can be extremely useful as a means of obtaining banking and other financial records from our treaty partners. MLATs, which are negotiated by the Department of State in cooperation with the Department of Justice to facilitate cooperation in criminal matters, including money laundering and asset forfeiture, are in force with the following countries: Antigua and Barbuda, Argentina, Australia, Austria, the Bahamas, Barbados, Belgium, Canada, Czech Republic, Dominica, Estonia, Grenada, Hong Kong SAR, Hungary, Israel, Italy, Jamaica, Latvia, Lithuania, Luxembourg, Mexico, Morocco, the Netherlands, Panama, the Philippines, Poland, South Korea, Spain, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Switzerland, Thailand, Trinidad and Tobago, Turkey, the United Kingdom, the United Kingdom with respect to its Caribbean overseas territories , and Uruguay. MLATs have been signed by the United States but not yet brought into force with the following countries: Belize, Brazil, Colombia, Cyprus, Egypt, France, Greece, Nigeria, Romania, Russia, South Africa, Ukraine, and Venezuela. The United States has also signed the Organization of American States MLAT and the UN Convention against Transnational Organized Crime. The United States is actively engaged in negotiating additional MLATs with countries around the world. The United States has also concluded executive agreements for cooperation in various criminal matters with Russia, Haiti, the Philippines, and Venezuela. Comparable executive agreements with Nigeria, Singapore and China are signed but were not yet in force as of the end of 2000.
In addition, the United States has entered into executive agreements on forfeiture cooperation, including: an agreement with the United Kingdom providing for forfeiture assistance and asset sharing in narcotics cases; and a forfeiture cooperation and asset sharing agreement with the Kingdom of the Netherlands. The United States has asset sharing agreements with Canada, the Cayman Islands , Colombia, Ecuador, and Mexico.
To facilitate the ongoing exchange of information to combat money laundering, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network has fostered information exchange with other financial intelligence units around the globe, as well as, on a case by case basis, law enforcement and regulatory agencies of foreign governments. In a few cases , information exchange arrangements involving FinCEN and other FIUs have been reduced to writing in the form of memoranda of understanding or an exchange of letters. Prior to the establishment of these types of information exchange arrangements, the United States in limited circumstances entered into cooperation agreements referred to as Financial Information Exchange Agreements for the exchange of “currency transaction information” with the governments of certain Latin American countries . FinCEN’s methods of exchanging information with other FIUs as described above are intended to supplant the old FIEA model.
The United States has Customs Mutual Assistance Agreements with the European Community and with the following countries: Argentina, Australia, Austria, Belarus, Belgium, Canada, Colombia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Honduras, Hungary, Ireland, Israel, Italy, Japan, Kazakhstan, Latvia, Mexico, Mongolia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russia, Slovakia, South Korea, Spain, Sweden, Ukraine, United Kingdom and Yugoslavia. has dissolved and that the CMAA continues to apply to the successors that formerly made up the SFRY—Bosnia and Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Slovenia, and the Federal Republic of Yugoslavia). The United States has CMAAs, negotiated but not yet in force, with the following countries: PRC, Lithuania, Panama, the Philippines, South Africa, Turkey, and Venezuela. All of the agreements are patterned after a Customs Organization Model CMAA. Since assistance can be provided in the enforcement of any laws related to customs, the U.S. Customs Service uses these agreements to assist in the gathering of information and evidence for criminal and civil cases involving trade fraud, smuggling, violations of export control laws, and most recently, in the growing effort to combat narcotics trafficking and money laundering.
Pursuant to 18 U.S.C. � 981, 21 U.S.C. � 881, and 31 U.S.C. � 9703, the United States is authorized to share assets with countries that facilitate the forfeiture of criminal proceeds. Under this authority, the Departments of Justice, State and Treasury have aggressively sought to encourage foreign governments to cooperate in joint investigations of drug trafficking and money laundering, offering the possibility of sharing in forfeited assets. A parallel goal has been to encourage spending of these assets to improve narcotics law enforcement. The long-term goal has been to encourage governments to improve asset forfeiture laws and procedures, so that they will be able to conduct investigations and prosecutions of drug trafficking and money laundering which includes asset forfeiture. The United States and its partners in the G-8 are currently pursuing a program to strengthen asset forfeiture and sharing regimes. To date, Canada, Cayman Islands, Hong Kong, Jersey, Switzerland, and the United Kingdom have shared forfeited assets with the United States.
From its inception in 1989 through December 2000, the international asset-sharing program administered by the Department of Justice has resulted in the forfeiture in the United States $389,229,322.96 of which $169,397,852.33 was shared with foreign governments that cooperated and assisted in the investigations. In 2000, the Department of Justice transferred forfeited proceeds to Barbados ; Canada ; Ecuador ; Hong Kong ; Switzerland ; Thailand and United Kingdom . Prior recipients of shared assets include: Argentina, the Bahamas, British Virgin Islands, Canada, the Cayman Islands, Colombia, Costa Rica, Ecuador, Egypt, Guatemala, Guernsey, Hungary, Isle of Man, Israel, Liechtenstein, Luxembourg, Netherlands Antilles, Paraguay, Romania, Switzerland, the United Kingdom and Venezuela.
From its inception in 1995 through December 2000, the international asset sharing program administered by the Department of Treasury has resulted in the forfeiture in the United States of approximately $13,404,441.00 of which $6,412,864.00 was shared with foreign governments which cooperated and assisted in the investigations. In 2000, the Department of Treasury transferred forfeited proceeds to Cayman Islands ; Canada ; Dominican Republic ; Netherlands ; Portugal ; Switzerland and United Kingdom . Prior recipients of shared assets include Aruba, the Bahamas, Canada, the Cayman Islands, Egypt, Guernsey, Jersey, Mexico, Qatar, Switzerland, and the United Kingdom.
The Financial Action Task Force on Money Laundering , which was established at the G-7 Economic Summit in Paris in 1989, is an inter-governmental body whose purpose is the development and promotion of policies to combat money laundering. In 1990, the FATF issued Forty Recommendations to fight this phenomenon. The Recommendations were revised in 1996 to reflect changes in money laundering trends. These recommendations are designed to prevent proceeds of crime from being utilized in future criminal activities and from affecting legitimate economic activities.
In June 2000, membership of the FATF expanded from 26 to 29 governments and two regional organizations, representing the major financial centers of North America, Europe and Asia. Argentina, Brazil and Mexico, who had participated in the work of the FATF as observers since September 1999, were accepted as full members. The delegations of the Task Force’s members are drawn from a wide range of disciplines, including experts from the Ministries of Finance, Justice, Interior and External Affairs, financial regulatory authorities and law enforcement agencies.
Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany; Greece; Hong Kong, China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; the Kingdom of the Netherlands; New Zealand; Norway; Portugal; Singapore; Spain; Sweden; Switzerland; Turkey; the United Kingdom and the United States.
European Commission and Gulf Co-operation Council.
FATF focused on several major initiatives during 2000. As mentioned, FATF took concrete steps to enlarge its membership with the completions of the mutual evaluations of Argentina, Brazil and Mexico. The principal objective of these evaluations was to determine whether these countries complied with certain fundamental anti-money laundering requirements, the implementation of which is a pre-condition to becoming a full member of the FATF.
Throughout 2000, the FATF continued its efforts to persuade Austria to eliminate its system of anonymous savings passbooks. On February 3, 2000, the FATF decided to suspend Austria as one of its members in June 2000 unless action was taken to eliminate anonymous passbooks. Following this unprecedented move, the Government of Austria took the appropriate steps to meet the conditions required by the FATF and thus avert suspension of its membership, through new legislation and issuance of a banking circular.
The year 2000 also marked the completion of FATF’s first phase of the important work on Non-Cooperative Countries or Territories . This work resulted in the June publication of a report entitled Review to Identify Non-Cooperative Countries and Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures . This report describes the process and provides summaries of jurisdictions considered to be of concern. The aim of the work is to enhance the level of protection for the world’s financial system and to prevent the circumvention of the anti-laundering measures introduced over the last ten years. To ensure transparency and sound operation in the international financial system, it is desirable that all financial centers across the world have comprehensive controls, regulations and supervisory arrangements in place and that all financial agents assume anti-money laundering obligations.
To tackle this question, fatf established an Ad Hoc Group on NCCTs to discuss in more depth the action to be taken with regard to these countries and territories. Throughout 2000, the Ad Hoc Group on NCCTs met in the margins of all FATF Plenary meetings, and autonomously on May 24-25, 2000 in Paris. After the FATF adopted criteria for defining non-cooperative countries and territories, 29 jurisdictions were selected for review in February 2000. The assessments took place between February and June. Fifteen of those counties were identified in the report as having serious deficiencies in their anti-money laundering systems and thus named “non-cooperative.” Immediately following the issuance of the June NCCT report, the G-7 members issued advisories to their financial institutions recommending increased scrutiny of transactions involving these jurisdictions. A number of other FATF members followed with similar advisories.
The FATF then determined that additional jurisdictions should be examined in the second round of NCCT reviews and took stock of the progress made by the 15 jurisdictions identified in June. On October 5, 2000, the FATF issued a press release that welcomed the significant, rapid progress made by many of the jurisdictions that it had identified in June as “non-cooperative” in the fight against money laundering. As of October, seven of the NCCTs had enacted legislation to address deficiencies identified by the FATF and several others had taken steps or made political commitments to do the same. The FATF decided to monitor progress towards meeting international standards and addressing the deficiencies previously identified. For example, in the context of the dialogue initiated by the FATF’s NCCT exercise, the Governor of the Central Bank of Seychelles informed the FATF President that the Economic Development Act 1995 has been repealed on July 25, 2000. The FATF therefore lifted Recommendation 21 against the Seychelles.
In February 2001, FATF issued a press release acknowledging that seven jurisdictions—the Bahamas, the Cayman Islands, the Cook Islands, Israel, Liechtenstein, the Marshall Islands and Panama—have enacted most, if not all, legislation needed to remedy the deficiencies identified in June 2000. On the basis of that progress, those seven jurisdictions have been invited to submit to FATF implementation plans to enable FATF to evaluate the actual implementation of the legislative changes. The FATF will be assessing the progress made by these jurisdictions during 2001 to determine whether any jurisdictions should be removed from the list of NCCTs. These assessments will be done initially by the FATF review groups, including through face-to-face meetings, and will be discussed as a priority item at each Plenary of FATF. In making these assessments, the FATF will look for the existence of comprehensive and effective anti-money laundering systems. Decisions to add or delete countries from the list published in June 2000 will be taken in the FATF Plenary in June 2001.
In deciding whether a jurisdiction should be removed from the list, the FATF Plenary must be satisfied that the jurisdiction has addressed the deficiencies previously identified. The FATF will rely on its collective judgment, and will attach particular importance to reforms in the area of criminal law, financial supervision, customer identification, suspicious activity reporting, and international co-operation. As necessary, legislation and regulations will need to be enacted and have come into effect before removal from the list can be considered. In addition, the FATF will seek to ensure that the jurisdiction is implementing the necessary reforms. Thus, information related to institutional arrangements, as well as the filing and utilization of suspicious activity reports, examinations of financial institutions, and the conduct of money laundering investigations, will be considered.
In 2000, the FATF agreed to initiate a review of the Forty Recommendations, including the issues of particular concern for anti-money laundering purposes identified in the June 2000 Report on NCCTs. The FATF discussed how best to approach this exercise and agreed that work should begin to conduct an initial examination on the specific issues of concern with the goal of establishing one or more working groups in 2001. The three major issues of concern are the identification of clients ; non-financial professions , and non-corporate entities . This work will involve the participation of all FATF member countries as well as FATF-style regional bodies. It is also envisaged that FATF will involve the private sector at some stage of this review.
Under the chairmanship of the United States, the annual study of money laundering typologies was published in February 2000. The report was based on a meeting of experts, which was conducted in Washington, DC on November 18-19, 1999. This report covered the vulnerabilities of Internet banking; the increasing reach of alternative remittance systems; the role of company formation agents and their services; international trade-related activities as a cover for money laundering; and specific money laundering trends in various regions of the world. The 1999-2000 report represented the first time countries outside of the FATF participated in the typologies exercise making it an unprecedented and truly global review of anti-money laundering activity. On December 6-7, 2000 FATF conducted its subsequent experts meeting in Oslo, Norway. The specialized topics included on-line banking, trusts and other non-corporate entities, non-financial professionals, and the role of cash and alternate payment systems. The results of this meeting were published in February 2001.
The Gulf Co-operation Council is in the unique position of being a member of FATF, but with non-FATF member countries as its constituents. During 2000, noticeable progress was made to improve the implementation of effective anti-money laundering systems within the GCC States. On January 17-18 2000, in Riyadh, the GCC held a technical seminar for its member States with the participation of the FATF Secretariat on the subject of self-assessment and mutual evaluation procedures. In addition, five members of the GCC have agreed to undergo a mutual evaluation. The first on-site visit of these evaluations took place in Bahrain on June 5-7, 2000, and will be followed by other examinations.
This report can be found on the FATF home page at
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The current mandate of the FATF, as agreed at a meeting of FATF’s Ministers on April 28, 1998, calls for close co-operation with the relevant international organizations and in particular the international financial institutions . Throughout 2000, the FATF discussed how to better incorporate measures against financial abuse into the IFIs activities. Mainly, the issues focused on information sharing between the FATF and the International Monetary Fund , the availability of FATF experts to participate in IMF reviews and assessments, and the extent to which the FATF 40 Recommendations might appropriately be included in structural assessments performed by the IMF
The FATF continued to analyze the question of co-operation between anti-money laundering authorities and tax administrations. The objectives of this co-operation were to ensure that suspicious transaction reporting obligations were not undermined by the so-called “fiscal excuse” and to permit, to the fullest extent possible, the exchange of information between anti-money laundering and tax authorities without jeopardizing the effectiveness of anti-money laundering systems. On February 3, 2000, the FATF and OECD Committee on Fiscal Affairs held a second informal contact meeting to consider the issue of cooperation between tax authorities and anti-money laundering authorities. While it was agreed that tax and anti-money laundering authorities have distinct priorities, work on cooperation issues will continue in the future.
One of the FATF’s goals is to encourage co-operation with the private sector in the development of policies and programs to combat money laundering. To further this aim, a third Forum was convened on February 4, 2000 with representatives from the financial services industry and accounting professions. The purpose of this event was to discuss with the private sector, areas of common interest and the best way to develop measures to prevent and detect money laundering through the financial community. Four general topics were addressed in the Forum: current money laundering trends, feedback to institutions reporting suspicious transactions, the role of the accounting profession in identifying and discouraging money laundering and the issues raised by the wire transfers of funds.
Representatives attended the Forum from FATF members, national banking, financial and accounting associations, and companies such as SWIFT and Western Union. Delegates from international financial services industry and accounting organizations also attended.
During the year, the Ad Hoc Group on Estimating the Magnitude of Money Laundering held several meetings, including a two-day Technical Workshop on estimating drug trafficking proceeds. As a result of this work, an expert consultant prepared a report to the Ad Hoc Group. The report examined a range of national and international efforts to quantify the value of illicit drug sales on either a global or national basis. The purpose of the study was to identify and assess alternative approaches for estimating total revenues generated annually by sales of cocaine, heroin and cannabis globally and in each of the 29 FATF members and observer members. Due to data and analytical constraints, the FATF decided to end this work at this stage. However, several international organizations and interested FATF members are continuing to work to improve the available data, and will also continue to work to address the problem.
Two FATF-style regional bodies are in various stages of development on the African continent:
Eastern and Southern African Anti-Money Laundering Group
Tanzanian authorities are working with other governments in the region to further develop the Eastern and Southern African Anti-Money Laundering Group . The group was launched at a meeting of Ministers and high-level representatives in Arusha, Tanzania, in August 1999 and held its first meeting in April 2000. Following the signature of its Memorandum of Understanding by seven jurisdictions, the ESAAMLG came into formal existence. The group will maintain its Secretariat in Dar es Salaam. The ESAAMLG recently appointed its first secretary and early plans call for the group to study the impact of money laundering in the region and to produce a typologies report on arms trafficking and the cash economy.
Kenya, Malawi, Mauritius, Mozambique, Namibia, Seychelles, Tanzania, Uganda have now signed the ESAAMLG Memorandum Of Understanding and are considered members. Botswana and Zambia have both completed the necessary preparations to sign in the very near future. Lesotho, Swaziland and Zimbabwe are also nearing completion of preparatory work and are expected to sign the MOU at a later date. It is hoped that South Africa will also sign in the future. Work on an ESAAMLG web program is progressing with the designation of national contact points and the start of an effort to collect copies of relevant money laundering legislation. The group has established three standing subgroups to begin dealing in more detail with anti-money laundering issues in each of these areas. Funding for the ESAAMLG is another major issue that still must be resolved for the group to be able to move forward.
Inter-Governmental Action Group against Money Laundering
The first meetings of GIABA, established by the December 1999 Decision of the Heads of State and Government of ECOWAS , were held in Dakar, Senegal, in November 2000. GIABA members include: Benin, Cape Verde Islands, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mauritania, Mali, Niger, Nigeria, Senegal, and Togo.
The meeting adopted the statutes and explored ways of financing the GIABA. The statutes endorse the Forty Recommendations, recognize the FATF as an observer and provide for self-assessment and mutual evaluation procedures to be carried out by GIABA. While the text prepared by the experts provided for a strong involvement of ECOWAS in the activities of GIABA, the Ministers agreed to give more autonomy to the new body. As an interim measure, Senegal offered to provide a provisional structure until the formal establishment of GIABA.
Essential issues such as the location of the headquarters and the selection of the Executive Secretary of GIABA were not discussed. However, one possibility considered in the margins of the meetings was to establish the Secretariat in Senegal and to appoint a representative from an English speaking country of the region as head of the Secretariat.
The Asia/Pacific Group on Money Laundering Secretariat is the focal point for APG activities. Currently the APG is comprised of nineteen members from South Asia, Southeast and East Asia and the South Pacific. There are also seven observer jurisdictions and thirteen observer international and regional organizations. The purpose of the APG is to ensure the adoption, implementation and enforcement of internationally accepted anti-money laundering standards as set out in the 40 Recommendations of the Financial Action Task Force .
Groupe Intergouvernemental d’Action contre le Blanchiment en Afrique
Australia, Bangladesh, Chinese Taipei, Fiji Islands, Hong Kong, China, Japan, India, Malaysia, New Zealand, Pakistan, Republic of Indonesia, Republic of Korea, Republic of the Philippines, Samoa, Singapore, Sri Lanka, Thailand, United States of America, Vanuatu.
Brunei Darussalam, Canada, Cook Islands, Macau, China, Nepal, Burma, Vietnam.
ASEAN Secretariat, Asian Development Bank, Commonwealth Secretariat, Egmont Group of Financial Intelligence Units of the World, Financial Action Task Force Secretariat, International Development Law Institute, International Monetary Fund, Interpol, Offshore Group of Banking Supervisors, South Pacific Forum Secretariat, United Nations Office of Drug Control and Crime Prevention, The World Bank, World Customs Organization.
During 2000, the APG held one plenary meeting in Sydney on May 31—June 2, 2000 hosted by Australia. The meeting resulted in an expansion of the APG Terms of Reference, which included distinctive membership criteria, a commitment to implementing the FATF 40 Recommendations, a budget for the APG Secretariat and a requirement that each APG member commit itself to a mutual evaluation. The APG also agreed on a strategic plan that includes, among other initiatives, self-assessment exercises, a training and technical assistance strategy and typologies workshops. This meeting also noted the enactment of anti-money laundering legislation in several jurisdictions. The next plenary meeting of the APG will be held May 22-24, 2001 in Kuala Lumpur, Malaysia.
In March 2000, the APG conducted its third typologies workshop in Bangkok, Thailand which received a report on underground banking and alternative remittance systems, examined the use of false identities for money laundering purposes and identified some other current money laundering methods being used in the region. The APG will continue and expand its typologies work in close consultation with the FATF and other regional bodies. The next APG Typologies Meeting will take place in Singapore in October 2001. There will also be a meeting of and report from the APG Working Group on Underground Banking and Alternative Remittance Systems.
An extremely positive development was the APG’s commencement of a mutual evaluation program. At the Sydney meeting, the APG approved its first mutual evaluation report , which was jointly conducted with the Offshore Group of Banking Supervisors . The APG has scheduled four mutual evaluations to be conducted during 2001. A mutual evaluation training project, funded by the U.S. Government, will also be conducted in early 2001 to increase the skills needed in the region to conduct mutual evaluations.
Because of the particular vulnerability of offshore financial centers to misuse by money launderers, the APG Secretariat has devoted extensive time and effort in the Pacific region in the last 12 months. With extensive assistance from the United States, New Zealand, Australia and the Pacific Islands Forum Secretariat, a project to establish a regional Financial Intelligence Unit was launched. On March 13-28, 2000, a multinational assessment team visited the jurisdictions that expressed support for this initiative, mainly Fiji, Cook Islands, Vanuatu and Samoa. The first task in the project will be to assist Pacific jurisdictions to establish domestic FIUs. The second task will be a project assessment of the regional financial intelligence unit. The outcome of this work has been an agreement that South Pacific jurisdictions will establish domestic FIUs. Cook Islands, Vanuatu and Samoa have already done so. Fiji and several other jurisdictions are in the process of doing so.
The APG has adopted a detailed technical assistance and training strategy to provide necessary assistance to its members covering the legal, financial and law enforcement sectors. The APG has entered a number of joint arrangements with other organizations in this regard. However there is a greater demand than current resources can meet. As a consequence, the APG is asking for assistance from the FATF and from other bodies to provide funding and expertise in order to effectively execute the technical assistance and training strategy. Throughout 2000, the APG Secretariat has either directly provided or arranged for the provision of assistance and training to many countries in the region, including Thailand, Malaysia, Samoa, Pakistan, Indonesia, Fiji, the Philippines, Vanuatu and Sri Lanka.
The Caribbean Financial Action Task Force , a FATF-style regional body comprised of 25 jurisdictions, continues to advance its anti-money laundering initiatives within the Caribbean basin. In October 2000, Aruba assumed the Chairmanship of the CFATF, succeeding the British Virgin Islands. The Dominican Republic assumed the Deputy Chair.
CFATF members include Anguilla, Antigua and Barbuda, Aruba, Commonwealth of the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica, Dominica, the Dominican Republic, Grenada, Jamaica, Montserrat, the Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Turks and Caicos Islands, Trinidad and Tobago, and Venezuela.
Members of the CFATF subscribe to a Memorandum of Understanding that delineates the CFATF’s mission, objectives, and membership requirements. All members are required to make a political commitment to adhere to and implement the 40 Recommendations of the FATF, as well as the CFATF’s additional 19 Recommendations, and to undergo peer review in the form of mutual evaluations to assess their level of implementation of the Recommendations. Members are also required to contribute to the CFATF budget and to participate in the activities of the body.
In addition to members, the CFATF MOU also provides for other categories of participation in the organization. In October 2000, Mexico was welcomed as the newest Cooperating and Supporting Nation of the CFATF , bringing the number of COSUNs to seven. COSUNs are expected to provide support to the CFATF. Haiti was admitted to the CFATF as an observer member and the World Customs Organization was welcomed as an observer organization.
The CFATF completed its first round of mutual evaluation on-site visits during the year 2000. All CFATF members, except Nicaragua, have undergone mutual evaluation visits. Five mutual evaluation reports were adopted by the CFATF Council during 2000—Dominica, Grenada, Montserrat, St. Kitts and Nevis, and Venezuela. Mutual evaluation reports on Anguilla, Belize, and Suriname are expected to be discussed, finalized, and adopted during 2001, at which point the first round of evaluations will be complete. In May 2001, the CFATF plans to conduct a mutual evaluation training seminar in preparation for its second round of evaluations, which will be based on the revised 1996 40 Recommendations, and will also incorporate the FATF’s 25 criteria for Non-Cooperative Countries or Territories. These second round evaluations are scheduled to commence in July 2001.
All member contributions have been paid with the exception of arrears owed by Nicaragua. Due to Nicaragua’s lack of participation in the CFATF and non-payment of its arrears, a decision was taken by the CFATF Council to suspend Nicaragua’s membership in the CFATF in March 2001, if Nicaragua does not address these outstanding issues.
In October 2000, the CFATF conducted the first part of a two-part typologies exercise on free trade zones and money laundering. Part two of the exercise will be conducted in March 2001 and a report with recommendations to address the money laundering vulnerabilities of free trade zones will be issued. In December 2000, the CFATF held a conference on the international financial services sector, attended by both public and private sector participants. The conference was designed to educate participants on money laundering vulnerabilities of the international financial services sector, as well as measures that can be taken to reduce money laundering risks in the sector.
The Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures has achieved significant progress since its creation in 1997. Its first round of mutual evaluation on-site visits has been completed, and all but two of the mutual evaluation reports have been finalized and adopted. The final two reports will be discussed by the PC-R-EV plenary at its next meeting to be held in June 2001.
PC-R-EV members include Albania, Andorra, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, the Former Yugoslav Republic of Macedonia, Georgia, Hungary, Latvia, Liechtenstein, Lithuania, Malta, Moldova, Poland, Romania, the Russian Federation, San Marino, Slovakia, Slovenia, and Ukraine.
Two PC-R-EV plenary meetings were conducted during 2000. At the February 2000 meeting, mutual evaluation reports on Liechtenstein, Poland and Romania were adopted and a typologies exercise focusing on organized crime and money laundering was conducted. At the PC-R-EV’s June meeting, mutual evaluation reports on Bulgaria, Croatia, Estonia and the Former Yugoslav Republic of Macedonia were adopted.
A mutual evaluation training seminar for examiners was conducted in Lisbon, Portugal in November 2000, in preparation for the PC-R-EV’s second round of evaluations, planned to commence June 2001. The seminar focused on the experiences of the first round of evaluations and priorities for the second round.
At the plenary meeting of the PC-R-EV held January 15-19, 2001, mutual evaluation reports on Latvia, the Russian Federation, San Marino, and Ukraine were adopted. The plenary also agreed that the FATF’s 25 criteria to identify non-cooperative countries and territories would be considered in assessing members’ anti-money laundering regimes during the PC-R-EV’s second round of mutual evaluations.
The European Union is currently proposing revisions to its anti-money laundering Directive . The Directive covers issues on the prevention of the use of the financial system for the purpose of money laundering. The EU is considering imposing anti-money laundering obligations on “gatekeepers.” The modifications under consideration would require a broad range of professionals to abide by anti-money laundering rules. The rules would apply when professionals assist in the planning or execution of certain transactions or act on behalf of their clients in the conduct of certain financial or commercial activities. If this amendment is endorsed by the European Parliament, the 15 member states of the EU will be required to bring their domestic laws into conformity with the new provisions of the Directive.
The following is a draft text currently being considered:
Member states shall ensure that the obligations laid down in this Directive are imposed on the following institutions: . . .
1. notaries and other independent legal professionals, when they participate, whether:
by assisting in the planning or execution of transactions for their client concerning the
buying and selling of real property or business entities;
managing of client money, securities or other assets;
opening or management of bank, savings or securities accounts;
organization of contributions necessary for the creation, operation or management of companies
or by acting on behalf of and for their client in any financial or real estate transaction
Financial Action Task Force Against Money Laundering in South America
The Memorandum of Understanding establishing the South American Financial Action Task Force, was signed on December 8, 2000 by nine member states, Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Peru, Paraguay, and Uruguay. In addition, the Organization of American States’ Inter-American Drug Abuse Control Commission is a special member of GAFISUD.
In addition, the Inter-American Development Bank, Canada, Portugal, Spain and the United States all attended the first meeting of GAFISUD. At this meeting Spain applied for and was granted official observer status with the organization, and the other attendees are considering joining as observers as well.
Colombia was elected to be the first President of the organization for a one-year term. In addition Colombia will serve as the provisional Executive Secretariat until the next meeting of GAFISUD, which is scheduled to be held in May 2001 in Uruguay.
GAFISUD is a FATF-style regional body committed to the adoption and implementation of the FATF’s 40 Recommendations, a program of self assessment and mutual evaluations of its members.
During 2000, the Organization of American States Inter-American Drug Abuse Control Commission carried out three major initiatives related to combating money laundering:
Initiating a peer review process including indicators of progress in implementation of “members” anti-money laundering programs;
Work on the peer review process concerning antidrug policies and activities of member states including related activities such as money laundering control under the Multilateral Evaluation Mechanism continued on schedule throughout the year. The first round of evaluations of all 34 OAS/CICAD member countries began in the first half of 2000 and concluded in December 2000. The results will be presented to the Summit of the Americas meeting scheduled to take place in Quebec City, Canada in May 2001. Additionally, the Group of Experts to Control Money Laundering proposed that CICAD use the information derived from the Multilateral Evaluation Mechanism to evaluate the money laundering situation in the Hemisphere. It was also proposed that they develop policies in order to take into account recent developments not anticipated in the Plan of Action of Buenos Aires.
Many anti-money laundering training activities have been carried out during 2000, including, the culmination of the CICAD-Inter American Development Bank Pilot Project to train officials of banking regulatory organizations and financial entities. This Project was carried out in Argentina, Bolivia, Chile, Colombia, Ecuador, Peru and Uruguay between April and December 2000. The follow-up stage of this program has begun in these countries by means of a web page created by CICAD for providing updated information and for consultation purposes. Additionally, training courses for judges, prosecutors and officials of the Financial Intelligence Units were designed during the year, and the IDB has committed funds to support courses for judges and prosecutors.
As a result of an agreement between the National Drug Plan of Spain and CICAD, a course on the control and investigation of money laundering has begun. This one-week course will be given every six months. It is divided into four modules, the first of which was carried out in Antigua and Barbuda and Guatemala from May 29 to June 2. The second module of the course was held in Cartagena, Colombia in November 10-17 and addressed the control and investigation of money laundering.
With respect to the Regional Centre for Legal Cooperation and Development in Central America, two courses on the prevention of money laundering were carried out in August and October in Panama and Honduras, respectively. A round-table session of judges, prosecutors and legislators will be held in Costa Rica in the first quarter of 2000 to endeavor to reach agreements on how to develop laws in areas where legal deficiencies have impeded better money laundering controls.
Finally, in regard to course participation, representatives of CICAD gave presentations at the “First Latin American Conference in Money Laundering” organized by Alert Global Media, which took place in Buenos Aires in October. Representatives also participated at a Regional Seminar held in Lima, Peru in November for the Andean countries organized by the United Nations Office of Drug Control Programs and the French Police Force.
UN Convention Against Transnational Organized Crime
The UN Convention against Transnational Organized Crime , signed by 125 countries including the United States at a high-level signing conference December 12-14 in Palermo, Italy, is the first legally binding multilateral treaty specifically targeting transnational organized crime. Two supplemental Protocols addressing trafficking in persons and migrant smuggling were also signed in Palermo. Each instrument requires 40 states to become parties before it can enter into force.
The Convention takes aim at preventing and combating transnational organized crime through a common toolkit of criminal law techniques and international cooperation. It requires states parties to have laws criminalizing the most prevalent types of criminal conduct associated with organized crime groups, including money laundering, obstruction of justice, corruption of public officials and conspiracy. The article on money laundering requires parties to institute a comprehensive domestic regulatory and supervisory regime for banks and financial institutions to deter and detect money laundering. The regime will have to emphasize requirements for customer identification, record keeping and reporting of suspicious transactions.
United Nations Global Programme against Money Laundering
The United Nations Office for Drug Control and Crime Prevention , through its Global Program Against Money Laundering , serves a unique function as the only global international organization providing comprehensive anti-money laundering training and technical assistance. Its programs extend to legislators, law enforcement officials, prosecutors and judges, regulators, bankers and providers of other financial services. GPML’s mission is to use this capacity to provide practical, results-oriented assistance, in close cooperation with its other international partners, that will help countries and jurisdictions achieve compliance with the full range of international anti-money laundering standards.
Key to achieving this objective in 2000 was the GPML Forum , which was launched at a Plenary meeting in the Cayman Islands on March 30-31. The Forum brought together 35 offshore jurisdictions, hoping to secure their commitment to the international standards and norms that have emerged in the last decade from the United Nations, FATF, the OECD, the Basel Committee, IOSCO and others. Some 33 OFCs, subsequently lodged letters of political commitment with the United Nations to adhere to international standards and norms. These requests for assistance will help determine the direction of GPML’s technical assistance priorities for some time to come and will result in greater demands on the GPML’s and the United Nations’ technical assistance capacities and its fiscal resources.
GPML’s cooperation with the Government of Israel in 1999 and 2000 is now serving as one of the models for its future technical assistance efforts. Israel passed anti-money laundering legislation on August 2, 2000 after working closely with the United Nations for over a year on the drafting, and on the development of other anti-money laundering institutions. GPML’s own lawyers cooperated with their Israeli counterparts on drafting the laws, offering the UN model legislation as a foundation but working towards provisions appropriate to the individual requirements of Israel’s legal system. GPML also brought in experts to advise on structuring a financial intelligence unit that would function well with Israel’s existing institutions, and organized seminars in the Knesset and with the private sector to inform legislators and business people about what the new mechanisms would demand of them.
Many other jurisdictions have also turned to the United Nations, either individually or as part of a sub-regional grouping. They include the Bahamas, Dominica, Liechtenstein, Panama, St. Kitts and Nevis and St. Vincent and Grenadines. In light of this, GPML is planning to expand its highly successful mentoring program, which offers longer term on-site assistance to countries. In 2000, GPML placed mentors in Barbados and Jamaica, using expertise provided by AUSTRAC, the Australian FIU, and in Antigua and Barbuda.
GPML plans to continue its focus on assistance aimed at developing successful financial intelligence units and, in particular, on the development of regional FIUs, where appropriate. Considerable preparatory work on the Eastern Caribbean regional FIU was already underway in 2000, in partnership with the Organization of Eastern Caribbean States and the Caribbean Development Bank . GPML also supported regional approaches to anti-money laundering by coordinating sub-regional workshops for the Gulf States and the Andean sub-region.
Convention for the Suppression of the Financing of Terrorism
On December 9, 1999, the United Nations General Assembly adopted the International Convention for the Suppression of the Financing of Terrorism. It was opened for signature from January 10, 2000 to December 31, 2001. This Convention requires parties to criminalize the provision or collection of funds with the intent that they be used, or in the knowledge that they are to be used, to conduct certain terrorist activity. Article 18 of the Convention requires states parties to cooperate in the prevention of terrorist financing by adapting their domestic legislation, if necessary, to prevent and counter preparations in their respective territories for the commission of offenses specified in Article 2. To that end, Article 18 encourages implementation of numerous measures also included among the FATF’s 40 Recommendations. These measures, which states parties may implement at their discretion, include: prohibiting accounts held by or benefiting people unidentified or unidentifiable; verifying the identity of the real parties to transactions; and requiring financial institutions to verify the existence and the structure of the customer by obtaining proof of incorporation.
The Convention also encourages states parties to obligate financial institutions to report complex or large transactions and unusual patterns of transactions which have no apparent economic or lawful purpose, without incurring criminal or civil liability for good faith reporting; to require financial institutions to maintain records for five years; to supervise money-transmission agencies; and to monitor the physical cross-border transportation of cash and bearer negotiable instruments. Finally, the Convention addresses information exchange, including through the International Criminal Police Organization . As of January 29, 2001, 37 states had signed the Convention, including the United States. It will enter into force on the thirtieth day after 22 states have become parties.
The Basel Committee on Banking Supervision, part of the Bank for International Settlements, issued in January 2001, a consultative paper on customer due diligence for banks. The paper is part of an ongoing effort by the Basel Committee to strengthen risk management procedures in banks throughout the world. In developing the consultative paper, the Basel Committee determined that many countries around the world have not developed basic supervisory practices with regard to money laundering and other financial crimes and look to the Basel Committee for guidance in these areas. The consultative paper, once adopted by national supervisors, will provide the framework for national supervisory standards with regard to customer due diligence. The consultative paper sets forth guidance for national banking supervisors to establish minimum standards and internal controls to ensure that banks know with whom they are doing business. The essential elements for customer due diligence, as set forth in the paper, include customer acceptance polices, customer identification, monitoring of high-risk accounts and risk management.
The Basel Committee on Banking Supervision is a Committee of banking supervisory authorities which was established by the central bank Governors of the Group of Ten countries in 1975. It consists of senior representatives of banking supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, Netherlands, Sweden, Switzerland, United Kingdom and the United States.
Financial Intelligence Units and the Egmont Group
The fight against money laundering has been an essential part of the overall struggle to combat illegal narcotics trafficking and the activities of organized crime. The measures governments have developed to counter money laundering can also help stem corruption, terrorist financing, and other serious crime. Banks and other financial institutions are an important source for information about money laundering and other financial crimes.
In the 1990s, governments around the world began to work together to mitigate the corrosive dangers that unchecked financial crimes posed to their economic and political systems. To address this threat, many governments created specialized agencies to deal with the problem of money laundering. In the beginning, there was no unifying concept of what functions these agencies should perform, and it was almost by accident that they had in common the function of receiving and processing financial disclosures. At about this time, the heads of these organizations began to become visible on national delegations at various international meetings and conferences. Through these informal contacts, they shared common experiences and determined that it might be useful to meet and discuss these commonalties. These first contacts led to a meeting on June 9, 1995 at the Egmont-Arenberg Palace in Brussels, Belgium to discuss financial intelligence units or FIUs. Chaired jointly by FinCEN and the Cellule de Traitement des Informations Financieres of Belgium, the meeting in Brussels enabled participants to become acquainted with the already existing FIUs and to open communication channels. Now known as the Egmont Group, these FIUs meet yearly to find ways to cooperate, especially in the areas of information exchange, training, and the sharing of expertise.
During the Egmont Plenary in November 1996, in Rome, the Egmont Group came to an agreement on the definition of an FIU. Financial Intelligence Units are centralized agencies that, at a minimum, receive, analyze, and disclose to competent authorities information provided by financial institutions concerning possible money laundering and other financial crimes. FIUs offer law enforcement agencies around the world an important new avenue for information collection and exchange.
The Egmont Group as a whole meets once a year, and working groups meet three times a year to discuss issues related to money laundering and to conduct business. These working groups consist of a Chair, Vice-Chair and other working representatives from FIU members who serve on a voluntary basis.
The Legal Working Group has focused its efforts on issues related to information exchange between FIUs.
The Training/Communications Working Group looks at ways to communicate more effectively, identifies training opportunities for FIU personnel and examines new software applications that might facilitate the analytical work of these personnel. Other significant programs developed by this working group are the FIU personnel exchange programs and the topical/regional workshops hosted by various FIUs. Exchanges and workshops between FIUs have occurred all over the globe with good results. Another major initiative of the Training/Communications Working Group was the co-hosting of an FIU training seminar for analysts in January 2001. All FIUs, as well as countries working toward creating FIUs, were invited to participate in this first major Egmont training opportunity in which over 120 analysts participated.
It is also via this working group that changes and enhancements are identified for the Egmont Secure Web. It has long been recognized that feedback to the various financial institutions and other entities required to report suspicious or unusual transactions was lacking. In order to attempt to provide a document to show the utility in reporting suspicious/unusual transactions, the Training/Communications Working Group undertook a major project in 2000 to compile a booklet of successful money laundering cases from around the world. It is expected that the booklet will be available to all FIUs in early 2001.
The Outreach Working Group works to create a global network of FIUs to facilitate international cooperation. The Outreach Working Group has identified countries that the Egmont Group should approach to offer to assist in the development of FIUs. These have been categorized into short, medium and long-term FIU development projects for the Outreach Working Group.
The Egmont Group has no secretariat. Administrative functions are shared by FIUs on a rotating basis. Currently, the Dutch MOT has assumed this function.
There are currently 53 operational FIU units worldwide, with many others in various stages of development. FIUs operate in: Aruba, Australia, Austria, Belgium, Bermuda, Bolivia, Brazil, British Virgin Islands, Bulgaria, Chile, Colombia , Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic , Estonia , Finland, France, Greece, Guernsey, Hong Kong, Hungary, Iceland, Ireland, Isle of Man, Italy, Japan , Jersey, Latvia, Lithuania, Luxembourg, Mexico, Monaco, Netherlands, Netherlands Antilles, New Zealand, Norway, Panama, Paraguay, Portugal, Romania , Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom, United States and Venezuela.
During the plenary meeting in May 2000, five new jurisdictions joined the Egmont roster. One of the main goals of the Egmont Group is to create a global network of FIUs to facilitate international cooperation. Although FIUs operate differently, FIUs exchange information with their counterparts under certain specific conditions. This information could be suspicious or unusual transaction reports from the financial sector as well as government administrative data and public record information. Many FIUs can be of assistance in providing financial intelligence rapidly to other FIUs. One of the most significant accomplishments of the group’s efforts has been the creation of a secure Internet web site. Egmont’s International Secure Web System -developed primarily by FinCEN-permits members of the group to communicate with one another via secure e-mail, posting and assessing information regarding trends, analytical tools, and technological developments. In other words, this system provides the ability to facilitate practical, rapid exchanges of information that could enhance the efforts of the fight against money laundering. FinCEN, on behalf of the Egmont Group, maintains the Egmont Secure Web. Currently, there are 34 FIUs connected to the ESW.
The ongoing development and establishment of FIUs exemplify how countries around the world continue to intensify their efforts to focus on research, analysis and information exchange in order to combat money laundering and other financial crimes.
Each year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in more than 175 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions that involve proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.
The 2000 INCSR assigned priorities to jurisdictions using a classification system consisting of three differential categories titled Jurisdictions of Primary Concern, Jurisdictions of Concern, and Other Jurisdictions Monitored.
INCSR priorities draw upon a number of factors which include: whether the country’s financial institutions engage in transactions involving significant amounts of proceeds from serious crime; the extent to which the jurisdiction is or remains vulnerable to money laundering, notwithstanding its money laundering countermeasures, if any; the nature and extent of the money laundering situation in each jurisdiction ; the ways in which the U.S. regards the situation as having international ramifications; the situation’s impact on U.S. interests; whether the jurisdiction has taken appropriate legislative actions to address specific problems; whether there is a lack of licensing and oversight of offshore financial centers and businesses; whether the jurisdiction’s laws are being effectively implemented; and where U.S. interests are involved, the degree of cooperation between the foreign government and U.S. government agencies. There are approximately two dozen sub-factors that are also considered. These sub-factors are explained below.
A government can have comprehensive laws on its books and conduct aggressive anti-money laundering enforcement efforts but still be classified a “Primary Concern” jurisdiction. In some cases, this classification may simply or largely be a function of the size of the jurisdiction’s economy. In such jurisdictions, the volume of money laundering is likely to be substantial, necessitating quick, continuous and effective anti-money laundering efforts by the government. “Primary Concern” jurisdictions will therefore likely receive priority attention from the United States. While the threat from jurisdictions classified “Concern” is not as acute, they too must undertake efforts to develop or enhance their anti-money laundering regimes. Finally, while jurisdictions in the “Other” category do not pose an immediate concern, it will nevertheless be important to monitor their money laundering situations because, under the right circumstances, virtually any jurisdiction of any size can develop into a significant money laundering center.
The current ability of money launderers to penetrate virtually any financial system makes every jurisdiction a potential money laundering center. There is no precise measure of vulnerability for any financial system; but a checklist of what drug money managers reportedly look for provides a basic guide. The checklist includes:
Failure to criminalize money laundering for all serious crimes or limiting the offense to narrow predicates.
The comparative chart that follows the Glossary of Terms below identifies the broad range of actions that jurisdictions have, or have not, taken to combat money laundering, that were effective as of December 31, 2000. This reference chart provides a comparison of elements that define legislative activity and identify other characteristics that can have a relationship to money laundering vulnerability. Where there is no information regarding specific categories, the corresponding cells on the chart have been left blank.
“Criminalized Drug Money Laundering”: The jurisdiction has enacted laws criminalizing the offense of money laundering related to drug trafficking.
Annex to the Offshore Financial Centers Section
FATF Criteria for Defining Non-Cooperative Countries or Territories
No or inadequate regulations and supervision of financial institutions
1. Are there effective regulations and supervision, if any, for all financial institutions in a given country or territory, onshore or offshore, on an equivalent basis with respect to international standards applicable to money laundering?
Inadequate licensing and rules for the creation of financial institutions, including assessing the backgrounds of their managers and beneficial owner
2. Is it possible for individuals or legal entities to operate a financial institution without authorization or registration or with very rudimentary requirements for authorization or registration?
3. Are there measures to guard against holding of management functions and control or acquisition of a significant investment in financial institutions by criminals or their confederates?
Inadequate customer identification requirements for financial institutions
4. Do anonymous accounts or accounts in obviously fictitious names exist?
5. Are there effective laws, regulations, agreements between supervisory authorities and financial institutions or self-regulatory agreements among financial institutions on identification by the financial institution of the client and beneficial owner of an account?
Is it mandatory to verify the identity of the client?
6. Is there a legal or regulatory obligation for financial institutions or agreements between supervisory authorities and financial institutions or self-agreements among financial institutions to record and keep, for a reasonable and sufficient time , documents connected with the identity of their clients, as well as records on national and international transactions?
7. Are there legal or practical obstacles to access by administrative and judicial authorities to information with respect to the identity of the holders or beneficial owners and information connected with the transactions recorded?
Excessive secrecy provisions regarding financial institutions
8. Can secrecy provisions be invoked against, but not lifted by competent administrative authorities in the context of inquiries concerning money laundering?
9. Can secrecy provisions be invoked against, but not lifted by judicial authorities in criminal investigations related to money laundering?
Lack of efficient suspicious transactions reporting system
10. Is there an efficient mandatory system for reporting suspicious or unusual transactions to a competent authority, provided that such a system aims to detect and prosecute money laundering?
11. Are there monitoring and criminal or administrative sanctions in respect to the obligation to report suspicious or unusual transactions?
B. Obstacles raised by other regulatory requirements
Inadequate commercial law requirements for registration of business and legal entities
12. Are there adequate means for identifying, recording and making available relevant information related to legal and business entities ?
Lack of identification of the beneficial owner of legal and business entities
13. Are there obstacles to identification by financial institutions of the beneficial owner and directors/officers of a company or beneficiaries of legal or business entities?
14. Are there regulatory or other systems which allow financial institutions to carry out financial business where the beneficial owner of transactions is unknown, or is represented by an intermediary who refuses to divulge that information, without informing the competent authorities?
C. Obstacles to international co-operation
Obstacles to international co-operation by administrative authorities
15. Do laws or regulations prohibit international exchange of information between administrative anti-money laundering authorities or do not grant clear gateways or subjecting exchange of information to unduly restrictive conditions?
16. Are relevant administrative authorities prohibited from conducting investigations or inquiries on behalf of or for account of their foreign counterparts?
17. Has obvious unwillingness to respond constructively to requests been observed?
18. Are there restrictive practices in international co-operation against money laundering between supervisory authorities or between FIUs for the analysis and investigation of suspicious transactions, especially on the grounds that such transactions may relate to tax matters? Obstacles to international co-operation by judicial authorities
19. Is the laundering of the proceeds from serious crimes being criminalized?
20. Do laws or regulations prohibit international exchange of information between judicial authorities or place highly restrictive conditions on the exchange of information?
21. Has obvious unwillingness to respond constructively to mutual legal assistance requests been observed?
22. Does the jurisdiction refuse to provide judicial co-operation in cases involving offences recognized as such by the requested jurisdiction especially on the grounds that tax matters are involved?
D. Inadequate resources for preventing and detecting money laundering activities
Lack of resources in public and private sectors
23. Are the administrative and judicial authorities provided with the necessary financial, human or technical resources to exercise their functions or to conduct their investigations?
24. Is there inadequate or corrupt professional staff in governmental, judicial or supervisory authorities or among those responsible for anti-money laundering compliance in the financial services industry?
Absence of a financial intelligence unit or of an equivalent mechanism
25. Is there a centralized unit or of an equivalent mechanism for the collection, analysis and dissemination of suspicious transactions information to competent authorities?
Countries/Jurisdictions of Primary Concern
See the section entitled Money Laundering Comparative Table for an explanation of these categories.
Afghanistan . Afghanistan has no formal credit institutions, and its financial institutions are rudimentary. Afghanistan is not considered a center for money laundering. However, Afghanistan does play a key role in the heroin trade. The proceeds of heroin trafficking generally are laundered in other countries, or through the hawala alternative remittance system. Reports indicate that the Taliban and other factions in Afghanistan are involved in narcotics trafficking. The private investment of drug profits reportedly has fueled a surge in construction and commercial activity in Kandahar City in recent years.
Afghanistan is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Albania . Albania is at significant risk to money laundering because it is a transit country for trafficking in narcotics, arms, contraband, and illegal aliens. Organized crime groups use Albania as a base of operations for conducting criminal activities in other countries. The proceeds from these activities are easily laundered in Albania because of official corruption and weak government controls.
Albania criminalized all forms of money laundering through Article 287 of the Albanian Criminal Code of 1995. In 2000, the International Monetary Fund assisted Albania in drafting anti-money laundering legislation that was subsequently approved by Albania’s legislature. The law reportedly would establish an agency to coordinate the Government of Albania’s efforts to detect and prevent money laundering. This agency will fall under the control of the Ministry of Finance and will evaluate reports filed by financial institutions. If the agency suspects that a transaction involves the proceeds of criminal activity, it must forward the information to the prosecutor’s office.
The legislation would also require financial institutions to report to the anti-money laundering agency all transactions that exceed approximately US $10,000. Financial institutions would be required to report transactions within 48 hours if the origin of the money cannot be determined. In addition, private and state entities would be required to report all financial transactions that exceed certain thresholds.
In December 2000, Albania signed the UN Convention against Transnational Organized Crime. Albania is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures .
The GOA should enact and fully implement the provisions of its anti-money laundering legislation. In particular, the GOA should provide adequate resources and support to the new anti-money laundering agency.
Algeria . Algeria is not a financial center, and currently there is no available information suggesting that money laundering is a significant problem there. However, the Algerian government has not enacted anti-money laundering legislation nor does it have in place any procedures such as a suspicious transaction reporting system to detect money laundering. Individuals entering Algeria must declare all foreign currency, but it remains unclear how strictly this is enforced.
Algeria is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
Angola . Money laundering does not appear to be a significant problem in Angola because of its poorly developed financial sector. However, Angola does not have in place a set of comprehensive laws, regulations, and other procedures to detect money laundering and financial crime. Angola’s counternarcotics laws criminalize money laundering related to drug trafficking.
In December 2000, Angola signed the UN Convention against Transnational Organized Crime.
Anguilla . Anguilla has a small but growing offshore financial sector that renders it vulnerable to money laundering. As with the other United Kingdom Caribbean Overseas Territories, Anguilla underwent a thorough evaluation of its financial regulations in 2000, co-sponsored by the local and British governments.
Anguilla’s domestic financial sector includes four domestic banks and 17 insurance companies. The Eastern Caribbean Central Bank supervises Anguilla’s four domestic banks. The offshore sector includes two banks, one captive insurance company, and approximately 2000 international business companies and 43 trusts. IBCs may be registered using bearer shares that conceal the identity of the beneficial owner of these entities.
In 2000, Anguilla enacted several pieces of legislation to improve its anti-money laundering regime. The Proceeds of Criminal Conduct Act 2000 extends the predicate offenses for money laundering to all indictable offenses. It provides for suspicious activity reporting and a safe harbor for this reporting. The Money Laundering Reporting Authority Act 2000 requires persons involved in the provision of financial services to report any suspicious transactions derived from drugs or criminal conduct. It also details provisions for a Reporting Authority that will receive the suspicious transaction reports required and may forward information to the police for further investigation. The Criminal Justice Act 2000 enables Anguilla to directly cooperate with other jurisdictions through mutual legal assistance.
Anguilla is subject to the US/UK MLAT and the US/UK extradition treaty. Anguilla is a member of the Caribbean Financial Action Task Force , and through the UK, is subject to the 1988 UN Drug Convention.
Anguilla has developed important legal tools for detecting and investigating money laundering and other financial crimes. It should move quickly to implement provisions of the PCCA and the MLRA and establish a Reporting Authority that can easily cooperate with foreign authorities. Anguilla should also adopt consider measures to ensure complete identification of beneficial owners of IBCs so that international criminals do not use these entities to perpetuate financial crimes.
Antigua and Barbuda . Although Antigua and Barbuda remains vulnerable to money laundering because of its offshore financial sector and its internet gaming industry, it has made significant progress toward improving the regulation of the offshore financial sector since the US Treasury Department issued an advisory to US financial institutions in April 1999. In its advisory the Treasury Department recommended “enhanced scrutiny to all financial transactions routed into or out of Antigua and Barbuda” because of 1998 amendments that had seriously weakened Antigua and Barbuda’s anti-money laundering regime. The United Kingdom also issued a bank advisory at that time and France publicly expressed it concerns.
In response to this international action, in 1999 the Government of Antigua and Barbuda repealed those amendments to the Money-Laundering Act of 1996 that had effectively strengthened bank secrecy, inhibited money laundering investigations and infringed on international cooperation. Additionally, in 2000 the GOAB amended the International Business Corporations Act of 1982 in order to excise the 1998 amendments that had given the International Financial Sector Regulatory Authority responsibility to market and regulate the offshore sector, as well as to allow members of the IFSRA Board of Directors to maintain ties to the offshore industry.
In August 2000, the GOAB again amended the IBCA to require resident agents to ensure the accuracy of the records and registers that are kept at the Registrar’s office, and to know the names of beneficial owners of IBC’s and to disclose such information to authorities upon request. Furthermore, in December 2000 the GOAB issued a Statutory Instrument, which has the force of law, requiring banks to establish the true identities of account holders and to verify the nature of an account holder’s business, source of funds and beneficiaries. The GOAB has also drafted an International Trusts Bill and a Mutual Funds Bill.
The GOAB has established and staffed the Supervisory Authority within the ONDCP as mandated by the MLPA, and has issued regulations that implement its suspicious transactions reporting system. According to an Antiguan official, by year’s end Antiguan and Barbudian financial institutions had filed a total of between ten and twenty suspicious transaction reports .
During 1999 and 2000, the GOAB conducted an extensive review of the offshore banking sector. As a result, 21 offshore banks had their licenses revoked, were dissolved, were placed in receivership, or were otherwise put out of business. Currently, Antigua and Barbuda has 26 licensed offshore banks of which only 18 are currently in operation and in good standing.
Like most of the other countries in the Eastern Caribbean, GOAB does not have a unified regulatory structure or uniform supervisory practices for its financial services sector. This is due to the fact that the Eastern Caribbean Central Bank supervises Antigua and Barbuda’s domestic banking sector, conducting both on-site and off-site reviews of the country’s financial institutions. Examiners review information related to savings and demand deposits during on-site inspections. To date, the ECCB has not begun supervising offshore banks.
The IFSRA issues licenses for the offshore sector, including the issuance of licenses for offshore banks and international business corporations, of which there are approximately 12,000. The license application requires disclosure of the names and addresses of directors-who must be natural persons-the activities the corporation intends to engage in, and the names of shareholders and number of shares that they will hold. Additionally, the IFSRA is responsible for the supervision of the offshore banking sector. IFSRA is currently increasing its staff in order to effectively perform on-site and off-site examinations of licensed offshore banks. To date, IFSRA has not performed any on-site examinations.
In October 2000, a joint US and UK interagency team visited Antigua and Barbuda to review the GOAB’s progress in enacting and implementing legislation that addresses the issues raised in the 1999 US and UK advisories. As a result the UK subsequently issued a statement announcing modification of its advisory which reads in part:
HM Treasury recognizes the considerable effort that the Government of Antigua and Barbuda has made since April 1999 to strengthen the system of supervision and control, with a particular view to strengthening anti-money laundering systems. Although it is too early to judge whether these new systems have been fully successful, it is clear that there has been a step-change in the culture of combating money laundering in the Government and supervisory structures. But as has been recognized by the Government of Antigua and Barbuda, there is still room for further improvement before the jurisdiction meets the highest standards of international anti-money laundering laws and practice.
While waiting for the new systems to bed down, and the final legislative changes to be made, the UK still believes that financial institutions should continue to undertake additional due diligence when accepting new business from the financial institutions in Antigua and Barbuda. In particular, UK financial institutions should be aware of concerns that there are serious risks associated with involvement in transactions linked to the offshore gaming industry.
The report of the US members of the assessment team and recommendations regarding the US advisory are pending.
During 2000, the GOAB continued its bilateral and multilateral cooperation in various criminal and civil investigations and prosecutions. The GOAB has provided substantial assistance to US law enforcement and prosecutors investigating and prosecuting fraud and money laundering cases involving Antiguan-licensed American International Bank, European Union Bank and European Federal Credit Bank. As a result of Operation Risky Business, an FBI and US Customs Service investigation in which 19 individuals were convicted for fraud and money laundering, a request for the extradition of Antiguan citizen William Cooper, who assisted in the establishment of Antiguan-licensed Caribbean American Bank, was made in 1999. The request is currently pending in the Antiguan courts. In 1999, the GOAB charged former Ukrainian Prime Minister Pavlo Lazarenko with money laundering and froze approximately $83 million in alleged fraud proceeds that had been deposited in European Federal Credit Bank. This money was ultimately forfeited by an Antiguan court in 2000, but the court’s decision has been appealed. Lazarenko is currently in US custody awaiting trial on money laundering charges filed in the Northern District of California.
Casinos and sports book-wagering operations in the Free Trade Zone are regulated and supervised by the Directorate of Offshore Gaming and are required to incorporate under the IBCA. The DOG has issued Internet Gaming Technical Standards and guidelines; however, it is not clear whether these standards and guidelines are mandatory. Moreover, it is not clear if casinos and other gaming-related entities are subject to provisions of the IBCA or the MLPB. The GOAB is considering legislation and has drafted “Regulations for the Licencing of Interactive Gaming And Interactive Wagering in Antigua and Barbuda” to address possible money laundering through client accounts of Internet gambling operations.
Antigua and Barbuda is a party to the 1988 UN Drug Convention. Antigua and Barbuda is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering, and the Caribbean Financial Action Task Force . In 1999, Antigua and Barbuda became the first country in the eastern Caribbean to exchange the instruments of ratification to bring into force Mutual Legal Assistance and Extradition Treaties with the United States Government.
During the last two years, the GOAB has shown a clear commitment to the creation of a legal and regulatory anti-money laundering regime that will meet international standards. The GOAB is urged to fully implement and enforce all provisions of its anti-money laundering legislation. Moreover, the GOAB must ensure that its gambling sector is covered by anti-money laundering legislation and that it is adequately supervised.
Argentina . High-profile regional investigations have produced evidence that Mexican and Colombian drug cartels are infiltrating Argentina’s banking sector, which is the sector most affected by money laundering activities. It is believed that contraband and bribery also contribute to the money laundering occurring in Argentina, and that the use of companies, shell companies, trusts, financial advisors, accountants and notaries facilitate money laundering.
New money laundering legislation, Law 25.246, was passed in May 2000. While the October 1989 law applied only to the proceeds of illicit drug trafficking activities, the new law extends the money laundering offenses to include all existing crimes in the Penal Code and makes it a crime to launder proceeds of crimes committed in other countries. The new law sets a stricter regulatory framework for banks and a wide range of other entities. Under previous central bank regulations, the requirements for record-keeping customer identification, recording of cash transactions over US $10,000, and reporting of suspicious transactions applied only to banks, financial companies, credit unions, savings institutions, credit card issuers and money exchange dealers. Law 25.246 expands the customer identification, record-keeping and suspicious transactions reporting to a wide range of entities including foreign exchange houses, money remitters, gambling outlets, exporters/importers of jewels and precious metals, property registration agents, stock brokers, insurance companies, art dealers, notaries, accountants, and travelers’ checks companies. The law forbids these financial and commercial entities to notify their clients of the filing of suspicious financial transaction reports, and provides a safe harbor from liability for reporting the transactions.
To aid Argentina in its fight against money laundering, Law 25.246 creates a financial intelligence unit , an autonomous agency under the administration of the Ministry of Justice and Human Rights responsible for receiving, analyzing and disseminating to the Office of the Attorney General information to prevent and impede money laundering. The FIU is not yet operational.
One money laundering case is currently being prosecuted under the 1989 legislation.
Argentina is party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Argentina is an active participant in international anti-money laundering groups. Following their September 1999 admission as an observer member of the Financial Action Task Force , Argentina underwent an evaluation by the FATF in early 2000 and became a full member in June 2000. Argentina is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Argentina also played a leading role in the creation of the South American Financial Action Task Force in December 2000. Argentina and the United States have a Mutual Legal Assistance Treaty that entered into force in 1993.
The government of Argentina is encouraged to issue implementing regulations for Law 25.2456, and make its FIU operational as soon as possible to enable it to participate in the Egmont Group. This will enable it to cooperate more comprehensively in domestic and international efforts to combat money laundering.
Armenia . Armenia is not a major financial center, however its status as a transit country for narcotics trafficking and smuggling, combined with lax border controls, creates a favorable money-laundering environment. High unemployment, low salaries, corruption, a large underground economy, and the presence of organized crime also increase Armenia’s vulnerability to money laundering. Armenian authorities are generally not cognizant of the threat of money laundering and have devoted inadequate resources to the problem. Schemes used to launder funds include the under-invoicing of imports, double bookkeeping, and misuse of the banking system.
Armenia currently has no anti-money laundering statutes. However, the new draft Armenian criminal code includes a statute that for the first time would criminalize money laundering. The Government of Armenia expects the new draft criminal code to pass its third and final reading in parliament in early 2001.
Armenia is a party to the 1988 UN Drug Convention.
Aruba . Aruba has a growing offshore industry, casinos, and free zones that make it both attractive and vulnerable to money launderers. However, the Government of Aruba is establishing a solid anti-money laundering program. Money laundering is a crime in Aruba, and money-laundering offenses extend to all predicate criminal offenses, including tax offenses.
The GOA has developed a comprehensive anti-money laundering program, and further strengthened its legislation this year. The GOA’s new anti-money laundering initiatives include four State Decrees: a State Decree listing suspicious activity indicators for casinos, which will take effect in April 2001; a State Decree on the supervision of captive insurers, and one on the supervision of insurance underwriters, both of which will be introduced in February 2001; and a State Decree, which becomes effective January 1, 2001, that will permit the Central Bank of Aruba to supervise insurance companies. The Central Bank of Aruba is in charge of implementing this Decree, which provides the legal basis for supervision of onshore or offshore insurance companies operating in Aruba.
In March 2001, a State Ordinance is expected to be issued that will extend reporting and identification requirements to casinos.
In October 2000, a State Ordinance was enacted requiring life insurance agents to report unusual transactions, based on indicators. As of January 1, 2000, the Government of Aruba began working on the principles of the law, which will be implemented during the first half of the year 2001.
On July 4, 2000, the Aruban Parliament unanimously approved the State Ordinance Free Zones Aruba, which will implement standards for the sector. Aruba is also working with its counterparts in the Caribbean Financial Action Task Force to develop regional standards for free zones, since none currently exist. Once developed, CFATF members have agreed to implement these standards.
In June 2000, Aruba enacted a State Ordinance making it a legal requirement to report both the importation and exportation of currency in excess of 20,000 Aruban guilders . The State decree to implement the law will be introduced in the early part of 2001.
The GOA has prepared a State Ordinance for the Supervision of Trust Companies. The draft ordinance provides for the oversight of thrift companies to ensure that they follow “Know Your Customer” procedures. The draft was submitted to an advisory committee. After the committee completes its review and provides comments, the draft will be returned to the government officials responsible for the law and then submitted to parliament for approval. Aruban officials are striving to enact the Ordinance early in 2001.
All financial institutions report unusual transactions to the Meldpunt Ongebruikelijke Transacties , 2020 New Air Jordan 34 XXXIV Paris Shoes Online Aruba’s financial intelligence unit. The MOT is a member of the Egmont Group. A draft law, which would authorize the MOT to share information with foreign counterpart organizations with a Memorandum of Understanding , is now with the central committee.
Aruba has a small offshore sector compared to more established offshore jurisdictions. Services include finance companies, offshore banks, investment and holding companies and the Aruba Exempt Company . There are approximately 4700 AECs that are permitted to offer bearer shares. AECs pay an annual registration fee of approximately US $280, and must have a minimum authorized capital of US $6,000. AECs cannot participate in the economy of Aruba, and are exempt from several obligations-they are exempt from all taxes and currency restrictions, and need not file annual financial statements. Trust companies provide a wide range of corporate management and professional services to AECs, including looking after the interests of its shareholders, stockholders, or other creditors. In May 2000, the GOA issued Guidance Notes on sound corporate governance practices.
On August 31, 2000, the United States signed a multilateral agreement, with Aruba, Colombia, Panama and Venezuela, to establish an international task force to fight the money laundering that occurs through the “Black Market Peso Exchange”. The BMPE is believed to be the largest money laundering system in the Western Hemisphere, and the primary money laundering method used by Colombian drug cartels. The task force will develop policy options and recommend enforcement actions to detect, prevent and prosecute money laundering by the BPME. The agreement also provides for enhanced information sharing among the signatories. The first task force meeting was held in Aruba on October 21, 2000 and was chaired by the director of the Aruba Free Zone. The next meeting will take place in March 2001.
Aruba, which has autonomous control over its internal affairs, is a part of the Kingdom of the Netherlands and, as such, is a member of the Financial Action Task Force .
Aruba has signed a Mutual Legal Assistance Treaty with the Unite States. Aruban judicial authorities have maintained an excellent record of cooperation under the MLAT.
Aruba’s anti-money laundering legislation largely adheres to the recommendations of FATF and the CFATF. Furthermore, Aruba’s efforts this year culminated in their first money laundering prosecution for drug trafficking. The Government of Aruba has shown a commitment to combating money laundering. With continued vigilance Aruba’s vulnerability to money laundering should decrease.
Australia . The Government of Australia has in place a balanced, comprehensive system to detect, prevent, and prosecute money laundering. In 1995, a comprehensive money laundering study commissioned by the GOA estimated that each year approximately US $2.8 billion is laundered in or through Australia, or offshore. The major sources of criminal proceeds laundered in Australia are narcotics trafficking and financial fraud.
The Government of Australia has enacted comprehensive anti-money laundering legislation that criminalizes money laundering related to serious crimes, and mandates various forms of reporting. Moreover, the legislation provides for assistance to other governments with asset seizure and forfeiture. Three pieces of legislation form the basis of Australia’s anti-money laundering regime: the Financial Transaction Reports Act of 1988; the Mutual Assistance in Criminal Matters Act of 1987; and the Proceeds of Crime Act of 1987.
The FTR was enacted in 1988 to combat tax evasion, money laundering and serious crime. The FTR requires that the following entities report suspicious transactions, cash transactions in excess of Australian $10,000, and international funds transfers to the Australian Transaction Reports and Analysis Center , Australia’s financial intelligence unit: 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. AUSTRAC was established under section 35 of the FTR, and was given a regulatory role vis-a-vis Australia’s financial services sector. The MACMA allows Australian authorities to assist other countries in identifying, freezing, seizing, and confiscating the proceeds of crime. The POCA criminalized money laundering for all serious crimes, and contains provisions to assist investigations and prosecutions in the form of production orders, search warrants, and monitoring orders.
Australia is a member of the Financial Action Task Force , the Asia Pacific Group on Money Laundering , the South Pacific Forum, and the Commonwealth Secretariat. AUSTRAC is a member of the Egmont Group. Australia continues to promote the adoption of effective anti-money laundering measures 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 at the Asia/Pacific Economic Cooperation Forum. In September 1999, a Mutual Legal Assistance Treaty between Australia and the United States entered into force. AUSTRAC and FinCEN have signed a Memorandum of Understanding for the exchange of information. AUSTRAC also has bilateral agreements allowing the exchange of information with the United Kingdom, New Zealand, Belgium, France, Hungary, and Denmark.
Australia is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Australia continues to have a comprehensive and effective anti-money laundering regime that adheres to the FATF Forty Recommendations. Australia’s approach to combat money laundering and its demonstrated ability to adapt to change, serve as a model for other countries to emulate. The GOA should continue to support the APG and provide money laundering training and technical assistance for the Asia/Pacific region.
Austria . Austria is not a major financial center. Money laundering has been a criminal offense in Austria since 1993. A major risk for money laundering in Austria has been the existence of anonymous bank accounts known as Sparbuch accounts. The Financial Action Task Force threatened to suspend Austria’s membership if Austria did not terminate these accounts by June 15, 2000.
In June 2000, the Government of Austria approved legislation, the Banking Act Amendment, that addressed the FATF’s concerns. Beginning November 2, 2000, applicants for new passbook accounts must be identified. In addition, if deposits are made to an existing passbook account, the holder must be identified-except for deposit transfers from anonymous securities accounts opened prior to August 1, 1996. After June 30, 2002, if a withdrawal is made from an existing passbook account-and the holder has not previously been identified-the holder must be identified. A June 15, 2000 press release indicates that the FATF will closely monitor Austria’s implementation of these measures. The GOA in 1996 abolished anonymous securities accounts. Although new deposits are not allowed, customers can continue to make withdrawals and sales from these accounts without identification until June 2002.
In June 2000, the Ministry of Finance sent a circular to Austrian banks advising them to use special diligence in splitting passbook account balances-except among family members-exceeding one million Austrian schillings . Austrian banks are required to continue exercising this enhanced diligence until anonymous accounts are completely phased out in June 2002.
The GOA imposes customer identification requirements for bank transactions exceeding Austrian shillings 200,000 for customers without a permanent business relationship with the bank. Bank records must be maintained for a minimum of five years after the business relationship has terminated. Banks, insurers, and foreign exchange bureaus are required to report suspicious transactions. Austria’s financial intelligence unit, the Central Department for Combating Organized Crime, receives and analyzes financial disclosures, and is a member of the Egmont Group.
Austria has not enacted domestic legislation that provides for sharing narcotics-related assets with other governments. However, a Mutual Legal Assistance Treaty has been in force since August 1, 1998 between the GOA and the United States, which contains an asset-sharing provision. The GOA has been cooperative with US law enforcement investigations. Austria has a bilateral agreement with Hungary concerning the exchange of information related to money laundering. Austria is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Austria is a member of the FATF and the European Union.
The GOA should continue to develop a comprehensive anti-money laundering regime. By enacting legislation to eliminate anonymous passbook accounts, the GOA has taken an important step toward combating money laundering. The GOA should ensure full implementation of this new law. Continued diligence on the part of the GOA will be instrumental in helping to thwart money laundering in Austria.
Azerbaijan . Azerbaijan’s banking system is rudimentary; and its banking laws change frequently. Several banks have been closed as part of a government effort to consolidate the banking sector. Available information suggests that non-bank financial institutions probably are used to launder money related to tax evasion and avoidance of customs fees. The transportation of illegal source currency falls within the purview of the Organized Crime Division of the Ministry of Internal Affairs and the Ministry of National Security. However, these agencies probably are more concerned with stopping the transportation of funds used for anti-state activities such as anti-government propaganda and terrorism than funds generated from narcotics trafficking. Azerbaijan does not have anti-money laundering legislation.
Azerbaijan is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Bahamas . The Commonwealth of The Bahamas is an important regional financial center; its well-developed offshore financial center, strong bank secrecy laws, weak regulation of international business companies , and inadequate customer identification requirements have made it vulnerable to money laundering and other financial crimes. The offshore financial industry includes trust companies, 413 banks, 580 mutual funds, 30 insurance companies, and approximately 100,000 International Business Companies .
In June 2000, the Financial Action Task Force identified The Bahamas as “non-cooperative in the fight against money laundering.” In its report, FATF stated cited the following concerns:
Although The Bahamas has comprehensive anti-money laundering legislation, there are serious deficiencies in its system. In particular, there is a lack of information about the beneficial ownership as to trusts and IBCs, which are allowed to issue bearer shares. There is also a serious breach in identification rules since certain intermediaries can invoke their professional code of conduct to avoid revealing the identity of their clients. International cooperation has been marked by long delays and restricted responses to requests for assistance and there is no room to cooperate outside of judicial channels.
In July 2000, the US Treasury Department issued an advisory to US financial institutions warning them to give enhanced scrutiny to financial transactions involving The Bahamas, particularly those transactions that do not involve established and adequately identified commercial or investment enterprises.
Under legislation in force prior to December 2000, The Government of the Commonwealth of The Bahamas supervisory officials had to seek a court order to obtain access to customer information held by Bahamian banks and trust companies. Moreover, the failure of Bahamian banks to obtain identifying information about customers limited their effectiveness in recognizing and avoiding money-laundering transactions. Banks were not required to verify the identity of customers whose accounts were opened by Bahamian lawyers and certain other intermediaries. It is unclear whether these entities’ legal obligation to report suspicious transactions was preempted by their professional secrecy obligations.
The GCOB has taken significant steps to address the shortcomings in its anti-money laundering regime. In May 2000, the GCOB enacted legislation requiring that individuals declare currency in excess of US $10,000 when entering or leaving the country. Moreover, in December 2000, the GCOB enacted the following legislation and regulations: Proceeds of Crime Act No. 44 of 2000, Dangerous Drugs Act 2000, Criminal Justice Act 2000, Financial Transactions Reporting Act 2000, the Central Bank of the Bahamas Act 2000, Banks and Trust Companies Regulation Act 2000, Financial and Corporate Service Providers Act 2000, International Business Companies Act 2000, Financial Intelligence Unit Act 2000, Criminal Justice Regulations Act of 2000, and Financial Transactions Reporting Regulations of 2000.
The Proceeds of Crime Act 2000, which supersedes the amended Money Laundering Act, also expands the number of predicate crimes for money laundering to include drug trafficking, bribery, public corruption, and other serious crimes; expands the definition of the money laundering offence by introducing the concept of “reasonable suspicion,” rather than requiring actual knowledge of the nature of the proceeds; and provides immunity from civil liability for disclosure of information to the Supervisory Authority or the Attorney General. In addition, for the first time, the new Proceeds of Crime Act 2000 provides for seizure, detention and forfeiture of the proceeds of crime, including money laundering; establishes penalties for failure to disclose knowledge or suspicion of money laundering; and, authorizes enforcement of domestic and external confiscation orders.
The International Business Companies Act , 2000, ends anonymous ownership of IBCs. The new legislation requires IBCs to have a registered office and agent in The Bahamas, to hold general meetings at least annually, to maintain a register of officers and directors that is available to the public, and to maintain a share register containing the names and addresses of the beneficial owners of shares, along with other information that is accessible by supervisory authorities. The Act also eliminates bearer shares and requires current owners of bearer shares to convert them to regular shares within a specified time frame. IBCs that fail to comply with these provisions will be struck from the register of companies.
The Financial and Corporate Service Providers Act 2000 regulates lawyers, accountants, and business managers engaged in the registration or management of IBCs.
The Financial Intelligence Unit Act 2000 establishes the GCOB’s Financial Intelligence Unit . The Act gives the FIU authority to compel production-without a court order-of information and documents, and to exchange information with foreign FIUs. The Act also permits the lifting of financial secrecy provisions for inquiries concerning money laundering. Moreover, the FIU-in consultation with financial regulators-will issue specific guidelines to financial institutions for the mandatory reporting of suspicious transactions. The Act also establishes “safe harbor” protection from criminal, civil, and professional sanctions for individuals who provide information to the FIU. The GCOB has consulted with the Caribbean Anti-Money Laundering Programme for guidance in the establishment of an FIU. More recently, the GCOB requested that the United Nations Global Program Against Money Laundering provide it with a list of candidates from which to select a long-term mentor to assist with the development of its FIU. As currently envisioned, the FIU will have a staff of ten. Managerial positions have been filled, and the FIU is expected to become fully operational in 2001.
The Financial Transactions Reporting Act 2000 establishes “know your customer” requirements for banks, trust companies, securities broker-dealers, casinos, real estate brokers, insurance companies, co-operative societies, counsel/attorneys/accountants relative to certain transactions and others. These entities will be required to verify the identities of existing customers within 12 months, and report suspicious transactions to the FIU. The Act also creates a Compliance Commission to ensure the financial sector’s compliance with the Act by institutions other than banks and trust companies. In accordance with the Act, in December 2000, the Ministry of Finance issued the Financial Transactions Reporting Regulations 2000. These regulations require institutions to verify the identity of persons conducting transactions of $10,000 or more.
The Banks and Trust Companies Regulation Act 2000 provides for cross-border supervision by banking regulators of foreign banks and trust companies with branches or subsidiaries operating in The Bahamas consistent with the principles established by the Basle Committee. The Central Bank of Bahamas Act 2000 expands the powers of the central bank to respond to requests for information from foreign regulatory authorities. The Act also grants the central bank governor the authority to deny licenses to banks or trusts that are deemed unfit to conduct business in The Bahamas.
The Bahamas is party to the 1988 UN Drug Convention, and is a member of the CFATF and the Offshore Group of Banking Supervisors. The Attorney General has established an International Affairs Unit to deal specifically with mutual legal assistance matters. The Bahamas has a Mutual Legal Assistance Treaty with the United States, which entered into force in 1990.
The GCOB continues to further its anti-money laundering efforts with enactment of new laws, establishment of an FIU, and its stated intention to join the Egmont Group. The GCOB has enacted substantial reforms that could reduce its financial sector’s vulnerability to money laundering. The GCOB now needs to focus on fully implementing its new legislation.
Bahrain . Bahrain is vulnerable to money laundering because it is a regional financial and offshore center. The most common sources of illegal proceeds in Bahrain include narcotics trafficking, fraud, and evasion of international sanctions. Bahrain recently passed legislation that reportedly criminalizes money laundering.
Bahrain has 19 commercial banking institutions-seven locally incorporated and 12 subsidiaries of foreign banks-and has 48 offshore banking units . The Bahrain Monetary Authority licenses OBUs. The BMA requires that OBUs be audited yearly by outside firms that have been approved by the BMA. OBUs cannot do business with residents of Bahrain-except for agencies of the GOB-and must conduct all transactions in foreign currency. However, OBUs may participate in domestic development projects with the approval of the BMA. OBUs also must be fully staffed, and a majority of the staff must be Bahraini nationals. The books and records of OBUs must be available for examination by the BMA at all times. OBUs are required to submit statistical reports to the BMA twice yearly. OBUs are exempt from taxes and are not subject to restrictions regarding foreign exchange payments or receipts.
Bahrain also permits formation of two forms of international business companies : offshore resident companies and offshore non-resident companies. Offshore resident companies must have a principal office in Bahrain and a minimum capitalization of US $54,000. The company must obtain a license from the BMA if it conducts financial activities. Offshore non-resident companies are exempt from the requirement of maintaining an office in Bahrain, and may instead appoint a law or auditing firm in Bahrain as their resident address. Non-resident companies must have a minimum capitalization of US $6,750, but cannot engage in insurance or other financial activities. Registration of an IBC can take as little as seven days, and there are no restrictions on remittances sent abroad.
In January 2001, new legislation went into effect by Amiri decree that reportedly criminalizes money laundering for a number of predicate offenses, requires the reporting of large transactions, provides specific guidelines for accepting transactions, and increases monitoring of banking activity.
Legislation in force prior to the enactment Bahrain’s new anti-money laundering legislation obligates financial institutions to report suspicious transactions greater than Bahraini dinars 10,000 to the BMA. However, the BMA has not provided guidance to Bahraini banks on how to identify suspicious transactions.
Bahrain is a member of the Gulf Cooperation Council, which represents it before the Financial Action Task Force . In June 2000, Bahrain underwent a FATF mutual evaluation. Bahrain is a member of the Offshore Group of Banking Supervisors and has agreed to undergo a mutual evaluation by this body. Bahrain is a party to the 1988 UN Drug Convention.
Bahrain should ensure that its offshore sector is subject to adequate supervision.
Bangladesh . Bangladesh is not an important financial center. Money laundering in Bangladesh is primarily related to income tax evasion and the illegal importation of consumer goods. There is no evidence that the proceeds of drug trafficking are laundered in Bangladesh. However, Bangladesh has not criminalized money laundering and banking regulation is weak and sporadic. Corruption among officials is believed to be high.
Bangladesh is a party to the 1988 UN Drug Convention, and is a member of the Asia/Pacific Group on Money Laundering.
Barbados . The Government of Barbados has taken several steps in recent years to strengthen its anti-money laundering regime.
The Money Laundering Act 1998 criminalizes transactions that involve the proceeds of unlawful activities that are punishable by at least one-year imprisonment. The legislation also authorized creation of the Anti-Money Laundering Authority to supervise financial institutions’ compliance with the Act. However, the AMLA was not established until 1 August 2000, and its financial intelligence unit was not established until 1 September 2000. The FIU is now fully staffed and operating. The AMLA also may issue training requirements and regulations for financial institutions. Money laundering is punishable in Barbados by a maximum of 25 years in prison and a maximum fine of Barbadian $2 million, . The law also contains asset seizure and forfeiture provisions.
The MLPCA applies to a wide range of institutions, including domestic and offshore banks, international business companies , and insurance companies. These institutions are required to identify their customers, to cooperate with domestic law enforcement investigations, to maintain records of all transactions exceeding BB $10,000, and to report suspicious transactions to the AMLA. The AMLA forwards this information to the Commissioner of Police if it has reasonable grounds to suspect money laundering.
The GOB initially criminalized money laundering in 1990 through the Proceeds of Crime Act, No. 13. This law also authorizes asset confiscation and forfeiture and provides a disclosure protection safe harbor for individuals reporting suspicious activities. In 1997, the central bank issued Anti-Money Laundering Guidelines for Licensed Financial Institutions.
Barbados is an offshore center and offers offshore banking, international trusts, exempt insurance companies, IBCs, and foreign sales corporations -specialized companies that permit persons to engage in foreign trade transactions from within Barbados. Unofficial sources report Barbados has approximately 51 offshore banks, 376 exempt insurance companies, 3,855 IBCs and 2,975 foreign sales corporations.
The Offshore Banking Act gives the central bank authority to supervise and regulate offshore banks, in addition to Barbados’s nine domestic commercial banks. Barbadian, Canadian-parent, and United Kingdom-parent banks operate on equal terms in Barbados. 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 a 2.5 percent tax rate for profits of BB $10 million or less, and not less than 1 percent for profits exceeding BB $10 million.
The International Business Companies Act 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 BB $20 million, with decreasing tax rates on additional profits. Bearer shares are not allowed, and financial statements of IBCs are audited if total assets exceed BB $1 million. 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 percent tax in Barbados.
In 1996, the United States and Barbados signed a Mutual Legal Assistance Treaty and an extradition treaty. Both treaties were brought into force in 2000 by an exchange of instruments of ratification. Barbados is a member of the Offshore Group of Banking Supervisors, the Caribbean Financial Action Task Force, and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Barbados is a party to the 1988 UN Drug Convention.
The GOB needs to maintain strict control over vetting and licensing of offshore entities. The establishment of the AMLA should provide Barbados 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 . Money laundering does not seem to be a major problem in Belarus. However, Belarus has no anti-money laundering laws, and does not have in place significant laws, regulations, or other procedures to detect it. Banks are more inclined to focus on protecting the secrecy of their clients than on discovering and reporting irregular or unaccounted-for deposits. The growing number of casinos also could become venues for money laundering.
Belarus faces problems with organized crime that plague other countries of the former Soviet Union. The lack of anti-money laundering laws could lead organized crime to engage in more substantial money laundering in Belarus.
Belgium . Belgium’s financial system is vulnerable to money laundering; approximately 60 percent of the suspicious transactions reports filed by Belgian financial institutions are related to drug trafficking. Illicit funds are laundered in Belgium through the diamond industry, real estate, front companies, gambling or amusement halls, currency exchange bureaus, international wire transfers, and banks. Belgium has a comprehensive anti-money laundering regime.
The Government of Belgium in 1990 criminalized money laundering related to all crimes, and in 1993, passed additional legislation that mandated reporting of suspicious transactions by financial institutions and created a financial intelligence unit , Financial Information Processing Center , to analyze them. As of June 2000, the CTIF-CFI had created 8,094 distinct case files since becoming operational in 1993, and 2,020 between July 1999 and June 2000. The CTIF-CFI is member of the Egmont Group.
Belgian financial institutions are required to maintain records on the identities of clients engaged in transactions that are considered suspicious, or that involve an amount equal to or greater than EUR 10,000 . Financial institutions also are required to train their personnel in the detection and handling of suspicious transactions that could be linked to money laundering. No civil, penal, or disciplinary actions can be taken against institutions or individuals for reporting such transactions in good faith.
In 1998 and 1999, the GOB adopted legislation that mandates the reporting of suspicious transactions by notaries, accountants, bailiffs, real estate agents, casinos, cash transporters, external tax consultants, certified accountants, and certified accountant-tax experts. Casinos also are required to report certain other transactions.
The Judicial Police have primary responsibility for investigating money laundering in Belgium. However, the Gendarmerie also can investigate money laundering if the predicate offense is one over which the Gendarmerie has jurisdiction.
Belgium is a member of the Financial Action Task Force and the European Union. Belgium is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Belgium has a Mutual Legal Assistance Treaty with the United States, which entered into force on January 1, 2000. The GOB exchanges information with other countries through international treaties and with foreign FIUs that have secrecy obligations similar to those of CTIF/CFI.
Belize . Belize is vulnerable to money laundering because of its growing offshore sector, which has two banks, an unknown number of international trusts, and over 16,000 international business companies . Belize also has one Internet gaming site.
In 2000, the Financial Action Task Force conducted a review of Belize’s anti-money laundering regime against 25 specified criteria. Belize was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report noted the following about Belize’s anti-money laundering regime:
Since criminalizing money laundering in 1996, Belize has generally pursued policies in law and regulation aimed at fostering a sound anti-money laundering regime. Belize has, nonetheless, certain deficiencies with regard to IBCs, particularly in the identification of beneficial owners and in ascertaining other information that could prove useful in protecting against criminal abuse of its offshore sector.
The International Business Companies Act of 1990 established a licensing system and a regulatory body, the International Financial Services Commission , for Belize’s offshore sector. The IFSC is comprised primarily of individuals with ties to the offshore industry. IBCs can no longer issue bearer shares, and the Government of Belize reportedly is considering ways to abolish or immobilize bearer shares that are already in existence. IBC records are maintained by the Belize International Services Limited, a subsidiary of CHI Corporation, a company traded on the NASDAQ and formerly known as BHI Corporation. Offshore trusts are prevalent in Belize because they do not have to be registered with any regulatory body.
Belize’s Offshore Banking Act , which regulates offshore banks, and the Money Laundering Prevention Act have been in force since 1996. The MLPA criminalizes money laundering related to many serious crimes; mandates reporting of suspicious transactions by banks and non-bank financial institutions; specifies penalties for banks, non-bank financial institutions, and intermediaries who assist and collaborate in money laundering; and authorizes international cooperation in money laundering cases. The OBA and the Financial Institutions Act require financial institutions to report the identities of customers who engage in currency transactions of a large, complex, or unusual nature.
The Ministry of Finance has the authority to examine financial institutions’ records. Financial institutions are required to retain records for a minimum of five years, and can lose their licenses and face a maximum fine of US $50,000 for failing to do so. Individual bankers can be held responsible if their institutions are caught laundering money. However, bankers can be protected from prosecution if they cooperate with law enforcement.
In 2000, the GOB reportedly issued the International Financial Services Commission Regulations 2000, which specifies licensing requirements for Belize’s offshore financial services providers. Under the regulations, only lawyers, accountants, and companies registered under the Company Act as financial institutions would be eligible for such a license. The GOB has proposed draft legislation, the Customs Regulation Act, which would require individuals to declare cross-border movements of currency that exceed US $5,000.
The GOB has not prosecuted a single money laundering case under the MLPA, and in 2000, made no money laundering arrests. The GOB has an investigative unit within the National Criminal Investigation Branch that works with the central bank on financial cases.
Belize is a party to the 1988 UN Drug Convention. Belize is a member of the Caribbean Financial Action Task Force , and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. In August 2000, the GOB made a ministerial-level commitment to adhere to the minimum performance standards agreed to at the March 2000 UN Global Program Against Money Laundering. The United States and Belize have signed a Mutual Legal Assistance Treaty , but it is not yet in force.
The GOB should pass legislation that requires offshore trusts to be registered with a central authority. Moreover, the GOB should take appropriate steps to ensure that its oversight of IBCs is conducted free of undue influence from the industry.
Benin . Benin is not a major financial center. However, Beninese officials believe their country is being used by narcotics traffickers to launder profits. Although the exact nature of money laundering is unknown, Beninese officials suspect that the primary method is through the purchase of assets such as real estate, the wholesale shipment of vehicles or items for resale, and front companies. In addition, some laundering seems to occur through the banking system.
A 1997 anti-narcotics law criminalizes narcotics-related money laundering, and provides penalties of up to 20 years in prison as well as substantial fines. The law requires that all financial institutions report transactions they believe may be narcotics-related; they enjoy safe harbor protection if they do so. Financial institutions that fail to comply are subject to prison terms for their officials and fines. However, the government has not taken any significant steps to address the problem of money laundering not related to narcotics trafficking.
Benin is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Bermuda . Bermuda has a large offshore financial services sector that may be attractive to money laundering. However, the Government of Bermuda has taken a number of measures to aid in the detection, investigation, and prosecution of financial crimes. As with the other British Caribbean Overseas Territories, Bermuda underwent a thorough evaluation of its financial regulation in 2000, co-sponsored by the local and British governments.
Bermuda’s offshore financial sector is dominated by its nearly 1,300 insurance companies. The sector also has approximately 11,000 “exempt companies” . The Bermuda Monetary Authority is the main regulator and requires disclosure and vetting of proposed beneficial owners before registering exempt companies.
The Proceeds of Crime Act 1997 criminalizes money laundering related to all “relevant offenses,” including drug trafficking, corruption, counterfeiting, and fraud. The Proceeds of Crime Regulations 1998 contain a number of obligations for regulated institutions, including customer identification, record keeping, and reporting of suspicious transactions. The government also issued guidance notes in 1998 to assist financial institutions to recognize suspicious transactions and comply with their obligations.
The Financial Investigation Unit , within the Bermuda Police Service, serves as Bermuda’s financial intelligence unit. It receives, analyzes, and investigates suspicious activity report . Through the end of 1999, the unit had received approximately 2,400 SARs. The FIU is a member of the Egmont Group.
Bermuda is subject to the US/UK MLAT and the US/UK extradition treaty. Bermuda is a member of the Caribbean Financial Action Task Force , and through the UK, is also a party to the 1988 UN Drug Convention. Bermuda is also a member of the Offshore Group of Banking Supervisors .
Continued supervision and enforcement of regulations in the financial sector are necessary to discourage infiltration by organized crime and money launderers. Bermuda should also consider devoting additional resources toward investigative efforts to combat money laundering to more thoroughly deter international criminals.
Bolivia . Bolivia is not major financial center, and does not have an offshore sector. However, Bolivia has had a long tradition of banking secrecy that has facilitated money laundering, particularly the profits of contraband smuggling, organized crime, and drug trafficking.
The Government of Bolivia criminalized money laundering related to organized criminal activities and public corruption through the 1988 Controlled Substances Law and Law 1768 of March 1997, which amended Bolivia’s Penal Code. Law 1768 also authorized creation of the Financial Investigations Unit within the Office of the Superintendent of Banks and Financial Institutions to be responsible for implementing anti-money laundering controls. Decree 24771 of July 1997 requires banks, brokerages, and insurance companies to identify their customers, retain records of transactions for a minimum of 10 years, and report unusual and suspicious financial transactions to the FIU. The FIU has established mechanisms for sharing information with Bolivia’s Public Ministry and the Special Counter-Narcotics Force . However, personnel shortages within the Public Ministry, law enforcement, and the FIU, as well as the FIU’s inability to monitor the activities of certain financial institutions, have hindered full implementation and enforcement of Bolivia’s anti-money laundering controls.
The FIU is a member of the Egmont Group. Bolivia is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Bolivia is a member of the Organization of American States Inter-American Commission on Drug Abuse Control Experts Group to Control Money Laundering, and is a member of the South America Financial Action Task Force . The GOB and the United States in 1995 signed an extradition treaty, which entered into force in 1996.
The GOB is urged to extend provisions of its anti-money laundering legislation to cover all financial institutions and to ensure that anti-money laundering bodies are sufficiently staffed.
Bosnia and Herzegovina . Bosnia and Herzegovina is neither a financial center nor a money-laundering center. Laundering the proceeds of criminal activity through financial institutions is widespread, although narcotics proceeds tend to be diverted outside Bosnia. Neither US currency nor proceeds of drug sales in the US are significantly involved. Bosnia is a significant consumer of and transit point for a variety of illegal goods traded on the black market and has experienced an alarming increase in alien smuggling, which is conservatively estimated to amount to US $50 million per year. Money laundering has not been criminalized, but is now prohibited in the civil code.
Regulatory supervision of the banking sector is largely vested at the local rather than the federal level through two separate but roughly parallel banking agencies. Although legislation generally reflects the Basle Committee’s core principles, including suspicious transaction reporting and due diligence requirements, in practice banking standards do not conform to international norms, as recent bank failures have demonstrated. Some safe harbor protection has now been afforded to banking officials for actions taken in the course of their professional duties. However, Bosnia’s laws remain an unwieldy combination of communist-era statutes and internationally imposed reforms. Enforcement is tenuous at best in this cash-based, largely unregulated economy, thereby creating widespread potential for financial crime.
In addition, ambiguous lines of responsibility among investigative and regulatory agencies have aggravated already rampant political interference in investigations and direct intimidation of officials.
Bosnia is a party to the 1988 UN Drug Convention and in December 2000 it signed the UN Convention against Transnational Organized Crime.
Botswana . Botswana is neither a major financial center nor a money-laundering center; it is, however, an offshore financial center. The Government of Botswana has enacted strict legislation against drug production and trafficking, as well as narcotics-related money laundering. The Bank of Botswana has the discretion to provide information on large currency transactions to law enforcement agencies.
Because of concerns that Botswana’s status as an offshore financial center could increase its vulnerability to money laundering, regulations reportedly have been drafted that would regulate Botswana’s International Financial Services Center .
Botswanan officials have expressed interest in obtaining training to combat bank fraud and money laundering.
Botswana is a party to the 1988 UN Drug Convention and is expected to sign the Eastern and Southern Africa Anti-Money Laundering Group’s Memorandum of Understanding in 2001.
Brazil . Money laundering that is related to drug trafficking and white-collar crime continues to occur in Brazil despite the Government of Brazil’s efforts to introduce regulatory and investigative measures to address the problem. A highly developed financial sector and an increasing problem with local drug consumption and trafficking have made Brazil a money-laundering center. In December 2000, a Brazilian Congressional Investigative Committee probing narcotics trafficking released a 1,200-page report that detailed a vast network of drug-related organized crime, corruption, and money laundering. The report implicated over 800 people, including two federal congressmen, former state governors and other officials. The CPI estimates that approximately $50 billion is laundered in Brazil annually.
The GOB has a comprehensive anti-money laundering regulatory regime in place. Law 9613 of March 3, 1998 criminalized money laundering related to drug trafficking and other offenses, and penalizes offenders with a maximum of 16 years in prison. The law expanded the GOB’s asset seizure and forfeiture provisions and exempts “good faith” compliance from criminal or civil prosecution.
The law also created the GOB’s financial intelligence unit , the Council for the Control of Financial Activities , which is housed within the Ministry of Finance. The COAF includes representatives from regulatory and law enforcement agencies-including the central bank and Federal Police-and has a staff of 16 people with plans to expand to 22 in 2001. The COAF regulates those financial sectors not already under the jurisdiction of another supervising entity. In 1999, the COAF issued regulations that addressed real estate, factoring companies, gaming and lotteries, dealers in jewelry and precious metals, bingo, credit cards, commodities trading, and dealers in art and antiques. The regulations require customer identification, record keeping, and reporting of suspicious transactions directly to the COAF. In 2000 the COAF issued regulations slightly amending the bingo, lotteries, and gaming regulations.
As of October 2000, the COAF indicated that it had received, since its inception, 5,208 suspicious transactions reports , involving approximately 5 million reais . Nearly 1000 of these reports were generated from bingo, leading the COAF to speculate that this sector may be experiencing the largest expansion in money-laundering activity. By the end of 2000, the COAF reported that it had received 6,673 STRs, leading to over 130 ongoing investigations and 100 prosecutions.
In 1999, the GOB’s other regulatory bodies, the central bank, the Securities Commission , the Examiner of Private Insurance Companies , and the Office of Supplemental Pension Plans , issued parallel regulations to covered institutions that spell out requirements for customer identification and reporting of suspicious transactions. All of these regulations include a list of guidelines that help institutions identify suspicious transactions. The central bank also established the DECIF to implement anti-money laundering policy, receive suspicious activity reports from financial institutions, and forward information to the COAF. Current bank secrecy provisions, however, protect specific account information, and thus the COAF receives only partial information from the central bank. All other government agencies-except for congressional investigative committees-must get a court order to access detailed bank account and subject information. International requestors may only obtain this information through a letter rogatory. In early January 2001, however, President Fernando Henrique Cardoso signed into law a measure that will give all regulatory bodies direct access to complete banking information without court approval. However, some Brazilian legal scholars and legislators predict that the legislation will face judicial review that is likely to render it unconstitutional.
Regulations issued in 1998 require that individuals transporting more than 10,000 reais in cash, checks or traveler’s checks across the Brazilian border must fill out a customs declaration that is sent to the central bank. Financial institutions remitting more than 10,000 reais also must make a declaration to the central bank.
In August 2000, Brazil hosted a summit of South American presidents; the agenda of which included signing a memorandum of understanding creating the South American Financial Action Task Force . In December 2000, Brazil and the other member countries of MERCOSUR signed an agreement outlining cooperation among central banks in money laundering investigations.
The GOB continues to investigate and prosecute large money laundering operations. A joint investigation by the Federal Police, the central bank, the Federal Revenue Office, and the COAF uncovered a network that allegedly laundered 30 billion reais between 1998 and 1999. Most of the laundered funds were the proceeds of drug trafficking, and trafficking in weapons and goods. Illicit funds from several Brazilian states were sent primarily to Foz de Igua�u, a city near the border with Paraguay, where the launderers used exchange houses, more than 100 large companies, 300 “laranjas,” , and special non-resident “CC-5” accounts to transfer the money abroad. The Federal Police-who are cooperating with international authorities to track down the funds-have made several arrests and secured over 300 indictments in the case.
The Brazilian press has reported extensively on the investigation of Judge Nicolau dos Santos Neto, who is accused of embezzling 169 million reais in funds earmarked for construction of a city courthouse. Nicolau allegedly used a system of front companies in offshore havens to transfer money and buy property abroad, including the United States. Brazilian authorities have been working with foreign authorities to track down these assets, and thus far, have identified bank accounts in the United States and Switzerland-the latter totaling approximately $4 million-and an apartment in Miami worth approximately $1 million. In December, Judge Nicolau turned himself in to authorities and now awaits trial on charges of embezzlement, corruption, tax evasion, and money laundering.
The COAF has been a member of the Egmont Group since May 1999. In June 2000, Brazil became a full member of FATF. The GOB and the United States signed a bilateral Mutual Legal Assistance Treaty in October 1997. The Brazilian Congress approved this treaty in December 2000, and the treaty will enter into force upon the exchange of instruments of ratification. Brazil is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Brazil is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. The GOB has bilateral information exchange agreements with Belgium, France, Paraguay, Portugal, Paraguay, and Spain.
Although the laundering of proceeds from drug trafficking and other crimes remains a major problem in Brazil, the GOB has taken important regulatory and investigative steps to address the problem. However, the GOB should ensure that all regulatory bodies have appropriate access to financial disclosure information. This would facilitate analysis, coordination, and cooperation among domestic and international authorities in their efforts to investigate and prosecute money laundering and other financial crimes.
British Virgin Islands . The British Virgin Islands is a Caribbean Overseas Territory of the United Kingdom . The BVI is vulnerable to money laundering because of an offshore sector that is one of the largest in the Caribbean. Financial services and tourism account for approximately 50 percent of the BVI’s economy. The BVI’s offshore sector offers incorporation and management of offshore companies, and provision of offshore financial and corporate services. The BVI has 13 banks , and approximately 1800 mutual funds, 140 captive insurance companies, 900 registered vessels, 90 licensed trust companies, and 360,000 international business companies . Approximately 40 percent of the IBCs are resident in Hong Kong.
According to the International Business Companies Act of 1984, BVI-registered IBCs cannot engage in business with BVI residents, provide registered offices or agent facilities for BVI-incorporated companies, or own an interest in real property located in BVI, except for office leases. BVI’s 90 registered agents are licensed by the Financial Services Unit , and are required to complete certification programs. Registered agents must verify the identities of their clients. The process for registering banks, trust companies, and insurers is governed by legislation that requires more detailed documentation such as a business plan and approval of the appropriate supervisor within the Financial Services Inspectorate.
The BVI criminalized drug money laundering through the Drug Trafficking Offences Act, 1987, amended 1990, and the Criminal Justice Act, 1993. The Proceeds of Criminal Conduct Act, 1997 expanded predicate offenses for money laundering to all criminal conduct, and created a financial intelligence unit, the Reporting Authority-BVI , which is a member of the Egmont Group. The Financial Investigations Unit is responsible for investigating fraud and money laundering cases, and is comprised of three police officers. Most of its investigations have involved IBCs and other offshore entities.
The Anti-Money Laundering Code of Practice , 1999 establishes procedures to identify and report suspicious transactions. The AMLCP requires covered entities to create a clearly defined reporting chain for employees to follow when reporting suspicious transactions, and to appoint a reporting officer to receive these reports. The reporting officer must conduct an initial inquiry into the suspicious transaction and report it to the authorities if sufficient suspicion remains. Failure to report could result in criminal liability. The FIU reportedly reviews approximately 30 suspicious transaction report annually. In 1999, the FIU conducted 278 company inquiries, and in 2000, conducted approximately 1200. None of these queries has resulted in prosecutions. To date, the BVI has prosecuted only one money laundering case.
The Joint Anti-Money Laundering Coordinating Committee was established in 1999 to coordinate all the BVI’s anti-money laundering initiatives. It is a broad-based, multi-disciplinary body comprised of private and public sector representatives. The JAMLCC has drafted Guidance Notes based on those of the UK and Guernsey.
In 2000, the Financial Action Task Force reviewed BVI’s anti-money laundering regime against 25 criteria. The FATF did not identify the BVI as a noncooperative jurisdiction in the international fight against money laundering. However, the FATF raised certain issues in its June 2000 report:
The BVI allows certain intermediaries, and individuals, which are subject to the same anti-money laundering standards and supervision as financial institutions, to introduce business to banks and financial institutions on the basis that the introducers themselves verify the identify of the customer. In addition, the BVI allows certain institutions based in certain overseas countries, subject to equivalent anti-money laundering systems, to introduce business, without separately verifying the identity of the customer. The banks and the financial institutions are only required to know the name of the client but not to verify the identity separately. There is concern as to whether such a system is consistent with FATF Recommendations and provides sufficiently rigorous checks on the identity of clients of banks and financial institutions, especially in cases where the introducer is not a financial institution.
The BVI also has a large number of IBCs, the formation of which by intermediaries is subject to fewer identification requirements than applied to the company sector as a whole.
In 2000, the BVI passed the Criminal Justice Act, 2000, criminalizing the act of acquiring, using, or possessing drug proceeds, and “tipping off” individuals under investigation. The BVI also has proposed the Code of Conduct Act and the Information Assistance Act . The CCSPA would encourage professionalism, enhance measures to deter criminal activity, promote ethical conduct, and encourage greater self-regulation in the financial sector. The CCSPA also would establish the Council of Service Providers, a body that would regulate the conduct of individuals within the financial services industry. The Council also would formulate policy, procedures, and other measures to regulate the industry, advise the government on legislation and policy matters, and monitor compliance within the industry. The IAFSA would increase the scope of cooperation between BVI’s regulators and regulators from other countries.
The BVI is a member of Caribbean Financial Action Task Force and, through the UK, is a party to the 1988 UN Drug Convention. The BVI is subject to the US/UK Mutual Legal Assistance Treaty.
The BVI should fully implement and enforce all provisions of its recently passed legislation. The BVI also is urged to eliminate any legal and regulatory impediments to international cooperation and exchange of information.
Brunei . Brunei is not known to be a money-laundering center. It is however, an offshore financial center. The Government of Brunei has drafted anti-money laundering legislation and has evinced a strong interest in learning about methods to combat money laundering. Although Brunei has asset forfeiture laws they have not yet been applied to narcotics-related cases. Brunei’s Narcotics Control Board has taken part in courses offered by ILEA in Bangkok, and recently attended a money-laundering seminar hosted by DEA in Singapore.
Earlier this year, the Sultanate of Brunei brought into effect a series of laws that established the International Financial Center: the International Business Companies Order 2000; the International Banking Order 2000; the Registered Agents and Trustees Licensing Order 2000; the International Trusts Order 2000; and the International Limited Partnerships Order.
This new offshore financial services center will offer banking services, provide for the formation of IBCs, trusts and limited partnerships. Supervisory authority is reportedly vested in a separate unit of the Ministry of Finance-referred to simply as the “Authority.” Reports indicate that this entity, however, will combine both regulatory and marketing responsibilities.
Brunei is a party to the 1988 UN Drug Convention. Brunei is an observer jurisdiction to the Asia/Pacific Group on Money Laundering.
Bulgaria . Bulgaria, particularly its financial system, is vulnerable to money laundering related to narcotics trafficking and financial crimes such as bank and corporate fraud, embezzlement, tax evasion, tax fraud, and the illegal conversion of state-owned property. The proceeds of drug trafficking, contraband smuggling, vehicle theft, alien smuggling, prostitution, and extortion also are laundered in Bulgaria. The source and destination for much of the illicit funds include Eastern Europe, the former Soviet Union, Turkey, and the Middle East. The presence of organized criminal groups and official corruption contribute to Bulgaria’s money laundering problem. Small-scale change bureaus also may play a role. The Government of Bulgaria has declared the eradication of organized crime, corruption, and money laundering a national priority.
Bulgaria’s anti-money laundering legislation, the Law on Measures Against Money Laundering, entered into force in July 1998. Money laundering is criminalized by Articles 253 and 253a of the Bulgarian Criminal Code; the law applies to the proceeds of all serious crimes. Anti-money laundering measures include customer identification and record keeping requirements, suspicious transaction reporting, and internal rules for financial institutions on implementation of an anti-money laundering program. Banks, securities brokers, auditors, accountants, insurance companies, investment companies, and other businesses are subject to these reporting requirements. Bank information can be obtained by law enforcement through a court order and an instruction from the prosecutor general. The money laundering legislation does not apply to casinos, which are an increasingly important mechanism for laundering money in Bulgaria.
The Ministry of Finance’s Bureau of Financial Intelligence is Bulgaria’s financial intelligence unit. Since its establishment, the BFI has suspended 21 suspicious funds transfers to foreign banks, and has opened seven money-laundering investigations.
The GOB is considering legislation that would address forfeiture and seizure of criminal assets, allow indictment of legal persons on money laundering charges, and prohibit funds of dubious or criminal origin from being used in the acquisition of banks and businesses through the privatization process.
Bulgaria is a member of the Council of Europe and participates in the COE’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . In November 1999, Bulgaria underwent a mutual evaluation by the PC-R-EV, and has been implementing changes to its anti-money laundering regime based on recommendations in the group’s report. Bulgaria is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Bulgaria has no bilateral agreements on money laundering.
The GOB is urged to further strengthen its anti-money laundering regime through approval and full implementation of proposed measures that would address seizure and forfeiture of criminal assets; allow indictment of legal persons on money laundering charges; and prohibit funds of dubious or criminal origin from being used in the acquisition of banks and businesses through the privatization process.
Burma . Burma’s economy continues to be vulnerable to drug money laundering because of its under-regulated financial system, weak anti-money laundering regime, and policies that facilitate the funneling of drug money into commercial enterprises and infrastructure investment.
Political and economic constraints on the flow of legitimate capital into Burma have increased the importance of narcotics-derived funds to the Burmese economy. As a result of cease-fire agreements, the Government of Burma has encouraged former insurgent groups to invest money into legitimate commercial ventures. This policy has the effect of facilitating the laundering of illegal drug proceeds by some of the former insurgent groups through investments in banks, hotels, and construction companies. Businesses owned by family members of former or present drug traffickers also have invested heavily in infrastructure projects such as roads and port facilities, banks, hotels, casinos, and other real estate development projects.
In 1993, the GOB adopted the Narcotics Drugs and Psychotropic Substances Law. This law criminalizes narcotics-related money laundering and allows for seizure of assets that are derived from the drug trade. The GOB has been slow to implement provisions of this law, and has targeted few, if any, traffickers or their assets. GOB officials admit to having difficulty in implementing provisions related to money laundering because of their lack of expertise in money laundering and financial crimes investigations. The GOB reportedly is drafting new anti-money laundering legislation that would address deficiencies in its present legislation.
Burma does not have a financial intelligence unit, and is not active in international or regional anti-money laundering fora. Burma is an observer jurisdiction to the Asia/Pacific Group on Money Laundering. Burma is a party to the 1988 UN Drug Convention. The GOB has bilateral drug control agreements with India, Bangladesh, Vietnam, Russia, Laos, and the Philippines. It is not known whether these agreements cover cooperation on money laundering issues.
Burma must increase the regulation and oversight of its banking system, and end policies that facilitate the investment of drug money into the legitimate economy. Burma also should step up efforts to enforce existing money laundering legislation by investigating and prosecuting money launderers. Moreover, Burma is urged to pass new legislation that would expand predicate crimes for money laundering and provide additional tools to authorities for the detection and prosecution of money laundering.
Cambodia . Cambodia is not a major financial center, and does not have an offshore sector. Cambodia is vulnerable to money laundering because it is a transit country for heroin trafficking from the Golden Triangle. Crime, corruption, and money laundering reportedly are on the increase in Cambodia.
Cambodia in 1996 criminalized money laundering related to narcotics trafficking through the Law on Drug Control. The law includes provisions for customer identification, suspicious transaction reporting, and the creation of the Anti-Money Laundering Commission under the Prime Minister’s Office. The composition and functions of the AMLC were to be promulgated through a separate decree. The provisions of this law have yet to be fully implemented and enforced.
In December 1999, Cambodia passed legislation, “The Law on Banking and Financial Institutions,” that imposed capital and prudential requirements on financial institutions. Capital requirements for commercial banks will increase from US $5 million to US $13.5 million. Commercial banks also must maintain 20 percent of their capital on deposit with the National Bank of Cambodia as reserves. The law required the NBC to review all banking licenses within one year. Only four banks-all foreign-owned-have received licenses under the new law. An additional 15 banks will have a one-year grace period to meet licensing requirements.
Money laundering offenses are investigated by the same entities that have jurisdiction over the underlying predicate crimes. However, these entities are not trained to detect, investigate, and prosecute money laundering cases.
Cambodia has assisted neighboring countries with money laundering investigations. Cambodia is not a party to the 1988 UN Drug Convention.
The Government of Cambodia should fully implement and enforce its anti-money laundering legislation. Moreover, the GOC should better educate officials and financial institutions about anti-money laundering methods.
Cameroon . Cameroon is not a regional financial center. Although illicit drugs transit Cameroon, there is no information indicating significant money-laundering activity. Cameroon’s banking system is supervised by the Bank of Central African States , a regional central bank that serves six countries of Central Africa.
In November 2000, Cameroon and the BEAC hosted a conference for BEAC member countries to devise joint structures and legal strategies for fighting money laundering.
Cameroon has not criminalized money laundering.
Cameroon is a party to the 1988 UN Drug Convention, and in December 2000 signed the UN Convention against Transnational Organized Crime.
Canada . Canada is neither a regional nor an offshore financial center. However, Canada remains vulnerable to money laundering because of its advanced financial services sector and heavy cross-border flow of currency and monetary instruments. Canada has financial institutions that engage in currency transactions involving international narcotics proceeds that include significant amounts of US dollars. Canada’s financial institutions have been used to launder the proceeds of Latin American and Asian drug trafficking, and Asian organized crime. As a result of the common border between our two countries, strong and effective anti-money laundering enforcement is essential. The US Government is particularly concerned about the cross-border movements of currency.
The Government of Canada continues to strengthen its anti-money laundering regime. In July 2000, the GOC passed the Proceeds of Money Laundering Control Act , which adopted enhancements recommended by the Financial Action Task Force in 1999. The full effectiveness of this new legislation will not be known, however, until strong implementing regulations are put into place and enforced.
The PMLCA established the Financial Transaction and Reports Analysis Center on July 5, 2000. Under implementing regulations, FinTRAC will collect and analyze suspicious activities reports from financial institutions and financial intermediaries, and determine which suspicious transactions merit further investigation. In addition, money service businesses, casinos, lawyers, and accountants handling third-party transactions are required to file SARs. The GOC expects that FinTRAC will be fully operational by mid-2001. The GOC presently is identifying managers and other staff for FinTRAC, and purchasing computer hardware and software. The GOC intends to have FinTRAC recognized by the Egmont Group as a Financial Intelligence Unit . FinTRAC will have the authority to negotiate and set guidelines for sharing information with foreign counterparts. US law enforcement has expressed concerns that there may be legal impediments restricting FinTRAC’s ability to share information. The PMLCA also mandates reporting of cross-border movements of currency or monetary instruments as will be defined in implementing regulations.
Canada is a member of the FATF, and underwent a second FATF mutual evaluation in May 1997. Canada is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Canada also participates in the CFATF as a Cooperating and Supporting Nation. Canada is an observer jurisdiction to the Asia/Pacific Group on Money Laundering . Canada has long-standing agreements with the United States on law enforcement cooperation, including treaties on extradition and mutual legal assistance. Canada is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
The GOC should ensure that the FinTRAC meets Egmont standards for FIUs, especially with regard to sharing information with other FIUs. The GOC also is urged to adopt and fully implement regulations that define cross-border currency reporting requirements.
Cayman Islands . The Cayman Islands, a United Kingdom Caribbean Overseas Territory , remains vulnerable to money laundering because of its significant offshore sector that provides a wide range of services such as private banking, brokerage services, mutual funds, various types of trusts as well as company formation and company management. In March 2000, Cayman Islands authorities reported that approximately 570 banks and trust companies, 2,238 mutual funds, and 499 captive insurance companies were licensed in the Cayman Islands.
In addition, approximately 45,000 offshore companies are registered in the Cayman Islands.
In June 2000, the Financial Action Task Force identified the Cayman Islands as non-cooperative in international efforts to fight money laundering. The FATF in its report cited several concerns:
The Cayman Islands does not have any legal requirements for customer identification and record keeping. Even if in the absence of a mandatory requirement, financial institutions were to identify their customers, supervisory authorities cannot, as a matter of law, readily access information regarding the identity of customers. Moreover, the supervisory authority places too much reliance on home country supervisors’ assessment of management of bank branches.
Although the Cayman Islands has criminalized the laundering of the proceeds of all serious crimes and its system encourages reporting of suspicious transactions , it lacks a mandatory regime for the reporting of suspicious transactions. Moreover, a large class of management companies-including those providing nominee shareholders for the purpose of formation of a company or holding the issued capital of a company-is unregulated.
At the same time, the Cayman Islands has been a leader in developing anti-money laundering programs throughout the Caribbean region. It has served as president of CFATF, and it has provided substantial assistance to neighboring states in the region. It has demonstrated co-operation on criminal law enforcement matters, and uncovered several serious cases of fraud and money laundering otherwise unknown to authorities in FATF member states. In addition, it has closed several financial institutions on the basis of concerns about money laundering.
In July 2000, the US Treasury Department issued an advisory to US financial institutions warning them to pay special attention to give “enhanced scrutiny for certain transactions or banking relationships” involving the Cayman Islands.
In 1999, the Cayman Islands and the other UK COTs agreed to undergo a comprehensive review of their financial regulation, and implement recommended changes. The results of this review were published in October 2000 and indicate that although the Cayman Islands has made progress, its current regulatory structure was still not fully in accordance with international standards. The primary recommendations of the report were:
* Full operational independence for the Cayman Islands Monetary Authority.
* Improved supervision of the Cayman Islands Stock Exchange.
* Increased on-site visits by banking regulators.
* Improved supervisory process of company service and trust service providers.
* Strengthened regulation of partnerships.
* Enhancements to the Misuse of Drugs Law.
* A review of the Code of Practice to ensure that it takes account of the Money Laundering Regulations 2000.
The report also stressed the importance of addressing bearer shares, and noted that the Cayman Islands in 2001 plans to introduce legislation that would immobilize bearer shares. The report lauded the Cayman Islands’ efforts to date in strengthening its anti-money laundering regime.
In 2000, the Cayman Islands approved regulations and legislation that were intended to address deficiencies in it anti-money laundering regime. Regulations that entered into force in September 2000 specified record keeping and customer identification requirements for financial institutions. The regulations specifically cover individuals who establish a new business relationship, engage in a one-time transaction over Cayman Islands $15,000, or may be engaging in money laundering. The customer identification requirements do not apply to existing accounts with financial intermediaries.
Amendments to the Proceeds of Criminal Conduct Law make failure to report a suspicious transaction a criminal offense that could result in fines or imprisonment. The law does not specify a time frame in which suspicious transaction reports must be made, but instead, states that the transaction should be reported within a “reasonably practicable” timeframe once it comes to the person’s attention.
Amendments to the Monetary Authority Law grant the Cayman Islands Monetary Authority the power to obtain information from a person regulated under the laws of the Cayman Islands, a connected person, or a person reasonably believed to have information relevant to an inquiry by CIMA. The amendment includes provisions for identification of account holders and beneficial owners. However, CIMA can only obtain information about the identity of a client through a court order, which hinders CIMA’s ability to detect, investigate, and take action against money laundering and the underlying offense. Further amendments to the MAL grant CIMA the authority to assist certain overseas regulators by sharing information in its files and obtaining client and other information from regulated and unregulated persons. CIMA’s assistance is limited to overseas regulatory authorities that have the same functions as CIMA or those authorities “as may be specified in regulations” that have yet to be promulgated.
Also in 2000, the Cayman Islands passed the Banks and Trust Companies Law, 2000, and the Companies Management Law, 2000.
The Cayman Islands published a non-binding money laundering Code of Practice pursuant to Section 20 of the Proceeds of Criminal Conduct Law to coincide with its hosting of the UN Offshore Plenary Forum of International Money Laundering. The Code of Practice is intended to give Cayman Islands financial service providers guidance about preventing and detecting money laundering. The code outlines procedures for identifying clients, training staff, documenting evidence, and maintaining records consistent with international standards. However, the Code does not create a legal obligation; therefore, failure to comply with its provisions does not constitute a legal offense.
The Cayman Islands cooperates with US law enforcement in money laundering cases. In 1999, the Cayman Islands did not prosecute anyone for money laundering; however, it did arrest several individuals on suspicion of money laundering.
The Cayman Islands, through the UK, is a party to the 1988 UN Drug Convention. The Cayman Islands is a member of the Caribbean Financial Action Task Force and the Offshore Group of Banking Supervisors . In addition, there is a 1986 US-UK Mutual Legal Assistance Treaty covering the Cayman Islands.
The Cayman Islands has made progress toward strengthening its anti-money laundering regime, and is urged to fully address all deficiencies that have been identified in its anti-money laundering regime. In particular, the Cayman Islands should follow through on its stated plans to immobilize bearer shares.
Chile . Chile has a well-developed financial sector, but is not considered a major regional financial center. Chile does not have an offshore sector. Chile continues to be vulnerable to money laundering because it lacks key legal provisions that aid in the prevention and detection of money laundering. According to press reports in April 2000, a Chilean Senate Finance Committee estimated that approximately US $10 billion is laundered annually through Chile. Money launderers reportedly exploit Chilean banks, commodities brokerages, and currency exchange businesses. Moreover, large real estate projects and casinos also are vulnerable to money laundering.
In 1995, Chile criminalized money laundering related to narcotics trafficking through the Counternarcotics Law. The law allows banks to voluntarily report suspicious or unusual financial transactions. However, the legislation has no “safe harbor” provisions that protect banks from potential civil or criminal liability. As a result, reporting of such transactions has been extremely low. Moreover, the legislation does not require reporting of large currency transactions. In December 1999, the Government of Chile proposed legislation that would amend the Counternarcotics Law by mandating reporting of suspicious financial transactions, and creating a new financial intelligence unit to replace the existing FIU. However, the proposed legislation would not expand predicate crimes for money laundering. The Chilean Congress has not approved the legislation.
Chile’s Judicial Reform Law of 1997 gives both the Council for the Defence of the State and the Public Ministry responsibility for investigating money laundering cases. This joint arrangement will continue for at least two years. The pending amendments to the Counternarcotics Law would give the Public Ministry sole responsibility for implementing the new law when it is promulgated.
Chile is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Chile is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering, and the newly created South American Financial Action Task Force . Chile’s current financial intelligence unit, the Departmento de Control de Trafico Ilicito de Estupefacientes, is a member of the Egmont Group.
In August 2000, Chile and the United States signed an agreement for cooperation and mutual assistance in narcotics-related matters. Chile has similar agreements in force with the United Kingdom, Spain, and the Czech Republic. Bilateral agreement negotiations are underway with France, Germany, Russia, Poland, Romania, Ukraine, Turkey, Tunisia, Guatemala, and Honduras.
The GOC is urged to pass anti-money laundering legislation that would mandate reporting of both suspicious and large currency transactions by financial institutions, provide “safe harbor” protections to entities that report such transactions, and expand predicate offenses for money laundering to include all serious crimes. Moreover, the COG should ensure that its FIU has the authority and resources necessary to make it an effective force against money laundering, and that it can readily share information with international counterparts.
China, People’s Republic of . In response to the growing threat of money laundering, the People’s Republic of China has begun to focus greater attention on improving the country’s anti-money laundering regime. The State Council has directed various government agencies to examine their current anti-money laundering measures and to draft new regulations for the commercial banking, regulatory, and enforcement sectors. The government views an enhanced anti-money laundering regime as a means to stem the rise in financial crime and corruption. Narcotics trafficking, smuggling, extortion, alien smuggling, and the counterfeiting of currency and goods remain major sources of illegal proceeds in the PRC. Foreign and domestic organized criminal activity, endemic corruption at the provincial and local levels, and the continued presence of anonymous bank accounts contribute to the PRC’s money-laundering problem.
The PRC’s efforts to address money laundering began in 1990, when the National People’s Congress adopted the country’s first law criminalizing narcotics-related money laundering and allowed the confiscation of narcotics proceeds. In 1997, the NPC adopted the PRC’s current Criminal Code, Article 191, which makes it a crime to launder the proceeds of narcotics trafficking, organized criminal activity, and smuggling. Efforts are underway to draft amendments to the Code that would expand the definition of predicate offenses for money laundering to include the proceeds of all criminal activity. In addition to Article 191, Article 312 of the Criminal Code criminalizes complicity in concealing the proceeds of criminal activity.
As in many civil law-based countries, the PRC charges each offense separately, and defendants who have laundered the proceeds of a predicate crime usually are prosecuted for the predicate offense rather than money laundering because the predicate offense generally carries a heavier penalty and is easier to prove. The sentences handed down by tribunals in 2000 illustrate the severity of punishment. Several dozen senior officials at both the national and provincial levels were sentenced to death for corruption and smuggling.
The PRC took additional steps in 2000 to combat money laundering. In April 2000, the PRC passed a statute that requires anyone opening a new bank account to do so in his or her true name. When opening or depositing money into a new account, the customer must produce an identification card to verify his or her identity. Existing anonymous accounts may remain open for five years from the time of the account’s establishment. After five years, the account holder must re-register the account in his or her true name only. Anonymous accounts will be phased out in 2005.
The People’s Bank of China –China’s central bank–has issued internal regulations that require currency transaction reports for all transactions involving Renminbi 50,000 or more. The PBOC also has issued rules concerning the recording and reporting of currency transactions at the county level, as well as a circular to Chinese banks regarding the reporting of suspicious transactions. Withdrawals of RMB 200,000 , deposits of RMB one million , or a series of aggregate transactions totaling RMB one million must be reported to the PBOC. At the county level, withdrawals of RMB 50,000 require picture identification. However, central bank supervisors do not verify compliance with these rules.
In addition, the PRC has foreign currency exchange controls. Commercial banks require PRC citizens to justify the exchange of RMB into a foreign currency. The maximum amount of foreign currency that a PRC citizen may take out of the PRC is US $2,000. For foreigners, the threshold is US $5,000. Requests for exchanges of currency above these thresholds require advance certification through documentation of the need for the foreign currency, such as for foreign travel or commerce.
The United States and the PRC continue to discuss cooperation on money laundering and other law enforcement topics under the auspices of the US-PRC Joint Liaison Group on law enforcement cooperation. The last JLG meeting took place in June 2000 in Beijing. In 2000, US enforcement and regulatory agencies hosted several law enforcement delegations from China to discuss money laundering and financial crimes. In addition, the US Departments of Treasury and Justice conducted various training seminars in the PRC featuring the enforcement and prosecutorial aspects of money laundering.
In October 2000, an interagency US Government team visited the PRC to assess the need for training to help PRC authorities combat money laundering. The team will make recommendations on future training.
The United States and the PRC in June 2000 signed a Mutual Legal Assistance Agreement , which contains general obligations to cooperate in criminal matters. The agreement is not yet in force. The PRC is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime. The PRC is a member of the Asia/Pacific Group on Money Laundering.
As the PRC examines ways to enhance its anti-money laundering regime, consideration should be given to criminalizing money laundering for all serious crimes, and abolishing anonymous accounts prior to 2005. The PRC also should adopt comprehensive anti-money laundering legislation that establishes appropriate mechanisms for prevention, detection, and enforcement.
Colombia . Colombia has financial institutions that engage in currency transactions involving international narcotics proceeds that include significant amounts of US dollars. As the world’s largest production and distribution source for cocaine and a significant supplier of heroin to the United States, Colombia has a natural vulnerability to drug money laundering. Pervasive commercial smuggling for tax and import duty avoidance, arms trafficking related to violent paramilitary groups and guerrilla organizations, along with continued capital flight from Colombia’s fragile economy, are among additional factors that exacerbate the money laundering threat in Colombia. Trade-based money laundering, such as the Black Market Peso Exchange , through which money launderers furnish narcotics-generated dollars in the United States to commercial smugglers, travel agents, investors and others in exchange for Colombian Pesos in Colombia, is a prominent method for laundering narcotics proceeds. Colombia also appears to be a significant destination and transit location for bulk shipment of narcotics-related United States currency, while the use of wire remitters and transactions involving precious metals and stones are believed to play significant roles in drug money laundering through Colombia. Smart cards and other financial sector technology represent growing challenges to money laundering enforcement in Colombia.
Although important reforms are needed to enhance law enforcement efforts, Colombia has significant legal authority to combat money laundering. Colombia has criminalized the laundering of the proceeds of extortion, illicit enrichment, rebellion, and drug trafficking. Colombia’s 1996 extinction of domain forfeiture legislation provides for criminal forfeiture of drug money laundering proceeds, in rem forfeiture when assets are held in the name of a nominee or have been transferred, and forfeiture of substitute assets. Originally created by executive decree in 1998, Colombia formally adopted legislation in 1999 to establish a unified central Financial Information and Analysis Unit within the Ministry of Finance and Public Credit with broad authority to access and analyze financial information from public and private entities in Colombia. Additional forfeiture authority in criminal prosecutions is more generally available elsewhere in the Colombian criminal code.
In addition, the Superintendency of Banks has instituted “know your customer” regulations for the entities it regulates, including banks, insurance companies, trust companies, insurance agents and brokers, and leasing companies. Among other things, the Superintendency of Banks also has authority to rescind licenses for wire remitters. As a result of regulations issued in 2000, the Superintendency of Securities, which oversees Colombia’s three stock exchanges, also will soon begin instituting anti-money laundering compliance procedures. However, the Colombian central bank’s new External Resolution No. 8 issued in May 2000 relaxed certain requirements on individuals conducting currency exchange services, enabling them simply to identify this service when registering their business but eliminating the need for them to become fully licensed. Financial institutions and wire remitters are required to file suspicious activity reports, while currency transactions and cross-border movements of currency in excess of US $10,000 must also be reported. In addition, casas de cambio must file currency reports for transactions involving US $700 or more, while wire remitters must pay withdrawals over US $3000 by check.
The Prosecutor General’s office established a specialized task force unit of agents and prosecutors to investigate and prosecute money laundering cases and forfeiture actions under the 1996 Extinction of Domain statute. Recent reductions in the rate of turnover among members of the unit may bring some stability to the office and increase its effectiveness. Including convictions under prior offenses of criminal reception and illicit enrichment, this unit has obtained criminal sentences in 33 money laundering related cases and has more than 200 active cases pending. Colombian authorities have seized more than 10,000 properties in more than 250 forfeiture actions, although Colombia has obtained forfeiture judgments in just twelve cases.
The UIAF receives an average of 500 suspicious activity reports per month, totaling nearly 15,000 received since December of 1998. However, only thirteen of these SARs have been forwarded to the Prosecutor General’s office for enforcement and only a handful of those forwarded have been accepted for further investigation or prosecution.
Colombia played a significant role in multilateral efforts to combat money laundering in 2000. In December, Colombia was the host of the inaugural meeting of GAFISUD, a South American regional anti-money laundering organization modeled after the Financial Action Task Force. Colombia also participated in a multilateral initiative with the Governments of the United States, Venezuela, Panama, and Aruba designed to address the problem of trade-based money laundering through the BMPE among the participating countries. In addition, in 2000 Colombia’s UIAF became a new member of the Egmont Group.
During 2000, the United States and Colombia have continued to expand bilateral cooperation against money laundering. Among the eleven Colombian citizens extradited to the United States in 2000 were two wanted on money laundering charges. An additional seven persons indicted on money laundering charges were provisionally arrested in Colombia pursuant to United States requests for extradition. Colombia has also provided important continuing assistance to United States civil forfeiture actions against accounts in Colombia restrained in 1998 and 1999 in response to United States formal requests for assistance in Operations Juno and Casablanca. Colombia’s Tax and Customs Directorate also provided valuable case-related assistance and training to United States prosecutors and agents in 2000.
In 2000, Colombia adopted a new criminal and criminal procedure code. These measures expand money laundering predicates to include conspiracy and corruption. However, this legislation, which does not come into effect until June of 2001, is under constitutional challenge. Additional legislation still pending would permit the disclosure of tax information to law enforcement for criminal investigation purposes.
The United States’ July, 2000 appropriations in support of Plan Colombia are anticipated to provide meaningful assistance for money laundering and forfeiture prosecutions in 2001. These funds are expected to provide significant training and equipment investments for the Office of the Prosecutor General, the UIAF, the asset management program of the National Drug Directorate , and DIAN, among other things.
Colombia is a party to the 1988 UN Drug Convention and in December 2000 signed the UN Convention against Transnational Organized Crime. Colombia is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. The United States and Colombia have signed a Mutual Legal Assistance Treaty but it is not yet in force.
Colombia has established a comprehensive legal and regulatory program and has demonstrated an international commitment to combat money laundering. The Government of Colombia should ensure that judges and prosecutors are adequately trained in order to fully enforce Colombia’s anti-money laundering laws. The GOC also is urged to improve coordination among its law enforcement agencies by clarifying ambiguous lines of authority with respect to the sharing of information. The GOC should also undertake measures to improve its ability to successfully prosecute the predicate offenses for money laundering.
Cook Islands . The Cook Islands is a self-governing group of islands in the South Pacific that maintains a free association with New Zealand. Cook Islanders are citizens of New Zealand and are part of the British Commonwealth. The Cook Islands is vulnerable to money laundering because of an offshore sector that offers banking, insurance, international trusts, and formation of international companies, . Marketers of offshore services on the Internet promote the Cook Islands as a favored jurisdiction for establishing asset protection trusts.
The International Companies Act of 1981 allows formation of IBCs. It permits issuance of bearer shares, marketing of shelf companies, and prohibits public access to registers of corporate directors or managers or the disclosure of beneficial owners. This legislation is substantially similar to legislation that was enacted by Samoa and is based on a British Commonwealth and South Pacific Forum model. A corporation must grant prior approval before its records in the Companies Office Registry can be examined. Corporate entities may be listed as officers and shareholders of companies-except for companies engaged in banking and insurance, unless specifically licensed to do so-because corporations have the legal powers of a natural person. Corporate directors are not required to be residents. However, companies must maintain in the Cook Islands a registered office and company secretary. Companies must file annual returns, but are not required to have their accounts audited.
In June 2000, the Financial Action Task Force listed the Cook Islands as a non-cooperative jurisdiction in the international fight against money laundering. FATF in its report noted:
In particular, the government has no relevant information on approximately 1,200 international companies that it has registered. The country has also licensed seven offshore banks that can take deposits from the public but are not required to identify customers and keep their records. Its excessive secrecy provisions guard against the disclosure of relevant information on those international companies as well as bank records.
During the FATF review process, the government expressed its intention to propose to the Parliament, before October 2000, two bills which would criminalize money laundering and establish a suspicious transaction reporting system with a financial intelligence unit . However, the authorities indicated that those bills would not likely introduce a customer identification requirement, nor would they relax the excessive secrecy provisions.
Following the FATF non-cooperative countries and territories exercise, the US Treasury Department issued an advisory to US financial institutions advising them to “give enhanced scrutiny” to all financial transactions involving the Cook Islands.
In August 2000, the Government of the Cook Islands passed legislation, the Money Laundering Prevention Act 2000 , that criminalizes all money laundering; creates an FIU; mandates the reporting of suspicious transactions by financial institutions; and defines records retention and customer identification requirements for financial institutions. Money laundering is defined by the Act as engaging directly or indirectly in a transaction that involves the proceeds of crime; or receiving proceeds of a crime, including property that may be co-mingled with the proceeds of crime. Penalties for money laundering include a maximum fine of New Zealand $20,000 and maximum prison sentence of five years.
The MLPA imposes certain reporting obligations on financial institutions such as banks, offshore banking businesses, offshore insurance businesses, casinos, and gambling services. Financial institutions are required to report transactions if there is reasonable cause to suspect that the transaction involves the proceeds of a crime. Financial institutions are required to maintain for a minimum of five years all records that are related to the opening of accounts, and business transactions that exceed NZ $30,000 . The records must include sufficient documentary evidence to prove the identity of the customer. Financial institutions are required to develop procedures to audit their compliance with these provisions.
The MLPA establishes a Money Laundering Authority that is comprised of the financial secretary, the commissioner for offshore financial services, and the commissioner of the police. The MLA currently constitutes the financial intelligence unit. The MLA receives suspicious transactions reports; sends reports to the solicitor general when money laundering is suspected; instructs financial institutions to cooperate with investigations; compiles statistics and records for use by domestic and international regulatory and law enforcement; issues guidelines to financial institutions; and creates and provides to financial institutions training on record keeping and reporting requirements. The MLPA also requires that individuals declare cross-border movements of currency or negotiable securities greater than the equivalent of NZ $10,000 to a police, customs, or immigration officer. Failure to declare cross-border movements of currency or negotiable instruments can result in a maximum fine of NZ $1,000 and a maximum prison sentence of one year.
The Cooks Islands has also drafted regulations which specify the documentation required for satisfactory customer identification, details to be included in suspicious transaction reports and time lines for filing STRs. These had yet to come into legal effect by year’s end.
The Offshore Industry Act 1995-96 requires officers and employees of the Cook Islands’ six trustee companies to report to the Cook Islands Commissioner for Offshore Financial Services suspicious activities related to narcotics trafficking or transactions where there is actual knowledge that a serious crime has been committed. Trustee companies must provide information to the COFS to substantiate their suspicions. The COFS can petition the High Court to rescind the license of or strike from the corporate register offshore entities found to be involved in such crimes. Moreover, the High Court also may dispose of the assets of the business entity.
The MLPA authorizes the MLA to cooperate with foreign governments that have entered into bilateral or multilateral mutual assistance arrangements with the GOCI. However, Section 21 of the MLPA makes provision for ad hoc requests, granting the Minister of Finance the power to approve cooperation with a foreign government without an agreement in place. Money laundering is an extraditable offense.
The Cook Islands is an observer jurisdiction to the Asia/Pacific Group on Money Laundering. The Cook Islands is not a party to the 1988 UN Drug Convention.
The GOCI should fully implement and enforce the provisions of the recently passed MLPA. Moreover, the GOCI should eliminate excessive bank and corporate secrecy provisions, and expand oversight of the offshore sector.
Costa Rica . Costa Rica is vulnerable to money laundering because of increased drug trafficking in the region and a lack of stringent regulatory and supervisory controls for its offshore sector. Anecdotal information suggests that Costa Rica’s financial institutions, currency-exchange businesses, casinos, and real estate market have been used to launder money.
Costa Rica’s domestic banking sector is comprised of approximately 25 banks, 15 finance companies, and 27 savings and loan institutions, and is supervised by the General Superintendent of Financial Entities . Low taxes and strong secrecy laws have created in recent years a growing offshore sector that offers banking services, and corporate and trust formation. The central bank must approve applications for offshore banks. Costa Rica has approximately 20 foreign financial institutions and 24 offshore branches of domestic financial institutions. Foreign banks must adhere to regulations established by their parent banks, but are not subject to effective local supervision. Foreign offshore banks are required only to provide monthly balance statements and year-end audited statements to the SUGEF. Nonresidents can hold US dollar bank accounts. Although Costa Rica does not allow bearer shares, secrecy provisions can prevent access to ownership information of corporations. Trusts also can be shareholders of corporations. This arrangement provides tax advantages and additional secrecy.
Costa Rica’s telecommunications system, lax regulatory regime, and an abundance of English speakers have made it a haven for Internet gaming companies. The number of Internet gaming licenses issued by Costa Rica has increased from three to 70 in the span of three years.
Law No. 7786 on Narcotics and Psychotropic Substances of May 1998 reformed a previous drug law and criminalized money laundering related to drug trafficking. Drug money laundering is punishable by eight to 20 years in prison. However, Costa Rica has not successfully prosecuted anyone under its current anti-money laundering laws.
Costa Rican law also obligates all financial institutions to identify their clients, record and report currency transactions that exceed US $10,000 to regulators, report suspicious transactions, and maintain records for a minimum of five years. Covered financial institutions include those supervised by SUGEF, the General Superintendent of Securities, and the Superintendent of Pensions, money exchangers and remitters, and dealers in traveler’s checks and money orders. Other businesses such as dealers in jewelry and consumer goods, casinos, and credit card companies must report cash transactions that exceed US $10,000 to the Joint Counternarcotics Intelligence Center . These businesses also must report suspicious transactions. Individuals are required to report cross-border movements of currency that exceed US $10,000. The law exempts good faith compliance from criminal, civil, or administrative liability.
The law also created the Unidad de Analisis Financiero , Costa Rica’s financial intelligence unit, to receive and analyze suspicious financial transaction reports and investigate cases of money laundering. Financial institutions are required to report suspicious financial transactions to SUGEF, which forwards disclosures to the UAF. In June 1999, the UAF joined the Egmont Group. The UAF exchanges information with its counterparts.
Costa Rica’s Legislative Assembly is considering legislation that would extend the predicate offenses for money laundering beyond drug trafficking.
Costa Rica is a member of the Caribbean Financial Action Task Force , and the Organization of American States Inter-American Drug Abuste Control Commission Experts Group to Control Money Laundering. Costa Rica is a party to the 1988 UN Drug Convention. An extradition treaty is in force between the United States and Costa Rica. US law enforcement agencies work effectively with Costa Rican public security forces in counternarcotics and money laundering investigations.
The growth of Costa Rica’s offshore sector-especially the rapid expansion of Internet gaming operations-and the absence of an effective regulatory and supervisory regime for it are causes for concern. The Government of Costa Rica should increase the resources necessary to implement its current anti-money laundering legislation. The GOCR also should increase its oversight of non-bank financial institutions. Moreover, the GOCR is urged to pass comprehensive anti-money laundering legislation that would expand the predicate offenses for money laundering to include all serious crimes. These measures would help Costa Rica protect its financial and offshore sectors from being abused by money launderers and other international criminals.
C�te d’Ivoire . C�te d’Ivoire is an important regional financial center in West Africa. To the extent money laundering occurs, a significant portion relates to the proceeds of trafficking in narcotics, particularly heroin and cocaine. Money laundering is concentrated in the banking system and is controlled by organizations other than local traffickers.
Financial fraud is mostly limited to Nigerian-operated scams aimed at foreigners. Endemic smuggling of contraband does not generate funds sufficiently large enough to require laundering. C�te d’Ivoire is not an offshore financial center.
Laundering of money related to any criminal activity is a criminal offense. Banks are required to maintain records of large currency transactions and to report this data to the government. Banks are required to maintain the records necessary to reconstruct significant transactions through financial institutions. The government requires financial institutions to report suspicious transactions. Bankers’ protection under the law is contingent on their cooperation with law enforcement entities. Money laundering controls are not applied to non-banking institutions.
C�te d’Ivoire has not addressed the problem of international transportation of illegal-source currency and monetary instruments although there are controls on the amount of currency that can be brought in and taken out. There were no arrests or prosecutions reported for money laundering in 2000.
Cote d’Ivoire’s asset seizure and forfeiture law applies to both mobile and immobile property, including bank accounts and businesses used as conduits for money laundering. The Ivoirian Government is the designated recipient of any narcotics-related asset seizures and forfeitures. It is not known whether legal loopholes exist to permit traffickers and others to shield assets. The law does not allow for civil forfeiture or for the sharing of assets with other governments. No recent changes have been made to the law and no new legislation is being considered.
C�te d’Ivoire does not take part in any international anti-money laundering fora. It is a party to the 1988 UN Drug Convention.
Croatia . Croatia is not a regional financial or money laundering center. Much of the money laundering that does occur is related to financial crimes such as tax evasion and business-related fraud. The proceeds of narcotics trafficking tend to be laundered through the purchase of real estate, luxury goods, and automobiles.
In 1997, Croatia criminalized money laundering related to serious crimes. The legislation established reporting requirements for banks and non-bank financial institutions for transactions that exceed US $17,500. It also authorized establishment of a financial intelligence unit within the Ministry of Finance. Croatia’s FIU is a member of the Egmont Group. In 2000, Croatia’s Parliament strengthened the country’s penal code to ensure that all those indicted can be charged with the money laundering offense where applicable. Prior to this change, a person could not be charged with money laundering if the predicate offense carried a maximum penalty of fewer than five years in prison. The Government of Croatia plans to introduce legislation in 2001 that will require banks to transmit data to supervising agencies electronically instead of by mail. The GOC also plans to establish a National Center for the Prevention of Corruption and Organized Crime within the State Prosecutor’s Office.
Croatia does not have limitations on providing and exchanging information with international law enforcement on money laundering investigations. Croatia’s anti-money laundering efforts are hindered by weak enforcement and a lack of adherence to the law.
Croatia is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Cuba . Cuba is not an important regional financial center. The Government of Cuba controls all financial institutions, and the Cuban peso is not a freely convertible currency. The GOC has not prosecuted any money-laundering cases since the National Assembly passed legislation in 1999 that criminalized money laundering related to trafficking in drugs, arms, or persons. The Cuban central bank has issued regulations that encourage banks to identify their customers, investigate unusual transactions, and identify the source of funds for large transactions. Cuba also has cross-border currency reporting requirements. Cuba has solicited anti-money laundering training assistance from the United Kingdom, Canada, France, and Spain.
Cuba is a party to the 1988 UN Drug Convention, and in December 2000 signed the UN Convention against Transnational Organized Crime.
Cyprus . Cyprus is a major regional financial center, and as such remains vulnerable to international money laundering activities. Russian organized crime, fraud, burglary and theft, are the major sources of illicit proceeds that are laundered in Cyprus. Credit card and bank card fraud also pose major problems for Cyprus. In 2000, the Financial Action Task Force conducted a review of Cyprus’s anti-money laundering regime against 25 specified criteria. Cyprus was not identified by the FATF as a non-cooperative country in the international fight against money laundering. However, the FATF in its June report raised a concern regarding customer identification in respect to all forms of trusts.
In 1996, the Government of Cyprus passed the Prevention and Suppression of Money Laundering Activities Law. This law criminalized non-drug related money laundering; provided for the confiscation of proceeds from serious crimes; codified actions that banks and non-bank financial institutions must take, including customer identification; and mandated the establishment of a financial intelligence unit . Previously enacted legislation criminalized drug-related money laundering. A 1998 amendment to the 1996 anti-money laundering legislation extended the list of predicate offenses to include trafficking in women, terrorism, trafficking in human organs, attempted murder, and nuclear proliferation. The amendment also addressed government corruption, and facilitated the exchange of financial information with other FIUs, as well as the sharing of assets with other governments.
A law passed in 1999 criminalized the counterfeiting of bank instruments such as certificates of deposit and notes. In November 2000, the GOC further amended its 1996 money laundering law by eliminating the separate list of predicate offenses. This amendment, coupled with the central bank’s guidance note to commercial banks reminding them of the importance of reporting any suspicious transaction to the FIU, may enable the Attorney General’s office to increase the number of successful prosecutions for money laundering.
The GOC in January 1997 established its FIU, the Unit for Combating Money Laundering . The 14-member UCML is comprised of representatives from the Attorney General’s Office, Customs, law enforcement, and support staff. The UCML’s statutory authority directs it to evaluate evidence generated by its member organizations and other sources to determine if an investigation is necessary. The UCML also conducts anti-money laundering training for Cypriot police officers, bankers, accountants, and other financial professionals. In 2000, the UCML opened 123 cases and closed 142. The Unit issued 90 Information Disclosure Orders and froze $3 million in assets. During 2000, recorded two convictions under the 1996 Anti-Money Laundering law, while five cases were pending at the end of the year.
The GOC places restrictions on foreign ownership of property and transportation of currency and bullion. Cypriot law requires that all cash entering or leaving Cyprus in the amount of US $1,000 or greater must be declared. Declarations over US $10,000 are sent directly to the Investigations Section of Cypriot Customs. All banks and non-bank financial institutions-insurance companies, stock exchange, cooperative banks, lawyers, accountants and other financial intermediaries-must report suspicious transactions to UCML. Banks are required to report cash deposits in excess of US $10,000 to the central bank. A declaration form must accompany all foreign currency deposits. In 1998, the central bank instructed banks and financial institutions to pay special attention to complex, unusually large transactions, and to report cumulative electronic funds transfers that exceed of US $500,000 per month for a single customer. There are no statistics available on compliance with these regulations.
Cyprus’s offshore sector includes 29 banks, 116 financial services companies, 20 companies that manage collective investment schemes, and 15 offshore trustee companies. The central bank has in place a strict regulatory framework aimed at preventing abuses within the offshore sector. Offshore banks are required to adhere to the same legal, administrative, and reporting requirements as domestic banks. The central bank requires that prospective offshore banks face a detailed vetting procedure to ensure that only banks from jurisdictions with proper supervision are allowed to operate in Cyprus. Offshore banks must have a physical presence in Cyprus and can not be brass plate operations. Once an offshore bank has registered in Cyprus, it is subject to a yearly on-site inspection by the central bank. Offshore banks in Cyprus may accept deposits and make foreign-currency denominated loans to residents of Cyprus if the resident has obtained an exchange control permit from the central bank.
There are approximately 47,000 international business companies registered in Cyprus; however, the central bank reported in June 1999 that only 12,000-14,000 of these companies filed mandatory annual reports. Only 1,057 have a physical presence in Cyprus. According to post reporting, Russian IBCs constitute a “significant” share of the total number of IBCs. The names of beneficial owners of IBCs can be released to law enforcement by court order and Cyprus does not permit bearer shares. The popularity of the offshore sector can be explained in part by the GOC’s dual-tax treaties with 26 nations, including Russia. Profits of Cypriot offshore companies are taxed at a rate of only 4.25 percent. Moreover, there is no tax on dividends and foreign employees are required to pay only half the normal Cypriot income tax rate. IBCs may keep freely transferable currency accounts both abroad and in Cyprus. If an IBC is registered as an offshore partnership, profits are not taxed.
Cyprus is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Cyprus is a member of the Council of Europe’s PC-R-EV, and is a member of the Offshore Group of Banking Supervisors. The UCML is a member of the Egmont Group. Cyprus and the United States have signed a Mutual Legal Assistance Treaty, but it is not yet in force. In 1997, the GOC entered into a bilateral agreement with Belgium for the exchange of information on money laundering.
In light of the GOC’s stated commitment to combat money laundering, the central bank needs to continue to focus on meeting the increasing supervisory challenges of the offshore sector and on increasing the offshore sector’s transparency. In particular, it should ensure that the identities of beneficial owners are easily accessible by law enforcement. In addition, the central bank should change its guidance note, which allows banks to open accounts for all forms of trusts without identifying the beneficial owner of the trust. The GOC should also take steps to ensure that all financial and non-financial institutions and entities report all suspicious transactions to the FIU, and thereby overcome commercial banks’ reluctance to share information with the central bank.
It is more difficult to evaluate anti-money laundering efforts in the “Turkish Republic of Northern Cyprus” but there continues to be strong evidence of a growing trade in narcotics between the “TRNC” and Turkey and Britain, as well as significant money laundering activities.
“TRNC” authorities have enacted a money laundering law for northern Cyprus, which went into effect in November 1999. The main thrust of the law was to reduce the amount of cash transactions in the “TRNC” as well as to improve the tracking of any transactions above US $10,000. The law also provides for the creation of an experts committee to advise “TRNC” authorities on combating money laundering as well as for the seizure of assets.
The law is an adjunct to the “TRNC’s” existing Exchange Control Law of 1997, which requires banks to report to the “Central Bank” any movement of funds in excess of $100,000. Such reports must include information identifying the person transferring the money, the source of the money, and its destination. The law also proscribes individuals entering or leaving the “TRNC” from transporting more than US $10,000 in currency. Under the new law, banks, non-bank financial institutions, and foreign exchange dealers must report all currency transactions over $20,000 and suspicious transactions in any amount. Banks must follow a know-your-customer policy and require customer identification. Banks must also submit suspicious transactions to a central multi-agency committee that will function as an FIU and have investigative powers.
“TRNC” officials believe that its 24 essentially unregulated casinos are the primary vehicles through which money laundering occurs. There is also an offshore sector, consisting of 40 banks and 12 IBCs. The offshore banks may not conduct business with “TRNC” residents and may not deal in cash. However, these banks are not audited and their records are not publicly available. Reportedly, a new law will restrict the granting of new bank licensees only to those banks already having licensees in an OECD country.
In spite of a growing awareness in the “TRNC” of the danger represented by money laundering, it is clear that “TRNC” regulations are far less stringent than those in the Republic of Cyprus are. The new law of the “TRNC” provides better banking regulations than were previously in force. The major weakness continues to be the “TRNC’s” many casinos, where a lack of resources and expertise leave that area, for all intended purposes, unregulated, and therefore, especially vulnerable to money laundering abuse.
Czech Republic . The Czech Republic is vulnerable to money laundering because of geographic and economic factors. Narcotics trafficking, smuggling, auto theft, arms trafficking, tax fraud, embezzlement, racketeering, prostitution, and trafficking in illegal aliens are the major sources of funds that are laundered in the Czech Republic. Domestic and foreign organized crime groups target Czech financial institutions for laundering activity; banks, currency exchanges, casinos and other gaming establishments, investment companies, and real estate agencies have all been used to launder criminal proceeds.
Money laundering was criminalized in September 1995 through the addition of Articles 251 and 251a to the Czech Criminal Code. Although the Criminal Code does not explicitly mention money laundering, the criminal provisions apply to financial transactions involving the proceeds of all serious crimes. The Czech Republic’s anti-money laundering legislation, Act N�61/1996 Concerning Some Measures Against Legalization of Proceeds of Criminal Activity and Amending Legislation Thereto, became effective on July 1996.
Ministry of Finance Decree N�183 formally established the Czech Republic’s financial intelligence unit, the Financial Analysis Unit , and outlines how financial institutions are to comply with the reporting of unusual transactions. The FAU is a member of the Egmont Group.
The Czech Parliament has failed to pass legislation that completely eliminates anonymous passbook accounts. However, establishment of new anonymous accounts was prohibited beginning in mid-2000. Czech officials argue that the existing accounts are of limited use for money laundering because customer identification is required for deposits and withdrawals that exceed 100,000 Czech crowns .
The Czech Republic participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures , and in 1998, underwent a mutual evaluation by the Committee. The Czech Republic plans to implement changes to its anti-money laundering regime based on the results of the mutual evaluation. The United States and the Czech Republic have a Mutual Legal Assistance Treaty, which entered into force in May 2000. The Czech Republic is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
The Czech Republic is encouraged to pass legislation to adopt the suggestions of the PC-R-EV mutual evaluation report and to eliminate all anonymous passbook accounts.
Denmark . Banking procedures in Denmark are transparent and are subject to government review, which discourages prospective money launderers and minimizes the likelihood of improper use of the banking system. Despite this, in response to a growing concern surrounding economic crimes in general, Denmark created the Serious Economic Crime Unit in 2000. The unit reports to the National Police Commissioner and consists of public prosecutors and police officers specifically trained in fighting economic crimes.
Money laundering is a criminal offense in Denmark. This applies to any type of money laundering, not just narcotics-related. Banks and other financial institutions are required to know, record and report the identity of customers engaging in significant transactions and maintain those records for an adequate amount of time. There are no secrecy laws in Denmark that prevent disclosure of financial information to competent authorities, and there are laws that protect bankers and others who cooperate with law enforcement authorities. Denmark has cooperated fully with US authorities with regards to money laundering investigations.
Denmark has regulations in place that ensure the availability of adequate records in connection with narcotics investigations. Denmark is a party to the 1988 UN Drug Convention and in December 2000 it signed the United Nations Convention against Transnational Organized Crime. It participates in European Union anti-money laundering efforts, and its financial intelligence unit takes part in the Egmont Group of FIUs. Denmark has endorsed the 1997 Basle Committee Core Principles for Effective Banking Supervision. Denmark is also a member of the Financial Action Task Force .
Dominica . Like many Caribbean jurisdictions, Dominica has sought to attract offshore dollars by offering a wide range of financial services and promises of confidentiality, low fees, and minimal government oversight. A rapid expansion of this sector without proper supervision has made Dominica attractive to international criminals, and has prompted public criticism from international organizations.
Dominica has greatly expanded its offshore services in the past several years, and offers offshore banks, international business companies , exempt insurance, and exempt trusts. The International Exempt Trust Act 1997 allows establishment of Asset Protection Trusts that greatly restrict seizure, expropriation, or confiscation of assets by foreign authorities. Dominica also offers Internet gaming and rapid processing of Internet gaming license applications. IBCs can be registered on-line within 24 hours and using bearer shares, providing complete anonymity for the beneficial owners. In 1999, Dominica’s Ministry of Finance reported that since the establishment of its offshore sector, Dominica had incorporated 5,800 IBCs, six offshore banks, six exempt trusts, and 20 Internet gaming companies. By December 2000, Dominica’s successful marketing of IBCs had increased the number to approximately 6,600. In addition to its marketing duties, the MOF’s International Business Unit grants licenses and supervises the offshore sector, thereby violating the Basle Core Principles for Effective Banking Supervision.
For the past several years, as part of its offshore services, Dominica has offered economic citizenship, a program that enables individuals to acquire Dominican citizenship, a passport, and possibly a new name in exchange for a direct payment of US $50,000 or government bonds worth US $75,000. This process has been loosely regulated, and Government of Dominica officials appear not to have maintained adequate control of the program. Between 1996 and 2000, the GOD issued approximately 500 economic citizenships. The program has come under fire as a means for individuals from the Peoples’ Republic of China and other foreign countries to become Dominican citizens and enter the United States via Canada without visas. One widely reported case involved a group of 11 PRC nationals who tried to enter Canada on Dominican passports after spending only one month in Dominica. Upon taking office in January 2000, Prime Minister Roosevelt Douglas suspended passport sales, but in April 2000, reversed his decision. In August 2000, the GOD claimed to have suspended the program in the face of international pressure-in particular, the Government of Canada threatened to impose visa requirements on Dominican passport holders. The GOD indicated that in the first quarter of 2000 it had earned approximately US $1.9 million from sales of passports. The future of this program remains in question following the recent death of PM Douglas.
The Eastern Caribbean Central Bank supervises Dominica’s five domestic banks, and has issued guidance notes against money laundering. However, these guidance notes do not have the force of law. In February 2000, the GOD announced that supervision of the offshore sector also would be transferred to the ECCB. However, it is unclear how this supervisory arrangement will function.
In June 2000, the Financial Action Task Force identified Dominica as noncooperative in international efforts to combat money laundering. The FATF in its report noted:
Dominica has outdated proceeds of crime legislation, which lacks many features now expected, and very mixed financial services legislation currently on the books. In addition, company law provisions create additional obstacles to the identification of ownership. The offshore sector in Dominica appears to be largely unregulated although it is understood that responsibility for its regulation is to be transferred to the Eastern Caribbean Central Bank.
The US Department of Treasury has also issued an advisory to US financial institutions warning them to “give enhanced scrutiny” to financial transactions involving Dominica.
In response to the FATF report, the GOD has taken a number of steps to improve its anti-money laundering regime. In July 2000, the Finance Minister announced a comprehensive review of all offshore banks and the establishment of an Offshore Financial Services Council . In December 2000, the OFSC issued guidelines for processing offshore banking licenses and administrative procedures for supervising offshore bank and trust companies.
In January 2001, the Dominican Government brought into force new legislation to strengthen its anti-money laundering regime: The Money Laundering Act of 2000, The International Business Corporation Act of 2000, The International Exempt Trust Act of 2000, The Exempt Insurance Act of 2000, and The Offshore Banking Act of 2000.
The Money Laundering Act of 2000 expands the predicate offenses for money laundering beyond drug trafficking and allows regulators to inspect the financial transactions of offshore entities. The MLPA establishes a Money Laundering Supervisory Authority that will issue guidelines to financial institutions and scheduled activities under the Act. The MLPA also requires a wide range of financial institutions-including offshore institutions-to report suspicious transactions to the MLSA, which will then send the reports to the Financial Intelligence Unit . Moreover, the MLPA requires persons to report and cross-border movements of currency that exceed US $10,000 to the FIU. The FIU will analyze these reports, forward appropriate information to the Director of Public Prosecutions, and liaison with other jurisdictions on financial crimes cases.
In addition, the other legislative changes should strengthen the GOD’s regulation of its offshore sector. The International Business Corporation Act of 2000 reportedly requires accountants and financial institutions to maintain the names and addresses of the owners of bearer shares and track subsequent transfers of ownership. The Offshore Banking Act of 2000 reportedly requires banks to know the beneficial owners of all accounts.
Dominica criminalized money laundering related to drug trafficking through the Proceeds of Crime Act of 1993. The POCA required financial institutions to maintain records related to the opening and closing of accounts, and of all transactions equal to or greater than Eastern Caribbean $5,000 for a minimum of seven years. The POCA also authorized banks to report transactions to the police or the Director of Public Prosecutions if the bank had reasonable grounds to suspect that the transaction was related to an offense. The POCA, however, did not mandate suspicious transactions reporting, and its provisions applied only to domestic institutions. The GOD has not prosecuted anyone for money laundering.
Dominica is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Dominica is also a member of the Caribbean Financial Action Task Force . In May 2000, a Mutual Legal Assistance Treaty with the United States entered into force. Dominica is a party to the 1988 UN Drug Convention.
The GOD should fully implement and enforce the provisions of the MLPA and other recently enacted legislation; provide additional resources for regulating offshore entities; and establish the FIU in order to coordinate its own anti-money laundering efforts, as well as cooperate with foreign authorities. Such measures will help protect Dominica’s financial system from further abuse by international criminals, and help avoid possible additional sanctions by the international community.
Dominican Republic . The Dominican Republic has financial institutions that engage in currency transactions involving international narcotics proceeds that include significant amounts of US dollars. The Dominican Republic is a burgeoning commercial exporter, and in 2000, remittances to the Dominican Republic from abroad were approximately US $1.7 billion. The Dominican Republic is a transshipment point for narcotics destined for the United States and Europe, and is vulnerable to narcotics-related money laundering. The primary methods for moving illicit funds from the United States to the Dominican Republic include smuggling bulk cash by couriers and wire transfer remittances. Dominican banks and casinos also are used to launder funds. However, currency exchange houses and money remitters remain the primary mechanisms for laundering money.
The Government of the Dominican Republic has taken steps to address money laundering. The GODR has enacted laws that criminalize money laundering related to narcotics trafficking, and allows preventative seizures and criminal forfeiture of drug-related assets. The legislation also authorizes international cooperation in forfeiture cases.
In 1996, the GODR issued Decree No. 288-96, which requires financial institutions such as banks, currency exchange houses, casinos, and stock brokers to record currency transactions equal to or greater than the equivalent of US $10,000 in either domestic or foreign currency. Financial institutions are required to make this information available to law enforcement upon request. The Decree also obligates financial institutions to identify customers and report suspicious financial transactions , and designates the Superintendency of Banks as the recipient of STRs.
In 1997, the GODR established the Financial Analysis Unit within the Superintendency of Banks. The FAU analyzes and disseminates STRs to the Financial Investigative Unit within the National Drug Control Directorate . The FAU has supervisory and information gathering authority over all financial institutions. The FIU investigates narcotics-related money laundering, and has authority to compel cooperation from other GODR agencies. In 1998, the GODR passed legislation that allows extradition of Dominican nationals on money laundering charges.
During 2000, the GODR authorities confiscated $82,749 in US currency, $88,632 in Dominican currency, ninety-six vehicles, and twenty residential and business properties linked to narcotics trafficking. However, there has never been a successful money laundering prosecution. In 2000, the GODR proposed legislation that would expand the predicate offenses for money laundering beyond drug trafficking to other serious crimes such as arms trafficking; trafficking in humans or human organs; kidnapping; extortion; car theft; forgery of currency, bills, or securities; illicit enrichment; embezzlement; and bribery. The legislation also would require financial institutions to report to the FAU cash transactions that are greater than or equal to the equivalent of US $10,000 in domestic or foreign currency. Moreover, the legislation will require individuals to declare cross-border movements of currency that are greater than or equal to the equivalent of US $10,000 in domestic or foreign currency. The Dominican Republic’s legislature is expected to pass this legislation in early 2001.
The FAU is a member of the Egmont Group, and is authorized to exchange information with other financial intelligence units. The GODR is an active member of the Caribbean Financial Action Task Force , and the Organization of American States Inter-American Commission on Drug Abuse Control Experts Group to Control Money Laundering. The Dominican Republic is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. The GODR cooperates with the US Government on counternarcotics and fugitive matters.
The GODR should quickly enact its proposed anti-money laundering legislation, and continue to develop a financial regulatory system that is consistent with international standards. Moreover, the Superintendency of Banks and the DNCD are encouraged to improve the flow of information between their organizations.
Ecuador . Ecuador is vulnerable to money laundering because of its proximity to drug-producing countries, its adoption of the US dollar as legal tender, and its ineffective oversight of the banking system. The GOE has no controls on cross-border movements of currency, and regulation of currency exchange businesses is weak. These factors most likely will make Ecuador an increasingly attractive venue for placing illicit currency into the international financial system. Several Ecuadorian banks also maintain offshore offices. Although these institutions have come under tighter control as a result of banking legislation passed in 1994, they continue to be used to channel funds through Ecuador.
Narcotics-related money laundering was criminalized through the 1990 Narcotics and Psychotropic Substance Act . The Act requires financial institutions to report to the National Drug Council large transactions in cash or stocks. The Government of Ecuador in 1999 implemented electronic reporting of this information. However, a contradictory legal framework continues to place severe constraints on the information that financial institutions can release to law enforcement. The Banking Procedures Law limits the release of information on private bank accounts to the Superintendency of Banks, and the Criminal Defamation Law imposes sanctions on banks and other financial institutions that provide account information to law enforcement or advise law enforcement of suspicious transactions.
As a result of these conflicting laws, the Ecuadorian National Police must obtain a court order to search for and obtain financial information from banks. However, banks, as a matter of practice, do not honor such orders, and claim that banking regulations make them answerable only to the Superintendency of Banks . Furthermore, the SOB will not accept requests for information directly from the ENP, but instead requires the request be handled through the CONSEP. Similarly, the ENP is not able to obtain information on private corporations from the Superintendency of Companies or information on stock market transactions from the Ministry of Finance. The GOE has not yet taken forceful efforts to remedy such limitations on the sharing of information, and as a consequence, has not conducted a serious money laundering investigation in the past five years.
The ENP has a financial investigation unit that recently received additional personnel and US-sponsored financial investigation training. The CONSEP also has a financial unit, and the SOB is considering establishment of one.
Ecuador is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Ecuador is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering, and the South American Financial Action Task Force .
The GOE must revise its financial secrecy laws to encourage reporting by financial institutions, and eliminate any conflicts that prevent the sharing of information between financial institutions and law enforcement. Moreover, the GOE should take immediate steps to improve bank oversight in the wake of dollarization, and pass legislation establishing cross-border currency reporting requirements. The GOE also is encouraged to establish a joint financial-investigative task force in order to foster better interagency working relationships.
Egypt . Egypt is not considered a major financial center, and does not have an offshore sector. Moreover, Egypt does not have a significant black market. Most of the illicit funds that are laundered in Egypt are the proceeds of drug trafficking, organized crime, and terrorism. Narcotics-related money laundering usually involves investment in real estate or business ventures. In a typical scheme, a money launderer will invest through an intermediary, usually a relative or a trusted friend. Egyptian money launderers rarely use the banking system because of their cultural mistrust of banks and fears that banking records-despite Egypt’s secrecy laws-could provide authorities with incriminating information.
Egypt does not have customer identification requirements or reporting requirements for financial institutions. Presidential Decree Law No. 205 of 1990, concerning the secrecy of bank accounts, states that “all accounts, deposits, trusts, and safes” in banks are to be “maintained secret.” No access is to be allowed, or any information to be divulged, except with the written permission of the account’s owner or agent. This prohibition remains in force after the banking relationship is terminated. The identities of account owners are known only to bank officials; the only exception is that the Egyptian Attorney General may seek from the Cairo Court of Appeal access to account information when there is “serious” proof that a felony or misdemeanor has been committed. The Egyptian Anti-Narcotics General Authority , which maintains a unit that investigates financial crimes related to narcotics trafficking, states that bank authorities cooperate fully with law enforcement when such a court order is obtained, and that the records are adequate for a thorough investigation.
The Egyptian Parliament continues to consider passage of anti-money laundering legislation. However, the specifics of this legislation are not known at this time. Absent anti-money laundering laws, prosecutors have made use of a 1971 law, the Law of the Socialist Prosecutor, that targets individuals who have made money through any illegal activity. The law enables prosecutors to impound for a maximum of five years cash and property that belongs to the accused and the accused’s immediate family. The highest Egyptian criminal court, the Court of Ethics, determines whether the impounded property was obtained as a result of illegal activity and should be forfeited. Forfeited assets go directly to the Egyptian treasury.
The United States and Egypt signed a Mutual Legal Assistance Treaty in May 1998, which is expected to enter into force in 2001. Egypt is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Crime.
Egypt should move swiftly to pass, implement, and enforce comprehensive new anti-money laundering legislation that is consistent with international standards in order to protect its growing economy from abuse by criminals.
El Salvador . El Salvador has one of the largest banking systems in Central America; its banks maintain important financial contacts with those of neighboring countries, Mexico, the Caribbean, and the United States. El Salvador does not have an offshore sector. The growth of El Salvador’s financial sector and the increase in narcotics trafficking in the region continue to make it vulnerable to money laundering. In addition, the Government of El Salvador’s decision in November 2000 to dollarize its economy-dollars will be permitted to freely circulate beginning in January 2001-increases the risk of money laundering.
The GOES in 2000 made considerable progress in implementing its 1998 “Law Against Laundering of Money and Assets.” The Unidad de Investigaci�n Financiera , the financial investigation unit within the Attorney General’s Office, and separate anti-money laundering units within the Polic�a Nacional Civil and the central bank enforce the law’s provisions. The legislation criminalizes money laundering related to drug trafficking and any other criminal activity. Financial institutions such as banks, exchange companies, stock exchanges, insurance companies, credit card companies, casinos, and real estate companies must identify their customers, maintain records for a minimum of five years, train personnel in money and asset laundering, and establish internal auditing procedures. Covered institutions also must report suspicious transactions and transactions that exceed 500,000 colones to the UIF. Although a provision of this law provides for asset identification and seizure, asset sharing with non-Salvadoran agencies has not yet been approved.
In 2000, the GOES-in particular, the office of the Attorney General-worked closely with US Government agencies such as the Department of Treasury to develop and implement the UIF. The UIF has been operational since January 2000, and officially opened its new, modernized facilities in December 2000. The UIF currently is comprised of six individuals-three prosecutors , one analyst, one computer technician and one secretary. The UIF has received approximately 100 reports of suspicious activities; opened 48 investigations that have resulted in two asset seizure actions; and begun judicial proceedings in three cases. The GOES has arrested several persons on charges of money laundering and counterfeiting.
The UIF has prepared draft regulations that would lower the threshold for filing currency transactions reports to US $20,000, and is seeking ways to tighten regulation of casinos and exchange houses. The US Government is working with the GOES to establish a Money Laundering Working Group that will improve information sharing, and in light of the GOES’ decision to dollarize, will seek to provide specialized money laundering training to a broader spectrum of Salvadoran law enforcement and banking officials.
The UIF has applied for membership in the Egmont Group, and in January 2001, will participate in the Egmont Group’s first training course. El Salvador is party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. El Salvador is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering.
The GOES is encouraged to continue building upon the progress that it has made in implementing its anti-money laundering measures, and demonstrate that it is a regional leader in the fight against money laundering and financial crime. In particular, the GOES is urged to implement draft regulations that would lower the threshold for reporting currency transactions.
Eritrea . Eritrea has a poorly developed financial system; there are no reports of money laundering. Eritrea is not a party to the 1988 UN Drug Convention.
Estonia . Estonia has one of the most developed banking systems of the former Soviet Union. Estonia permits credit institutions to participate in a variety of activities such as leasing, insurance, and securities. Russian organized crime groups are suspected of using financial institutions in the Baltic countries to launder money.
In 1999, Estonia implemented anti-money laundering legislation, and established the Information Bureau and a separate police unit to fight money laundering. Estonia’s legislation requires financial institutions to report suspicious or unusual transactions to the IB. The reporting thresholds are: the equivalent of approximately US $11,000 for non-currency transactions; and the equivalent of approximately US $5,500 for currency transactions. However, Estonia has no formal system for ensuring that financial institutions comply with the reporting requirements. Moreover, the IB lacks authority to compel banks to disclose additional information.
More than 50 investigations have been opened based on reports of suspicious or unusual transactions. The anti-money laundering police unit recently initiated its first criminal anti-money laundering case against an employee of a credit institution who did not comply with reporting requirements. In November 2000, Estonia, along with other Baltic countries, signed a protocol that places special emphasis on the exchange of information related to organized crime, drug trafficking, and smuggling.
Estonia is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . A COE delegation in 2000 visited Estonia to review its anti-money laundering regime. The IB is a member of the Egmont Group. Estonia became a party to the 1988 UN Drug Convention in July 2000, and in December 2000, signed the UN Convention against Transnational Organized Crime. A Mutual Legal Assistance Treaty between the United States and Estonia entered into force in October 2000.
Ethiopia . Money laundering is not considered to be a problem in Ethiopia. Its underdeveloped financial infrastructure and lack of economic development make it unlikely that it will become a financial center of any type in the foreseeable future. The banking sector is small and has no links to the international financial community.
Ethiopia has no anti-money laundering legislation in place. It is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized crime.
Fiji . There are no reports of money laundering in Fiji. Money laundering is criminalized under the Proceeds of Crime Act, 1997. In addition, the Reserve Bank of Fiji has issued anti-money laundering guidelines to licensed financial institutions that require them to develop programs and procedures for customer identification, record-keeping, and the monitoring and reporting of suspicious financial transactions. These guidelines are to come into effect 1 January 2001.
There is no formal agreement between Fiji and the United States for cooperation on law enforcement matters or mutual legal assistance; however, Fiji has responded positively to all such requests from the United States.
Fiji is a party to the 1988 UN Drug Convention. Fiji is a member of the Asia/Pacific Group on Money Laundering, a regional FATF-style anti-money laundering body.
Finland . Finland is not a regional financial or money laundering center. However, Finnish authorities are concerned about possible money laundering by Russian organized crime, and money laundering arising from fraud and other economic crimes.
In 1994, Finland enacted legislation criminalizing money laundering related to narcotics trafficking and other serious crimes. Legislation enacted in 1998 compels financial institutions and most non-bank financial institutions-excluding accountants and lawyers-to report suspicious transactions. The number of suspicious transactions reports appear to be on the rise: the Finnish police in 1999 investigated 348 STRs, but reported 255 investigations in the first six months of 2000 alone. In 1999, narcotics-trafficking was the predicate offense for 13 percent of money laundering convictions.
Finland in 1998 established a financial intelligence unit, the Money Laundering Clearing House , to receive STRs from financial institutions. The MLCH is a member of the Egmont Group.
Finland is a member of the Financial Action Task Force and the Council of Europe. Finland is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
France . France remains an attractive venue for money laundering because of its large economy, strong currency, political stability, central location, and sophisticated financial system. Common methods of laundering money in France include the use of bank deposits, foreign currency and gold bullion transactions, corporate transactions, and purchases of real estate, hotels, and works of art. France has enacted legislation that codifies the FATF Forty Recommendations concerning customer identification, record keeping requirements, suspicious transaction reporting, internal anti-money laundering procedures, and training for financial institutions.
France criminalized money laundering related to all crimes with the adoption of Act N� 93-392 of 13 May 1996, “On the Fight against Money Laundering, Drug Trafficking and International Cooperation in Respect of Seizure and Confiscation of the Proceeds of Crime.” Prior to passage of this Act, the French Penal Code and the French Customs Code only criminalized money laundering related to narcotics trafficking and other serious crimes. Even though Act No. 93-392 made money laundering in itself a general offense, some French courts do not allow joint prosecution of individuals on both money laundering charges and the underlying predicate offense because judges in those courts consider money laundering and the predicate crime to be the same offense.
France’s financial intelligence unit, the Treatment of Information and Action Against Clandestine Financial Circuits , is responsible for analyzing suspicious transaction reports that are filed by French financial institutions. TRACFIN is a member of the Egmont Group, and may exchange information with foreign counterparts that observe similar rules regarding confidentiality of information. TRACFIN is establishing and leading France’s Liaison Committee against the Laundering of the Proceeds of Crime. This committee will be comprised of representatives from reporting professions and institutions, regulators, and law enforcement authorities. In September 2000, TRACFIN hosted a regional workshop on Money Laundering and the Euro Changeover.
In 2000, the Government of France proposed additional anti-money laundering measures:
* Casino directors and managers, high-value goods dealers, and eventually, gatekeepers such as accountants and independent legal professions would have to report suspicious transactions directly to TRACFIN.
* Financial institutions would automatically report to TRACFIN certain financial transactions such as those involving jurisdictions identified as noncooperative in the international fight against money laundering by the Financial Action Task Force .
* Public authorities at the state and local level would be able to send money laundering related information directly to TRACFIN.
France is a member of the FATF and the European Union, and a Cooperating and Supporting Nation to the Caribbean Financial Action Task Force. France is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. France and the United States in December 1998 signed a Mutual Legal Assistance Treaty, which is expected to enter into force in 2001. TRACFIN has information-sharing agreements with Austria, Italy, the United States, Belgium, Monaco, Spain, the United Kingdom, Argentina, Mexico, the Czech Republic, and Portugal.
France has established a comprehensive anti-money laundering regime. The GOF should further enhance it by adopting pending legislation that would expand suspicious transaction reporting requirements.
Georgia . Georgia is not an important regional financial center, and its economy is too small to cover large flows of illicit foreign funds. Commercial banks are small but capable of clearing and transferring funds electronically. Small-scale money laundering schemes involve funds generated domestically through illegal activities, most of which are not connected with narcotics. Reportedly, some commercial banks have become involved in laundering funds generated by the smuggling of alcohol and cigarettes, but these proceeds are generally held in dollars outside the banking system. Although corruption is an issue in Georgia, no government official has been publicly linked to money laundering. The National Bank of Georgia plays a growing role in regulating the banking industry.
Georgia’s new criminal code became effective in June 2000. Although it does not criminalize money laundering, it does make it a crime to “transform illegal money into legal income” or to conceal the source, location or owner of property acquired illegally. Violators are subject to imprisonment. No requirement exists to report suspicious transactions, and there are no legal safeguards to protect banks and other financial institutions that cooperate with law enforcement agencies. Georgian law enforcement agencies have not investigated commercial banks or other businesses for possible involvement in money laundering. There are no controls on the amount of money that may be brought into the country. The money-laundering controls that do exist are not applied to non-bank financial institutions. Most financial transactions in Georgia are conducted in cash.
USAID provides both technical assistance and training to the Georgian tax inspectorate in support of improvements in tax policy and regulation, such as the ability to identify underreporting of income, including questionable gains from illegal sources. The Constitutional Court, however, has declared asset forfeiture and seizure legislation to be unconstitutional.
Georgia is a party to the UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Germany . Germany has the largest economy in Europe and a well-developed financial services industry. Russian organized crime groups, the Italian Mafia, and Albanian and Kurdish drug trafficking groups continue to launder money through German banks, currency exchange houses, business investments, and real estate.
The Government of Germany in 1992 criminalized money laundering related to drug trafficking, fraud, forgery, and embezzlement. In November 1993, the GOG enacted the Money Laundering Act. This legislation imposes due diligence and reporting requirements on financial institutions, such as obtaining customer identification for transactions exceeding deutsche marks 30,000 that are conducted in cash or precious metals, and maintaining records necessary to reconstruct transactions of DM 30,000 or more. In addition, German banks are legally obligated to report suspicious transactions to state authorities. To assist in this process, the GOG established a central database to record these suspicious transactions. The database became operational in June 2000. Each state is responsible for ensuring that suspicious transactions reports are entered into the database.
Since 1998, money transmitters have been required to be licensed and supervised by the Federal Banking Supervisory Office, which has issued anti-money laundering guidelines to the industry. Germany also has a law, which entered into force in 1998, that gives border officials the authority to compel individuals to declare imported currency of DM 30,000 or more.
The GOG has 12 Joint Financial Investigations Groups , comprised of customs and police officials, that are located in 11 cities throughout Germany. The JFIGs analyze and investigate STRs that have been filed by German banks. The US Customs Service maintains a liaison relationship with several of these units, and initiates joint investigations when suspicious financial transactions involving the United States are identified. These investigations often are related to fraud rather than narcotics trafficking. Although one of the JFIGs has participated in Egmont Group activities, the JFIGs are not considered FIUs and are not members of the Egmont Group.
The GOG has established procedures to effectively enforce its asset seizure and forfeiture law. The number of asset seizures and forfeitures remains low because of the high burden of proof that prosecutors must overcome in such cases. German law requires a direct link to drug trafficking before seizures are allowed. German authorities cooperate with US efforts to trace and seize assets to the extent that German law allows, and the GOG investigates leads from other nations. However, German law does not allow for sharing forfeited assets with other countries.
The GOG cooperates fully with the United States on anti-money laundering initiatives, even though it does not have a Mutual Legal Assistance Treaty with the United States. The GOG exchanges information through bilateral law enforcement agreements such as the Customs Mutual Assistance Agreement.
Germany is a member of the Financial Action Task Force, the European Union, and the Council of Europe. Germany is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
The GOG has taken an important step in developing a centralized database for recording suspicious transactions. However, Germany is encouraged to develop a centralized reporting unit that would further enhance the effectiveness of this system.
Ghana . Ghana is not a regional financial center. However, non-bank financial institutions such as foreign exchange bureaus are suspected of being used to launder the proceeds of drug trafficking, and the illegal trade in diamonds and gold. In addition, donations to religious institutions allegedly have been used as a vehicle to launder money.
Ghana has criminalized money laundering related to drug trafficking and other serious crimes. However, financial institutions are not required to report large cash transactions. Law enforcement can compel disclosure of bank records for drug-related offenses, and bank officials are given protection from liability when they cooperate with law enforcement investigations. Ghana has cross-border currency reporting requirements. Moreover, the attorney general may require disclosure of assets sent out of the country.
The Government of Ghana in 2000 made no arrests or prosecutions related to money laundering. In April 2000, the US Government organized and financed a two-week anti-money laundering seminar in Accra. The seminar was organized in cooperation with the West African Institute for Financial and Economic Management , and bankers from Ghana and four other West African countries were in attendance.
Ghana took part in the formation of the Inter-Governmental Action Group Against Money Laundering at the November 2000 meeting of the Economic Community of West African States in Dakar. Ghana is a party to the 1988 UN Drug Convention. Ghana has bilateral agreements for the exchange of money laundering-related information with the United Kingdom, Germany, Brazil, and Italy.
Gibraltar . Gibraltar is a largely self-governing, dependent territory of the United Kingdom, which assumes responsibility for Gibraltar’s defence and international affairs. Gibraltar’s offshore sector remains vulnerable to money laundering.
The Financial Services Commission is responsible for regulating and supervising Gibraltar’s financial services industry. It is obliged statutorily under its founding ordinance to match UK supervisory standards. Both onshore and offshore banks have the same legal and supervisory requirements. Gibraltar has 21 banks-11 of which are incorporated in Gibraltar-and all except for one are subsidiaries of major international financial institutions. The FSC also is responsible for overseeing the activities of the GOG offshore sector in the areas of trust and company management companies, insurance companies, collective investment schemes, and the formation of IBCs . Internet gaming is permitted by the GOG.
The Drug Offences Ordinance of 1995 and Criminal Justice Ordinance of 1995 criminalize money laundering related to all crimes and mandate reporting of suspicious transactions by entities such as banks, mutual savings companies, insurance companies, financial consultants, postal services, exchange bureaus, attorneys, accountants, financial regulatory agencies, unions, casinos, charities, lotteries, car dealerships, yacht brokers, company formation agents, dealers in gold bullion, charities, and political parties.
In 1996, Gibraltar established its financial intelligence unit , the Gibraltar Coordinating Centre for Criminal Intelligence and Drugs . The GCID is comprised primarily of police and customs officers, but is independent of law enforcement. The GCID receives, analyzes, and disseminates information on financial disclosures filed by institutions covered by the provisions of Gibraltar’s anti-money laundering legislation. The GCID has applied to join the Egmont Group.
In 2000, the Financial Action Task Force conducted a review of Gibraltar’s anti-money laundering regime against 25 specified criteria. Gibraltar was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report raised certain concerns about Gibraltar’s anti-money laundering regime:
Gibraltar… in place a system for reporting suspicious transactions. Where the underlying criminal conduct is drug trafficking or terrorism, the obligation to report is a direct one. Where the underlying criminal conduct is another predicate offence, the reporting is an “indirect obligation”-failure to make a report potentially leaves one open to a charge of money laundering; making a report is a defence against such a charge…
Gibraltar… certain intermediaries, and individuals, which are subject to the same anti-money laundering standards and supervision as financial institutions, to introduce business to banks and financial institutions on the basis that the introducers themselves verify the identity of the customer. In addition, the jurisdiction allows certain institutions based in certain overseas countries, subject to equivalent anti-money laundering systems, to introduce business, without separately verifying the identity of the client. Banks and other financial institutions in Gibraltar…are only required to know the name of the client but not to verify the identity separately. There is concern as to whether such a system is consistent with FATF Recommendations and provides sufficiently rigorous checks on the identity of clients of banks and financial institutions, especially in cases where the introducer is not a financial institution…
The lack of a stringent scheme to apply the new rules of customer identification for accounts opened prior to their entry into force is also a source of concern. The new rules for customer identification verification were introduced in Gibraltar in 1995…
In response to the issues raised by the FATF in its June 2000 report, the GOG issued revised Guidance Notes pertaining to eligible introducers and anti-money laundering.
The Mutual Legal Assistance Treaty between the United States and the United Kingdom has not been extended to Gibraltar. However, the DOO of 1995 provides for mutual legal assistance with foreign jurisdictions on matters related to drug trafficking and related proceeds. Gibraltar has indicated its commitment, as part of the EU decision on its participation in certain parts of the Schengen acquis, to update mutual legal assistance arrangements with the EU and Council of Europe partners. Gibraltar has adopted EU Money Laundering Directive 91/308. The United Kingdom has not extended the application of the 1988 UN Drug Convention. Gibraltar is a member of the Offshore Group of Banking Supervisors.
The GOG took an important step in developing a centralized database for recording STRs. However, the GOG should develop a centralized reporting unit to further enhance the efficiency and effectiveness of their system. The GOG is urged to fully address the issues raised by the FATF in the June 2000 report.
Greece . The economy of Greece is vulnerable to money laundering related to drug trafficking, prostitution, arms smuggling, blackmail, and illicit gambling activities that are conducted by Russian and Albanian criminal groups. There have been reports in the Greek press of substantial money-laundering activity in Greece. Casinos are particularly susceptible to money laundering because of weak requirements for disclosing sources of foreign capital. Greece has five private and two state-owned casinos. Moreover, Greek authorities report that the cross-border movement of illicit currency and monetary instruments remains a problem.
In 1995, the Government of Greece enacted anti-money laundering legislation, Prevention and Combating the Legalization of Income Derived from Criminal Activities, which criminalizes money laundering related to all crimes. The Bank of Greece is authorized to cooperate fully with EU central banks in matters relating to money laundering. The legislation also requires that banks and non-bank financial institutions file suspicious transaction reports with Greece’s financial intelligence unit, the Competent Committee . The CC is a member of the Egmont Group, and is chaired by a senior judge with representatives from various government ministries, the central bank, and the stock exchange. STRs that merit further investigation are forwarded to the Financial Crimes Enforcement Unit , a multi-agency group that functions as the CC’s investigative arm. The CC is responsible for preparing money-laundering cases on behalf of the public prosecutor’s office. The CC works with Interpol on investigations outside Greece. Greek law enforcement reportedly is investigating several money laundering cases. However, few of the cases have reached the public prosecutor’s office.
Banks and brokerage firms must require identification from customers-internal identification documents or passports-when opening accounts or conducting transactions that exceed EUR 15,000 . Greek citizens must provide a tax registration number in order to conduct exchanges of foreign currency that are equal to or greater than EUR 1,000 , and proof of compliance with tax laws in order to conduct exchanges of foreign currency that are equal to or greater than EUR 10,000 .
Greece is a member of the Financial Action Task Force , the European Union, and the Council of Europe. Greece is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
The GOG should extend and implement suspicious transaction reporting requirements for gaming and stock market transactions, and is urged to adopt more rigorous standards for casino ownership or investments.
Grenada . Money laundering and other financial crimes are concerns in Grenada because of the Government of Grenada’s rapid and relatively unsupervised venture into providing offshore services. Although the GOG has taken some legislative steps toward building a comprehensive anti-money laundering regime, the measures thus far have proved inadequate as evidenced by the scandal surrounding the collapse in 2000 of the First International Bank of Grenada, a licensed offshore bank.
Like many other Caribbean jurisdictions, the GOG has tried to raise revenue by luring offshore dollars through promises of low fees, banking and corporate secrecy, and minimal supervision. Since 1996, the GOG has raised approximately US $6 million through its offshore sector. In 1996, the GOG enacted the Offshore Banking Act, the Offshore Insurance Act, and the Company Management Act. The Minister of Finance reviews applications and issues licenses for offshore banks. Grenada amended its International Companies Act in 1996 to permit issuance of bearer shares. Through the International Trust Act 1996, Grenada allows formation of asset protection trusts, which hinder seizure of assets by foreign authorities. Grenada’s International Betting Act 1998 provides for licensing of international gaming companies. As of 1999, the GOG had granted licenses for 16 offshore banks and six Internet gaming companies. Press reports indicate that approximately 2,200 International Business Companies have been formed in Grenada.
The Grenada Citizenship Amendment Act of 1997 enables foreign nationals to purchase citizenship for a family of five for approximately US $40,000. The Act does not impose a residency requirement. Moreover, new citizens can legally change their names, which increases the possibility that international criminals will take advantage of the program. Grenada has issued approximately 300 economic citizenships, and claims that proper background checks are made.
The GOG has enacted some anti-money laundering legislation and regulations for its offshore sector. The Proceeds of Crime Act 1992 criminalizes drug-related money laundering and establishes asset forfeiture provisions. However, no prosecutions have taken place under this Act. The Money Laundering Prevention Act of 1999, which came into force in 2000, additionally criminalizes money laundering related to any other crime that, had it been committed in Grenada, would have been punishable by at least five years in prison. Violators face maximum fines of US $1 million and prison sentences not to exceed 27 years. Individuals who “tip off” or aid and abet money launderers may be punished by a maximum fine of US $500,000 and five years in prison.
The MLPA imposes reporting responsibilities on financial institutions such as onshore and offshore banks, money transmitters and exchanges, issuers of credit cards and traveler’s checks, insurance businesses and trust businesses. The MLPA established the Supervisory Authority to supervise financial institutions’ compliance with the Act. Covered institutions must identify customers; maintain transaction records for a minimum of seven years; permit on-site inspections; report transactions to the SA if money laundering is suspected; and comply with regulations issued by the SA. The SA may forward information received from financial institutions to the Director of Public Prosecutions if there are reasonable grounds to suspect money laundering. Individuals leaving Grenada with more that EC $100,000 in currency must file a declaration form with the SA. The SA has the authority to establish training requirements and guidelines for financial institutions, and disseminate information internationally. The Ministry of Finance has the authority to issue a code of practice that would help covered institutions comply with provisions of the MLPA. Other provisions of the MLPA exempt good faith compliance with the Act from criminal or civil liability, and override bank secrecy in money laundering investigations. The GOG has not yet implemented certain provisions of the MLPA, including establishment of the SA and issuance of guidelines and a code of practice.
The GOG in 2000 restructured the Offshore Services Registry to create a semi-autonomous Financial Services Authority with a staff of 13 personnel, including clerical and administrative personnel, to monitor and regulate the offshore sector. The FSA also is responsible for “promoting” Grenada’s sector.
The GOG’s anti-money laundering measures have thus far proven inadequate, as evidenced by the apparent fraudulent operation and ultimate collapse of the offshore First International Bank of Grenada . The FIBG was founded in 1998 by US citizen Van A. Brink, who had declared bankruptcy in the United States, changed his name, and purchased a Grenadian passport. The FIBG lured investors with promises of 250 percent returns. Investigators allege Brink used new depositors’ money to pay previous investors the impossibly high rate of return. In its first year, the bank claimed to have acquired assets of approximately US $26 billion.
In March 1999, an independent auditor of the FIBG warned the GOG of serious irregularities such as a lack of real assets and Brink’s obstruction of the audit. Brink subsequently moved to Uganda and began to conduct business with rebel leaders in Congo. In January 2000, the FIBG hosted a conference of 60 Congolese rebel leaders and signed a deal promising them millions in aid.
In August 2000, the GOG stepped in to take control of the bank. Auditors claim that millions of dollars were transferred to international accounts belonging to officers of the bank, including Van Brink in Uganda. Later that month, local police arrested and charged two bank officers with fraud, attempting to defraud, and aiding and abetting. In October, the GOG reinstated FIBG as the First International Bank of Grenada 2000 on the condition that it would be properly supervised and reimburse depositors. The bank reportedly owes its approximately 6,000 depositors nearly US $150 million.
In the wake of international criticism surrounding the failure of FIBG, and at the time several other eastern Caribbean nations were determined by the FATF to be non-cooperative in international efforts to combat money laundering, the GOG initiated efforts to overhaul offshore legislation and regulations. In September 2000, the GOG named a new chairman for the FSA, sought international assistance, and announced plans to create a new financial crimes unit within its police force. The FCU has not yet been established.
Since 2000, the GOG has had in force mutual legal assistance and extradition treaties with the United States. Grenada is a member of the Caribbean Financial Action Task Force , and in November 1999, underwent a CFATF mutual evaluation. Grenada is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering, and is a party to the 1988 UN Drug Convention.
The GOG is urged to implement more stringent oversight of the offshore sector, in particular the economic citizenship program, and bring all provisions of the MLPA into full force. The GOG also should establish, fully staff, train, and fund the SA to operate as a financial intelligence unit. In addition, supervision should be strengthened by removing the marketing function from the FSA. Such measures will enable the GOG to better detect and investigate financial crime locally and cooperate with international law enforcement to prevent additional abuse of its financial sector by international criminals and fraud schemes.
Guatemala . Guatemala’s geographic location and absence of comprehensive anti-money laundering legislation continues to make it vulnerable drug money laundering. Moreover, money laundering related to kidnapping, tax evasion, vehicle theft, and corruption is believed to be on the rise. Real estate transactions and the financing of large commercial development projects are particularly vulnerable to money laundering. Guatemala does not have an offshore sector. Ineffectiveness, intimidation, and corruption within Guatemala’s judiciary and law enforcement agencies continue to be serious problems and hinder the government of Guatemala’s ability to control money laundering.
In January 2001, the GOG published legislation, the Law for the Free Use of Currency, which allows foreign currency such as the US dollar to become legal tender in Guatemala. Free circulation of the dollar will make Guatemala’s financial institutions even more vulnerable to the placement of drug-derived currency.
The GOG in November 2000 ratified the Central American Convention for the Prevention of Money Laundering and Related Crimes. However, the GOG needs to strengthen its anti-money laundering legislation in order to implement its obligations under the Convention. Article 45 of Guatemala’s 1992 Narcotics Law makes it illegal to participate in any transaction known to involve the proceeds of drug trafficking. The GOG also has issued regulations that require banks to record certain information regarding the origin of currency transactions that exceed US $5,000. The GOG has not made serious efforts to enact more stringent anti-money laundering controls because of the banking sector’s resistance. Guatemala has strict bank secrecy laws, and its corporate code also offers considerable secrecy to the owners of corporations.
In 1999, the Secretariat for the Commission Against Addictions and Illicit Drug Trafficking drafted legislation that would require reporting of suspicious or unusual financial transactions and declaration of cross-border currency movements; prohibit the use of anonymous bank accounts; and create a Financial Investigative Department that would investigate money laundering cases. The legislation has not yet been passed.
In April 2000, the GOG’s Public Ministry, with US Government assistance, opened a new anti-corruption prosecutor’s office. The office to date has initiated approximately 1,000 cases against government officials.
Guatemala is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Guatemala is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering.
The GOG must adopt comprehensive anti-money laundering legislation that meets international standards, implement such legislation, and develop effective enforcement mechanisms so that it can protect its economy and financial system from financial crimes.
Guernsey . The Bailiwick of Guernsey covers a number of the Channel Islands . Guernsey is a Crown Dependency of the United Kingdom. Its sophisticated offshore center continues to be vulnerable to money laundering, particularly at the layering and integration stages.
The Financial Services Commission is responsible for regulating the BOG’s offshore industry. The FSC conducts on-site visits and analyzes assessments by auditors. There are approximately 79 offshore banks that offer deposit taking and custodial, trust, company, and fiduciary services. The BOG also has 413 registered offshore insurance companies, approximately 15,450 IBCs, and 15 bureaux de change.
In January 2000, the Proceeds of Crime Law and Regulations 1999 came into force, along with the corresponding regulations, the Criminal Justice Regulations 1999. The legislation extends predicate offenses for money laundering to all serious crimes and creates a system for reporting suspicious transactions. Suspicious transactions reports are filed with the Joint Police and Customs Financial Investigation Unit . The JPCFIU is a member of the Egmont Group.
In 2000, the Financial Action Task Force conducted a review of Guernsey’s anti-money laundering regime against 25 specified criteria. Guernsey was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report noted the following about Guernsey’s anti-money laundering regime:
…Guernsey… in place a system for reporting suspicious transactions. Where the underlying criminal conduct is drug trafficking or terrorism, the obligation to report is a direct one. Where the underlying criminal conduct is another predicate offence, the reporting is an “indirect obligation”-failure to make a report potentially leaves one open to a charge of money laundering; making a report is a defence against such a charge….
…Guernsey… certain intermediaries, and individuals, which are subject to the same anti-money laundering standards and supervision as financial institutions, to introduce business to banks and financial institutions on the basis that the introducers themselves verify the identity of the customer. In addition, the jurisdiction allows certain institutions based in certain overseas countries, subject to equivalent anti-money laundering systems, to introduce business, without separately verifying the identity of the client. Banks and other financial institutions in …Guernsey…are only required to know the name of the client but not to verify the identity separately. There is concern as to whether such a system is consistent with FATF Recommendations and provides sufficiently rigorous checks on the identity of clients of banks and financial institutions, especially in cases where the introducer is not a financial institution.
The lack of a stringent scheme to apply the new rules of customer identification for accounts opened prior to their entry into force is also a source of concern. The new rules for customer identification verification were introduced in…Guernsey in 1999….
Proposed drug trafficking legislation would consolidate legislation passed in 1988 and 1992, and also would include a new offense of acquiring, possessing, or using the proceeds of drug trafficking. Moreover, this legislation would introduce an offense of failing to disclose the knowledge or suspicion of drug money laundering. Passage of this legislation reportedly would be an important step towards putting the UK in a position to extend the application of the 1988 UN Drug Convention to the BOG.
The BOG also is considering legislation that would regulate bureaux de change and cheque cashers to ensure that these entities are formally identified and comply with BOG Guidance Notes.
The BOG cooperates with international law enforcement on money laundering cases. The BOG is a member of the Offshore Group of Bank Supervisors.
The BOG has made strides toward developing a comprehensive anti-money laundering regime. The BOG should further strengthen its anti-money laundering program by approving and implementing pending legislation that would consolidate the drug trafficking law, regulate bureaux de change and cheque cashers, and expand regulation of trust companies.
Guyana . Guyana is not an important regional financial and offshore banking is not permitted. Nevertheless, there is concern that both narcotics and non-narcotics related money laundering takes place. A largely unregulated banking sector, several independent currency exchanges and growing illicit trade in licit goods facilitate money laundering activities.
Guyanese law requires that funds over US $10,000 imported into or exported out of Guyana be reported, but mechanisms have not yet been put into place to facilitate such reporting. The Financial Institutions Act of March 1995 designated the Bank of Guyana, the central bank, as the sole financial regulator and extended the coverage of legislation, regulations and penalties to all deposit-taking institutions. However, there are no laws in force at this time that require financial institutions to know, record, or report the identities of customers engaging in large currency transactions, suspicious transactions or to maintain transaction records.
Although a money laundering prevention bill was passed by the Guyanese National Assembly in February 2000, the legislation is not yet in force. The new law will criminalize money laundering related to narcotics and other serious crimes and will allow for the expansion of predicate offenses. The legislation also will establish requirements for reporting suspicious transactions by banks and non-bank financial institutions, and cross-border currency transactions. Moreover, other provisions of the legislation will require confidentiality in the reporting process, provide for good faith reporting, and contain provisions for asset forfeiture, international cooperation, and extradition for money laundering. The legislation authorizes creation of a supervisory authority to receive financial disclosure information and supervise financial institutions’ activities to prevent and detect money laundering. However, the legislation appears to fall short of Financial Action Task Force Forty Recommendations and the revised Organization of American States Model Regulations on Money Laundering.
Guyana is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Guyana has not joined the Caribbean Financial Action Task Force by signing the CFATF Memorandum of Understanding. It would benefit by doing so and by actively participating in CFATF activities, including undergoing a mutual evaluation.
Guyana is a party to the 1988 UN Drug Convention
Haiti . Haiti is vulnerable to money laundering because of a dramatic rise in drug trafficking, official corruption, and ineffective bank supervision. Drug traffickers use Haiti as a transit country for moving bulk currency. Moreover, criminals launder funds through Haiti’s exchange houses, and via wire transfers through banks and money remitters.
In August 2000, the Central Bank of Haiti issued Circular 95, which requires banks, exchange brokers, and transfer bureaus to obtain declarations identifying the source of funds for transactions exceeding 200,000 gourdes or the equivalent in foreign currency. Covered entities must report to the competent authorities such transactions on a quarterly basis. Failure to comply can result in fines of 100,000 gourdes . The BRH also can revoke the license of banks that fail to comply. The Ministry of Justice reported in August 2000 that it had created a body to receive and analyze financial disclosures. However, no additional details were provided. Several Haitian banks have organized anti-money laundering seminars to increase awareness.
In January 2001, Haiti reportedly passed anti-money laundering legislation. However, at this time, the specifics of the legislation have not been provided.
Haiti is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Haiti is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. The GOH in September 2000 began the process of applying for membership in the Caribbean Financial Action Task Force . In December 2000, a CFATF team traveled to Haiti for a preliminary visit and evaluation.
The new GOH, which will be seated in February 2001, should build upon previous efforts and ensure that it enacts and fully enforces anti-money laundering legislation that meets international standards such as criminalizing the laundering of proceeds related to all serious crimes, including corruption, and requiring suspicious transactions and cross-border currency reporting. The GOH also is urged to establish, train, and adequately fund and staff a financial intelligence unit that would coordinate the GOH’s anti-money laundering efforts and work with foreign governments to help protect the Haitian economy from criminal abuse. Moreover, the GOH is urged to continue its efforts to join and work more closely with the CFATF, which will help provide additional regional guidance, support, and coordination in the fight against money laundering.
Honduras . Honduras is not a major regional financial center, and does not offer offshore financial services. However, Honduras is vulnerable to drug money laundering because of increased drug-trafficking activity throughout the region. The illicit proceeds of auto theft, kidnappings, bank fraud, alien smuggling, and corruption also are believed to be laundered in Honduras. Money launderers use Honduran banks, casinos, exchange firms, and front companies.
Honduras’s anti-money laundering regime is inadequate, and there have been no successful money laundering prosecutions under its present legislation. Law No. 27-98 of December 1997 criminalized narcotics-related money laundering, and requires banks and non-bank financial institutions to report suspicious financial transactions to the National Banking and Insurance Commission . The NBIC analyzes STRs and forwards those that it suspects are linked to narcotics trafficking to the Public Ministry. Even though financial institutions and their employees are protected from civil and criminal liability when filing STRs, compliance remains low. In 2000, a joint commission of the Public Ministry, NBIC, and other Government of Honduras institutions drafted new legislation that would expand predicate crimes for money laundering to include all criminal activity, and promote more effective investigation of STRs. The National Congress has not yet approved this legislation.
Corruption is a serious impediment to implementing more effective anti-money laundering controls in Honduras. The Ministry of Security has proposed a series of measures that would target corruption in the judiciary and law enforcement, but the National Congress has yet to enact these measures.
Honduras is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Honduras is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Honduras cooperates with the US Government in narcotics-related investigations.
Honduras is urged to pass comprehensive anti-money legislation that would expand the predicate crimes for money laundering to include all serious crimes.
Hong Kong . Hong Kong is an important international financial center and is vulnerable to money laundering through its traditional banking, remittance, and money transfer networks, as well as through the offshore financial services it offers and its extensive underground banking system. Narcotics trafficking, fraud, illegal gambling and bookmaking, alien smuggling, and tax evasion generate much of the illicit proceeds that are laundered in Hong Kong. Hong Kong has developed a strong anti-money laundering regime and is a regional leader in the area of financial regulation and supervision.
Hong Kong’s banking system is a three-tier system of deposit-taking institutions: licensed banks, restricted license banks, and deposit-taking companies. As of October 2000, the Hong Kong Monetary Authority regulated 267 financial institutions. The Insurance Authority and the Securities and Futures Commission regulate the insurance and securities industries, respectively. All three groups impose licensing requirements and conduct background checks on applicants.
Hong Kong’s offshore services include exempt companies in the form of registered, private, limited companies . These companies can be formed using nominee shareholders and directors, but cannot issue bearer shares. Hong Kong allows public access to registers of corporate directors, managers, and members, but does not require disclosure of beneficial owners of the more than 470,000 such companies. PLCs generally are not taxed or required to file tax returns because Hong Kong taxes only income earned in Hong Kong. The HKMA requires authorized financial institutions to obtain written statements from company formation agents certifying that they have recorded and retained information that identifies the source of funds.
In 1989, Hong Kong criminalized money laundering related to drug trafficking through the Drug Trafficking Ordinance , and in 1994, criminalized money laundering related to indictable offenses through the Organized and Serious Crime Ordinance . In 1995, the GOHK passed amendments to the OSCO and the DTRPO that require banks, non-bank financial institutions, and financial intermediaries, such as lawyers and accountants, to file suspicious transactions reports . New legislation came into force in 2000 that requires remittance and money transfers agents to maintain records and identify customers for cash transactions equal to or greater than US $2,500.
Hong Kong also has implemented regulations that require financial institutions to record the identities of customers, or the identities of the customers’ legal nominee, and to release this information to authorities upon request. Financial institutions are required to maintain these records for a minimum of five to seven years and to report suspicious transactions to the Joint Financial Intelligence Unit for review and possible investigation. The JFIU is a member of the Egmont Group and is able to share information with its international counterparts. Hong Kong law provides that the filing of an STR shall not be regarded as a breach of restrictions imposed by contract or law on the disclosure of information. The JFIU provides periodic feedback to financial institutions on STRs that they have filed and also makes available to financial institutions trend reports and sanitized case histories.
In the first ten months of 2000, the banking sector filed 4,969 suspicious transactions reports, the securities sector filed 24, and the insurance sector filed 11. Through November 2000, Hong Kong had prosecuted 13 money-laundering cases. Hong Kong reports that it has not detected an increase in financial crimes over the past year and has found no indications of narcotics proceeds funding smuggling activities.
In November 2000, Hong Kong reintroduced to the legislature amendments to the DTROP and the OSCO that would reduce the threshold for filing STRs. Under current law, financial institutions must file an STR if there are reasonable grounds to believe that money laundering is taking place. The proposed amendment to the DTROP, however, would require banks to file an STR when there are reasonable grounds to suspect money laundering. The amendment also would increase the maximum penalties for money laundering from 14 to 20 years in prison and for failure to report suspicious transaction from 3 to 12 months in prison. Bankers and accountants have expressed some reservations about this legislation, but its prospects for passage without major change reportedly are good.
Hong Kong is a party to the 1988 UN Drug Convention. It is a member of the Asia/Pacific Group against Money Laundering and the FATF. Honk Kong will assume the FATF’s presidency in 2001. Hong Kong also is a member of the Offshore Group of Banking Supervisors. In January 2000, Hong Kong’s treaty on mutual legal assistance with the United States came into force. Hong Kong has signed similar agreements with Australia, France, United Kingdom, New Zealand, Italy, the Republic of Korea, and Switzerland. Hong Kong has initialed agreements on mutual legal assistance with Portugal, Canada, the Philippines, Israel, and India that will provide for the exchange of information for all serious crimes, including money laundering.
Hong Kong could further strengthen its anti-money-laundering regime by requiring financial institutions to report transactions that exceed specified large amounts and by putting into place measures that would help prevent structuring of deposits. Hong Kong also should establish cross-border currency reporting requirements and encourage increased suspicious transaction reporting in the securities and futures industry. Moreover, Hong Kong should tighten offshore company registration procedures to discourage formation of shell companies.
Hungary . Hungary is vulnerable to money laundering because of its strategic location, modern financial services industry, and the presence of organized criminal groups in the country. In particular, organized crime groups from the former Soviet Union and Eastern Europe have established a strong presence in Hungary and use Hungarian financial institutions such as banks, casinos, and currency exchange businesses to launder their illicit proceeds. Hungarian banks may be particularly vulnerable to money laundering because of their issuance of anonymous bearer passbook accounts. These passbooks can be used to make cash deposits and withdrawals that do not exceed 200,000 Hungarian forints . All currency transactions that exceed two million forints require some form of customer identification. Narcotics trafficking, smuggling, arms trafficking, auto theft, tax evasion, financial fraud, bribery, alien smuggling, and racketeering are the major sources of criminal proceeds laundered in Hungary.
In 1994, the Government of Hungary criminalized money laundering related to all crimes through an amendment to Section 303 “Money Laundering” of the 1978 Hungarian Criminal Code. Other money laundering legislation became effective at the same time, notably Act XXIV of 1994 on the Prevention and Impeding of Money Laundering. Hungarian financial institutions such as banks, insurance companies, securities brokers/dealers, investment fund management companies, currency exchange houses, and casinos are required to file suspicious transaction reports . Real estate agencies are not subject to STR reporting requirements, but have been used to launder money. The GOH limits the import and export of the forint to 200,000 forints . There are no limitations on the amount of foreign currency that can be imported; however, amounts exceeding 50,000 forints must be declared. Exports of foreign currency cannot exceed the amount of currency that was brought into the country.
Hungary’s legislature in May 2000 began consideration of a proposal that would require executives, attorneys, and accountants of insurance companies to file STRs.
Hungary’s financial intelligence unit is the Anti-Money Laundering Section of Hungary’s National Police. The AMLS receives STRs from financial institutions, and is a member of the Egmont Group. Hungary in 2000 established a criminal investigation bureau within the Tax and Financial Inspection Service to investigate tax evasion and money laundering.
Hungary has recently entered the offshore financial services market and has licensed 300 international business companies . It does not provide offshore banking.
Hungary has a Mutual Legal Assistance Treaty with the United States. Hungary also has information sharing agreements with Austria, Slovakia, and Cyprus for the exchange of information related to money laundering. In January 2000, Hungary and the United States signed a non-binding information-sharing agreement that enables US and Hungarian law enforcement to work together more closely on organized crime and related illicit transnational activities. Hungary has signed similar cooperation agreements with 22 other countries. In May 2000, Hungary and the US Federal Bureau of Investigation established a joint task force to combat Russian organized crime groups.
Hungary is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures , and underwent a mutual evaluation by this group that was published in June 1999. Hungary is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
The Government of Hungary has initiated only four major money laundering investigations in the last several years, and has not yet had a successful prosecution. The GOH is urged to remove any legal and institutional impediments that prevent it from bringing money-laundering investigations to a successful conclusion. Moreover, the GOH should approve and fully implement legislation that requires executives, attorneys, and accountants of insurance companies to file STRs. The GOH also should eliminate anonymous bearer passbooks. However, none of these measures will be effective until the GOH devotes more resources to investigate money-laundering allegations and to tighten oversight of organizations that are required to file STRs.
India . Money laundering is a growing concern in India because of its large population and emergence as a regional financial center. The hawala alternative remittance system reportedly is used by criminals to launder money generated from drug trafficking, alien smuggling, corruption, and financial fraud.
The Narcotic Drugs and Psychotropic Substances Act of 1985, amended in 1988, calls for the tracing and forfeiture of assets that have been acquired through narcotics trafficking, and prohibits attempts to transfer and conceal those assets. This legislation seems to have the effect of criminalizing drug money laundering. The Code of Criminal Procedure, 1973, Chapter XXXIV establishes India’s basic framework for confiscating the proceeds of crime. The Criminal Law Amendment Ordinance of 1944 allows for the attachment and forfeiture of money or property obtained through bribery, corruption, criminal breach of trust, or theft, and of assets that are disproportionate to an individual’s known sources of income.
The Indian Parliament continues to consider draft legislation that would explicitly criminalize money laundering, impose reporting requirements on financial institutions and intermediaries, and provide for seizure and confiscation of assets related to the proceeds of crime. The bill was referred to a select committee of the upper house of India’s parliament, which has made certain recommendations. These are currently under review by the executive branch.
The GOI does not have a financial intelligence unit ; and legislation currently before the parliament does not call for the establishment of an FIU. The Central Economic Intelligence Unit is the Government of India’s lead organization for fighting financial crime. Other organizations such as the Directorate of Revenue Intelligence, Customs and Excise, and the Reserve Bank of India also play a role in the enforcement of India’s anti-money laundering laws.
India is a party to the UN 1988 Drug Convention, and is a member of the Asia/Pacific Group on Money Laundering.
The GOI should adopt comprehensive anti-money laundering legislation, and create an FIU that would analyze suspicious transactions reports and cooperate with FIUs from other countries.
Indonesia . Indonesia’s strategic geographic location, strict bank secrecy, and inadequate legislation against money laundering and corruption have made its economy vulnerable to money laundering. Indonesia is not an offshore center. Most money laundering in Indonesia is believed to be related to domestic narcotics trafficking, fraud, and corruption. In recent years, several Indonesian banks have become the targets of fraud schemes and corruption that may have been prevented if adequate safeguards had been in place, indicating that the country’s financial regulatory system also is inadequate.
In July 2000, Indonesian police officials at a cyber crime conference described recent cases that have involved credit card fraud, computer hacking, and other financial crimes. Despite their ongoing efforts, the Indonesian National Police still lack the appropriate resources, training, and expertise to mount complex investigations. In August 2000, the US Government provided anti-money laundering training to representatives of Indonesian law enforcement.
Draft legislation that is the subject of discussion between the administration and parliament, the Eradication of Criminal Acts of Money Laundering , would criminalize money laundering and establish suspicious transactions reporting for financial institutions, currency transactions reporting, and cross-border currency reporting. ECAML also would establish the Commission for the Eradication of Criminal Acts of Money Laundering . CECAML would receive and analyze currency and suspicious transactions reports, and offer assistance in criminal money laundering investigations.
Indonesia is a member of Asia Pacific Economic Cooperation , and the Asia/Pacific Group on Money Laundering . Indonesia is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
The lack of an adequate anti-money laundering and enforcement regime will continue to put Indonesia’s financial system at risk to financial crime. Indonesia should pass comprehensive anti-money laundering legislation and enact bank supervisory practices that are consistent with accepted international standards. In addition, the GOI should investigate the use of non-bank facilities that are frequently used to launder money.
Iran . Iran is not a regional financial center. Iranian law enforcement officials reportedly carry out financial investigations in the context of drug crimes. Iran does not have legislation that criminalizes money laundering.
Iran’s real estate market is widely used as an alternative remittance system. For example, real estate transactions take place in Iran, but no funds change hands there; rather, payment is made overseas. This typically is done because of the difficulty in transferring funds out of Iran and the weakness of Iran’s currency, the rial. The real estate market, in at least one instance, has been used to launder narcotics-related funds.
Iran is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Ireland . The primary sources of funds laundered in Ireland are derived from tax offenses, fraud, and drug trafficking. Money laundering occurs in financial institutions and bureaux de change, the latter of which are not regulated. Additionally, investigations in Ireland indicate the continued use of professionals specializing in the creation of legal entities as a means for laundering money. Trusts are also established as a means of transferring funds from Ireland to offshore locations. It is difficult to establish the true beneficiary of the funds, which makes it difficult to follow the money trail and establish a link between the funds and the criminal.
Ireland’s offshore banking is concentrated in Dublin’s International Financial Services Centre . The IFSC has a preferential 10-percent corporate tax rate. Approximately 400 international financial institutions and companies operate in the IFSC. Services offered include fiscal management, re-insurance, fund administration and foreign exchange dealing. The IFSC companies are regulated by the Central Bank of Ireland.
The Criminal Justice Act 1994 criminalized money laundering relating to drug trafficking and other offenses. It also required financial institutions to report suspicious transactions and currency transactions exceeding approximately US $15,000, implement customer identification procedures and retain records of financial transactions. Subsequent legislation added requirements for the implementation of anti-money laundering programs and for training in the identification of suspicious transactions.
A number of the suspicious transaction reports, as well as requests for assistance from Financial Action Task Force members, have cited the use of solicitors, accountants and company formation agencies in Ireland to create shell companies. Investigations have disclosed that these companies are used to provide a series of transactions connected to money laundering, tax offenses, and other fraudulent activity. The difficulties in establishing the beneficial owner of such a company are complicated by the fact that the directors are usually nominees and are often principals of a solicitors’ firm or of a company formation agency.
Ireland has recently proposed a new Finance Act and a new Company Law Act to address these concerns. The new Company Act will require all newly registered Irish companies to engage, at least in part, in business dealings within the State. It also contains a general requirement that at least one director reside in Ireland.
New legislation has recently been introduced to combat money laundering by terrorist organizations. This legislation contains provisions addressing the forfeiture of property when it is used by or connected with a terrorist organization.
The Bureau of Fraud Investigation serves as Ireland’s financial intelligence unit. The Bureau analyzes financial disclosures and is a member of the Egmont Group.
To date, 30 individuals have been charged with money laundering in Ireland, and 17 have been convicted in Irish courts.
Ireland is a member of the European Union , Council of Europe and the Financial Action Task Force . Ireland is also a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
Isle of Man, The . The Isle of Man is a Crown Dependency of the United Kingdom. Its sophisticated offshore center continues to be vulnerable to money laundering, particularly at the layering and integration stages.
In 2000, the Financial Action Task Force conducted a review of the IOM’s anti-money laundering regime against 25 specified criteria. The IOM was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report raised certain concerns about the IOM’s anti-money laundering regime:
…the Isle of Man… in place a system for reporting suspicious transactions. Where the underlying criminal conduct is drug trafficking or terrorism, the obligation to report is a direct one. Where the underlying criminal conduct is another predicate offence, the reporting is an “indirect obligation”-failure to make a report potentially leaves one open to a charge of money laundering; making a report is a defence against such a charge….
…the Isle of Man … certain intermediaries, and individuals, which are subject to the same anti-money laundering standards and supervision as financial institutions, to introduce business to banks and financial institutions on the basis that the introducers themselves verify the identity of the customer. In addition, the jurisdictions allow certain institutions based in certain overseas countries, subject to equivalent anti-money laundering systems, to introduce business, without separately verifying the identity of the client. Banks and other financial institutions in the …Isle of Man … are only required to know the name of the client but not to verify the identity separately. There is concern as to whether such a system is consistent with FATF Recommendations and provides sufficiently rigorous checks on the identity of clients of banks and financial institutions, especially in cases where the introducer is not a financial institution…
The lack of a stringent scheme to apply the new rules of customer identification for accounts opened prior to their entry into force is also a source of concern. The new rules for customer identification verification were introduced in …the Isle of Man in 1998….
Much of the IOM’s offshore financial services industry consists of “exempt companies” that are not permitted to conduct business on the island and are generally owned by individuals who are not residents of the island. These companies are not required to disclose the identities of beneficial owners, and can issue bearer shares. In the IOM, bearer shares are registered with the name and address of the initial holder. There are approximately 24,300 exempt companies registered in the IOM.
The IOM in 1987 criminalized money laundering related to drug trafficking, and in 1990, added terrorism as a predicate offense. The Criminal Justice Act 1990 extended the government’s confiscation powers to all crimes, and was amended in 1998 to criminalize money laundering related to all serious crimes. In addition, this legislation contains a requirement for reporting suspicious transactions related to drugs or terrorism. The IOM also has enacted the Anti-Money Laundering Code 1998, which imposes reporting and “know your customer” obligations on financial businesses such as lawyers, registered legal practitioners, and accountants holding accounts on clients’ behalf; company service providers; and trust service providers. However, there is an exemption from the identification of customers requirement for business relationships that were formed prior to December 1998. The Code is supplemented by Guidance Notes that define the obligations of the institutions under the revised Code. The insurance sector also has issued Guidance Notes.
Suspicious transactions reports are reported to the Fraud & Financial Investigation Unit , the IOM’s financial intelligence unit. The FFIU belongs to the Egmont Group.
The IOM has announced its intention to end the use of bearer shares, and to require companies to certify to the Financial Services Commission -the entity that regulates the IOM’s financial institutions-that they have created accounts. However, companies will not be required to reveal actual figures to the FSC.
The IOM is a member of the Offshore Group of Banking Supervisors. The IOM cooperates with international anti-money laundering authorities on regulatory and criminal matters. Application of the 1988 UN Drug Convention was extended to the IOM in 1993.
The IOM has made progress toward developing a comprehensive anti-money laundering regime. The IOM should consider further strengthening its anti-money laundering program by making its customer identification rules retroactive.
Israel . Israel is not considered a regional financial center, offshore center, or tax haven. In the past, Israel’s banking system had been vulnerable to money laundering because of its bank secrecy laws. Israeli law enforcement officials report that it has no information that confirms the existence of organized criminal groups laundering money in Israel. However, foreign law enforcement reports indicate that organized crime groups launder money in Israel. Moreover, US law enforcement has seen the use of Israeli-based or linked accounts or targets in a variety of money laundering undercover operations.
In June 2000, the Financial Action Task Force identified Israel as a noncooperative country in the international fight against money laundering. The FATF in its report cited:
The absence of anti-money laundering legislation causes Israel to fall short of FATF standards in the areas of mandatory suspicious transactions reporting, criminalization of money laundering arising from serious crimes and establishment of a financial intelligence unit. Israel also is partially deficient in the area of record keeping, since this requirement does not apply to all transactions. However, Israel already meets FATF standards in the areas of regulation of financial institutions, licensing, and screening procedures for banking corporations, and the international cooperation in regulatory investigations. Israeli banking regulations address the issue of customer identification.
The US Treasury Department issued an advisory to US financial institutions advising them to “give enhanced scrutiny” to all financial transactions involving Israel.
In August 2000, Israel enacted legislation, the Prohibition on Money Laundering Law , 5760-2000, that criminalizes money laundering, and imposes on financial services providers the obligation to identify, report, and keep records of specified transactions. The law establishes possession of unlawful property, publication of pornography, public corruption, copyright violation, counterfeiting, gambling, trafficking in persons, fraud, drug smuggling, and auto theft as predicate offenses for money laundering. The PMLL also prescribes an obligation on persons entering or leaving Israel to report monies brought into or taken out of the country. These obligations will come into effect on a date to be set by the Minister of Justice, but not later than 18 months after the law’s enactment. The full effect and value of these legislative changes cannot be determined, however, until the implementing regulations are fully in place and enforced.
In November 2000, Israeli police issued the Reporting to Police Regulation, which establishes mechanisms for reporting transactions that involve prohibited property.
In early January 2001, the Israeli Knesset Constitution, Law and Justice Committee approved regulations that address customer identification, transactions reporting requirements, and records retention. The regulations will become effective one year from the date they are signed into law. Under these new regulations, Israeli banks must report the following transactions:
* Deposits and withdrawals of currency equal to or greater than Israeli New Shekel 200,000 .
* Cash transactions equal to or greater than NIS 200,000 that are not conducted via the customer’s account.
* Exchange of currency equal to or greater than NIS 50,000 .
* Issuance of bank checks equal to or greater than NIS 200,000. Checks issued against a home loan of NIS 1 million or less are exempted.
* Purchase of travelers’ checks equal to or greater than NIS 200,000.
* Deposit of foreign-currency checks equal to NIS 1 million.
* Transfers to and from Israel equal to or greater than NIS 1 million.
Banks will not be required to report such transactions that are conducted by public institutions, banks, credit card companies, insurance companies, or similar entities.
Israel also is in the process of establishing a Money Laundering Authority that will include a financial intelligence unit , and will coordinate information and activities with Israeli law enforcement, customs, banks, and other relevant entities.
Israel and the United States have a Mutual Legal Assistance Treaty. Israel does not have bilateral agreements with other countries concerning money laundering. Israel has signed the 1988 UN Drug Convention, but has not yet become a party to it. In December 2000, Israel signed the UN Convention against Transnational Organized Crime.
Effective implementation and enforcement of anti-money laundering legislation is critical to protecting Israel’s financial system from continued abuse by criminals and criminal organizations. In particular, the GOI should establish its FIU as quickly as possible, and ensure that it has the necessary equipment and personnel to operate effectively.
Italy . 2020 Air Jordan 34 Low PF “Pure Money” For Sale CU3475-100 Italy’s large financial sector is vulnerable to money laundering; in 1997, money laundering in Italy was estimated to exceed US $50 billion. Italy is a drug consumption country and a transshipment point for moving illicit narcotics into western Europe. Italian organized criminal groups-particularly those in the southern part of the country-continue to engage in narcotics and alien smuggling, contraband cigarettes smuggling, extortion, usury, and kidnapping, and launder the proceeds of these activities through Italian banks, casinos, real estate, and the gold market. For example, Italian, Albanian and Montenegrin criminal organizations form offshore companies to purchase bulk cigarettes that are marked for export, and smuggle them into Italy where they are sold tax-free throughout the European Union. This highly lucrative trade is made more attractive by relatively light penalties-a maximum of five years in prison. In 1999, actual seizures of contraband merchandise by the Government of Italy indicate that Italy lost more than US $1 billion in tax revenue.
In May 2000, Swiss police arrested alleged organized crime kingpin Gerardo Cuomo in a joint operation with Italian anti-Mafia police. The Government of Switzerland in November 2000 approved Cuomo’s extradition to Italy where he will face charges of smuggling, criminal conspiracy, and money laundering.
Italian law criminalizes money laundering related to any crime. A wide range of financial institutions-including stock brokerages, exchange houses, and insurance companies-must identify their customers, record and report transactions above 20 million lire , and report suspicious transactions. In addition, institutions and individuals must report cross-border movements of currency that exceed 20 million lire. The GOI also has in place a system for tracing, freezing, seizing, and confiscating assets. In accordance with Council of Europe procedures, the GOI is committed to sharing these assets with cooperating countries.
Decree No. 153/97 designates the Ufficio Italiano dei Cambi as the recipient of suspicious transactions reports ; provides a “safe harbor” provision for individuals who report suspicious transactions; and creates an inter-ministerial commission to coordinate anti-money laundering among Italian law enforcement and regulatory agencies. The decree also establishes organizational links among agencies that are involved in the fight against organized crime, and encourages international cooperation against money laundering.
Italy’s financial intelligence unit, the UIC, is a member of the Egmont Group. The UIC receives and analyzes financial disclosures, and forwards them to the appropriate law enforcement agency-the Anti-Mafia Directorate or the Guardia di Finanza-for further investigation when deemed necessary. The UIC also performs supervisory and regulatory functions such as issuing decrees, regulations, and circulars.
Italy is a member of the Financial Action Task Force , and held its presidency from 1997 to 1998. In 1997, Italy underwent a second-round FATF mutual evaluation. Italy also is a member of the European Union . Italy is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. Italy and the United States have a Mutual Legal Assistance Treaty and an extradition treaty in place, and cooperate on money laundering cases. Italy has information sharing agreements with other countries for the exchange of information related to money-laundering cases. Moreover, the GOI has a number of bilateral agreements with foreign governments in the area of investigative cooperation on drug trafficking and organized crime.
Although the GOI has comprehensive internal auditing and training requirements for its financial sector, implementation of these measures by non-bank financial institutions still lags behind that of banks, as evidenced by the relatively low number of suspicious transactions reports that have been filed by non-bank financial institutions. The GOI should therefore increase its training efforts and supervision in the area of non-bank financial institutions to decrease their vulnerability to money laundering.
Jamaica . Jamaica has not developed into a significant regional financial center or offshore banking center. However, money laundering does occur, primarily through the purchase of assets such as cars and real estate. The laundering of proceeds through Jamaican banks and financial institutions does not appear to be prevalent.
The Government of Jamaica passed the Money Laundering Act in December 1996, but it was not implemented until January 5, 1998. The financial sector complained that the process of reporting threshold transactions-involving US $10,000 or more in cash-was an onerous burden. In March 1999, an amendment raised the reporting threshold to US $50,000 for all financial institutions except persons licensed to operate an exchange bureau , who have a reporting threshold of US $8,000. In addition, the amendment introduced suspicious transaction reporting. In February 2000, the Act was further amended to expand the predicate offenses to include fraud, firearms trafficking, and corruption.
In accordance with powers contained in the MLA, the Director of Public Prosecutions sent a letter to local banks, cambios, and building societies, requesting implementation of a new suspicious transaction reporting form that details why a transaction is considered suspicious. The form, which was distributed to the local financial sector in October 2000, will help investigators in analyzing whether a reported transaction is the result of money laundering.
The Government of Jamaica recently submitted to Parliament a package of bills intended to strengthen regulation of the country’s financial sector. The bills include amendments to the Bank of Jamaica Act that are designed to strengthen the authority of the BOJ’s financial institutions supervisory division. Other proposed legislation would establish an independent, non-bank supervisory agency-the Financial Services Commission -which would become operational on April 1, 2001 . FSC would regulate financial markets, insurance companies, pension funds, and financial advisors.
In addition to the proposed legislation, the GOJ is taking administrative steps to establish a regulatory policy council that would coordinate the regulatory functions of the BOJ, FSC, and the Jamaica Deposit Insurance Company. The GOJ also plans to establish a commercial court and a financial crimes investigation unit. These steps are part of the GOJ program to rehabilitate the Jamaican financial sector after its 1996-1997 collapse and to prevent future banking crises.
Jamaica has established a Financial Analysis Unit to assist in the implementation of its anti-money laundering program. The unit is responsible for receiving, analyzing, and developing information from suspicious activity reports. At the request of the US Embassy in Jamaica and the GOJ, FinCEN visited the FAU on September 5, 2000 to determine its training and technical assistance needs. The unit is in its initial stage of development; however, it is expected to be operational in early 2001. The unit has been collecting threshold reports since 1998. The total number of reports received is unknown because they are too numerous to count easily, although they have received at least 5,000 reports from one bank. The unit has been collecting Suspicious Activity Reports since 1999, and has received 22 SARs to date.
Two data entry clerks will be detailed to the FAU from the Organized Crime Unit to enter the collected threshold reports and SARs once the FAU receives a software package for the collection and analysis of SARs. After the financial data has been entered, two analysts from the Organized Crime Unit will also be detailed to the FAU for a period of six months. The analysts will be responsible for analyzing the data and forwarding financial reports to the financial crimes investigation unit for a more thorough investigation.
Jamaica is a party to the 1988 UN Drug Convention. Jamaica is a member of the Caribbean Financial Action Task Force and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Jamaica and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995.
The GOJ continues to make progress in bringing its anti-money laundering regime in line with international standards. There is a genuine commitment on the part of the GOJ and the Public Prosecutors Office to combat money laundering and to cooperate with regional and international governments. The GOJ should take steps to further strengthen its money laundering law by extending it to cover the laundering of proceeds from all serious crimes and require declarations of large cross-border movements of currency or monetary instruments. The GOJ should also ensure that the FAU is sufficiently staffed and resourced and is brought into operation as soon as possible.
Japan . Japan is an important world financial center and is believed to be a major money laundering center. The principal sources of laundered funds are drug trafficking and financial crimes as well as the proceeds from violent crimes, mostly linked to Japan’s criminal organizations, e.g., the boryokudan. The Japanese National Policy Agency estimates that the boryokudan’s illegal activities generate annually several billion dollars in proceeds. US law enforcement reports that drug-related money laundering investigations initiated in the US periodically show a link between drug-related money laundering activities in the U.S and bank accounts in Japan.
Prior to 1999, Japanese law only criminalized narcotics-related money laundering. The Anti-Drug Special Law, enacted in 1991, criminalized drug-related money laundering, mandated suspicious transaction reports for the illicit proceeds of drug offenses, and authorized controlled drug deliveries. This legislation also created a system to confiscate illegal profits gained through drug crimes. The seizure provisions apply to tangible and intangible assets, direct illegal profit, substitute assets, and criminally derived property that has been commingled with legitimate assets. The limited scope of the law and the burden required of law enforcement to prove a direct link between money and assets to specific drug activity severely limited the law’s effectiveness. As a result, Japanese police and prosecutors have undertaken few investigations and prosecutions into suspected money laundering.
Pursuant to the 1999 Anti-Organized Crime Law, which came into effect in February 2000, Japan expanded its money laundering law beyond drug trafficking to include money-laundering predicates such as murder, aggravated assault, extortion, theft, fraud, and kidnapping. The new law also extended the confiscation laws to include the additional money laundering predicate offenses and to include value-based forfeitures, and authorized electronic surveillance of organized crime members.
To facilitate exchange of information related to suspected money laundering activity, the law established the Japan Financial Intelligence Office as Japan’s financial intelligence unit. Financial institutions in Japan report suspicious transactions to the JAFIO as instances of suspicious transactions are discovered. The number of suspicious transaction reports continued to increase during the first eleven months of 2000, rising from 900 in 1999 to over 4,000 in 2000.
Japanese banks and financial institutions are required by national laws to record and report the identity of customers engaged in large currency transactions. There are no secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement authorities. Under the 1998 Foreign Exchange and Foreign Trade Control Law, banks and other financial institutions must report transfers abroad of five million yen or more. Domestic laws also require banks and financial institutions to maintain records for an adequate period of time should they be needed to reconstruct significant transactions. This requirement is not specifically narcotics-related.
Japanese financial institutions have cooperated, when requested, with law enforcement agencies, including US and other foreign government agencies investigating financial crimes related to narcotics. Japan has not adopted “due diligence” or “banker negligence” laws that make individual bankers responsible if their institutions launder money, but there are administrative guidelines in existence that require due diligence. The law does, however, protect bankers and other financial institution employees who cooperate with law enforcement entities.
The 1998 Foreign Exchange and Foreign Trade Control Law required travelers entering and departing Japan to report physically transported currency and monetary instruments exceeding one million yen or its equivalent in any other foreign currency to customs authorities. The reporting requirement is virtually ignored by travelers, however, because there is no meaningful penalty for failure to report.
Japan is a party to the 1988 UN Convention and has adopted formal articles of ratification. In December 2000 Japan signed the United Nations Convention against Transnational Organized Crime. Japan is a member of and also chaired the Financial Action Task Force from June 1998 to June 1999. The JAFIO joined the Egmont Group of FIUs in 2000. Japan is also a member of the Asia/Pacific Group against Money Laundering . Japan has endorsed the September 1997 Basle committee’s “Core Principles for Effective Banking Supervision.”
Japan has not enacted laws that allow for sharing of seized narcotics assets with other countries. However, the Japanese Government cooperates with efforts by the US and other countries to trace and seize assets, and makes use of tips on the flow of drug-derived assets from foreign law enforcement efforts to trace funds and seize bank accounts.
The government of Japan should stringently enforce the Anti-Organized Crime Law, which will enhance Japan’s ability to combat a wide range of money laundering activities. The Government of Japan has many legal tools and agencies in place to successfully detect, investigate and combat money laundering. Japan could strengthen its anti-money laundering regime by enacting penalties for non-compliance with the Foreign Exchange and Foreign Trade Law, adopting measures to share seized assets with foreign governments, and strongly enforcing banker “due diligence” provisions.
Jersey . The Bailiwick of Jersey, one of the Channel Islands, is a Crown Dependency of the United Kingdom. Jersey’s sophisticated offshore services industry continues to be vulnerable to money laundering at the layering and integration stages. Jersey’s financial sector is regulated by the Jersey Financial Services Commission , which has responsibility for Jersey’s banks, building societies, insurance companies, and collective investment schemes. The Company Registry also falls under the purview of the FSC.
The Drug Trafficking Offenses Law of 1988 criminalized money laundering related to drug trafficking, and the Prevention of Terrorism Law of 1996 did the same for money laundering related to terrorist activity. The Investment Business Law 1998 brings investment advice, management, and dealing into regulation. The FSC is authorized to issue Codes of Practice, and to inspect institutions to ensure that businesses are in compliance. The reporting of suspicious transactions is mandatory under the drug trafficking and terrorism anti-money laundering laws. The Proceeds of Crime Law 1999 extended the predicate offenses for money laundering to all offenses that are punishable by at least one year in prison. Offenses committed abroad are covered in cases where the conduct, if it had occurred in Jersey, would have constituted a predicate offense. There is no exception for fiscal offenses.
In August 2000, the FSC issued an Anti-Money Laundering Guidance Update that provides guidance to the financial services industry, particularly in doing business with sensitive sources. The Guidance instructs Jersey financial institutions to familiarize themselves with each advisory issued by the US Department of Treasury. The Guidance also advises financial services businesses to exercise a higher degree of awareness of the potential problems associated with taking on politically sensitive clients from jurisdictions where bribery and corruption is widely considered to be prevalent.
In May 2000, Jersey approved the Financial Services Law 2000. This legislation amended the Investment Business Law by extending Jersey’s financial regulations to Jersey’s approximately 300 trust and company services providers. Businesses that provide company administration, trustee, or fiduciary services are subject to the law. Secondly, in the course of providing such services, the person must provide any one of a number of services, such as being a company formation agent, a director, a secretary, the provider of registered office, or the provider of accommodation address or acting as trustee. Under the new law, the FSC can visit businesses to ensure they are fully compliant with the law’s standards.
The proposed International Co-operation Law would follow the Financial Services Law, and provide Jersey with additional authority to assist other law enforcement agencies in pursuing criminals where an offense has been identified and is being investigated.
The Joint Police and Customs Financial Investigation Unit is responsible for receiving, investigating and disseminating suspicious transaction reports . The Unit includes Jersey Police and Customs officers, as well as a financial crime analyst. The JCPFIU is a member of the Egmont Group.
Jersey’s large offshore industry includes approximately 20,000 “exempt companies,” many of which act solely as asset holding companies; all are limited to transacting business outside Jersey. Exempt companies pay no Jersey taxes. The offshore industry also consists of bank deposits of US $150 billion, mutual funds of US $100 billion, insurance companies , investment advice, dealing and management companies ; and trust and company administration companies. The total value of funds administered in Jersey exceeds US $300 billion. These services and facilities combine to offer other services such as private banking for high net worth individuals and corporate services, such as share option schemes and securitizations. Jersey does not distinguish between offshore and onshore banks. Its 74 banks are supervised by the FSC and can be accessed by both residents and non-residents alike.
The FIU recently redesigned the format of Jersey’s STRs; filers may select from a broad list of suspected crimes such as drugs, terrorism, fraud, tax fraud, revenue fraud, insider dealing, corruption, unknown/undetermined, regulatory matters, and “other.”
The Offshore Group of Bank Supervisors carried out a Financial Action Task Force -style mutual evaluation of Jersey. The final report, approved in September 2000, concluded that Jersey was “close to complete adherence” to the FATF 40 Recommendations.
In 2000, the Financial Action Task Force conducted a review of Jersey’s anti-money laundering regime against 25 specified criteria. Jersey was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report noted the following about Jersey’s anti-money laundering regime:
…Jersey… in place a system for reporting suspicious transactions. Where the underlying criminal conduct is drug trafficking or terrorism, the obligation to report is a direct one. Where the underlying criminal conduct is another predicate offence, the reporting is an “indirect obligation”-failure to make a report potentially leaves one open to a charge of money laundering; making a report is a defence against such a charge….
…Jersey… certain intermediaries, and individuals, which are subject to the same anti-money laundering standards and supervision as financial institutions, to introduce business to banks and financial institutions on the basis that the introducers themselves verify the identity of the customer. In addition, the jurisdiction allows certain institutions based in certain overseas countries, subject to equivalent anti-money laundering systems, to introduce business, without separately verifying the identity of the client. Banks and other financial institutions in …Jersey…are only required to know the name of the client but not to verify the identity separately. There is concern as to whether such a system is consistent with FATF Recommendations and provides sufficiently rigorous checks on the identity of clients of banks and financial institutions, especially in cases where the introducer is not a financial institution.
The lack of a stringent scheme to apply the new rules of customer identification for accounts opened prior to their entry into force is also a source of concern. The new rules for customer identification verification were introduced in…Jersey in 1999…
Application of the 1988 UN Drug Convention was extended to the Bailiwick of Jersey on July 7, 1997. Jersey formally endorsed the FATF recommendations on July 21, 1997.
Jersey has established a comprehensive anti-money laundering program, and has demonstrated its commitment to fighting financial crime. Jersey officials cooperate with international anti-money laundering authorities. Jersey should ensure full and timely implementation of its anti-money laundering legislation, and continue to monitor its anti-money laundering program, in order to deter criminals from using the island to launder money.
Jordan . Jordan is not a regional financial center, and the Government of Jordan regulates foreign exchange transactions.
The GOJ has not yet criminalized any form of money laundering. Jordanian law enforcement officials report that some financial institutions cooperate with prosecutors’ requests for information related to drug trafficking cases. Jordan’s central bank has instructed financial institutions to be on the lookout for customers engaging in “dubious” transfers, and to be particularly careful when handling foreign currency transactions, especially if the amounts involved are large or if the source of funds is in question. Depositors are not required to disclose the origin of large currency deposits or transactions.
Jordan is a party to the 1988 UN Drug Convention.
Kazakhstan . Kazakhstan’s relatively advanced financial infrastructure, combined with a significant organized crime presence, puts it at risk for money laundering. More than 200 organized crime groups with ties to similar groups in the United States and Europe are believed to exist in the country.
Kazakhstan has criminalized money laundering for narcotics and other serious crimes. However, inadequate financial controls make detection of money laundering difficult. Bank examiners are not trained to look for evidence of money laundering, but rather focus on traditional safety and soundness concerns. Furthermore, new banking laws went into effect in 2000 that require tax police and investigators to go through local prosecutors in order to obtain bank records. Records may be released only if the prosecutor deems an investigation is warranted.
The United States intends to continue to work closely with local authorities to provide Kazakhstani financial institutions with money laundering and fraud related training and assistance. The US will also continue to consider the government’s request for a memorandum of cooperation in fighting economic crimes and fiscal offenses.
Kazakhstan is a party to the 1988 UN Drug Convention and in December 2000, it signed the UN Convention against Transnational Organized Crime.
Kenya . Kenya’s capital, Nairobi, has approximately 50 banks and is a regional financial center for East Africa. Kenya does not have an offshore sector.
The Government of Kenya criminalized money laundering related to drug trafficking through Section 49 of the Narcotics Drugs and Psychotropic Substances Act, 1994. Narcotics-related money laundering is punishable by a maximum prison sentence of 14 years. The GOK has not made any arrests for money laundering; however, Kenyan authorities in 2000 seized the assets of several individuals implicated in a drug trafficking scheme.
The GOK requires banks to maintain records on customers who conduct large transactions. In 1999, the President of Kenya issued a statement denouncing money laundering and granted the Central Bank of Kenya authority to supervise all Kenyan banks. Kenya does not have in place strong cross-border currency controls.
Kenya is expected to sign the memorandum of understanding for the newly formed Eastern and Southern Africa Anti-Money Laundering Group . In November 2000, GOK officials attended an anti-money laundering conference that was co-sponsored by the Government of Tanzania and the East Africa Community Secretariat. The conference’s objectives were to help government officials identify different types of money laundering, and the threat that they pose to their country’s financial institutions and economies.
Kenya is a party to the 1988 UN Drug Convention.
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Korea . The exact money-laundering situation within North Korea is unknown. What little that is known of North Korea’s money laundering operations is that it continues to use Macau as a base of operation for money laundering and other criminal activities. The link with Macau provides international access to financial systems for individuals within the Democratic People’s Republic of Korea . North Korea’s state-owned mint is also alleged to print counterfeit US dollars for laundering in Macau.
Korea . The Republic of Korea has been used as a transit country for international narcotics trafficking. The Republic of Korea’s domestic consumption of narcotics is also on the rise. Organized crime is beginning to gain a hold in the business sector due to corruption and cronyism. Estimates of the amount of money laundered vary. According to the Korea Institute for International Economic Policy study, some 48-147 trillion won in funds were illegally laundered in 1998 , although other figures set it between 54-169 trillion won . Another 25-50 trillion won in illegal capital offshore transfers are expected once the foreign exchange liberalization goes into effect in January 2001.
In 1995, the Republic of Korea criminalized the laundering of narcotics proceeds with the adoption of the Act against Illicit Trafficking in Drugs. An amendment made to this act in 1997 requires financial institutions to report transactions known to be connected to narcotics trafficking to the Prosecutor’s Office. Two other pieces of legislation address money laundering in the Republic of Korea. The Act on Real Name Financial Transaction and Guarantee of Secrecy, enacted in late 1997, banned all financial transactions using anonymous, fictitious, and nominee names. The Anti-Public Corruption Forfeiture Act of 1994 provided for the forfeiture of the proceeds of assets derived from corruption.
The government’s financial investigations continue to focus on preventing the illegal transfer of funds out of the country. On January 1, 2001, the Korean government implemented the second phase of foreign exchange liberalization. In conjunction with this, the Ministry of Finance and Economy launched a preparatory organization for a financial intelligence unit on April 2000 and drafted two related laws. They are the so-called “Law for Reporting and Using Information of Specific Financial Transactions” and “Law for Prohibition and Punishment of Hiding Criminal Gains.” These bills contain various anti-money laundering provisions; however, no action was taken on these measures in 2000.
The Republic of Korea is a party to the 1988 UN Drug Convention and in December 2000 signed the United Nations Convention against Transnational Organized Crime. The Republic of Korea is a member of the Asia/Pacific Group on Money Laundering. In 1998, the United States and the Republic of Korea signed an extradition treaty, which entered into force in December 1999. The United States and the Republic of Korea cooperate in judicial matters under a 1993 Mutual Legal Assistance Treaty, which entered into force in 1997.
The Republic of Korea needs to enact and enforce legislation that will criminalize the laundering of proceeds from all serious crimes, require the reporting of all suspicious transactions, and establish a financial intelligence unit to work with domestic and international authorities to combat the threat of money laundering.
Kuwait . Kuwait is not a major regional banking sector; it has six commercial banks, two specialized banks, one Islamic bank, and a branch of a Bahrain-based bank. Kuwait does not have anti-money laundering legislation. Kuwait’s central bank in June 1997 ordered domestic banks to take measures to prevent money laundering such as checking clients’ identities and the nature of their business. Banks also are to inform the central bank of all cash deposits that exceed the equivalent of US $33,000, and funds transfers that are “irregular.” In 1999, the Government of Kuwait proposed anti-money laundering legislation that has not yet been approved by Kuwait’s National Assembly.
Kuwait is represented before the Financial Action Task Force by the Gulf Cooperation Council. Kuwait in December 2000 became a party to the 1988 UN Drug Convention and signed the UN Convention against Transnational Organized Crime.
The GOK should develop and implement anti-money laundering legislation that meets accepted international standards.
Kyrgyzstan . Kyrgyzstan is not a financial center, and money laundering is not considered a major problem. However, Kyrgyzstan has not criminalized money laundering and has no anti-money laundering legislation. The central bank has provisions that require customer identification procedures and make an exception to bank secrecy rules for suspicious transaction reporting, but these provisions are believed to be generally ignored by the commercial banks. Oversight of the banking sector remains weak and Kyrgyzstan’s law enforcement agencies do not have the resources to conduct effective financial investigations.
The major sources of illegal proceeds remain narcotics trafficking, embezzlement of foreign aid by government officials, smuggling of consumer goods, official corruption and tax evasion.
Kyrgyzstan is a party to the 1988 UN Drug Convention and in December 2000, it signed the UN Convention against Transnational Organized Crime.
Laos . Laos is not a regional financial center and has no anti-money laundering legislation. Effective anti-money laundering legislation will first require an underlying body of banking law and regulation, most of which currently does not exist. The country does have strict laws on the export of its currency, the Lao kip. The proceeds of drug trafficking most likely are sent to other countries in the region through alternative remittance systems.
The Government of Laos is a party to the 1971 UN Convention on Psychotropic Substances and has stated its goal to become a party to the 1988 UN Drug Convention. The GOL is working with the United Nations Office for Drug Control and Crime Prevention and other foreign consultants to develop the fundamental regulatory framework necessary to bring Laos into compliance with the 1988 Convention. In the interim, the GOL sends its officials to relevant Association of Southeast Asian Nations conferences on regional anti-money laundering practices. In addition, GOL officials have participated in anti-money laundering and white-collar crime training at the International Law Enforcement Academy in Bangkok.
Latvia . Money laundering continues to be a major concern in Latvia, largely because Russian organized crime groups use Latvian banks to launder money. Internet gambling may also increase the risk for money laundering.
Money laundering was criminalized for all serious crimes in 1998. There are requirements for customer identification, the maintenance of records on all transactions, and the reporting of large cash transactions and suspicious transactions to the Control Service, which is Latvia’s financial intelligence unit. Between June 1998 and January 2000, the Control Service received 1,438 disclosures.
In May 2000, a European Union inspection team visited Latvia and conducted a study of their money laundering situation. The team’s report is said to be very positive, although the results cannot be disclosed until the report is final. The final report is expected early in 2001.
On November 7, 2000, the President of Latvia promulgated a law for a public regulator. Previously, the central bank regulated banks, with separate regulators for the Securities & Exchange Commission and insurance companies. The new law establishes one, united regulator, which will bring Latvia in line with the British/Swedish model. This change will take effect in July 2001.
This year, a World Bank report rated all Eastern European countries for corruption. Latvia was rated positively in terms of administrative corruption, but negatively regarding state capture Latvia is establishing an independent anticorruption unit to deal with corruption among high level officials. They are working with OECD on a joint antibribery convention.
Latvia’s financial intelligence unit is the Office for the Prevention of the Laundering of Proceeds Derived from Criminal Activity . The Control Service is a member of the Egmont Group. In addition to its existing software, the Latvian FIU has created new software that collates the data from the internal Control Service database containing information on customers who have conducted unusual or suspicious transactions.
Interagency cooperation between Latvian law enforcement agencies tends to be best at the highest governmental levels, but weaker at the working level. Much of the problem stems from lack of financial, material, and human resources.
Latvia is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and, as a member, underwent a mutual evaluation in March 2000. A Mutual Legal Assistance Treaty has been in effect between the US and Latvia since 1999. Latvia is a party to the UN Drug Convention and in December 2000 Latvia signed the United Nations Convention against Transnational Organized Crime.
The Government of Latvia should research ways to improve cooperation between Latvian law enforcement agencies at the working level. The key to Latvia’s success in combating money laundering will be based on the swiftness and forcefulness with which they continue to strengthen their anti-money laundering program.
Lebanon . The current legal, supervisory, and regulatory systems of Lebanon create significant opportunities for the laundering and protection of the proceeds of crime. Weaknesses in these systems allow criminals to evade effective investigation and punishment. Sources of laundered funds include narcotics, counterfeiting and smuggling. Laundering in Lebanon takes place through the layering of transactions in banks and through the purchase of property and businesses. The Lebanese banking system is frequently used by Syrians who find it difficult to conduct transactions in their own country because of heavy government restrictions. Lebanon’s commitment to bank secrecy and the absence of certain key supervisory and enforcement mechanisms aimed at preventing and detecting money laundering increase the possibility that transactions involving Lebanese entities and accounts will be used for illegal purposes. Lebanon has not to date prosecuted or investigated any cases of money laundering.
An antinarcotics law that came into effect in 1998 criminalized drug-related money laundering, but it is considered inadequate since it does not require the reporting of suspicious or large transactions. It does provide for asset seizure and for piercing bank secrecy in very limited circumstances.
The Banking Control Commission supervises and examines commercial banks. BCC examiners may not review individual deposit accounts, and have no access to depositors’ names. They are to report any “unusual” activity to the central bank. A customer may waive bank secrecy by giving permission for a third party to review account information. International firms, as required by law, audit ninety percent of commercial banks. Non-bank financial institutions such as exchange houses, stock brokerages, money couriers and insurance companies are not required to report unusual activity, but the amount of money they handle is not significant.
Citing the lack of a legal anti-money laundering framework to combat money laundering, in June 2000 the Financial Action Force named Lebanon among its list of 15 jurisdictions that were non-cooperative in international efforts to combat money laundering. The report criticized Lebanon’s strict bank secrecy that restricts access to relevant information, both by administrative and investigative authorities, and also compromises international cooperation.
The United States Treasury has issued an advisory to US financial institutions, indicating they “should give enhanced scrutiny to any transaction originating in or routed to or through Lebanon, or involving entities organized or domiciled, or persons maintaining accounts in Lebanon.” In addition to the concerns outlined in the FATF report, the advisory also noted the fact that money laundering is only a crime in Lebanon with respect to narcotics and public corruption, and that financial institutions operating in Lebanon are not required to report suspicious transactions.
Lebanese officials have indicated an awareness of deficiencies in Lebanon’s anti-money laundering systems, while maintaining that Lebanon is not a significant venue for such illicit activity. The Lebanese cabinet approved a draft law in December 2000 addressing some of the deficiencies outlined in the advisory. The draft law broadens the definition of money laundering to include proceeds obtained from organized crime, illegal arms trafficking, embezzlement of public funds, and counterfeiting of currencies and official documents. If passed by parliament and implemented effectively, the law would significantly strengthen Lebanon’s ability to combat money laundering by:
* Requiring banks, financial institutions, and non-banking financial institutions-such as exchange houses, insurance and leasing companies, mutual funds, real estate developers, and merchants of high-value commodities-to ascertain through official documents the identity and address of their clients and maintain official records of clients and transactions for a period of no less than five years.
* Permitting the government to confiscate the proceeds derived from illegal arms trafficking, embezzlement of public funds and counterfeiting of currencies and official documents.
* Imposing prison terms and cash penalties on persons who disguise, conceal, or participate in money laundering operations or fail to report suspicious transactions.
* Establishing an independent “Special Investigation Commission” and “Financial Investigation Unit” to investigate money laundering operations. The Special Investigation Commission would have the power to lift Lebanon’s stringent bank secrecy laws in order to find the source of illicit proceeds.
In 2000, the Lebanese Bankers Association also made mandatory its formerly voluntary system for self-regulation, the Due Diligence Convention, a set of requirements designed to combat the laundering of money obtained from illegal drug trade. The Convention addresses such issues as customer identification and record keeping. According to the Lebanese Minister of Finance, the Banking Control Commission has formed an anti-money laundering unit, but it is still not operational and it is unclear what its function will be.
In 2000 Lebanese authorities also repealed a law authorizing offshore banking and required all banks to establish internal audit units and procedures. Lebanon has informed the United States that it will officially terminate its membership in the Offshore Group of Banking Supervisors in 2001.
Lebanon is a party to the 1988 UN Drug Convention. However, the Lebanese government expressed reservations over the sections of the Convention pertaining to bank secrecy. Lebanon has endorsed the Basle Core Principles and is in the process of implementing them.
Lebanon should enact comprehensive anti-money laundering legislation that meets international standards. Specifically, Lebanon should criminalize the laundering of proceeds from all serious crimes, and require financial institutions to report suspicious transactions to a central authority that will act on these reports and share this information with foreign governments.
Liberia . Liberia is not a major financial center. However, the country increasingly has become a transshipment point for illicit drugs, diamonds, and other commodities. Liberia’s offshore activity is concentrated in the ship registry business. Offshore companies are permitted to issue bearer shares. Liberia reportedly has 16 banks, but only a small number are open to the public.
In November 2000, Liberia was one of 14 West African countries that created the Intergovernmental Group of Action against Money Laundering .
Liberia is not a party to the 1988 UN Drug Convention.
Liechtenstein . The Principality of Liechtenstein is an important financial center, primarily because of its well-developed offshore financial services sector. The country’s low tax rate, loose incorporation and corporate governance rules, and traditions of strict bank secrecy have contributed significantly to the ability of financial intermediaries in Liechtenstein to attract funds from outside the country’s borders. The same factors have made the country attractive, and vulnerable, to money launderers.
Liechtenstein has chartered 15 banks, three non-bank financial companies, and 16 public investment companies, as well as insurance and reinsurance companies. Its 230 licensed fiduciary companies and 60 lawyers serve as nominees for, or manage, more than 75,000 entities , most for non-Liechtenstein residents; approximately one-third of these entities hold the controlling interest in other entities, chartered in countries other than Liechtenstein. The Principality’s laws permit the corporations it charters to issue bearer shares, and until recently at least, the Principality’s banking laws permitted banks to issue numbered accounts .
Fees paid to Liechtenstein by the corporations and other entities it charters for non-residents account for at least 35 per cent of the Principality’s revenues. Liechtenstein does not tax funds earned by its domiciliary corporations from sources outside of Liechtenstein , and the revenue flow from corporation fees allows Liechtenstein’s taxes on income earned within the country to be relatively low by developed country standards.
Banks, finance companies, and investment businesses chartered or licensed to do business in Liechtenstein are supervised by the Principality’s Financial Services Authority . The FSA is responsible for supervising all banks and fiduciaries licensed to operate in Liechtenstein and has the authority to conduct on-site spot checks and request information as required; however, reliance is placed on a financial institution or intermediary’s approved external auditors for regular compliance examinations and for monitoring implementation of anti-money laundering controls .
Drug-related money laundering has been a criminal offense in Liechtenstein since 1993, but the first general anti-money laundering legislation was added to Liechtenstein’s laws in 1996. Although the 1996 legislation sought to apply some money laundering controls to financial institutions and intermediaries operating in Liechtenstein, the anti-money laundering regime embodied in the legal, supervisory, and regulatory system of Liechtenstein at that time suffered from serious systemic problems and deficiencies.
In June 2000, the Financial Action Task Force named Liechtenstein as one of the 15 countries that had inadequate anti-money laundering regimes and failed to cooperate in international efforts to fight money laundering. The FATF report noted a number of deficiencies in the Principality’s anti-money laundering regime, including: inadequate customer identification rules; a limited and inadequate suspicious transaction reporting system; the absence of a financial intelligence unit; inadequate and ineffective laws and procedures governing international cooperation and the exchange of information to assist in criminal investigations by officials of other countries; and an inadequate dedication of resources overall to anti-money laundering programs.
In July 2000, the United States Department of the Treasury issued an advisory on “Transactions Involving Liechtenstein.” That document advised banks and other financial institutions operating in the United States “to give enhanced scrutiny to all financial transactions originating in or routed to or through” Liechtenstein, or “involving entities organized or domiciled, or persons maintaining accounts, in Liechtenstein.” Other countries that participate in the FATF issued similar advisories concerning Liechtenstein.
After the FATF issued its report, the Government of Liechtenstein took important legislative and administrative action to improve its anti-money laundering regime. The Principality amended its Due Diligence Act, and enacted a new law governing Mutual Legal Assistance in Criminal Matters, on September 15, 2000. It also issued an Executive Order, on December 5, 2000, concerning implementation of the changes in the Due Diligence Act, as well as an Ordinance to establish a financial intelligence unit, and it has revised relevant portions of its Criminal and Criminal Procedure Codes, and its Narcotics Act .
The latest legislative and regulatory changes became effective January 1, 2001. They affect the range of Liechtenstein’s law criminalizing money laundering and the obligations of financial institutions to identify customers, to establish due diligence procedures relating to potentially questionable customer activity, and to report suspicious activity. The FSA issued a Directive 2001/1, “Concerning Indication of Money Laundering,” in January 2001, which is intended “to sensitize financial intermediaries” to the need to recognize situations that call for further inquiry by intermediaries under the changes in Liechtenstein’s due diligence legislation.
The changes to Liechtenstein’s Criminal Code add a wide range of predicate crimes to the definition of money laundering and make other improvements to the Code’s provisions. Of particular importance is a provision enacted in December 2000 that broadens Art. 165 of the Criminal Code to cover “own funds” money laundering offenses in non-narcotics offenses. However, Liechtenstein also added language to Art. 165 prohibiting punishment for money laundering of an individual who had already been punished for committing the relevant predicate offense. The latter provision is an unnecessary restriction that weakens the government’s anti-money laundering enforcement powers. It is important that Liechtenstein fully apply its anti-money laundering efforts to own funds money laundering.
The amendments to the Due Diligence Act eliminate a provision that allowed banks to rely on lawyers and trustees for identifying their clients and now requires banks and all other financial intermediaries to identify their clients and the beneficial owners of accounts. These “know your customer” provisions are effective January 1, 2001, although financial intermediaries are provided with a two year grace period to bring existing accounts into compliance. Liechtenstein’s Banker’s Association, however, requires that its members comply with the new rules within one year.
Under Liechtenstein’s former law, financial institutions did not have to report suspicious transactions unless they had “a strong suspicion” of money laundering and a basis for believing that the funds were derived from narcotics trafficking. The new law permits financial institutions to report suspicious transactions for a broad range of offenses and based on a suspicion. The new provisions are potentially weakened, however, by the fact that before filing a suspicious transactions report , the financial institution must clarify the economic background and purpose of the transaction as well as the origin of the assets, and then file the report only if the suspicion cannot be eliminated. Another perceived weakness in the law is a limitation on the “no tipping off” period that follows the filing of a report, so that financial institutions are permitted eventually to advise customers that they were the subject of a STR. A great deal will thus depend upon the manner in which the new suspicious transaction reporting rules are administered and enforced by Liechtenstein authorities.
The new laws also address the independence of accountants reporting to the FSA on anti-money laundering compliance. Future audits of compliance will cover both systems and individual transactions; individual transactions were not previously included in the permissible scope of compliance audits. The audits must now be conducted by independent accountants who are not the normal external auditors of the company, in contrast to the previous practice . Furthermore, the results of the audits will be provided to the FSA for review.
In December 2000, Liechtenstein created a financial intelligence unit within the FSA, and formed a state police unit, in May 2000, to combat white-collar crime. The FIU is scheduled to become an independent Liechtenstein agency later this year and plans to apply to join the Egmont Group. The Austrian Federal Police are currently training and assisting the Liechtenstein state police in connection with the work of the special police unit focusing on financial crime. The government has also hired additional prosecutors and judges.
The new law on mutual legal assistance took effect on November 6, 2000. The law streamlines the procedure for dealing with foreign requests for legal assistance and reduces from 12 to three the number of permitted appeals from decisions by the Liechtenstein authorities. Liechtenstein has recently appointed three new prosecutors and four new investigating judges who will concentrate initially on dealing with the backlog of cases where legal assistance requests have not yet been executed. Parliament has also approved the appointment of four new judges to process extradition cases through the courts.
The GOL appointed a special prosecutor, in early 2000, to investigate allegations of government collusion in money laundering. In a report in August 2000, the special prosecutor cited serious shortcomings in Liechtenstein’s legislation. He noted that Liechtenstein courts had failed to bring money laundering cases to trial and had been extremely slow in responding to mutual legal assistance requests from other governments. However, the report did not substantiate any allegations of government collusion. The investigations led by the special prosecutor did, however, result in criminal charges being brought against several individuals. In May 2000, six officers and employees of fiduciary firms suspected of money laundering, including an opposition member of Liechtenstein’s parliament, were arrested.
Liechtenstein has in place legislation to seize, forfeit, and share forfeited assets with cooperating countries. During 2000, Liechtenstein authorities blocked more than US $120 million smuggled out of Nigeria by former Nigerian dictator Sani Abacha. The final figures are expected to exceed US $150 million in frozen assets.
Liechtenstein is a member of the Council of Europe Select Committee on Experts on the Evaluation of Anti-Money Laundering Measures , and has signed the 1990 Council of Europe Convention on Laundering, Search and Confiscation of Proceeds from Crime. In December 2001, Liechtenstein signed the UN Convention against Transnational Organized Crime. Liechtenstein has endorsed the Basle Committee Core Principles for effective banking supervision. In April 2000, Liechtenstein and the United States agreed to begin negotiation of a Mutual Legal Assistance Treaty ; those negotiations are expected to begin in 2001.
The GOL has adopted a number of new anti-money laundering measures in 2000 that could dramatically enhance the effectiveness of the country’s anti-money laundering program. The GOL’s success in combating money laundering will be contingent on its political will and on how forcefully and effectively the Principality implements its anti-money laundering program.
Lithuania . Lithuania is vulnerable to money laundering; smuggling, narcotics trafficking, capital flight, profit concealment, and tax evasion most likely are the major sources of illicit funds flowing through Lithuania’s financial system. Russian organized crime groups reportedly have used financial institutions in the Baltics to launder money.
Lithuania amended its criminal code in 1997 to criminalize money laundering related to all crimes. The Law on the Prevention of Money Laundering , which entered into force in January 1998, requires covered financial institutions to report suspicious transactions; identify customers whose transactions exceed litas 50,000 or equivalent in foreign currency; maintain a register of customers who engage in transactions that exceed LTL 50,000 or equivalent in foreign currency; and retain certain documents for a minimum of 10 years. The LPML also specifies information that must be reported to the tax police. The Bank of Lithuania issues currency transaction reporting requirements and regulations, and is required to share money-laundering violation information with law enforcement and other state institutions upon request. Non-bank financial institutions operate under guidelines similar to banks. The BOL has the authority to examine the books, records, and other documents of all financial institutions.
The Money Laundering Prevention Division of the Tax Police is Lithuania’s financial intelligence unit. In 2000, the MLPD initiated three investigations. The United States provides anti-money laundering training to Lithuanian authorities.
Lithuania is a party to the 1988 UN Drug Convention, and in December 2000 signed the UN Convention against Transnational Organized Crime. There is a mutual legal assistance treaty between the United States and Lithuania, which entered into force in 1999. Lithuania is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures , and the MLPD is a member of the Egmont Group.
Luxembourg . Luxembourg is a major world financial center, with over 200 international financial institutions that benefit from the country’s strict bank secrecy laws and operate an unrestricted range of services and activities. The existence of bank secrecy laws, and the size and sophistication of Luxembourg’s financial center, pose major risks for money laundering through Luxembourg’s banks and offshore financial industry. Nevertheless, the Government of Luxembourg plays an active role in the European Union efforts to combat money laundering.
Two laws, the Law of 7 July 1989, updated in 1998, and the Law of 18 December 1993, criminalize the laundering of proceeds for all offenses. These anti-money laundering laws also implement the customer identification, record keeping, and suspicious transaction reporting requirements mandated by the EU anti-money laundering directive.
The Parquet de Luxembourg/Service Anti-Blanchiment, which reports to the Public Prosecutor, serves as Luxembourg’s financial intelligence unit , receiving and analyzing financial disclosures. The FIU is a member of the Egmont Group and has information sharing agreements with Belgium and France.
The Government of Luxembourg licenses offshore banks, non-bank financial institutions and international business companies . Approximately 200 banks operate as “universal banks,” with an unrestricted range of services. Foreign institutions seeking to become established in Luxembourg must demonstrate prior establishment in a foreign country, and meet stringent minimum capital requirements. Banks must undergo annual audits, but only the Commissioner of Bank Control can gain access to the identity of beneficial owners of accounts. In 1999 Luxembourg had 1,650 offshore investment funds, 118 insurance companies , 279 reinsurance companies and approximately 68,000 IBCs. Companies must maintain a registered office in Luxembourg and a government registry lists company directors. However, there is no requirement to identify the beneficial owner of the business and bearer shares are allowed.
Luxembourg is a party to the 1988 UN Drug Convention, and in December 2000 Luxembourg signed the United Nations Convention against Transnational Organized Crime. Luxembourg is a member of the Financial Action Task Force and the Organization for Economic Cooperation and Development . Luxembourg and the United States exchanged instruments of ratification for a Mutual Legal Assistance Treaty on December 20, 2000. The MLAT entered into force in February 2001.
The GOL has enacted laws and adopted practices that help to prevent the abuse of its bank secrecy laws, which are consistent with those of other EU members. However, legal provisions continue to limit or prevent access to information about beneficial ownership of accounts and businesses, which may hinder efforts to combat money laundering. The GOL should address these issues, and strengthen enforcement to prevent international criminals from abusing Luxembourg’s financial sector.
Macau . Macau reverted to Chinese sovereignty in December 1999, and became a Special Administrative Region of the People’s Republic of China with substantial autonomy in all areas except defence and foreign affairs. The new Macau SAR government is implementing law enforcement reforms and is expected to restructure the important gambling industry. Macau has passed anti-money laundering legislation, but there is no active enforcement effort in practice. In a positive step, the Macau SAR government stated in December 2000 that it has agreed to a joint review of its anti-money laundering regime by the Offshore Group of Banking Supervisors and the Asia Pacific Group on Money Laundering . Macau is an observer jurisdiction of the APG.
Macau’s free port, offshore financial services, lack of foreign exchange controls, disaggregated law enforcement agencies, problematic law and order situation, and nascent anticorruption efforts create an environment conducive to money laundering. Macau serves as a gateway to China, and can be used as a transit point to remit funds and criminal proceeds to and from China, Hong Kong, and other Asian countries. Organized crime groups based in Macau are believed to launder their proceeds through joint ventures and real estate purchases in China, or through cross border cash transfers, front companies, real estate purchases, currency exchanges, and alternative remittance systems. Gaming and related services play a critical role in the Macau economy. They account for approximately 40 percent of GDP. Direct taxes from gambling accounted for 43 percent of government revenue in 1999. Organized crime groups are associated with the gambling industry through such activities as racketeering, loan sharking, and prostitution. As a result, it is likely that the casino industry in particular provides an avenue for the laundering of illicit funds.
Macau has enacted three laws that deal with money laundering. These are: the Macau Financial System Act, approved by Decree Law Number 32/93/M on July 5, 1993; the Law on Organized Crime, approved by Decree Law Number 6/97/M on July 30, 1997; and Decree Law Number 24/98/M of June 1, 1998, which established preventive anti-money laundering measures.
The Macau Financial System Act lays out regulations to prevent the use of the banking system for money laundering. It requires the mandatory identification and registration of financial institution shareholders, customer identification requirements, and external auditing. These regulatory measures are applicable to credit institutions and financial companies headquartered in Macau and branches of credit institutions headquartered abroad. In June 1996, the Monetary and Foreign Exchange Authority of Macau issued anti-money laundering guidelines for banks. External audits include reviews of compliance with anti-money laundering statutes.
Article 10 of the Law on Organized Crime criminalizes money laundering for the proceeds of all domestic and foreign criminal activities and contains provisions for the freezing of suspect assets and instrumentalities of crime. Although legal entities may be civilly liable for money laundering offenses, their employees may be criminally liable. The preventive measures in Decree Law Number 24/98/M set forth requirements for reporting suspicious transactions to the Judiciary Police and other appropriate supervisory authorities. These reporting requirements apply to all legal entities supervised by the Monetary Authority, the Inspectorate of Gaming, the Department of Finance, and the Inspectorate of Economic Activities. These entities include pawnbrokers, antique dealers, art dealers, jewelers, and real estate agents.
Macau does not have a standard suspicious transactions report form. Only a minimal number of suspicious transactions reports have been filed since the implementation of Decree Law 24/98/M. None has led to prosecution. Concern in the banking industry about possible retribution from criminal elements is apparently one reason for the small number of suspicious transactions reports from this sector. There have been no reports filed on possible suspicious transactions occurring in the casinos. The Inspectorate of Gaming does not play an active role in preventing money laundering in the casinos. Especially removed from official scrutiny are activities and transactions that occur within quasi-private VIP rooms that cater to clients seeking-and willing to pay for-anonymity within Macau’s gaming establishments. Given the important economic role of the casino industry, there is a concern in Macau about the economic effects of any efforts to combat money laundering. Macau has no financial intelligence unit.
The Monetary and Foreign Exchange Authority of Macau started participating in meetings of the Asia/Pacific Group on Money Laundering five years ago, but Macau is not an official member. Macau is a member of the OGBS.
Macau offers two types of limited liability company formation that have implications for money laundering: public corporations with the suffix designation “SARL” and quota companies with suffix designation “Lda.” Quota companies are more popular with foreign investors. Both types of limited liability companies allow for shielding the identity of beneficial owners since shareholders in quota companies may be nominees and SARLs are allowed to issue bearer shares. Although these commercial entities are subject to Macau’s anti-money laundering legislation, the characteristics allowing for anonymity are attractive for money laundering activities.
The Macau SAR government should place increased priority on the anti-money laundering issue and increase resources devoted to enforcement. It should also consider adopting more effective anti-money laundering legislation, including measures specifically designed to combat money laundering in the casinos and measures that provide for bulk currency and threshold reporting. It should also review provisions in its company formation statutes that prevent authorities from identifying the beneficial owners of businesses that might serve as conduits for money laundering.
Macedonia, Former Yugoslav Republic of . The Former Yugoslav Republic of Macedonia is not a regional financial center. The country’s economy is heavily cash-based because of the population’s distrust of the banking, financial, and tax systems. Money laundering in the FYROM most likely is connected to financial crimes such as tax evasion, financial and privatization fraud, bribery, and corruption rather than narcotics trafficking.
Article 273 of the FYROM’s criminal code, which came into force in 1996, appears to criminalize money laundering related to all crimes. The legislation specifically identifies narcotics and arms trafficking as predicate offenses, and contains an additional provision that covers funds that are acquired from other punishable actions. The Ministry of Finance reportedly has proposed legislation that would require covered financial institutions to identify customers; to retain records for a minimum of five years; and to report suspicious transactions. The legislation also would establish a financial intelligence unit .
The FYROM is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures , and in October 1999, underwent a mutual evaluation by the group. The US Government has provided anti-money laundering training to FYROM law enforcement authorities. The FYROM is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Madagascar . Madagascar is not a regional financial center. Article 102 of Madagascar’s 1997 drug law criminalized money laundering related to drug trafficking.
Madagascar is a party to the 1988 UN Drug Convention, and in December 2000, it signed the UN Convention against Transnational Organized Crime.
Malawi . Malawi has one of the least-developed economies in the world. The country has seven licensed commercial banks , which are supervised by the Reserve Bank of Malawi, Malawi’s central bank. In 1994, the Government of Malawi eliminated its foreign exchange controls.
In 2000 Malawi became a member of the newly formed Eastern and Southern African Anti-Money Laundering Group . Malawi is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Malaysia . Malaysia is not an important regional financial center and the extent of money laundering in Malaysia is unknown. However, Malaysia offers a wide range of financial services that are potentially attractive to money launderers. In particular, the country’s offshore center, Labaun, has conditions conducive to money laundering and other financial crimes. The Government of Malaysia has indicated its desire to enact comprehensive anti-money laundering legislation in 2001.
The Dangerous Drugs Act 1988 and the Anticorruption Act 1998 criminalized the laundering of proceeds from these crimes, however, neither statute has been successfully used in a criminal case. The FOPA also authorizes assistance to foreign countries in relation to matters connected with drug trafficking. The Government of Malaysia has a well-developed regulatory framework, including licensing and background checks, to oversee onshore financial institutions. In 1993, the Bank Negara Malaysia , the Malaysian central bank, issued “Guidelines on Money Laundering and ‘Know Your Customer Policy” to educate financial institutions on money laundering issues. Under the guidelines, banks should identify customers, maintain transaction records, train their staffs on money laundering controls, and report suspicious transactions to the BNM. The guidelines also provide a list of suspicious indicators to help banks determine which transactions to report. However, these guidelines do not have the force of law.
Notwithstanding Malaysia’s strict bank secrecy laws, Malaysian authorities do have access to banking information when conducting a criminal investigation. However, the lack of a comprehensive anti-money laundering statute makes money laundering an area of concern. Malaysia does have an asset forfeiture law that allows seizure of criminal assets. Led by the BNM, Malaysia is now actively engaged in drafting a comprehensive anti-money laundering bill, and has requested technical assistance from the US government.
In 1998, Malaysia imposed foreign exchange controls that restrict the flow of the local currency, the ringgit, to outside Malaysia. Some smugglers of currency have since been arrested. Under these exchange control laws, onshore banks must note cross-border transfers of over 10,000 ringgit .
The potential for money laundering activities at the Malaysian offshore banking facility in Labuan is of particular concern. The Labuan Offshore Financial Services Authority provides a wide range of financial services such as offshore banking and trust partnerships, which are restricted to the fields of accounting, actuarial science, engineering and law. There are 60 offshore banks , approximately 79 insurance companies, 4 mutual funds, 6 fund managers, and 20 trust companies operating in Labuan. There are no reporting requirements for individual financial transactions. Because there is no requirement to register offshore trusts, their number is not known. Nominee accounts are permitted in Labuan, as are nominee directors of Labuan’s approximately 2,574 international business companies equivalents. There is no requirement to disclose the beneficial owner of a corporation. There is, however, a government registry of corporate directors and shareholders, although this information is not available to the public. Malaysia has several pieces of legislation dealing specifically with Labuan.
Malaysia has no bilateral agreements for the sharing of information on money laundering, but does allow foreign countries to check the operations of their banks’ branches. Malaysia is a party to the 1988 UN Drug Convention. In 2000, Malaysia joined the Asia Pacific Group on Money Laundering and agreed to participate in an APG mutual evaluation in July 2001. Malaysia will host the next plenary of the APG in May 2001. Malaysia has endorsed the Basle Committee “core principles” and adheres to them. Malaysia became a member of the Offshore Group of Banking Supervisors in 1999.
The Government of Malaysia should enact and enforce comprehensive anti-money laundering legislation. Further expansion of Malaysia’s participation in multinational anti-money laundering organizations would also be helpful in ensuring that money launderers do not abuse Malaysian financial institutions, including those in Labuan.
Maldives . There is no significant financial activity or evidence of money laundering in the Maldives. However, the Maldives does not have in place legislation that specifically addresses money laundering or procedures or policies such as a suspicious transaction reporting system that would detect money laundering.
Although some officials in the Government of the Maldives want to establish an offshore financial center, the Maldives’s antiquated banking laws and regulations, and currency controls have hindered progress in this area.
The Maldives became a party to the 1988 UN Drug Convention in September 2000.
Mali . Mali is one of the world’s poorest countries, and has a poorly developed financial infrastructure. In November 2000, Mali was one of 14 West African countries that attended a meeting to establish the Intergovernmental Group of Action Against Money Laundering .
Mali is a party to the 1988 UN Drug Convention.
Malta . Malta does not appear to have a serious money laundering problem. The Maltese Financial Services Center , the regulatory agency responsible for licensing new banks and financial institutions, also monitors financial transactions going through Malta.
The GOM criminalized money laundering in 1994. Maltese law imposes a maximum fine of approximately US $2 million and/or 14 years in prison for those convicted. Also in 1994, the Central Bank of Malta issued the Prevention of Money Laundering Regulations, applicable to financial and credit institutions, life insurance companies, and investment and stock firms. These regulations impose requirements for customer identification, record keeping, the reporting of suspicious transactions, and the training of employees in anti-money laundering topics. In 1996,the central bank issued guidance notes to assist the banking sector in implementing the regulations. In accordance with the regulations, suspicious transaction reports are filed with the competent authority that supervises an institution , which then forwards them to the Economic Crimes Unit of the Maltese Police. The GOM is establishing a financial intelligence unit to receive and analyze these reports.
Bank secrecy laws are completely lifted by law in cases of money laundering investigations. Bearer shares or anonymous accounts are no longer permitted in Malta.
Malta is a member of the Offshore Group of Banking Supervisors but has publicly announced that offshore business will completely cease by 2004. No further offshore registration of banks or IBCs has been possible since January 1997. In 2000, four offshore banks continued to operate and 757 IBCs, which continued to act as nominee companies, were registered. The FATF, which reviewed Malta’s financial regime via the FATF Non-cooperative Countries and Territories exercise, did not determine that Malta was a non-cooperative jurisdiction but did urge Malta “to accelerate the phasing-out of the nominee company system.”
In July 2000, the FBI gave a formal training course in basic money laundering and asset forfeiture investigations to 40 GOM officers of the Economic Crimes Unit who will be part of the new FIU.
Malta is a member of the Council of Europe’ Select Committee of Experts on the Subject of Anti-Money Laundering Measures . Malta is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Marshall Islands . The Republic of the Marshall Islands, located in the North Pacific Ocean, in a group of atolls, with a population of approximately 65,000, is a constitutional government in free association with the United States. In June 2000, the FATF listed the Marshall Islands as a non-cooperative jurisdiction. In response, the Marshall Islands has adopted comprehensive anti-money laundering legislation to address most of the deficiencies identified by the FATF. However, inadequate commercial law requirements still leave the Marshall Islands vulnerable to financial crime and money launderers.
Marshall Island non-resident corporations -the equivalent of international business companies -are of the greatest concern. The Association Law of the Republic of the Marshall Islands of 1990 is the legislative basis for establishing NRCs, of which, by December 2000, there were reportedly 4000 registered, half of which are companies formed for the purpose of registering ships. NRCs are allowed to offer bearer shares. Corporate officers, directors, and shareholders may be of any nationality and live anywhere, and their names need not be disclosed on incorporation records. Corporate entities may be listed as officers and shareholders and although NRCs must maintain a registered office in the Marshall Islands, the Associations Law of 1990 allows for corporations to transfer domicile into and out of the Marshall Islands with relative ease. Marketers of offshore services via the Internet promote the Marshall Islands as a favored jurisdiction for establishing NRCs. All NRCs are formed and registered by an American company that has the exclusive contract to do so on behalf of the GRMI. In addition to NRCs, the Marshall Islands offers non-resident trusts, partnerships, unincorporated associations, and domestic and foreign limited liability companies. Under the law of the Republic, NRCs are prohibited from engaging in any “financial institutions” type of activities such as those defined in section two of the Banking Act 2000. Offshore banks and insurance companies are not permitted in the Marshall Islands.
Citing many of the deficiencies in its anti-money laundering program, the FATF in June 2000 listed the Marshall Islands as one of 15 jurisdictions that were non-cooperative in international anti-money laundering efforts. The report noted:
It lacks a basic set of anti-money laundering regulations, including the criminalization of money laundering, customer identification and a suspicious transaction reporting system. While the size of the financial sector in the Marshall Islands is limited with only three onshore banks and no offshore banks, the jurisdiction has registered about 3,000 IBCs. The relevant information on those international companies is guarded by the excessive secrecy provision and not accessible by financial institutions.
Following the FATF exercise, the US Treasury Department, citing similar concerns, issued an advisory to US financial institutions advising them to “give enhanced scrutiny” to all financial transactions involving the Marshall Islands.
In response, the Marshall Islands has adopted some important anti-money laundering measures. In October 2000, the Marshall Islands parliament adopted the Banking Act of 2000, which requires customer identification for accounts, mandates the reporting of suspicious transactions to a central authority, and criminalizes money laundering relating to serious offenses. However, the Act contains no additional requirements for NRCs such as annual reports or disclosure of beneficial ownership.
In November 2000, the GRMI approved the establishment of a financial intelligence unit that will be empowered to exchange information with international law enforcement agencies and financial regulators, as well as assist in investigations.
The GRMI needs to draft and issue regulations to implement its new anti-money laundering legislation, and needs to assert supervisory authority over its limited financial services sector with particular emphasis paid to company formation.
Mauritius . Money laundering occurs in Mauritius; however, there is no concrete information as to its amount or origin. Mauritius has an offshore sector.
In 2000, the Financial Action Task Force conducted a review of Mauritius’s anti-money laundering regime against 25 specified criteria. Mauritius was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report noted the following about Mauritius’s anti-money laundering regime:
Mauritius has a range of legislation governing the domestic and offshore financial services industries. Some concerns have been identified regarding the identity of directors and beneficial owners of offshore trusts but the Economic Crime and Anti-Money Laundering Act, passed on 13 June 2000, reinforces the existing legislation in the prevention of and fight against money laundering.
The Economic Crime and Anti-Money Laundering Law requires financial institutions, cash dealers, and professionals to report suspicious transactions to the country’s central bank, the Bank of Mauritius, which forwards the reports to the independent Economic Crimes Office . The ECO is responsible for investigating suspicious transactions reports . Members of professions who deal with financial transactions, including notaries and lawyers, are required to file STRs directly with the ECO. By year’s end, the ECO had initiated more than 20 investigations based on STRs. The ECAMLL also authorizes international cooperation in money laundering investigations, and requires financial institutions to maintain adequate records of financial transactions.
Since passage of the Mauritius Offshore Business Activities Act in 1992, approximately 15,000 offshore businesses have been formed, and 11 offshore banks have been granted licenses. Applications to form offshore companies are reviewed by the Mauritius Offshore Business Activities Authority , which provides a recommendation to the Ministry of Finance. The Banking Act of 1988 subjects all offshore banking activities to the supervision of the central bank. The central bank’s prior approval is required to open foreign currency accounts at offshore banks. Offshore insurance companies and other non-banking businesses fall under the supervisory authority of the MOBAA. The Government of Mauritius has announced its intention in 2001 to create a Financial Services Authority that will supervise all of Mauritius’s financial services entities.
Mauritius is a signatory to the 1988 UN Drug Convention, but has not yet ratified the convention. In December 2000, Mauritius signed the United Nations Convention against Transnational Organized Crime. Mauritius is a member of the Eastern and Southern Africa Anti-Money Laundering Group , and the Offshore Group of Banking Supervisors.
Mexico . Mexico’s financial institutions engage in currency transactions involving international narcotics trafficking proceeds that include significant amount of US dollars. Mexican drug trafficking organizations continue to exploit Mexican banks and money exchange institutions by transferring illicit proceeds to financial systems worldwide. The smuggling of bulk shipments of US currency into Mexico and the movement of the cash back into the United States via couriers and armored vehicles, as well as through wire transfers, remain favored methods for laundering drug proceeds. Although drug trafficking continues to be the principal source of the laundered proceeds, other crimes including kidnapping, corruption, firearms trafficking, and immigrant trafficking are also major sources of illegal proceeds. President Fox has publicly pledged to attack government corruption, which in the past has hindered anti-money laundering efforts and compromised criminal investigations and prosecutions.
During 2000, the Government of Mexico increased its efforts at combating narcotics trafficking and money laundering. The Secretariat of Finance and Public Credit , the National Banking Commission and the Office of the Attorney General not only made greater efforts at enforcing the measures available to them under the existing law, but also sought to close loopholes by expanding preventive measures. These included new regulations issued in December 2000 that extended reporting, record keeping, and customer identification requirements to non-bank financial institutions. The regulations entered into force February 1, 2000.
Substantively, the Mexican anti-money laundering system contains the essential elements to meet international standards such as those of the Financial Action Task Force Forty Recommendations. Article 400 bis of the Federal Penal Code extends the money laundering offense to all criminal activity and applies as well to the proceeds of offenses committed in foreign jurisdictions. Official corruption has been addressed with Mexico’s anti-money laundering laws; penalties are increased by 50 percent when the crime involves a government official in charge of the prevention, investigation or prosecution of money laundering. Banks and other financial institutions are required to know and identify customers, and maintain records of transactions. They must report currency transactions over $10,000, and transactions considered suspicious or unusual to Hacienda’s Attached General Directorate for Transactions Investigations , Mexico’s financial intelligence unit .
In 2000, the DGAIO began automated filing of transaction reports from the financial sector and instituted a series of checks to ensure integrity. Through the end of the year, the DGAIO processed more than 6.5 million currency transaction reports, nearly 1,500 suspicious activity reports; and opened over 100 new investigations.
The DGAIO and the banking community continue to expand access to the automated filing network and have sponsored seminars and conferences for the entire banking community . Overall, industry compliance with reporting has improved. At the November 2000 annual meeting of the Mexican Banking Association, self-imposed reporting requirements were promulgated within the banking sector.
In 1998, the PGR established a special prosecutorial unit that continues to develop a staff of in-house expert investigators to strengthen the money laundering cases presented to the judiciary. In 2000, Mexico initiated 27 prosecutions involving some 53 individuals under its money laundering laws. Of these, 31 have been arraigned but none sentenced. In 2000, three convicted individuals were sentenced in cases dating from 1998.
In January 2000, the US Department of the Treasury and the Mexican Hacienda entered into a Memorandum of Understanding for the exchange of information on the cross-border movement of currency and monetary instruments. The responsible authorities for the implementation of this MOU are the US Treasury’s Financial Crimes Enforcement Network and the DGAIO. In December 2000, Mexico amended its Customs Law to reduce the threshold for reporting inbound cross border transportation of currency or monetary instruments from $20,000 to $10,000. At the same time, it established a requirement for the reporting of outbound cross-border transportation of currency or monetary instruments of $10,000 or more.
Mexico is a full and active partner in the Money Laundering Group of the US/Mexico High-Level Contact Group. Mexico and the United States continue to implement their bilateral treaties and agreements for cooperation in law enforcement issues, including the Mutual Legal Assistance Treaty , the Executive Agreement on Asset Sharing, and the Financial Information Exchange Agreement . Mexico has also entered into bilateral agreements with other countries that provide for international cooperation on money laundering matters.
In June 2000, Mexico was accepted as a full FATF member, and joined the Caribbean FATF as a cooperating and supporting nation. Through membership and participation in the FATF, the Egmont Group of FIUs and the OAS/CICAD Experts Group to Control Money Laundering, Mexico continues to expand its presence at international anti-money laundering fora. Mexico is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
Through workshops with industry representatives, the Mexican Secretariat of Finance and Public Credit has sought to clarify the implementation procedures of the 1998 regulations for transaction reporting. Substantial progress has been made in the past year but there is still misunderstanding throughout the financial sector of what is required to be reported. Mexico is positioning itself to guard against electronic money laundering and the use of “smart cards” by examining domestic industry standards. Although no investigations have been initiated, these new technologies may present the greatest challenge as Mexico integrates into a global economy.
Mexico has established a sound legislative basis for its anti-money laundering policies, and has demonstrated an international commitment to combat money laundering. However, one weak area that remains is that customer identification provisions do not apply to third party beneficiaries, which affects high value transactions made by individuals on behalf of the principal account holders. Identifying the true owners of the bulk cash that transits the US-Mexican border must remain a priority item for both governments to stem transactions involving international narcotics trafficking proceeds.
Mexico also continues to lack sufficient qualified and experienced personnel in the regulatory agencies and within the banking community to implement and enforce oversight and compliance programs. Additional efforts also need to be directed towards developing cooperative relationships among law enforcement, financial regulators and the financial sector to reduce vulnerabilities. Finally, Mexico needs to follow through on recent pledges and efforts to combat corruption to ensure that its anti-money laundering program is successful.
Micronesia . The Federated States of Micronesia is a constitutional government in free association with the United States. It is not a regional financial center. There are four financial institutions in the country-two local banks and two foreign branches. There have been no known money laundering schemes related to narcotics proceeds. Financial crimes, such as bank fraud, do not appear to be increasing in frequency. Contraband smuggling, centered on alcohol and tobacco products, may generate illicit proceeds. The FSM does not permit offshore banking.
Moldova . Moldova is not a significant financial or money laundering center. Awareness of money laundering among government officials and financial institutions has been aided by the assistance of US experts from the Treasury Department, who provided training, advice and consultation related to the prevention of money laundering. In addition, the FBI is presenting an ongoing series of courses on fighting organized crime and corruption in Moldova. Moldova has drafted a statute on money laundering, however, it is currently in the legislative process and has not been approved.
Moldova is a party to the 1988 UN Drug Convention. In December 2000, Moldova signed the UN Convention against Transnational Organized Crime. Moldova is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures , a FATF-style body.
Monaco . The Principality of Monaco is not a regional financial center. However, it is considered vulnerable to money laundering because of its strict bank secrecy laws and extensive network of casinos. Russian organized crime and the Italian Mafia reportedly have laundered money in Monaco.
Monaco has 70 financial institutions, 37 of which are banks. Most of the banking sector is concentrated in portfolio management and private banking. The subsidiaries of foreign banks operating in Monaco can withhold customer information from the parent bank. Monaco also has an offshore sector, and permits the formation of both trust and international business companies . Monaco permits the formation of five different types of IBCs: limited liability companies; branches of foreign parent companies; partnerships with limited liability; partnerships with unlimited liability; and sole proprietorships. Ready-made “shelf companies” are not permitted. The incorporation process generally takes 4 to 9 months. Monaco does not maintain a central registry of IBCs, and authorities have no legal basis for seeking information on the activities of offshore companies.
In 2000, the Financial Action Task Force conducted a review of Monaco’s anti-money laundering regime against 25 specified criteria. Monaco was not identified by the FATF as a noncooperative country in the international fight against money laundering. However, the FATF in its June report noted the following about Monaco’s anti-money laundering regime:
The anti-money laundering system in Monaco is comprehensive. However, difficulties have been encountered with Monaco by countries in international investigations on serious crimes that appear to be linked also with tax matters. In addition, the FIU of Monaco suffers a great lack of adequate resources. The authorities of Monaco have stated that they will provide additional resources to SICCFIN.
Money laundering in Monaco is a criminal offense. Banks, insurance companies, and stockbrokers are required to report suspicious transactions and to disclose the identities of those involved. Casino operators must alert the government to gambling payments suspected to be derived from drug trafficking or organized crime. Another law imposes a 5-10 year jail sentence for anyone convicted of using ill-gotten gains to purchase property .
Monaco established its financial intelligence unit, the Service d’Information et de Controle sur les Services Financiers , to collect information on suspected money launderers. The SICCFIN is a member of the Egmont Group.
Monaco is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Mongolia . Mongolia is not a regional financial center. However, Mongolia’s vulnerability to transnational crimes such as money laundering most likely has grown with the country’s increased levels of international trade and tourism. Mongolia’s long, unprotected borders with Russia and China make it particularly vulnerable to smuggling and narcotics trafficking. Illegal money transfers and public corruption are other sources of illicit funds in Mongolia. In 2000, Mongolian police seized approximately $1 million in counterfeit US currency. Mongolia does not have anti-money laundering legislation. Moreover, Mongolia’s ability to fight all forms of transnational crime is hampered by a weak legal system, and an inability to effectively patrol its borders, to detect illegal smuggling, and to conduct transnational criminal investigations.
The Government of Mongolia has made protection of its borders a priority. The GOM has increased its participation in regional and international fora that focus on transnational criminal activities. For example, Mongolia is working with other countries in the region to join the Asia-Pacific Group on Money Laundering. US Government assistance to the GOM includes international visitor programs on transnational crime and counter narcotics measures, and joint operations and training by regional representatives of the Drug Enforcement Administration, the Internal Revenue Service, and the Secret Service.
Montserrat . Montserrat is a Caribbean Overseas Territory of the United Kingdom. Volcanic activity between 1995 and 1998 greatly reduced the population and business activity on the island, although an offshore financial services sector remains that may attract money launderers. As with the other British Caribbean Overseas Territories, Montserrat underwent a thorough evaluation of its financial regulation in 2000, co-sponsored by the local and British governments.
Montserrat’s offshore sector consists of 15 offshore banks and 22 international business companies . The Financial Services Centre regulates offshore banks, whereas the Eastern Caribbean Central Bank supervises Montserrat’s three domestic banks. IBCs may be registered using bearer shares, providing for anonymity of corporate ownership.
The Proceeds of Crime Act 1999 criminalized the laundering of proceeds from any indictable offense and mandated the reporting of suspicious transactions to a Reporting Authority. However, the Reporting Authority has not yet been established. Although the Act directs the Governor to issue a code of practice establishing further regulations for financial institutions, the code of practice has not yet been issued.
US law enforcement cooperation with Montserrat is facilitated by a treaty with the UK that governs mutual legal assistance in criminal matters with several of the UK’s overseas territories. Montserrat is a member of the Caribbean Financial Action Task Force , and through the UK, is subject to the 1988 UN Drug Convention.
Montserrat should issue regulations to implement the POCA and establish the Reporting Authority to act as a financial intelligence unit. It should enact measures to identify and record the beneficial owners of IBCs. It should also increase resources to financial supervision, especially as it looks to again expand its offshore sector, to help ensure that money launderers do not abuse Montserrat’s financial services.
Morocco . Morocco is not a regional financial center and the extent of money laundering in Morocco is unknown. However, Morocco remains an important producer and exporter of cannabis, which generates proceeds that must be laundered in Morocco or abroad. Moroccan government officials have indicated that they believed money was being laundered through bulk smuggling of cash and the purchase of smuggled goods. Banking officials have indicated that the country’s system of unregulated money exchanges provides a venue for launderers. Morocco has not criminalized money laundering.
The Moroccan banking system is modeled after the French system and consists of 16 banks, five government-owned specialized financial institutions, approximately 30 credit agencies, and 12 leasing companies. The monetary authorities in Morocco are the Ministry of Finance and the central bank, Bank Al Maghrib, which monitors and regulates the banking system. Bank Al Maghrib has decreed that all financial institutions must institute a customer identification policy and maintain certain transaction records for a certain period of time.
A mutual legal assistance treaty entered into force between the United States and Morocco in 1993. Morocco is a party to the 1988 UN Drug Convention. In December 2000, Morocco signed the United Nations Convention against Transnational Organized Crime.
Mozambique . Mozambique is not a regional financial center and does not have an offshore sector. Although the extent of money laundering in Mozambique is not known, it most likely is limited because of the country’s small commercial banking sector. However, lax oversight and weak banking regulations, as demonstrated by recent bank scandals, suggest that Mozambique’s financial institutions are vulnerable to money laundering. In particular, there is concern that the proceeds of arms trafficking and stolen vehicles sales may be laundered through Mozambique’s financial institutions.
Mozambique criminalized money laundering related to narcotics trafficking through the 1997 antinarcotics law. In a 2000 address to Parliament, the attorney general underscored the importance of passing new anti-money laundering legislation that conforms to the 40 FATF Recommendations. The Parliament reportedly is considering additional anti-money laundering legislation.
Mozambique is a party to the 1988 UN Drug Convention, and a member of the Eastern and Southern Africa Anti-Money Laundering Group .
Namibia . Namibia is not a financial center. There are indications of drug trafficking and abuse, but no evidence of narcotics-related money laundering. Namibia currently has no laws against money laundering in place, nor does it have the necessary procedures to detect it.
Namibia is not a party to the 1988 UN Drug Convention. In December 2000 Namibia signed the United Nations Convention against Transnational Organized Crime. Namibia is a member of the Eastern and Southern Africa Anti-Money Laundering Group , a FATF-style regional body.
Nauru . Nauru is a small central Pacific Island nation with a population of approximately 10,600. It is an independent republic, an associate member of the British Commonwealth, and recently joined the United Nations. The legal, supervisory, and regulatory processes in Nauru present significant opportunities for the laundering of the proceeds of crime, and allow criminals who make use of those systems to increase significantly their chances to evade effective investigation or punishment.
Nauru is an established “zero” tax haven-it does not levy any income, corporation, capital gains, real estate, inheritance, estate, gift, sales, or stamp taxes. It is an offshore banking center with a number of weaknesses in its regulatory structures. The Nauru Agency Corporation licenses offshore banks, and in turn, acts as a shareholder or director of the banks it licenses. The government-owned Bank of Nauru acts as the central bank for monetary policy; but it has no regulatory function over offshore banks. Nauruan authorities are unable to verify information provided by applicants for offshore banking licenses or those registering corporations on the island. The required documentation is routinely processed through registered agents. Even though bank applications require a certified police record stating that the applicant has no criminal record, Nauruan authorities do not have the ability to check the bona fides of such documents.
Citing many of these deficiencies, including excessive bank secrecy provisions that guard against the disclosure of the relevant information, the Financial Action Task Force identified Nauru as a non-cooperative country and territory in its June 2000 report. The FATF report criticized the lack of basic anti-money laundering regulations, including the criminalization of money laundering. The FATF report cited the poor supervision of Nauru’s offshore banks. Specifically, the report criticized the fact that Nauru’s 400 offshore banks are not required to obtain identification information from its customers, maintain customer identification or transaction records, or report suspicious transactions. Nauru banks are known for dealing in bearer shares, which provide for secrecy of operations and anonymity.
Following the FATF determination, the US Treasury Department issued an advisory to US financial institutions advising them to “give enhanced scrutiny” to all financial transactions involving Nauru.
Russian organized crime has exploited Nauru’s offshore financial sector. Nauru gained notoriety in 1999 because of allegations that several billions of dollars of Russian financial transactions had passed through banks chartered in Nauru. Nauru’s Russian clientele reportedly use this route to avoid scrutiny by Russian officials. A number of transactions, initiated by Russian and Asian organizations with alleged ties to organized crime, are assumed to be criminally derived. In April 2000, the Government of Nauru asked Russian officials to provide evidence of money flowing from Russia through Nauru and claimed that it would take available steps to prevent Nauru’s banking system from being used in money laundering operations, once it received such evidence.
The Bank of New York case illustrates how a bank in Nauru can be used for money laundering purposes. To conceal the true source of the funds, Russian accomplices in this case used a number of offshore banks in the Pacific. In 1996 these individuals acquired control of “Sinex Bank Inc.”-a registered offshore bank in Nauru. From 1996 to 1999, Sinex Bank was identified as the ordering party for more than $3 billion in funds transferred from Russian bank correspondent accounts at the Bank of New York to various shell corporation accounts. Although Sinex Bank conducted no actual banking operations in Nauru, it was used as a front to facilitate the illegal transfer of money out of Russia.
Nauru has confirmed its awareness of the impact of the deficiencies in its anti-money laundering processes, taken some steps to address these concerns, and expressed a willingness to cooperate with the international efforts to combat money laundering. It has cooperated with officials from the United States and other countries in certain criminal investigations involving Nauruan institutions. It has recently suspended the licenses of a large number of institutions pending a review of their ownership. It has blocked the registration of any new banks on behalf of any Russian individual or entity and cancelled contracts with a number of agents. The Government of Nauru is considering legislative changes that could redress a number of the problems in its banking laws, and has requested relevant technical assistance in order to do so.
The Government of Nauru facilitated on-site inspections of its financial system by US officials in 2000. It is a member of the South Pacific Forum and has participated in its efforts to establish a regional financial intelligence center. However, Nauru has not made any advances toward its commitment to the Honiara Declaration, which calls on Forum countries to implement the FATF 40 Recommendations.
Nauru needs to pass and enforce comprehensive anti-money laundering legislation and enact bank supervisory practices that are in accord with accepted international standards so that it can protect its financial services industry and economy from criminals and criminal organizations. Despite verbal commitments by Nauru to reform its offshore sector, no concrete action has been forthcoming.
Nepal . Nepal is not a regional financial center. Nepal currently does not have an offshore sector. However, the Government of Nepal has explored the development of an offshore sector. There are no indications that Nepal is used as an international money-laundering center. US Government officials have offered assistance to the GON to help it develop a proper legal framework to deter money laundering.
The GON has not criminalized money laundering, and in 2000, legislative action on money laundering, mutual legal assistance, and witness protection remained stalled.
The GON exchanges information in connection with international narcotics investigations and proceedings. Regulations to ensure the availability of adequate records do not meet international standards.
Nepal is a party to the 1988 UN Drug Convention. Nepal is an observer jurisdiction to the Asia/Pacific Group on Money Laundering.
The Netherlands . The Netherlands is a major regional financial center and, as such, provides opportunities for laundering funds generated from a variety of illicit activities, including narcotics trafficking and financial fraud. Narcotics proceeds are often related to the sale of heroin, cocaine or cannabis. Some narcotics proceeds are derived from the local, illegal production and sale of cannabis products or designer drugs such as ecstasy. Money laundering in The Netherlands is believed to occur through the banking system, money exchange houses , casinos, credit card companies, insurance and securities firms, stockbrokers and money transfer offices. Money laundering in The Netherlands is most likely controlled by major drug cartels and other international criminal organizations.
The Netherlands’ anti-money laundering regime is in compliance with FATF and other international standards. Money laundering relating to any crime has been an offense in The Netherlands since 1994, although prosecutors must first prove the underlying offense before prosecuting for money laundering. The Dutch parliament is currently debating draft legislation that would make money laundering a separate offense. This bill also includes provisions that would ease somewhat the government’s burden of proof regarding the criminal origins of proceeds, as the government believes the current standard is too high and can adversely affect money laundering prosecutions. Under the new bill, it should be sufficient to prove that the proceeds “apparently” originated from a crime.
Since 1996, organizations providing commercial services, such as accountants, lawyers and notaries, have applied money laundering reporting procedures within their professions. The Money Transfer and Exchange Offices Act will be submitted to Parliament this spring. If passed, it will replace the existing Exchange Offices Act, and as such it will also require money transfer offices, in addition to exchange offices, to obtain a permit to operate.
The Office for the Disclosure of Unusual Transactions , which was established in 1994, is The Netherlands’ financial intelligence unit . The MOT reviews and analyzes unusual transactions. Because of the conversion of national banknotes and coins into Euro, which will take place between January 1, 2002 and January 28, 2002, the indicators have been adjusted in order to disclose transactions related to the conversion. Suspicious transactions are provided, with preliminary investigative information, to the National Public Prosecutor. The MOT is currently negotiating with notaries to implement suspicious activity indicators for disclosure in connection with the activities of this professional group, in preparation to implement the Second EU Directive on Money Laundering. The MOT is a member of the Egmont Group and has information sharing agreements with eight other countries.
In December 2000, The Netherlands signed the United Nations Convention against Transnational Organized Crime. The Netherlands is also a party to the 1988 UN Drug Convention and the 1990 Strasbourg Convention on Money Laundering and Confiscation. The Dutch participate in the Basle Committee, and have endorsed the Committee’s September 1997 “Core Principles for Effective Banking Supervision.” There is a Mutual Legal Assistance Treaty in effect between The Netherlands and the US, as well as a forfeiture cooperation and asset sharing agreement. The Netherlands is a member of the Financial Action Task Force and participates in the Caribbean Financial Action Task Force as a Cooperating and Supporting Nation.
The Netherlands should continue to refine its anti-money laundering regime, particularly with respect to increasing its ability to prosecute money laundering and financial crimes.
Netherlands Antilles, The . The Netherlands Antilles consists of the Caribbean islands of Curacao, Bonaire, the Dutch part of Sint Maarten/St. Martin, Saba and Sint Eustatius. The growing offshore financial services industry, gaming industry, and lack of border controls between Sint Maarten and St. Martin creates opportunities that could be exploited by money launderers. However, the Netherlands Antilles Government has made it a priority to develop a comprehensive anti-money laundering program and continues to strengthen its anti-money laundering legislation.
In 2000 the Government expanded the anti-money laundering law to include suspicious activity reporting requirements for gems and real estate dealers. Also, senior government officials reached agreement on the “underlying crime” portion of the money laundering law. As a result, prosecutors no longer are required to prove that a suspected money launderer also committed an underlying crime in order to obtain a money-laundering conviction. It is now sufficient to establish that a money launderer knew, or should have known, of the money’s illegal origin.
Recommendations for more specific indicators of suspicious activity for financial reporting await the Finance Minister’s approval. There already has been a substantial increase in the number of unusual transaction reports submitted by the offshore sector, largely because of increased training. A proposal to bring credit card and currency transactions into the reporting system for unusual financial transactions also awaits the Finance Minister’s approval.
At the request of the Committee Against Money Laundering, the Gaming Control Board of Curacao is currently reviewing a ministerial proposal to extend suspicious transaction reporting to casinos. If the Board provides no comments within the specified two-month comment period, the Finance Minister will implement this proposal.
The central bank has completed development of guidelines on detecting and deterring money laundering; these will be issued to the banking sector soon.
In 2000, the Association of Public Notaries introduced a list of indicators that will be used to report unusual transactions.
Progress on tightening oversight of trusts has been slowed by complications arising from the new fiscal framework being developed by the Netherlands and Netherlands Antilles. The Netherlands Antilles had proposed legislation that included provisions allowing the establishment of a type of closed corporation, which would be taxed at a zero-rate. The Netherlands has modified the legislation proposed by the Netherlands Antilles and, until a final version is enacted, new regulations cannot be established and enforced.
On August 1, 2000, the Netherlands Antilles Asset Seizure Law became effective. This law allows a public prosecutor to seize the proceeds of any crime once the crime is proven in a court of law.
In July 2000 cross border currency reporting legislation was presented to the Parliament, but it was not enacted by year’s end. This legislation is expected to be approved in 2001.
Unusual transactions must by law be reported to the Netherlands Antilles Reporting Center, Meldpunt Ongebruikelijke Transacties , which collects and analyzes them. Some concern has been expressed over the ability of the MOT NA’s small staff to handle a large influx of unusual transaction reports. The staff at the MOT NA, however, has worked diligently to enhance the effectiveness and efficiency of their reporting system. New software has been developed to enable institutions to send reports to the MOT NA electronically. In addition, legislation providing for the exchange of information between MOT NA and other financial intelligence units is now in the Central Committee of Parliament. The MOT NA is a member of the Egmont Group.
Law enforcement statistics improved in the Netherlands Antilles this year. Where previously there were no prosecutions for money laundering, Antillean courts convicted 14 individuals of money laundering this year and investigations are underway in another 11 cases.
The Netherlands Antilles has a large number of offshore financial service providers, including 42 offshore banks, mutual funds, international finance companies, and trust companies. Nearly 21,000 international business companies are registered in the Netherlands Antilles and may be registered using bearer shares. The law on bank supervision states that offshore banks must have a physical presence on the islands, hold their records there, and not give or receive payments in cash. The central bank supervises offshore banks, and some mutual funds are supervised by other entities. None of the other institutions are supervised by Netherlands Antilles authorities. The central bank also indicates that banks on Curacao usually maintain copies of bearer share certificates for IBCs maintaining accounts, which include information on the beneficial owner.
As part of the Kingdom of the Netherlands, the Netherlands Antilles is a member of the Financial Action Task Force. It also is a member of the Caribbean Financial Action Force. The Netherlands Antilles operates under the Netherlands’s Mutual Legal Assistance Treaty with the United States. Cooperation is excellent. The MOT NA has an information sharing agreement with its counter-part in the Netherlands, the MOT.
The Netherlands Antilles has implemented most of its anti-money laundering legislation. The Netherlands Antilles should move expeditiously to enact new proposals that would further strengthen its anti-money laundering program such as those measures related to casinos, cross-border currency reporting, and extension of unusual transactions reporting to additional types of financial institutions. The Netherlands Antilles must continue to exercise due diligence and supervision over its offshore sector, including identification of the beneficial ownership of business accounts, so that its financial institutions and services industry are not used to launder money. Success for the Netherlands Antilles will be contingent upon continued vigilance and forceful implementation of its anti-money laundering regime.
New Zealand . Evidence exists that money laundering takes place in New Zealand, although not to a significant extent. Narcotics proceeds and commercial crime are the primary sources of illicit funds. International organized criminal elements are also present in New Zealand.
New Zealand has been active in promoting efforts to combat money laundering in the South Pacific region. In September 2000, it hosted a workshop that brought together representatives from Pacific Island Forum nations, the IMF, World Bank and other interested parties to discuss general money laundering issues as well as specific plans to set up a regional financial intelligence unit . This initiative built on the New Zealand Government’s “Forum Islands Road Show” series of visits to 13 South Pacific island nations that took place between May and November 1998 to discuss the regional dimensions and risks of financial crime. The September workshop recommendations were subsequently adopted at the 31st Pacific Islands Forum held in Kiribati in October 2000. Specifically, the Forum recognized the importance of information and intelligence sharing among its members and welcomed the proposal to establish a Project Office within the Forum Secretariat. The main function of the Project Office will be to work on details of a Regional Financial Intelligence Information Sharing Facility, as well as to assist Forum members countries in establishing domestic FIUs.
A 1995 amendment to New Zealand’s Crimes Act 1961 criminalized the laundering of proceeds knowingly derived from a serious offense. The Financial Transaction Reporting Act 1996 contains obligations for a wide range of financial institutions, including banks, credit unions, casinos, and real estate agents, lawyers, and accountants. These entities must identify clients, maintain records, and report suspicious transactions. The Act also contains a “safe harbor” provision and requires the reporting of large cross-border currency movements.
New Zealand is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime. New Zealand is a member of the Financial Action Task Force , the Asia/Pacific Group on Money Laundering , and the South Pacific Forum. Its financial intelligence unit is a member of the Egmont Group.
Nicaragua . Nicaragua is not considered to be a regional financial center, and it does not have an offshore sector. Nicaragua’s financial system is particularly vulnerable to drug money laundering because of the drug-trafficking activity in the region.
An area of specific concern is Nicaragua’s weak regulation and oversight of its banking system, as highlighted by local media reports that have alleged massive fraud in the recent collapse of Intercontinental Bank .
Nicaragua has criminalized money laundering related to drug trafficking, and requires banks to report cash deposits that exceed US $10,000 to the Commission of Financial Analysis . However, the CFA has not yet been established because the Government of Nicaragua does not have the resources and technical expertise to do so. Once operational, the CFA will be subordinate to the Ministry of Government, and will be comprised of representatives from various elements within the government, such as law enforcement and the Superintendency of Banks. Nicaragua has not successfully prosecuted a money laundering case.
Nicaragua is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime. Nicaragua is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering, and the Caribbean Financial Action Task Force.
The GON is urged to allocate the resources necessary for the establishment of the CFA to ensure that the country’s financial institutions comply with relevant anti-money laundering controls. Moreover, the GON should create a system for reporting suspicious transactions once the CFA has been established.
Niger . The extent of money laundering in Niger is not known. However, in 2000, officials from the United Nations indicated that the West African region may be fertile ground for money laundering because of drug trafficking, corruption, networks of contraband arms and precious stones, and weak mechanisms of control that can be abused by international criminals. Seven small commercial banks and one modest-sized local bank operate in Niger. The Central Bank of West African States is the central bank for Benin, Burkina Faso, Guinea-Bissau, Cote d’Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency.
In November 2000, Niger participated in a meeting of officials from 14 West African countries in Senegal. The group established the Intergovernmental Group for Action Against Money Laundering to coordinate their governments’ actions against money laundering and other transnational crime.
Niger is a party to the 1988 UN Drug Convention.
Nigeria . The Federal Republic of Nigeria is a hub of money laundering and criminal financial activity, not only for the West African sub-region but also increasingly for the entire continent. It is the most populous Sub Saharan country, dominating the West African sub-region economically and militarily. Nigeria is also Africa’s most significant narcotics transshipment point. Nigerian criminal organizations utilize sophisticated global networks to ship narcotics via Nigeria to markets in the United States, Europe, and other African countries. Nigerian money laundering is directly linked to narcotics trafficking as well as corollary activities such as document, immigration, and financial fraud. The proceeds from these illegal activities are repatriated to Nigeria and are often used to fund subsequent criminal operations.
The combination of the narcotics trafficking activity and money laundering, and the fact that Nigeria has failed to adequately address corruption among law enforcement, customs, immigration, other government agencies, and the society at large makes it unusually difficult to have an effective anti-money laundering program.
Nigeria is notorious for the various financial schemes that originate there. Nigerian Advance Fee Fraud, commonly known as “Four-one-nine Scams,” has become highly lucrative for criminal enterprises. With the help of phone books, business directories, and email lists, Nigerian criminal organizations fax, mail, and email targeted businesses and individuals around the world with enticing “get rich quick” offers. The proposed schemes take various forms, for example, by promising a transfer of funds “from an over-invoiced contract” in Nigeria to a target’s bank account. The cash in question might be profit from a crude oil sale that a business person “needs help in transferring out of the country” or the disbursement of funds for a specific charity from the estate of a recently deceased individual. Often, these 419 letters and schemes are written on “official” letterhead stationary. An elaborate system may be utilized to provide bogus references. Advance Fee Fraud perpetrators may request bank account information to gauge the targeted victim’s level of trust and provide the impression that a funds transfer is imminent. All 419 Scams eventually request payment of a fee so that the alleged transfer of funds can be facilitated. While actual monetary losses by US citizens are difficult to gauge-many victims are reluctant to report such activity to law enforcement agencies-conservative estimates place such losses by American citizens and businesses in the hundreds of millions of dollars annually. Substantial proof exists that narcotics traffickers have utilized 419 Scams to fund their illicit smuggling efforts.
The current anti-money laundering law, Money Laundering Decree No. 3 of 1995, criminalizes narcotics-based money laundering, but is useful only if the predicate offense is narcotics trafficking. It requires banks to identify customers, maintain records, and report large and suspicious transactions to the central bank. It also provides for the seizure and forfeiture of drug-related assets, although forfeiture requires a conviction and thus is seldom and ineffectively used. Enforcement of the legislation is inconsistent because corruption, bureaucracy, and lack of training in the preparation of money laundering cases slow the enforcement structures.
The National Drug Law Enforcement Agency , through the Money Laundering Surveillance Unit of the Bank Examination Department of the Central Bank of Nigeria , has the power to demand, and obtain and inspect the books and records of a financial institution to confirm compliance with the provisions of the money laundering decree. Banks are required to make transaction records available for review by NDLEA officials. There have been no money laundering convictions.
In response to international concerns, the GON has taken some steps to combat criminal activity and has become closely involved with US law enforcement agencies in an attempt to address the problem of financial crime and money laundering. In 1998, the GON began cooperating with the US Postal Inspection Service to identify and crack down on fraud operations through the mail. In addition, the US Secret Service has maintained an office in the US Consulate General in Lagos since 1995, and in June 2000, opened a separate office to assist in the effort to combat Advanced Fee Fraud and other illegal operations, including US dollar counterfeiting operations. In May 1999, a decree was issued that, according to the NDLEA, altered the burden of proof in money laundering cases to facilitate prosecution. In October 2000, representatives from Nigeria and two other African countries attended an African Summit on Money Laundering at the Financial Crimes Enforcement Network . The purpose of the summit was to review and discuss the anti-money laundering legislation of each jurisdiction, the need to establish a financial intelligence unit, and training and technical assistance needs. The DEA is working closely with the NDLEA to develop competencies in drug and drug-related money-laundering investigations.
The CBN has announced that it is upgrading Money Laundering Decree No. 3 of 1995 to expand its scope beyond narcotics-related money laundering. It also has announced plans to supervise enforcement of the additional offenses, leaving the enforcement of narcotics-related money laundering to the NDLEA.
Nigeria is a party the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
Nigeria urgently needs to enact and implement changes to its anti-money laundering legislation so that it can meet international standards and protect itself against financial crimes and money laundering. Nigeria also needs to demonstrate its ability to take action against corruption and fraud. In addition, Nigeria should move to quickly create a centralized financial intelligence unit that would receive and analyze information and cooperate with foreign counterparts in money laundering investigations so that Nigeria can protect its financial system from widespread abuse by criminals and criminal organizations.
Niue . Niue is a self-governing parliamentary democracy in free association with New Zealand. Niue retains jurisdiction over its internal affairs and New Zealand assumes responsibility for Niue’s external affairs. Legislation from the mid-1990s created an offshore financial center that is heavily dependent upon international business companies . The Proceeds of Crime Act 1998 criminalizes the laundering of proceeds from any offense punishable by at least one year in prison. Niue recently passed new anti-money laundering legislation that, when implemented, should assist the country in its fight against financial crime. Regulatory weaknesses involving banks and IBCs remain, however.
In June 2000, the Financial Action Task Force identified Nuie as non-cooperative in the international fight against money laundering. The FATF in its report cited numerous deficiencies in Niue’s anti-money laundering regime:
* Niue has no ongoing process of supervising the licensed banks. The fact that the offshore banks have no physical presence in Niue complicates the regulation of that sector.
* Contrary to international standards, the central bank’s Monetary Board has delegated to a foreign private firm the responsibility of issuing banking licenses and conducting due diligence for offshore banks.
* Niue lacks mandatory rules for financial institutions concerning customer identification and the disclosure of beneficial owners of accounts; in addition, Niue allows financial institutions to issue anonymous accounts.
* Niue has no mandatory suspicious transaction reporting system in place.
* Niue’s law contains no provisions for the exchange of information between domestic and foreign regulators.
* Niue does not have a financial intelligence unit.
* The International Business Companies Act of 1994, as amended in 1996, which establishes IBCs, contains inadequate requirements for the registration and filing of information with the Registrar of companies.
* Niue has devoted inadequate resources to fight money laundering.
Following the FATF exercise, the US Treasury Department issued an advisory to US financial institutions advising them to “give enhanced scrutiny” to all financial transactions involving Niue.
In July 2000, Niue suspended consideration to register new offshore banks until the new Financial Transactions Reporting Act became effective. Niue passed and immediately enacted the FTRA in November 2000. The FTRA imposes reporting and record-keeping obligations upon banks, insurance companies, securities dealers and futures brokers, money services businesses and persons administering or managing funds on behalf of IBCs. Specifically, the FTRA requires financial institutions to report suspicious transactions, verify the identity of its customers, and keep records of financial transactions for six years. The FTRA also calls for the establishment of a financial intelligence unit within the office of the Attorney General. To date the FIU has not been established. Niuean officials have said that the establishment of the FIU will depend upon the outcome of ongoing discussions among the Pacific Islands Forum of a proposed regional FIU for Forum member countries. Niue supports the establishment of a regional FIU to share information among Pacific Island states.
The International Business Companies Act of 1994 is the legislative basis for establishing IBCs. Marketers of offshore services promote Niue as a favored jurisdiction for establishing IBCs for a variety of reasons. Niue does not require the disclosure of beneficial ownership of IBCs, permits bearer shares, allows the marketing of shelf companies, and does not require IBCs to keep a register of directors. Internet marketers also offer shelf companies complete with associated offshore bank accounts and mail-drop forwarding services. Regardless of how the IBCs are marketed, all are legally formed and registered by a Panamanian law firm on behalf of the GON. Because of strict secrecy laws, Niuean IBCs remain vulnerable to illicit use in international money laundering schemes.
Although IBCs are the most attractive feature of Niue’s offshore sector, Niue also offers trusts, partnerships, financial management, and insurance services. Whether Niue has lifted its suspension to register new offshore banks is not known. Niue allows the creation of asset protection trusts that are impervious to many types of legal claims arising in other jurisdictions. In addition, trusts in Niue are exempt from taxation if the parties to the trust are not residents of Niue.
The Niuean Government has expressed a willingness to cooperate with international efforts to combat money laundering. Niue has participated in some international meetings concerning money laundering, including a workshop hosted by New Zealand in September 2000.
In 1998 Niue passed the Mutual Assistance in Criminal Matters Act, which authorizes the Attorney General of Niue to provide certain types of legal assistance to other countries involved with criminal investigations. Niue has no bilateral cooperation agreements to fight money laundering.
The lack of adequate supervisory and regulatory systems in Niue creates opportunities for the laundering and safe protection of the proceeds of crime. Niue needs to implement its anti-money laundering legislation to protect its financial services industry and economy from abuse by criminals and criminal organizations. Recent reforms address some of the deficiencies in Niue’s anti-money laundering regime. Particular emphasis needs to be directed towards regulation of its offshore financial sector.
Norway . Norway is not an important regional financial center; there are only 20 commercial banks in the country and about 130 savings banks. Money laundering in Norway is related mainly to funds generated by the smuggling of liquor and cigarettes. According to OKOKRIM, Norway’s special unit on economic fraud, Norway has been experiencing an increase in financial crime such as bank fraud. These types of crimes overshadow narcotics-related money laundering in Norway.
Most money laundering in Norway takes place outside its financial system because financial institutions are obliged by law to report large and suspicious transactions to OKOKRIM. The structuring of deposits appears to be a problem for financial institutions. Large cross-border cash transactions by banks are routinely reported to the central bank and kept on file.
All forms of money laundering are criminal offenses, according to the Norwegian Penal Code. Norway’s anti-money laundering legislation has been strengthened in recent years to conform to the FATF Forty Recommendations. OKOKRIM has set up a money laundering unit that receives suspicious transaction reports and serves as Norway’s financial intelligence unit. OKOKRIM is a member of the Egmont Group.
Norway is a member of the Council of Europe and the Financial Action Task Force . Norway is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Organized Crime.
Oman . Oman is not known to have a significant money laundering problem. Its small banking sector is supervised by the Central Bank of Oman , which has the authority to suspend or reorganize a bank’s operations. In May 2000, the CBO organized and hosted a three-day seminar on the prevention and detection of money laundering.
Large cash transactions must be reported to the CBO and the Police. Oman has not criminalized money laundering. However, in February 2000, Oman announced that it was in the process of drafting comprehensive anti-money laundering legislation that would conform to international standards. It is expected that this legislation will be approved sometime in 2001.
Oman is a party to the 1988 UN Drug Convention, and a member of the Gulf Cooperation Council , which is a member of the Financial Action Task Force . Oman is scheduled to undergo a FATF mutual evaluation sometime in 2001. In May 2000, GCC members met for a four-day seminar on combating money laundering and pledged to enhance communication and cooperation to fight international crime.
Pakistan . The three principal sources of illicit funds in Pakistan are narcotics trafficking, corruption and smuggling. There is currently little production of narcotics in Pakistan. However, Pakistani narcotics-trafficking organizations are active in the huge Afghan drug trade and transship drugs through Pakistan. The proceeds are laundered abroad by means of the hawala alternative remittance system.
Pakistan has criminalized the laundering of narcotics trafficking proceeds. The Control of Narcotics Substances Act calls for the reporting of transactions believed to be associated with narcotics trafficking and also contains provisions for the freezing and forfeiture of assets associated with narcotics trafficking. The Musharraf caretaker government has established new ordinances addressing various financial crimes, particularly tax evasion and corruption.
Pakistan does not have a financial intelligence unit. Several agencies-in particular, the Antinarcotics Force and Pakistan Customs-play a major role in the investigation of financial crimes cases in Pakistan.
Pakistan became a member of the Asia/Pacific Group on Money Laundering in 2000. Pakistan is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
In order to establish an effective anti-money laundering regime, Pakistan needs to enact legislation that criminalizes money laundering beyond drug trafficking. A system of reporting suspicious transactions by all financial institutions operating in Pakistan must also be implemented. Finally, given the significant role that hawala plays in money laundering, Pakistan should develop and implement “anti-hawala” countermeasures.
Palau . The North Pacific Island of Palau is not a major financial center. However, reports that offshore banks in Palau have carried out large-scale money laundering activities prompted a few international banks to ban financial transactions with Palau in late 1999 and early 2000. In response, Palau established a banking commission that intends to introduce financial control legislation to the National Congress in early 2001. Palau reportedly established two offshore banks in 2000 and enacted legislation that permitted the establishment of two Internet gaming operations.
Palau has sought assistance from US officials, the Pacific community, the United Nations, and the International Monetary Fund in its effort to develop an anti-money laundering regime. In addition, Palau participated in international meetings and conferences on financial crime in 2000, including a US-sponsored conference in Fiji and the UN Offshore Forum conference in the Cayman Islands. Palau has become a signatory to Pacific Island Forum anti-money laundering initiatives and has made significant advances to abide by the Honiara Declaration, which calls for Forum countries to implement the FATF 40 Recommendations.
After a few international banks restricted financial transactions with Palau in late 1999, the Government of Palau began its own investigation into alleged money laundering activities involving Palau-registered offshore banks. Palauan officials discovered that a few shell banks had been established through a mechanism in which entities in Palau applied for certificates of incorporation and business licenses in a local-in lieu of national-level jurisdiction. None of these so-called banks was ever given foreign investment approval or any approval to do business in Palau. Nonetheless, a few of these shell banks reportedly gained access to the international financial community and carried out almost $2 billion in suspicious transactions during the past two years.
The Government of Palau needs to enact and implement comprehensive anti-money laundering legislation that meets international standards and establish a financial intelligence unit to work with foreign counterparts to combat financial crime. It should pay special attention to supervising its offshore financial and gambling sector to prevent abuse by criminal entities.
Panama . Panama continues to be an attractive venue for laundering drug money because of its proximity to major drug-producing countries; its sophisticated international banking sector; US dollar-based economy; and the Colon Free Zone’s role as an originating or transshipment point for goods purchased with narcotics dollars through the Colombian Black Market Peso Exchange. Panama has financial institutions that engage in currency transactions involving international narcotics proceeds that include significant amounts of US dollars. Panamanian press reports also indicate that Panama’s National Security Council is concerned that the Russian Mafia may be laundering the proceeds of arms and drugs trafficking through Panamanian bank accounts.
In June 2000, the Financial Action Task Force identified Panama as noncooperative in international efforts to combat money laundering. The FATF in its report cited:
Panama has not yet criminalised money laundering for crimes other than drug trafficking. It has an unusual and arguably inefficient mechanism for transmitting suspicious transaction reports to competent authorities. Panama’s FIU is not able to exchange information with other FIUs. In addition, certain outdated civil law provisions impede the identification of the true beneficial owners of trusts.
The US Treasury Department issued an advisory to US financial institutions advising them to “give enhanced scrutiny” to all financial transactions involving Panama.
In October 2000, the GOP enacted two laws and issued two executive decrees to address FATF’s concerns about its anti-money laundering regime:
* Law No. 41 of October 2, 2000, amends the Penal Code by expanding the number of predicate offenses for money laundering beyond drug trafficking to include criminal fraud, arms trafficking, trafficking in humans, kidnapping, extortion, embezzlement, corruption of public officials, terrorism, and international motor vehicle theft or trafficking.
* Law No. 42 of October 2, 2000, expands the types of financial institutions that are required to report currency transactions in excess of US $10,000 and suspicious financial transactions to include banks, trust companies, money exchangers, savings and loans associations, stock exchanges and brokerage firms, and investment administrators. Law 42 also mandates reporting to the Financial Analysis Unit of currency or quasi-currency transactions that exceed US $10,000 by casinos, CFZ businesses, the national lottery, and insurance/reinsurance companies. Furthermore, Law 42 requires Panamanian trust companies to identify to the Superintendency of Banks the real and ultimate beneficial owners of trusts
* Executive Decree No. 163 of October 3, 2000, amends the June 1995 decree that created the UAF to permit the UAF to share information with FIUs of other countries, subject to entering into Memoranda of Understanding or other information exchange agreements. The UAF has contacted other members of the Egmont Group seeking to foster information exchange between FIUs. Executive Order No. 163 also allows the UAF to provide information related to possible money laundering directly to the Office of the Attorney General for investigation.
* Executive Order 213 of October 3, 2000, amends Executive Order 16 of 1984 relative to trust operations, and provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities.
Furthermore, in October 2000, Panama’s Superintendency of Banks issued a document, Agreement No. 9-2000, that defines requirements that banks must follow for identification of customers, exercise of due diligence, and retention of bank records.
The Government of Panama has not successfully prosecuted a money laundering case. However, in September 2000, US and Panamanian investigations of CFZ jewelry wholesaler “Speed Joyeros” culminated in the first-ever US indictment of a CFZ company. “Speed Joyeros” allegedly was part of an international network that used gold, false invoicing, and electronic transfers to launder drug money.
Panama’s large offshore sector is comprised of international business companies , trusts, captive insurance companies , and offshore banks . There are three categories of banking licenses: a general license for local and foreign operations, an international license for offshore banks, and a representation license for establishing representative offices. A large portion of Panama’s legal profession subsists on creating and maintaining these diverse offshore products. Panama adopted legislation to regulate captive insurance companies-also called offshore insurance companies-through Law 60 of July 1996. Captive insurance has become one of the most important sectors of Panama’s offshore financial industry, and is second only to banking.
Panama participates in the multilateral Black Market Peso Exchange Group directive. Panama is a member of the Organization of American States Inter-American Commission on Drug Abuse Control , the Caribbean Financial Action Task Force, , and the Offshore Group of Banking Supervisors . Panama is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. The UAF is a member of the Egmont Group. In May 2000, Panama hosted the Egmont Group’s annual meeting. In August 2000, Panama also hosted the Fourth Hemispheric Congress on the Prevention of Money Laundering. Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995.
Panama has taken meaningful and effective steps forward in 2000 to address deficiencies in its money-laundering regime. Panama should focus on fully implementing and enforcing its new anti-money laundering legislation, and promptly enter into information exchange agreements between the UAF and other FIUs.
Papua New Guinea . Papua New Guinea has no significant exposure to money laundering or other financial crime. Its banking sector is very small, and it has no offshore financial sector. However, there are no laws against money laundering.
Papua New Guinea is not a party to the 1988 UN Drug Convention.
Paraguay . Paraguay is a transit country for cocaine trafficking, and remains one of Latin America’s major money laundering centers. Paraguay is vulnerable to money laundering because of endemic official corruption, weak regulation of its financial sector, and poor implementation of anti-money laundering legislation. The Government of Paraguay’s implementation of anti-money laundering legislation has been hindered by scarce resources, a lack of political commitment, poor coordination among the various government agencies, and a lack of understanding and reporting by the financial sector.
In 2000, the GOP, for the first time, approved a budget for the country’s anti-money laundering secretariat, Secretar�a de Prevenci�n del Lavado de Dinero y Bienes , and participated in international efforts to combat money laundering. Although GOP officials believe that as much as 65 percent of Paraguay’s money laundering is linked to narcotics trafficking, US Government experts believe that 20 percent probably is a more accurate figure. The multi-billion dollar re-export contraband trade that is centered in Ciudad del Este generates significant illegal proceeds.
Paraguay was in the past considered an important tax haven for residents of Brazil because Paraguay has no personal income tax. Paraguay does not license offshore banks; foreign banks are registered in Paraguay and non-residents are allowed to hold bank accounts. However, current banking regulations forbid banks to advertise or otherwise seek deposits from outside the country, and a string of bank failures between 1995 and 1998 has made Paraguay a less attractive venue for foreign deposits. All banks that operate in Paraguay-both national or foreign-are supervised under the same rules and regulations by the appropriate Paraguayan authorities.
Paraguay’s anti-money laundering law 1015/97, “Preventing and Suppressing Illegal Acts Committed for the Purpose of Laundering Money or Assets,” was promulgated in January 1997. The legislation criminalizes money laundering related to drug trafficking or a criminal organization, or other offenses that are punishable by an average of at least two years imprisonment. Participation in contraband trafficking and tax evasion is penalized through fines only, and thus proceeds from these offenses are not covered by the law. The law obliges a wide range of financial institutions to identify customers, maintain records, and record transactions exceeding US $10,000. The law also mandates reporting of suspicious transactions, establishes asset forfeiture provisions, and provides for cooperation with domestic and international law enforcement. However, GOP officials estimate that only 10 percent of covered institutions actually report these transactions to the SEPRELAD.
The law established SEPRELAD as an inter-agency secretariat to implement the money laundering legislation, issue regulations, and receive financial disclosures. SEPRELAD is comprised of the Minister of Industry and Commerce-the Ministry of Industry and Commerce is SEPRELAD’s parent agency-a member of the Central Bank Directorate, the Superintendent of Banks, the Commissioner of Securities, and the heads of the National Police and the National Anti-Drug Secretariat . SEPRELAD also oversees Paraguay’s financial analysis unit , a body that collects, analyzes, and processes financial disclosures. When the UAF determines that there are reasonable grounds to warrant further investigation, SEPRELAD forwards its findings to the Financial Crimes Investigation Unit of the SENAD. However, SEPRELAD rarely meets and is susceptible to influence by political concerns because its members are from various government agencies. This impedes the flow of information from the UAF to investigative authorities.
In the spring of 2000, the UAF received its first budget and acquired a larger, permanent office. The UAF increased its staff from six to 10, and has plans to further expand the staff to 14. In September 2000, the US Government delivered to the UAF more than $50,000 in computer equipment. The new software and databases should help the UAF more thoroughly analyze the suspicious transactions reports-once they have been digitized-it has received thus far. The majority of these reports are large currency transactions that have no other suspicious nature, and have come from only a few banks. In 2000, the GOP produced one money-laundering case for prosecution, and in 1999, did not prosecute any cases.
Paraguay has two laws that authorize asset forfeiture. A 1988 law provides a basic system for forfeiting narcotics-related assets; the more recent anti-money laundering legislation provides a system for forfeiting proceeds that are derived from narcotics trafficking and other serious crimes. Under both laws, instruments of crime and proceeds derived from drug trafficking-including bank accounts-may be seized. However, only the anti-money laundering law allows for seizure of a legitimate business derived from illicit proceeds. If the business was merely used to launder the proceeds, then it is subject to a fine or administrative sanctions. Both laws authorize the sharing of forfeited proceeds with another government. Under the 1988 law, proceeds from the narcotics-related seizures are deposited into an antinarcotics police account; under the anti-money laundering law, the proceeds of seizures are distributed at the discretion of the judge presiding over the case. The use of nominees is legal and widespread, and as a result, judges have returned assets because they were registered in the name of the nominee and not the defendant.
The GOP enforces its existing drug-related asset seizure and forfeiture laws, but its success is consistently minimal. A cumbersome judicial process prevents speedy forfeitures, and a conviction is required before a drug-related asset can be forfeited. Although the GOP is contemplating changes to its antidrug statute, the GOP in years past has given low priority to enacting new counternarcotics legislation.
The GOP continues to be active in international efforts to combat money laundering. Paraguay is a member of the South American Financial Action Task Force , and a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. In 2000, Paraguay entered into a bilateral agreement with Brazil for the exchange of information on money laundering, and has begun cooperating with Brazil on a number of cases. Paraguay is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime. The UAF is a member of the Egmont Group.
Although the GOP appears to be committed to fighting money laundering, as evidenced by its funding and staffing of relevant agencies and its participation in international initiatives, it must address several deficiencies in its anti-money laundering program to produce results. The GOP now has legal and technical tools to fight money laundering, and must now coordinate efforts among its agencies and educate the banking industry on money laundering to increase their compliance with reporting requirements. The GOP also should make legislative or regulatory changes that would allow the UAF to communicate its findings directly to investigative agencies. Finally, the GOP should adequately train prosecutors and judges to effectively deal with financial crimes.
Peru . Peru is not a regional financial or offshore center; however, money laundering derived from narcotics trafficking and corruption exists. In fact, government of Peru officials are currently attempting to recover over US $70 million deposited in Swiss bank accounts that are believed to be the proceeds of money laundering by the former director of the Peruvian National Intelligence Service, Vladimiro Montesinos. The GOP is pursuing possible Montesinos-related accounts elsewhere as well.
Peru’s primary anti-money laundering tools are contained in Articles 296-A and B of Law 25428, which criminalize the laundering of proceeds associated with narcotics trafficking , and narcoterrorism . The law carries a penalty of life imprisonment for bank and finance officials convicted of money laundering. Since 1992, few money laundering cases have been prosecuted and none have yet resulted in a conviction. Additional anti-money laundering provisions were introduced with the passage in December 1996 of the General Law of the Financial and Insurance System and the Organic Law of the Superintendency of Banking and Insurance and its implementing regulations, which went into effect in July 1998 . This law requires banks and other financial institutions to identify clients and to report unusual and suspicious financial transactions to the Office of the Attorney General with a copy provided to the Superintendent of Banks. Compliance by the financial institutions with the requirement to report suspicious transactions is low. The Fiscalia has allowed the Financial Investigations Unit of the Peruvian National Police access to the suspicious transactions reports, for the purpose of determining if the transactions have a connection to narcotics trafficking. The requirement for banks and financial institutions to record certain large cash transactions remains suspended since July 1998 .
During 2000, the GOP made efforts toward implementing an anti-money laundering program that would meet international standards. US Treasury Department officials have assisted in GOP efforts to develop a program that would include new legislation with broader laws and comprehensive regulations for the financial sector. Such a law would provide for the reporting of large currency transactions, and would make the information can be made available to law enforcement authorities upon request. Perhaps spurred by the Montesinos scandal, the new administration has just sent to Congress a bill that would establish a Financial Analysis Unit . However, this proposed legislation does not appear to address other fundamental deficiencies in Peru’s existing anti-money laundering legislation. Absent fundamental reforms in the legal framework, the potential effectiveness of such a unit is questionable. An effort is now underway in the Peruvian executive and legislative branches to draft a more complete reform of Peru’s anti-money laundering legislation that would bring it up to international standards.
Peru has been a party to the 1988 UN Drug Convention since 1992. In December 2000, Peru signed the United Nations Convention against Transnational Organized Crime. Peru is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering, and the newly established South American Financial Action Task Force , a regional FATF-style anti-money laundering body.
Peru should adopt legal measures that enhance its anti-money laundering framework to ensure that it meets international standards in order to deter financial crimes and protect the integrity of its financial system.
Philippines . The Philippines is neither a major financial center nor a major offshore banking center. However, rising crime, the absence of anti-money laundering legislation, and strict bank secrecy have left the Philippines vulnerable to large-scale narcotics trafficking and allow for criminal proceeds to be easily laundered in the Philippines or transferred abroad. It has been reported in the past few years that illegal drug trade in the Philippines has become a billion-dollar industry. Part of the money flows into the pockets of corrupt government officials in the form of bribes, while part is invested in legitimate businesses. The Philippines has experienced an increase in foreign organized criminal activity from China, Hong Kong, and Taiwan. Insurgency groups operating in the Philippines fund their activities through narcotics and arms trafficking, and engage in money laundering through alleged ties to organized crime.
Citing many of the deficiencies in the Philippines’ anti-money laundering regime, in June 2000, the Financial Action Task Force named the Philippines among its list of 15 countries that were non-cooperative in international efforts to combat money laundering. The report noted:
The country lacks a basic set of anti-money laundering regulations such as customer identification and record keeping. Bank records have been under excessive secrecy provisions. It does not have any specific legislation to criminalize money laundering per se. Furthermore, a suspicious transaction reporting system does not exist in the country.
The US Treasury Department has also issued an advisory reflecting many of the concerns noted in the FATF report, advising US financial institutions “to give enhanced scrutiny to transactions or banking relationships that do not involve established, and adequately identified and understood, commercial or investment enterprises” involving the Philippines. The advisory also noted that money laundering is not a crime under the law of the Philippines, and that the Bangko Sentral ng Pilipinas , the Philippines central bank, had not issued any anti-money laundering regulations or guidelines.
The Government of the Philippines has introduced two pieces of legislation that would criminalize money laundering in cases of illegal drug transactions or other organized crime activities. The proposed legislation would allow the limited lifting of bank secrecy laws and allow criminal investigators to examine deposit records in such cases under court order. Separately, the proposed new Central Bank Act, as it currently stands, would lift bank secrecy on accounts with balances over 50 million pesos . However, the prospects for passage of any legislation in the near term are dim; it is also unclear whether the bank secrecy provisions of the new laws would be retained or whether the new law would apply to the fifteen offshore banks operating in the Philippines.
In the absence of new legislation, the BSP in July 2000 issued a series of circulars to entities under its jurisdiction to tighten money-laundering controls. Circular 251 instructed financial institutions to take “reasonable measures” to verify the identity of clients, maintain transaction records for at least five years, and pay special attention to all complex or unusual transactions. If an institution has reason to believe that funds are the proceeds of an illegal activity, it should, when the law permits, report these transactions to the “competent authority.” The circular requires all banks to close any questionable deposit accounts believed to be linked to criminal or other illegal activity. General inspections found that the customer identification and record-keeping requirements under this circular are consistent with international standards, although they lack procedural regulations. Circular 253 instructed banks and non-bank financial institutions to report certain suspicious transactions to the BSP. This reporting includes purchases of foreign exchange, renting of safety deposit boxes, and performing remittances, but would not cover bank deposits and investments in government bonds, which are guarded by bank secrecy provisions.
The Philippines has adopted regulations that ensure the availability of records in response to US requests, but the system is untimely and cumbersome. In addition, officials believe there is a proliferation of businesses engaged in money-laundering activities that are not covered by central bank circulars. Officials are also hampered by a lack of ability to monitor casino payments to gamblers.
The Philippines does not yet have a financial intelligence unit. The National Law Enforcement Coordinating Committee serves as an information-sharing network for intelligence and law enforcement agencies.
The Philippines is a member of the Asia/Pacific Group on Money Laundering and is a party to the 1988 UN Drug Convention. In December 2000 the Philippines signed the United Nations Convention against Transnational Organized Crime. The Philippines and the United States have a Mutual Legal Assistance Treaty that entered into force in 1996.
The Philippines should enforce recent regulations and enact and enforce other measures to bring the Philippines’ anti-money laundering into compliance with international standards. This should include the establishment of a financial intelligence unit with the ability to cooperate internationally and share financial information with foreign counterparts. These measures will assist the Philippines’ efforts to combat corruption, organized crime, and financial crime.
Poland . Poland’s efforts to develop an anti-money laundering regime have not kept pace with its rapid political and economic transition since 1989. With Europe’s economic expansion and open borders with former socialist countries, transnational crime has seen significant growth. Narcotics trafficking, organized crime activity, auto theft, smuggling, extortion, counterfeiting, burglary, tax fraud, tax evasion, and other crimes generate criminal proceeds in the range of US $2-3 billion annually according to Government of Poland estimates. Polish banks serve as transit points for the transfer of criminal proceeds. Polish currency exchange businesses and casinos also are venues for money laundering.
Various regulations have been enacted since 1992 to combat money laundering in Poland. In 1997, Poland criminalized money laundering with the enactment of Article 299 of the Penal Code. Polish prosecutors have investigated approximately 75 cases involving money laundering in the last five years. To date, none of the cases forwarded to the courts has resulted in a successful prosecution. Poland’s current law allows for customer identification, record keeping and suspicious activity reporting. A major weakness of Poland’s money laundering regime was that it did not cover many non-bank financial institutions that have been traditionally used for money laundering.
In December 2000, President Kwasniewski signed the “Law on Counteracting the Use of Material Assets from Illegal or Undisclosed Sources in Financial Transactions.” Poland’s Parliament had approved the bill in November 2000. The main feature of the law is the creation of a financial intelligence unit to collect and analyze reports of large and suspicious transactions. The GIIF will be housed within the Ministry of Finance and will become operational in July 2001. By July 2001, financial institutions will be required to report currency transactions, or a series of related transactions, over the equivalent of 10,000 Euros to the GIIF. They will also have to report any suspicious transactions regardless of the amount. The financial institutions subject to the reporting requirements include banks, brokerages, casinos, insurance companies, investment and pension funds, leasing firms, private currency exchange offices, real estate agencies, and notaries public. The GIIF will have the right to suspend a suspicious transaction for 48 hours. The Public Prosecutor will have the right to suspend the suspicious transaction for three months, pending a court decision.
The United States and Poland have signed a treaty on mutual legal assistance that came into force in 1999. Poland is very active in international anti-money laundering fora. Poland is a party to the UN Drug Convention, and signed the UN Convention against Transnational Organized Crime in December 2000. Poland is also a member of the Council of Europe and participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . In May 1999, Poland underwent a mutual evaluation by the PC-R-EV. The evaluation provided detailed suggestions to improve Poland’s anti-money laundering program. In 2000, the Government of Poland ratified the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. The Convention will enter into force with respect to Poland in April 2001.
Implementation of the new anti-money laundering law’s provisions will give Poland an anti-money laundering regime that appears to meet international standards. Setting up the GIIF and the transaction reporting system are the next steps in 2001 towards creating an operational anti-money laundering regime.
Portugal . Government of Portugal officials indicate that most of the money laundered in Portugal is drug-related. Drug traffickers channel money through bureaux de change, and use Portuguese offshore companies to wire funds to bank accounts in other offshore jurisdictions.
Portugal has a comprehensive anti-money laundering regime. Decree-Laws 15/93, 313/93, and 325/95 criminalize money laundering related to narcotics trafficking and other serious offenses such as terrorism, arms trafficking, extortion, kidnapping, corruption, and serious economic offenses specified in a separate economic crimes law. Decree-Law 170/93 requires declaration of cross-border movements of currency that exceed Esc. 2.5 million . All financial institutions-including insurance companies-must identify their customers, maintain records for a minimum of ten years, and demand written proof from customers regarding the origin and beneficiary of transactions that exceed Esc. 2.5 million . Non-financial institutions such as casinos, property dealers, lotteries, and dealers in high-value assets must also identify customers engaging in large transactions, maintain records, and report suspicious transactions to the Public Prosecutor.
When money laundering is suspected, financial institutions must cease processing the transaction in question and report it to the judicial authority and the Office of the Public Prosecutor. However, Portugal’s system for reporting suspicious transactions remains somewhat informal. Bank officials contact the anti-money laundering authorities and file a formal suspicious transaction report only if those authorities indicate that one is necessary. As a result, a relatively small number of formal reports are filed annually. However, the number of STRs has increased slightly each year.
The Public Prosecutor forwards STRs to the Judicial Police’s Brigada de Investiga��o de Branqueamento de Capitais for analysis. If further analysis indicates money laundering, the Judicial Police conduct an investigation. The eight-person BIB functions as Portugal’s financial intelligence unit ; it centralizes all information related to STRs and shares it with foreign counterparts. The BIB is a member of the Egmont Group.
Portuguese laws also call for the confiscation of property and assets connected to money laundering, and authorize the Portuguese Judicial Police to trace illicitly obtained assets-including those passing through casinos and lotteries-even if the predicate crime is committed outside of Portugal.
Public and private sector regulators and organizations play important roles in Portugal’s anti-money laundering program. The Bank of Portugal monitors financial institutions’ compliance through inspections and annual internal control reports. The Portuguese Banking Association provides regular training courses on money laundering for employees of banks and other financial institutions. The Portuguese Insurance Institute, through Circular No. 27/97, monitors compliance of insurance-related businesses, educates the insurance sector on industry-specific risks, and alerts judicial authorities to evidence of money laundering. The Securities Commission regulates the securities industry; monitors compliance by financial intermediaries; provides training for brokers; and alerts judicial authorities to evidence of money laundering. The CMVM has cooperated with foreign authorities in two major investigations that involved funds laundered in Portugal.
The GOP has comprehensive legal procedures that enable it to cooperate with foreign jurisdictions and share seized assets.
The Portuguese islands of Madeira offer one of the few offshore centers in the European Union . The Madeira International Business Center has a free trade zone, an international shipping register, and offshore banking, trusts, holding companies, stock corporations, and private limited companies. The latter two business entities are similar to international business corporations , of which there are a combined total of 4,100 registered in Madeiria. All entities established in the MIBC will remain tax exempt until 2011. Companies also can take advantage of Portugal’s double taxation agreements. Decree-Law 10/94 permits existing banks and insurance companies to establish offshore branches. Applications are submitted to the central bank of Portugal for notification, as in the case of EU institutions, or authorization, as in the case of non-EU or new entities. The law allows establishment of “external branches” that conduct operations exclusively with non-residents or other Madeiran offshore entities, and “international branches” that conduct both offshore and domestic business. Although Madeira has some local autonomy, its offshore sector is regulated by Portuguese and EU legislative rules, and is supervised by the competent oversight authorities. Bearer shares are not permitted.
Portugal is a member of the Council of Europe, the EU, and the Financial Action Task Force . Portugal held the FATF presidency from 1999 to 2000. Portugal is a party to the 1988 UN Drug Convention, and in December 2000, signed the UN Convention against Transnational Organized Crime.
Portugal has put into place comprehensive and effective measures to combat money laundering. The system for reporting suspicious transactions could be improved, however, by instituting a more formalized system, and by the increased involvement of and training for entities outside the banking sector. The GOP also should continue to exercise due diligence over its offshore sector, and more closely monitor domestic non-bank financial institutions.
Qatar . Qatar is not a regional financial center. Its banking sector is small and primarily geared toward meeting domestic financial needs. It consists of six domestic banks, two Arab banks and six non-Arab foreign banks. The Qatar Monetary Authority supervises and coordinates the banking system, and issues directives and regulations to financial institutions. In 1999 the QMA issued a circular directing banking officials to record any transaction exceeding approximately US $8,300 in an effort to address money laundering, even though money laundering is not currently a criminal offense in Qatar. Other regulations require customer identification policies and the maintenance of bank records.
Qatar is a party to the 1988 UN Drug Convention. Qatar is a member of the Gulf Cooperation Council , which is a member of the Financial Action Task Force. GCC members met in May 2000 for a four-day seminar on combating money laundering and pledged to enhance communication and cooperation to fight international crime.
Romania . Romania has only recently begun to develop an anti-money laundering regime. Its geographic location makes it a transit country for trafficking in narcotics, arms, stolen vehicles, and illegal aliens. As in other Central and East European countries, corruption and the presence of organized criminal activity facilitate money laundering. Financial crimes, Internet fraud, and the smuggling of cigarettes, alcohol, coffee, and other dutiable commodities are other common predicate crimes for money laundering in Romania.
Romania criminalized money laundering with the adoption in January 1999 of Law No21/99-On the Prevention and Punishment of Money Laundering. Becoming effective in April 1999, the law mandated provisions for customer identification, record-keeping requirements, reporting transactions of a suspicious or unusual nature, currency transaction reporting over 10,000 Euros, a financial intelligence unit , and internal anti-money laundering procedures and training for all Romanian financial institutions covered by the law. The list of entities subject to the reporting requirements includes banks, non-bank financial institutions, attorneys, accountants, and notaries. While banking groups have not openly objected to the implementation of reporting requirements, there remains some discomfort on the part of the banking industry regarding requirements to assist law enforcement. In addition, there is mutual suspicion between law enforcement agencies and the banking industry.
The National Office for the Prevention and Control of Money Laundering is Romania’s FIU. The NOPCML receives and evaluates suspicious and unusual currency transaction reports. Since its establishment, the NOPCML has forwarded preliminary cases to the Public Prosecutor’s Office for investigation. In 2000, Romanian prosecutors brought a complex case to trial, charging violations of the new money laundering law. The case involved an amount in excess of US $30 million.
Romania is a member of the Council of Europe and participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . It underwent a mutual evaluation of this group in April 1999. The PC-R-EV Mutual Evaluation Report pointed out a number of areas that should be addressed, including the high evidentiary threshold for reporting suspicious transactions, a potential conflict with bank secrecy legislation, and the lack of provisions for cases in which the reporting provisions are intentionally ignored.
The NOPCML is a member of the Egmont Group. The Mutual Legal Assistance Treaty signed in May 1999 between the United States and Romania is not yet in force. Romania has demonstrated its commitment to international anticrime initiatives by actively participating in regional and global anticrime efforts. Romania is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
While Romania is still in the implementation phase of its anti-money laundering regime, it appears to be on the right track. By taking into account the recommendations of the COE Evaluators, Romania has a sound guide to improve its anti-money laundering regime and allow it to effectively combat money laundering and its predicate crimes.
Russia . The absence of a legal and regulatory anti-money laundering framework remains the most serious impediment in Russia’s ability to control the laundering of criminal proceeds internally and to cooperate in international anti-money laundering efforts. Although precise figures are not available, the magnitude of money laundering is likely to be large given the scale of contributing factors involved. Russia’s wealth in natural resources, the extent of organized crime activity, corruption, and the numerous mechanisms used for capital flight provide a broad scope for laundering of domestically generated criminal proceeds. False invoicing schemes involving the export of oil, precious metals, raw materials and alcohol, and other fictitious trade transactions are used for capital flight and tax evasion, and to mask the laundering of criminal proceeds. According to Russian government officials, about 30-40 percent of the approximately US $20 billion that leaves Russia annually is of questionable origin.
In addition, Russia serves as a major transit route for narcotics trafficking to Europe. Porous borders and insufficient technical and financial support for regulatory and enforcement agencies hamper the government’s ability to control conditions favorable to laundering the proceeds of narcotic trafficking and other criminal activity.
In the past, capital flight often has been confusingly associated with money laundering, since many of the same funds transfer methods are used to facilitate illegal laundering schemes and the transfer of capital derived from legal sources. The failure of last year’s efforts to adopt anti-money laundering legislation can be attributed in part to the drafters’ attempts to incorporate measures for capital flight control into the anti-money laundering legislation. The Russian government has expressed its intention to address the economic conditions that encourage capital flight separately from regulatory and enforcement measures to combat money laundering, which include reforms in Russia’s taxation, customs, banking, and foreign exchange systems.
The Government of Russia undertook constructive steps in 2000 to draft anti-money laundering legislation that conform to international standards. The Ministry of Finance has led an interagency process for drafting the legislation. The current draft law addresses the weaknesses of the version vetoed in 1999 and includes strengthened provisions for customer identification, record keeping, and the creation of a financial intelligence unit. Its introduction into the Duma is expected in early 2001. Russia’s efforts to draft anti-money laundering legislation have received widespread international support by the Financial Action Task Force , the Council of Europe, and the member countries of those organizations. Passage of this legislation will provide the legal basis to combat the proceeds of crime and those who assist in laundering them. Rapid implementation of the law will demonstrate Russia’s resolve to mitigate its money laundering problems and become and effective partner in anti-money laundering efforts.
In 1999, the Central Bank of Russia instituted regulatory measures to scrutinize offshore financial transactions. In the following six months, wire transfers from Russian banks to offshore financial centers dropped threefold. In July 2000, President Putin vetoed the law “On Free Economic Zones.” The law would have granted customs and tax advantages to various regions of the Russian Federation as a means to encourage economic development. A number of Russian businesses had flocked to these free economic zones in anticipation of passage of this and similar regional laws. Putin’s veto of the law lays to rest what would have effectively provided offshore status to Russian registered businesses.
Citing the lack of a legal and regulatory framework to combat money laundering, the FATF in June 2000 named Russia among its list of 15 countries that were non-cooperative in international efforts to combat money laundering. The FATF report noted four major problems. These included: the lack of anti-money laundering laws and regulations, the failure to implement customer identification for many transactions, the lack of suspicious transaction reporting and an operational financial intelligence unit, and ineffective and untimely procedures for providing evidence for foreign money laundering investigations. These deficiencies also prompted the United States Treasury to issue an advisory to US financial institutions, advising them “to give enhanced scrutiny to transactions or banking relationships that do not involve established, and adequately identified and understood, commercial or investment enterprises, as well as to transactions involving the routing of transactions from Russia through third jurisdictions in ways that appear unrelated to commercial necessities.” Other FATF member treasuries also issued similar advisories.
Russia submitted the Council of Europe’s Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime to the Duma for ratification and participates in the COE’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . In June 2000, Russia underwent a mutual evaluation by the PC-R-EV, which was reported to the plenary in January 2001. The evaluation report made detailed suggestions to improve Russia’s anti-money laundering program.
Russia is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
US law enforcement and regulatory agencies are engaged in a number of technical assistance projects designed to further Russia’s anti-money laundering efforts. Although formal and informal law enforcement cooperation is on the rise, differences in money laundering laws and regulations lead to frequent misunderstandings and misperceptions. This is especially true in the handling of Mutual Legal Assistance Agreement requests, the main tool for providing assistance in recovering laundered funds and criminal proceeds. US technical assistance programs focused on providing law enforcement, regulators, and prosecutors anti-money laundering training to combat financial crimes. In addition, technical teams assisted Russian drafters in developing legislation meeting international standards. The technical assistance teams encouraged the adoption and implementation of money laundering laws and improved methods of mutual cooperation in money laundering investigations, prosecutions and forfeiture actions.
Russia will need to pass and implement comprehensive legislation that will provide the legal basis to attack the proceeds of crime and those who assist in laundering them in order to mitigate successfully its money laundering problems and become an effective partner in global anti-money laundering efforts.
Samoa . Samoa is an independent country in the South Pacific. Its offshore financial services sector is vulnerable to money laundering. Samoa passed the Money Laundering Prevention Act in June 2000. This law criminalizes money laundering associated with numerous crimes, and sets measures for the prevention of money laundering and related financial supervision. The law compels financial institutions, offshore and onshore, to develop and apply internal policies, procedures, and controls to combat money laundering. It requires financial institutions to record new business transactions exceeding $30,000, to retain records for a minimum of seven years, and to identify all parties to the transactions; and should address previous concerns over the existence of anonymous accounts for onshore and offshore banks. It also requires financial institutions to report transactions considered suspicious to a Money Laundering Authority to be appointed by the Minister of Finance. The MLA will receive and analyze these disclosures, and if it establishes reasonable grounds to suspect that a transaction involves the proceeds of crime, it will refer the information to the attorney general and the Commissioner of Police. However, there is nothing in the legislation that prohibits financial institutions from carrying out business transactions where the beneficial owner of the transactions is unknown, or represented by an intermediary who will not disclose the identity of the beneficial owner. Section 8 of the Money Laundering Prevention Act states that the new legislation will override all secrecy obligations for the purpose of money laundering prevention and enforcement. The law also requires individuals to report to the MLA if they are carrying with them $10,000 or more in cash or negotiable instrument upon entering or leaving Samoa.
Samoa currently has 10 offshore banks. Section 16 of the Offshore Banking Act does not prohibit persons, who have been sentenced for an offense involving dishonesty, to apply to be employed as a director or manager of any offshore bank. The Act only requires prior approval in writing, of the Minister before doing so without setting any criteria to guide the decision. In addition, there is no provision in the Act that specifies the qualifications for an owner/shareholder of an offshore bank.
In addition to offshore banks, Samoa’s offshore sector includes insurance companies, trusts, and international business companies , of which there are slightly more than 4,085 currently registered. IBCs may be registered using bearer shares and shelf companies that conceal the identity of the beneficial owner and the date of incorporation of these entities. Corporate entities may be listed as officers and shareholders because Samoan IBCs have all the legal powers of a natural person. There are no requirements to file annual statements or annual returns. These provisions make IBCs particularly attractive to money launderers and have not yet been addressed by Samoan authorities.
In 2000, the Financial Action Task Force reviewed Samoa’s anti-money laundering regime and did not designate it as a non-cooperative jurisdiction. The FATF report noted that provisions in the recently enacted Money Laundering Prevention Bill addressed many of Samoa’s deficiencies, but that others would need further steps. The FATF urged “the Government of Samoa to fully implement the enacted law and to strengthen the bank licensing procedure.”
Samoa is a member of the Asia/Pacific Group on Money Laundering and the South Pacific Forum.
Through the passage of the June 2000 Money Laundering Prevention Act, the Government of Samoa has taken positive steps to strengthen its anti-money laundering regime. The GOS needs to move quickly to implement this legislative effort, to appoint the Supervisory Authority that will supervise the financial sector, and to issue guidelines to financial institutions so that they have a clear understanding of their obligations under this new law. Particular emphasis needs to be directed toward regulation of the offshore financial sector. The GOS should enact legislation to identify the beneficial owners of IBCs to help ensure that international criminals do not use them for money laundering or other financial crimes.
Saudi Arabia . Saudi Arabia is not considered to be a major financial center. However, in recognition of world-wide money laundering activities, particularly those involving drugs, the Saudi Arabian Monetary Agency published in 1995 money laundering control guidelines to assist Saudi banks from being exploited as channels for illegal transactions and other criminal activity. During 1998, SAMA reviewed the FATF 40 Recommendations and agreed they should be implemented. Simultaneously, an inter-ministerial committee reviewed all Saudi laws related to money laundering and prepared amendments to bring them into conformance with the FATF recommendations. The proposed revisions, in the form of new legislation, were approved by the Saudi Council of Ministers in late 1999.
There is relatively strong bank supervision in Saudi Arabia and individuals or banks suspected of money laundering are subject to criminal prosecution under Shari’a law, the Banking Control law, and Saudi Arabian labor law. Money laundering cases are heard in a Shari’a court, which bases its jurisdiction on a Koranic passage which states that “assets arising from illegal acts shall be forbidden and confiscated.” Pursuant to the new legislation, relevant Saudi ministries are formulating plans to implement the law. As part of that process, the Ministry of Interior will establish a committee that has the power to refer cases for criminal prosecution to the Saudi Board of Grievances. While Shari’a courts deal harshly with money launderers, the involvement of the Board of Grievances will allow cases to be heard in accordance with guidelines set forth in the new legislation.
SAMA requires that each bank establish internal money laundering control units to review policies, institute necessary investigations, and implement training programs. If money laundering is suspected, banks are required to notify SAMA and the police. SAMA officials and bank compliance officers meet on a monthly basis to share information on money laundering trends. The Ministry of Interior does not publicly disseminate statistics regarding money laundering investigations and prosecutions in Saudi Arabia.
Saudi Arabia is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
Senegal . The extent of money laundering in Senegal is not known. However, officials from the United Nations in 2000 indicated that the West African region may be fertile ground for money laundering because of drug trafficking, corruption, networks of contraband arms and precious stones, and weak mechanisms of control that can be exploited by international criminals. Article 102 of Senegal’s 1997 drug code criminalizes drug laundering by providing punishment of up to 10 years imprisonment. Senegal has also enacted legislation against narcotics-related public corruption, but the law does not specifically address money laundering. The Central Bank of West African States , based in Dakar, is the central bank for Benin, Burkina Faso, Guinea-Bissau, Cote d’Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency.
In November 2000 Senegal hosted a meeting of officials from 14 West African countries. The group set up the Intergovernmental Group for Action Against Money Laundering to coordinate their governments’ actions against money laundering and other transnational crime.
Senegal is a party to the 1998 UN Drug Convention. In December 2000 Senegal signed the United Nations Convention against Transnational Organized Crime.
Seychelles . Seychelles is a developing offshore financial center and tourist destination. Currently, there is little evidence of money laundering.
The development of the offshore financial sector by the Government of Seychelles is an attempt to diversify the economy and increase foreign exchange earnings. The GOS aggressively markets Seychelles as an offshore financial and business center that is capable of providing for the registration of non-resident companies. A major defect of the program is that it still permits the issuance of bearer shares, a feature that can facilitate money laundering by making it extremely difficult to identify the beneficial owners of an international business company . However, Seychelles officials stated in 2000 that they are reviewing the question of bearer shares and intend to outlaw them. In the interim, the GOS will not approve the issuance of any more bearer shares. The 4800 registered IBCs pay no taxes in Seychelles, and are not subject to foreign exchange controls. Seychelles has also created the Seychelles International Trade Zone which is managed by the Seychelles International Business Authority . SIBA, part of the Ministry of International Trade, acts as the central agency for the registration of IBCs. IBCs are not required to file annual reports. Seychelles also permits offshore trusts and insurance companies.
Seychelles passed anti-money laundering legislation in 1996, the Anti-Money Laundering Act, which criminalized the laundering of funds from all serious crimes; provided for the reporting of suspicious transactions and safe harbor protection for individuals and institutions making the reports; mandated record keeping and “know your customer” requirements; and provided for the forfeiture of the proceeds of crime.
The major area of concern regarding anti-money laundering practices in the Seychelles related to the Economic Development Act of 1995. The EDA contained immunity provisions, such as protection from asset seizure and extradition, that could clearly attract international criminal enterprises wishing to shelter themselves and their proceeds from pursuit by legal authorities. While the EDA never came into force, it represented a grave threat to efforts to combat money laundering.
Both the Financial Action task Force and the United States reacted to the EDA. The FATF applied its Recommendation 21 on February 1, 1996. That same year, the US Treasury Department issued an advisory to US financial institutions warning them about the situation in the Seychelles. In February 2000, the FATF selected Seychelles for review as a possible non-cooperative jurisdiction. In its efforts to avoid being so-designated, the GOS, while maintaining that the EDA had never in fact gone into force, nevertheless agreed to officially repeal it, which it did on July 25, 2000. In October 2000 the FATF Plenary decided that Seychelles did not merit being named non-cooperative, and the FATF rescinded its Recommendation 21. The US Treasury has yet to rescind its advisory.
The Seychelles is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime. Seychelles is a member of the Eastern and Southern Africa Anti-Money Laundering Group .
The GOS should address the issue of bearer shares and require complete identification of beneficial ownership of IBCs. It should also establish a financial intelligence unit to collect, analyze and share financial data with foreign counterparts to effectively combat money laundering and other financial crimes.
Singapore . As a significant international financial center, Singapore attracts investors from around the world, including money launderers. Bank secrecy laws and the lack of routine currency reporting requirements may make Singapore attractive to drug traffickers seeking to launder and move their money. However, recent legislation and regulations significantly weaken bank secrecy in cases involving most serious criminal activity, including narcotics-related money laundering. To bolster law enforcement cooperation and facilitate information exchange, including information to combat narcotics related money laundering, Singapore and the US signed the Drug Designation Agreement in November 2000, after three years of negotiations. It is expected to enter into force in early 2001. The DDA is the first such agreement Singapore has undertaken with another government and is also the first agreement made under the auspices of Singapore’s Mutual Assistance in Criminal Matters Act that was enacted early in 2000. The DDA, however, is only limited to narcotics cases and does not apply to non-narcotics related money laundering or financial fraud cases.
Singapore is a major offshore financial center. As of December 2000, there were 83 offshore banks in Singapore, all branches of foreign banks. There are no offshore trusts, although banks may open trust, nominee, and fiduciary accounts. All banks in Singapore, whether domestic or offshore, are subject to the same regulation, record keeping and reporting requirements. There are also hundreds of offshore international and financial service businesses. An offshore company must have a local registered office with a physical address and a minimum of two directors, at least one of whom must be a Singaporean citizen; permanent resident or employment pass holder. Bearer shares are not permitted. A company incorporated in Singapore has the same powers as a natural person.
The Corruption, Drug Trafficking and other Serious Crimes Act 1999 criminalized the laundering of proceeds from narcotics and over 150 other offenses. Financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions. Banks are required to maintain adequate records to respond quickly to the Government of Singapore’s inquiries in money laundering cases. However, there are no reporting requirements on amounts of currency that can be brought into or out of Singapore.
The GOS enacted the Mutual Assistance in Criminal Matters Act in March 2000. The MACM consolidated the existing mutual assistance provisions of the Drug Trafficking Act of 1993 and ensured that the GOS could share records in connection with narcotics investigations and proceedings. The MACM applies to countries that have concluded treaties, memoranda of understanding or other agreements with Singapore.
The MACM paved the way for the signature of the Drug Designation Agreement with the United States in November 2000. The DDA will facilitate the exchange of banking and corporate information on drug money laundering suspects and targets to include access to bank records, reciprocal honoring of seizure/forfeiture warrants to include the execution of these warrants and the freezing and/or forfeiture of the proceeds of the drug trafficking, testimony of witnesses, service of process, and the sharing of seized assets. Implementation and use of the DDA is expected to result in significant seizures of narcotics-related proceeds in the years ahead.
In February 2000, the Monetary Authority of Singapore issued a series of regulatory guidelines requiring banks to apply “know your customer” standards, adopt internal policies for staff compliance, and cooperate with enforcement agencies on money laundering cases. Banks must obtain documentation, such as passports or identity cards, from all personal customers so that the bank can verify their names, permanent contact addresses, dates of birth, and nationalities, and conduct inquiries into the bona fides of company customers. The regulations specifically require that banks obtain evidence of the identity of the beneficial owners of shell companies or trusts. The guidelines also mandate specific record keeping and reporting requirements, outline examples of suspicious transactions that should prompt reporting, and establish mandatory intra-company point-of-contact and staff training requirements. MAS Notice 626 applies to banks; Notice 824 applies to Finance Companies; Notice 1014 applies to Merchant Banks; and Notice 314 to Direct Life Insurers and Brokers. MAS issued similar guidelines for securities dealers and investment advisors, and futures brokers and advisors.
The Suspect Transaction Reporting Office began operating on 10 January 2000 and receives and analyzes suspicious transaction reports filed by financial institutions. It is also authorized to exchange intelligence derived from these reports with foreign counterparts.
Singapore is party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime. Singapore is a member of the Financial Action Task Force , the Asia Pacific Group on Money Laundering, and the Offshore Group of Banking Supervisors .
The GOS should continue close monitoring of its domestic and offshore financial sectors. It should also extend the DDA to cover non-narcotics related money laundering and financial fraud cases. As a major financial center, it should also consider measures to monitor large currency movements into and out of the country to ensure that international criminals do not abuse Singapore’s financial system.
Slovakia . The geographic, economic, and legal conditions that shape the money laundering environment in Slovakia are typical of those in other Central European countries. Slovakia’s location along the major lines of communication connecting Western, Eastern, and Southeastern Europe make it a transit country for smuggling and the trafficking in narcotics, arms, stolen vehicles, and illegal aliens. Organized crime activity and the opportunities to use gray market channels for laundering also lead to a favorable money laundering environment. Financial crimes such as fraud, tax evasion, embezzlement, and conducting illegal business have been particularly problematic for Slovak authorities. Money laundering schemes carried out in Slovakia are also typical of other countries in transition. These include the use of the financial sector for the movement of criminal proceeds, fictitious companies, false invoicing schemes, and false documentation of imports and exports. Banks, insurance companies, and casinos are employed as money laundering mechanisms. Non-bank financial institutions have been particularly susceptible to laundering because until recently they were not subject to transaction reporting requirements.
Slovakia’s anti-money laundering legislation, Act N�249/1994 as amended by Act N� 58/1996 “To Prevent the Laundering of Proceeds of Most Serious Crimes, Particularly of Organized Crime and to Amend Some Other Statutory Provisions Enacted by the Authority of the National Council of the Slovak Republic,” became effective on October 1, 1994. Article 252 “Legalization of Proceeds from Criminal Activity” of the Slovak Criminal Code came into force at the same time. These measures criminalize money laundering, require customer identification and record keeping, and require banks to report suspicious transactions.
In October 2000, the Slovak Parliament adopted the law “On Protection Against the Legalization of Proceeds from Criminal Activities.” It requires non-bank financial institutions to report suspicious transactions beginning January 1, 2001. Non-bank financial institutions subject to the new law are: casinos, post offices, brokers, stock exchanges, commodity exchanges, asset management companies, insurance companies, tax advisors, auditors, and credit unions. The law also abolishes anonymous passbook savings accounts.
The financial intelligence unit of the Bureau of Financial Police has jurisdictional responsibilities for money laundering violations. In its role as Slovakia’s financial intelligence unit, the OFiS-UFP receives and evaluates the suspicious transaction reports, and collects additional information to establish the suspicion of money laundering. Once enough information has been obtained to warrant suspicion that a criminal offense has occurred, the OFiS-UFP forwards the case to the State Prosecutor’s Office for investigation and prosecution.
Slovakia is a member of the Council of Europe and participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . Slovakia became a member of the Organization for Economic Cooperation and Development in December 2000, which will expand opportunities for multilateral engagement on combating money laundering. Slovakia underwent a mutual evaluation by this group in 1998 and has been implementing changes to its money laundering regime based on the report’s recommendations. The OFiS-UFP is a member of the Egmont Group. Slovakia is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime.
Slovakia continues to improve its anti-money laundering legislation. Implementation of the provisions of Slovakia’s newly passed anti-money laundering legislation will give the Slovak financial system greater protection by helping it prevent and detect money laundering in all financial sectors, not just the banking system.
Slovenia . Slovenia’s economic stability and location on the Balkan drug route offer attractive opportunities for money laundering. Major sources of illegal proceeds are auto theft, narcotics trafficking, fraud, tax evasion, and alien smuggling. Organized crime activity is increasing, although it is less of a problem than in neighboring countries. Money laundering occurs through the banking system, currency exchange houses, casinos, real estate transactions, and the physical transport of currency across borders.
Slovenia’s 1994 Law on Prevention of Money Laundering criminalized money laundering. It requires all financial institutions, casinos, and legal and natural persons to report suspicious transactions and currency transactions above US $22,000. Customer identification is mandatory for all single transactions, and for series of transactions, exceeding US $13,500. Records must be retained for a minimum of five years.
Slovenia has a financial intelligence unit , the Office for Money Laundering Prevention, which is a member of the Egmont Group. Slovenia underwent a mutual evaluation by the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures . Slovenia is a party to the 1988 UN Drug Convention. In December 2000, Slovenia signed the United Nations Convention against Transnational Organized Crime.
Solomon Islands . Drug trafficking does not occur on a significant scale in the Solomon Islands. The Islands’ banking system is small and has no offshore sector. The country has not criminalized money laundering.
The Solomon Islands is not a party to the 1988 UN Drug Convention.
South Africa . South Africa’s position as the major financial center in the region and its relatively sophisticated and unprotected banking and financial sector make South Africa a very attractive target for the criminal syndicates that have located there. The Russian Mafia, Chinese Triads, and Nigerian drug traffickers have been identified in South Africa, along with native South African criminal groups. Diamonds and weapons smuggling, trade in endangered species, narcotics trafficking, and money laundering are major criminal activities challenging local law enforcement. In late 2000, the Government of South Africa sent new legislation, the Financial Intelligence Center Bill, to parliament that when passed and implemented will substantially increase the SAG’s ability to combat these crimes.
Money laundering for all serious crimes was criminalized by the Proceeds of Crime Act, No. 76 of 1996. This Act was superceded by the Prevention of Organized Crime Act, No. 121 of 1998 , which also criminalizes money laundering, mandates the reporting of suspicious transactions, and provides a “safe harbor” for good-faith compliance. Subsequent regulations directed that these reports be sent to the commercial Crime Unit of the South African Police. Both of these Acts contain criminal and civil forfeiture provisions. However, South Africa has been unsuccessful in implementing this existing anti-money laundering legislation. The POCA was amended several times, and several challenges to arrests and seizures are pending.
The Financial Intelligence Center Bill , submitted to Parliament in late 2000, provides for the establishment and staffing of a Financial Intelligence Center that would coordinate policy and efforts to counter money laundering activities and act as a centralized repository of information. The bill would require a wide range of financial institutions to identify customers, maintain records of transactions for at least five years, and report transactions of a suspicious nature to the FIC. If it has reasonable grounds to suspect that a transaction involves the proceeds of criminal activities, the FIC will forward this information to the investigative and prosecutorial authorities. The bill would also establish a Money Laundering Advisory Council to advise the Minister of Finance on policies and measures to combat money laundering. The FICB is expected to be enacted in 2001.
South Africa has no offshore financial center.
South Africa is a party to the 1988 UN Drug Convention and in December 2000 signed the United Nations Convention against Transnational Organized Crime. The United States and South Africa have concluded a bilateral extradition treaty and a Mutual Legal Assistance Treaty, both of which are expected to enter into force in 2001. South Africa is a member of the Eastern and Southern Africa Anti-Money Laundering Group and is expected to sign the group’s memorandum of understanding in 2001.
Enactment and implementation of the FICB, currently before Parliament, would significantly strengthen South Africa’s anti-money laundering regime and help protect South Africa’s banking sector from abuse by criminals and criminal organizations.
Spain . Money laundering occurs primarily in Spain’s financial system, although there are indications that funds are also being laundered through the acquisition and sale of real estate. Spanish authorities have noted that traffickers continue to use courier networks to remit large amounts of bulk cash to South America and the Middle East. The one area that drug trafficking organizations may be able to exploit is the stock market because it falls outside of the money laundering legislation.
The Government of Spain has been addressing the money-laundering problem through the 1993 Prevention of Money Laundering Act and its corresponding 1995 implementing regulations. The Act criminalizes the laundering of proceeds linked to the illicit drug trade, terrorism and organized crime. Subsequent to the 1993 Act, reforms made to the Penal Code in December 1995 extended the criminalization of money laundering to all serious crimes.
The financial sector, particularly the banking community, continues to respond positively to the requirements of the Act and the regulations that require the reporting of the identities of customers engaging in large currency transactions, the maintenance of records, and the reporting of suspicious financial transactions. These reporting requirements apply to other financial sectors including credit card companies, currency exchange houses, jewelers, dealers in antiques, art stamps and coins, credit unions, and companies dealing in investments, securities, and/or insurance. The Act established the Commission for the Prevention of Money Laundering and Monetary Offenses to coordinate all of Spain’s anti-money laundering efforts, and the Executive Service of this Commission functions as Spain’s financial intelligence unit . SEPBLAC receives and analysis the reports of suspicious financial transactions and forwards those indicating money laundering activity to law enforcement. SEPBLAC is a member of the Egmont Group of FIUs.
Spain continues to provide training and promote institution-building programs aimed at increasing the effectiveness of the judicial and law enforcement sectors, particularly in South and Central America. Spain is a member of the Financial Action Task Force , and currently holds the presidency until June 2001. Spain is also an observer member of the newly created South American Financial Action Task Force , and a Cooperating and Supporting Nation of the Caribbean Financial Action Task Force . Spain is a member of the EU, a party to the 1988 UN Drug Convention, and in December 2000 it signed the United Nations Convention against Transnational Organized Crime.
Spain has signed criminal legal assistance agreements with the United States, Australia, Chile, Canada, Argentina, Mexico, the Dominican Republic, Uruguay and Morocco. Spain’s Mutual Legal Assistance Treaty with the United States has been in force since 1993. In addition, a number of Spain’s bilateral agreements to fight drug trafficking and organized crime provide for cooperation through information exchange and mutual assistance in combating money laundering. The countries with which Spain has concluded agreements in these areas include France, Portugal, the United Kingdom, Turkey, Italy, Chile, the Russian Federation, Israel, Bolivia, Mexico, El Salvador, Venezuela, Uruguay, Malta and Panama.
The GOS should continue its strong enforcement of its anti-money laundering program and international leadership to combat money laundering. It should also consider measures to address possible money laundering in the stock market to ensure that this sector is not used for financial crimes.
Sri Lanka . Sri Lanka is not considered to be money laundering center, and it is not a tax haven, offshore banking facility or important financial center in the region. The government neither facilitates nor encourages money laundering. Sri Lanka maintains strict currency controls that inhibit money laundering activity.
Sri Lanka’s Bank Secrecy Act makes financial transactions relating to narcotics trafficking illegal. In 2000, the central bank assisted in formulating a draft anti-money laundering bill that contains know your customer provisions and would hold bank directors liable if their institutions are used for money laundering. This legislation has not yet been presented to Parliament.
Sri Lanka is a party to the 1988 UN Drug Convention and a member of the Asia/Pacific Group on Money laundering . In December 2000 Sri Lanka signed the United Nations Convention against Transnational Organized Crime.
St. Kitts and Nevis . St. Kitts and Nevis is a federation composed of two islands located in the eastern Caribbean Sea. It is at major risk for money laundering mainly because of the high volume of drug trafficking activity through and around the islands, the presence of known traffickers on the islands, and offshore services that protect client secrecy. A number of Russian organized crime figures have taken up residence in St. Kitts.
Although St. Kitts has an offshore sector that includes approximately 500 “exempt companies” , most of the financial activity in the Federation is concentrated in Nevis, whose economy has become increasingly dependent upon the fees generated by the registration of offshore entities. One offshore bank and more than 19,000 offshore companies are registered in Nevis. St. Kitts and Nevis also offers offshore trusts, and as of mid-1999 had issued 10 Internet gaming licenses. As elsewhere in the Caribbean, St. Kitts and Nevis also provides an economic citizenship program by which one can buy St. Kitts and Nevis nationality and adopt a new name. St. Kitts and Nevis has the oldest economic citizenship program in the eastern Caribbean under the Citizenship Act of 1984. International law enforcement officials have criticized these programs, as they provide the opportunity for criminals to create new identities that are used to facilitate travel and create offshore companies for money laundering, financial fraud, and other illicit activities.
The anti-money laundering regime embodied in the legal, supervisory, and regulatory systems of St. Kitts and Nevis suffers from serious systemic problems. The Proceeds of Crime Act 1993 criminalized drug-related money laundering, mandated record keeping by financial institutions, and permitted reporting of suspicious transactions. But financial institutions operating in St. Kitts and Nevis are still not required to report suspicious transactions. Moreover, drug money laundering is punishable only by the imposition of fines. The bank secrecy laws of St. Kitts and Nevis also prohibit governmental authorities from obtaining financial information about customer identification and transactions that are collected and maintained by financial institutions. Offshore companies registered in Nevis are not effectively supervised. Bearer shares allow anonymous corporate ownership, and entities do not require verification of the identity of customers, or maintenance of records relating to the identity of customers.
Citing these deficiencies, the Financial Action Task Force identified St. Kitts and Nevis as “non-cooperative” in the fight against money laundering.
The US Treasury Department issued an advisory on St. Kitts and Nevis in July 2000 advising banks and other financial institutions operating in the United States “to give enhanced scrutiny to all financial transactions originating in or routed to or through the Federation of St. Kitts and Nevis, or involving entities organized or domiciled, or persons maintaining accounts in St. Kitts and Nevis.”
St. Kitts and Nevis is a member of the Caribbean Financial Action Task Force and underwent a mutual evaluation in February 1999. After extended delays by the Kittian government, the report was finally discussed and adopted at the October 2000 CFATF Council meeting in Aruba.
In response to findings of the CFATF mutual evaluation, as well as the FATF designation, the Government of St. Kitts and the Nevis Island established a task force that includes officials from both jurisdictions. The task force is working to revise offshore legislation and regulations as well as to establish a financial intelligence unit.
In November 2000, the GOSKN enacted several new measures to address some of the deficiencies in its anti-money laundering regime. The Proceeds of Crime Act 2000 criminalizes the laundering of proceeds from all serious offenses . The Financial Intelligence Unit Act 2000 establishes the legislative basis for an FIU that will be able to cooperate with foreign counterparts, although it appears the unit would not be able to cooperate during the information phase. Rather, it could share information only after criminal proceedings against a subject have already begun. The Financial Services Commission Act 2000 creates the legal basis for the appointment by the Minister of Finance of a commission that will include one regulator for St. Kitts and one for Nevis for the islands’ onshore sectors.
St. Kitts and Nevis has signed a mutual legal assistance treaty with the United States, which entered into force in early 2000. St. Kitts and Nevis is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. St. Kitts and Nevis is a party to the 1988 UN Drug Convention.
The GOSKN needs to build upon its recent efforts to improve its anti-money laundering regime to meet international standards. New laws and regulations should be consistent in both islands of the federation. The GOSKN should enact legal measures to require registration of the beneficial owners of companies and bank accounts and provide adequate resources to enforce compliance by offshore entities. In addition, the GOSKN should quickly establish a financial intelligence unit and provide it the legal authority to share information with foreign counterparts during the information-gathering phase of an investigation. It should also institute better control and due diligence in its economic citizenship program to prevent possible abuse by international criminals.
St. Lucia . St. Lucia is not a major financial center. However, St. Lucia has recently developed an offshore financial services center that could make the island more vulnerable to money laundering and other financial crimes.
In November 1999 the Government of St. Lucia enacted the Money Laundering Act, which criminalizes the laundering of proceeds relating to 15 prescribed offenses, including drug trafficking, corruption, fraud, terrorism, gambling, and robbery. It contains know-your-customer provisions, suspicious transaction reporting requirements, and record keeping requirements. These obligations apply to domestic and offshore financial institutions, including credit unions, trust companies, and insurance companies. The Proceeds of Crime Act 1993 requires financial institutions to retain account opening information and details of transactions for seven years. The Money Laundering Act now imposes a duty on financial institutions to take “reasonable measures” to establish the identity of customers, and requires accounts to be maintained in the true name of the holder. In addition, the Act now requires an institution to take reasonable measures to identify the underlying beneficial owner when an agent, trustee, or nominee operates an account. In April 2000, the Financial Services Supervision Unit issued detailed guidance notes, entitled “Minimum Due Diligence Checks, to be Conducted by Registered Agents and Trustees.”
The Act also established the Money Laundering Authority in early 2000. This Authority consists of five persons “who have sound knowledge of the law, banking or finance.” The Authority’s functions include receipt of suspicious transactions reports, the subsequent investigation of the transactions, dissemination of information within or outside of St. Lucia, and the monitoring of compliance with the law. The Money Laundering Act imposes a duty on the Money Laundering Authority to cooperate with foreign competent authorities. Assistance includes the provision of documents, giving of testimony, undertaking of examinations, execution of search and seizure, and the provision of information and evidential items. The legislation is new; therefore, there is no experience of its effectiveness.
In 1999 the GOSL also enacted a comprehensive inventory of offshore legislation, consisting of the International Business Companies Act, the Registered Agent and Trustee Licensing Act, the International Trusts Act, the International Insurance Act, the Mutual Funds Act, and the International Banks Act. The sector presently has one offshore bank, three insurance companies, and approximately 100 IBCs.
The IBC Act does not provide for a licensing regime, but allows for a simple registration process, which is automatic upon submission of the correct documents and is controlled by a private sector company that also has responsibility for marketing the OFC. IBCs intending to engage in banking, insurance or mutual funds business may not be registered without the approval of the Minister. An IBC may be struck off the register on the grounds of carrying on business against the public interest.
As a member of the Caribbean Financial Action Task Force , St. Lucia underwent a first mutual evaluation in compliance with CFATF requirements. The report on the evaluation, which preceded the establishment of St. Lucia’s offshore sector, was reviewed at the July 1999 CFATF Plenary.
The Financial Action Task Force reviewed the anti-money laundering regime of St. Lucia in 2000, and although it did not determine St. Lucia to be non-cooperative in international efforts to combat money laundering, the FATF did make the following comments:
Although St. Lucia enacted relatively comprehensive new money laundering legislation early this year, it appears not to have structured its offshore financial services regulatory regime in such a way as to prevent conflicts of interest with the private sector in decision-making and operations. This conflict of interest has the potential of undermining the anti-money laundering system. It also appears as though the regulatory body may not be staffed sufficiently to oversee the rapidly developing offshore services sector. The FATF urges St. Lucia to remedy these deficiencies and will follow up progress in the matter.
St. Lucia is a party to the 1988 UN Drug Convention and a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering.. In February 2000, St. Lucia and the US brought into force, by an exchange of instruments of ratification, a Mutual Legal Assistance Treaty and an extradition treaty.
The GOSL should strongly enforce the Money Laundering Act and establish the Money Laundering Authority to act as a financial intelligence unit. It should also move quickly to prevent the intermingling of the government’s regulatory role and its responsibilities with respect to commercial marketing of the sector. The GOSL also needs to devote adequate resources toward regulating the new offshore financial sector to ensure that money launderers and other criminals do not abuse it.
St. Vincent and the Grenadines . St. Vincent and the Grenadines has a growing offshore sector that is vulnerable to money laundering because of its inadequate regulation and strict secrecy laws. SVG is a transshipment point for cocaine, and marijuana production plays an important role in the local economy. However, the amounts do not reach the major-producer threshold nor do they significantly affect the United States.
SVG’s offshore sector offers banks, trusts, insurance companies, international business companies , mutual funds, international shipping companies, and Internet gaming licenses. SVG assures individuals who are seeking to protect their assets from civil judgement that SVG will not cooperate with foreign civil courts. Section 39 of the International Trust Act restricts recognition of foreign judgements against asset protection trusts established in SVG. IBCs may register on-line, issue bearer shares, and take advantage of pre-named “shelf-companies” that disguise the true dates of incorporation. IBCs also are not required to file accounts with any authority, and are exempt from taxes for 25 years.
Recently, SVG created the legislative framework for an economic citizenship program-and has publicly projected that it could earn approximately US $4.5 million in 2000 from passport sales.
In 1996, SVG passed legislation that created the Offshore Finance Authority as the sole body regulating its offshore sector. The OFA also is engaged in marketing the offshore sector, thereby creating a conflict of interest. The OFA is responsible for appointing an offshore finance inspector, licensing and regulating offshore banks, and overseeing the activities of the Registrar of Companies, the entity responsible for approving IBC licenses. The OFA’s staff of 11, which includes clerical staff, must supervise SVG’s 28 offshore banks and approximately 11,000 IBCs.
The Eastern Caribbean Central Bank supervises SVG’s five domestic banks. In 1995, the ECCB issued Anti-Money Laundering Guidance Notes that follow CFATF recommendations. However, the Guidance Notes apply only to the domestic banking sector and lack enforcement mechanisms. The ECCB Guidance Notes do not apply to SVG’s non-bank financial institutions, businesses, or the offshore sector.
The Proceeds of Crime Act 1997 criminalizes money laundering related to the proceeds of crime and organized fraud. However, the Act’s definition of “proceeds of crime” is not clear. The PCA obliges financial institutions to maintain records related to the opening and closing of accounts and transactions that exceed Eastern Caribbean $5,000 for a minimum of seven years. The PCA also authorized financial institutions to voluntarily report transactions to a police officer or the Director of Public Prosecutions if the institution had reasonable grounds to believe that the transaction involved the proceeds of crime. According to SVG authorities, the Proceeds of Crime Act 1999 makes this reporting system mandatory, and obliges financial institutions to report currency transactions that exceed US $10,000 to the Anti-Money Laundering Committee . SVG authorities, however, have not yet produced copies of this amended act. The AMLC is comprised of representatives from law enforcement, Customs, and the Offshore Finance Authority, and is tasked with reviewing reports from financial institutions and recommending further investigation if necessary. To date, the AMLC has not met.
In June 2000, the Financial Action Task Force identified SVG as one of 15 countries that are non-cooperative in international efforts to combat money laundering. The FATF cited several concerns in its accompanying report:
There are no anti-money laundering regulations or guidelines in place with respect to offshore financial institutions, and thus no customer identification or record-keeping requirements or procedures. Resources devoted to supervision are extremely limited. Licensing and registration requirements for financial institutions are rudimentary. There is no system to require reporting of suspicious transactions. IBC and trust law provisions create additional obstacles, and the Offshore Finance Authority is prohibited by law from providing international cooperation with respect to information related to an application for a license, the affairs of a licensee, or the identity or affairs of a customer of a licensee. International judicial assistance is unduly limited to situations where proceedings have been commenced against a defendant in a foreign jurisdiction.
The US Treasury Department issued an advisory to US financial institutions, indicating that they “should give enhanced scrutiny to any transaction originating in or routed to or through St. Vincent and the Grenadines, or involving entities organized or domiciled, or persons maintaining accounts, in St. Vincent and the Grenadines.”
Since issuance of the FATF’s report, SVG has addressed some of the deficiencies in its anti-money laundering regime. In July 2000, it revoked the license of six offshore banks for non-compliance with certain provisions of the Offshore Banking Act , such as refusal to make quarterly statements of accounts and submit audited financial statements. The owner of one of these banks subsequently demanded repayment of alleged loans that he claimed his bank had made to government officials. All the alleged recipients have denied procuring such loans. These loans would have been illegal under the OBA because offshore banks are prohibited from having business dealings with Vincentian citizens.
In August 2000, SVG amended the International Banks Act to increase the OFA’s oversight of offshore banks, and amended the Confidential Relationships Preservation Act to allow the offshore finance inspector greater access to banking information. However, there continue to be significant restrictions on the sharing of such information with international authorities. In October 2000, SVG again amended the IBA to allow the offshore financial inspector access to the name or title of an account of a customer and any other confidential information about the customer that is in the possession of a license.
SVG is a member of the CFATF and has undergone a mutual evaluation by that body. In addition, SVG is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. SVG is a party to the 1988 UN Drug Convention.
Current SVG law limits the exchange of financial information, the sharing of assets and the degree of cooperation with foreign authorities on financial investigations. For example, the Confidential Relationships Preservation Act of 1996 could impede international cooperation, although its most restrictive section has been removed. An updated extradition treaty and a Mutual Legal Assistance Treaty between the United States and SVG entered into force in September 1999.
SVG must fully implement the recommendations of the CFATF mutual evaluation and address concerns identified by the FATF. SVG also should ensure that it properly supervises the offshore sector and adequately trains regulatory and law enforcement personnel on money laundering operations and investigations. SVG should put into place a mechanism to ensure separation between the offshore sector regulatory and marketing responsibilities. SVG is urged to exercise particular caution in implementing an economic citizenship program, since without proper due diligence, such a program could offer an avenue for international criminals to hide both themselves and their illicit profits.
Suriname . Although money laundering is believed to occur in Suriname-primarily through the sale of gold purchased with illicit funds and manipulation of commercial and state-controlled bank accounts-no data is available for 2000 on its extent. Casinos also may facilitate money laundering. The police have created a financial investigative unit; however, Suriname’s overall anti-money laundering regime is considered weak.
In mid-2000, Suriname resumed its participation in the Caribbean Financial Action Task Force . In November 2000, the CFATF conducted a mutual evaluation of Suriname’s anti-money laundering regime. The results have not yet been presented to the CFATF Plenary. CFATF also has offered to assist the Government of Suriname in drafting new anti-money laundering legislation that would meet international standards. 2020 Air Jordan 34 Low PF “Pure Money” For Sale CU3475-100