1998 International Narcotics Control Strategy Report
Bureau for International Narcotics and Law Enforcement Affairs
United States Department of State
February 26, 1999
MONEY LAUNDERING AND FINANCIAL CRIMES
Afghanistan (Other). The present state of political turmoil in Afghanistan,
which has destroyed most of the country's primitive banking infrastructure,
is not conducive to domestic money laundering. Afghanistan does play a key
role in the heroin trade, the proceeds of which appear to be laundered
outside the country or through the hawala alternative remittance system.
Reports indicate that the Taliban and other factions have been involved in
Albania (Concern). Albania is still recovering from the pyramid scheme
scandal and the subsequent collapse of its economy in 1997. Government
enforcement structures remain weak, and the growth of organized crime
threatens government institutions and the economy. Albanian banks do not
strictly enforce existing anti-money laundering measures, and as a result,
money laundering is widespread. Narcotics trafficking, organized crime,
terrorism, arms trafficking, alien smuggling, corruption, prostitution, and
the counterfeiting of local and U.S. currency are the primary sources of
illegal proceeds. According to an official source, Albania has
become a base of operations for organized criminal groups from Italy,
Turkey, Greece, and Macedonia. Alien smuggling is the largest and best-
organized criminal activity between Albania and Italy, and the two nations
have announced a coordinated effort to combat alien smuggling across the
Adriatic Sea. Joint investigations conducted by Italian and Albanian
authorities have uncovered Italian Mafia involvement in the pyramid scheme
and money laundering schemes through investments in Albania.
Terrorist groups, using Albania as a base of operations and meeting ground,
have established financial enterprises there to finance their activities
abroad. A special investigation conducted by Albanian authorities on the
activities of Islamic terrorist groups revealed that these groups are
involved in narcotics trafficking and the laundering of illicit proceeds to
finance their operations.
An audit conducted by an international accounting firm selected by the
Albanian Finance Ministry to examine the companies involved in the pyramid
schemes revealed that the five largest firms took in more than $400 million
from over 300,000 depositors (roughly 10 percent of Albania's population),
of which only $50 million in assets are on hand. The Albanian finance
minister stated that some of these companies were based solely on pyramid
schemes and were involved in narcotics trafficking and money laundering.
In early 1998, the Ministry of the Interior announced the creation of two
specialized police units to combat narcotics trafficking and financial
crimes. The units will be centralized at the national level, with regional
units reporting to the national headquarters. However, a lack of resources
and official corruption are severely hampering the establishment and
operation of these units.
An anti-money laundering law, based on recommendations provided by the UN
and the IMF, was drafted by the Albanian central bank, the Prosecutor
General's Office, and the Ministry of Justice. It was submitted to the
Parliament for ratification in November 1998. The proposed law mandates
customer identification, record-keeping requirements, and suspicious and
currency transaction reporting by banks and other financial institutions,
with fines for non-compliance. It also calls for the creation of a
financial intelligence unit and imposes criminal penalties for money
Albania participates in the Southeastern Europe Cooperative Initiative
(SECI), among whose goals are to control the increasing flow of drugs
across borders and to combat trans-border organized crime. These efforts
will attack on a regional level the predicate crimes, which generate
illegal proceeds that are subsequently laundered in Albania and neighboring
countries. Albania participates in the Council of Europe's PC-R-EV, and is
scheduled to undergo a mutual evaluation in the year 2000.
Algeria (Other). There is no official evidence of widespread money
laundering in Algeria, but there are unofficial reports of money laundering
being carried out in conjunction with various types of smuggling. In
particular, hashish is smuggled into Morocco and smugglers reportedly
purchase Algerian farmland near border (the costliest in the country),
either to stock the hashish or facilitate contact with Moroccan
Algeria is a party to the 1988 UN Drug Convention. However, it has not
enacted any laws against money laundering. There is a requirement that any
foreign currency imported into the country be declared upon entry, but it
is not clear how strictly this is enforced.
Anguilla (Other). Anguilla is a UK Overseas Territory with a small offshore
financial services sector, which includes offshore banks, trusts, and
international business corporations. Since the early 1980s Anguilla has
increased oversight of its offshore sector by enacting new financial
services legislation and enforcing strict licensing requirements, along
with sharply reducing the number of licensed banks. According to United
States law enforcement sources, there are approximately 300 banks in
Anguilla, of which 290 are Class B, or "paper", banks, which have no
presence but are legally incorporated.
Money laundering in Anguilla seems to be minimal at present, but appears to
be on the upswing. Bulk transport of currency and the use of the offshore
financial institutions by drug traffickers are the most prevalent
As Anguilla attempts to compete with larger jurisdictions and increase
revenues by expanding its offshore sector, diligent oversight, along with
enactment and enforcement of comprehensive anti-money laundering
legislation, will be needed to prevent potential abuse of the industry by
money launderers. As is the case with other UK overseas territories, local
officials are currently working with British officials in drafting all-
crimes money laundering legislation to apply to the domestic and offshore
Anguilla is a member of the CFATF.
Antigua and Barbuda (Primary). Antigua, with an active offshore financial
services industry, a growing Internet gaming industry, stringent bank
secrecy and limited regulatory capabilities, continues to be one of the
most attractive financial centers in the Caribbean for money launderers. In
October 1998, Antigua enacted amendments to the Money Laundering
(Prevention) Act and the International Business Corporations (IBC) Act
which appear to significantly erode the effectiveness of Antigua's anti-
money laundering regime. The amendments to the Money Laundering
(Prevention) Act weaken the original legislation by (1) strengthening bank
secrecy rather than making financial transactions more transparent; (2)
inhibiting the scope of investigations; and (3) allowing bank secrecy
to infringe on international cooperation. While some of the amendments
to the IBC Act include positive features, other amendments contravene the
Basle Principles of effective supervision in that they allow persons with
interests in supervised entities to serve on a regulatory body. The
amendments also create a serious imbalance between the powers of the Board
of Directors and the Executive Director of the International Financial
Sector Authority (IFSA).
Despite assurances to the contrary, the Government of Antigua and Barbuda
(GOAB) failed to take adequate steps to implement effectively the Money
Laundering (Prevention) Act during 1998. The GOAB is only now beginning to
create and staff the Supervisory Authority mandated by the law, and the
Ministry of Finance has not issued regulations or created mechanisms to
implement the mandated suspicious financial transaction reporting. The
GOAB has not issued regulations to implement the mandated inbound/outbound
currency reporting by issuing customs declarations for the movement of
large currency and negotiable instruments. It has also not established a
system for the maintenance and retrieval of such records, nor has it
established effective customs and regulatory controls at ports of entry and
Antigua has an active offshore financial services industry consisting of 47
offshore banks and thousands of international business corporations.
Numerous criminal investigations in the United States have revealed that
several of the offshore banks engage in business with funds of questionable
origin. In November 1996, the Antiguan government, faced with ever
increasing international criticism of its offshore banking industry, agreed
to suspend the issuance of offshore banking licenses until better vetting
procedures were established and to raise bank reserve capitalization
requirements. Despite these assurances, the government licensed three new
offshore banks in 1997 and two in 1998. However, the Antiguan government is
in the process of conducting a review of the bona fides of existing
offshore banks. Those banks which do not provide audited financial
statements, records regarding beneficial owners and other requested
information, or who are found to be participating in illegal activities
such as fraud and money laundering, are being closed. Nine banks
have been closed or sent closure notices.
The United States continues to be concerned about the lack of assistance
from the GOAB in investigative and forfeiture matters over the past several
years. Since April 1994, The United States DOJ has attempted to work with
Antiguan authorities to enforce a criminal forfeiture order for $7.5
million entered by the U.S. District Court in Boston against John
Fitzgerald, a convicted drug dealer and money launderer. The funds were
transferred by Swiss American Bank to the Government of Antigua, but
Antigua has not cooperated in repatriating the funds. In December 1997,
the United States filed suit against Swiss American Bank to recover the
funds. The United States is currently appealing the dismissal of the case
for lack of jurisdiction by the U.S. District Court in Boston,
The United States has also been disappointed with the lack of Antiguan
assistance in investigating the Antiguan-licensed European Union Bank (EUB),
an offshore bank which collapsed in August 1997. The two Russian founders
of EUB absconded with approximately $10 million of depositors' funds. U.S.
investigators are being given only limited access to bank records due to
Antigua's strict bank secrecy laws, which protect the confidentiality of
depositors except in cases of a violation of Antiguan law. Additionally
in 1998, U.S. law enforcement officials were given assurances
that they would receive access to bank records of Caribbean American
Bank (CAB). To date, these records have not been provided to the FBI or
U.S. Customs, despite promises of cooperation from the Antiguan
authorities. In 1997, a director of CAB was convicted in the Middle
District of Tennessee of laundering approximately $3.4 million in advanced
fee fraud proceeds through CAB, and two officers of CAB were convicted in
the Northern District of Florida of conspiracy to commit money laundering
for their participation in the fraud and money laundering scheme. The
victims of the fraud scheme were required to wire-transfer funds to CAB in
Antigua. The money was then wire-transferred from CAB's bank account
at American International Bank in Antigua to the defendants'
bank accounts in the United States. Both EUB and CAB are currently
in receivership in Antigua.
The pace of change in Antigua has been disappointing, given the commitments,
which the GOAB has made to U.S. authorities and to the CFATF. Lack of
political will and corruption may be factors inhibiting effective
enforcement. In order to overcome these criticisms, the GOAB must focus its
efforts on fully implementing the Money Laundering (Prevention) Act,
ensuring compliance with the new regulations of the IBC Act, and enhancing
international cooperation on law enforcement matters. In addition, the GOAB
should further amend its anti-money laundering and IBC laws to correct
deficiencies in the current legislation, in order to strengthen them and
bring them into compliance with international standards.
Argentina (Concern). While Argentina has not yet developed into a major
money-laundering center, it is an important regional financial center with
a strong economy. Money laundering is thought to occur in both the banking
system and in non-bank financial institutions. There have been no
indications of Argentine banks being knowingly involved in the laundering
of proceeds from U.S. narcotics sales, but money laundering derived from
contraband and tax evasion does occur.
The newly appointed Counternarcotics Secretary has re-submitted to the
Argentine Congress an anti-money laundering bill, which expired in 1997.
This bill criminalizes the laundering of proceeds derived from numerous
illicit activities and mandates the reporting of suspicious financial
transactions by a wide spectrum of financial institutions. The bill also
creates a multi-agency financial intelligence unit (FIU) to receive the
suspicious transactions reports, initiate money laundering investigations,
and forward cases for prosecution. The Commissions of the Chamber of
Deputies of the Argentine Congress are reviewing the bill, but
disagreements over the structure and location of the FIU--as well as
concerns about privacy protection--continue to delay its enactment.
The Central Bank of Argentina has issued a comprehensive set of regulations
to safeguard the financial system from abuse by criminals, including a
prohibition on cashing third-party or bearer checks of more than $50,000,
the mandatory reporting of bank accounts which move more than $200,000 per
month or $500,000 per year, and the required maintenance for five years of
records of all transactions of more than $10,000. Customer identification
guidelines are in place, as are guidelines for the detection and
reporting of suspicious activities. In practice, however, few
suspicious transactions are reported to the central bank.
Argentina has been a supportive partner of the international community's
efforts to fight narcotics trafficking and related money laundering. It
chairs the Money Laundering Experts Group of the OAS/CICAD, and in 1998
hosted the annual meeting of the Egmont Group of FIUs. In June 1998, the
Argentine Ministry of Interior signed an agreement with the Russian
Interior Ministry for cooperation in combating organized and economic crime,
despite the fact that there have been no indications that Russian organized
criminal groups are operating in Argentina. Under a December 1995 MOU, the
Argentine Counternarcotics Secretariat (SEDRONAR) and FinCEN continue
to exchange financial intelligence for use in money laundering
investigations. Argentina has expressed an interest in becoming a member of
While its actions on the international front are commendable, the
Government of Argentina needs to move quickly to pass its anti-money
laundering bill. In view of the fact that Argentina has dollarized its
economy and is considering a complete move to the U.S. dollar, passage of
this legislation is even more essential.
Armenia (Other). Armenia is not known as a money-laundering haven. However,
current economic and developmental factors create an environment favorable
to money laundering. Armenia's gray economy is officially estimated to be
40-70 percent of the gross domestic product, and the unemployment rate lies
somewhere in the range of 60-70 percent. Tax collection is a significant
problem. Forty percent of public expenditures are derived from foreign
remittances, primarily from Armenian diaspora communities. Official
corruption, particularly within customs and other state regulatory agencies,
is endemic and discourages international investment. In fact, perceived
official corruption is causing a drop in diaspora remittances to Armenia.
Four high-ranking officials in Armenia's Ministry of Defense were arrested
in July 1998 on suspicion of attempted embezzlement of $1 million from
ministry funds. The scheme involved the director of the ministry's
financial department, who committed suicide on the eve of a planned audit.
Armenia is increasingly becoming an important transit country for narcotics
trafficking and smuggling due to lax border controls between
Commonwealth of Independent States (CIS) countries and Armenia's location
along an important Iran-CIS trade route.
Organized crime has a fairly strong presence in Armenia, is armed, and has
room for future growth. Criminal groups operating in Armenia maintain ties
to those in other CIS countries and with Armenian communities abroad.
Economic crime is primarily connected to smuggling, tax evasion, looting of
privatized companies, embezzlement of state funds, and diversion of foreign
assistance. High unemployment, low salaries, a large underground economy,
corruption, and organized crime provide classic conditions for money
Although no evidence as of yet has been uncovered of the transferring of
foreign illegal proceeds to Armenia for laundering, Armenian authorities
admit that enforcement agencies have not focused on investigating money-
laundering operations. However, domestically generated illegal proceeds are
laundered in the local economy. Various schemes are employed to launder
funds, including the under-invoicing of imports, false invoicing, double
bookkeeping, and the use of the banking system to launder questionable
funds. One bank specializes in conducting foreign transactions, primarily
to Russia, Cyprus, and other offshore centers, with the aim of moving funds
out of Armenia.
The prosecution of economic crimes is a government priority as part of the
ongoing reform process of the current administration. Much legislative
activity in the area of enforcement occurred in 1998. A new criminal
procedure code went into effect on January 12, 1999, and a complete new
criminal code, including provisions dealing with economic crime, such as
the criminalization of money laundering (draft Article 193), is expected to
be passed by the current parliament early in 1999. However, implementation
of these laws will be difficult. Interagency cooperation is good in
the enforcement sector, but investigators have a poor understanding
of the concept of money laundering. A more fundamental problem is the lack
of financial resources to effectively combat money laundering and other
Bank secrecy laws create difficulties in obtaining bank records for
investigations. Anti-money laundering measures do not exist in either banks
or non-bank financial institutions. In addition, the gray economy affects
the banking system due to the U.S. dollarization of the economy and the
magnitude of cash circulating outside the banking sector. Even if anti-
money laundering regulations are introduced into the financial sector, they
would serve to regulate only a fraction of the financial transactions
conducted in Armenia.
Aruba (Concern). Aruba, with its free trade zone and offshore industry, is
vulnerable to being used by criminal entities to launder money through wire
transfers and the smuggling of cash. Suspicions of money laundering in
Aruba persist, particularly through casinos, the free trade zone, and
financial institutions. In May 1998, the Government of Aruba (GOA) approved
the extradition of Aruban nationals Alex and Eric Mansur from Aruba to
Puerto Rico to stand trial for laundering millions of dollars of
drug proceeds from Puerto Rico to Aruba. The cousins, members of
a politically powerful Aruban family, were among approximately
50 people indicted in the District of Puerto Rico in 1994 as
part of a major money laundering conspiracy. Also extradited in
May 1998 was Aruban national Randy Habibe, who had been indicted
in the Southern District of Florida for his participation in a
drug conspiracy. Habibe is accused of laundering approximately
$800 million in drug proceeds.
The GOA continues to make progress in its anti-money laundering efforts. A
draft law to implement crossborder currency reporting requirements was
expected to be presented to Parliament in early February 1999. Plans are
also underway to extend the requirement for the reporting of unusual
transactions to casinos and the free zone, although the legal framework for
doing so is not yet in place. The extension of the requirements to casinos
should be in effect in a few months, while a bill to extend the
requirements to the free zone is expected to reach Parliament by May
The GOA established Free Zone Aruba, N.V., as a limited liability company
to regulate the free zone in accordance with guidelines developed by the
Mixed Committee on Free Zones. The GOA apparently has succeeded in its
efforts to curb the flow of cash into and out of the free zone, because the
cash flow has been virtually non-existent since 1997. The GOA has also
drafted, and distributed for comment, legislation on the registration and
supervision of trust companies and corporations. In October 1998, Aruba
enacted asset seizure legislation, which became effective in January
1999. The law provides for administrative seizure and forfeiture
of the proceeds and instrumentalities of crime, and allows Aruban
and Antillean authorities to seize assets based on a conviction in a
foreign court, with no requirement for a parallel conviction in Aruba or
the Netherlands Antilles. The legislation does not, however, provide for
Aruba is a leading member of the CFATF. At a CFATF Plenary held in August
1998 in Tortola, British Virgin Islands, the Manager of Aruba's Free Trade
Zone proposed that a typologies exercise be conducted on free zones around
the world as a useful tool in identifying money laundering trends.
Additionally, he suggested that, as a result of the study, a code of
conduct be established whereby all free trade zones would be subject to the
same regulations. On the basis of this proposal, the CFATF agreed to
conduct a free trade zone typologies exercise in the latter half of 1999.
The Aruban banking system consists of 15 financial institutions: six
onshore commercial banks, two offshore banks, two mortgage banks, two
credit unions, and three other credit institutions (an investment company,
a finance company, and a local government bank). All 15 institutions are
under the direct supervision of the central bank.
Bearer shares and certificates are provided by companies located in Aruba.
Aruba advertises its offshore services on government-sponsored websites.
As part of the Kingdom of the Netherlands, Aruba is a member of the FATF.
Aruba's financial intelligence unit, the Meldpunt Ongebruikelijke
Transacties (MOT), is a member of the Egmont Group. The MOT works closely
with the local police, and several money-laundering investigations are
reportedly being conducted, although Aruba has not yet successfully
prosecuted any money laundering cases. The GOA needs to show its commitment
to implementing its anti-money laundering laws by successfully prosecuting
Australia (Primary). Australia has in place a balanced, comprehensive
system to detect, prevent, and prosecute money laundering, which is thought
to be a multi-billion dollar business concealed within the country's
sophisticated financial services sector. The Government of Australia (GOA)
has enacted comprehensive anti-money laundering legislation, which
encompasses cash transaction reporting, mandatory suspicious transaction
reporting, international wire transfer reporting, the criminalization of
money laundering for serious crimes, asset seizure and forfeiture, and
mutual assistance. Under the Financial Transaction Reporting Act, financial
institutions must identify their customers and file a report on all cash
transactions exceeding approximately $6,670 with AUSTRAC, which functions
as Australia's financial intelligence unit; most of the reports
from the major banks are filed electronically.
The use of wire transfers is a common method of money laundering in
Australia. In 1998, there were several cases in which wire transfers were
used to launder illegal proceeds. Various individuals initiated wire
transfers using cash amounts just under the Australian significant cash
transaction threshold of $6,670. The proceeds usually were then transferred
abroad. The individuals performing these transactions provided fictitious
names and addresses to the financial institutions facilitating the transfer
of these funds. The purchase of bank drafts and bank checks (in
amounts just under the reporting threshold) also takes place. These
drafts and checks are then carried out of Australia on the person
or in luggage. Traveler's checks are an easily obtainable financial
instrument whose movement need not be declared. In several cases,
traveler's checks, bank drafts, and bank checks have been used in
conjunction to launder illegal proceeds.
Australia takes an active role in the FATF, the Asia Pacific Group on Money
Laundering, the South Pacific Forum, and the Commonwealth Secretariat.
AUSTRAC is active in the Egmont Group of FIUs. The United States ratified
the Australian-U.S. MLAT in January 1999, but the treaty is not yet in
force. Australia also has bilateral agreements with the UK, New Zealand,
Belgium, France, and Denmark, allowing the exchange of information on money
Austria (Primary). The Austrian Penal Code criminalizes the laundering of
all assets derived from serious crimes. The legislation extends to banks,
mutual savings bodies, insurers and bureaux de change, all of which are
required to report suspicious transactions to the Reporting Unit of the
EDOK (Central Department against Organized Crime), which collects and
investigates all intelligence relating to money laundering. However, the
reporting requirement generally does not apply to non-bank financial
institutions or to businesses such as casinos, attorneys, and real estate
Customer identification measures are in place, but are a point of dispute
due to the continued existence of anonymous passbook savings accounts
("sparbuchs"). Although technically only Austrian residents may open
anonymous accounts, the passbooks can be sold later to any buyer and remain
anonymous. Information concerning the availability of these anonymous
accounts is widely available via the Internet. United States law
enforcement agencies indicate that there is no evidence to support claims
that these anonymous accounts are being used to launder drug money,
pointing out that no wire transactions are permitted, which makes the
accounts unattractive for money laundering purposes. In 1997, the
European Commission referred Austria to the Court of Justice
concerning the continued existence of these anonymous accounts. The
case is working its way through the legal process, and no decision
is expected for at least a year.
Austrian law permits the freezing and forfeiture of assets.
Austria is still not in full compliance with FATF recommendations, nor has
it fully implemented the EU Money Laundering Directive. The FATF conducted
a high level mission to Austria in 1998 to discuss the concern about
sparbuchs, and was expected to consider a joint public statement on the
matter at the FATF plenary meeting in February 1999.
Austria is a member of the FATF and the Council of Europe. Its FIU, Edok
Meldestelle, participates in the Egmont Group.
Azerbaijan (Other). Azerbaijan is a conduit for narcotics, illegal aliens,
and other contraband which result in illegally derived proceeds. There is a
strong organized crime presence, which, combined with the country's rich
natural resources, weak legal system, and official corruption, provide the
potential for money laundering and other financial crimes.
Azerbaijan's current legislation does not address money laundering and is
inadequate to deal with official corruption. Azerbaijan is a party to the
1988 UN Drug Convention.
The Commonwealth of The Bahamas (Primary). The Bahamas is an attractive
venue for money laundering and other financial crimes due to its strong
bank secrecy laws and immense offshore financial services sector. The
Government of the Commonwealth of The Bahamas (GCOB) has taken significant
measures to implement a strong anti-money laundering program to combat
financial crimes on the islands. These measures included the passage of the
Money Laundering (Proceeds of Crime) Act 1996, the implementation
of the Proceeds of Crime Act Regulations 1996, and the issuance
of central bank guidance notes. The Proceeds of Crime Act Regulations
require financial institutions to report suspicious transactions, follow
customer identification procedures, record large value transactions, and
institute anti-money laundering training programs. The Central Bank of the
Bahamas maintains watchful oversight of the financial sector, ensures
compliance with the Proceeds of Crime Act regulations, and conducts money
laundering seminars for bank personnel.
During 1998, the GCOB made considerable progress in combating financial
crimes, including creating the Tracing & Asset Forfeiture Money Laundering
Unit. This unit is responsible for money laundering and asset forfeiture
investigations, and will also function as the Bahamas' financial
intelligence unit (FIU). The GCOB has indicated that that its FIU is
operational and has been receiving suspicious activity reports from
The Tracing & Asset Forfeiture Money Laundering Unit has augmented its
financial investigation capability by attending intensive U.S. financial
investigation training and by participating in U.S.-sponsored money
laundering seminars. The Unit has also undertaken several asset forfeiture
investigations and has cooperated with international law enforcement
agencies on significant money laundering cases. This has resulted in the
restraining of $1.5 million in Operation Casablanca-related accounts and
several million dollars in other third country-laundered deposits that were
held in The Bahamas.
The Bahamas maintains a considerable international offshore center (the
world's fifth largest), with over 70,000 international business
corporations (IBCs), 400 offshore banks, 97 trust companies, and 62
insurance companies. The offshore banks, trusts and insurance companies are
regulated by the Bahamian Central Bank and subject to strict licensing
requirements; however, the IBCs are liberally licensed and are basically
unregulated. In addition, bearer shares and certificates are provided by
companies located within the Bahamas. These factors all make the IBCs
particularly susceptible to money laundering. The entire offshore sector,
including the gaming industry, is covered under the Proceeds of Crime Act
and implementing regulations. Furthermore, the central bank can
impose special additional conditions on the offshore banks, such as
prohibiting them from accepting third party deposits.
The Bahamas has "Internet casinos" and sports betting websites located on
The Bahamas is a member of the CFATF and has submitted to a CFATF mutual
evaluation. The Tracing & Asset Forfeiture Money Laundering Unit has
expressed an interest in joining the Egmont Group. The Bahamian-U.S. MLAT
facilitates the exchange of information and evidence, including bank
Although the GOB made considerable progress in developing a comprehensive
anti-money laundering program in 1998, continued supervision and
enforcement of the offshore banking sector are still necessary. The GCOB
appears to be moving too slowly in reaching its target of training all
financial sector employees in their responsibilities under the anti-money
laundering law. Although the number of suspicious transaction reports
increased in 1998 compared to 1997, the number is still very small, given
the size of The Bahamas' financial services sector.
Bahrain (Concern). Bahrain is a financial and offshore center, albeit no
longer a growing one, and is potentially vulnerable to money laundering. In
1992 and 1993, the government introduced various incentives to foreign
investment, such as the elimination of personal, corporate and withholding
taxes, the removal of restrictions on the repatriation of profits, and
rebates on land, rent and power charges. However, the government
bureaucracy and the absence of institutional reform remain deterrents to
Bahrain has a number of Islamic banks, which generate profits through fees,
rather than interest; these fees are often paid in cash. The hawala/hundi
alternative remittance system, a potential venue for money laundering, is
widely used in the Gulf, particularly by Indian and Pakistani workers.
These foreign workers send money home via this system, which is generally
more reliable and less expensive than traditional banking channels.
Bahrain is known for its offshore banking units, which specialize in
financial services. Bahrain permits international business companies with
limited liability from parent companies In addition, Bahrain advertises its
government-sponsored services on the Internet.
Bahrain has not yet criminalized money laundering, but Bahrain's banking
law and regulations require the reporting of suspicious transactions and a
know-your-customer regime. Although Bahrain has been working through the
GCC on efforts to develop uniform legislation to criminalize money
laundering, it does not appear that any will be enacted anytime soon.
Although Bahrain is a party to the 1988 UN Drug Convention, it is not
considered to be in compliance with the Convention's goals. The Bahrain
Monetary Agency, which is Bahrain's central bank, has an Inspection
Directorate with fairly wide powers, but it is not known to what extent
this organization has taken steps to prevent money laundering or
to deal with instances of suspected money laundering.
Bahrain is represented at the FATF by the GCC, of which it is a member.
Bahrain is a member of the OGBS and has agreed to undergo a mutual
evaluation under the auspices of this body.
Bahrain should act immediately to enact anti-money laundering legislation
to protect its financial system from abuse.
Bangladesh (Other). Bangladesh is not an important financial center, and
narcotics smuggling and trafficking take place only on a small scale. Bank
regulation and control are not strong, so the banking system could
conceivably be used to launder money. However, there is no indication this
is being done.
Bangladesh is a party to the 1988 UN Drug Convention. It is also a member
of the Asia Pacific Group on Money Laundering.
Barbados (Concern). Barbados is not known to have a serious money-
laundering problem. The Government of Barbados (GOB) has already taken many
steps to provide a defense against the threat of money laundering,
including enacting legislation, issuing anti-money laundering guidelines,
enacting offshore banking laws and oversight, and promulgating exchange
control regulations that limit the outflow of cash. In December 1998, the
Parliament enacted the Prevention of Money Laundering Bill, which extends
the predicate offenses for money laundering beyond drug trafficking to
include other serious crimes. The legislation also establishes reporting
requirements for suspicious and large cash transactions and establishes a
centralized unit, the Anti-Money Laundering Authority, to receive
suspicious transactions and investigate money laundering cases.
Penalties for money laundering include up to 25 years in prison and a
$1 million fine.
The GOB originally criminalized money laundering in 1990 in its Proceeds of
Crime Act, No. 13. The law authorizes asset confiscation and forfeiture and
provides a disclosure protection "safe harbor" for individuals reporting
suspicious activities. In March 1997, the GOB issued Anti-Money Laundering
Guidelines for Licensed Financial Institutions. These guidelines
largely followed the FATF 40 Recommendations, and included requirements
for customer identification, record keeping, and reporting of suspicious
transactions. Banks were also required to record large cash transactions
and make them available for police investigations. But there was no
mechanism for the central bank or other government authority to enforce
compliance with the Guidelines, nor was there any system established for
the reporting of suspicious transactions, leading to confusion over when
and to whom to file such reports. As a result, no reports of suspicious
transactions have been filed since the Guidelines were issued. The new bill
should rectify these shortcomings.
Barbados offers offshore banking, trusts, exempt insurance companies,
international business corporations (IBCs) and foreign sales corporations.
The Barbadian offshore financial services industry continues to expand,
driven largely by Canadian-based companies. A bilateral tax treaty with
Canada allows profits from banks and IBCs in Barbados to be repatriated to
Canada tax-free. The Off-Shore Banking Act (1980) gives the central bank
authority to supervise and regulate offshore banks, in addition to domestic
banks. The Ministry of Finance issues licenses after the central bank
receives and reviews applications and recommends applicants for licensing.
The International Business Companies Act (1992) provides for general
administration of IBCs. The Ministry of International Trade and Business
vets and grants licenses to IBCs after applicants first register with the
Registrar of Corporate Affairs. Barbados overall maintains a reputation as
a reputable offshore center.
Barbados and United States authorities already cooperate closely in the
fight against narcotics trafficking and other forms of transnational crime.
In 1996, the United States and Barbados signed an MLAT and an updated
extradition treaty. Both treaties were ratified by the United States in
January 1999 but are not yet in force. In May 1997, Barbados hosted a
summit of 15 Caribbean nations to reaffirm common values and interests, re-
invigorate a partnership for prosperity and security, and address more
effectively the common threat of destabilizing international crimes,
including drug trafficking and money laundering.
Barbados is a member of the CFATF, and chaired the group from November 1997
to October 1998.
Enactment and implementation of the Prevention of Money Laundering Bill,
along with the establishment of a centralized financial investigation unit,
should help the government of Barbados to coordinate its efforts and
enforce comprehensive anti-money laundering policies.
Belarus (Other). Belarus is not a major financial center or a significant
country for drug-money laundering. Although some money laundering occurs,
there is no estimate of its magnitude. Money laundering is thought to be
derived primarily from domestic sources, including organized crime,
narcotics trafficking, smuggling, and tax evasion, although Belarusian
banks are known to transfer questionable proceeds from neighboring
countries. In addition to banks, institutions such as casinos, currency
exchanges, real estate companies, and non-bank financial institutions are
also suspected of laundering illegal proceeds. Common methods
used include false invoicing schemes, contract fraud, and keeping
Given the poor conditions and instability of the state-controlled economy,
foreign criminal proceeds are unlikely to be laundered in Belarus. The size
of the Belarusian shadow economy is estimated to be 43 percent of the GDP
and serviced by half the money in circulation, according to official
statistics. The volume of barter transactions and rampant tax evasion
threaten the economic security of the state. The president of Belarus has
called for the ouster of organized crime from the state-controlled alcohol
and tobacco market and has ordered enforcement and state security
agencies to more effectively regulate the state's monopoly in these
There are no anti-money laundering laws on the books in Belarus, although a
draft law is being written and is undergoing review in the Ministry of
Justice. As part of a recent government campaign to exert stricter control
over the banking system, banks in Belarus must report transactions of more
than $10,000 and must maintain indefinitely records on customer
identification and transactions. However, they are not required to report
unusually large or suspicious transactions. There are no laws regulating
non-bank financial institutions.
The government of Belarus has made numerous public statements calling for
legislative and regulatory measures to control crime, corruption, and money
laundering. However, no measurable improvement has been made. Anti-crime
laws have been adopted and decrees promulgated, but implementation is
ineffective. The absence of anti-money laundering laws will significantly
hinder the attempts made to combat money laundering and organized crime,
and will contribute further to the deterioration of the economy. Belarus
urgently needs to enact legislation as the foundation of an anti-money
Belgium (Concern). The Kingdom of Belgium is an active financial center,
with strong anti-money laundering laws covering the laundering of the
proceeds of all crimes. Belgian authorities are constantly responding to
new trends in money laundering; most recently, Parliament adopted
legislation in August 1998 that extends anti-money laundering laws to
professions and activities other than financial institutions, including
real estate agents, notaries, bailiffs, accountants and auditors, estate
agents, casinos, and security firms that transport money. The legislation
imposes an obligation on these entities to report suspicious
transactions. In addition, Parliament continues to debate an organized
crime bill, which defines a "criminal organization" and criminalizes
membership in such an organization. The legislation endorses the use of
undercover operations and wiretaps by law enforcement agents.
Financial institutions are required to keep records on the identities of
all of their clients. In addition, they are required to report transactions
that are suspicious or that involve approximately $13,000 or more. They are
required to train their personnel in the detection and handling of
suspicious transactions. No civil, penal or disciplinary actions can be
taken against institutions or individuals for reporting such transactions
in good faith.
The Cellule de Traitement des Informations Financieres or Cell Voor
Financiele Informatieverwerking (CTIF/CFI), which serves as Belgium's
financial intelligence unit (FIU), receives, processes and transmits
information related to money laundering. It refers any cases of suspected
money laundering to prosecutors, and plays a key role in the international
coordination of policies to control money laundering. During its first 54
months of operation (December 1993-June 1998), the CTIF/CFI referred 1,416
cases to the judicial system, representing transactions worth $3.92
billion. Of these, 65.6 percent involved manual foreign exchange
transactions and 9.8 percent concerned international payments. The
principal criminal activities behind these money laundering cases were drug
trafficking (64 percent), other forms of organized crime (11 percent),
and illegal traffic in goods and merchandise (8 percent). The
principal financial organizations involved in money laundering were
foreign exchange offices (42 percent), credit institutions (42
percent) and brokerage houses (15 percent).
Belgium has fully implemented the EU Directive on Money Laundering and is
in compliance with the FATF Forty Recommendations. An MLAT between the
United States and Belgium, signed in 1988 and ratified in 1990, is expected
to enter into force in 1999. Cooperation between the United States and
Belgium continues to be excellent, and is expanding. Belgium is a member of
the FATF and the Council of Europe. Its FIU, the CTIF/CFI, participates
actively in the Egmont Group.
Belize (Concern). Money laundering remains a significant potential threat
in Belize despite the enactment of the Money Laundering Prevention Act of
1996. This law criminalized the laundering of proceeds derived from
numerous illicit activities, allowed for international cooperation and the
freezing and forfeiture of assets, and introduced money laundering
prevention measures such as the reporting of large, suspicious or unusual
transactions, record-keeping requirements, and the declaration of outbound
currency or negotiable bearer instruments in excess of $10,000. However,
Belize has yet to seize any assets or try a case using this law. The
efforts of the Belizean Government continue to be hampered by a severe lack
of manpower, training and equipment, particularly in the security forces
and in the judiciary and prosecutors' offices. A new financial
investigations unit has been established and trained within the Belizean
Police Forces, and numerous officials have attended regional and
international law enforcement seminars and conferences.
Belize continues to attract the attention of the offshore financial world,
particularly since the enactment in June 1996 of the Offshore Banking Act.
The Central Bank of Belize has jurisdiction over this industry, and it is
proceeding cautiously in granting licenses to offshore banks. Licenses have
been granted to several banks, although only one has actually set up
operation (in September 1998). Two more applications, both from American
investors, are reportedly under consideration. At the same time, the
central bank, in cooperation with the Inter-American Development
Bank and the French Technical Cooperation Fund, is developing a
system for the supervision and regulation of the offshore banking sector,
including comprehensive provisions for the detection and control of money
laundering activities. Another increasingly important sector of the
Belizean economy is the availability of international business corporations
(IBCs). Deficiencies remain in the regulation and supervision of this
sector which present viable loopholes for money laundering. For example,
although banks must regularly report the total amount of all IBC account
holdings, patterns in and changes to individual accounts are not provided
to central bank authorities unless specifically ordered. Another
serious weakness is the lack of a registry for offshore trusts.
Currently there is no way for any outside party to determine the
beneficial owners of these offshore trusts.
Belize is a member of the CFATF.
Belize should enforce its money laundering law, activate its anti-money
laundering unit, and move quickly to implement the planned system for the
oversight of the offshore banking sector.
Benin (Other). Benin adopted an anti-narcotics law in 1997 that
criminalized drug-related money laundering. The law also permits the
seizure and forfeiture of assets derived from the drug trade and money
laundering. Money laundering occurs in Benin, primarily through businesses
and the import and resale of commodities such as automobiles. There is
evidence that Nigerian criminal groups and other criminal organizations are
establishing a presence in Benin.
Benin should devote additional resources to enforcing the anti-narcotics
law. It also needs to criminalize money laundering beyond drugs to meet
Bermuda (Other). Bermuda, a British Overseas Territory, is one of the
world's premier offshore international financial and business centers, with
a large number of international business corporations (IBCs). The
Government of Bermuda (GOB) instituted commendable measures to combat money
laundering and made considerable progress in combating financial crimes
during 1998. In January, the Proceeds of Crime Act 1997 and Proceeds of
Crime Act Regulations 1998 came into force. These measures criminalize
money laundering, mandate the reporting of suspicious transactions, provide
for protection against liability for making any such disclosure,
require that customer identification and currency transaction record-
keeping procedures be put in place, and develop internal reporting
procedures. The GOB issued extensive guidance notes to all financial
institutions. In addition, the GOB underwent a mutual evaluation by the
An extension of the Proceeds of Crime Act is currently being discussed. The
bill would substantially increase the amount of reporting, internal
controls, and training that companies are required to carry out to prevent
money laundering. It would also provide the Bermuda Monetary Authority
(BMA), Bermuda's Central Bank, with the authority to investigate the
finances of a convicted person and to confiscate crime-related cash and
property. The GOB is developing a financial investigation unit under the
Bermuda Police Service. This unit has been receiving suspicious activity
reports and investigating money laundering since early 1998. The
Police Service reported that this unit will function as Bermuda's
financial intelligence unit.
The offshore banking sector in Bermuda consists of approximately three
offshore banks and 37 trust companies. As in the case of domestic banks,
the BMA has regulatory authority over these entities. Authority to issue
licenses for the offshore sector is vested with the Minister of Finance,
who may seek the advice and assistance of the BMA. Additionally, nearly 10,
000 IBCs are registered in Bermuda.
Continued supervision and enforcement of rules in the offshore banking
sector in Bermuda are necessary to discourage infiltration of organized
crime and money launderers.
Bolivia (Concern). Although Bolivia is the second largest producer of
cocaine in the world, most money laundering in Bolivia is derived from
contraband smuggling rather than narcotics trafficking. Bolivia is not a
significant financial center, offshore banking center or tax haven, but in
the past strict bank secrecy has facilitated the laundering of illicit
profits. Progress is being made in implementing the 1997 amendments to the
Penal Code, which criminalized the laundering of proceeds related to
illicit narcotics, organized crime and public corruption. These provisions
will also strengthen oversight of the banking and financial sectors by
requiring financial institutions to identify customers, maintain records,
and report suspicious financial transactions. They will also facilitate
access to bank records for use in criminal investigations. The
Director of the Financial Intelligence Unit, which is located within
the Superintendency of Banks and Financial Entities, has been appointed,
and efforts are underway to have a fully operational unit which will
complement the anti-money laundering work being done by the financial
investigations unit within the Special Narcotics Task Force.
Of the comprehensive judicial reform package introduced during the last two
years, only the proposed new Code of Criminal Procedures remains pending.
The Senate is debating the proposal, and the final bill will, it is hoped,
include provisions for the use of undercover agents and informants,
controlled deliveries, plea bargaining, and in rem asset seizure and
forfeiture. These provisions constitute essential tools needed by law
enforcement to investigate and prosecute narcotics offenders and money
launderers. At the same time, the Directorate of Seized Assets needs to
continue its efforts toward implementing a system for the effective
accounting and prompt processing and liquidation of seized assets. The
ability to deny access to the legitimate banking and financial
sector is an essential weapon against criminals. The Bolivian
government's determination to implement the necessary legislative and
regulatory measures that will safeguard its system from criminal
infiltration is encouraging, but vigorous enforcement is equally vital.
Botswana (Other). Botswana is not a financial center, and there are no
indications that significant money laundering is occurring there. The
Government of Botswana has implemented legislation, which allows the courts
to identify, freeze and forfeit drug-related assets. The Bank of Botswana
is authorized to provide information on large cash transactions to law
Brazil (Primary). Money laundering related to drug trafficking and white-
collar crime occurs in Brazil. The highly developed financial sector,
increasing local drug consumption and trafficking, and the absence of laws
against money laundering until 1998 all have contributed to make Brazil a
money laundering center. The drug trade and domestic drug consumption have
been growing in recent years, creating large profits that are laundered
through Brazil's urban centers. One survey, based on central bank
data of 1996, indicated that unusually high amounts of money
flowed through rural banks, in towns close to the borders of Bolivia,
Colombia and Peru, to the urban centers of the southeast. Since these towns
lie on international cocaine trafficking routes, it was suspected that
these funds showed a pattern of laundering profits from local drug sales.
In response, Brazil made significant progress during 1998. The
comprehensive Law No. 9613, Law Concerning Crimes of Laundering and
Concealment of Goods, Rights, and Securities, came into force in March
1998. The law criminalizes the laundering of proceeds relating to the
following crimes: drug trafficking, terrorism, contraband or trafficking in
weapons or ammunition, extortion involving kidnapping, corruption, crimes
against the financial system, and crimes committed by a criminal
organization. Penalties range from three to 10 years, 16 years if committed
through a criminal organization. The law also includes asset seizure
and forfeiture provisions. Assets from crimes committed abroad
can be seized and shared with foreign governments.
Reporting and record-keeping requirements contained in the law apply to a
wide range of financial institutions. These institutions are required to
identify and maintain a registry of their clients and to maintain records
of all transactions over an amount to be determined. Institutions are
required to report all suspicious transactions, and all transactions over a
threshold amount to be determined. There are also new reporting
requirements for the international transfer of funds. Failure to comply
will result in civil and administrative sanctions. The law also contains
a "safe harbor" provision that protects bankers from criminal
and civil liability when complying in good faith with reporting
requirements. Finally, the law creates the Council for the Control of
Financial Activities (COAF), within the Ministry of Finance, to receive
reports of suspicious or illicit activities and to coordinate the detection
and investigation of money laundering activities. Members of the COAF will
be drawn from various government regulatory and law enforcement bodies.
Regulations issued in October 1998 require that individuals transporting
more than $12,000 in cash, checks or traveler's checks fill out a customs
declaration that is sent to the central bank. Regulations also require
financial institutions remitting more than $12,000 to make a declaration to
the central bank.
In May 1998, the central bank asked federal authorities to examine large
suspicious donations for public works projects and charities, specifically
to respond to allegations concerning a money laundering scheme involving
state governors running for reelection.
In December 1998 the central bank hosted a money laundering conference in
Brasilia, and invited international experts from the FATF and the United
States to discuss with Brazilian authorities international anti-money
laundering programs and implementation of the Brazilian law, and to help
establish the COAF.
Over the past year, the government of Brazil has clearly increased its
commitment to fight money laundering. The passage of Law No. 9613, along
with new regulations monitoring currency flows and the signing of an MLAT
with the United States in October 1997, represent major steps forward in
Brazil's fight against international crime and money laundering. The MLAT
still awaits the advice and consent of the respective senates in both the
United States and Brazil. When fully implemented, new regulations and the
COAF should demonstrate Brazil to be a regional leader in this global
British Virgin Islands (Concern). The British Virgin Islands (BVI) is a UK
overseas territory and has one of the larger financial services centers in
the region. The BVI continues to develop a strong anti-money laundering
regime. In January 1998, the BVI enacted the Proceeds of Criminal Conduct
Act, which expands the scope of anti-money laundering legislation to cover
the proceeds of all serious crime. The Proceeds of Criminal Conduct Act
is closely modeled on British law and has created four types of
money laundering offenses: assisting another to retain the benefit
of the proceeds of criminal conduct; acquisition, possession or
use of the proceeds of criminal conduct; concealing or transferring
the proceeds of criminal conduct; and tipping off another person to
prejudice an investigation. Under the Act, suspicious transactions must be
reported to a Reporting Authority, of which the Director of the Financial
Services Department is the chairman.
Financial services constitute the largest sector of the BVI economy. The
BVI has developed as an important jurisdiction for international finance
and commerce, incorporation and management of offshore companies, and
provision of offshore financial and corporate services. There are over 200,
000 offshore corporations registered in the BVI. Offshore banks can be
formed in the BVI by individuals who are financially strong and are willing
to file and publish audited financial statements. All banking institutions
and trusts must obtain a license from the government prior to conducting
business. All banks are required to follow the Banking License
Guidelines proposed by the UK for its overseas territories. They must
have a principal office in the Islands and appoint at least two
directors and two individuals that will serve as authorized agents and
as intermediaries between the licensee and the Inspector of Banks
and Trust Companies.
Bearer shares and certificates are offered by companies located in the BVI.
Asset protection trusts are also available to persons or companies doing
business in the BVI. These services allow BVI offshore entities to insulate
and protect the assets of their customers.
Progress on the financial sector's regulatory measures outlined by the UK
Foreign Secretary was to have been reviewed at the end of 1998. The BVI
will be expected to complete a checklist of measures to combat money
laundering by the end of 1999. The package of regulatory legislation meets
recognized international standards, such as those established by the FATF
and the Basle Group of Banking Supervisors, but the BVI needs to fully
implement its Proceeds of Criminal Conduct Act to have an effective anti-
money laundering regime.
The BVI is a member and chairman-elect of the CFATF.
Bulgaria (Concern). Money laundering is flourishing in Bulgaria and
presents a serious enforcement concern. Economic conditions provide
excellent opportunities for the laundering of illegal proceeds generated by
organized crime. The major predicate offenses generating illegal proceeds
include narcotics trafficking, racketeering, smuggling, stolen vehicle
trafficking, and financial fraud. Albanian narcotics traffickers have
shifted their operations to Bulgaria in the wake of the ongoing conflict in
Kosovo, thus increasing the amount of illegal proceeds to be laundered.
Bulgaria's gray economy accounts for up to 30 percent of the gross
domestic product, according to a July 1998 report released by the
Bulgarian National Statistics Institute. The report states that 25
percent of registered businesses are involved in illicit business
transactions and that the trend is growing. High taxes are cited as the
major reason for the growth of the gray economy. The size of the
gray economy and the cash-based nature of the Bulgarian economy
in general provide ample avenues to launder illegal proceeds.
Laundered proceeds in Bulgaria are often invested in real estate or
businesses. Other money laundering methods include trade schemes and
deposits made directly into bank accounts. Financial institutions used to
launder funds include banks, casinos, currency exchange houses, real estate
firms, used car dealerships, and non-bank financial institutions such as
brokerage firms and insurance companies. The main types of monetary
instruments used are cash (primarily U.S. dollars and German marks), bank
drafts, traveler's checks, and wire transfers.
Bulgaria has made progress in creating the legislative framework to address
crime, corruption, and money laundering. The government has also been
successful in drastically lowering the embezzlement level of state funds.
However, implementation of these initiatives will take several years.
Restructuring of Bulgaria's enforcement agencies and judicial system will
allow organized crime groups to continue their activities, as well as
afford them the opportunity to adapt to the evolving enforcement and
regulatory environment. In addition, official corruption is a significant
and widespread problem and threatens all government enforcement reforms.
In July 1998, Bulgaria enacted an anti-money laundering law, which
superseded the ineffectual law passed in 1996. The new law criminalizes
money laundering, sets up a suspicious transaction reporting system for
financial institutions, and establishes a financial intelligence unit to
process suspicious transactions for referral to enforcement authorities.
Other anti-money laundering measures include customer identification and
record-keeping requirements. The law applies to both banks and non-bank
financial institutions. The law is based on the EU Council Directive No. 10
on the Prevention of the Use of the Financial System for the Purpose of
Money Laundering, and meets international standards to combat money
Bulgaria has signed a number of bilateral and multilateral initiatives to
combat organized crime and financial crime. A positive step in this
direction is Bulgaria's participation in the Southeastern Europe
Cooperative Initiative (SECI) among whose goals are to control the
increasing flow of drugs across borders and to combat trans-border
organized crime. In a September 1998 SECI meeting held in Bucharest, the
government of Bulgaria initialed a draft agreement on cooperation to
prevent and combat trans-border crime. These efforts will attack the
predicate crimes, which generate illegal proceeds that are subsequently
laundered in Bulgaria and neighboring countries.
Bulgaria participates in the Council of Europe's PC-R-EV and is scheduled
to undergo a mutual evaluation by that group in the year 2000.
Burma (Primary). There is no reliable information on the extent of money
laundering in Burma. However, there is reason to believe that money
laundering and the return of narcotics profits laundered elsewhere are very
significant factors in the overall Burmese economy. Burma has a heavily
cash-based economy and an unsophisticated banking system in which
transactions are often based on personal relationships. The formal banking
system is highly regulated with respect to currency convertibility.
One consequence has been the development of foreign exchange
black markets. The Government of Burma (GOB) has encouraged ethnic cease-
fire groups which have been involved in narcotics trafficking to
invest in legitimate businesses instead of narcotics. However, the
GOB has not instituted a system of safeguards to prevent the
investment of drug-related proceeds. Under current policy, the GOB
levies a 40 percent tax rate on declared assets other than real property,
but so long as the tax is paid, there is no inquiry into the source of the
assets. In the case of real property, the tax rate is 10 percent. This
facilitates drug money laundering.
An alternative remittance system sometimes called the Chinese underground
banking system, in conjunction with import/export businesses, is probably
the most prevalent mechanism for laundering money occurring in Burma today.
In a typical case, funds are deposited into the underground banker's
account in Thailand. The money is then either exchanged and given out by
his associate (in Burmese currency) to the source of supply, or it may be
used to pay off import/export debts in another country such as Singapore.
The import/export companies generally deal in items such as cigarettes,
electronics or fabrics, and they are often owned by underground bankers who
knowingly facilitate drug traffickers' proceeds in order to expedite
payment to their sister companies. The merchandise is usually shipped from
Burma to Singapore, although the trade can go both ways. Burma's black
market for gems and precious metals is also an incentive to launder through
Under the 1993 Narcotic Drugs and Psychotropic Substances Law, narcotics-
related money laundering is a crime, and money, property or benefits
involved in or derived from narcotics may be seized. In practice, the
government does not enforce this regulation in cases where assets are
involved in legitimate businesses so long as the taxes are paid. In 1996,
the Burmese government established a 12-member multi-agency Property
Examination Committee, purportedly to investigate narcotics-related
financial crimes. To date there have been no arrests or prosecutions for
money laundering. Burmese policy-level officials have stated repeatedly
that they lack the expertise and resources to prosecute money launderers.
Burma's underdeveloped financial system and struggling economy enable money
laundering activities to be disguised as legitimate business. Burma
urgently needs to reform its banking system and break away from whatever
dependence it has on the narcotics trade. It also needs to enforce and
expand its anti-money laundering laws.
Cambodia (Concern). Money laundering is a problem in Cambodia, but its
extent and the methods used are mostly unknown. Cambodia is not a major
financial center. The 1996 Counter Narcotics Statute criminalizes money
laundering and limits cash transactions to an amount determined by the
Ministry of Finance. It also includes requirements for suspicious
transaction reporting and customer identification by financial institutions,
but enforcement of these provisions is almost non-existent. Many of the
estimated 32 private banks operating in the country are reportedly only
fronts which accept cash deposits but offer no other normal banking
services such as accounts or checks. The law does not require the
release of information on individuals' accounts for any reason.
The law also calls for formation of a commission to combat narcotics-
related money laundering, but to date this group has not been established,
and there have been no prosecutions for money laundering. Control over the
import and export of currency is weak. United States law enforcement,
commenting on media reports about casinos operated by people with organized
crime connections, notes that the casinos will likely be used to facilitate
the movement and laundering of funds for the Cambodian narcotics trade.
According to press reporting of early 1998, political instability has
contributed to Cambodia's becoming a center for drug trafficking and
attendant money laundering. Cambodia is increasingly being used as a money
laundering center by criminal syndicates based in Hong Kong, China, Taiwan
and Macau. United States and Cambodian law enforcement sources have alleged
that corrupt officials encourage money laundering.
Cambodia needs to develop a strong anti-money laundering regime and focus
on enforcement to prevent criminal organizations from abusing the financial
system through money laundering and other financial crimes.
Canada (Primary). Canada is attractive to money launderers because of its
advanced financial sector, lack of mandatory reporting requirements for
suspicious financial transactions, and heavy crossborder movements of
currency and monetary instruments. Currency exchange houses, particularly
near the U.S.-Canadian border, are believed to move large amounts of drug
money between the United States and Canada. Canada has financial
institutions which engage in currency transactions involving international
narcotics proceeds that include significant amounts of U.S. dollars. The
U.S. Drug Enforcement Administration has indicated that real estate
transactions and gold shops are being used to launder illicit narcotics
proceeds. In addition, the cross-border movement of currency and
monetary instruments, in the form of bulk currency shipments,
continues to be an alternative for laundering illicit proceeds in
Canada's current anti-money laundering regulations fall under the Proceeds
of Crime Act, which requires depositors and financial institutions to
maintain a record of any cash transaction at or above $6,600 for five
years. However, these reports are merely intended to preserve the audit
trail. Currently, there is no system for the mandatory reporting of
suspicious transactions. Under an MOU with the Royal Canadian Mounted
Police (RCMP), chartered bank branches "voluntarily" report suspicious
transactions to any of the RCMP's 19 Integrated Proceeds of Crime
offices. The MOU, however, fails to cover other financial institutions
and is a fragmented approach to suspicious transaction reporting.
During 1998, the Government of Canada (GOC) made some progress in the fight
against money laundering. In March, the Canadian Federal Solicitor General
published long-awaited draft new anti-money laundering measures to amend
the Proceeds of Crime Act. These new measures would move Canada closer to
compliance with FATF guidelines. The proposed legislation includes
mandatory reporting of suspicious financial transactions and crossborder
movements of currency and monetary instruments. In addition, the
legislation calls for the establishment of an independent federal
financial intelligence unit (FIU) to collect, analyze and disclose
financial information. The proposed FIU would receive all currency and
monetary instrument reports and "unusual" transaction reports
from financial institutions and analyze them to determine which merit
investigation. Currency transactions reports (CTRs) would not be provided
to the FIU, but rather to Revenue Canada, which could share these reports
only if they involved a criminal tax matter related to money laundering.
Only suspicious activity reports (SARs) related to money laundering and
deemed suspicious by the FIU would be forwarded to an investigating agency.
However, the SAR referral to the investigating agency would include only
limited information concerning an individual transaction, such as
the transactor's name and address, the financial institution's
name and address, and the transaction amount. The actual details
of the SAR, including the text field describing why the transaction
was "unusual", as well as all data and analysis developed by the FIU, would
not be released to the investigating agency until the FIU received a search
warrant from the agency. The warrant would be issued only after the agency
developed "probable cause" that a crime had been committed.
The Solicitor General remains committed to amending Canada's Proceeds of
Crime Act through introducing these proposed anti-money laundering measures
as legislation. In October, the GOC began requiring Canadian casinos to
maintain records on individuals who spend or win more than $6,600. The
requirement is one of several changes to regulations aimed at preventing
The GOC should move immediately to require the reporting of suspicious
transactions and crossborder movements of monetary instruments, as well as
to set up an FIU. The GOC should ensure that the FIU meets Egmont FIU
standards, particularly as they relate to the international sharing of
information. Serious consideration should be given to expanding money
laundering offenses to include all serious crimes, not just drug offenses
and enterprise crimes. Additionally, the GOC should move to address the
deficiencies and suggestions for improvement outlined in the FATF
evaluation report. It is essential that the GOC provide its law
enforcement sector with the legal tools to effectively counter financial
crimes. These initiatives, along with the proposed legislation,
would be positive steps to move Canada closer to compliance with
Cayman Islands (Primary). A UK Overseas Territory, the Cayman Islands
remains diligent in its anti-money laundering efforts. The UK Foreign
Secretary has advised that British overseas territories will have to
enforce the highest international standards of financial regulation to
avoid being used for money laundering. To that end, the Cayman Islands is
expected to complete a checklist of measures to combat money laundering by
the end of 1999. A temporary anti-money laundering committee, consisting of
representatives of both the government and the financial services industry,
is drafting a code of conduct, which will focus on know-your-customer
issues, suspicious activity and money laundering. The Executive
Council is responsible for final approval of the code of conduct. It
has not yet been decided whether the code will be mandatory, or voluntary,
like the conduct codes already in place.
In December 1998, the Cayman Islands took a big step forward by removing
from the 1996 Proceeds of Criminal Conduct Law the Fiscal Exemption clause,
which had prevented law enforcement from cooperating with other
jurisdictions concerning fiscal offenses. Changes were made in close
consultation with the private financial sector, to ensure that the privacy
rights of account holders are carefully balanced with the need for public
disclosure of records in combating crime. In July 1998, the Drug
Trafficking (International Cooperation Law) was enacted. This law enables
any country that is a party to the 1988 UN Drug Convention to apply to the
Cayman Islands Attorney General for information on drug trafficking and
The Government of the Cayman Islands has, in general, been extremely
cooperative with United States law enforcement in connection with criminal
investigations, including financial investigations.
The Cayman Islands encourages the use of the Islands as a legitimate tax
shelter for operations of foreigners and as a tax haven for foreign
investment. The Cayman Islands has a large offshore financial sector,
offering strict confidentiality, and has thus historically been attractive
to money launderers. There are an estimated 590 offshore banks on the
Islands. The Caymans' financial center provides a wide range of services,
including private banking, brokering, mutual funds and company management.
The financial services industry is regulated by the Monetary Authority,
which manages currency and reserves.
Offshore banking licenses are usually easy to obtain, and officials are
very cooperative. The Governor can refuse to grant a license, or revoke a
license, if he believes the licensee is conducting business illegally or in
a manner, which is harmful to his clients. For offshore investors, the most
popular type of arrangement is a private bank holding a "B" restricted
license. These banks can receive or request funds only when doing business
with people named on a list accompanying the application. A private bank
has the power to issue letters of credit and bank guarantees and to carry
on business free of taxation and currency restrictions. This permits
U.S. investors to trade in Eurodollar markets freely without having to
provide an accounting to the United States Government. A restricted "B"
license is granted only to a bank or trust with a net worth of at least
$24, 000, or more if required by the governor. A much higher net worth
($480,000) is required for an unrestricted "B" license, which allows the
holder to conduct business freely with any client outside the Caymans. This
type of offshore bank pays $15,120 for a banking or combined banking and
trust license, and the same amount for an annual fee. An "A" or
full-service bank, allowed to conduct banking business inside and outside
the Caymans, must pay $50,400 annually for a license. Approval is usually
granted only to international banks with a sterling reputation.
Bearer shares and certificates are offered by companies located in the
Cayman Islands. Asset protection trusts are also available. These services
allow business entities to further insulate and protect the assets of their
The Cayman Islands is an active member of the CFATF, and the Caymanian
Financial Secretary serves as Chairman of the CFATF.
Due to its significant offshore banking industry and confidentiality laws,
it is essential that the Cayman Islands continue its diligence in
regulating and enforcing its anti-money laundering program.
Chile (Concern). Chile is not an important tax haven or offshore banking
center, but its dynamic economy, sophisticated financial sector, and
proximity to drug-producing countries have made it progressively attractive
to, and vulnerable to abuse by, money launderers. The Government of Chile
(GOC) remains committed to complying with the goals and objectives of the
1988 UN Drug Convention. Narcotics-related money laundering was
criminalized in 1995, and the GOC is vigorously enforcing the law. Its
most recent application occurred in April 1998, with the arrest
of 13 major drug traffickers and money launderers.
The Department for the Control of Narcotics Trafficking , Chile's financial
intelligence unit (FIU), actively participates in the Egmont Group of FIUs,
and has engaged in information exchanges with FinCEN. In addition,
significant progress has been achieved in the implementation of a judicial
reform law signed by President Frei last year; full implementation is
expected by 2003. This law converts the judicial system from an
inquisitorial to an adversarial system, creates a national prosecutor's
office, and facilitates extradition.
Chile's determination that it will not become a safe haven for drug
traffickers and money launderers is hampered by its inability to convince
the banking industry that the mandatory reporting of suspicious financial
transactions is a necessary requirement for an effective anti-money
laundering regime. Chile must therefore expand its money laundering law to
include mandatory suspicious transaction reporting, as well as non-
narcotics-related money laundering predicates.
China (People's Republic of China) (Primary). Although China has a large
and growing economy, it is not yet a major regional financial center.
However, with the booming economy providing greater opportunities for
investment, and with the increasing number of foreign banks opening
branches in China, U.S. law enforcement sources expect that narcotics
traffickers and other organized criminal elements will be tempted to use
China to move their proceeds. With reports of corruption among customs
agents, China is becoming accessible as an alternative route through which
drug proceeds can be moved into Asia.
Banking and government officials recognize that both the weakness in and
the liberalization of the country's financial system have led to an
increase in financial crime, primarily fraud. China's Supreme People's
Court, according to 1998 press reports, is seeking stiffer penalties for
anyone convicted of illegally trading in foreign currencies. Anyone
convicted of money laundering or receiving a fraudulent export tax rebate
from the government could face the same penalties as those found guilty of
Laundering the proceeds of narcotics trafficking, smuggling, and organized
crime are criminal offenses under a 1997 law. The 1997 regulations require
that foreign currency transactions over $10,000 for individuals, or $100,
000 for authorized businesses, be verified and registered with the State
Administration of Foreign Exchange. China also has asset forfeiture and
In the financial sector, Chinese banks have been frustrated by difficulties
in attracting foreign investment. Outside drug organizations have been
taking advantage of this frustration to launder their funds through the
banks on the pretext that the money is investment capital for factories and
other enterprises. China has also seen an increase in foreign investors
setting up holding companies; it is believed that drug traffickers are
among these investors. Hainan Island, located off the southern coast, also
presents significant opportunities for laundering illicit proceeds, since a
number of the financial institutions there offer numbered bank
accounts in both local and foreign currency. Over 3,000 foreign
investors have set up companies on the island.
United States sources indicate that money couriers are bringing U.S.
dollars into China in bulk, bypassing Hong Kong. According to post
reporting, most of this money is being brought in for business use and is
unrelated to the drug trade. There is no limit on the amount of currency,
which can be imported, provided a customs declaration form is filled out.
Forms must also be filled out as foreign currency goes into or out of
In May 1998, the United States and China signed an MOU establishing a joint
liaison group on law enforcement cooperation. The two sides agreed to
convene a subgroup to discuss specific forms of cooperation within the year
and to begin negotiations of an agreement on mutual legal assistance in
criminal matters at an early date. They also held preliminary discussions
on cooperation in such fields as combating international organized crime,
narcotics trafficking, alien smuggling, counterfeiting, and money
laundering. In October 1998, the Research Center for Criminal Law and the
Central Prosecutors College, along with the Vancouver-based International
Society for Criminal Law Reform and Criminal Justice Policy, mounted
a four-day conference in Beijing on the prevention and control
of financial fraud, which included sessions on money laundering
China and the United States are developing a framework for mutual legal
assistance. China is a party to the 1988 UN Drug Convention. China
participated in early meetings of the Asia Pacific Group on Money
Laundering, but has not attended recent meetings of that body.
The Chinese government needs to vigorously enforce its anti-money
laundering legislation and to consider enhancing it, to prevent the use of
the Chinese financial system for money laundering.
Colombia (Primary). Colombia is still experiencing major problems with
money laundering. Colombian drug traffickers are reported to be forming
alliances with Russian organized crime groups in the Caribbean and
obtaining cocaine for delivery to Europe. Colombians are laundering
hundreds of millions of dollars in drug proceeds through offshore banks in
the Caribbean. Colombia has financial institutions which engage in currency
transactions involving international narcotics proceeds that include
significant amounts of U.S. dollars. Colombia has the anti-money
laundering legislative and regulatory infrastructure that it needs to
attack its drug money launderers, but it must combine and apply
these resources in a consolidated fashion. To date, that combination
of efforts has not been made. Passage of laws and regulations is not
enough; there must be interagency implementation of those laws and
regulations, in order to address what most perceive as the largest money
laundering scheme in the Western Hemisphere--the Colombian black market
Of special importance in this effort is the creation of a central financial
intelligence unit (FIU) that can receive, analyze and act upon suspicious
transaction reports, large value transaction reports, and other financial
intelligence information.. Internal debate continues among the Congress,
Ministry of Finance, and the Banking Superintendency regarding the
organization and placement of such a unit. In July 1998, the House of
Representatives was presented with Project 4-98, which contained a
comprehensive plan for an FIU within the Banking Superintendency. The
proposal was endorsed by OAS/CICAD and the World Bank, and had the
support of the private sector in Colombia. The proposal was tabled
in the House. A companion bill has been referred out of Committee
and is pending before the full Senate. The Finance Ministry has issued a
decree (number 1964) establishing, as of November 1, 1998, what it calls an
FIU. However, the unit established by the decree is really a high level
task force within the Ministry of Finance. The task force will make its
database available to the Justice Ministry. Under the decree, the task
force will not a have a separate budget, permanent staff, judicial
investigatory powers, or any real autonomy. Accordingly, although it is
not clear whether the current administration supports the bill
in the Senate, Congressional action to establish the FIU along
the lines of Project 4-98 would be welcome.
Since 1996, Colombian law has provided for criminal forfeiture of drug and
money laundering proceeds, forfeiture of substitute assets, and in rem
forfeiture when assets are held in the name of a nominee or have been
transferred. Nevertheless, Colombia continues to have difficulty in
implementing this asset forfeiture law, and legislative reform may be
necessary. Despite using this statute to seize over $1 billion in assets,
Colombia obtained its first and only final forfeiture under this law in
There were positive developments during 1998. Of great importance was the
realization by both Colombia and the United States that a primary method
for the laundering of billions of dollars of drug proceeds was the
conversion of U.S. drug cash proceeds into United States and foreign
commodities smuggled into Colombia through the Colombian Black Market Peso
Exchange system. Both governments are exchanging information concerning
this process, and have pledged to work closely in the future. Most recently,
the Department of Justice shared with Colombian authorities "innocent
owner" affidavits filed by Colombian nationals in the Bahamas
seeking to gain the return of proceeds identified in Operation
Casablanca and frozen by Bahamian authorities. The United States also
shared with Colombian authorities Colombian destination accounts
identified in Operation Casablanca, and the Colombians have frozen
those accounts at our request. In order to more effectively attack
the smuggling of commodities paid for with drug proceeds, Colombia
has tightened its anti-smuggling law, reducing the threshold for its
coverage and enhancing its fines and penalties.
In 1998, Colombia's Office of the Prosecutor General (Fiscalia) created a
new special unit of prosecutors and agents dedicated to the investigation
and prosecution of forfeiture and money laundering cases. However, despite
intensive training, both in-country and in Washington, the new unit
accomplished little in 1998. We have also received information about high
turnover among prosecutors in this unit.
Colombia and the United States were joint participants in major asset
forfeiture anti-money laundering seminars this year. During June, 1998, two
Narcotics Money Laundering and Asset Forfeiture Training Seminars were held
in the Washington, DC area for over 100 Colombian investigators,
prosecutors and regulators (including the newly-created Asset Forfeiture
and Money Laundering Unit in the Fiscalia) engaged in anti-money laundering
enforcement in Colombia. The seminar was led by the U.S. DOJ, and
presenters included representatives of DOJ, U.S. Postal Service, DEA
and FinCEN, as well as Colombian participants. From July 13-15, 1998,
Colombia held a money laundering seminar in Bogota, Colombia, which was
sponsored by the Colombian Banker's Association (ASOBANCARIA). Discussions
focused on bank examinations, banking internal controls, and methods of
Money Laundering in Latin America. Despite this intensive training, the new
Unit accomplished little in 1998.
In October 1998, Colombia signed a supplemental memorandum of understanding
with the United States that establishes a bilateral committee to review and
approve projects to be funded in Colombia, using assets forfeited by the
United States with the help of Colombian authorities. However, Colombian
law still does not permit reciprocal asset sharing with the United States.
Colombia should rejoin and become an active player in the CFATF, and should
submit to a mutual evaluation by the CFATF. The Colombian Congress should
be urged to enact legislation that will create an effective interagency FIU
that could join the Egmont Group of FIUs.
Congo (DROC) (Other). The Democratic Republic of the Congo (DROC) is not a
major money laundering center due to its political instability. There is
currently no anti-money laundering regime in existence in the DROC, nor is
it a priority, given the tenuous nature of the current government.
Cook Islands (Concern). The Cook Islands offers a myriad of offshore
services, including offshore banks, offshore insurance companies, and
international trusts. A resident company can easily be established by
filing with the Commercial Registrar certified copies of its Certificates
of Incorporation, Charter and Articles of Association, list of directors, a
memorandum of appointment of power-of-attorney stating the name of a
trustee company authorized to accept documents from a process server, data
about its authorized capital, and the address of the registered office in
the Islands. The Minister of Finance can, in theory, restrict foreign
companies from performing specific business activities within the Cook
Islands, and individuals who want to set up an offshore insurance
company or bank must submit evidence of their financial stability to
the Cook Islands Monetary Board. However, there is a wide range
of permitted exemptions, as well as anonymity in company and
As a lure to customers seeking a "safe harbor" for their funds, the Cook
Islands has creditor protection planning legislation, known as the "Asset
Protection Trust", which provides customers with unusually strong
protection against creditors. The original International Trusts Act of 1984
and its amendments offer complete exemption from taxation, but, more
importantly, also explicitly state that rights under foreign law cannot
be used to nullify Cook Islands legislation. Thus, enforcement
of a foreign court order is virtually impossible. The Asset Protection
Trust legislation is frequently abused as a tax evasion mechanism.
Bearer shares and certificates are provided by companies located in the
In September 1998, the Cook Islands passed the Offshore Financial Services
Act, which provides for the creation of the Office of the Commissioner of
Offshore Financial Services.
The Offshore Industry (Criminal Provisions) Act of 1993 identifies money
laundering as a crime, but the Cook Islands currently has no specific anti-
money laundering laws. It needs to develop effective anti-money laundering
legislation to protect its financial services industry from being exploited
by money launderers.
The Cook Islands is a member of the South Pacific Forum.
Costa Rica (Concern). The Government of Costa Rica (GOCR) made significant
progress in the fight against money laundering in 1998. In May, it reformed
its Anti-Drug Act with law 7786 (Law on Narcotics, Psychotropic Substances,
Drugs Not Authorized for Use, and Related Activities). This law
significantly strengthened Costa Rica's anti-money laundering controls by
requiring the reporting of "unusual" financial transactions, currency
transactions exceeding $10,000, and cross-border movements of currency;
regulating casinos and exchange houses; and providing liability
protection for banking employees. The law also established a Joint Counter-
Narcotics Intelligence Center (CICAD), including a Financial Analysis
Unit (FAU) responsible for compiling and analyzing "unusual"
transactions and for investigating money laundering and other financial
Money laundering remains a problem in Costa Rica. Anecdotal evidence
suggests that criminals are using financial institutions, casinos, exchange
houses, and real estate holdings to launder the proceeds of their crimes.
The offshore banking sector also poses a significant problem for law
enforcement agencies. The offshore financial sector consists of 20 foreign
corporations (referred to as financial entities) that currently operate
offshore banks in Costa Rica. In addition, there are approximately 24 Costa
Rican private banks that have offshore branches within the country.
According to the General Superintendent of Financial Entities (SUGEF),
foreign offshore banks follow the regulations established by the
parent bank located outside Costa Rica, but are not subject to
effective local supervision. Moreover, the 20 previously mentioned
financial entities are required only to provide monthly balance sheets
and year-end audited statements to SUGEF. However, unlike state
and private banks, their compliance is infrequent. These unsupervised
offshore banks represent a threat since they are vulnerable to criminal
abuse and can be used to facilitate money laundering and other financial
crimes in or outside Costa Rica.
Costa Rica allows the formation of international business corporations
within its jurisdiction. It also offers on-line Internet gambling sites,
comprised of "visual casinos" and sports betting.
In May 1998, the GOCR began implementation of an innovative criminal
procedure code, which mandates close cooperation between prosecutors and
police investigators. In June, several Costa Rican officials attended a
financial investigative course to increase the investigative capabilities
of CICAD. The GOCR actively participated in several regional anti-money
laundering meetings during 1998, including the CFATF and the OAS
International Commission for Drug Abuse Control. In November, the GOCR
requested that its FAU be considered for membership in the Egmont Group of
financial intelligence units.
The GOCR needs to develop a regulatory regime for its offshore banking
sector to protect its industry against financial crime and money
Cote d'Ivoire (Other). Cote d'Ivoire is developing a money laundering
problem. It is a major regional financial center and hub for international
air travel in West Africa. Abidjan, the capital, is a narcotrafficking
crossroads, with Middle Eastern and other African groups represented. These
characteristics, along with lax enforcement, make it one of the most
popular drug transit and money laundering countries in Africa. Despite an
abundance of international law enforcement training initiatives,
enforcement is too often sporadic and lacking focus. Often narcotics
investigations focus on small drug dealers, ignoring the major organizers,
who are often located outside of the country.
The laundering of money related to any activity is a criminal offense in
Cote d'Ivoire. Banks are required to report large cash transactions to the
Government of Cote d'Ivoire and to maintain records of these transactions
for an adequate amount of time. These controls are not applied to non-bank
financial institutions. There were no arrests or prosecutions for money
laundering in Cote d'Ivoire in 1998.
While it has anti-money laundering legislation in place, Cote d'Ivoire now
needs to vigorously enforce this legislation and develop an effective
regime to combat financial crime and money laundering.
Croatia (Other). Although money laundering in Croatia is not as prevalent
as in neighboring countries, it does occur. Hostilities resulting from the
break up of Yugoslavia had practically closed Croatia's borders with Bosnia
and Serbia, which resulted in a temporary reduction in crossborder crime
such as narcotics and arms trafficking and its associated money laundering.
However, the relaxation in the political climate has brought about
the reopening of all of Croatia's land borders so that trans-
border crime is on the upswing.
Croatian money laundering activities tend to be connected to financial
crime rather than the laundering of narcotics proceeds. These offenses
include tax evasion, financial and privatization fraud, bribery, corruption,
abuse of official and corporate power, and loansharking. The incidence of
organized crime has increased, especially in larger cities. These turbulent
conditions, combined with the cash-based nature of the economy, make
Croatia vulnerable to money laundering. Croatian authorities are monitoring
aspects of financial activity in the economy that indicate potential
money laundering. These include increased activity in financial
markets by foreign and domestic firms, an increase in currency
shipments across Croatia's borders, and the transfer of illegal
proceeds to offshore centers and the return of these funds to private
and corporate accounts in Croatia.
In response to the threat of money laundering, Croatia criminalized money
laundering with the adoption of the new penal code in September 1997, and
enacted anti-money laundering legislation in November 1997. The anti-money
legislation established suspicious transaction reporting requirements for
financial institutions such as banks, insurance companies, and currency
exchange offices. The reporting requirements include the reporting of any
currency transaction, or a series of related transactions, exceeding $17,
000. The government has established criteria on suspicious transaction
indicators. The legislation also provides for the establishment of a
financial intelligence unit, the Anti-Money Laundering Department,
which is subordinate to the Ministry of Finance. Since the law was enacted,
Croatia has carried out one money laundering investigation that was later
referred to the Prosecutor's Office.
According to United States law enforcement sources, casinos, currency
exchange houses, real estate companies and banks are used in Croatia to
launder funds. Monetary instruments involved include cash, bank drafts,
travelers checks, credit cards, wire transfers, and letters of credit.
Croatia's participation in the Southeastern Europe Cooperative Initiative
(SECI) is a welcome development. Among SECI's goals are to control the
increasing flow of narcotics trafficking across borders and to close the
links to trans-border organized crime. Cooperation with other SECI states
will assist Croatia's efforts to combat the predicate offenses that
generate illegal proceeds laundered in Croatia. In addition, Croatia has
signed a number of bilateral and regional agreements to combat organized
crime, narcotics trafficking, and financial crimes. In September 1999,
Croatia will undergo a mutual evaluation conducted by the Council of
Europe's PC-R-EV. The evaluation will provide detailed suggestions on how
to improve Croatia's anti-money laundering program.
Croatia is in the process of developing a legal structure, which will
effectively address its money laundering problem. It now needs to focus on
Cuba (Other). Drug money laundering does not pose a significant problem in
Cuba because it is not considered an important financial center, and the
Cuban peso is not accepted in the international market. However, a
potential framework for money laundering operations has been created by
Cuba's growing tourist trade, aggressive pursuit of foreign investment, and
procedures for purchasing materials around the United States trade embargo.
The Cuban penal code has neither any specific provision making money
laundering a criminal offense, nor any known requirements for banks to
report suspicious transactions. In addition, although the Government of
Cuba (GOC) regularly seizes and retains property suspected of being
connected with illegal activity, it lacks a specific system for seizing and
forfeiting assets derived from international narcotics trafficking.
In June 1997, Decree-Law 172 created the Cuban Central Bank and divided
among several separate institutions the various functions previously
carried out by the National Bank of Cuba. One secondary result of the
reconfiguration of the state-run banking system is an increase in the
efforts of Cuban authorities to prevent money laundering on the island. The
president of the central bank announced a new initiative to guard against
money laundering and prevent Cuba from becoming a haven for money
launderers. The initiative focused on banks knowing their clients,
investigating unusual transactions, and requiring bank customers to declare
the source of funds in any transaction greater than $10,000. Although
described as binding on banks, the measures appear to be only
guidelines. The GOC has not written a money laundering provision into
the Cuban Penal Code.
The GOC needs to pass and implement regulations to bring it into compliance
with international anti-money laundering standards, including the
criminalizing of money laundering and a mandatory reporting requirement for
all suspicious transactions.
Cyprus (Primary). The Cypriot government was extremely active in 1998 in
its efforts to implement the provisions of the 1996 anti-money laundering
law (The Prevention and Suppression of Money Laundering Activities Law),
which for the first time criminalized non-drug-related money laundering;
provided for the confiscation of proceeds from all serious crimes; codified
actions which banks and financial institutions must take, including
customer identification; and mandated the establishment of a
financial intelligence unit (FIU). 1998 amendments to the Law expanded
the list of predicate offenses and allowed Cyprus's FIU to legally
cooperate with other nations' FIUs to exchange information on money
laundering investigations. Cyprus's determination to take concrete and
effective steps to carry out the provisions of the law were reflected in
its reception of two visits by high-ranking U.S. officials to discuss and
assess its anti-money laundering efforts, as well as a visit by a FATF team
to assist Cyprus in furthering these efforts. In addition, in January 1998
a team from FinCEN visited the FIU and found its efforts to be
commendable. In June, the Cypriot FIU became a member of the Egmont Group
of FIUs. That same month, Cyprus received a favorable evaluation
from a Council of Europe PC-R-EV money laundering assessment
In January 1997, Cyprus established the Unit for Combating Money Laundering,
which receives and investigates suspicious transactions and serves as the
Cypriot FIU. The Unit, which is comprised of three representatives each
from the Attorney General's office, Cypriot Customs, and the Police,
evaluates evidence generated by both the unit member organizations and from
elsewhere to determine if investigation is necessary. Since its inception,
the Unit has evaluated over 125 cases (more than half referred by other
governments), and has closed more than 82. It has also issued a number of
freezing and restraining orders. There has been one money laundering
conviction (July 1998) which resulted in a prison term of 4 years. Two
other cases are currently being tried. The Unit has conducted
training seminars for over 500 Cypriot police officers, as well as
for bankers, accountants, and other financial officers. The Cypriot
police force now includes a module on money laundering in its basic
training for new officers.
Cyprus restricts foreign ownership of property, and it controls the transit
of currency and bullion, which further discourages money laundering. At
present, its exchange control law strictly limits the amount of money
residents can take out of the country each year, although the government
strongly supports liberalization of the financial system and is likely to
gradually implement change in this area. Neither offshore nor domestic
banks may accept foreign currency deposits unless accompanied by the
appropriate declaration forms. All banks must similarly file reports with
the central bank of all cash deposits over the equivalent of $10,000.
The provisions of the 1996 law have now been extended to apply
to the insurance industry, the stock exchange, and cooperative
banks. The central bank in April 1998 issued additional guidelines
to Cypriot banks on the reporting of suspicious transactions
and record maintenance. Banks are expected to pay special attention
to all complex, unusual large transactions, especially substantial cash
deposits or withdrawals. The guidelines also mandate the reporting of
inbound and outbound electronic funds transfers in excess of $500,000 per
month. In one enforcement action, the central bank revoked the operating
license of Inkombank, a Russian offshore bank, for failing to meet its
obligations. The case has been remanded to the courts for liquidation of
Inkombank's assets in Cyprus.
Cyprus has a growing offshore banking sector consisting of over 29 offshore
banks, four administrative banking units, five representative offices, 92
offshore financial services companies, seven management companies of
collective investment schemes, and eight offshore trusts. Because of the
complex and extensive nature of the offshore sector in Cyprus, it remains
vulnerable to money laundering activity, although the central bank states
that it has in place a strict regulatory framework aimed at preventing
abuses, and in fact, offshore banks in Cyprus are required to adhere to the
same legal, administrative and reporting requirements as domestic banks.
In addition, prospective offshore banks face strict entry requirements
and a detailed vetting procedure designed to ensure that only banks from
jurisdictions with proper supervision will be allowed to operate in Cyprus.
There have been press reports, however, that Russians connected with
organized crime control some of the offshore banks in Cyprus.
There are also about 33,000 offshore companies registered in Cyprus, of
which approximately 3,000 are owned by Russians and other Central
Europeans. Of the 33,000 offshore companies, we estimate that approximately
half are dormant. Given the level of illicit activity in Russia and other
central European countries, this raises questions about the use of these
companies to shelter proceeds from activities such as drug trafficking,
arms theft, and the sale of state resources. In some instances, Russian and
Central Europeans have used offshore entities in Cyprus as a base to
establish operations in known money laundering havens in the Caribbean and
the South Pacific, a known technique to integrate illicit funds. Offshore
companies may maintain anonymity of ownership, although the names of
the real owners must be filed with the Cypriot Central Bank.
Significant involvement of Russian entities in Cyprus's offshore sector
will likely continue as a result of the December 1999 renewal of
the Cypriot-Russian dual taxation treaty.
Money laundering reportedly occurs in the "Turkish Republic of Northern
Cyprus", which is recognized only by Turkey. Press reports indicate a
burgeoning drug trade (and resultant money laundering) between Northern
Cyprus and Turkey, but these reports are difficult to evaluate. Turkish
Cypriot financial and other regulations are lax. Banks are lightly
regulated, subject to low capital requirements, and mostly family-owned.
There is also a lightly supervised casino industry. An anti-money
laundering law has been drafted by Turkish Cypriot authorities, but it
is not expected to take effect until sometime in 1999. The main
provisions of the law would work to reduce the number of cash
transactions in Northern Cyprus, to improve the tracking of any
transactions above the equivalent of $10,000, and to provide for asset
seizure. The proposed law would be an adjunct to the existing 1997
Exchange Control law, which required banks to report to Turkish
Cypriot banking authorities the identity of anyone transferring more
than $100,000, as well as the source of the funds and the destination.
The Cypriot government's obvious dedication to combating money laundering
is encouraging, but like other susceptible nations, it needs to focus on
the increasing supervisory challenges of the offshore banking and business
sector and the relationship of its free ports and free trade zones in
Limassol and Larnaca to the transshipment of illicit cargo. We commend the
GOC's participation in international fora dedicated to fighting money
laundering, such as the Council of Europe's PC-R-EV, and encourage it to
continue. We also encourage the Cypriot FIU to be an active participant
in the Egmont Group, of which it became a member in June 1998.
Czech Republic (Concern). The Czech Republic has made commendable progress
in combating money laundering during the past several years through the
adoption and implementation of its anti-money laundering legislation.
Despite this success, it remains vulnerable to money laundering in several
areas. The cash-intensive nature of the Czech economy, combined with the
number and variety of financial institutions, provide a wide range of money
laundering possibilities. The availability of anonymous savings
accounts in the form of bearer passbooks offers a mechanism to
conceal illegal proceeds. Although Czech authorities believe they
have been successful in lessening the presence and impact of
foreign organized crime groups, the activities of domestic organized
crime groups have increased. Illegal proceeds are generated in the
Czech Republic through its role as a transit country for the
smuggling of goods and trafficking in narcotics and arms. Czech
financial institutions are used to launder foreign illegal proceeds,
and money laundering schemes using investments in the Czech economy
are common for both foreign and domestically-generated criminal proceeds.
The establishment of the Financial Analysis Unit (FAU) has been a positive
addition to the Czech Republic's anti-money laundering effort, but it is
hampered by several problems. These include a lack of resources, personnel
issues, the need for training, poor feedback to financial institutions
reporting unusual transactions, and the low level of, and uneven, reporting
by financial institutions. The FAU requires access to tax and customs
information to adequately analyze money laundering in these sectors.
Greater cooperation in information sharing with domestic law enforcement
agencies would enhance the effectiveness of the FAU.
The Czech Republic is an active international participant in anti-money
laundering efforts. The FAU is a member of the Egmont Group. The Czech
Republic is a party to the 1988 UN Drug Convention, the Council of Europe
(CE) Convention on Money Laundering, the European Convention on Extradition,
and the European Convention on Mutual Assistance in Criminal Matters. It
has applied for membership in the FATF and participates in the CE's PC-R-
EV. During 1998 the Czech Republic underwent a mutual evaluation conducted
by the PC-R-EV, which was reported on at the December 1998 PC-R-
EV plenary meeting.
The United States and the Czech Republic signed an MLAT in 1998 which was
ratified by the United States in January 1999 but is not yet in force. This
treaty complements the existing bilateral Customs Mutual Assistance
Agreement in force between the two countries.
Despite the Czech Republic's progress in stemming financial crime through
the implementation of its anti-money laundering regime, practical
experience has shown the need for modifications for optimal functioning of
the system. The Czech Republic needs to better coordinate its law
enforcement and regulatory efforts to combat money laundering.
Denmark (Other). Denmark is a major financial center, but money laundering
is not considered to be a significant problem within the country. The
Danish Money Laundering Act of 1993 extends to all crimes, although money
laundering is not a separate offense under Danish law. This Act applies to
banks, life insurance companies, investment firms, mortgage credit
institutions, securities brokers, bureaux de change, and all branches of
foreign credit and financial institutions. It allows for the confiscation
of assets and requires the reporting of suspicious transactions to the
Money Laundering Secretariat, which serves as Denmark's financial
intelligence unit (FIU). Financial records must be maintained and made
available to government authorities if requested.
Denmark is a member of the FATF and the Council of Europe. Its FIU
participates in the Egmont Group of FIUs.
Dominica (Primary). In the wake of declining revenue from banana exports
and tourism, Dominica, like a number of other Caribbean jurisdictions, has
sought to compete in the market for financial services. Dominica advertises
complete confidentiality, low fees, and little government supervision,
making the jurisdiction increasingly attractive to money launderers.
Dominica has greatly expanded its offshore services in the past two years,
with the Offshore Banking Act 1996, the International Business Companies
Act 1996, the Exempt Insurance Act 1997, and the International Exempt Trust
Act 1997. Dominica also offers economic citizenship, Internet gambling and
rapid processing of Internet gaming license applications. A government-
sponsored web-site advertises on-line registration of companies in as
little as eight hours and "layers of financial privacy" to protect
assets and confidentiality. These advertisements appear to be successful,
since the government has incorporated 4,600 international business
corporations, five offshore banks, and five Internet gaming companies, and
earned at least $3.6 million in revenue from the offshore sector in 1997.
The International Business Unit of the Ministry of Finance screens
applications for offshore banks, but oversight of banks and businesses is
minimal. The Attorney General of Dominica himself stated in late 1998 that
while his country was in control of the banking sector, it still "had some
work to do" on offshore sectors such as Internet gaming (which is not
addressed at all in any Dominican legislation.).
The process for obtaining economic citizenship in Dominica is very loosely
regulated, and Dominican officials apparently do not maintain control over
the program. Most persons who obtain economic citizenship are checked out
by a British solicitor. Dominican officials rely on the word of the
applicants that the information they provide is true. The cost of obtaining
economic citizenship is $50,000 deposited in a local bank, or $75,000 in
government bonds. Between 200 and 300 Russians have reportedly
purchased citizenship, increasing suspicions of Russian money
laundering activities on the island.
Dominica has criminalized money laundering placed controls on the export of
money, and requires banks to report unusual foreign exchange transactions.
However, the rapid expansion of the offshore sector without proper
supervision and the lack of a comprehensive anti-money laundering regime
make Dominica fertile ground for money laundering and other financial
crimes. The Government of Dominica cooperates with the United States in
narcotics interdiction efforts. The United States ratified the Dominica-
U.S. MLAT in January 1999, but the treaty is not yet in force. The
government of Dominica now needs to enact and enforce comprehensive
measures that meet international standards to protect its financial
sector from the very real risk of abuse.
Dominica is a member of the CFATF. It is scheduled to undergo a CFATF
mutual evaluation from 12-16 April 1999.
Dominican Republic (Primary). The Dominican Republic is not considered a
major international financial center, but it continues to face a growing
and systemic problem of narcotics-related money laundering. The main source
of foreign exchange in the Dominican Republic is dollars generated by the
tourism industry, free zone companies and remittances from Dominicans
living in the United States. Through these sectors, capital obtained from
the illegal drug trade is brought into the country, and electronic
banking and non-banking services provided legitimately by local and
international institutions have been used to facilitate the laundering.
The Dominican Republic has financial institutions which engage
in currency transactions involving international narcotics proceeds
that include significant amounts of U.S. dollars.
The Dominican Republic is cognizant of the problem and is gradually
building an anti-money laundering framework. Act 17 of December 1995
criminalizes the laundering of the proceeds of illicit drug trafficking and
allows for the seizure and forfeiture of assets. Penalties range from
imprisonment of two to five years and fines of $3,100 to $6,200. The
implementing regulation for this Act is Decree 288 of 1996 which, among
other things, prohibits the use of anonymous bank accounts, mandates the
recording of transactions exceeding $10,000, and requires the declaration
of exports of currency exceeding $10,000 and the reporting of suspicious
transactions. In July 1998, the Government of the Dominican Republic
(GODR) amended the Dominican Extradition Law to incorporate the
laundering of proceeds derived from a number of serious crimes as an
extraditable offense. Pursuant to a request to the United States by the
GODR, a technical assistance team was set up in May 1998 to review
the GODR's anti-money laundering activities.
The National Drug Control Directorate (DNCD) has responsibility for
investigating narcotics-related money laundering and has authority to
request the cooperation of all government departments as necessary. It has
established a financial investigations unit, which is operative. The
Superintendency of Banks supervises and inspects all financial institutions
and certain non-bank financial institutions such as exchange houses,
casinos, and other gaming establishments. Its financial intelligence unit
receives the reports of suspicious financial transactions submitted by the
financial institutions; however, further efforts need to be directed at the
analysis of the information and its timely sharing with the DNCD. The
Superintendency of Banks should also intensify its efforts at conducting
inspections of financial institutions for compliance with the anti-money
The GODR is striving to bring corruption under control, particularly within
the judiciary. The process for the selection of judges is becoming more
transparent, since judges are now appointed by the National Council of
Magistrates and are chosen on technical, not political, grounds. The GODR
is urged to continue making the eradication of corruption one of its
highest priorities, and to intensify its vigilance in its supervision of
the financial industry, particularly the exchange houses and remittance
There is no bilateral agreement between the United States and the Dominican
Republic on a mechanism for exchanging records or other evidence in
connection with criminal investigations, including narcotics investigations
and proceedings, nor does Dominican law ensure their availability to United
States personnel or those of other governments.
The Dominican Republic is a member of the CFATF.
Ecuador (Concern). Ecuador is not a major financial center, but it is
believed that money laundering occurs in both the banking and non-banking
sectors. Efforts by the Government of Ecuador (GOE) in 1998 to combat money
laundering were not as successful as could be desired. Although money
laundering is illegal under the 1990 Narcotics Law, the GOE has not been
able to enforce this law because there are other statutes, which are or
could be interpreted as being in conflict with the Narcotics Law. For
example, there is a bank secrecy law, which severely limits the amount of
information that can be released by a bank. There is also a banking law
designating the Superintendency of Banks as the only agency authorized
to receive information from a bank. At the same time, there is
a criminal defamation law, which adds to the reluctance on the
part of financial institutions to report suspicious financial
This contradictory legal framework hinders the effective collection and
exchange of financial information among the enforcement and regulatory
agencies. For example, the Ecuadorian National Police can seek and obtain
court orders to search and obtain financial information, but the banking
sector will not honor such orders, claiming that banking regulations make
it answerable only to the Superintendency of Banks. The Superintendency of
Banks will not accept requests for information directly from the Ecuadorian
National Police (ENP), insisting that such requests come from the
National Drug Council (CONSEP), and it will forward such information
only to the CONSEP. In turn, the CONSEP is very slow in forwarding
information to the ENP, and the two agencies do not have a solid working
Other regulatory weaknesses also provide an ideal environment for money
laundering to thrive. These weaknesses include the fact that money
laundering is considered a crime only if it can be linked to the illicit
narcotics trade, and the lack of protection from defamation suits for
officials who report suspicious transactions. Ecuadorian law also requires
that targets of an investigation be notified that they are being
investigated. Moreover, there is a total absence of controls on the amount
of currency that can be brought into or taken out of the country.
The GOE needs to clarify its laws and regulations to eliminate conflicting
interpretations, in order to have an effective anti-money laundering
Egypt (Concern). Egypt is not considered an important financial center or a
tax haven. Nevertheless, in July 1998 the Egyptian Federation of Banks
estimated that money laundering in Egypt amounts to approximately $3
billion annually, about 70 percent generated by drug trafficking and the
rest by terrorism and organized crime. This money is recycled through bank
deposits, trade schemes, real estate purchases, private money exchanges,
and investments in financial markets. The Ministry of Interior has accused
Muslim militants of being heavily involved in the drug trade and in
money laundering in order to fund their operations.
Despite indications of significant money laundering in Egypt, both private
and government officials continue to debate the wisdom--and even the
desirability--of anti-money laundering controls. Those opposed to such
controls cite the need to attract foreign investment to Egypt and the
possibly deterrent effect anti-money laundering laws would have on such
Egypt is a party to the 1988 UN Drug Convention. In 1996, a special anti-
money laundering unit was established within the Anti-Narcotics General
Administration (ANGA), and in 1997 it received preliminary training from
the Swedish financial intelligence unit (FIU). However, the unit currently
has no operational role. The ANGA has drafted legislation for the People's
Assembly on money laundering and asset forfeiture, but there is no major
impetus to pass it. A 1989 law provides for severe penalties for drug
trafficking, while a 1971 law allows the Public Prosecutor to seize and
confiscate illegal wealth emanating from specific circumstances, but
these laws by no means fully address the problem of money laundering.
In February 1999, a six-person team from the Financial Crimes Unit attended
a U.S. Secret Service-sponsored seminar in Washington, DC, on financial
crime. The head of the unit expressed interest in receiving more extensive
training for his group in the area of money laundering.
Egypt needs to give priority to enacting anti-money laundering legislation,
which meets international standards, including the criminalization of money
laundering from all sources and the mandatory reporting of suspicious
transactions by financial institutions.
El Salvador (Concern). The growth of El Salvador's financial sector, its
stable currency and an increase in narcotics trafficking activity all make
the country fertile ground for money laundering. The Salvadoran banking
system is one of the largest in the region, and it maintains important
financial contacts with neighboring countries, Mexico, the Caribbean, and
the United States
The government of El Salvador (GOES) took a significant step forward in
1998 with the passage of comprehensive anti-money laundering legislation in
December. Passage of this legislation culminates a comprehensive, year-long
effort by the governments of El Salvador and the United States, and by
Salvadoran legislators and bankers. After several financial scandals
exposed the weaknesses of El Salvador's financial system in 1997, all
sectors agreed on the need for new legislation and spent much of 1998
debating alternative money laundering bills. Key Salvadoran officials,
including the Attorney General and an opposition party leader, were
instrumental in the process. The GOES also invited experts from the
United States to advise and to assist legislators and bankers in
developing the legislation.
The new law criminalizes the laundering of money from drug trafficking and
other serious offenses. Financial institutions must identify their
customers, maintain bank records for five years and make them available to
investigative authorities, and report all suspicious transactions and any
transaction exceeding approximately $57,000. The law contains penal
sanctions, fines, and asset forfeiture provisions. It also establishes a
financial intelligence unit (FIU) housed within the Attorney General's
office (Fiscalía) to receive financial disclosures and to
investigate alleged money laundering violations. The legislation will take
effect following a six-month implementation phase to provide training and
establish the FIU.
The United States is also working with the GOES on additional legislation
regarding asset seizures.
Estonia (Other). Money laundering has been a problem in Estonia since the
early 1990s for various historic, economic, and geographic reasons.
Estonian financial institutions have been linked to the laundering of
questionable foreign funds, especially from Russia and other members of the
Commonwealth of Independent States. Analysis and investigation of requests
for foreign legal assistance attest to the scope of the money laundering
problem. The privatization process remains a known avenue for the
laundering of illegal proceeds, and irregularities in the privatization
of state property highlight the problems in this area. For example,
organized crime groups, most from Russia, use illegal proceeds to purchase
homes, factories and land by bribing government officials responsible for
privatization of state-owned assets. The groups then resell the property
for a profit or use them to conduct legitimate business. Fraud, theft and
forgery are growing problems in Estonia, and criminals are becoming more
sophisticated in perpetrating financial crimes such as money laundering,
tax evasion, counterfeiting, and smuggling. In addition, Estonia's police
forces have been publicly criticized for their inability to counter
organized crime and the extortion of businesses.
Estonia's record in fighting corruption shows mixed results, but the
government is committed to eliminating corruption. The former director of
the central bank and one of his advisors are currently under investigation
for abuse of official position and misappropriation of $10 million funds
transferred to Switzerland. Although Estonia has been successful in
combating corruption at the national level, it still remains a significant
problem at the local level, where little progress has been made since
Estonia regained sovereignty in 1991.
Estonia has made steady progress in developing an anti-money laundering
framework. In January 1995, Estonia enacted anti-money laundering
legislation as part of its Law on Credit Institutions, which provided a
definition of money laundering and required credit institutions to prevent
the use of the banking system for money laundering purposes. In November
1998, the Estonian Parliament enacted an anti-money laundering law, which
is scheduled to become effective in June 1999. The legislation establishes
a suspicious transaction reporting system and sets up a financial
intelligence unit, the Money Laundering Information Bureau, which is
subordinate to the Police Board in the Ministry of Internal Affairs. Other
amendments to existing legislation are envisioned prior to the
implementation of the anti-money laundering law--for example, the criminal
code must be amended to fully criminalize money laundering.
Estonia is active in international and regional efforts to combat money
laundering and other crimes. In November 1999, Estonia will undergo a
mutual evaluation conducted by the Council of Europe's PC-R-EV. The
evaluation will provide detailed suggestions to improve Estonia's anti-
money laundering program. In July 1998, Estonia signed an agreement with
Russia's Pskov region to jointly combat trans-border crime such as the
smuggling of raw materials, narcotics and arms, as well as financial
Ethiopia (Other). Ethiopia is not a financial center, and there are no
indications that significant money laundering is occurring there. Given
current government policies, Ethiopia is unlikely to develop a significant
money laundering problem. The country's largest commercial bank is
government-owned, and foreign investment is prohibited in Ethiopia's seven
Ethiopia has not enacted anti-money laundering legislation, but is a party
to the 1988 UN Drug Convention.
Fiji (Other). There is little information on money laundering or the
financial system in Fiji other than the reported near-collapse of the
government-run National Bank of Fiji in 1995. Fiji, like many Pacific
Islands, is a ripe target for money laundering and financial fraud scams,
since it has very few laws to guard against money laundering. Fiji enacted
two pieces of legislation in December 1997 that assist in the fight against
financial crimes: the Mutual Assistance in Criminal Matters Act and the
Proceeds of Crime Act.
Fiji is a member of the Asia Pacific Group on Money Laundering.
Finland (Other). Finland is not a major money laundering country, nor is it
a major financial or offshore banking center. According to Finnish
authorities, there were ten minor cases of narcotics-related money
laundering in 1998. Finnish authorities have expressed concern about
Russian organized crime, as well as money laundering from fraud (including
tax fraud) and other economic crimes. The money laundering provision in the
Finnish Penal code covers the proceeds of all crimes, and there are
no thresholds for predicate offenses.
The most significant change in 1998 was the enactment of the Act on
Preventing and Clearing Money Laundering, which entered into force on March
1, 1998, and served to bring all of Finland's anti-money laundering
measures into one piece of legislation. This Act established a Money
Laundering Clearing House (MLCH) at the National Bureau of Investigation
(NBI) as the central unit to receive suspicious transactions. Prior to this
Act, there was a two-part system by which transactions reports were made to
both the Financial Supervision Authority and the Ministry of Social Affairs
and Health, which in turn analyzed these reports before sending them to the
police. The Act also extends the reporting requirement to all credit
and financial institutions and to most non-bank financial institutions,
including bureaux de change, betting agencies, casinos, real estate
agencies, pawnshops, insurance companies, and investment firms. There is
currently no plan to extend the Act to accountants or lawyers.
There are a few parts of the law that could use improvement. Although there
are customer identification measures in place, there is an exemption in
cases of certain insurance premium and real estate transactions paid from
an account located in the European Economic Area. This does not pose too
much difficulty if the other European country is subject to strict
regulation, but such is not always the case. If money remittance or
transfer services are provided by a business in which this service is not
its main activity, then the business is not subject to the Act. Another
difficulty is that bureaux de change, as well as money remittance and
transfer businesses, are not subject to licensing or supervision.
The MLCH will be the recipient of all suspicious transaction reports and
will pass relevant cases to other units of the NBI or to local police for
investigation. The MLCH serves as the financial intelligence unit and
participates in the Egmont Group. Finland is also a member of the FATF and
the Council of Europe.
France (Primary). France is vulnerable to money laundering, as it is both a
drug transit country and an important financial center. The Government of
France has tried to reduce vulnerabilities by enacting broad ranging anti-
money laundering legislation.
The French Penal Code criminalizes money laundering relating to the
proceeds of all crimes. It also requires that financial institutions,
insurance brokers, post offices, and bureaux de change report suspicious
transactions to Traitement du Renseignement et Action Contre les Circuits
Financiers Clandestins (TRACFIN). Since July 2, 1998, notaries and property
agents have also been required to report suspicious transactions to
In the past year, suspicious transaction reporting has decreased slightly
from banks, doubled in the insurance sector and also continued to rise in
the area of bureaux de change. This is a positive sign that with the proper
legislation and training of various sectors, there is increased vigilance
in the fight against money laundering. TRACFIN is in the process of
preparing reference manuals with basic anti-money laundering rules for each
profession, which should further educate employees in these areas.
France is a member of the FATF, and TRACFIN participates in the Egmont
Group of financial intelligence units. France is a party to the 1988 UN
Drug Convention and is in compliance with the EU Money Laundering
Directive. As a member of the Council of Europe, France attends the PC-R-EV
Georgia (Other). Georgia is not currently considered a significant
financial center. The banking sector is unsophisticated and relatively
small. However, commercial banks have the ability to clear and transfer
funds electronically. The central bank has begun to play a larger role in
regulating the banking industry, despite resistance on the part of some
commercial bankers. The Georgian economy is too small to absorb large flows
of illicit foreign funds, and Georgian organized crime groups are known
to use countries in Central Europe to launder proceeds from their
operations there. Locally-derived proceeds, which are often the result of
alcohol and tobacco smuggling, are fairly easy to launder, given the cash-
intensive nature of the Georgian economy. This small-scale laundering often
takes place through retail outlets, although some commercial banks have
also reportedly become involved in the laundering of funds derived from
smuggling. No Georgian government official has been publicly linked to
money laundering, despite the corruption endemic in government law
Money laundering is not a criminal offense in Georgia. There is no
requirement that suspicious transactions be reported, nor are legal
safeguards in place to protect banks which cooperate with law enforcement
(in any case, there are no known instances of Georgian law enforcement's
carrying out any money laundering investigations.) There are also no
controls on inbound or outbound currencies.
Georgia does have laws providing for asset seizure, although no legislation
specifically designates asset forfeiture for narcotics-related offenses.
Georgia has not entered into any agreement with a foreign country providing
for the exchange of information on money laundering.
The Government of Georgia became a party to the 1988 UN Drug Convention in
Germany (Primary). Money laundering is a criminal offense pursuant to
Section 261 of the German Criminal Code and extends to all major crimes.
The German Money Laundering Act (GMLA) was amended in 1998 and now applies
to credit institutions, financial service institutions, financial
enterprises and insurance companies. A new organized crime law was also
passed by the Bundestag on January 16, 1998, which is intended to improve
the fight against organized crime by extending the list of predicate
As part of the new GMLA of 1998, customer identification is required for
transactions in cash, securities or precious metals valued at approximately
$17,600 or more. Institutions are also required to maintain identification
records for six years. Institutions and casinos are required to report
suspicious transactions to the competent prosecution authorities without
delay. The Act also requires that credit institutions, insurance companies,
auctioneers, financial service institutions, financial institutions,
bullion dealers and gambling casinos appoint a compliance officer
responsible for reporting suspicious transactions and for developing
internal control procedures and training programs for employees.
Since January 1998, money transmitters have been required to be licensed
and are subject to supervision by the Federal Banking Supervisory Office
(FBSO). Anti-money laundering guidelines were also issued to these newly
supervised businesses in February 1998 which require know-your-customer
policies for transfers of $8,500 or above. The guidelines also mandate
procedures to prevent structuring and require the filing of monthly
statistics to the FBSO.
With the development of electronic commerce, the FBSO has taken a proactive
approach to its regulation of this industry by requiring, as part of the
GMLA, customer identification for non-account linked transactions. This
requirement became effective in June 1998.
Germany participates in the FATF and is a member of the Council of Europe.
The Gemeinsame Finanzermittlungsgruppe Geldwasche - Bundeskriminalamt (BKA)
has participated in the Egmont Group. However, German law does not
currently allow for the creation of a national centralized financial
intelligence unit. As a member of the G-7, Germany has made a political
commitment to create such a unit; it should act on that commitment.
Ghana (Other). Illicit trade in gold, diamonds and narcotics is responsible
for the major part of money laundering in Ghana, which occurs primarily
through bureaux de changes. Money laundering was criminalized under
Narcotics Drug Law 1990 PNDC Law 236, but there were no arrests or
prosecutions for money laundering in 1998. Banks and other financial
institutions are not required to report the identities of customers
engaging in large cash transactions, but they do enjoy safe haven
protection when cooperating with law enforcement.
The 1990 law gives the Attorney General special powers to investigate
narcotics offenses suspected of having been committed under this law or any
foreign law. The Serious Fraud Office also handles non-narcotics-related
Ghana is a party to the 1988 UN Drug Convention.
Gibraltar (Concern). Gibraltar is an Overseas Territory of the UK and a tax
haven, which offers a 25-year guarantee against income and estate taxes for
offshore companies. It has also emerged as a flourishing offshore center
for companies, trusts, banks, insurance companies, and other offshore
entities. Gibraltar offers bearer shares and certificates to companies
operating within its jurisdiction.
Money laundering on an all-crimes basis was criminalized in 1995, and the
Financial Services Commission in 1996 issued Guidance Notes. The Gibraltar
Financial Intelligence Unit (FIU) within the Government of Gibraltar (GOG)
Coordinating Centre for Criminal Intelligence and Drugs was established in
1996 and is the recipient of suspicious transaction reports. All financial
institutions, insurance companies, bureaux de change, accountants, company
formation agents, casinos, attorneys and others are obliged to report
Currently, the Gibraltar FIU is applying to the Egmont Group to be
recognized as an FIU. Although Gibraltar is not a member of the FATF, the
GOG has given its explicit endorsement to the FATF Forty Recommendations.
Gibraltar is a member of the OGBS and has agreed to undergo an OGBS mutual
evaluation in 1999. This further underlines the commitment of Gibraltar to
adhere to international anti-money laundering standards.
Gibraltar is within the EU as part of the UK Member State. It implemented
the EU Money Laundering Directive in 1995, and its anti-money laundering
legislation is fully in line with EU requirements.
Greece (Concern). According to both Greek and U.S. authorities, narcotics
is a growing problem in Greece and is the major source of illicit proceeds
which need to be laundered. These proceeds are invested in real property,
Greek government bearer bonds (although new bearer bonds are no longer
being issued, there is still a large resale market), stocks, and purchases
of companies. The illicit cross-border movement of currency and monetary
instruments, despite being addressed in the anti-money laundering law,
still presents a major problem, according to Greek authorities.
Casinos are also becoming a problem, particularly investment in casinos,
since Greek law does not require disclosure of the source of capital for
such investments. There are currently ten private and two state-owned
casinos in Greece. Greek officials believe that proximity to other
financial centers such as Cyprus is having an impact on Greece.
In late 1995, the Greek Government enacted a comprehensive law, which
criminalized all forms of money laundering. The law established a central
authority called the Competent Committee (the "Committee") to receive
suspicious transaction reports (STRs) and thus to function as Greece's
financial intelligence unit (FIU). The Committee, which became operational
in January 1997, is an eight-member group chaired by a senior judge and
consisting of representatives of various ministries, the central bank, and
the Athens Stock Exchange. Banks and other financial institutions are
required to file STRs with the Committee, which decides if they warrant
further investigation. A supplementary anti-money laundering law is being
prepared for submission to Parliament in 1999, which will, among other
provisions, extend the STR requirement to casinos. The Committee refers
STRs to the Financial Crimes Enforcement Unit (SDOE), a multiagency
group which functions as the investigative arm of the Committee. Should
SDOE find evidence of possible criminal violation, it sends the STR back to
the Committee, which then prepares the case for the public prosecutor's
office. At present, the Committee and SDOE are still in the process of
defining their relationship and the coordination process. The Committee
stated that during the first nine months of 1998, it received 200 STRs, 20
of which were ultimately referred to the public prosecutor.
The Central Directorate of SDOE is in the process of preparing a
comprehensive report on money laundering in Greece which will examine how
the anti-money laundering law is functioning; what the banking sector is
doing to comply with STR requirements; practices, techniques, and
methodologies of money laundering in Greece; and how the Greek experience
conforms to international standards. This report will be provided to U.S.
authorities when it is ready, probably in mid-1999.
Greece is a member of the FATF and the Council of Europe. The Committee
participates in the Egmont Group of FIUs.
Grenada (Other). There has been little evidence of money laundering in
Grenada, but new vulnerabilities have been created by the government's
rapid and relatively unsupervised venture into offshore services. Like
other Caribbean jurisdictions, Grenada has sought revenue by competing for
offshore dollars, and in 1996 it passed the International Companies Act
(Amended 1996), the Offshore Banking Act 1996, the International Trust Act
1996, the Offshore Insurance Act 1996, and the Company Management Act
1996. The Minister of Finance reviews applications and issues
licenses for offshore banks. Grenada also offers economic citizenships
and Internet gaming licenses. As of spring 1998, Grenada had issued ten
offshore banking licenses, six Internet gaming licenses, and nine economic
citizenships. The Registrar of Offshore Services, which in 1998 consisted
of one person, supervises the sector.
The Government of Grenada (GOG) has indicated that it will lift
confidentiality restrictions for legitimate requests in relation to money
laundering and drug trafficking investigations. In May 1996, the GOG signed
mutual legal assistance and extradition treaties with the United States.
The United States ratified the MLAT in January 1999, but the treaty is not
yet in force.
Grenada is a member of the CFATF. It is scheduled to undergo a CFATF mutual
evaluation from 8-12 November 1999.
With the new venture into financial services, the Government of Grenada
should move quickly to develop and implement strong anti-money laundering
laws to avoid an escalation of financial crimes and money laundering
abuses. Particular attention should be focused on due diligence
investigations of offshore bank applications.
Guatemala (Concern). Guatemala continues to be a significant part of the
drug transshipment route from Colombia to the United States. The potential
for money laundering remains very high due to the lack of laws specifically
designed to combat it, as well as the weak monitoring and control of
financial transactions. The openness of the economy, along with the lack of
economic and financial regulation, the volume of foreign exchange
transactions, and the widespread availability of false identity documents
suggest that money laundering is taking place. The Government of
Guatemala (GOG) also has problems with tax evasion and corruption.
The 1992 Narcotics Law outlaws any attempts to disguise the proceeds from
drug-related activities, and it is frequently cited as an adequate tool for
combating money laundering. However, there has never been a prosecution or
conviction for money laundering under this law. The supervision of banks
and other financial institutions is inadequate, and financial regulators
lack the resources to effectively monitor banks' activities. There are
minimal transaction reporting requirements but no mechanism in place to
routinely collect and analyze the information. Although the Guatemalan
Bankers Association has claimed that its internal controls are
sufficient to prevent money laundering, there is no evidence of this.
In fact, a number of high-profile cases involving corruption, smuggling,
forgery and narcotics trafficking suggest that moving large amounts of
illicit funds through the financial system has not been too difficult for
the perpetrators of numerous serious offenses.
For the past two years, a comprehensive anti-money laundering law, based on
the OAS model and consistent with models in other Latin American countries,
has been presented to the legislature. However, bankers and other groups in
the private sector continue to oppose this legislation, mainly because it
would allow financial information to be made available to investigative and
law enforcement entities. The United States has urged Guatemala to adopt
this comprehensive anti-money laundering legislation and has
provided ample support for this initiative, but the GOG has been
The GOG needs to enact legislation that meets international standards to
effectively combat financial crime and money laundering. Guatemala should
also consider becoming an active member of the CFATF and establishing a
financial crimes investigative unit.
Guernsey (Primary). The Bailiwick of Guernsey is a UK Crown Dependency
composed of the islands of Guernsey, Alderney, and Sark, among others. Drug
money laundering is a crime in Guernsey, and legislation is pending to
extend this to all crimes. The new legislation would allow for the tracing,
restraining and confiscation of proceeds of all crimes including tax
Guernsey has a large offshore insurance sector that provides captive and
life insurance products to non-resident companies. It also offers special
tax incentives to attract international business. Guernsey licenses and
regulates both open- and closed-ended collective investment schemes, and
plans to extend this control to other forms of investment businesses. In
1998, Guernsey introduced the Channel Islands Stock Exchange, which is
regulated by the Financial Services Commission.
Guernsey was a subject of the 1998 UK Review of Financial Regulation in the
Crown Dependencies. The report commended the dependencies for what they had
already done but suggested various legislative and regulatory improvements
which might be made. In Guernsey's case, one of the deficiencies cited was
the fact that the Guernsey Financial Services Commission does not have the
power to search and seize when irregularities are discovered.
Guernsey has proposed a "safe harbor" law, which would protect those who
report suspicions about money laundering, and it is also considering a
statute, which would prohibit insider trading. The authorities also plan to
require all companies administered or operating on the island to be subject
to licensing and to declare beneficial ownership.
The Guernsey Joint Police and Customs Financial Investigation Unit serves
as the financial intelligence unit and participates in the Egmont Group.
Guernsey is a member of the OGBS and has agreed to undergo a mutual
Guernsey should enact its all-crimes anti-money laundering legislation as
soon as possible.
Guyana (Other). Guyana is not an important regional financial center and
there is no evidence of major money laundering activity. However, the
country's porous borders, the government's lack of resources and internal
political conflicts, combined with the absence of laws to combat money
laundering, make the country increasingly vulnerable to such activity. In
addition to narcotics trafficking, contraband smuggling generates funds
that are laundered. Currency exchanges, which are essentially unregulated,
facilitate laundering in Guyana. Drug money may also be laundered through
the acquisition of real property and in other investments. In 1997, the
Government of Guyana (GOG) investigated the illegal export of large
quantities of gold, which was suspected to have been purchased with
narcotics proceeds. However, in one important case, charges against
seven prominent businesspeople were dropped after the GOG mysteriously
failed to compile an adequate case against them.
Guyanese law requires that funds over $10,000 imported into or exported out
of Guyana be reported to government authorities, 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 as the sole
financial regulator and extended the coverage of legislation, regulations
and penalties to all deposit-taking institutions. However, at this time
there are no laws requiring banks or other financial institutions to know,
record, or report the identities of customers engaging in large currency
transactions, or to maintain transaction records.
Anti-money laundering legislation was drafted in 1997 but is still pending
in the legislature. The Money Laundering (Prevention) Bill criminalizes
money laundering related to narcotics and other serious crimes, and it
allows for the expansion of predicate offenses. The bill establishes
requirements for reporting suspicious transactions by financial and non-
financial institutions, as well as cross-border transaction reporting. It
requires confidentiality in the reporting process, provides a "safe harbor"
for good faith reporting, and contains provisions for asset forfeiture,
international cooperation, and extradition for money laundering. The bill
also creates a Supervisory Authority to receive financial disclosures and
supervise financial institutions' activities to prevent and detect
The proposed legislation falls short of the FATF Forty Recommendations and
the amended OAS Model Regulations on Money Laundering in several respects,
specifically in the reporting of large cash transactions and transactions
by non-bank financial institutions.
Guyana should rejoin and become an active player in the CFATF. It should
also submit to a mutual evaluation by the CFATF.
The government of Guyana needs to move quickly to pass this legislation,
implement regulations, and establish the Supervisory Authority to work with
international authorities to help fight money laundering in Guyana and the
region. Guyana also needs to become an active member of the CFATF.
Haiti (Concern). Haiti's already weak democratic and economic institutions
have been further weakened by a political impasse since June 1997,
rendering the country more vulnerable to drug trafficking, corruption, and
Although large-scale money laundering probably does not occur in Haiti
because of the country's weak economic and political sectors, banking
executives anecdotally report some money laundering activities. In addition,
the Royal Canadian Mounted Police, in the course of an investigation into a
Haiti-Quebec cocaine ring, discovered a money laundering operation. Haitian
currency exchange houses, which are essentially unregulated, are also
vulnerable to money laundering.
In 1997, the Ministry of Justice drafted anti-money laundering legislation
and updated counternarcotics legislation. If enacted, these laws would
criminalize drug-related money laundering, establish procedures for asset
seizure and forfeiture, impose customer identification requirements, and
mandate suspicious activity reporting. However, consideration of these laws
and all other legislation has been halted pending the selection of a
Haitian Prime Minister. Given its vulnerability, the Government of Haiti
needs to enact and enforce comprehensive anti-money laundering legislation
if it is to protect its territory and its financial sector from
the increased threat of narcotics trafficking, financial crime,
and money laundering.
Honduras (Concern). Honduras is neither a major financial center nor an
offshore tax haven. However, narcotrafficking organizations continue to
exploit Honduras as a transit point for drugs moving into the United
States. The sudden and unexplained purchase (often with cash) of land,
buildings, vehicles, and expensive consumer goods may represent the
proceeds of drug trafficking and other criminal activities (stolen vehicles,
contraband, alien smuggling, kidnapping) entering the economy. U.S.
investigations indicate that money exchange services, travel agencies,
banks and stolen car rings are among the money laundering venues in use in
The Government of Honduras (GOH) has detected these trends and publicly
acknowledged the possibility of widespread money laundering activities. The
December 1997 anti-money laundering law has not proven effective, as it
applies only to narcotics-related money laundering. Additional legislation
was passed in 1998 permitting the use of undercover operations and
wiretapping in narcotics investigations, which should greatly assist in
enforcing the 1997 law. Regulations were also issued requiring banks to
report transactions over $10,000, and exchange houses to report all
transactions, regardless of amount, to the National Banking Commission.
Reforms have been introduced in the Congress to extend the criminalization
of money laundering to include other serious crimes, and stronger
legislation to allow for the seizure and forfeiture of assets is expected
to be enacted in 1999.
The Superintendent of Banking regulates commercial banks, savings and loans
and exchange houses in Honduras. Non-bank financial institutions are
authorized to operate by the Superintendent of Banking and are subject to
supervision by the central bank. The four casinos in Honduras are
Despite the arrest of judges, police officials and military personnel for
their participation in the illicit narcotics trade, corruption still
constitutes a major problem in all aspects of national life and is a major
deterrent to the effective enforcement of available laws.
Honduras is making slow but steady progress in the fight against money
laundering. The GOH needs to enhance its anti-money laundering program by
criminalizing money laundering for all serious crimes and implementing an
effective anti-money laundering regime .
Hong Kong (Primary). Hong Kong, even after its reversion to China,
continues to be a major international financial center providing a wide
range of services to local and international clients. It is Asia's second-
largest financial market and a premier offshore banking center. The
financial markets in Hong Kong have a high degree of liquidity and in
general are effectively regulated. There are no restrictions on capital
flows into and out of Hong Kong, and no exchange controls. Because of
China's closed banking policies, Hong Kong frequently serves as a broker
for China in the offshore banking arena.
The Hong Kong Monetary Authority (HKMA) regulates the estimated 344
authorized banking institutions in Hong Kong, while the Insurance Authority
and the Securities and Futures Commission serve as the regulatory bodies
for those respective industries. All three groups impose licensing
provisions and conduct background checks on prospective applicants, and the
supervisory system is generally well-regarded. Hong Kong's estimated 150
money changers and 300 remittance agents are largely unregulated at present,
although they technically fall under Hong Kong police supervision with
respect to money laundering. However, legislation to regulate the industry
is expected to be introduced sometime in 1999. Issues being considered
include customer identification and record-keeping requirements, as
well as registration of both remittance agents and money changers.
In the area of banking, financial institutions are required to record the
identities of their customers and to report customer information when
requested by the authorities. They must also report suspicious transactions
to the Joint Financial Intelligence Unit (JFIU) for review and
investigation. From January through mid-November 1998, over 4,700
suspicious transactions were reported to the JFIU. To encourage suspicious
transaction reporting, the JFIU provides periodic feedback to financial
institutions on their submissions, and also makes available trend reports
and sanitized case histories. The JFIU can release information to its
foreign counterparts, with the understanding that the information
can be used only for investigative purposes, not as evidence,
without further authorization upon written request.
Money laundering related to drug trafficking and other serious crimes,
including organized crime, is a criminal offense in Hong Kong. Drug
trafficking is considered the most significant source of illicit proceeds,
although Hong Kong authorities have also identified loansharking, gambling,
and smuggling as potential sources. The institutions most commonly used for
laundering funds include banks, remittance agents, secretarial companies,
and shell companies (although the latter have been required since 1997
to implement strong customer identification policies to ascertain
Methods used by money launderers in Hong Kong include bank accounts held in
the names of the launderer's friends or paid employees, or opened with
forged documents; the layering or structuring of funds among accounts; bank
accounts in the names of shell companies, or the use of offshore shell
companies themselves; and international cash couriers. The bulk movement of
cash is also widely used. An extensive unregulated underground banking
system is used to move drug proceeds throughout Asia. Underground bankers
often have accounts at area banks under the names of their businesses.
A new mutual legal assistance ordinance became effective in February 1998,
which has greatly enhanced Hong Kong's capacity to assist foreign criminal
law enforcement agencies. The ordinance can also be used as a tool to
combat money laundering, especially in cases where Hong Kong is being been
used as a conduit or hiding place for illicit assets. Hong Kong has signed
an MLAT with the United States. It was ratified by the United States Senate
in January 1999, but it is not yet in force.
At a December 1998 seminar organized for the Hong Kong Association of Banks,
representatives of several U.S. agencies gave presentations on United
States anti-money laundering efforts, emphasizing the importance of
threshold deposit and currency entry/exit reporting requirements, both of
which Hong Kong lacks. This impedes the efforts of Hong Kong law
enforcement authorities to combat money laundering. The bankers, led by the
Hong Kong Monetary Authority, opposed the threshold reporting requirement,
calling it costly, ineffective, and inappropriate for Hong Kong as a cash-
based society. Hong Kong government officials admitted, however, that
additional legislation is needed to address money laundering by non-
bank financial institutions such as remittance and foreign exchange
Hong Kong is a party to the 1988 UN Drug Convention. It is a member of the
FATF and has implemented most of the FATF Forty Recommendations. A FATF
team visited Hong Kong in 1998 to review its progress; the team's report
will be discussed in the FATF plenary early in 1999. Hong Kong is also an
active member of the OGBS and the Asia Pacific Group on Money Laundering.
Hong Kong has in place a strong anti-money laundering regime. However, it
needs to enact cross-border currency controls in order to be better
equipped to deal with the massive flows of currency into and out of its
economy. It should also consider requiring the reporting of large cash
transactions. United States law enforcement officials suggest that Hong
Kong take a more proactive approach to investigations of money laundering.
Hungary (Primary). Money laundering is a significant problem in Hungary for
two major reasons--the strong presence of organized crime and the
ineffectiveness of Hungary's anti-money laundering regime. The activities
of foreign and domestic organized crime groups have become pervasive.
Organized crime undermines government institutions through corruption, and
criminal proceeds are invested in many sectors of the Hungarian economy.
Organized crime syndicates are attracted to Budapest in particular because
of the good infrastructure, a well-developed financial system, and the
city's geographical location allowing easy travel to both Western and
Eastern Europe. An April 1998 conference sponsored by the Hungarian
National Criminology and Crime Research Institute examined the issues
associated with money laundering, including the success of laws to counter
it. It was reported at the conference that although more than 2,
000 suspicious transaction reports have been filed by Hungarian
financial institutions since 1994, only four cases of money laundering
have been initiated. Hungary has had no successful prosecutions
for money laundering.
In launching a new anti-organized crime assistance program for Hungary, the
United States will provide expertise to assist in developing and
implementing money laundering legislation.
Hungary is planning other measures to address organized crime and money
laundering. The Hungarian Parliament is debating the creation of a tax
police force to combat tax evasion and fraud. Hungary also plans to outlaw
anonymous bank accounts, according to a statement made by Ministry of
Finance officials. In 1998, Hungary underwent a mutual evaluation conducted
by the Council of Europe's PC-R-EV. The evaluation's findings will be
discussed and published in final form during the June 1999 plenary of
the PC-R-EV. The final report will provide detailed suggestions
to improve Hungary's anti-money laundering program.
Hungary's financial intelligence unit, the Money Laundering Section of the
Hungarian National Police (ORFK-MLS), is a member of the Egmont Group.
Iceland (Other). Money laundering has not yet become a problem in Iceland,
but the government has taken proactive steps by enacting legislation to
combat it. Icelandic regulators take their anti-money laundering
responsibilities seriously and are committed to supervising the compliance
of institutions within the requirements of the legislation. Suspicious
transaction reporting is required and the reports are sent to the
Rikisssaksoknari, which serves as Iceland's financial intelligence unit
Iceland is a member of the FATF and adheres to the Forty Recommendations
that have been set out by that body. It is also a member of the Council of
Europe. The Rikisssaksoknari participates in the Egmont Group of FIUs.
India (Primary). The extent of money laundering in India is unknown. The
country is not a major international financial center, although Bombay
(Mumbai) is a regional financial center. Substantial volumes of drug money
laundering are not apparent. The most significant sources of laundered
money in India are financial crimes (including tax evasion) and corruption.
Although money laundering is not a criminal offense per se, those suspected
of hiding funds can be prosecuted for income tax evasion, or
under sections of customs or foreign exchange regulations. Also,
current law stipulates that persons opening a bank account must
present photographic identification, and transactions over the
equivalent of $1,000 cannot take place in cash. All transactions over $2,
400 must be reported to bank management, which then decide whether
to notify the authorities. The Government of India (GOI) has issued
administrative instructions to financial institutions to report suspicious
transactions, but they are under no legal obligation to do so, although
they enjoy "safe harbor" protection if they do.
The GOI completed drafting its anti-money laundering legislation in late
1997 and introduced it into Parliament in mid-1998, but as of late 1998, it
had not passed. This legislation calls for full criminalization of money
laundering, requires reporting of all transactions over approximately $62,
000, and contains provisions for increased international cooperation in
money laundering investigations. Passage of this legislation is tied to
passage of other legislation dealing with foreign exchange transactions.
The new legislation seeks, in part, to consolidate anti-money laundering
efforts in India. India already has several pieces of legislation that
address various aspects of money laundering, particularly the Smugglers and
Foreign Exchange Manipulators Act, the Narcotic Drugs and Psychotropic
Substances Act, the Benami Transactions Prohibition Act, the Customs Act,
the Foreign Exchange Regulation Act, the Income Tax Act, and the Banking
Act. Each of these Acts is administered by a different department of
the GOI, and there is no single authority to coordinate anti-
money laundering efforts or to serve as a central repository for
information on money laundering. India's central bank, the Reserve Bank
of India, and some of the larger banks, such as the State Bank
of India, have also instituted various policies, both in India
and abroad, to combat money laundering.
India has cooperated with law enforcement authorities of the United States
and other foreign countries in the freezing of accounts and by exchanging
information. Travelers bringing into, or taking out of, the country the
equivalent of $10,000 or over must make a customs declaration. The assets
of persons convicted of crimes may be frozen or forfeited; however, those
who have been only arrested are not subject to forfeiture and have ample
opportunity to hide their assets. By law, forfeited assets may not be
shared with other countries.
A great deal of legitimate business in India is conducted on a cash basis.
Large cash transactions are not considered unusual or suspicious. In
addition, the hawala/hundi alternative remittance system is often used to
conduct licit and illicit domestic and international transactions because
it is faster, cheaper, and more reliable than traditional banking channels.
Even though most hawala transactions are illegal under existing Indian law,
hawala is by no means "underground" in India.
The hawala system operates either with few, if any, records, or with
records that are kept in code, so illicit transactions are often
essentially undetectable, making investigations difficult, if not
impossible. In addition, the hawala "networks" that are often established
specifically for criminal activities are highly resistant to infiltration
by law enforcement authorities. It is only in rare cases like the "Jain
Hawala Case," where diaries detailing the transactions were seized, that
any significant progress can be made in conducting an investigation.
The GOI and the United States are currently cooperating on several hawala
investigations. In one, hawala is being used to launder the proceeds of
alien smuggling; in another, it is being used to move the proceeds of
illegal securities transactions.
An important aspect of the hawala system is the connection with Dubai,
where unregulated foreign exchange businesses have been shown to play a
significant role in licit and illicit transactions. These transactions do
not always involve India. Discussions with Indian law enforcement and
regulatory officials have also indicated that Dubai provides very little in
the way of investigative cooperation.
The United States should continue to encourage the GOI to enact and
implement its proposed money laundering legislation, which, based on
information available, seems to be an excellent first step. In addition,
the two sides should continue to address the hawala alternative remittance
system and its implications for international money laundering.
India is a member of the Asia Pacific Group on Money Laundering.
Indonesia (Primary). Indonesia's money laundering problem is growing
rapidly. Inadequate legislation, strict bank secrecy laws, and strategic
geographical location all combine to leave Indonesia vulnerable to money
laundering. It is alleged that ex-President Suharto laundered money
extensively while amassing a large fortune in overseas bank accounts.
To revitalize national economic activity, and to regain public confidence
in the country's banking industry, the Indonesian government took measures
in late August 1998 to rebuild the banking system through recapitalization,
tightening laws, and enforcing prudential regulations. In October 1998, the
Indonesian parliament passed a law permitting foreign investors to own 100
percent of an Indonesian bank. The law requires banks to be more
transparent about their financial conditions and limits their right to
refuse to disclose information on the accounts of their clients. It makes
Bank Indonesia, the central bank, more independent from the Finance
Ministry and empowers it to oversee banks' activities in general,
including mergers among or creation of new banks.
The extent to which money laundering in Indonesia involves narcotics is
unknown. One United States law enforcement agency estimates that $500,000
is laundered weekly in Jakarta by West African and Southeast Asian
trafficking organizations. The illicit proceeds enter Indonesia via West
African couriers who transport the money via commercial airlines.
Indonesia is not a party to the 1988 UN Drug Convention. The Indonesian
government has not directly addressed the problem of money laundering.
Indonesia should take prompt action to enact and enforce anti-money
laundering legislation, which complies with international standards, along
with financial regulations, which will prevent fraud and abuse of the
banking system. Development of a strong anti-money laundering regime will
aid in the restoration of confidence in the Indonesian financial system.
Although it is not a member, Indonesia actively participates in activities
sponsored by the Asia Pacific Group on Money Laundering.
Iran (Other). Iran is not considered a financial center, and it has no
specific laws against money laundering. The United States considers Iran a
state sponsor of international terrorism, which requires laundered
"operating" funds. In addition, Iran's border with Afghanistan makes it an
important transit country for drugs entering the European market. UNODCCP
reports that Iranian law enforcement officials carry out financial
investigations in the context of drug crimes. However, asset and property
confiscation are difficult, since proof of ownership is required before
articles can be seized. Traffickers therefore divest themselves of
nominal ownership of property to relatives and friends to thwart law
The Iranian real estate market is widely used as an alternative remittance
system similar to the hawala system. Real estate transactions take place in
Iran, but no funds change hands there. Instead, payments are made overseas.
In many cases this is done because of the difficulty in getting funds out
of Iran and the relative worthlessness of Iranian currency. In at least one
case, however, the real estate market was used to facilitate the laundering
of drug funds under the cover of legitimate businesses.
Iran's Foreign Minister told the UN General Assembly in June 1998 that his
country is a party to all international drug control treaties.
Iraq (Other). There are no anti-money laundering laws in Iraq, and there is
little hard information available on the extent of money laundering which
may take place there. The once-powerful Rafidain Bank has not regained its
former position of prominence following the Gulf War and the imposition of
UN sanctions. The Iraqi currency, the dinar, is practically worthless on
the world market. (In actuality, there are two versions of the dinar
in circulation: the "old" dinar, with pictures of historic
Iraqi monuments, is worth about half of one U.S. dollar; the "new" dinar,
with Saddam Hussein's picture on it, is worth about 1/2,000 of one U.S.
dollar. The Iraqi government simply prints more new dinars as needed,
further devaluing it.) A former Iraqi official stated in late 1998 that
Saddam Hussein has set up a widespread network of front companies in Jordan,
Lebanon, Cyprus, and the northern part of Iraq itself to launder funds
which are then used to purchase arms.
In September 1998, press reports stated that the British Secret Service had
broken up a money laundering ring in which associates of Saddam Hussein had
persuaded Iran, supposedly Iraq's sworn enemy, to "launder" Iraqi oil by
exporting it as Iranian oil. These associates also used a network of front
companies to smuggle the oil to the west. Daily earnings of up to $1.5
million per day were deposited in Jordanian banks and used to buy
weapons. Also according to press reports of mid-1998 (citing
Uruguayan intelligence officials), Saddam has been using the financial
systems of Uruguay and Argentina to launder money, as follows: the
Iraqi Central Bank sends dinars into Jordan, where they are converted
into dollars which are then sent through the financial systems of Lebanon
and Cyprus to Uruguay and Argentina. Citizens of these two nations
reportedly deposit the money in their own accounts in return for
commissions. These "clean" accounts are then used to purchase arms, which
are smuggled into Iraq through Beirut. The operation is masterminded by
Iraqi front companies recently established in the Cypriot port of Limassol.
Ireland (Concern). The Republic of Ireland is an emerging financial center.
Money laundering is acknowledged as a problem, with a 50 percent increase
in the number of reported suspicious transactions and an estimated figure
of $126 million in suspected laundered funds in 1998. Offshore banking,
although growing, is still relatively underdeveloped. According to the
Bureau of Fraud Investigation, Ireland's financial intelligence unit (FIU),
only four percent of suspicious disclosures concern operations of
the International Financial Services Center.
Irish government and supervisory authorities view money laundering as a
priority. Money laundering is a criminal offense in Ireland whenever it is
related to criminal activity. Banks, money brokers, providers of services
in futures and options, post offices, credit unions, stockbrokers and
bureaux de change must report suspicious transactions and any transactions
over the equivalent of $15,000. The requirement is expected to be extended
to solicitors, accountants, estate agents and auctioneers in the near
future. Records adequate to reconstruct financial transactions must be
maintained for a "sufficient" amount of time. There is "safe
harbor" protection under the law.
Ireland's asset seizure laws have been used frequently since their adoption
in 1996, and Irish authorities report that the amount of seized and
forfeited assets has dramatically increased in the past year. The
government is currently awaiting a parliamentary commission report that
contains recommendations to increase regulatory controls on financial
institutions. Such recommendations may result in new legislation in 1999.
The "due diligence" and "banker negligence" laws are under review by this
Ireland is a member of the FATF and the Council of Europe. Its FIU
participates in the Egmont Group.
Isle of Man (Primary). The Isle of Man (IOM) offshore sector offers a wide
range of services, including asset-sheltering trusts, international
business corporations, and corporate bearer shares and certificates. As a
Crown Dependency, the IOM was subject to a review of its financial
regulatory regime in 1998 as part of the UK Review of Financial Regulations
in the Crown Dependencies. Following this review, the IOM has made
substantial legislative changes in the money laundering arena.
In June 1998, All Crimes Anti-Money Laundering Provisions were introduced
as primary legislation which carries a maximum penalty of 14 years. In
December 1998, the All Crimes Anti-Money Laundering Code (Criminal Justice
Act 1990) came into force. This new code requires customer identification
and the maintenance of these documents, record retention for five years,
and the reporting of suspicious transactions, as well as staff training.
The law covers all regulated financial businesses, bureaux de change,
estate agents, casinos, betting shops, company and trust service providers,
as well as accountants and lawyers. The Isle of Man Fraud Squad serves as
the financial intelligence unit and is the recipient of suspicious
As is the case in the UK, IOM authorities will be able to cooperate with
overseas authorities in search and seizures, restraint and confiscation of
assets in cases where the predicate crimes would be indictable if committed
in the home jurisdiction. The all-crimes legislation will also allow the
disclosure of information relating to suspicious transaction reports to
similar overseas authorities. Once all of these measures are in place, the
Isle of Man will be in compliance with the major international money
A new Banking Act was also enacted in 1998, which widens offenses to
include misleading statements or practices and significantly widens
international regulatory cooperation.
The Financial Supervision Commission (FSC) will be responsible for company
registration, Companies Act investigations and insider dealing
investigations. It is also expected that in 2000, the FSC will be
responsible for regulating corporate service providers. All of these
providers will be required to adhere to compliance testing, with no
grandfather clause for those currently providing this service. This means
that any licensable activity will be subject to regulation.
The FSC has also written draft Guidance Notes concerning money laundering
prevention and the "know-your-customer" principle. The Notes are expected
to be issued in final form is the near future.
The Isle of Man is a member of the OGBS, and the Isle of Man Fraud Squad
participates in the Egmont Group of FIUs.
Israel (Primary). Most observers believe a significant amount of money is
laundered in Israel each year, but no reliable estimate can be given.
Significant numbers of Russian and Eastern European international crime
figures began to emigrate to Israel in the early 90s, drawn by liberal
immigration laws and, in some cases, using forged documents. According to
press and other reports, these transplanted criminals engage in money
laundering and other criminal activities such as tax and health care fraud,
extortion, and arms and narcotics trafficking. Their absorption into
and operations in Israel are facilitated by the common language
and culture they share with their fellow Russian-speaking émigrés
in Israel, who number about one million. The Government of Israel (GOI)
itself in 1996 identified a list of 35 major crime bosses from Russia and
Ukraine who had established a presence in Israel and were laundering the
proceeds of their European operations. (Although occasional reports surface
of Russian criminals consorting with members of the Knesset, there is no
indication that organized crime figures have infiltrated the apparatus of
government). These mobsters in many cases have laundered money by investing
in legitimate businesses and property in Israel or by channeling money to
various locations around the world. The banking system is thought to
be a major venue for money laundering because of strong bank
secrecy laws, although Israel is not considered a tax haven, a
regional financial center or an offshore banking center.
As of January 1999 money laundering was still not an independently
prosecutable crime in Israel. A 1989 asset forfeiture law allows for the
seizure and forfeiture of the assets of convicted drug traffickers,
including legitimate businesses, which launder money. The law is difficult
to apply, but in 1998 $6 million of assets were seized and $250,000 were
forfeited, a marked increase from the previous year. The banking community
cooperates with law enforcement (insofar as it can in the absence of anti-
money laundering legislation) to trace funds and seize bank accounts.
A proposed anti-money laundering law, which is considered a strong one by
U.S. officials and has the support of Israeli law enforcement, has been
stalled for several years. It is due to be brought up again for
consideration in early 1999. However, a senior Israeli official stated in
October 1998 that in view of recent political and security developments in
the Middle East, it was impossible to predict whether, or when, the bill
would pass. In addition, the upcoming elections make it likely that the
money laundering bill will be pushed even further into the background. Some
Knesset members may be reluctant to support the bill because they
think it might be viewed as targeting Russian immigrants, who
constitute a large segment of their constituency.
The proposed law makes money laundering a crime, with penalties of up to
ten years in prison and heavy fines. It designates a wide range of offenses
as predicates for a money laundering charge, including drug offenses,
extortion, forgery, trafficking in arms and persons, dealing in antiquities,
counterfeiting, and gambling. The Israeli banking industry, which is now
known for its laissez faire approach to controls, would be required to
institute customer identification procedures and to maintain transaction
records for a set period of time. Banks and other financial entities
(such as insurance companies and money exchangers) would also be
required to report to the police suspicious transactions, including
large currency transactions. Financial institutions, which comply
with all regulations, will not be subject to prosecution under
the proposed law. It would also set up a financial intelligence
unit (FIU) within the Ministry of Justice, to receive the suspicious
transaction reports. Finally, the law would require travelers entering or
leaving Israel to report cash or monetary instruments in their possession
if the amount is approximately $9,000 or more. Casinos are not covered
under the legislation. However, the only large casino is in Jericho, which
is under the jurisdiction of the Palestinian Authority. The casino caters
to a largely Israeli clientele.
The GOI has used its asset forfeiture law creatively to allow the
international sharing of information on the flow of drug-related assets. A
U.S.-Israeli MLAT was signed and ratified in 1998 but has not yet entered
into force. However, the United States and Israel already cooperate and
exchange MLAT information in connection with law enforcement investigations,
as permitted under existing U.S. and Israeli law..
As a first step, the GOI should secure passage of the proposed anti-money
laundering legislation and implement an effective money laundering regime
to protect against money laundering, financial crime and the expansion of
organized crime in Israel.
Italy (Primary). Italy has a large financial sector, although the country
itself is not considered to be an important regional financial center.
Italy is a drug consumption and transshipment point for western European
nations, and thus a site for the laundering of drug proceeds. The primary
money laundering threat in Italy comes from organized criminal groups,
located mainly in the southern part of the country. They engage in
narcotics smuggling (in which South American drug traffickers are also
believed to be involved), extortion, usury, kidnapping, and illegal
immigrant smuggling. The collapse of the Soviet bloc has strengthened links
between Italian organized crime and its Russian and Albanian
counterparts. Much of the illicit money is funneled into commercial and
financial entities in Italy and abroad, including the bank and non-
bank financial sector. The fight against money laundering in
Italy is therefore centered on this area. Money launderers are
reportedly buying up large amounts of real estate in Italy, especially
hotels in resort areas, and are exporting large amounts of their ill-
gotten gains to other countries in Europe for similar purchases.
The increasing openness of the European market is likely to heighten
this activity. The illegal gold market is also believed to be heavily used
by money launderers. Money laundering activity in Italy was estimated
informally in 1997 to total over $50 billion annually.
The Italian government in 1997 passed its newest piece of legislation aimed
at combating money laundering, Act. No. 153, which contained four vital
features. First, it designated the Ufficio Italiano dei Cambi (UIC) as the
recipient of suspicious transaction reports, which had previously gone to
local police precincts and then to various authorities. The UIC thus
functions as the financial intelligence unit (FIU) of Italy. After
receiving and analyzing the suspicious transactions (and storing them in a
unified computer archive), it forwards them to the appropriate law
enforcement agency, either the Anti-Mafia Directorate or the Guardia di
Finanza, for action if deemed necessary. Second, the law authorized the
creation of an interministerial commission to coordinate anti-money
laundering activities among the large number of Italian law enforcement
and regulatory agencies, which are involved in the effort. Third,
the new law ensures the confidentiality of anyone reporting a suspicious
transaction. Fourth, it establishes organizational links between the
financial, investigative and judicial authorities in regard to organized
crime, and encourages law enforcement, judicial, and administrative bodies
to facilitate international cooperation on money laundering.
Italy's anti-money laundering law requires the identification of clients,
the recording of significant transactions, which are defined as those above
the equivalent of $11,500, and the compulsory reporting of suspicious
transactions. It also limits the use of cash in banking transactions. In
addition, any crossborder transfer of funds in amounts exceeding $11,500
must be reported. About thirty million such transactions a month are the
object of scrutiny, which is accomplished via the aid of sophisticated
computer hardware operated by the UIC. Non-bank financial institutions such
as stock brokerages, exchange houses, and insurance companies are
subject to the law as well as banks. Italy is considering extending
the reporting requirement to entities now excluded, such as casinos
and notaries. Another loophole is unregistered deposit books of under $11,
500, which allow launderers to shield assets.
Italy is committed to enforcing its anti-money laundering laws. In late
July 1998, Italian law enforcement officials launched a massive police
operation aimed at a wide range of business entities laundering money
across Italy. These businesses were accused of setting up front companies
in the adjoining Republic of San Marino and hiding criminal proceeds by
issuing false invoices. Authorities estimate that the amount of money
laundered annually in this scam amounted to more than $1.4 billion.
In July 1998, the Italian Minister of Justice announced plans to examine
and review Italy's money laundering laws with an eye to "making any
necessary adjustments and filling in the loopholes" in the area of
organized crime. He added that more prevention in the economic field was
needed, as well as more cooperation with banks, noting that while in the
past money laundering was related primarily to drug trafficking, it is now
much more extensive. The Interior Minister stated in July 1998 that the
introduction of the new European single currency would facilitate money
laundering and that coordinated action among European nations was
In the international arena, Italy has served as president of the FATF and
underwent a successful second round FATF mutual evaluation in 1997. The UIC
is an active member of the Egmont Group. Italy has a number of bilateral
agreements with foreign governments in the field of investigative
cooperation on drug trafficking and organized crime, including a very
successful MLAT and an extradition treaty with the United States. The
Italian government has in place an established system for tracing, freezing,
seizing, and confiscating assets, which under Council of Europe procedure
it is committed to sharing with other governments with which it cooperates.
Civil forfeiture is permitted as a precautionary measure apart
from criminal conviction.
Italian-U.S. law enforcement cooperation on money laundering cases has been
described as exemplary, and the joint working of cases is common. However,
Italian prosecution can be lengthy. In addition, under Italian law a person
may be charged with money laundering only if he did not play a role in the
underlying predicate offense, which means the United States cannot obtain
extradition of someone for trial on both money laundering and the
underlying offense. Conversely, Italian prosecutors do not always identify
the underlying offense when charging someone with money laundering, which
can prevent the United States from responding to an Italian extradition
request, since such information is necessary under U.S. law.
Jamaica (Concern). Jamaica is not considered an important regional
financial center, offshore center or tax haven. However, it is very
attractive to drug smugglers and vulnerable to money laundering due to its
status as a source and transit country for narcotics and to its large
tourism industry. The DEA reports that illicit proceeds from narcotics
trafficking are being laundered in Jamaica, primarily by exchanging large
amounts of currency for high value items such as automobiles, car rental
establishments, and real estate investments.
The Government of Jamaica (GOJ) made some progress in the fight against
money laundering in 1998. The GOJ had enacted weak money laundering
legislation in 1996, which did not criminalize the laundering of proceeds
of all serious crimes nor require the reporting of suspicious transactions.
In January 1998, the regulations for the Money Laundering Act came into
force. These regulations encouraged financial institutions to report
suspicious transactions, but did not require them to do so. The GOJ is in
the process of amending the Act to require the mandatory reporting of
suspicious transactions and to increase the currency reporting threshold to
$50,000. The amendment was passed by the House of Representatives in
December and is awaiting final passage by the Senate.
The GOJ is currently developing a financial analysis unit (FAU) to combat
financial crimes and to assist in the implementation of its anti-money
laundering program. The unit, whose budget has already been approved, will
be responsible for receiving, analyzing, and developing information from
suspicious activity reports. The GOJ is in the process of selecting
personnel for the FAU and has requested the United States to provide
training and technical assistance to develop a computer system to analyze
and manage the suspicious transaction and currency disclosure reports.
The proposed mandatory reporting of all suspicious transactions, in
conjunction with the development of an FAU, indicates that the GOJ is
taking steps to combat money laundering. However, as a member of the CFATF,
the GOJ still needs to criminalize money laundering beyond narcotics-
related offenses in order to fulfill its CFATF obligations and strengthen
its anti-money laundering regime.
Japan (Primary). While there are no precise estimates concerning the scope
of money laundering in Japan, there is reason to believe that the amounts
involved are substantial. The principal sources of these laundered gains
are drug crime and fund-raising offenses (illicit gambling, extortion,
violent crime, abuse of legitimate corporate activities, and all types of
property related crimes) committed by criminal organizations, e.g., the
boryokudan. The Japanese National Police Agency estimates that the
boryokudan's illegal activities generate annually several billion dollars
in proceeds which then must be laundered.
Until recently, the Japanese Government had focused its attention on
combating only drug 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. 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 have severely limited the law's
effectiveness. Few investigations and prosecutions into suspected money
laundering have been undertaken by Japanese police and prosecutors. As of
October 1998, police had applied the money laundering law in only eighteen
cases. The largest of these cases originated in September 1997, when
police in Osaka arrested a boryokudan leader who had received $1.3
million in drug proceeds from junior gang members. In February 1998,
the Osaka District Court, in the first use of the provisions of
the money laundering law which proscribes the receipt of illicit
drug proceeds, imposed a penalty of $1.3 million on the boryokudan
The anti-drug money laundering legislation of 1991 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. Since 1992, police have seized approximately $6.3
million in drug proceeds in 82 investigations. The seizures are believed to
account for only a small fraction of the estimated $3.5 billion earned
through illegal drug sales in Japan.
While the police appear to be highly motivated to conduct money laundering
investigations, they often lack valuable tools to assist their efforts. In
addition, law enforcement and prosecutors must become more proactive in
their approaches to detecting and prosecuting money laundering. Additional
measures, such as the creation of independent financial investigatory units
within the National Police, improved cooperation among law enforcement and
the Financial Supervisory Agency and its soon-to-be-created financial
intelligence unit, as well as the use of special investigation methods
such as electronic surveillance, will greatly assist in the fight
against money laundering.
The comprehensive Anti-Organized Crime Law (AOCL) continues to be stalled
in the Japanese Diet. Enactment of the law would significantly alter the
current situation in Japan with respect to money laundering. Among the
provisions contained in the crime package are: (1) an expanded definition
of money laundering to include approximately 200 drug and non-drug related
predicate offenses; (2) the extension of the confiscation laws to include
the additional money laundering predicates and value-based forfeitures; (3)
the authority to conduct legal electronic surveillance; and (4) the
authority to establish a financial intelligence unit to collect and analyze
Pending the adoption of the AOCL, Japan's current legal anti-money
laundering provisions are virtually ineffective because of the limited
scope of the money laundering predicates and the direct tracing
requirements placed on law enforcement. In addition, the low level of
suspicious transaction reporting by Japanese financial institutions
indicates an obvious weakness in Japan's anti-money laundering system.
While the cash intensive nature of the Japanese economy may contribute to a
lower level of suspicious transaction reporting than western economies, it
is difficult to understand why an economy of Japan's size, and with its
drug problem has not resulted in a more reasonable level of disclosures.
Japan is a member and the current President of the FATF. It is also a
member of the Asia Pacific Group on Money Laundering.
Jersey (Primary). The Bailiwick of Jersey is a Crown Dependency of the UK.
Jersey began to market itself as an offshore financial center in the mid-
sixties and, according to an official UK report, has since registered 79
blue chip banks and 62 major trust and finance houses. Bank deposits stand
at $170 billion, and collective investment funds under management amount to
Jersey was a subject of the 1998 UK Review of Financial Regulation in the
Crown Dependencies. The report praised the dependencies for what they had
already accomplished, and suggested further steps, which might be taken.
Jersey is beginning to address many of the issues cited in the report.
In December 1998, the States of Jersey passed all-crimes money laundering
legislation. Enactment is expected in early 1999. Guidance noted are
expected to be issued shortly to the industries affected. This new
legislation will allow authorities to trace, restrain and confiscate the
proceeds of all crimes, including tax evasion.
One of the main difficulties with Jersey fraud legislation in the past has
been the requirement that international requests for cooperation in cases
involve more than $3.4 million. This threshold has now been abolished,
which should allow for an increase in the number of international
investigations being initiated.
The new legislation will require all financial institutions, trust and
company administrators, accountants and lawyers to report suspicious
transactions to the Joint Police and Customs Financial Investigation Unit.
It also requires that these sectors know their customers.
The Jersey Financial Services Commission (established in 1998) will be
addressing other areas where difficulties still remain. It is anticipated
that companies administered or operating on the island, but incorporated
elsewhere, will be required to register and declare beneficial ownership in
the same way as locally incorporated companies.
Jersey's Financial Investigation Unit participates in the Egmont Group.
Jersey is a member of the OGBS and has agreed to undergo a mutual
Jersey should move to enact the proposed all-crimes anti-money laundering
legislation now before its Parliament.
Jordan (Other). Money laundering is a concern but not a major problem,
since Jordan is not a major financial center, and foreign exchange entities
are regulated by the government. There is a cash economy among nomadic
Bedouin tribesmen involving narcotics distribution, but the Jordanian
government has no estimate of its size. The only major instances involving
Jordan with money laundering took place in 1992 and 1993, when
investigators accused the Arab Bank in Amman of taking deposits of over $5
billion from Iraq in order to create a new trading entity for Saddam
Hussein's government to purchase embargoed goods. Local bankers in
Amman quietly confirmed that they were financing Iraqi imports
through Jordan and trading in Iraqi commercial paper. Also in 1992,
the Central Bank of Jordan was accused of laundering secret Iraqi
funds in Switzerland through such entities as the Iraqi Finance Corporation
and the Jordanian Gulf Bank. The central bank denied the accusations.
Jordan is a party to the 1988 UN Drug Convention, but has no anti-money
laundering laws in place and no plans to enact any. However, in June 1998
the General Director of the National Bank of Jordan stated that Jordanian
banks have realized the impact money laundering has on a nation's economy,
and the central bank has instructed Jordanian banks to be on the lookout
for customers making "dubious transfers." The banks have been told to be
particularly careful when dealing with exchanges made in foreign currency,
especially if the levels are unusually high or if the bank has no
information about the source of the funds. Another banking official has
stated that although in his view money laundering was not yet
widespread in the Jordanian banking system, it would probably become so
unless anti-money laundering legislation is enacted.
Jordan needs to take steps to enact anti-money laundering legislation in
order to protect its financial system from abuse.
Kazakhstan (Other). An advanced financial infrastructure, enormous
petroleum and mineral reserves, and a high level of organized crime and
corruption all make Kazakhstan vulnerable to money laundering. Abuse of its
mineral wealth by criminal elements is of particular concern--Kazakhstani
authorities estimate that $10 billion in illegal raw material exports have
occurred through illegal joint ventures. There are currently an estimated
125 organized crime groups operating in the country, and according to
senior Kazakhstani security officials, these groups maintain links to, and
learn more sophisticated techniques from, organized crime groups
in Europe and the United States. Infiltration of the Kazakhstani
economy by foreign criminal groups from Russia and Uzbekistan is a
particular danger. These groups target banks, casinos, and businesses
engaged in food processing, distilling, and trade in export commodities
such as grain. Kazakhstan is also a leading transit country for the
trafficking of narcotics from South Asia. Foreign organized crime groups
use Kazakhstan as a base of operations for narcotics heading to Russia and
Kazakhstan is waging a vigorous war against corruption. In June 1998 the
president vowed to root out graft and nepotism and to restore the
reputation of government officials. The following month Kazakhstan adopted
an anti-corruption law. In September 1998, the president appointed a senior
aide to head the National Security Committee in an effort to improve the
effectiveness of national anti-corruption efforts. Corruption charges have
been brought against a number of officials in the prosecutor's office,
judiciary, tax authorities, customs, and Ministry of Internal Affairs. In
September 1998 the president dismissed a minister and a regional leader for
abuse of official office, and called on enforcement agencies to more
effectively crack down on public corruption.
Although Kazakhstan criminalized money laundering in 1998, anti-money
laundering legislation has not been adopted. Enactment of such legislation
and implementing regulations is essential to effectively combat money
laundering and financial crimes in Kazakhstan.
Kenya (Other). Kenya has been home to all types of smuggling along its
coastline for generations. However, only recently has the political
leadership decided that money laundering may occur through smuggling
activity, as well as in the banking sector, where bearer financial
instruments such as certificates of deposit and bonds have been available
for purchase. Kenya has decided to eliminate the availability of the bonds,
effective June 1999. A contributing factor in the decision to take stronger
steps against money laundering was the realization that there was
significant investment in short-term high-yielding instruments, which
caused financial stresses on the economy.
The President of Kenya has issued a statement denouncing money laundering.
Kenya heretofore had been very reluctant to advance any legislation that
would have even the remotest effect on foreign investment. Other steps
taken by the government include measures to strengthen the role of the
Central Bank of Kenya in supervising the banking sector. There is still no
comprehensive anti-money laundering legislation that criminalizes money
laundering beyond narcotic drugs.
In July 1998, the East African Cooperation Council, of which Kenya is a
member, indicated it planned to hold a regional conference on money
laundering. The conference is tentatively scheduled to take place in mid-
Korea (Republic of Korea) (Concern). South Korea is not a major drug money
laundering country. However, there have been reports in previous years of
both Nigerians and Colombians entering the country with thousands of U.S.
dollars in bulk cash, although linking these incidents with specific drug
shipments has proven difficult. There is also a problem with abuse of the
real name financial transaction system, through which South Koreans
are "borrowing" legitimate names to carry on dubious transactions.
Currently South Korea does not have any anti-money laundering legislation.
Amid the latest rise in money smuggling, the Korea Customs Service declared
war on smugglers, invoking its right to investigate and prosecute firms and
individuals. The crackdown targeted all types of money smuggling and
international money laundering. A new computer system is expected to be
operational in 1999, which will provide customs officials access to the
foreign exchange holdings and transactions of any corporation or
In February 1998, the Organization for Economic Co-Operation and
Development (OECD) reported that the Korean government had finalized a plan
to reform the central banking and financial supervisory systems during a
special session of the National Assembly in December 1997. The central bank
has the right to request information necessary for the implementation of
monetary policy from financial institutions and the financial supervisory
bodies. It also has the right to request a supervisory body to inspect
commercial banks and to implement corrective measures. If necessary, the
central bank may also request joint inspections.
The Financial Supervisory Commission (FSC) has become a special juridical
entity and is responsible for the inspection, audit and sanction of
financial institutions. The Chairman of the Financial Supervisory Board
holds the position of head of the FSC.
South Korea joined the Asia Pacific Group on Money Laundering in March
South Korea needs to enact anti-money laundering legislation meeting
international standards to protect its financial services industry from
financial crime and money laundering.
Kuwait (Other). Although Kuwait has not yet enacted anti-money laundering
legislation, Kuwait's Central Bank in June 1997 ordered domestic banks to
take measures to prevent money laundering, including checking clients'
identities and the nature of their business. The banks are also to inform
the central bank of all cash deposits exceeding $13,000, as well as notify
authorities about any "irregular" fund transfers. The Governor of the
central bank has denied that Kuwait's banks are involved in money
laundering, but stated that these measures were being taken to forestall
any such attempts. Kuwait's banking sector is composed of six commercial
banks, two specialized banks, one Islamic bank, and one branch of a Bahrain-
A senior official in Kuwait's Ministry of Finance stated in late 1998 that
the Kuwaiti government had drafted anti-money laundering legislation, which
was currently being examined by an interministerial committee. He could
provide no estimate of when the legislation might be submitted to the
As is the case with the other members of the GCC, Kuwait is represented in
the FATF by virtue of the GCC's membership in that body.
Kuwait needs to continue development and subsequent implementation of anti-
money laundering legislation that meets international standards.
Kyrgyzstan (Other). Money laundering is a potential threat in Kyrgyzstan.
The major source of illegal proceeds in Kyrgyzstan comes from its role as a
transit country for narcotics and arms trafficking, and from crossborder
smuggling. The Minister of Interior has stated that the majority of the
tobacco, alcohol, and gasoline imported into Kyrgyzstan is brought in
illegally. The smuggling of goods and narcotics across Kyrgyzstan's borders
is relatively easy.
Money laundering is not perceived to be a major problem through
Kyrgyzstan's financial system, but laundering of locally-derived criminal
proceeds is facilitated by the cash-based nature of business transactions,
the gray economy, corruption, and the presence of organized crime groups.
There is no anti-money laundering legislation in Kyrgyzstan. The central
bank has instituted provisions on customer identification and suspicious
transaction reporting for banks, but bank oversight is minimal.
The President of Kyrgyzstan has become a major proponent of the eradication
of corruption. He has given the go-ahead for strict actions aimed at
eradicating corruption at all levels and has issued a decree establishing a
coordination council on economic crime and corruption.
The level of crime and corruption, and absence of anti-money laundering
laws, encourage a climate favorable to money laundering and other financial
crimes in Kyrgyzstan. The Government of Kyrgyzstan needs to act
expeditiously to enact legislation as the foundation for an anti-money
Laos (Other). Laos is not a major Asian financial center. The poor economy,
however, may drive illegal activity and cause money launderers to take
advantage of Laos's lax financial system. Effective money laundering
legislation will require an underlying body of banking regulations, most of
which do not exist. The UNODCCP is assisting Laos in developing this
framework, as well as in drafting basic anti-money laundering legislation.
In May 1998, six Asian nations agreed to take strong measures against drug
trafficking and abuse that have become a major threat to the region. A
statement issued at the end of a two-day drug control meeting in Hanoi
indicated that anti-drug officials from Cambodia, China, Laos, Burma,
Thailand, and Vietnam signed a 14-point joint declaration in which they
agreed, among other things, to enforce laws, combat drug-related money
laundering, and boost information sharing.
Continued efforts to pass anti-money laundering legislation are necessary
to protect the Laotian financial system against criminal abuse.
Latvia (Concern). Latvia remains vulnerable to money laundering due to its
role as a commercial center and to its central geographic location in the
Baltic region, which attracts organized crime groups from Lithuania, Russia
and Central Asia. These groups use Latvia as a base of operation or as a
refuge. Latvia is also a transit country for narcotics trafficking and
smuggling, and Latvian banks are reputed by officials in neighboring
countries to facilitate the laundering of questionable proceeds originating
in those countries.
Corruption and abuse of power are widespread among Latvian officials,
according to a World Bank study, which also indicates that bribery is most
prevalent among customs officials, traffic police, and the judiciary.
Latvia's defense minister and a top military commander were dismissed in
October 1998 for misappropriation of state funds.
According to U.S. law enforcement sources, proceeds laundered in Latvia are
usually sent abroad, primarily to Russia, The Netherlands, France, Sweden,
and Switzerland. Wire transfers flow to both Eastern and Western Europe.
Cash movements are exclusively bound for Russia. One method used to launder
money is from the illegal sale of oil or natural gas: a foreign company
opens a subsidiary company in Latvia, then opens a shell corporation in an
offshore zone. The subsidiary orders a payment transfer from the shell
corporation to the subsidiary's company account in a Latvian commercial
bank. When the funds arrive, they are withdrawn in U.S. dollars
and sent to the seller of the oil or gas in Russia.
In December 1998, the European Commission released its annual progress
report on potential EU members in which it states that while Latvia has
made progress in combating corruption, it remains an important problem. The
report also noted that Latvia has more work to do in the reform of public
administration and in the judiciary.
Latvia has enacted legislation to support its anti-money laundering
efforts. Amendments to the criminal code made money laundering a criminal
offense, and the Latvian Parliament in December 1997 adopted anti-money
laundering legislation, which became effective June 1, 1998. The
legislation created a suspicious transaction reporting system that includes
criteria on suspicious transaction indicators. It also provides for the
establishment of a financial intelligence unit, the Office for the
Prevention of the Laundering of Proceeds Derived from Criminal Activity
(Control Service for short), which is subordinate to the Prosecutor's
Latvia's anti-money laundering program is still in the early stages of
implementation, but the legislative framework appears to be in conformity
with international anti-money laundering standards. Initial assessments of
the implementation of Latvia's anti-money laundering program reveal certain
areas that need to be addressed. These include the general lack of interest
by financial institutions in providing information on suspicious
transactions and the need for increased training of government officials
involved in the anti-money laundering program.
Latvia is an active participant in international and regional anti-money
laundering efforts such as the Council of Europe's PC-R-EV, and is
scheduled to undergo a mutual evaluation by that body in the year 2000.
Latvia seeks to establish working relationships with other foreign agencies
involved in combating money laundering.
Lebanon (Primary). An anti-narcotics bill, which criminalizes narcotics-
related money laundering and makes it easier for the government to
prosecute launderers was approved by the Lebanese Parliament on March 6,
1998, and went into effect three weeks later. The law had been under
consideration for at least two years. The law contains a provision for the
seizure of assets and provides for piercing bank secrecy on a case-by-case
basis. It does not require the reporting of suspicious or large
transactions. The legislation is generally considered inadequate for
combating money laundering, and the Government of Lebanon (GOL) needs to
enhance its legislation to meet international standards to effectively
combat financial crime and money laundering. At the GOL's request, the
United States provided technical assistance in developing the 1998
legislation, and we will provide similar assistance to craft the next steps
in legislation to combat money laundering.
One of the major obstacles to enactment of an effective anti-money
laundering law in Lebanon is its long tradition of bank secrecy. The head
of the Lebanese Bankers' Association denied that there is any money
laundering in Lebanon, stating that his banks have "taken steps"
(unspecified) to combat it. Government supervision of banking activities,
through regular examinations and the 1997 Due Diligence Convention, is
comprehensive on paper, but sanctions for non-compliance are weak.
Government officials concede there may be some drug money laundering, but
argue that the small size of the Lebanese economy renders it
unattractive to money launderers. They also insist that bankers'
"personal knowledge" of their customers serves as a curb to money
laundering. This stance by the bankers probably reflects their desire to
reinstate Beirut as a financial center in the Middle East, a position
it occupied until the devastating civil war of the 1970s and
1980s. The banking industry likely believes that maintaining the
tradition of bank secrecy makes Lebanon more attractive as a regional
Lebanon is in the process of trying to revive its once-flourishing offshore
sector. The services offered by Lebanon's offshore sector are advertised on
Lebanon is a party to the 1988 UN Drug Convention. However, the GOL
expressed reservations about the sections of the Convention pertaining to
bank secrecy. Lebanon is an observer in the OGBS, having lost its full
membership status when it refused to undergo an OGBS mutual evaluation.
Liberia (Other). Liberia is not a financial center, and money laundering is
not considered a significant problem at this time. Liberia does have an
offshore sector, which is used as a shipping registry. Bearer shares are
permitted in company formation. A company located in the United States
manages the offshore sector.
Liechtenstein (Primary). Liechtenstein continues to be one of the world's
leading offshore financial centers, which makes it vulnerable to money
laundering. Liechtenstein offers a variety of offshore services and
products, including anonymous accounts, bearer shares, and insurance and re-
insurance company formation. Notice of these services can be found on many
Internet websites. Liechtenstein is not part of the English common law
tradition and, therefore, does not provide asset protection trusts
(APTs) as defined in the explanatory notes to the Offshore Financial
Centers chart. Liechtenstein's Anstalt is an offshore trust with a potent
difference. Unlike most trusts, the Anstalt is a commercial entity capable
of doing business. It can make the settler of assets the ultimate
beneficiary, thereby undermining the fundamental notion of a trust--its
irrevocability. Similarly, while Liechtenstein does not offer international
business corporations, it provides for the formation of exempt companies,
which serve a similar purpose. Liechtenstein, taking advantage of its
geographic location vis-à-vis other offshore countries, is
developing a stronger offshore, as well as onshore, sector. While
Liechtenstein's extremely rigorous bank secrecy laws can make cooperation
difficult. Liechtenstein's cooperation with the United States has been
Money laundering, both drug-related and non-drug-related, has been a
criminal offense in Liechtenstein since 1993. Asset forfeiture legislation
is also in place. A Due Diligence Act, in effect since January 1997,
implements the EU Directive on money laundering. Under the Act, financial
institutions, insurance companies, investment firms, fiduciaries and
attorneys have a legal obligation to report suspicious transactions.
Customers must be identified and beneficial ownership information must be
on file. In November 1998, Parliament abolished the requirement that a
transaction be greater than approximately $10,500 for money laundering to
be considered a crime.
As a member of the European Economic Area (EEA), Liechtenstein has
incorporated much of the EEA legislation into its laws, but its financial
services are not affected. Foreign banks are allowed to set up branches in
Liechtenstein, and foreign attorneys or fiduciaries can establish
businesses as long as they follow the ethics listed in the EEA statutes.
Currently the EU is pushing for tax harmonization within the Union, which
could lessen the advantages for those who choose to put their monies in
Liechtenstein is not a party to the 1988 UN Drug Convention and is not a
member of the FATF. Liechtenstein is a member of, and an active participant,
in the Council of Europe's PC-R-EV, and is scheduled to undergo a mutual
evaluation in the year 2000.
Lithuania (Other). Money laundering remains a problem in Lithuania, which
is a transit country for narcotics trafficking and smuggling, and for the
transfer of funds of questionable origin. Illegal proceeds are laundered
through Lithuanian banks in international money laundering schemes. In
court papers filed in Canada, Lithuanian bank accounts linked to YBM Magnex
International are implicated in a $multimillion dollar scheme to launder
organized crime proceeds. The scheme involves banks and businesses located
in Russia, Lithuania, Hungary, and the United States. Domestic and foreign
organized crime groups are active in Lithuania and account for the
majority of money laundering activity in the country.
Corruption has been an ongoing enforcement concern. Since Lithuania
instituted an anti-corruption program in 1997, 171 corrupt public officials
have been dismissed, according to the deputy director of Lithuania's
Department of Special Investigations, Ministry of Internal Affairs. The
depth of corruption was illustrated in November 1998, when the director and
deputy director of Lithuania's tax police department resigned after the
Cabinet of Ministers issued a negative performance assessment. The tax
police department has responsibility for investigating financial crime,
including tax and money laundering offenses.
Lithuania has made significant progress in its legislative efforts to
develop an anti-money laundering framework. Money laundering is now an
offense under the criminal code, and the Lithuanian Parliament adopted anti-
money laundering legislation in 1997, which became effective January 1,
1998. The legislation establishes a suspicious transaction reporting system
that includes the automatic reporting of transactions or a series of
related transactions exceeding $12,500 and also establishes criteria on
suspicious transaction indicators. The legislation also provides for
the establishment of a financial intelligence unit, the Money
Laundering Prevention Division, which is subordinate to the Tax Police
Department, Ministry of Internal Affairs. As of October 1988, two money
laundering investigations had been opened, and six preliminary
investigations were underway.
Lithuania's anti-money laundering program is still in the early stages of
implementation, but the legislative framework appears to be in conformity
with international anti-money laundering standards. The Government of
Lithuania has proposed several amendments to Parliament to strengthen the
law. However, government officials as well as financial institution
employees need training to make the anti-money laundering program work.
Initial assessments indicate that commercial banks are reluctant to provide
information on suspicious transactions, which is an experience encountered
by many countries in the early stages of implementing anti-money
Lithuania is an active participant in international anti-money laundering
efforts. In 1998 Lithuania underwent a mutual evaluation conducted by the
Council of Europe's PC-R-EV. The final report will be published in 1999.
Luxembourg (Primary). Luxembourg in 1998 passed a comprehensive money
laundering law which expands the crime of money laundering to include the
proceeds of kidnapping, prostitution, child exploitation, arms trafficking
and organized crime. It also imposes reporting duties and potential
liability on finance sector professionals, insurance employees, notaries,
accountants and casino employees. Prior to the passage of the new law,
narcotics crimes were the only legal grounds for a money laundering offense,
so it is unclear whether narcotics offenses will continue to be the
predicate offenses for the majority of money laundering offenses. In the
past five years there have been ten money laundering investigations
and one conviction.
Luxembourg, an important regional financial center, offers offshore
services and favorable tax treatment, and has strong bank secrecy laws.
These factors, which make for an attractive banking environment, also
present money laundering opportunities. Previously Luxembourg's financial
sector had been a major recipient of laundered funds. In the past several
years, however, the Government has exerted efforts into reducing money
laundering by vigorously cooperating with foreign law enforcement
authorities, tightening reporting requirements and strengthening
The government of Luxembourg (GOL) licenses offshore banks and businesses,
which are vetted by the Luxembourg Central Bank (formerly the Luxembourg
Monetary Institute). All foreign institutions applying for a license must
indicate that they are already established in a foreign country and have at
least $10 million in capital, and they must keep at least $7.2 million on
deposit in Luxembourg banks. Banks are required to undergo yearly audits,
but most are audited twice per year. National law sets minimum capital
requirements, which are strictly observed. Luxembourg authorities have
refused licenses to businesses failing to meet minimum legal
requirements. Minimum capital requirements also exist for other businesses
in the finance sector, and investment funds are also regulated
through the Luxembourg Central Bank. Luxembourg has 215 offshore banks,
1,440 offshore trusts, 94 insurance companies and 254 reinsurance
companies. Luxembourg offers bearer shares for companies and businesses
operating within its jurisdiction.
In Luxembourg, notaries, lawyers, company auditors and financial
consultants all advise people how to set up companies and accounts and how
to shelter assets. Such advice is primarily used by people who wish to
avoid taxes. Because Luxembourg's legal system is not rooted in the English
common law tradition, its trusts are not asset protection trusts (APTs) as
defined in the Offshore Financial Centers chart. However, both its trusts
and exempt companies serve the functions of APTs and international business
corporations. Under the 1998 money laundering law, all these professionals,
with the exception of lawyers, are required to know the identities of their
clients and report suspicious transactions. However, because tax evasion is
not a crime in Luxembourg, there is a significant risk that money
launderers may gain access to sophisticated financial services in
Luxembourg simply by representing themselves to be interested in tax
Money laundering occurs in both the banking system and the non-bank
financial system. According to the government, in 1997, 65 banks reported
suspicious transactions while only five financial professionals did so. In
the past several years, banks have appeared to be more actively
discouraging large suspicious transactions which would trigger the
reporting requirement. This is consistent with increased awareness among
banking professionals of the legal reporting requirements and the legal
liability for those who do not comply with these laws.
Luxembourg and United States law enforcement authorities continue to
cooperate closely in counternarcotics and judicial matters, particularly as
they relate to money laundering. The most recent statistics show that,
since 1994, the GOL has seized approximately $25 million in money
laundering assets in response to foreign government mutual assistance
Luxembourg is a party to the 1988 UN Drug Convention and has signed an MLAT
and an extradition treaty with the United States, which have not yet
entered into force. It also participates in the FATF and the Council of
Europe, and its FIU is a member of the Egmont Group.
Although Luxembourg's anti-money laundering law has been greatly
strengthened, there is still no obligation to report suspicions of money
laundering if an institution refuses a transaction or closes an account. An
amendment requiring reporting on these types of actions would be extremely
useful in strengthening the existing law.
Macau (Concern). Macau is a Portuguese dependency, which will revert to the
People's Republic of China on December 20, 1999, when it will become a
Special Administrative Region of China similar to Hong Kong. Crime has
already taken a toll on Macau's economy, which is heavily dependent on
gambling and tourism; more than a quarter of the territory's gross domestic
product comes from gaming. The government earns half its revenue from
gambling taxes, which declined in April to a three-year low. Macau is
conducive to money laundering because of strict bank secrecy laws.
Asian organized crime and drug trafficking groups are suspected of
using Macau's unregulated casinos to launder money. Russian organized
crime has reportedly also emerged in Macau.
According to reports of January 1998, Macau is aiming to establish itself
as a financial center by deepening and broadening the range of financial
services it currently offers. However, the existing banking sector is
unsophisticated, with none of the attributes of a modern financial center
such as an independent capital market. A banking ordinance was passed in
July 1992 allowing the establishment of development banks, and the sector
was opened up to foreign competition. In 1993 six major international banks
were granted full banking licenses, and three Portuguese banks were
granted offshore banking licenses. By December 1998 there were 21 banks,
eight of them local and the other 13 incorporated abroad.
Macau's Financial Systems Act of 1993 requires financial institutions to
record suspicious transactions and to cooperate with police investigations.
A proposed anti-money laundering bill reportedly pending in the legislature
would impose prison terms of up to three years for money laundering.
Macau actively participates in regional meetings of the Asia Pacific Group
on Money Laundering, despite not being an official member.
Macau needs to enact and enforce anti-money laundering legislation meeting
international standards to protect against financial crime and money
Madagascar (Other). Although Madagascar is not a major financial center,
there is credible information that international criminal syndicates are
present there. Such a presence suggests money laundering operations could
develop in Madagascar, as law enforcement, border, and financial control
systems are very limited.
Malaysia (Concern). Malaysia is occasionally used as a transit country for
illicit proceeds. The country's offshore center, Labuan, has conditions
conducive to money laundering, but there is little evidence to confirm that
large scale money laundering is taking place.
Malaysia's economy has suffered in the past year due to the economic crisis
in Asia. After the government announced tighter restrictions on the ringgit,
a black market in the currency blossomed in the border towns of southern
Thailand, threatening Kuala Lumpur's efforts to insulate its economy. Using
techniques employed by ethnic-based banking systems and money launderers,
black marketers have set up front companies in Thailand and Malaysia.
Malaysians who want to illegally transfer large amounts of money out of
the country deposit ringgit at a black market exchange company
on the Malaysian side of the border, receiving a coded sheet of
paper in exchange. Leaving the country with an amount of cash well
below legal limits, the Malaysian presents the coded sheet of
paper to the corresponding black market company in Thailand and is
given Thai baht for the ringgit deposited in Malaysia.
Malaysia is known for its offshore banking center in Labuan. There are 1,
809 offshore companies in banking, insurance and trust funds operating in
the Labuan International Offshore Financial Center, which was set up in
February 1996. The total assets of offshore banks in Labuan as of May 1998
totaled $24 billion. The Labuan Offshore and Financial Services Authority
(LOFSA) from time to time issues regulations, such as in 1996 when it
distributed guidelines concerning money laundering to Labuan banks.
Meanwhile, to prevent money laundering activities, offshore banks are
required to conduct stringent customer background checks before opening an
account. Offshore banks are not allowed to issue bearer shares.
Amendments to Malaysia's securities law, which took effect in April 1998,
allow the Securities Commission (SEC) to charge those accused of insider
trading with harsher civil and criminal penalties and to obtain damages
from them based on a "balance of probabilities". Corporate lawyers view the
new powers of the SEC as significant. One lawyer stated, "Before, the SEC
could not use the information from nominee accounts in their prosecution.
Now they can circumvent Malaysia's banking secrecy laws."
Malaysia actively participates in regional meetings of the Asia Pacific
Group on Money Laundering, despite not being an official member.
The government of Malaysia recognizes the problem of money laundering, but
failed to pass comprehensive anti-money laundering legislation in 1998.
Malaysia needs to pass such legislation and to implement adequate oversight
of the LOFSA to prevent it from being abused by criminals for money
Maldives (Other). The Maldives is not a significant money laundering
center. Some individuals in the Maldives hope to establish the country as
an offshore financial center, but its banking laws were written long ago
and there are currency controls in place.
The Maldives has no laws specifically addressing money laundering or asset
forfeiture. It is not a party to the 1988 UN Drug Convention
Malta (Other). The Government of Malta (GOM) first addressed money
laundering with the passage of the Prevention of Money Laundering Act of
1994, which criminalized money laundering and imposed a maximum fine of
approximately $2,633,000 and/or a prison sentence of up to 14 years for
those convicted of this crime. The Act defined money laundering in terms of
the 1988 UN Drug Convention and contained a list of predicate offenses,
ranging from bribery to arms trafficking and piracy. The Act also provides
for asset forfeiture. The Central Bank of Malta, also in 1994, issued the
complementary Prevention of Money Laundering Regulations, applicable to
financial and credit institutions, life insurance companies, and investment
and stock firms. The regulations impose requirements for customer
identification, record-keeping, the mandatory reporting of suspicious
transactions, and training of employees. Suspicious transactions reports
must be reported to the competent authority which supervises an
institution (in the case of banks, the Central Bank of Malta). Should
the authority find evidence of money laundering, it is required
to forward the report to the police.
Based on available information, Malta does not have a serious money
laundering problem. The crime rate is low, and the major sources of illegal
proceeds are drug dealing and fraud. However, Malta's bank secrecy laws and
tax code, which are designed to attract outside investors, especially with
those countries with which Malta has double taxation treaties (29 in force),
provide possible incentives for money laundering. The Maltese
Financial Services Centre (MFSC), which was founded in 1994, vies with
Luxembourg and Dublin in attracting financial services companies--as of
January 1999 it housed four licensed offshore banks, 14 credit institutions,
16 Malta-based collective investment schemes (mutual funds), and 84
overseas-based collective investment schemes. The head of the MFSC has
stated categorically that everything about the Centre is "clean" and that
investigators are welcome. The GOM decided in 1994 to phase out all
offshore operations by the end of 2004. Until the phase-out is completed,
however, Malta's offshore sector will face the same vulnerabilities to
money laundering as those faced by other nations with offshore facilities.
Malta is a member of the Council of Europe.
Marshall Islands (Concern). The Marshall Islands is an independent South
Pacific Republic, which allows both offshore banking and businesses. Its
offshore financial center (OFC) was created specifically to compete in the
"hot" new market developing in the South Pacific. There is no supervision
of the OFC, which offers international business corporations, other
exempt companies, bearer shares, and trusts, all of which provide
nearly impenetrable layers of protection against law enforcement
agencies. The offshore sector is advertised on the Internet.
The Marshall Islands has no central bank, and uses the United States dollar
as legal tender. The Marshall Islands has laws granting freedom from income,
asset, withholding, and stamp taxes to foreign entities, as well as to non-
resident corporations, partnerships, trusts, and unincorporated
associations. Asset protection features in the Marshall Islands Trust Act
state that a creditor suing to recover property from a Marshall Islands
trust on the grounds of fraud must do so within two years after either the
transfer occurred or the trust was settled (one year if the assets
were transferred to a Marshall Islands trust in the two years
before the plaintiff's cause of action arose). Even if the plaintiff
succeeds in proving that the trust was created with the intent to defraud,
the trust's liability is limited to the amount of money that would have
been available at time of transfer.
In view of the opportunities, which the current offshore climate provides
for money laundering, it is important that the Marshall Islands enact and
implement legislation criminalizing money laundering.
Mauritius (Other). Mauritius is a growing regional financial center with
ambitions to become the major financial center for the Indian Ocean and
Southern and Eastern Africa. Since passage of the Mauritius Offshore
Business Activities Act in 1992, over 7,000 offshore companies have been
formed. There is an Internet website that provides information to the
potential investor. The offshore sector is regulated and managed by the
Mauritius Offshore Business Activities Authority (MOBAA).
Mauritius promotes itself as a low tax jurisdiction whose offshore sector
serves as the gateway to investment in Asia and Africa. The majority of
Mauritius' offshore business is conducted with India. Mauritius' offshore
sector offers international business corporations, bearer shares, and asset
Regional money laundering probably occurs in both the offshore and onshore
sectors in Mauritius. The increasing incidence of heroin addiction in the
general population is an indication that narcotics trafficking, with its
attendant money laundering, is occurring on an increasing basis. Mauritius
failed to meet its self-imposed deadline of introducing the Money
Laundering Prevention Bill to Parliament by the end of 1998. Recently, the
Attorney General announced plans to introduce the bill when Parliament
returns from its summer recess in March 1999.
Mauritius is a member of OGBS.
Given Mauritius' broad offshore banking sector, it needs to adopt strong
anti-money laundering legislation to protect its financial services
industry and economy from criminals and criminal organizations.
Mexico (Primary). During 1998, Mexico advanced its efforts to implement and
enforce its 1996/97 anti-money laundering laws. Nonetheless, Mexico
continues to be the primary haven for money laundering in Latin America.
The smuggling of U.S. currency in bulk shipments into Mexico and the misuse
of Mexican bank drafts, drawn on U.S. accounts, continue to be favored
methods of money laundering. Mexico has financial institutions which engage
in currency transactions involving international narcotics trafficking
proceeds that include significant amounts of U.S. dollars. Further, as was
shown in the U.S. Customs Service-led Operation Casablanca, Colombian and
Mexican trafficking organizations continue to take advantage of Mexican
banks, casas de cambio, and smaller centros cambiarios--many of which are
unregulated--to introduce and later transfer their illicit proceeds
throughout the world's financial system. Despite recent positive steps by
the Mexican government to bolster its still fledgling anti-money laundering
regime, coopted Mexican bankers and corruptible government auditors
continue to stifle the implementation and enforcement of the recently-
instituted anti-money laundering regime.
Money laundering related to narcotics or other illegal activities has been
a criminal offense in Mexico since 1996. The key players for the
implementation and enforcement of the law--the Secretariat of the Treasury
(Hacienda y Credito Publico) and the Office of the Attorney General
(Procuraduria General de la Republica or PGR)--are working to improve
coordination. In April 1998, new regulations specifying the rules and
criteria for the reporting of large currency transactions and suspicious
financial activities went into effect. These regulations require financial
institutions to know their customers by identifying where the customers'
business is carried out and knowing the business history of the
individual or business. The penalties for financial institutions and
employees convicted of money laundering range from 5 to 15 years
imprisonment and may include substantial fines; fines and sentences for
Government officials may be increased by half. Hacienda implemented the
automated filing of currency transactions reports (CTRs) by the banks
to the Financial Investigations Unit (FIU) created in September
1997. During 1998, the FIU received more than four million CTRs,
prompting the need to upgrade the computer system to effectively
process and analyze these reports.
In January 1998, the PGR established a money laundering unit to carry out
enforcement activities such as executing search, seizure, and arrest
warrants. The PGR has indicated that it is developing a staff of in-house
money laundering experts to present cases before the Judiciary to establish
probable cause. In the past, the absence of these experts was a key factor
in the Government of Mexico's (GOM's) inability to obtain convictions.
Approximately 17 major simultaneous money laundering investigations were
conducted in 1998 by Hacienda and the PGR in cooperation with United
States government agencies. There was one money laundering conviction
in 1998, the first since the adoption of the May 1996 law.
In May 1998, the U.S. Departments of Treasury and Justice announced the
culmination of a United States Customs Service undercover money laundering
operation coded Operation Casablanca. This investigation targeted Mexico's
Juarez drug cartel and Colombia's Cali cartel. It resulted in arrests and
indictments against Mexican banks and bankers, and the seizure of $100
million in drug proceeds. While Operation Casablanca strained U.S.-Mexico
law enforcement relationships, it exposed and confirmed a long-standing
United States concern with the presence of corruption within the Mexican
banking sector. It also sent a strong message to the banking community on
the importance of knowing their customers. With assistance from
the United States, the GOM and the banking sector collaborated
in conducting a series of seminars and conferences for Mexican bankers,
regulators, examiners, and policy making officials on their obligations
under the money laundering law. Mexican officials have indicated that the
filing of suspicious activity reports by banks has significantly increased.
The GOM has also enhanced its efforts at cooperation with the international
community. The U.S./Mexico Money Laundering Working Group continues to be a
valuable forum for the exchange of ideas and reaching agreements on
training and technical assistance, information exchange, and joint
investigations. The Financial Information Exchange Agreement between the
GOM and the United States serves as a mechanism for the exchange of
information on currency transactions through financial institutions. The
GOM has expressed an interest in becoming a member of the Financial
Action Task Force and a Cooperating and Supporting Nation of the CFATF. As
part of the membership process, Mexico has agreed to undergo a mutual
evaluation of its anti-money laundering system and of its compliance with
the FATF Forty Recommendations.
Several weaknesses remain in Mexico's anti-money laundering program. The
customer identification provisions do not apply to possible third party
beneficiaries, which affects the large volume of transactions conducted by
individuals on behalf of the principal account holder. In addition, some
financial institutions are exempt from the reporting and record-keeping
requirements of transactions of $10,000 or more when the customer is
another financial institution (such as a currency exchange house). Although
Mexican law requires the reporting of the inbound transportation of
currency, there are no corresponding outbound reporting requirements. In
addition, in January 1999 Mexico increased the reporting threshold for
the inbound transportation of currency from $10,000 to $20,000.
The GOM has introduced legislation that would strengthen the
existing asset forfeiture regulations and allow Mexico to cooperate
with other nations in this fundamental area.
Moldova (Other). Extremely favorable money laundering conditions exist in
Moldova, and investigations confirm that such activity does take place. The
activities of organized crime in many sectors of the economy and the high
level of official corruption suggest a high prevalence of money laundering
activity, which is confirmed by United States law enforcement sources.
Several Moldovan banks regularly export large amounts of bulk currency
whose volume is not correlated to or justified by business transactions. It
is reported that several banks in Moldova exist solely to launder
Economic crime provides the bulk of laundered proceeds, primarily through
schemes to smuggle petroleum, alcohol, and tobacco into the country with
the intent of evading duties and other taxes. Corrupt border officials
facilitate these smuggling schemes. The unresolved political situation
regarding the Transdniestria region of Moldova facilitates smuggling.
Contraband goods are smuggled into Moldova through Transdniestria, over
which the Moldovan government has no de facto control. The under-invoicing
of goods and the use of fraudulent contracts to export credit are also
major enforcement problems. Avenues to launder proceeds also exist through
the gray economy, which is estimated to be 30-50 percent of the gross
Moldova has drafted anti-money laundering legislation, which, if adopted,
would meet international standards. The proposed law would mandate the
reporting of suspicious, large or unusual transactions by financial
institutions, as well as customer identification. Successful implementation
of the bill will require amendments to, or inclusion of, anti-money
laundering provisions in draft legislation of the Criminal Code, Criminal
Procedural Code, banking and commercial laws, and laws dealing with
investigative and prosecutorial agencies.
Moldova's participation in the Southeastern Europe Cooperative Initiative
(SECI) is a positive step in addressing the predicate crimes generating
illegal proceeds laundered in Moldova. Among SECI's goals are to control
the increasing flow of narcotics trafficking across borders and to close
the links to trans-border organized crime. In a September 1998 SECI meeting
held in Bucharest, Moldova initialed a draft agreement on cooperation to
prevent and combat trans-border crime. Cooperation with member SECI states
will assist Moldova's efforts to combat the predicate offenses that
generate illegal proceeds. Moldova has signed a number of bilateral
and regional agreements to combat organized crime, narcotics trafficking,
and financial crimes. In June 2000, Moldova has agreed to undergo a mutual
evaluation conducted by the Council of Europe's PC-R-EV. The evaluation
will provide an overall assessment of Moldova's anti-money laundering
program after its implementation.
Monaco (b). Tourism, casinos, and the banking sector sustain the economy of
Monaco. Despite its having enacted anti-money laundering legislation,
Monaco's strict bank secrecy laws and casinos make it vulnerable to money
laundering. It is also an attractive tax haven due to zero income tax and
low business taxes. There are 37 banks operating in Monaco, with most of
the banking sector based on portfolio management and private banking.
Monaco also is an offshore financial center, and permits the formation
of international business corporations.
A recent report claimed that Monaco has accepted the proceeds of organized
crime and tax fraud. There have been allegations that judges were
interfered with in conducting financial prosecutions, and the French
government has refused to extend the mandate of the principality's chief
prosecutor, who was suspected of being too lax in financial investigations.
Money laundering in Monaco is a crime. The Monegasque government has
established the Service D'Information et de Controle sur les Services
Financiers (SICCFIN), which serves as the financial intelligence unit to
collect information regarding suspected money launderers. On June 30, 1994,
Monaco tightened legislation to combat money laundering by obliging banks,
insurance companies and stockbrokers to report suspicious transactions, and
to disclose the identities of those involved. The law also stipulates that
casino operators must alert the government about payments for gambling
chips, which are suspected to be derived from drug trafficking or
organized crime. Another law imposes a 5-10 year jail sentence for
anyone using ill-gotten gains to purchase property.
Mongolia (Other). Mongolia is not a major money laundering center, but
organized crime, narcotics and arms trafficking, and smuggling generate
illegal proceeds. Mongolia's long borders with Russia and China are
difficult to control and thus make Mongolia a transit country for
In mid-1998 Mongolia law enforcement officials acknowledged to their United
States counterparts that most of Mongolia's enforcement problems are caused
by Russia and China. They confirmed that Mongolia is experiencing an
increase in organized crime, drugs and financial crime, and that Russia's
organized crime activities have found their way to Mongolia. Financial
fraud is occurring involving illegal transfers of money and public
corruption, including the police. Mongolian authorities expressed concerns
that money laundering and fraud will undermine the security of their
Montserrat (Concern). All financial and business activities on Montserrat
slowed dramatically after the eruption of its volcano began in 1995. The
Royal Bank of Canada is currently the only fully functional financial
institution on Montserrat, and is operating out of a temporary location.
However, a number of offshore financial services are being provided out of
As a British Overseas Territory, Montserrat is working closely with UK
officials to increase the regulatory and supervisory structure of the
financial system before Montserrat looks to expand its small offshore
sector in the next few years. The Financial Services Centre provides
supervision for offshore banks and international business corporations.
Montserrat is in the process of drafting all-crimes legislation, which
would criminalize all forms of money laundering and increase investigative
authority for financial crimes.
Montserrat is a member of the CFATF.
Morocco (Other). The Government of Morocco (GOM) maintains that Morocco is
unsuitable for large-scale money laundering, in view of its low-level
financial system and foreign exchange controls. However, a 1995 FATF
mission to Morocco concluded that the large volume of cash transactions in
Morocco, the absence of any obligation to report the import of foreign
currency, and the development of an offshore banking center at Tangier all
facilitated money laundering. Moroccan customs authorities stated at that
time that money was being laundered by the physical transport of cash
and the purchases of smuggled goods. The central bank, however,
considered that only money-changers (which are unregulated) posed any
threat of money laundering.
Observers believe that there is corruption in Morocco, which contributes to
the money laundering problem. Drug deals are also an important source of
illicit funds. Much of the laundering which does take place is believed to
be invested in real estate, especially in northern Morocco, where there has
been a construction boom--numerous unfinished high-rise apartment buildings
in Tangier are believed to have been financed by drug profits. However,
traffickers are reportedly looking for new areas to hide their funds as the
area is becoming sated.
Morocco is a party to the 1988 UN Drug Convention. However, the GOM has not
criminalized money laundering. There are a few measures intended to
preclude the use of the financial sector for money laundering: banks must
ascertain the identification of customers; anonymous accounts are not
allowed; and certain transaction documents must be maintained for a set
period of time.
The GOM needs to develop anti-money laundering legislation meeting
international standards to protect against financial crimes and money
laundering. The offshore financial center is particularly vulnerable to
financial crime without implementation of an effective anti-money
Mozambique (Other). Although Mozambique is not considered an international
money laundering haven, regional money laundering occurs involving illegal
proceeds generated in Mozambique and neighboring countries. Mozambique is a
known transit country for narcotics, arms, tobacco, alcohol, and other
consumer goods being smuggled into South Africa. Illegal gold and stolen
vehicles are smuggled from South Africa into Mozambique, and arms are
reportedly smuggled to Angola via Mozambique. According to reputable
estimates, 70 percent of Mozambique's consumer goods are smuggled into
the country because of high tariffs and official corruption.
According to U.S. law enforcement sources, the government of Mozambique
(GOM) in 1997 enacted an extensive anti-drug law; however, only one of its
94 articles addresses the financial crimes to which narcotics trafficking
can give rise. The GOM is reportedly organizing the drafting of anti-money
laundering legislation, but there is no evidence that it has progressed
beyond this stage.
In April 1998, the United States Embassy in Mozambique sponsored an anti-
money laundering seminar for the National Assembly of Mozambique.
Participants in the seminar included representatives of the United States,
the Financial Services Board of South Africa, and the FATF.
The GOM needs to enact and implement an anti-money laundering law that
meets international standards to protect against financial crime and money
Nauru (Concern). Nauru is an independent republic and an associate member
of the British Commonwealth. Nauru is an established "zero" tax haven--it
does not levy any income, corporation, capital gains, real estate,
inheritance, estate, gift, sales or stamp tax. The establishment and
management of Nauru trusts is handled by the Nauru Trustee Corporation,
which was established by charter of the Nauru Trustee Corporation Act,
1972. The Nauru Trustee Corporation acts as executor or administrator of
wills of nonresidents made in respect of such Nauruan property as shares,
debentures, or investments in Nauru or in Nauruan corporations. Nauru banks
are known for dealing in bearer shares, and for providing secrecy of
operations and anonymity.
Russian organized crime is increasingly exploiting Nauru's offshore
financial sector. One common scheme is to employ middlemen to open accounts
or charter banks in Nauru, to give the perception of legitimate business by
non-Russian entities (no Russian names attached to the bank and/or accounts,
or front companies). Many United States-based Asians use the offshore
banking facilities here. Tracking particular banks operating in Nauru is
difficult, however, since all banks have the same post office box.
Given Nauru's expansion into offshore banking, it needs to adopt strong
anti-money laundering legislation to protect its financial services
industry and economy from criminals and criminal organizations. Nauru's
current offshore banking regime, in the absence of proper safeguards, is an
open invitation to financial crime and money laundering.
Nepal (Concern). The Government of Nepal (GON) has drafted legislation
calling for full criminalization of money laundering, reporting of
suspicious transactions and the establishment of a central authority for
overseeing anti-money laundering activities in Nepal. As of late 1998, this
draft law had not been enacted.
The GON is continuing with its plans for the formation of an international
business center, which will offer certain offshore banking services. United
States officials are assisting the GON with the establishment of this
center to ensure that it will have the proper regulatory framework to deter
At present, money laundering is likely derived from the proceeds of drug
trafficking and various financial frauds associated with the open
India/Nepal border. Nepal has casinos in the five-star hotels in Katmandu.
It is possible that Indian nationals may, to some extent, be using these
casinos to evade Indian income tax and launder illicitly derived funds.
The GON should enact and enforce its proposed anti-money laundering
legislation, in addition to taking steps to ensure that, if offshore
facilities are developed, adequate supervision and anti-money laundering
measures are in place.
The Netherlands (Primary). A considerable portion of the illicit money
laundered in the Netherlands is believed to be generated from financial
fraud, while other money laundering is believed to be conducted by major
drug cartels and other criminal organizations.
While the anti-money laundering legislation currently in effect in The
Netherlands is comprehensive, there are various initiatives underway by the
government to improve it. Legislation making money laundering a separate
offense (apart from the possession of the proceeds of crime or "fencing"
offense) is pending before Parliament; passage and adoption is expected in
1999. Currently, the Dutch Penal Code requires that prosecutors prove the
underlying offense before being able to address the offense of money
Effective in May 1998, the requirement to report unusual transactions was
extended to the Netherlands Central Bank. Money transfer businesses will
also soon be subject to supervision. Currently, these businesses are only
required to be licensed by the central bank. Notaries, accountants and
lawyers report suspicious transactions on a voluntary basis, and there are
plans to include real estate agents and precious metal dealers in the
The Netherlands' offshore banking sector has expanded to include
international business corporations and bearer shares. The Netherlands
advertises its offshore sector on the Internet and has established websites
for Internet gaming.
Currently, The Netherlands requires the reporting of unusual or large
transactions to the Meldpunt Ongebruikelijke Transacties (MOT), its
financial intelligence unit (FIU). The reports are analyzed by the MOT to
determine if they are suspicious. If suspicious, they are then passed to
the police along with all relevant information from national police and
foreign counterparts. A lingering problem in the Dutch system--which also
affects Aruba and the Netherlands Antilles--is that the foreign affairs
ministry has taken the position that the MOT cannot legally exchange
information with its FIU counterparts without first negotiating treaties
with the various foreign governments. The Dutch urgently need to revisit
this position and, if necessary, implement legislation to reverse it.
The Netherlands is a member of the FATF and the Council of Europe, and the
MOT participates in the Egmont Group of FIUs.
Netherlands Antilles (Primary). The Netherlands Antilles is composed of
Curacao, Bonaire, the Dutch part of the island of Sint Maarten/St. Martin,
Saba and Sint Eustatius. The jurisdiction--led by Curacao--has become a
leading offshore center in the Caribbean for property investment and inter-
company financial flows. With the growth of their offshore industry
(although it has shrunk as a percentage of the economy), lack of border
controls with the French part of Sint Maarten/St. Martin, and
ineffectively regulated casinos, the islands are vulnerable to money
laundering. The 50 offshore banks in the Netherlands Antilles are
supervised by the central bank. Under central bank guidelines, to be
admitted as an offshore bank, an entity must obtain, in addition to
the foreign exchange license required for all offshore companies,
a Declaration of No-Objection from the Ministry of Justice, which certifies
that all legal requirements have been met. But the significant offshore
financial sector--comprised of mutual funds, group financing companies, and
trust companies--is extremely sophisticated and largely unsupervised.
Under close watch by The Netherlands, the Netherlands Antilles remains
vigilant in its efforts to combat money laundering. On October 15, 1998,
the parliament of the Netherlands Antilles enacted asset seizure
legislation. Under the new law, the judicially ordered seizure of assets
can occur if the profits or assets are obtained by means of, or from the
proceeds of, a proven punishable act; if the profits or assets are from
additional unproven criminal acts if there is reasonable suspicion that the
acts took place; if the sentence is four years or more; or if there is
evidence from an official financial investigation that a crime
producing profits or assets took place. Antillan officials can use a
conviction in a United States court as the basis for seizing assets in
the Netherlands Antilles The legislation permits asset confiscation
early in the judicial process; previously, traffickers and launderers could
move their assets into safe havens during the pre-trial period. Also
promising is the work of a joint Dutch/Antilles police effort to build the
capacity of the island police to conduct effective, coordinated
investigations of financial crime.
As part of the Kingdom of The Netherlands, the Netherlands Antilles is a
member of the FATF and is a leading participant in the CFATF. Additionally,
the Meldpunt Ongebruikelijke Transacties (MOT) NA, which is the financial
intelligence unit in the Netherlands Antilles, is a member of the Egmont
The Government of the Netherlands Antilles has taken a number of strong
measures to combat money laundering. However, it is essential that it fully
implement its anti-money laundering legislation, thereby establishing a
strong program to successfully prosecute money launderers. The Netherlands
Antilles needs to devise a way to supervise the offshore financial sector,
implement planned consolidated supervision of the casino sector, receive
help from The Netherlands to enable the MOT to share information with
its foreign counterparts, and test the effectiveness of its criminal
money laundering statute by prosecuting cases.
New Zealand (Other). Money laundering became an offense in New Zealand on
September 1, 1995, as a result of an amendment to the Crimes Act 1961.
There are two offenses which fall under this Act: 1) engaging in a money
laundering transaction, knowing that the property at issue has resulted
from the commission of a serious offense; 2) possession of property
knowingly gained through the commission of a serious offense for the
purposes of money laundering. The amendment also offers a "safe
harbor" from any liability resulting from a breach of confidence in
disclosing transactions to the authorities.
There is evidence of the presence of international organized criminal
elements in New Zealand. There is also evidence that money laundering takes
place, and that commercial crime and drug funds play a role in these
operations. New Zealand financial institutions are not believed to be used
significantly for the laundering of funds derived internationally.
Some evidence of a small underground banking system has been uncovered in
recent months. Preliminary investigations indicate that this system is
being used by immigrant and refugee communities to remit money to relatives
in their home countries. The main conduit detected to date appears to be
from New Zealand to Iraq via Jordan.
New Zealand is not a party to the 1988 UN Drug Convention. It is a member
of the FATF, the Asia Pacific Group on Money Laundering, the South Pacific
Forum, and the Commonwealth. Its FIU participates in the Egmont Group.
Nicaragua (Other). Nicaragua's financial sector is very small at present,
which somewhat limits its attraction to money launderers. However,
Nicaragua is vulnerable to money laundering because of drug trafficking and
a lack of resources to combat it. Legislation enacted in 1994 put in place
some anti-money laundering measures, but it needs to be enhanced to fully
protect and regulate Nicaragua's growing banking system.
In 1994, the Government of Nicaragua (GON) passed Law No. 177, Law on
Narcotics Drugs and Psychotropic and Other Controlled Substances, which
contains some anti-money laundering measures. This law criminalized drug-
related money laundering (imposing a penalty of 3 to 20 years confinement)
and provided for the seizure and forfeiture of drug proceeds. The law
required banks to report deposits exceeding $10,000 to a Financial
Commission, which also was tasked with detecting, analyzing and proposing
ways to combat money laundering. The law also lifted bank secrecy for
A proposed comprehensive anti drug law, Law No. 285, which tightens the
anti-money laundering provisions of Law 177, was vetoed by the Nicaraguan
President, who objected to some of the language in the bill with respect to
money laundering, apparently out of concern that it would complicate
foreign investment in Nicaragua. The law is expected to be enacted sometime
in 1999, after a compromise is reached on the anti-money laundering
The proposed law changes the name of the Financial Commission to the
Financial Analysis Commission, and establishes the National Anti-Drug
Council as the supervising body. Banks are required to report withdrawals
exceeding $10,000, in addition to deposits, to the Superintendency of Banks
(which then passes the information to the Commission). A wide range of
financial institutions, including credit unions, stock exchanges, savings
and loan cooperatives, exchange houses, credit card operations, and casinos
must identify their customers, maintain records for five years, and make
records available for investigations. Individuals will be required
to report cross-border inbound (but not outbound) currency for
amounts exceeding $10,000.
The proposed law takes several steps forward in Nicaragua's fight against
money laundering, including increasing the reporting requirements for banks
and international movements of funds, along with increasing the authority
of a centralized unit to receive financial disclosures and analyze and
investigate money laundering trends. However, the law has some
deficiencies. Although it requires institutions to pay special attention to
complex and unusual transactions, there is no requirement to report
suspicious transactions. Also, money laundering is still a crime only if
related to drug trafficking offenses. These deficiencies need to be
addressed if Nicaragua is to fully comply with international anti-money
laundering standards and protect the financial sector from money laundering
Nicaragua is a member of the CFATF.
Nigeria (Primary). Nigeria is the narcotics trafficking, money laundering,
and financial fraud hub of West Africa and increasingly the continent. Its
oil-driven economy dwarfs that of its neighbors, but the country's overall
economic frailties and the continuing fragility of its financial sector
mean that Nigeria is not a major financial center, except in a limited West
The Nigerian government has made some progress in stabilizing the banking
sector; it has dissolved 31 failed banks and raised capitalization
requirements. However, the massive check-kiting frauds that rocked several
large Nigerian banks in 1998 underscored the continuing lack of
transparency and effective institutional controls in many banks.
Nigerian money launderers operate sophisticated global networks to
repatriate illicit proceeds from narcotics trafficking, financial fraud,
and other crimes. Nigeria has not made major changes in anti money
laundering legislation since Money Laundering Decree No. 3 was placed into
effect in 1995. Decree No.3 criminalized only drug-related money
laundering. Implementation of the decree has been hampered by the
bifurcation of responsibilities between the Money Laundering Surveillance
Unit (MLSU) of the Bank Examination Department of the central bank and the
Money Laundering Unit within the National Drug Law Enforcement Agency
(NDLEA). Currently, transaction reports go to the MLSU and the Money
Laundering Unit of the Office of Investigations of the NDLEA. The NDLEA, in
the furtherance of its primary charter, requires the drug nexus as a
precondition for the initiation of an investigation. NDLEA is the
enforcement agency. The Miscellaneous Offenses Tribunal has been
identified as the prosecutorial agency. NDLEA attempts to prosecute
narcotics and money laundering kingpins have been stymied by a
dysfunctional judicial system and sometimes by government corruption.
The Nigerian government's comprehensive money laundering decree allows for
seizure of the property and assets of suspected narcotics trafficking and
money laundering organizations. Despite some initial seizures, there have
been no prosecutions, and some of the seized assets were conditionally
returned to their owners. NDLEA enforces monthly bank reporting
requirements, but the actual disposition of the collected data is unclear.
Since a December 1996 United States interagency mission to Nigeria, the
government of Nigeria has shown a willingness to work with U.S. law
enforcement agencies on money laundering and other enforcement issues.
During a follow-up law enforcement mission to Nigeria in October 1998, the
government demonstrated its political commitment to take concrete action by
allowing the U.S. team access to a number of documents and facilities that
had not previously been made available.
In collaboration with the International Monetary Fund and the African
Capacity Building Foundation, the Central Bank Governors of Gambia, Ghana,
Liberia, Nigeria, and Sierra Leone established the West African Institute
for Financial and Economic Management (WAIFEM) in July 1996. WAIFEM began
operations in January 1997 as a private company of international standing
aiming to provide member countries with short-term programs for public
sector officials involved in policy formulation, execution, and monitoring.
In 1998, WAIFEM and the United States co-sponsored a workshop
for public and private sector officials on money laundering techniques
Nigeria needs to criminalize money laundering beyond narcotics, and to
develop and fund a strong law enforcement mechanism to ensure compliance
with anti-money laundering laws and protect its financial system from
continued abuse by criminals and criminal organizations. Nigeria also needs
to demonstrate its ability to take action against corruption and fraud.
Niue (Concern). Niue is a self-governing territory in a free association
with New Zealand. Internet gambling, which generates approximately $1.5
million a month in the South Pacific, represents a major new business trend
and creates a vulnerability to money laundering and financial crimes in
Niue. Niue has a close relationship with a law firm based in Panama; a
principal in the firm has expressed an interest in establishing an office
in Niue's time zone, to service clients based in East Asia.
All international business corporations (IBCs) based in Niue are exempt
from income tax, including dividends, interest, rents, royalties,
compensation, and capital gains. No estate, inheritance, succession, or
gift tax, rate, duty, levy, or other charge is payable with respect to any
shares, debt obligations, or other charges payable with respect to
securities of an IBC. Offshore banks and insurance companies fall into the
same category. These IBCs have the characteristics of offshore exempt
companies, which include exemption from exchange controls and low license
and annual fees for all offshore entities. Niue is considering selling
economic citizenship passports.
Like the Cook Islands, Niue has asset protection features. The Courts will
not change, set aside, or recognize the validity of any claim against the
trust pursuant to another country's laws or court order in regards to
matrimonial property, succession rights, and claims of creditors for
insolvency. The Register of Trusts is open to inspection by a foreign
Government or court. However, the high court must be satisfied that the
information will only be used to investigate or prosecute an individual
who has been charged with either selling drugs or laundering
funds derived from drug dealing or another serious criminal activity.
Niue's current offshore banking regime, in the absence of proper safeguards,
is an open invitation to financial crime and money laundering. Given Niue's
broad multi-services offshore sector, it needs to adopt and enforce strong
anti-money laundering legislation to protect its reputation, financial
services industry and economy from criminals and criminal organizations.
North Korea (Democratic People's Republic of Korea) (Concern). Little is
known about the banking situation and the extent of money laundering in
North Korea. However, there have been reports that due to the extremely
poor economy, the state supports illegal businesses such as drug
trafficking, gold smuggling, smuggling of endangered species and
trafficking in counterfeit United States currency.
Reports indicate that North Korea is planning to open its economy by
establishing free economic zones and allowing greater opportunity for
private economic activities. In a report on the North Korean economy, the
Korea Trade-Investment Promotion Agency (KOTRA) predicted that Pyongyang
will likely initiate changes to resolve its economic crisis, to the extent
that its current system is not threatened. North Korea is expected to
redouble its efforts to obtain more foreign funds from the IMF and Asian
Development Bank through improving relations with the United States,
according to the same KOTRA report. As part of its moves to enhance
economic cooperation with neighboring countries, North Korea has
established two joint venture firms with Thailand.
Norway (Other). Norway is not a major regional financial center, as there
are only 20 commercial banks and 132 savings banks serving a population of
4.4 million people. There are no offshore banks or casinos in Norway.
What money laundering occurs in Norway is not primarily related to
narcotics proceeds, but to funds generated by the smuggling of liquor and
cigarettes and to illegal capital flight from Russia and the Newly
Independent States. Financial crimes, especially bank fraud, have been on
the increase since the early 1990s when the financial markets were
liberalized. Most money laundering is done outside of the usual bank and
non-bank financial systems due to the obligation on the part of these
sectors to report large or suspicious transactions and to maintain
transaction records for five years. Structuring of deposits (breaking them
up into smaller amounts to circumvent reporting requirements)
appears to be the biggest problem for financial institutions.
All forms of money laundering are criminal offenses according to the
Norwegian Penal Code. Legislation has been strengthened over the past few
years in order to conform to the FATF Forty Recommendations. ØKOKRIM,
Norway's Special Unit on Economic Crimes, has set up a money laundering
unit which serves as the country's financial intelligence unit and is the
recipient of all suspicious transaction reports.
Norway participates in the FATF and the Council of Europe, and
ØKOKRIM participates in the Egmont Group.
Oman (Other). Oman is not known to have significant money laundering
activity, and Oman's banking system is the smallest among the GCC nations.
Banking in Oman is not heavily regulated, although the Central Bank of Oman
(CBO) is authorized to suspend or reorganize a bank's operations. A
circular was distributed to a broad range of financial institutions several
years ago advising that they report all suspicious transactions to the CBO
and the Royal Oman Police and conform to some of the FATF Forty
Recommendations, but no such reports are known to have been filed, and
there are no known money laundering cases under investigation. The CBO
is currently updating its circular. It is not known whether the
CBO has taken any other steps to deter or detect money laundering.
Cash transactions are common in Oman. The hawala/hundi remittance system is
a cost-effective and efficient means for the many expatriate workers in
Oman to transfer money to their homelands.
Oman's failure to enact legislation or regulations to criminalize money
laundering and formalize its anti-money laundering regime make it
vulnerable to financial crime. Oman should take steps to enact and
implement anti-money laundering laws, including providing for the full
criminalization of money laundering and the reporting of suspicious
transactions to a central organization.
Oman is a party to the 1988 UN Drug Convention and is a member of the GCC,
which holds membership in the FATF.
Pakistan (Primary). It is likely that Pakistan's role in the production and
transportation of narcotics necessitates the laundering of at least some of
these proceeds within Pakistan. There is little if any information
available on the nature or extent of money laundering in Pakistan. However,
anecdotal evidence from a variety of sources and data from cases indicate
that Pakistanis play a role in the often illicit transfer of funds between
Pakistan, India, Dubai and other locations via the hawala (or
"hundi") alternative remittance system. In one recent case, it was
shown that the proceeds from the sale of Pakistani heroin were
laundered through a worldwide hawala network with significant
connections to Dubai. However, the lack of documentation on hawala/hundi
transactions makes it difficult to quantify them. Bulk shipments of cash
have also been noted leaving Pakistan.
Sources of laundered money include corruption, illicit financial activities
and smuggling. Details of the continuing investigation of the financial
activities of former Pakistani Prime Minister Benazir Bhutto and her
husband, Asif Zardari, indicate that corruption-related money laundering
occurs on a significant scale outside of Pakistan. However, it is very
difficult to provide an assessment of the nature of these activities,
particularly the extent to which the laundering actually takes place in
Pakistan's Control of the Narcotics Substances Act was amended in 1997 to
add some anti-money laundering provisions. These provisions criminalize
narcotics-related money laundering (money laundering violators of
Pakistan's tax laws may also be prosecuted) and establish procedures for
the tracing, identifying and freezing of assets, as well as participation
in mutual legal assistance requests. The primary authority for fighting
money laundering under the Act is Pakistan's Anti-Narcotics Force (ANF).
The ANF is part of the Pakistani military, and few ANF personnel have
experience in fighting money laundering. Banks are to report suspicious
drug-related transactions to the ANF, but they have not been making
reports. The United States has also advised the Government of
Pakistan (GOP) that steps need to be taken to address the problems
presented by the use of hawala as a means of facilitating money
Pakistan's central bank, the State Bank of Pakistan, has issued regulations
that all banks are to report all foreign currency transactions, and
licensed money exchange houses were recently required to report all
transactions over $10,000. Banks and other financial institutions must know,
record and report to the State Bank the identities of all customers; the
State Bank is supposed to pass the information to tax and law enforcement
authorities. However, apart from money exchangers, no other smaller non-
bank institutions are subject to controls. Reports of crossborder
currency movements are not made to the State Bank unless Pakistani
Customs discovers suspicious currency movements. Pakistan permits
hard currency bank accounts, although it imposed strict currency
controls after the Pakistani nuclear tests. No inquiries are made to
foreigners or Pakistanis living abroad concerning the source of funds
deposited in those accounts.
Various provisions of Pakistan's banking laws empower the State Bank to
obtain certain information and investigate improper banking activities. The
United States has advised that such provisions, which could be effective in
dealing with certain aspects of hawala-based money laundering, need much
wider enforcement. The U.S. Treasury Department continues to work with the
GOP on hawala and on possible legislative changes to broaden the scope of
Pakistani anti-money laundering activities, and is working through the
international financial institutions to improve overall administration of
Pakistan's banking sector.
Pakistan is a party to the 1988 UN Drug Convention. It is not a participant
in the FATF and has not entered into any bilateral agreements for the
exchange of money laundering information with foreign governments. Pakistan
has double taxation agreements with a number of nations which provide for
the exchange of information on financial transactions between tax
authorities of the two countries.
The GOP should modify its existing laws to bring them into compliance with
the standards established by the FATF, specifically the full
criminalization of money laundering, establishment of mandatory reporting
of suspicious transactions by financial institutions, and establishment of
a central authority to process these reports and coordinate anti-money
laundering activities. In addition, Pakistan needs to continue to take
steps to address the use of the hawala system for illegal purposes.
Palau (Other). Palau is not currently known as a money laundering haven.
However, the Government of Palau has legislation pending which would permit
offshore banking. If this is enacted, it would raise the possibility of
another nation in the South Pacific becoming at risk for money laundering.
The proposed legislation, called the Corporate Registration Act, would
allow the creation of shell offshore holding companies. It was drafted with
the assistance of financial experts from Hong Kong. Palau offshore banking
licenses--the legitimacy of which is unknown--are being advertised on the
Internet by a Latvian bank.
Panama (Primary). Panama remains extremely vulnerable to money launderers,
in view of its status as a major financial center, the presence of the
Colón Free Zone, a dollar-based economy, and major drug producing
neighbors. Panamanian financial institutions engage in currency
transactions involving international narcotics trafficking proceeds that
include significant amounts of U.S. currency. The Government of Panama
(GOP) has good formal anti-money laundering mechanisms in place, but its
ability to identify, investigate and prosecute money laundering suffers
from an inadequate legal framework. Senior GOP officials reportedly will
seek reforms to make prosecution of money laundering offenses easier.
In June 1998, Panama enacted a new banking law which is considered a major
step forward. The law calls for the creation of a Superintendency of Banks
to serve as the new bank regulatory and supervisory entity. The
Superintendency will have the authority to grant banking licenses,
including general licenses for local and foreign operations and
international licenses for Panama's 28 offshore banks, and to establish
capital adequacy. The law requires banks to have minimum capital of $10
million and establishes a minimum liquidity level of 30 percent of total
gross deposits. Banks must maintain assets in Panama that are equal to at
least 85 percent of local deposits and treated on a consolidated
supervisory basis. Foreign supervisory entities will be permitted, under
prior agreement with the Superintendency, to inspect the branch offices of
foreign banks in Panama which have consolidated supervision.
The legal changes in consolidated banking supervision and the financial
controls stipulated in the new law will not only help strengthen the
banking system, but also entice top foreign banks into Panama. The Banking
Superintendent is currently in the process of preparing implementing
regulations, and has reminded banking officials of their responsibilities
with regard to combating money laundering.
Panama has a large offshore sector which offers an additional layer of
security for entities, including more than 350,000 international business
corporations, registered within its jurisdiction.
Panama has established a financial analysis unit, the UAF. The UAF was one
of the first such units in the region to be admitted to the Egmont Group in
1998. The UAF reports directly to the President of Panama, and the Director
of Panama's UAF, in an expansion of her role, now serves as the national
coordinator for all money laundering affairs in Panama. Panama is a member
of the CFATF.
A weakness of Panama's anti-money laundering regime is the fact that only
drug-related money laundering is a criminal offense. Prosecutors must prove
that the money laundering is directly connected to drug trafficking, which
is extremely difficult to accomplish. Additionally, Panama's anti-money
laundering law does not permit the UAF to share information with financial
intelligence units (FIUs) in foreign countries.
We encourage the GOP to take steps to criminalize non-drug-related money
laundering and to authorize the UAF to share information with its foreign
counterparts, in order to enhance Panama's anti-money laundering regime.
Panama needs to be able to demonstrate that its anti-money laundering laws
have been implemented through the successful prosecution of, and
cooperation with foreign authorities in, major money laundering cases.
Paraguay (Primary). Paraguay is considered a significant money laundering
center due to its status as a transit country for cocaine trafficking, its
weak regulation of the formal financial sector, the absence of regulation
over the informal financial sector, and lack of implementation of its money
laundering law. Most of the money laundering in Paraguay occurs in the
Ciudad del Este area in the form of tax evasion, re-export of contraband,
capital flight and, to a lesser extent, narcotics operations. In January
1997, the Government of Paraguay (GOP) criminalized money laundering
related to serious crimes, but since tax evasion, contraband smuggling and
capital flight (the primary forms of money laundering) are not classified
as serious crimes, the laundering of their proceeds does not fall under the
new statute's prohibitions. This, coupled with endemic official corruption,
creates a serious difficulty in combating money laundering in Paraguay, as
does the existence of an offshore financial center.
Paraguay's anti-money laundering law 1015/96 (Preventing and Suppressing
Illegal Acts Committed for the Purpose of Laundering Money or Assets)
mandated the reporting of suspicious financial transactions, instituted
currency transaction record-keeping requirements, provided for cooperation
with international law enforcement, permitted asset forfeiture, and
established know-your-customer provisions for banks and other financial
institutions. It also created three anti-money laundering agencies to
counter financial crimes: the Secretariat for the Prevention of Money
Laundering (SEPRELAD); the Financial Crimes Investigative Unit (FCIU); and
the financial analysis unit (FAU).
SEPRELAD was established in July 1997 as an independent umbrella agency
responsible for the implementation of the anti-money laundering law.
SEPRELAD includes the inter-agency FAU, which is charged with collecting,
analyzing and processing information it receives for the purpose of
detecting suspicious financial activities involving money laundering. This
unit will function as Paraguay's financial intelligence unit (FIU), as it
is the central national agency which receives disclosures of financial
information such as suspicious activity reports (SARs).
Although the GOP made progress in combating money laundering during 1997,
it has not taken sufficient measures during 1998. There has yet to be a
prosecution for money laundering under the 1997 law. SEPRELAD and its FAU
commenced operations in 1997, but they are still not considered operational
because they lack an approved budget. Furthermore, the FAU lacks personnel,
equipment and a permanent location. During 1998, the FAU received 3,000
SARs, of which 24 were forwarded to SEPRELAD for investigation. However,
those 24 SARs have not been investigated because of budgetary problems with
the SEPRELAD and the absence of the FCIU, whose creation was mandated under
the new money laundering law.
During the early part of 1998, Paraguay's FAU appeared to be making
progress in obtaining personnel and equipment, and in June 1998, it was
officially recognized by the Egmont Group of FIUs. However, the FAU still
cannot exchange information concerning financial crimes with other members
The GOP has the legal tools and agencies in place that will combat money
laundering. However, it still has not taken the appropriate measures to
fully implement its anti-money laundering law. It is essential that the GOP
redirect its efforts and properly fund the SEPRELAD and the FAU. Only
through the proper funding of these agencies, as well as establishing the
FCIU, will the GOP be able to counter money laundering and financial crimes
and to cooperate with other FIUs.
Peru (Concern). Although Peru is not a major regional financial center, tax
haven or offshore banking center, narcotics-related money laundering does
occur. The Peruvian Penal Code sanctions money laundering related to the
illicit narcotics trade and terrorism, although there were no prosecutions
Peru's regulations to implement its 1996 anti-money laundering law went
into effect in July 1998. Among the regulations' most significant
provisions are the requirements for financial institutions to record cash
transactions over about $10,000, implement know-your-customer policies,
develop internal compliance programs and designate compliance officers, and
report suspicious financial transactions to the Attorney General's office.
Under pressure from the business community, the Superintendency of Banks
and Insurance Companies suspended the cash transaction recording
requirement for financial institutions. The banking community has been a
vocal opponent of this requirement, expressing concerns about the cost and
resources needed to comply and fear of misuse of the information.
Inconsistent and overzealous identification requirements imposed by some
financial institutions such as fingerprinting and the submission of sworn
declarations, as well as bad timing in the issuance of other regulations
mandating the disclosure of financial and tax information, combined to
create discomfort throughout the business community. All other
provisions of the regulations, however, remain intact, and financial
institutions have already begun to submit reports of suspicious
transactions. The Attorney General's Office has granted access to the
information to the Financial Investigations Unit operated by the
Peruvian National Police, which conducts research to determine if the
transactions have a narcotics connection.
Efforts are also underway to expand the anti-money laundering articles of
the Penal Code to include other illicit acts, and possibly remove current
articles which restrict the initiation of investigations. Despite the
setback caused by the suspension of the cash transactions recording
requirement, the Government of Peru's (GOP's) efforts to implement a
comprehensive anti-money laundering regime are commendable. The
Superintendency should continue the dialogue with the banking and financial
services industry, and seek ways to modify the regulations, but
remain firm in its efforts to reinstate this essential requirement.
The GOP should also continue its efforts to establish a financial
Philippines (Concern). Philippine government officials have long recognized
that the drug menace is the cause of a rising crime wave, and that
effective anti-money laundering measures are a critical part of the fight
against the drug problem. Despite this recognition, anti-money laundering
legislation has not been enacted. It was reported in July 1998 that the
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
The Philippines is not a major financial or offshore banking center, but
strict bank secrecy laws contribute to the potential for money laundering
in this sector to become a major problem. The new Central Bank Act does
allow the government to check, examine, supervise and regulate the
activities and transactions of banking entities, money lending firms,
foreign exchange dealers and money changers. Financial institutions are
required to record, but not to report, the identities of customers engaging
in large transactions. However, bankers have not been generally cooperative,
since they do not enjoy "safe harbor" protection. Regulations are in
place to ensure that records are available in response to United
States requests, but the process is cumbersome.
The Philippines tax code provides for offshore banking units (OBUs), which
are required to register with the government. Income derived by OBUs
authorized by the central bank are exempt from almost all taxes. While
there is no indication of an extensive offshore banking sector in the
Philippines to date, this section of the tax code may play an important
role in the future.
Philippine law enforcement officials are currently focusing on two draft
major crime bills (on RICO and money laundering) and are developing a
system to monitor large volume bank transactions. They believe there is a
proliferation of businesses (such as bars, pawnshops, foreign exchange
dealers and casinos) engaging in money laundering, but they are hampered by
the lack of legislation allowing them to act against these businesses. The
Philippines needs to act promptly to enact laws and regulations to prevent
its financial institutions and businesses from being used as money
The Philippines is a member of the Asia Pacific Group on Money Laundering.
Poland (Concern). The rate of money laundering in Poland is increasing
rapidly. According to various official Polish sources, the amount laundered
ranges from $3 to 9 billion annually. The FATF estimated that figure to be
$8 billion for 1998. Poland is attractive for money laundering for a
variety of reasons. The Polish economy is large by regional standards and
offers many avenues to launder illicit proceeds through its correspondingly
large gray economy, which is promoted by a complex tax regime. Despite
improving bank supervision, weaknesses in money laundering legislation,
combined with the large number of registered businesses and financial
institutions, foster the growth of money laundering. The strong presence of
organized crime groups provides a steady source of illegal proceeds. In
addition, Poland serves as one of the major routes in narcotics trafficking
to Western Europe and is considered a major international producer of
The most important sources of criminal proceeds include extortion;
narcotics trafficking; the counterfeiting of currency, excise tax stamps,
securities and other commercial documents; the smuggling of alcohol,
tobacco, fuel; and more recently, the theft of bulk commodities such as
coal and metallurgical products. International organized crime groups are
known to use Poland to launder their proceeds, especially through the real
estate, restaurant, and securities markets. The slow and cumbersome money
transfer procedures in Poland somewhat reduce its attractiveness as a money
laundering venue for foreigners. However, foreign organized crime
groups from Russia, Ukraine, Italy, and Colombia are known to use
Polish banks to launder illegal proceeds that are eventually
transferred to offshore centers.
In response to the growing threat of organized crime and money laundering,
the Polish Banking Supervision Commission in June 1998 introduced a
resolution to strengthen the effectiveness of anti-money laundering
measures in existing banking laws. Specifically, procedures for
identification and record-keeping have been further stipulated. Besides the
requirement to report criminal transactions to law enforcement authorities,
banks must now report suspected money laundering transactions as well. This
enhanced reporting requirement will complement the prosecutor's office's
newly-invested power to freeze accounts which are the subjects of money
laundering investigations. Banks must also implement in-house anti-
money laundering programs. In November 1998, Poland centralized
its efforts to combat organized crime and narcotics trafficking
by creating two national-level police agencies that will report
directly to the national police headquarters. These specialized
agencies will work in close cooperation with Poland's tax, customs,
and border patrol authorities, and with a proposed financial
intelligence unit (FIU) to investigate financial crime.
The Ministry of Finance continues its work on draft anti-money laundering
legislation. Thus far, no successful money laundering prosecutions have
taken place in Poland, despite the criminalization of money laundering in
1994. The focus of the draft legislation is the creation of a large
currency and suspicious transaction-based reporting system centralized at
an FIU for analysis. Whether the FIU will be a new agency or a subdivision
within an existing agency is under debate within the government. The goals
of the draft money laundering legislation are to close loopholes in
current existing anti-money laundering legislation, and to strengthen
the ability of law enforcement to investigate and prosecute money
Poland has concluded a number of anti-crime agreements with countries in
Europe and continues to align its policies to EU standards to include
measures to combat money laundering. It became a party to the Council of
Europe Convention on Money Laundering in November 1998. Next steps include
the passage and implementation of the draft money laundering law and the
training of personnel in all facets of the national anti-money laundering
Portugal (Concern). Although Portugal is not considered an important
regional financial center and money laundering has not historically been an
issue, in 1997 Portugal reportedly detected $148.5 million in funds
laundered as a consequence of drug trafficking. Narcotics-related money
laundering was criminalized in 1993. Decree-Law 15/93 penalizes the
transfer of proceeds related to narcotics trafficking and calls for
confiscation of property and assets connected with money laundering. Decree-
Law 313/93 mandates anti-money laundering requirements for banks and non-
bank financial institutions, including customer identification, record-
keeping for ten years, and customer statements concerning the origin and
destination of the funds for transactions exceeding $14,700. Reports of
suspicious transactions are also mandatory and are sent to the Office
of the Prosecutor, then referred to the Brigada de Investigação
de Branqueamento de Capitais of the Judicial Police for analysis and
investigation. The Judicial Police (PJP) has the exclusive authority to
investigate money laundering crimes in Portugal. Decree-Law 170/93
introduced reporting requirements for large cross-border movements of cash
or the import/export of gold.
In 1995, Decree-Law 325/95 extended the crime of money laundering to
proceeds of economic crimes, terrorism, arms dealing, kidnapping,
corruption and other crimes and gave the PJP the ability to trace illicitly
obtained assets, including assets passing through casinos and lotteries.
Portugal is a member of the Council of Europe and of the FATF, and is
President-elect for FATF-XI (1999-2000). It is a party to the 1988 UN Drug
Madeira/Azores is one of the few offshore centers within the European
Union. Madeira's international business center is fully integrated into the
EU and complies with both national and EU laws on banking coordination and
supervision. Decree-Law 10/94 permits the establishment of branches of
existing banks and insurance companies. Applications are submitted to the
Central Bank of Portugal either for notification, in the case of EU
institutions, or authorization, in the case of non-EU or new entities. The
Central Bank of Portugal also supervises these entities. Companies
established under the Madeiran Free Trade Zone legislation are exempt from
corporate, capital gains, withholding and value added taxes until 2011.
They are also regulated as Portuguese companies and can take advantage of
Portugal's double taxation agreements.
Qatar (Other). Qatar is not thought to be at major risk for money
laundering. Although it has not enacted anti-money laundering legislation,
the Qatari Central Bank has a strict policy mandating customer
identification, the reporting of large transactions, and the maintenance of
records for a specified period of time.
Qatar is a party to the 1988 UN Drug Convention and a member of the GCC,
which is a member of the FATF.
In order to maintain the integrity of its financial system, Qatar should
consider enacting money laundering legislation to criminalize money
laundering and to require the reporting of suspicious transactions.
Romania (Concern). Money laundering related to the laundering of domestic
proceeds from organized crime is a significant problem in Romania.
Predicate crimes include narcotics trafficking, smuggling, fraud, tax
evasion, prostitution, arms trafficking, and alien smuggling. Romania is a
transit country and a staging area for narcotics trafficking from Asia into
Europe. Romanian banks have been targeted by foreign investment schemes
that seek to obtain letters of guarantee or promissory notes from Romanian
banks in exchange for false letters of guarantee from foreign banks.
Illegal proceeds are readily laundered through banks, casinos, and
front companies. Other methods include the use of forged documents,
fictitious transactions, and false invoicing schemes. Although Romanian
businessmen rarely contend with organized crime attempts to extort or
blackmail their firms, employee theft of funds and goods is a major
The major factors hindering the ability of the Government of Romania (GOR)
to root out organized crime and corruption are inadequate legislation and
the lack of training for law enforcement personnel, according to a
September 1998 statement made by Romania's justice minister. The incidence
of public corruption is another factor slowing the pace of government
efforts to combat crime in general. In July 1998, a senior government
official was arrested for accepting a bribe in exchange for issuing
official approval to a businessman for a construction permit. The president
of Romania acknowledged, in his recently published book on corruption and
organized crime, that many foreign investors are forced to pay bribes to
government officials in order to do business in Romania.
In May 1998, the Romanian National Supreme Defense Council called on
Romanian law enforcement agencies to combat smuggling, particularly of
alcohol and tobacco, more effectively, since smuggling not only damaged the
national economy but also threatened national security. The Council called
on the government to develop legislative and regulatory measures to control
The Romanian government has made combating organized crime, corruption,
financial crimes, and money laundering a major priority. Draft legislation
is pending in the Romanian Parliament that addresses these activities. A
positive step in this direction is Romania's participation in the
Southeastern Europe Cooperative Initiative (SECI). SECI's goals are to
control the increasing flow of drug trafficking across borders and to
combat trans-border organized crime. In a September 1998 SECI meeting held
in Bucharest, the GOR initialed a draft agreement on cooperation to prevent
and combat trans-border crime. These efforts will attack the
predicate crimes that generate illegal proceeds laundered in Romania.
Romania participates in the Council of Europe's PC-R-EV and is scheduled to
undergo a mutual evaluation in April 1999.
Russia (Primary). For the most part, the Russian banking system never
developed along a standard Western commercial banking model, taking
deposits and providing loans to business on an arm's-length basis. Rather,
many engaged in currency trading, lending to the government on the short-
term debt market, or making loans to related firms. Because of poor
supervision, many banks are reputed to be conduits for Russian organized
crime money laundering operations. The banking industry has also
contributed to capital flight from Russia by assisting with fraudulent
trade finance schemes. The Russian banking system has been a major factor
in the severe economic crisis Russia faces both domestically and on the
Seven months after the August crash, the Russian payments system remains
barely functional; many depositors' accounts are frozen and domestic credit
is very scarce. Prospects for near term recovery are slim, given that the
government has failed to move forward on bank restructuring. The industry,
which has already shrunk by one-third since the crash, is expected to
implode further as more insolvent banks are forced into bankruptcy. From
late 1994 through late 1998, the number of banks in Russia plummeted
from over 2,500 to 1,474, or a failure rate of 40 per cent.
Despite the lack of a specific anti-money laundering law, Russia is making
some progress in detecting and prosecuting money laundering offenses.
However, a more aggressive legislative approach is needed to address the
conditions that encourage a destabilizing level of capital flight and money
laundering. Legislation in the areas of foreign exchange, corruption, money
laundering, and taxation are in varying stages of debate in the Parliament.
These and other laws are prerequisites for an effective regulatory and
enforcement framework to prevent and detect money laundering. The threat
of financial crimes to Russian economic security has become paramount
in that the resources of Russia's Federal Security Service (FSB) have been
engaged to combat it alongside existing enforcement agencies.
Russia remains a source of illegal proceeds transferred abroad for
laundering. Sources of these funds include those derived from traditional
predicate crimes, with those in the financial sphere connected to organized
crime or corruption predominating. Several Russian government agencies,
including the Central Bank, the Tax Police, and the State Taxation Service,
conducted a yearlong investigation of commercial banks that illegally
transfer funds abroad. Results of this investigation demonstrated that
firms and individuals are using fictitious imports as a mechanism for
transferring funds abroad. The shipments of goods never materialize, and
the firms carrying out the transactions are long since dissolved by
the time investigations are conducted. The three above mentioned
Russian government agencies cited Latvian banks as the primary
recipients of Russian funds wired abroad in these schemes.
An alarming trend identified this year by Russian authorities is the
increasing use of forged securities by organized crime groups in financial
transactions and in the emerging stock market. The proliferation of forged
securities has been so extensive as to be considered a threat to Russia's
economic security, according to a statement made by the Ministry of
Internal Affairs (MVD). The MVD and Federal Commission for the Securities
Market have jointly devised a program to address this growing threat.
Adoption and implementation of this program is expected to take
Official economic and law enforcement statistics estimate the magnitude of
capital flight and money laundering in Russia. According to MVD statistics,
$9 billion is smuggled out of Russia annually, and the country fails to
receive payment for goods and services valued at $12 billion in contracts
signed between state-owned (or partially state-owned) enterprises and
foreign companies. In contrast, the central bank, which has greater
financial expertise, quotes a more conservative figure of $5-6 billion for
the nonpayment of Russian exports. Russian authorities recognize the extent
to which public corruption facilitates financial crime and money
laundering. Prime Minister Primakov stated that among the primary goals of
his government is to protect the national economy from corruption. To that
end, the government has established a special working group to investigate
and prosecute public and corporate corruption, headed by the deputy
procurator general. It is actively investigating instances of corruption
that, according to MVD statistics, have more than doubled from 2,500 in
1991 to more than 5,500 in 1998. Statistics for 1998 show 5,807 cases of
bribery involving officials and 974 involving commercial bribery registered
by the MVD. Of the former, 3,747 were turned over to the courts,
along with 414 of the latter. Targets of these investigations
include former directors of executive branch agencies, regional
administration heads, and managers of major banks.
Russia's robust gray economy facilitates capital flight and money
laundering operations, and is a source of illegally-acquired proceeds by
organized crime. In public statements, Russian government sources estimate
the gray economy at 40 percent of the national economy. Factors encouraging
the use of the gray economy by businessmen include the evasion of taxes and
other duties, the transfer of capital abroad, the unreliable banking sector,
the threat of organized crime extortion, and the desire to avoid official
bureaucracy and corruption. The Russian government is making progress in
addressing the problems associated with capital flight and the gray
economy. Draft legislation is under consideration to improve taxation
and anti-corruption policies, foreign exchange controls, customs procedures,
the banking sector, and the development of securities and insurance
markets. Some of these measures, such as greater foreign exchange controls,
can have highly distorting and negative consequences for Russian financial
and trade relations.
The use of offshore centers for the transfer of illegal proceeds is a major
enforcement concern. Funds transfers occur not only to traditional offshore
centers, but also to banks located in the neighboring Newly Independent
States. Financial investigations conducted by Russian enforcement
authorities are hampered by the nature of offshore transactions. The
anonymity that offshore entities provide, coupled with the difficulty in
obtaining information or records from offshore jurisdictions, severely
limit investigative inquiries. In an effort to remedy these obstacles,
Russia has initiated discussions to sign bilateral agreements on
information sharing with cooperative offshore jurisdictions. Russia has
signed an updated bilateral tax treaty with the Republic of Cyprus
replacing the 1982 USSR-Cyprus treaty. The accord improves Russia's
ability to collect taxes and to regulate Cypriot-based companies
doing business in Russia. Entities located in the northern part of
the island, the "Turkish Republic of Northern Cyprus" (TRNC)
(which is recognized only by Turkey) are excluded from the provisions of
the treaty. The agreement awaits parliamentary ratification by both
nations. As part of its ongoing tax reform efforts, plans are underway to
close Russia's estimated 40 special economic areas by eliminating tax and
other regulatory exemptions, since the commercial advantages offered to
businesses in the special economic zones made them virtual offshore zones
Russian draft money laundering legislation titled "On Countering
Legalization (Laundering) of Illegally Derived Proceeds" was approved by
the Duma (lower chamber) on October 21, 1998. An important measure dropped
from the draft was the provision to prevent the structuring of transactions
to avoid reporting requirements. Despite this concession, the legislation
was voted down in the Federation Council (upper chamber) on November 12,
1998. It is hoped that a joint Duma-Federation Council commission will
negotiate a compromise draft. The major obstacle blocking passage of the
law is the definition of money laundering. The term "illegal proceeds" as
defined in the draft law is considered by many (including the central bank
and the Federation Tax Service) as too broad, since it would include
proceeds from civil and administrative violations, not just proceeds from
criminal predicate offenses. Other concerns cited by opponents of the
law include overly-broad access by regulatory and enforcement
agencies to financial records, the low reporting requirement threshold,
the role of the financial intelligence unit, and the obstacles the law's
implementation would pose to bank restructuring and development. Experts
believe that compromise legislation will include anti-money laundering
measures considerably weaker than originally proposed. However, some
Russian officials consider a weaker law better than no law at all. In their
view, implementation and practice will eventually prove the need for
amendments to strengthen weak anti-money laundering provisions.
Cooperation between United States and Russian law enforcement agencies
continues to improve. The number of requests to U.S. agencies for
information to assist in joint investigations conducted among Russian
agencies--Ministry of Interior, Federal Service for Foreign Currency and
Export Control, Federal Tax Police, and the Customs Committee--demonstrates
the interagency approach needed to combat financial crime. Intergovernmental
proposals are under consideration to significantly enhance coordination on
the interagency level between the United States and Russia to combat
organized crime and financial crime, including money laundering.
Russia has made progress in integrating itself into international anti-
money laundering efforts. Russia's participation in the Council of Europe's
PC-R-EV and its willingness to undergo a mutual evaluation by Committee
member nations is a positive development. During 1998, Russia aggressively
sought to enter into bilateral and regional anti-crime and information
sharing agreements, including anti-money laundering initiatives, with a
host of countries throughout the world.
Following enactment of anti-money laundering legislation, the success of
Russia's anti-money laundering regime will depend on the systematic
implementation of the law's provisions.
Samoa (Concern). Under Samoa's Offshore Banking Act, offshore banks, along
with their shareholders and depositors, are exempt from income tax and
other direct or indirect tax on income derived from offshore banking
conducted outside Samoa. Offshore banks are also exempt from all currency
and exchange control restrictions and the imposition of any foreign levy,
as well as certain central bank requirements, including maintenance of
specific reserve ratios and regulation of interest and credit arrangements.
A number of tax and other incentives are also available to both domestic
and foreign investors. Approved enterprises enjoy a five-year
holiday from income tax and up to seven years relief from taxes on
dividends. Registrars' records are not open to the public, and an
international company's statutory records can be inspected only by its
shareholders, directors, secretary or debenture holders. Anyone disclosing
information about the affairs of an international company is subject to
In light of its offshore banking environment and lack of transparency,
Samoa is vulnerable to money laundering. It needs to develop an anti-money
laundering regime, beginning with the enactment of anti-money laundering
legislation, to protect the integrity of its financial sector.
Although Samoa is not a member of the Asia Pacific Group on Money
Laundering, it participates in the group's activities.
Saudi Arabia (Other). The nature and extent of money laundering in Saudi
Arabia are not known. However, the lack of an anti-money laundering regime,
the widespread use of cash and the existence of a flourishing, unregulated
hawala underground banking network (used largely by immigrant workers)
suggest that Saudi Arabia is vulnerable to money laundering. Many of the
banks operating in Saudi Arabia do so according to Islamic principles,
which forbid the charging of interest. Islamic banks generate revenue
through charging fixed fees for services, which are often paid in
Saudi Arabia has not yet enacted any anti-money laundering legislation.
However, in September 1998, the Saudi Arabian Monetary Agency (SAMA), the
supervisor of financial institutions in the country, directed banks in
Saudi Arabia to implement measures to contain money laundering. SAMA has
prepared a directory on money laundering techniques, including directives
on how to recognize suspicious transactions and how to coordinate with
government agencies in this regard. Copies of the directory have been
distributed to banks and other financial institutions. SAMA has established
a special department to provide training to banking officials
on how to recognize money laundering. The anti-money laundering
measures apply to lending organizations, money transfer agents,
dealers in travelers' checks, credit card issuers, money exchangers,
insurance companies and investment firms, as well as to banks. These
institutions are required to notify SAMA and the relevant police
authorities when they suspect money laundering activity. SAMA has
received over 700 such reports during the first six months of this
Despite the lack of an anti-money laundering law, individuals or banks
culpable in money laundering activities are subject to criminal prosecution
under the banking control law, Saudi labor law, and Shari'a (religious)
law. Money laundering cases come under the jurisdiction of the Shari'a
Court, which prescribes harsh penalties for money launderers. An
interministerial committee has reviewed all Saudi laws pertaining to money
laundering and has prepared amendments that would bring them into
conformity with the FATF Forty Recommendations. A key feature of the
proposed legislation is the establishment of a board with the power
to refer money laundering cases to the Saudi Board of Grievances,
which would hear them in accordance with the new guidelines.
Saudi Arabia is a member of the GCC, which is a member of the FATF. The
FATF has asked the countries of the GCC to initiate legislation and to
conduct a self-assessment of money laundering countermeasures, but the
response has been vague. Saudi Arabia recently hosted a United Nations
financial seminar on money laundering, in which a number of Saudi and U.S.
agencies took part.
Saudi Arabia needs to enact and implement anti-money laundering legislation
that meets FATF standards to protect itself against financial crimes and
Senegal (Other) Senegal is not a money laundering or financial center.
However, the Director of the Judiciary Police (Senegal's "drug czar")
believes that money laundering questions need to be addressed. The
Government of Senegal has enacted legislation to prevent and punish
narcotics-related public corruption, but the legislation does not
specifically address money laundering.
Seychelles (Concern). The Seychelles is a growing offshore financial center
and, consequently, has the potential to develop into a significant money
laundering center, although there is little concrete evidence of such money
laundering at present. The 1995 Economic Development Act, which would have
facilitated money laundering and provided protection from extradition
and assets seizures, remains on the books, but has not been brought
into force. The Government has provided assurances that this law will
The two major sectors of the Seychelles economy are tourism and fishing.
However, these sectors do not generate sufficient foreign reserves, and
Seychelles is very dependent on foreign imports. Consequently, in hopes of
generating more foreign exchange, it has taken steps to market itself as an
international business center designed to facilitate the registration of
non-resident companies. The most glaring weakness of this program is that
it allows bearer shares, a feature that facilitates money laundering
by making it extremely difficult to identify the beneficial owners and
directors of an international business corporation (IBC). Seychelles has
also created the Seychelles International Trade Zone (SITZ) which is
managed by the Seychelles International Business Authority (SIBA).
SIBA acts as the central agency for the registration of IBCs in the
offshore sector. Currently, more than 2,700 companies are registered. SIBA
is the central agency for companies seeking IBC or SITZ status, and it also
manages the offshore banking and insurance sectors. SIBA sponsors an
Internet website which provides information to prospective investors.
Seychelles' Anti-Money Laundering Act of 1996 criminalized money laundering
related to all serious crimes. While the law does not contain threshold
reporting requirements, it does provide for suspicious transactions
reporting, a "safe harbor" for those persons and institutions reporting
suspicious transactions, forfeiture of the proceeds of crime, and record-
keeping requirements and know-your-customer requirements.
Singapore (Primary). Singapore is a major financial center which, according
to U.S. law enforcement sources, is widely favored by Asian heroin
traffickers to move and launder their capital and profits. Some reasons
include Singapore's strict bank secrecy laws, lack of currency regulations,
and favorable geographic location. But the major contributing factor to
Singapore's popularity with crime groups is the myriad of money remitters
and money changers who operate internationally as part of the Chinese
underground banking system.
International traffickers use Singapore as a base and conduit for the flow
of their illicit proceeds to accounts worldwide. Singapore also has many
shops trading in high-value goods, such as electronics and motorbikes, with
other Asian nations. Many of these legitimate and semi-legitimate shops
help facilitate payments through the underground banking system under the
guise of legitimate trade business and money transfers. With
investigations involving this method of money laundering now underway, it
is becoming apparent that Singapore plays a crucial role in the
movement of narcotics proceeds throughout Asia. There has also been
recent evidence of smuggling of cash from the United States to Singapore,
but no information on how the money is integrated into the financial system
Narcotics-related money laundering is a criminal offense in Singapore.
Under the Drug Trafficking (Confiscation of Benefits) Act of 1992, banks
and financial institutions must report suspicious transactions and must
also identify customers engaged in large currency transactions. However,
there are no controls on the amount of currency which can be brought into
or taken out of Singapore. Banks must maintain "adequate" records to
respond to law enforcement inquiries--the one exception to strict bank
secrecy laws which prohibit the release of financial information or
The Monetary Authority of Singapore (MAS) has issued guidelines for the
prevention of money laundering to banks and non-bank financial institutions
that operate in Singapore. The government plans to extend these guidelines
to cover licensed money-changers and remittance agents. The Institute of
Certified Public Accountants in Singapore and the Singapore Law Society
have also drafted guidelines, parallel to the specifications already set by
the MAS, to assist their members in reporting suspicious transactions.
Singapore has indicated it will continue to widen the scope of money
laundering offenses to include that derived from serious crimes other than
Singapore's offshore sector offers 106 offshore banks, 13 restricted
license banks and 78 merchant banks. It also offers international business
corporations and other exempt companies. The offshore sector advertises on
Singapore has just completed a mutual evaluation by the FATF, and is a
member of the Asia Pacific Group on Money Laundering and the Commonwealth
Secretariat. According to U.S. law enforcement sources, Singapore law
enforcement officials have always provided excellent cooperation on
counternarcotics cases. Although there is no formal agreement for the
sharing of financial information, this is done on an informal basis.
Slovakia (Concern). Slovakia has made important progress in implementing
its anti-money laundering legislation and is actively investigating
instances of money laundering. Slovakia faces many of the same money
laundering problems as its neighbors in the region, such as the activities
of organized crime, the cash-based nature of the economy, the presence of a
large variety of banks and non-bank financial institutions (including
casinos and gambling houses), corruption, narcotics trafficking, financial
crime, and gaps in money laundering legislation. The presence of
Russian and Ukrainian organized crime groups is a threat, but to a
lesser degree than in neighboring countries such as Hungary or
In late 1998 Slovakia, with the assistance of Czech police, uncovered a
money laundering network spanning Slovakia, the Czech Republic, Panama, and
four other European countries. The network had laundered $50 million.
One weakness in Slovakia's anti-money laundering regime is the ability to
launder funds through non-bank financial institutions such as casinos,
currency exchange bureaus, insurance businesses, real estate agencies, and
securities brokerages, since these institutions are not required to report
suspicious transactions. Another area of possible money laundering abuse is
the availability of anonymous savings accounts in the form of bearer
passbooks that may offer a mechanism to shield illegal proceeds. After four
years of experience in implementing anti-money laundering measures, the
Slovak government realizes that the law needs adjustments to make it work
effectively. A committee has been established and is preparing amendments
to address weaknesses in the anti-money laundering regime.
Slovakia is an active participant in international anti-money laundering
efforts. It is a party to the 1988 UN Drug Convention and the European
Convention on Mutual Legal Assistance. Slovakia's financial intelligence
unit is an active participant in the Egmont Group and will host the plenary
meeting in late May 1999. In June 1998, Slovakia underwent a mutual
evaluation by the Council of Europe's PC-R-EV, which was reported on at the
December 1998 plenary meeting. It has yet to accede to the Council of
Europe Convention on Money Laundering, although it plans to in the near
Slovenia (Other). Slovenia's economic stability and strategic location on
the Balkan drug route make it an attractive venue for money laundering. The
major sources of illegal proceeds include narcotics trafficking, organized
crime-related auto theft, fraud, tax evasion, alien smuggling, and the
smuggling of goods. Organized crime activity is a problem, but to a lesser
extent than in neighboring countries. Money laundering occurs through the
banking sector, currency exchange businesses, casinos, real estate
transactions, and the transportation of illegal proceeds across the
borders. United States sources report that the international
interbank money transmission system called SWIFT may also be used for
Slovenia criminalized money laundering in 1994, with the passage of the Law
of Prevention of Money Laundering. The Law requires financial institutions
to report all cash transactions exceeding $22,000, and all suspicious
transactions regardless of amount. Customer identification is also
mandatory for all transactions, or series of transactions, exceeding $13,
500. Records must be maintained for five years. All these requirements also
apply to casinos and to legal and private persons as defined in the
The 1994 Law also established a financial intelligence unit (FIU), the
Office for Money Laundering Prevention, to receive and analyze suspicious
transactions. So far the Office has processed 166 reports, of which 28 were
passed to law enforcement authorities for investigation. There have not yet
been any successful prosecutions for money laundering. Slovenia's FIU is an
active member of the Egmont Group of FIUs.
Slovenia has undergone an anti-money laundering mutual evaluation conducted
by the Council of Europe's PC-R-EV. Slovenia participates in the
Southeastern Europe Cooperative Initiative (SECI), among whose goals are to
control the increasing flow of narcotics trafficking across borders and to
close the links to trans-border organized crime. Cooperation with member
SECI states will assist Slovenia's efforts to combat the predicate offenses
that generate illegal proceeds laundered in Slovenia.
South Africa (Concern). South Africa is the major financial center in the
region and its relatively sophisticated banking and financial sector
harbors great money laundering potential. It is believed that the many
syndicates active in criminal activity in South Africa, such as the Russian
Mafia, are involved in diamonds and weapons smuggling. In addition, Chinese
Triads, which specialize in the trade of endangered species, and Nigerian
drug rings are active in South Africa. These organizations diversify and
conduct legitimate operations as fronts to help launder their money.
South Africa continues to be a major transshipment point for narcotics
trafficking and entry point to the continent for hundreds of domestic and
international criminal organizations. Salient factors include its
geographic position on major trafficking routes between East Asia and the
Middle East, the Americas and Europe, the rapid expansion of international
air links, a well developed transportation infrastructure, and modern
international telecommunication and banking systems. Long, porous borders
and weak border control, including undermanned ports and numerous secondary
airports, provide criminal organizations nearly unfettered entry into South
In November 1998, Parliament passed the Prevention of Organized Crime Act.
Chapter 3 of this Act, Offenses Relating To Proceeds of Unlawful Activities
(Money Laundering), repeats portions of the Proceeds of Crime Act (November
1996), which criminalized money laundering. Chapter 3 of the Prevention of
Organized Crime Act also establishes reporting requirements for suspicious
transactions, contains a "safe harbor" provision for persons
reporting such transactions, and obviates all obligations, contractual
or otherwise, to secrecy on the part of the transactors with
the exception of attorney-client privilege.
Criminal activity and its consequent money laundering are causing a serious
problem for South Africa's law enforcement and banking institutions, as
they race to catch up with the impact that crime has on newly-established
The delay caused by the transference of responsibility for promulgating the
Money Laundering Control Bill from the Ministry of Justice to the Ministry
of Finance, in January 1997, has contributed significantly to the success
that criminal groups are having in South Africa. The Bill was nearly ready
for presentation to Parliament when the transfer occurred. Upon receiving
the new responsibility, the Minister of Finance decided to appoint a task
team to study the impact the Bill would have on South Africa. That process
Spain (Primary). There is no evidence that money is being laundered in
Spain from drug sales in the United States, but there is a significant
black market for smuggled goods in Spain, and narcotics proceeds fund part
of this black market, particularly in the area of computer technology.
Money laundering occurs primarily in the financial system, although there
are increasing indications that it is also being laundered through the
acquisition and sale of real estate.
The financial sector, especially the banking community, has responded very
positively to the requirements of the 1993 anti-money laundering law
(Prevention Act) and to its corresponding 1995 implementing regulations,
which require the reporting of the identities of customers engaging in
large currency transactions and the maintenance of records. The money
laundering statutes cover drugs, terrorism and organized crime, and the
controls on financial transactions apply to bank and non-bank financial
institutions, including casinos, property developers, antique dealers, and
jewelers. The banking community cooperates with enforcement efforts to
trace funds and seize bank accounts. The fact that the Executive Service of
the Commission for the Prevention of Money Laundering (SEPBLAC),
Spain's financial intelligence unit, is part of the Bank of Spain
promotes a climate of trust and a close working relationship with the
banking community. Banks have filed the greatest number of reports
of suspicious transactions with SEPBLAC since the system took
effect in 1995. The one area that drug traffickers may be able to exploit,
because it falls outside of the money laundering legislation, is the stock
Significant progress has been achieved in implementing the 1997 National
Drug Plan. However, one key element remains pending before the Spanish
Legislature: the proposal to modify the Criminal Code to authorize the use
of undercover operations against drug traffickers. The use of controlled
deliveries in money laundering cases was approved in January 1999 and has
already been put into practice.
Spain is actively engaged in providing training and promoting institutional
building programs aimed at increasing the effectiveness of the judicial and
law enforcement sectors in other nations, particularly in South and Central
America. The Spanish government has signed criminal legal assistance
agreements with the United States, Australia, Chile, Canada, Argentina,
Mexico, the Dominican Republic, Uruguay, and Morocco. In addition, a number
of Spain's bilateral agreements to fight drug trafficking and organized
crime provide for cooperation by means of exchange of information
and mutual assistance in combating money laundering. The countries
with which Spain has concluded agreements in these areas include Morocco,
France, Portugal, the UK, Sweden, Turkey, Italy, Chile, the Russian
Federation, Israel, Bolivia, Mexico, El Salvador, Venezuela, Uruguay, Malta,
In 1998, Spain joined the Steering Group of the FATF, and SEPBLAC
volunteered to chair the newly-created Outreach Working Group of the Egmont
Group. Spain is a member of the Council of Europe.
Sri Lanka (Other). Sri Lanka is not a major money laundering center, nor is
it considered a tax haven, an offshore banking center, or an important
financial center in the region. Under Sri Lanka's bank secrecy act,
financial transactions relating to narcotics trafficking are illegal. Draft
legislation amending the Dangerous Drugs Ordinance to include specific
provisions against money laundering was still under review as of late 1998
and had not been presented to Parliament. A consultant from the U.S.
Treasury Department played a key role in drafting this legislation,
which contains specific provisions relating to forfeiture of
assets from narcotics trafficking. Sri Lanka is a party to the 1988
UN Drug Convention.
The Government of Sri Lanka needs to enact its anti-money laundering
legislation and should consider expanding its scope beyond narcotics-
related money laundering, as well as adding additional anti-money
laundering measures, such as a suspicious activity reporting system and due
diligence requirements for Sri Lankan financial institutions.
Sri Lanka is a member of the Asia Pacific Group on Money Laundering.
St. Kitts and Nevis (Concern). St. Kitts and Nevis is a twin-island
Federation and an independent member of the British Commonwealth. Drug-
related violent crime has intensified in St. Kitts over the last few years.
The presence of suspected drug traffickers in St. Kitts, the use of the
twin islands as a transit point for narcotics, and the active development
of an offshore financial services sector make St. Kitts and Nevis
increasingly vulnerable to money laundering.
In 1995, the Government of St. Kitts and Nevis criminalized drug-related
money laundering and mandated suspicious transaction reporting and record-
keeping by financial institutions. Preparations are underway to amend the
law to include non-drug offenses. The amended legislation, which is based
on the Commonwealth Secretariat model, is expected to be presented to
Parliament in 1999.
St. Kitts and Nevis each have separate offshore financial sectors. Under
the Federation's 1996 Companies Act, public and private companies are
exempt from income, capital gains and withholding taxes as long as they
conduct their business exclusively with individuals who are not residents
in the Federation. The Federation has not enacted a banking bill, but Nevis
has its own Offshore Banking Ordinance of 1996. In October 1997, St. Kitts
enacted a law permitting offshore financial centers on St. Kitts.
St. Kitts' several hundred offshore companies compete with Nevis's
offshore industry, which consists of approximately 9,000 companies. The
Confidential Relationship Act of 1985 for St. Kitts and Nevis provides
confidentiality in the event foreign authorities seek private banking and
St. Kitts and Nevis is a member of the CFATF, and as such, is required to
undergo a mutual evaluation. The evaluation was scheduled for August 1998,
but the government failed to respond. The evaluation was rescheduled for
February 22, 1999. St. Kitts and Nevis needs to enact the amended anti-
money laundering legislation and to develop the capacity in each
jurisdiction to effectively oversee and supervise the offshore financial
St. Lucia (Other). St. Lucia is not a major financial center. However, in
an effort to expand its economy following the drop in revenue from banana
exports, the Government of St. Lucia (GOSL) is expanding its tourism sector
and developing an offshore financial services sector. The GOSL is looking
to the regulatory structures of Jersey, Guernsey and the Cayman
Islands as models for the offshore sector. In February 1999, the St.
Lucia Foreign minister stated that China has expressed an interest
in investing in offshore banking services in St. Lucia.
St. Lucia has criminalized money laundering beyond drugs, and there are
controls on foreign exchange.
St. Lucia is a member of the CFATF.
St. Vincent and the Grenadines (Concern). St. Vincent and the Grenadines
(SVG) has a growing offshore financial services sector which is protected
by strict confidentiality laws. These factors combine to make the islands
extremely vulnerable to criminal influences and money laundering. Although
SVG has enacted some of the FATF and CFATF recommendations against money
laundering, much work must still be done to strengthen the existing
regulatory framework, to enact comprehensive anti-money laundering
guidelines and train personnel on these issues, and to organize a
coordinated government effort to enforce such policies.
SVG has not yet explicitly criminalized money laundering. The Drug
Trafficking Offenses Act of 1993 criminalizes certain activities relating
to the transfer and concealment of drug proceeds, and allows for some asset
forfeiture and confiscation, but only after a conviction, and only in cases
related to drug trafficking. In 1998 the government considered but did not
pass a Proceeds of Crime Act which would have criminalized money laundering
beyond drugs and subject corporations to criminal prosecution for
The Eastern Caribbean Central Bank provides supervision of the domestic
banking sector (six commercial banks), and in 1995 issued Anti-Money
Laundering Guidance Notes for Licensed Banks. Although they follow CFATF
recommendations, these guidelines lack any enforcement authority. Although
the Drug Trafficking Offenses Act of 1993 requires institutions to record
transactions exceeding $1,850, there is no system in place for reporting
large or suspicious transactions to any authority.
Current SVG law does not allow for the exchange of financial information,
asset sharing, or cooperative investigations with foreign authorities. The
Confidential Relationships Preservation (International Finance) Act of 1996,
for example, seems to impede international cooperation and contravene
CFATF/FATF recommendations for enhanced mutual legal assistance and
information sharing. SVG does have a framework for mutual legal assistance
and extradition between SVG and Commonwealth countries, and for MLATs
between SVG and non-commonwealth countries. The United States and SVG
signed an updated extradition treaty in 1996 and an MLAT in January 1998.
Both of these treaties were ratified by the United States in January 1999,
but are not yet in force.
SVG has a growing offshore financial sector which offers offshore banks,
trusts, insurance companies, and international business corporations
(IBCs). In 1996, SVG passed a series of laws to regulate the sectors,
including The International Banks Act, The International Trusts Act, and
The International Business Companies Act. The government also created an
Offshore Finance Authority to regulate offshore activities, but it lacks
adequate staff (currently four), and there are no other mechanisms to
ensure compliance by offshore entities. (Approximately 800 IBCs were
registered in 1997 alone.) There are no regulations relating to customer
identification, the reporting of suspicious and/or large transactions, or
the identification of beneficial owners of licensed institutions.
St. Vincent is a member of the CFATF, but its participation is poor. Its
CFATF evaluation has been completed but not reviewed because St. Vincent
did not attend the CFATF meeting at which the review was scheduled to take
The government of SVG should move to enact the Proceeds of Crime Act,
increase supervision of the offshore sector, and allow information exchange
and cooperate with foreign authorities in order to prevent its financial
sector from being used by international criminals and money launderers.
Sudan (Other). Sudan is not a financial center, and money laundering is not
considered to be a significant problem at this time.
Suriname (Other). Suriname is not a major money laundering center. However,
it is used as a drug transshipment point for cocaine, which is transported
from Brazil, Venezuela and Colombia and is destined primarily for The
Netherlands and other European countries. Money laundering in Suriname
continues to take place through the overvaluation of goods purchased, the
sale of gold bought with illicit funds and sold in Suriname, and the
manipulation of accounts in commercial and state-controlled banks. The
government has awarded plans to open a large number of casinos in Suriname,
and Suriname officials have expressed concern that the casinos will be used
for money laundering.
Drug related money laundering is a crime in Suriname. In 1997, the central
bank issued guidelines mandating know-your-customer policies and suspicious
transaction reporting. The guidelines also called for a central unit to be
established within the Office of the Attorney General to collect and
analyze suspicious transaction reports. If the Attorney General's office
deems that there is sufficient information for prosecution, the case is
referred to police investigators. Officials are currently drafting an
amendment to the Bank Act that will incorporate new regulations
concerning bank supervision by the central bank. It is expected that
the final drafts will be presented to the Cabinet for approval
in early 1999.
Money laundering charges have been filed against former Surinamese military
dictator and ex-President Desi Bouterse, who is also the special advisor to
Jules Wijdenbosch, the current Suriname President. According to the Dutch,
the former army sergeant was a major participant in a cartel that
transported tons of cocaine to The Netherlands and other European
countries. Bouterse is suspected of smuggling 1,336 kilograms of cocaine
into the Netherlands and Belgium.
Suriname needs to implement its anti-money laundering laws and new banking
regulations. If casinos are opened, reporting requirements should be
extended to those operations.
Suriname is a member of the CFATF.
Swaziland (Other). Several factors make Swaziland attractive to narcotics
traffickers and money launderers, including its advantageous location in
southern Africa, outdated legislation, limited enforcement capabilities,
and ease of investment between it and South Africa.
Swaziland's anti-narcotics law dates from 1929 and does not specifically
address money laundering. A Money Laundering Act was drafted in 1997 and
was under review by the Attorney General's Office, but it is not clear if
the Act has been enacted.
Swaziland is a party to the 1988 UN Convention.
Sweden (Other). Current Swedish legislation covers most types of proceeds
from criminal activity, but the act is usually a receiving offense, such as
receiving stolen goods. The Financial Supervisory Authority has issued
guidelines, based on the law, which require financial institutions,
insurance companies, and currency exchange houses to verify customer
identification and to report suspicious transactions to the police. The
guidelines are scheduled to be changed so that non-complying
institutions will be sanctioned, rather than individual officers being
The Government of Sweden is preparing additional legislation (to come into
force in July 1999) which will enhance existing money laundering controls.
The new law will create a specific money laundering offense as opposed to
prosecution for receiving offenses, and will also allow customs and tax
offenses to be predicate offenses to money laundering. Another legal
proposal concerns confiscation and seizure of criminal property.
On January 1, 1999, a law on corporate activity came into force concerning
certain types of economic crime. Work is ongoing to amend this law to
encompass money laundering as well. The amendment would oblige auditors of
a company to report suspected money laundering to the board of directors,
unless the board was involved. In those cases, the report would be made
directly to the police. If reports to the board fail to result in legal
action, the auditors' duty would then be to go to the police.
Sweden is a member of the FATF and of the Council of Europe, and its
financial intelligence unit participates in the Egmont Group.
Switzerland (Primary). Switzerland is an important financial center and
holds a significant share of the world's private banking assets.
Switzerland has long been recognized as one of the world's leading offshore
financial service centers that provides its clientele with absolute bank
secrecy, trusts, and exempt companies that can issue bearer shares. Because
Switzerland's legal system is not rooted in English common law, it does not
offer asset protection trusts (APTs) or international business corporations
(IBCs) as literally defined in the offshore financial centers chart.
Its trusts and exempt companies, however, serve the same functions
as do APTs and IBCs. In 1998 Switzerland enacted a new anti-money
laundering law which entered into force on April 1, 1998. This legislation
requires the reporting of suspicious transactions by both the traditional
banking sector and the non-bank sector. In addition, it requires the
financial institution or non-bank financial institution to clarify with the
customer the purpose of any transaction if it appears to be "unusual".
The law also mandates know-your-customer, record keeping and due
diligence measures. All of these provisions apply to accountants,
solicitors, and insurance and financial advisors as well. The law also
established the Money Laundering Reporting Office, which is the
recipient of the suspicious transaction reports and thus serves as the
Swiss financial intelligence unit (FIU).
Switzerland is a member of the FATF, and the Money Laundering Office
participates in the Egmont Group of FIUs. It is not yet a party to the 1988
UN Drug Convention. Switzerland is a party to the Council of Europe
Convention on Money Laundering and has an MLAT with the United States. For
the past several years, Switzerland has continued to rank among the
countries which exchange the most MLAT requests with the United States for
all forms of crimes, including those involving drug trafficking.
Cooperation under the MLAT is excellent.
It is too early to determine the effectiveness of this new legislation, but
it is a positive response by Switzerland to the fight against money
laundering. However, its effectiveness will depend on its implementation.
Syria (Other). Despite the lack of anti-money laundering legislation,
opportunities for money laundering in Syria are considered limited. The
banking system is state-controlled, and a separate law prohibits the
handling or possession of, as well as transactions in, any foreign
currency. The government still regulates the amount of currency that can be
withdrawn from a bank or taken out of the country ($2,000).
In 1996, Syria began allowing individuals to open foreign currency accounts
at the Commercial Bank of Syria. There are no restrictions on withdrawals
from these accounts (or from any account in Syrian pounds.) Although
illicit proceeds from the narcotics trade may flow through Syria, it is
generally thought that they are moved to Lebanon for laundering.
Syria is a party to the 1988 UN Drug Convention. It has no anti-money
laundering legislation on the books and no plans to draft any. It does have
legislation authorizing the seizing of assets derived from profits from the
As a first step, Syria needs to draft legislation criminalizing money
laundering and mandating the reporting of suspicious transactions.
Taiwan (Primary). Taiwanese authorities recognize that money laundering--
which in the past has been linked in Taiwan not only to narcotics
trafficking, but also to insider trading in the securities markets, tax
evasion, land speculation, and the smuggling of contraband across the
Taiwan Strait--has become a growing problem. Taiwan enacted an anti-money
laundering law in late 1996 which criminalizes the laundering of proceeds
acquired through narcotics trafficking and other major criminal activities.
Banks and a wide range of non-bank financial institutions must record and
report the identities of customers engaging in suspicious transactions or
currency transactions exceeding the equivalent of $46,000. They must also
keep receipts for five years and accounting records for ten years. The
legislation also established the Money Laundering Prevention Center (MLPC)
which functions as Taiwan's financial intelligence unit (FIU). The
MLPC consists of approximately 25 investigators, analysts, computer
specialists, and support personnel, and is subordinate to the Ministry of
Justice Investigations Bureau. In June 1998 the MLPC became a member of the
Egmont Group of FIUs.
Since January 1998, the MLPC has investigated 953 new cases involving
possible money laundering activity. Disclosures of suspicious transactions
by financial institutions generated 274 of those cases. Four cases have
resulted in charges being filed; 242 cases have been referred to law
enforcement agencies for further investigation. In late 1997, the MLPC
referred a case involving over $52 million to the FBI for investigation,
which resulted in charges being brought in California on customs
violations. The MLPC has also been working closely with U.S. law
enforcement officials in a corruption case involving $4 million.
In May 1998, dozens of black market exchange and money-remittance agencies
were charged with illegally trading foreign currencies amounting to more
than $313 million. Officials discovered that these businesses often assist
drug traffickers, smugglers, kidnappers, economic criminals, and corrupt
government officials in laundering money or covering up embezzled cash.
Investigators also discovered that foreign laborers in Taiwan are favorite
clients of illegal currency exchange and money remittance agencies. Some
illegal exchange and money remittance agencies have also been found
operating money laundering businesses across the Taiwan Strait via
Taiwanese officials are also investigating a growing underground market
used by organized criminals, smugglers and drug dealers to transfer money
between Taiwan and China. The market, which makes annual transactions of up
to $1 billion a year, is increasingly used for money laundering. The
foreign exchange network started in China's southeastern coastal provinces
a few years ago as companies with Taiwanese investments remitted their
profits abroad to bypass a Chinese ban. The network involves jewelry shops,
travel agents, and money lenders in both Taiwan and China, and has good
business connections with other Southeast Asian countries. Through
the network, dozens of criminals who fled a Taiwanese anti-crime
campaign by relocating to China regularly receive money from their
families in Taiwan.
Taiwan is a member of the Asia Pacific Group on Money Laundering under the
name of "Chinese Taipei".
Taiwan needs to continue to vigorously enforce its anti-money laundering
legislation to protect against financial crimes and money laundering.
Tajikistan (Other). Although Tajikistan is a transit country for narcotics
moving from Afghanistan to both Eastern and Western Europe, the primitive
state of its banking sector, lack of investment opportunities and unsettled
political conditions make it unattractive as a place to launder money.
Nonetheless, given the official corruption and large quantities of cash
generated by narcotrafficking, money laundering is likely to become an
increasing problem. Anti-money laundering legislation and increased
controls as the banking sector develops would help to deter possible future
money laundering activity in Tajikistan.
Tanzania (Other). Tanzania is not a major financial center. However, it
continues to be a major transit point for a number of illegal drugs. As a
result of drug transshipment, there has been a sharp rise in organized
crime, gang warfare, and other violent crimes. This activity in turn has
given rise to a myriad of cash-intensive businesses set up to launder money,
including travel agencies, import-export firms, the construction of
new office buildings and apartment houses, and textile mills.
Money laundering is also reportedly becoming pervasive in the non-
bank financial system.
Money laundering is a criminal offense in Tanzania, but enforcement of the
law is virtually nonexistent. The lack of complementary regulations,
combined with inexperience and, very often, corruption on the part of law
enforcement officials, has created an environment conducive to financial
crimes in Tanzania.
Tanzania is a party to the 1988 UN Drug Convention.
Thailand (Primary). Thailand's extensive and efficient banking system is
used by drug traffickers to hide and move their proceeds. The underground
banking system is also widely in use as a money laundering method. Money is
transported in bulk from the United States to other Asian countries, whence
it is ultimately moved to Thailand. Casinos, underground lotteries and
gambling dens account for a significant portion of Thailand's
underground economy and are attractive venues for money laundering.
There is also evidence that telegrams known as "moneygrams"
are used to send money from the Untied States and other countries to
Thailand in order to fund heroin shipments. In several instances, Africans
were involved in both the money transmission and the heroin shipments. Gold
is also being smuggled in Thailand and used as a method of laundering
Thailand failed again in 1998 to enact its long-awaited anti-money
laundering law. The Lower House of Parliament passed the bill in June but
gutted it from nine to only two predicate offenses--drug trafficking and
sexual exploitation of women and children. The deletion of most of the
original predicate offenses drew heavy criticism from the public and the
media amid allegations that some legislators were trying to save themselves
or their associates from punishment for certain crimes they had committed.
The trimmed-down bill went to the Senate, which reconfigured it to include
eight predicate offenses, a step supported by the government. A
joint House-Senate Committee is expected to iron out the differences.
Two pieces of existing Thai legislation address money laundering to a minor
extent. The 1992 Narcotics Conspiracy and Asset Forfeiture Laws authorize
enforcement officials to solicit the cooperation of banks and financial
institutions in obtaining the release of financial records in order to
assist in the tracing of assets of convicted and suspected narcotics
traffickers. However, banks are not obliged to cooperate, and many have
chosen not to do so out of fear of losing accounts and possible lawsuits by
customers. Also, the Bank of Thailand requested that Parliament amend
the Commercial Bank and Finance Company Acts to allow it to trace
suspect funds more quickly. In the past, the authorities had to file
charges first and the court had to issue a formal order before bank account
details could be disclosed, since they were regarded as private
An offshore banking facility was established in Thailand in 1992, with
licenses issued by the Ministry of Finance. Offshore banks cannot take
deposits from Thailand; they merely serve as windows for channeling
offshore funds into Thailand.
Thailand is reportedly looking toward legalized gambling to help alleviate
its economic problems. Thai officials believe that the plan to legalize
casinos will bring in much-needed dollars for the ailing economy, while
Thai police authorities have also said it may help minimize illegal
gambling in the country. With the legalization of casinos, however, also
come the risks that they may be used for money laundering.
Thailand and the United States signed an agreement in late September 1998
to establish an Asian law enforcement academy to combat transnational
crime. The agreement to establish the International Law Enforcement Academy
is part of a plan to combat crimes such as money laundering, intellectual
property theft and counterfeiting. Thailand and the United States have an
MLAT in force which has been utilized in several criminal cases.
Thailand is not yet a party to the 1988 UN Drug Convention; however, it
hopes to become one after the anti-money laundering bill is enacted.
Thailand is a member of the Asia Pacific Group on Money Laundering.
Thailand urgently needs to enact anti-money laundering legislation that
fully complies with international standards, particularly the full
criminalization of money laundering and the requirement for financial
institutions to report suspicious transactions to a central authority to
act on these reports. The absence of a strong anti-money laundering regime
exposes Thailand's financial system to continued abuse by criminals and
adversely affects its economy.
Togo (Other). Togo is not a financial center, but it has recently
experienced an increase in financial crime, including advanced fee fraud
schemes emanating from Nigeria. There are reports of money laundering
occurring in businesses in Togo, but there are no indications that it is a
significant problem at this time.
Tonga (Other). Tonga has an offshore financial center (OFC), which offers
many of the services of fully-developed OFCs, including offshore banks,
trusts and management companies, international business corporations, and
other forms of exempt companies. Its services are advertised on the
Internet, and Tonga sells economic citizenships.
Trinidad and Tobago (Concern). Trinidad and Tobago is neither a regional
financial center nor an offshore center. The Government of Trinidad and
Tobago (GOTT) has been taking aggressive action to combat money laundering
and drug smuggling. For the first time, with the help of Trinidad and
Tobago's Counter-Drug Crime Task Force, the GOTT charged four people with
money laundering. The GOTT plans to amend its anti-money laundering
legislation to criminalize non-drug related money laundering, and for the
first time to require that financial institutions report suspicious
transactions. Trinidad and Tobago has no laws authorizing the sharing of
forfeited assets with other countries, but legislation permitting such
asset sharing is currently being prepared.
Trinidad and Tobago is an active member and supporter of the CFATF, which
is based in Port of Spain. The GOTT cooperates with the United States in
drug-related financial investigations.
The GOTT should establish suspicious transaction reporting requirements for
banks and for non-bank financial institutions, and should criminalize non-
drug-related money laundering.
Tunisia (Other). There is little information available about possible money
laundering in Tunisia. Although the government is a party to the 1988 UN
Drug Convention, it has not enacted anti-money laundering legislation, and
none is currently being considered. The one-party government keeps a strong
hand in the management of even the private sector of the economy. However,
there are a number of factors which make Tunisia potentially vulnerable to
money laundering activities, such as an offshore banking sector of about 12
banks, the lack of cross border currency reporting requirements, and the
absence of a regulation requiring currency declaration to customs (although
amounts above $1,000 or its equivalent "should" be declared).
In mid-1998 a Tunisian government official stated publicly that drug-
related money laundering was a "scourge" threatening all nations, both
developed and developing, and that international cooperation was vital to
In view of the factors which make Tunisia vulnerable to money laundering,
Tunisia should consider enacting legislation criminalizing money laundering
from all sources.
Turkey (Primary). The proceeds from drug smuggling are a significant source
of illicit funds in Turkey. However, other areas are beginning to emerge as
major risk factors. These include the cross-border trade ("the suitcase
trade") in small commercial goods between Turkey and the nations of Central
Europe. While this activity is mostly legitimate, it is a major
source of profit for entrepreneurs who then launder these profits
in Central Europe. The construction industry is widely thought
to serve as a conduit for laundering funds. In addition, Turkey
is becoming an increasingly sophisticated regional financial market,
with all the dangers that poses vis-à-vis money laundering.
Casino operations, which were previously thought to serve as a money
laundering venue, were closed down in February 1998. With the closing of
the casinos and with strong implementation of the 1996 anti-money
laundering law, it is expected that whatever money laundering occurred in
the casino and banking systems may shift to the non-bank financial system
of informal currency exchange houses. According to late 1998 information
from Turkish Ministry of Finance officials, other major money laundering
methods in Turkey include the cross-border smuggling of currency, bank
transfers into and out of the country, and investment in high-ticket
items such as real estate, gold, and luxury automobiles.
In November 1996, after years of multi-lateral pressure from the FATF, of
which Turkey is a member, the Turkish government passed an anti-money
laundering law which criminalized money laundering and met minimum FATF
standards. The bill as first submitted covered money laundering derived
from any criminal activity, but the bill which passed specified the
following predicate offenses: arms and narcotics smuggling, trafficking in
human organs, terrorism, and trafficking in antiquities. Despite the
limitations, passage of the bill, which imposes monetary fines and prison
terms for those convicted, was considered a major accomplishment, as
Turkey was among the first countries in the area to enact such
legislation. The law also covers such areas as seizure, confiscation, and
Subsequently, in June 1997, the Turkish Council of Ministers passed a
comprehensive set of regulations pertaining to the financial sector which
cover such areas as suspicious transaction reporting (STR) requirements and
customer identification. The regulations are applicable to banks and to a
wide range of other financial institutions and non-bank financial
institutions, including insurance firms and jewelry dealers. The
regulations took effect on October 1, 1997.
Turkey's anti-money laundering law provides for the establishment of two
organizations to enforce the law. The first, the Financial Crimes
Investigation Board (FCIB) receives and analyzes suspicious transactions
and functions as Turkey's financial intelligence unit (FIU). The second
organization is an interministerial group called the Coordination Board for
Combating Financial Crimes, which is responsible for coordinating the
activities of the FCIB, determining policies concerning implementation of
the anti-money laundering law, and evaluating draft legislation and
proposals to expand the scope of the law.
The President of the FCIB is optimistic about elevating Turkey's money
laundering standards and its regime to that of the other FATF nations. He
stated in October 1998 that the number of STRs being filed by banks and
other financial institutions has been steadily on the rise as these
entities become more aware of what constitutes a suspicious transaction.
Such transactions must be reported within ten days of occurrence. Also, the
reporting of cross-border currency movements, which was provided for in
the original law but was delayed in order to allow Turkish Customs
time to put its data systems in order, is now in force. However, the
regulation requiring the reporting of large cash transactions, which was to
have been implemented in July 1998, was still not being enforced as of
October 1998. The President of the FCIB stated that Turkey is a very cash-
intensive society and that it was decided that the burden on banks would be
too great at a time when they are still getting used to STRs.
Turkey has a mechanism in place with the United States to exchange records
on narcotics investigations, including those involving money laundering. As
of mid-1998, there had been one arrest under the new anti-money laundering
legislation, and over 50 cases were being investigated. In addition, since
the establishment of the FCIB, the government has stepped up enforcement of
existing drug-related asset seizure and forfeiture laws.
As indicated, Turkey is a member of the FATF. It is also a member of the
Council of Europe. The FCIB has been a member of the Egmont Group of FIUs
since June 1998. Based on its demonstrated commitment to fighting money
laundering, Turkey now needs to maintain the momentum it has shown.
Turkmenistan (Other). Turkmenistan is not a financial center, and its
banking system is not sophisticated enough for money laundering activities.
Government of Turkmenistan (GOT) officials are concerned that criminal
groups may be laundering funds through the six casinos in the capital of
Ashgabat or through luxury hotels, which are often foreign-owned. However,
no actual cases of money laundering have been reported. The GOT is said to
be considering new umbrella legislation aimed at money laundering.
Although money laundering is not currently a major problem, Turkmenistan
should adopt its proposed legislation in order to deter money laundering
and to protect the integrity of its financial system.
Turks & Caicos (Concern). The Turks and Caicos Islands (TCI), a British
Overseas Territory, remains vulnerable to money laundering. Offshore
services offer bank and corporate secrecy opportunities for criminals to
hide their money. However, TCI cooperates closely with the United States in
anti-narcotics measures, and in September 1998 TCI Governor John Kelly
signed comprehensive anti-money laundering legislation.
The new legislation, The Proceeds of Crime Ordinance 1998, criminalizes
money laundering related to any crime and establishes extensive asset
forfeiture provisions. It also authorizes the governor to issue a "code of
practice" mandating the reporting of large and suspicious transactions to a
Reporting Authority. (Currently, the seven banks are already obliged under
the law to report suspicious transactions.) The Reporting Authority is to
consist of the Attorney General, the Collector of Customs (or his
representative), the Superintendent of the Financial Services Commission or
his representative, the Commissioner of Police or his representative, and
the Superintendent of the Criminal Investigation Department or his
representative. The Authority may disclose information it receives to law
enforcement agencies in TCI or to foreign governments.
The Turks & Caicos Islands' offshore services include banking, insurance,
trusts, international business corporations (IBCs) and other exempted
companies. The Financial Services Commission (FSC), formed in 1989, is
responsible for licensing and supervising all domestic and offshore finance-
related operating entities, including banks, insurance companies, mutual
funds, and securities firms. The Companies Registry, which monitors the
incorporation or the registering of new companies, is also under the
jurisdiction of the FSC. Public information indicated that as many as 12,
000 exempted companies were on the Registry in 1998.
Despite close supervision, the offshore sector remains vulnerable to abuse.
In September 1998, eight men were indicted by a grand jury in Huntington,
WV, in an alleged get-rich-quick scheme which defrauded investors out of
$7.9 million. The ring allegedly advertised "Offshore Trading Programs,"
which promised a $73.3 million return on a $40,000 investment in one such
program over 10 months. Once the ring received money from investors, it
constantly moved the funds to and from bank accounts in the United States,
England and the Turk and Caicos Islands.
Once fully implemented, the new legislation should help the Turks & Caicos
Islands to protect its financial sector from abuse and to cooperate with
foreign authorities in the fight against narcotics trafficking and money
Turks & Caicos is a member of the CFATF.
Uganda (Other). Uganda is experiencing a large influx of western currency,
primarily from non-governmental organizations and donor nations. Ugandan
authorities suspect some of the funds come from illicit sources, but are
candid about their lack of expertise in investigating money laundering.
After determining that at least three Ugandan companies were being used by
a group of Nigerians and Ugandans as fronts for money laundering,
the Governments of Uganda and Nigeria signed a bilateral initiative
to cooperate in the fight against drug trafficking and money
Uganda needs to develop anti-money laundering measures to protect itself
from financial crimes and money laundering.
Ukraine (Concern). Ukraine has a favorable combination of factors creating
an ideal money-laundering environment, including organized crime, pervasive
corruption, a sizable gray economy (officially estimated at 43 percent),
abundant resources, the absence of legislation, and inadequate regulations.
Financial crimes generating illegal proceeds include the smuggling of
consumer goods, foodstuffs, alcohol, and cigarettes; embezzlement of
state funds; tax evasion, tax fraud, and evasion of other duties;
and narcotics and arms trafficking. Although these crimes occur
in other countries in transition, Ukraine stands out in comparison
to its Commonwealth of Independent States (CIS) neighbors because of the
high degree of official corruption, especially at the mid-level of
The Ukrainian President has criticized the enforcement and judicial sectors
for unsatisfactory performance in fighting crime, pointing out that over 3,
000 organized crime groups and 7,000 instances of bribe-taking by
government officials were uncovered in Ukraine in 1998. In addition,
enforcement authorities have identified 2,000 front companies used by
criminals for money laundering. In late 1998 Ukrainian authorities
uncovered a money laundering network operating in Kiev that allegedly
laundered funds for almost 3,000 private and state-controlled companies.
The network would receive bank fund transfers from companies desiring to
evade taxes and transfer the funds to front companies, which then paid
the companies back in cash disguised as payment for fictitious
services. The network laundered almost $300,000 daily, according to
the Ukrainian Tax Police Service.
As part of its legislative reform process, Ukraine is in the early stages
of drafting a comprehensive anti-money laundering bill that will meet
international standards. Successful implementation of the bill will require
amendments to anti-money laundering provisions in the existing Criminal
Code, Criminal Procedural Code, banking and commercial laws, and laws
dealing with investigative and prosecutorial agencies, or inclusion of such
provisions in new draft laws in these areas. In a positive step, Ukraine
repealed its law permitting anonymous bank accounts in July 1998.
Despite its relative lack of progress on the domestic anti-money laundering
front, Ukraine is active in multilateral and bilateral efforts to combat
crime. In June 1998 it joined the CIS Council of Ministers, whose goal is
to combat crime in CIS countries. In May 2000, Ukraine will undergo a
mutual evaluation conducted by the Council of Europe's PC-R-EV. The
evaluation will provide detailed suggestions on improving Ukraine's
proposed anti-money laundering program.
United Arab Emirates (Primary). The United States understands that the
various member states of United Arab Emirates (UAE) have been drafting an
anti-money laundering law for the past four years, but that no legislation
has been enacted. Money laundering has not been criminalized. Some banks
and financial institutions have internal policies calling for the
identification of customers, record-keeping, and reporting of suspicious
transactions, but it is not clear how rigorously these rules are enforced.
There is also a network of unregulated currency exchanges in the UAE,
and there are virtually no restrictions on the import or export of
currencies by either foreigners or UAE nationals.
There is almost no U.S. law enforcement presence in the Gulf region, and
cooperation with U.S. law enforcement is minimal. These factors have
limited the amount of information available on money laundering in the UAE.
However, several factors, supported by some reporting, suggest that the UAE
is being used to launder substantial illicit funds. These factors include:
a) the UAE's location near regional drug-producing countries and major
smuggling routes; b) the UAE's status as a regional financial center with
modern, state-of-the-art communications and transportation facilities and a
tradition of bank secrecy; and c) the flourishing informal hawala
alternative remittance system, widely used in south Asia, and the large
gold market, both of which are likely venues for money laundering.
These are often significant factors in criminal activity associated with
India and Pakistan. Dubai played a significant role in the illicit
financial activities of former Pakistani Prime Minister Benazir Bhutto.
Laundered funds associated with the smuggling of aliens from India to the
United States have also been traced to Dubai. Most money laundering
activity in the UAE is believed to involve criminal organizations and
illegal activity from outside the UAE.
The influx of Russian visitors into Dubai has grown over the past few
years. Attracted by cheap prices for consumer goods, especially electronic
products, the free-spending Russian visitors are welcome to the business
community. However, they also bring with them drug trafficking and other
organized criminal activity. Criminal groups are suspected of having used
illicitly-generated funds to buy consumer goods in the UAE for re-export
and sale in Russia. It is rumored that the Russian Mafia has deposited
billions of dollars for laundering in Dubai's banks, where no questions
The UAE's loose federal structure and the free-wheeling merchant tradition
of Dubai have led many observers to focus on Dubai's banking facilities as
the biggest money laundering risk in the UAE.
The Sa'diyat Free Zone Authority in Abu Dhabi, touting "over $200 billion
of excess liquidity" in Abu Dhabi, is trying to create a free market
financial center, with a regional stock exchange, commodities storage, and
The UAE itself is not a member of the FATF, but it is part of the GCC,
which holds FATF membership.
The UAE should enact, implement, and enforce anti-money laundering
legislation meeting international standards established by the FATF.
Specifically, the legislation should include the full criminalization of
money laundering, the requirement for financial institutions to report
suspicious transactions to a central authority, and the establishment of an
authority to act on these reports.
United Kingdom (Primary). The United Kingdom (UK) is one of the major
financial centers in the world, and therefore continues to be vulnerable to
money laundering. UK money laundering legislation is broad and in full
compliance with all major money laundering directives and recommendations.
UK money laundering regulations mandate suspicious transaction reporting,
customer identification and record-keeping. They provide "safe harbor" to
institutions and individuals who comply with the regulations.. These
provisions apply to both the banking sector and non-bank financial
institutions. Suspicious transaction reports are filed with the Economic
Crime Unit of the National Criminal Intelligence Service (NCIS), which
serves as the UK's financial intelligence unit.
The UK's anti-money laundering law extends to other sectors, including
lawyers, accountants, and other professionals. Bureaux de change are
subject to the money laundering regulations, but they are not supervised or
licensed. The gaming industry is not covered by the regulations, but has
adopted a voluntary code covering these areas. Current legislation allows
for the confiscation of assets belonging to persons convicted of serious
The regulatory structure in the UK is currently in transition due to the
creation of the new Financial Services Authority. This authority will be
responsible for all regulatory functions within the UK that had previously
been handled by nine separate financial service regulators.
Due to the government's concern over the offshore sector and its financial
supervision in the crown dependencies, the Home Secretary commissioned a
former UK Treasury official to conduct a review of financial regulation in
these jurisdictions. The results of this review have recently been
published, and a number of crown dependencies are already taking steps to
implement its recommendations.
The UK is a member of the FATF. It is also a party to and has fully
implemented both the 1988 UN Drug Convention and the Council of Europe
Convention on Money Laundering. It has implemented the EU Directive on
Money Laundering. NCIS participates in the Egmont Group.
Uruguay (Primary). Uruguay is a politically stable nation and an important
regional financial center which attracts substantial foreign deposits.
United States and European law enforcement officials believe that funds
from the illicit narcotics trade and contraband are laundered through
Uruguayan banks and exchange houses. There have been a few isolated but
important cases; however, there is no solid evidence of widespread money
Uruguayan law permits the operation of offshore banks and businesses, but
Uruguay is not considered a major international offshore center. The
central bank conducts background inquiries on all applicants for offshore
banking permits, but the thoroughness of these inquiries has been
questioned. The offshore banks are not required to comply with the same
requirements as other financial institutions in Uruguay, but they are
subject to Government regulation and an annual audit, and must submit
quarterly financial reports and a yearly action plan. The offshore
institutions must also identify their clients and maintain records of
In October 1998, the Government of Uruguay adopted an anti-drug law which
criminalizes the laundering of funds derived from narcotics trafficking. It
prohibits financial institutions from opening or maintaining accounts
without identification and imposes record-keeping requirements. The law
authorizes Uruguayan courts to provide records to foreign governments in
criminal investigations, subject to relevant procedures and statutes. It
gives the courts power to seize and later confiscate property or financial
instruments used in money laundering. The central bank and the courts have
legal responsibility for asset tracing, and judges may issue
seizure orders at any time and without notice. Currently, Uruguay
does not permit the sharing of seized narcotics assets with other nations,
but it has not ruled out such a possibility and has expressed a willingness
to negotiate bilateral sharing agreements. The October anti-drug law does
not allow for the monitoring of currency or monetary instruments entering
or departing Uruguay.
The recording of currency transactions over $10,000 (including currency
transactions with offshore banks) has been required since 1993 by central
bank regulation. Approximately 29 institutions have been officially warned
or fined for non-compliance with these requirements. The central bank is
developing a computerized information system to monitor and analyze these
In December 1998 the GOU approved the anti-corruption legislation that had
been pending since early 1996. The law makes provisions for financial
disclosure statements by public officials and criminalizes money laundering
offenses connected to cases of public corruption.
Now that Uruguay has enacted anti-money laundering legislation, it needs to
move as quickly as possible to issue the necessary complementary financial
regulations. It also needs to establish a financial intelligence unit to
process suspicious transactions. Uruguay needs to criminalize money
laundering beyond drugs and to mandate the reporting of suspicious
Uzbekistan (Other). Uzbekistan is not an important financial center or a
significant country for narcotics-related money laundering. The banking
system is rudimentary and not likely to be used to launder illicit proceeds,
especially since it is government-controlled, which ensures that the
government is generally aware of banking activities. The Uzbeki currency is
not convertible, so what money laundering does occur is in other
currencies. Some ill-gotten gains may be funneled through the construction
industry, but the amount is small and the origin of the money cannot be
Uzbekistan is a party to the 1988 UN Drug Convention. It has criminalized
money laundering beyond drugs, but the draft anti-money laundering
legislation is still pending. According to United States law enforcement
sources, the political will to support enforcement efforts is strong in
Uzbekistan, and a specialized unit in the Ministry of Finance has been
designated to investigate financial crimes and money laundering. Uzbekistan
must first enact and implement its anti-money laundering legislation so
that enforcement efforts can proceed.
Vanuatu (Concern). The attractiveness of Vanuatu as an offshore center can
be attributed to its strict bank secrecy and to the absence of income,
estate, gift and capital gains taxes. It is an extremely active financial
center, with offshore companies, trusts, and banks. Vanuatu has no exchange
controls, and is not a party to any tax treaties. Funds amassed in or
remitted to Vanuatu in any currency can be held and transferred anywhere in
the world. Any major world currency can be invested, earn interest and
be repatriated in that currency or freely converted into other
currencies. The role of administering the extensive financial and
business facilities falls upon the Finance Centre Association.
International companies registering in Vanuatu must be formed as
international business corporations. These companies benefit from a 20-year
tax exemption and are not required to file financial statements or to be
audited. The role of an exempt bank or financial institution is limited to
conducting business outside Vanuatu; however, registered offices and
records are held in-country. Exempt banks in Vanuatu are free of many of
the reporting requirements of banking supervisors, and all records are
protected from search by strict secrecy regulations. Beneficial owners of
foreign entities operating in Vanuatu do not have to reveal their true
identity when they register, so their financial activities may remain
secret. Vanuatu is considering offering asset protections trusts.
The Vanuatu offshore financial center is advertised on the Internet.
Vanuatu is preparing anti-money laundering legislation, which is likely to
resemble the Commonwealth model, as well as an Offshore Banking Bill which
will contain a know-your-customer requirement. The Vanuatu Government also
has three other pieces of legislation that assist its fight against money
laundering: The Extradition Act 1988, The Mutual Assistance in Criminal
Matters Act 1989, and the Serious Offenses (Confiscation of Proceeds) Act
1989 (which deals specifically with money laundering.) Recently,
Vanuatu's Financial Services Commission, the regulator of the
financial sector, established an Offshore Banking Supervision Unit.
Vanuatu needs to enact and implement anti-money laundering legislation that
meets international standards to protect its financial services industry
from financial crimes and money launderers. Particular emphasis needs to be
directed to its offshore financial center, which lacks prudential bank
Vanuatu is a member of the Asia Pacific Group on Money Laundering, the OGBS,
the Commonwealth Secretariat, and the South Pacific Forum.
Venezuela (Primary). Venezuela continues to be a major drug transit country
and money laundering center, as demonstrated in 1998 by a U.S. Customs
investigation, Operation Casablanca, which has identified officials from
two Venezuelan banks as having actively participated in a scheme to launder
illegal proceeds. The Government of Venezuela (GOV) has acknowledged that
Venezuelan financial institutions are a prime target for the laundering
of drug proceeds. Venezuela has financial institutions which
engage in currency transactions involving international narcotics
proceeds that include significant amounts of U.S. dollars.
Overall, Venezuela has most of the laws, regulations and mechanisms
necessary to prevent, detect and combat money laundering. The 1993 Organic
Drug Law criminalizes narcotics-related money laundering, and strict
regulations were issued for the banking and financial sectors requiring
them to report currency transactions over $10,000, identify all customers,
set up internal financial investigations units, and report all suspicious
financial transactions to the Superintendency of Banks and Financial
Institutions. The Superintendency established a financial intelligence unit
to receive and analyze currency transactions reports and reports of
suspicious financial activity. In 1998, 32 currency exchange houses in the
border region were closed for suspicious activities possibly connected to
money laundering. A new Code of Criminal Procedures was adopted in
late 1997 which restructured the justice system from the current written,
inquisitorial approach to an oral, adversarial system, and should improve
the efficiency of the courts. The GOV has focused considerable efforts in
preparing for the implementation of this Code by establishing a new
infrastructure and providing extensive training programs for judges,
prosecutors and police. Under the new Casinos Law, a regulating and
overseeing commission was created and strict licensing requirements issued,
including the posting of a substantial financial bond, a rigorous financial
investigation, and personal investigations of all corporate officers. The
regulations also require casinos to report transactions over $5,000. In
addition, during 1998 the GOV succeeded in getting a comprehensive
organized crime bill through the Lower House of the Congress. This
bill contains provisions to expand money laundering investigations
and facilitate asset seizure. However, the bill was not considered by the
Senate before the Congress adjourned early to prepare for legislative and
Enactment of these laws and regulations signals the GOV's commitment to
combat narcotics-related money laundering. In addition, Venezuela and the
United States have an MLAT which was ratified by the United States in
January 1999, although it is not yet in force. However, these efforts
continue to be undermined by rivalry, lack of cooperation and especially
corruption in all segments and at all levels of Venezuelan society. This
corruption ranges from simple tax evasion at all income levels to large-
scale bribery of government officials. Narcotics-related corruption within
the law enforcement and judicial sectors continue to impact on counter-
narcotics and anti-money laundering efforts. Corruption within the
judiciary is evident in long delays, dismissal of charges on technicalities
and the mishandling of evidence and cases. Inefficiency and outright
rivalry among the various police organizations are further obstacles
to success. The authorities have been openly addressing the issue
through a series of conferences featuring international experts on the
subject, and there have been successful prosecutions of officials for
narcotics-related corruption. However, these prosecutions have not gone far
enough in addressing this pervasive problem. The GOV must continue to take
a strong stand against corruption in the private and public sectors, and
vigorously enforce these laws. The GOV needs to also extend the offense of
money laundering beyond drug-trafficking.
Venezuela is a member of the CFATF.
Vietnam (Concern). Although Vietnam's banking system is underdeveloped,
Vietnam remains a country of concern with respect to money laundering for
several reasons. Vietnam has no anti-money laundering legislation, and
banks are not required to report large cash transactions. Financial,
government and law enforcement corruption is pervasive. Vietnam serves as a
transit country for Golden Triangle heroin destined for the United States
and Australia. Chinese criminal syndicates are active in Vietnam and are
believed to be laundering drug money through investment projects.
Cash is used for almost all transactions in Vietnam. Many people continue
to hoard gold, dollars and other currencies in their homes, and enterprises
often have difficulty obtaining foreign exchange to pay for imported goods.
Vietnam restricts and controls both the import and export of currency.
In May 1998, Vietnam hosted five other Asian nations at a two-day drug
control meeting in Hanoi. The statement issued at the end of the meeting
noted that officials from Cambodia, Laos, Burma, Thailand, China, and
Vietnam had signed a 14-point joint declaration to enforce laws, prevent
drug money laundering, arrest traffickers, boost information exchange, and
map out drug control programs.
In November 1998, the Minister of Public Security said that the volume,
scale and seriousness of crime are on the rise in Vietnam, with
transnational crime, money laundering, smuggling, and drug trafficking
becoming serious problems.
The Vietnamese government has recognized the existence of problems with
money laundering, and has expressed interest in learning more about control
measures. Vietnam needs to criminalize money laundering, and money
laundering controls need to be introduced, along with prudential and
supervisory regulations in the banking system.
Yemen (Other). Little is known about the money laundering situation in
Yemen, but profound underdevelopment and political instability minimize the
risk of money laundering. Yemen is a party to the 1988 UN Drug Convention.
It has also signed a cooperation agreement with the European Union calling
for unspecified joint action in a number of areas, including money
Federal Republic of Yugoslavia (Serbia and Montenegro) (Concern). The
Federal Republic of Yugoslavia (FRY) is neither an important financial
center nor an offshore banking center. A 1996 law permits offshore
development, but it is being implemented slowly and has not resulted in any
activity. The FRY is a transit country for the trafficking of narcotics,
arms, and stolen automobiles, and is considered a source of proceeds sent
abroad for laundering. FRY officials are alleged to unofficially sanction
corruption and organized crime. In an attempt to circumvent economic
sanctions imposed in 1992, the FRY government has encouraged the
establishment of organized smuggling rings which operate with the
complicity of police and customs agents. Senior government officials
manage state-owned companies and financial institutions for profit,
in addition to their official duties. Since the sanctions were imposed,
transactions conducted by state-owned banks and companies have resulted in
the alleged movement of billions of dollars in state assets to Cyprus,
Russia, and other overseas locations.
Zambia (Other). Realizing that the Narcotic Drugs Act of 1993 is
ineffective in dealing with the money laundering problems created by drug
barons, arms traffickers, and automobile theft rings, the Government of
Zambia in September 1998 presented the Prohibition and Prevention of Money
Laundering Bill to Parliament for a first reading. The bill, which has not
yet had a second reading, will: (1) create a money laundering authority and
a money laundering investigations unit; (2) provide for the forfeiture
of property of persons convicted of money laundering; (3) make suspects
legally obligated to disclose information on suspected money laundering;
and (4) provide for international cooperation in investigations,
prosecution and other legal processes for deterring and preventing money
The Zambia Institute of Bankers has called for the creation of a statutory
body to deal with money laundering and other serious crimes. This body, if
created, may encompass the Drug Enforcement Commission, Zambia's counter-
drug enforcement agency.
Should the proposed bill be enacted by Parliament, it would make Zambia's
anti-money laundering regime the most comprehensive and restrictive of any
in Sub-Saharan Africa, and would be a model for other African
Zimbabwe (Other). Southern African jurisdictions, including Zimbabwe, are
becoming increasingly concerned with the effect that narcotics trafficking
and money laundering are having on their economies and societies. The
current Zimbabwean anti-money laundering law (the Anti-Money Laundering
Act) criminalizes only drug-related money laundering. The Law Development
Commission of Zimbabwe has drafted a bill to be presented to the
Parliament of Zimbabwe that would strengthen the Money Laundering Act.
The draft bill establishes a money laundering board consisting
of representatives from government, public, and private financial
institutions. In addition, it requires financial institutions to keep
records identifying clients who deposit and withdraw funds and requires
designated institutions to report deposits and withdrawals that exceed a
specific sum to a central financial intelligence unit.