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 narcotics trafficking.

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 laundering.

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 producers.

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 methods.

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 sectors.

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 departure.

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, Massachusetts.

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 the FATF.

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 laundering.

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 crimes.

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 1999.

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 asset sharing.

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 launderers.

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 laundering.

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 brokers.

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 financial institutions.

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 Internet.

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 records.

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 foreign investment.

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 double books.

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 areas.

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 laundering regime.

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 international standards.

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 CFATF.

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 enforcement agencies.

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 fight.

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 laundering.

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 this system.

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.

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 money laundering.

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 FATF guidelines.

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 related offenses.

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 customers.

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 smuggling.

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 seizure legislation.

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 banks.

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 controls.

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 peso exchange.

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 1998.

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 trust formation.

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 Cook Islands.

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 crimes.

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 laundering.

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 implementation.

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 team.

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