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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 Priority.

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.

SELECTION CRITERIA

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 enforcement investigations.
  • 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 businesses.
  • Ease of incorporation, especially where ownership can be held through nominees or bearer shares, or where off-the-shelf corporations can be acquired.
  • Limited or weak bank regulatory controls, especially in countries where the monetary or bank supervisory authority is understaffed, underskilled or uncommitted.
  • 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 capabilities.
  • 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, particularly diamonds.

ECONOMIC FACTORS

The strength, vitality and freedom of economies can serve as indicators of the relative vulnerability of a financial system to penetration by money launderers.

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 significant.

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 categories.

1997 CHANGES IN INCSR RANKINGS

UPGRADES

	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

DOWNGRADES

	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 Priority governments.

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 governments.

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 category.

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 laundering activities.

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 secrecy.

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 banking facilities.

15. 1988 UN Convention

The government has formally ratified the 1988 United Nations Convention Against Illicit Trafficking in Narcotic and Psychotropic Substances.

16. Compliance

The government is meeting the goals of the 1988 UN Convention, in terms of the effective application of implementing legislation.

charts: rayburn.xls, chart1xls

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