U.S. Department of State
1996 International Narcotics Control Strategy Report, March 1997
United States Department of State
Bureau for International Narcotics and Law Enforcement Affairs
FINANCIAL CRIMES AND MONEY LAUNDERING
MONEY LAUNDERING COMPARATIVE CHARTS
Each year, a committee of officials from each of the United States
agencies meets on a weekly basis, from December through February, to
consider assessments of the drug and non-drug money laundering situations
in more than 200 nations and territories, including steps taken or not
taken to address those situations; conformance of laws and policies with
international standards; the effectiveness with which the government has
acted, and, whether the government has the political will to take needed
actions. The evaluation criteria are cited below.
The INCSR assigns priorities to more than 200 nations and territories,
using six differential categories ranging from High Priority to No
INCSR rankings draw upon a number of factors which indicate (1) the
nature of the money laundering situation in this nation/territory, i.e.,
drugs, contraband, etc., (2) why the US regards this situation as having
international ramifications; (3) the situation's impact on US interests;
(4) whether the government taken appropriate legislative actions to address
specific problems; (5) whether the laws are being effectively implemented;
and (6) where US interests are involved, the degree of cooperation between
the government and USG agencies. There are about two dozen subfactors
which are considered. Those factors are explained below.
A government can have comprehensive laws on its books and conduct
aggressive enforcement efforts, but still be ranked a high priority if the
volume of money laundering continues to be substantial and/or continued
vigilance and effective enforcement by a government is essential to the
effectiveness of the overall international effort.
When the severity of the money laundering problem places a government in
the top three categories, and other deficiencies exist, the rankings
indicate that these governments should take immediate action and will
receive near-term priority attention from the USG. As one goes down
through the rankings, remedial actions have less impact upon the US.
Ranking a government High Priority or Medium-High reflects a USG belief
that near-term remedial action by that government is needed to deal with
the problems cited in the individual summaries which follow the charts.
As any financial system can be penetrated, every country and territory
has the potential of becoming a money laundering center. There is no
precise measure of vulnerability for any financial system, but a check list
of what drug money managers reportedly look for provides a basic guide.
- Failure to criminalize money laundering from all serious crime or
limiting the offense to narrow predicates, such as conviction of a drug
trafficking offense, thus abetting efforts to commingle funds.
- Rigid bank secrecy that cannot be penetrated for authorized law
- Minimal or no identification requirements to conduct financial
transactions, or widespread or protected use of anonymous, nominee,
numbered or trustee accounts.
- No required disclosure of the beneficial owner of an account or the
true beneficiary of a transaction.
- Lack of effective monitoring of currency movements.
- No recording requirements for large cash transactions.
- No mandatory requirement for reporting suspicious transactions, or a
pattern of inconsistent reporting under a voluntary system, or a lack of
uniform guidelines from which to identify suspicious transactions.
- Use of monetary instruments payable to bearers.
- Well-established non-bank financial systems, especially where
regulation and monitoring are lax.
- Patterns of evasion of exchange controls by nominally legitimate
- Ease of incorporation, especially where ownership can be held through
nominees or bearer shares, or where off-the-shelf corporations can be
- Limited or weak bank regulatory controls, especially in countries where
the monetary or bank supervisory authority is understaffed, underskilled or
- Well established offshore or tax-haven banking systems, especially
countries where such banks and accounts can be readily established with
minimal background investigations.
- Extensive foreign banking operations, especially where there is
significant wire transfer activity or multiple branches of the foreign
banks, or limited audit authority over foreign-owned banks or institutions.
- Limited asset seizure or confiscation capability.
- Limited narcotics and money laundering enforcement and investigative
- Countries with free trade zones where there is little government
presence or other oversight authority.
- Patterns of official corruption or a laissez-faire attitude toward the
business and banking communities.
- Countries where the dollar is readily acceptable, especially countries
where banks and other financial institutions allow dollar deposits.
- Well-established access to international bullion trading centers in New
York, Istanbul, Zurich, Dubai and Bombay.
- Countries where there is a significant trade in or export of gems,
The strength, vitality and freedom of economies can serve as indicators
of the relative vulnerability of a financial system to penetration by money
The 1996 data base introduces the element of relative black market
activity, ranking virtually all sovereign governments on a scale of 1-5,
with percentage of GDP as the defining factor.
Analysts assessing vulnerability can also use the existence of parallel
economies as a measure, i.e., whether the parallel economy is seen as a
major or minor factor in a given money laundering situation or is not
There have been no empirical studies of this element, but, confirmed
information on money laundering practices indicates that the parallel
economy is a major factor in money laundering in a number of areas,
including: Burma, Dominican Republic, Poland, Colombia, Hong Kong, Mexico,
Nigeria, Panama, Russia, Thailand, Venezuela, Pakistan, India and the
United States (the fungible economy which operates on both sides of the
border with Mexico). Parallel economies are considered a minor factor in
the money laundering situations in: Bolivia, Chile, China, Ecuador, Greece,
Guatemala, Hungary, Korea, Kuwait, Lebanon, Macau, Taiwan, Italy,
Netherlands, Turkey, United Kingdom, Argentina, Brazil, Costa Rica, Cyprus,
Japan, Paraguay, Uruguay, Cote D'Ivoire, and St. Vincent and the
Grenadines. Parallel economies were not considered a significant money
laundering factor in the other governments in the High, Medium-High, Medium
and Low-Medium categories. There were not sufficient data to draw
conclusions about the governments in the Low and No Priority
1997 CHANGES IN INCSR RANKINGS
Cyprus Medium-High to High
China, PR Medium to Medium-High
Dominican Republic Medium to Medium-High
Taiwan Medium to Medium-High
Peru Medium to Medium-High
Australia Low-Medium to Medium*
Indonesia Low to Medium
South Africa Low-Medium to Medium
Vanuatu Low-Medium to Medium
Jamaica Low to Low-Medium
St Kitts & Nevis Low to Low-Medium
Azerbaijan No Priority to Low
Benin No Priority to Low
Dominica No Priority to Low
El Salvador No Priority to Low
Guyana No Priority to Low
Kyrgyztan No Priority to Low
Mozambique No Priority to Low
North Korea No Priority to Low
Western Samoa No Priority to Low
Uzbekistan No Priority to Low
Zimbabwe No Priority to Low
Montserrat Medium to Low-Medium
Morocco Medium to Low-Medium
Slovakia Medium to Low-Medium
Denmark Low-Medium to Low
* As noted in the 1996 INCSR text, Australia has been ranked
consistently at the Medium level, and was inadvertently dropped one rank in
the 1996 table. There has been no change in the perspective.
EXPANSION OF THE INCSR DATA BASE
From 1986 through 1995, the money laundering chapter data table listed
comparative data on 10 elements for the 17 High Priority and 16 Medium-High
To give a fuller understanding of where governments stand in relation to each
other on the broad range of elements which define legislative activity and
identify other characteristics which can have relationship to money laundering
activity, the 1997 INCSR data tables incorporate 16 elements for more than 190
COMPARISON TABLE: GLOSSARY OF TERMS
1. Criminalized Drug Money Laundering
The government has enacted laws criminalizing the offense of money laundering
related to drug trafficking.
2. Record Large Transactions
By law or regulation, banks are required to maintain records of large
transactions in currency or other monetary instruments. An effective
know-your-customer policy is considered a prerequisite in this category.
3. Maintain Records Over Time
By law or regulation, banks are required to keep records, especially of large
or unusual transactions, for a specified period of time, e.g., five years. An
effective know-your-customer policy is considered a prerequisite in this
4. Report Suspicious Transactions
By law or regulation, banks are required (or permitted) to record and report
suspicious or unusual transactions to designated authorities. An effective
know-your-customer policy is considered a prerequisite in this category.
5. System of Identifying and Forfeiting Assets
The government has enacted laws authorizing the tracing, freezing, seizure and
forfeiture of assets identified as relating to or being generated by money
6. Asset Sharing
By law, regulation or bilateral agreement, the government permits sharing of
seized assets with third party governments which assisted in the conduct of
the underlying investigation.
7. Cooperates with Domestic Law Enforcement
By law or regulation, banks are required to cooperate with authorized law
enforcement investigations into money laundering or the predicate offense,
including production of bank records, or otherwise lifting the veil of bank
8. Cooperates with International Law Enforcement
By law or regulation, banks are permitted/required to cooperate with
authorized investigations involving or initiated by third party governments,
including sharing of records or other financial data.
9. International Transportation of Currency
By law or regulation, the government, in cooperation with banks, controls or
monitors the flow of currency and monetary instruments crossing its borders.
Of critical weight here are the presence or absence of wire transfer
regulations and use of reports completed by each person transiting the country
and reports of monetary instrument transmitters.
10. Mutual Legal Assistance
By law or through treaty, the government is agreed to provide and receive
mutual legal assistance, including the sharing of records and data.
11. Non-Drug Money Laundering
The government has extended anti-money laundering statutes and regulations to
include non-drug-related money laundering.
12. Non-Bank Financial Institutions
By law or regulation, the government requires non-bank financial institutions
to meet the same customer identification standards and adhere to the same
reporting requirements that it imposes on banks.
13. Disclosure Protection
By law, the government provides a "safe harbor" defense to banks or other
financial institutions and their employees who provide otherwise confidential
banking data to authorities in pursuit of authorized investigations.
14. Offshore Banking
By law or regulation, the government authorizes the licensing of offshore
15. 1988 UN Convention
The government has formally ratified the 1988 United Nations Convention
Against Illicit Trafficking in Narcotic and Psychotropic Substances.
The government is meeting the goals of the 1988 UN Convention, in terms of the
effective application of implementing legislation.
charts: rayburn.xls, chart1xls