Countries G through M

Gabon

Gabon is not a regional financial center. The Bank of Central African States (BEAC) supervises Gabon’s banking system. BEAC is a regional Central Bank that serves six countries of Central Africa. According to a 2003 letter from the Government of Gabon (GOG) to the UN Counter Terrorism Committee, in matters concerning suspicious financial transactions, banks are bound by the instructions of the Ministry of Economic and Financial Affairs. The actual monitoring of financial transactions is conducted by the Economic Intervention Service that harmonizes the regulation of currency exchanges in the member States of the Central African Economic and Monetary Community (CEMAC).

On November 20, 2002, the BEAC Board of Directors approved draft anti-money laundering and counterterrorist financing regulations that would apply to banks, exchange houses, stock brokerages, casinos, insurance companies, and intermediaries such as lawyers and accountants in all six member countries. The BEAC regulations treat money laundering and terrorist financing as criminal offenses. The regulations would also require banks to record and report the identity of customers engaging in large transactions. The threshold for reporting large transactions would be set at a later date by the CEMAC Ministerial Committee at levels appropriate to each country’s economic situation. Financial institutions would have to maintain records of large transactions for five years.

The regulations would require financial institutions to report suspicious transactions. Under the regulations, each country would establish a National Agency for Financial Investigation (NAFI) responsible for collecting suspicious transaction reports. Bankers and other individuals responsible for submitting suspicious transaction reports will be protected by law with respect to their cooperation with law enforcement entities. If a NAFI investigation were to confirm suspicions of terrorist financing, the Gabonese government could freeze and seize the related assets. The NAFI could cooperate with counterpart agencies in other countries.

Gabon has signed, but not yet ratified, both the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism.

Gabon should work with the BEAC to establish a viable anti-money laundering and counterterrorist financing regime. Gabon should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

The Gambia

The Gambia is not a regional financial center, although it is a regional re-export center. Goods and capital are freely and legally traded in the Gambia, and, as is the case in other re-export centers, smuggling of goods occurs.

The ECOWAS community of states, of which The Gambia is a member, in 2000 created the GIABA, an intergovernmental action group against money laundering, designed to improve cooperation in the fight against money laundering between member states. The GIABA is working on a law to create financial intelligence units in each of the eight West African Economic Monetary Union (WAEMU) countries so that they will be able to share information.

Banks in the Gambia are supervised by the Central Bank. The Central Bank receives weekly activity reports from all in-country financial institutions, and these reports must include information on any suspicious transactions. Banks and other financial institutions are required to know, record, and report the identities of customers engaging in transactions over the equivalent of $10,000. Central Bank officials perform on-site examinations of all banks and trust companies operating in the Gambia on a yearly basis. If necessary, Central Bank officials can examine a bank or trust company more than once a year.

The Government of Gambia (GOG) recently passed the Money Laundering Act of 2003. The Act states that money laundering is a criminal offense and establishes narcotics trafficking as well as blackmail, counterfeiting, extortion, false accounting, forgery, fraud, illegal deposit taking, robbery, terrorism, theft and insider trading as predicate offenses. Furthermore, the law requires banks and other financial institutions to know, record, and report the identity of clients engaging in significant and/or suspicious transactions. Even though individual banks may have their own requirements to keep documents longer, the law requires them to maintain records for at least six years. Under the Money Laundering Act of 2003, terrorism is an offense consistent with UNSCR 1373. The Act also empowers the GOG to identify and freeze assets of a person suspected of committing a money laundering offense.

The Central Bank has circulated the U.S. Government list of terrorists designated under E.O. 13224 among banks and other financial institutions in the Gambia. There have been no arrests and/or prosecutions for money laundering or terrorist financing since January 2003. Gambia is a party to the 1988 UN Drug Convention and has signed and ratified the UN Convention against Transnational Organized Crime. The Gambia is also a party to the UN International Convention for the Suppression of the Financing of Terrorism.

The Gambia should examine its re-export sector to determine whether or not it is being used to launder criminal proceeds. The GOG should also expand its anti-money laundering legislation to include a comprehensive range of predicate offenses and should take steps to develop a financial intelligence unit.

Georgia

Although Georgia is not considered an important regional financial center, in past years the international community has raised concerns regarding the Government of Georgia’s (GOG) lack of an anti-money laundering regime. In Georgia, the sources of laundered money are primarily corruption, financial crimes and smuggling, rather than narcotics-related proceeds. Smuggling of goods across international borders is one of the country’s most serious problems, given the existence of thriving black markets in Ergneti (near the uncontrolled territory of South Ossetia), Red Bridge (on the border with Azerbaijan), and Abkhazia (breakaway region bordering Russia on the Black Sea coast). Law enforcement officials provide protection to smugglers, instead of prosecuting them, helping maintain the shadow economy which makes up 90 percent of Georgia’s economic activity (based on an estimate by the Transnational Crime and Corruption Center). A new government came into power in November 2003. The new Administration has launched several investigations relating to financial misdeeds undertaken by former members of the Georgian government.

At the urging of the international community the GOG has taken some steps. The lead was taken by the National Bank of Georgia, which was tasked by former President Shevardnadze to draft the Anti-Money Laundering Law. On June 6, 2003, President Shevardnadze signed the Anti-Money Laundering Law (AML Law) passed by the Georgian Parliament. As mandated by the newly enacted law (which also included an article concerning anti terrorist financing), Georgia created a Financial Monitoring Service (FMS) within the National Bank of Georgia on July 16, 2003. The FMS is tasked with creating a system for Suspicious Transaction Reporting (STR). The FMS is to begin receiving reports from monitored entities in January 2004. Also beginning in January 2004, the FMS is embarking on the construction of an IT system to collect and analyze data on suspicious financial transactions.

Although the AML Law in Georgia was enacted in June 2003 and entered into force on January 1, 2004 (the date selected to coincide with the start-up of the FMS), it still requires some serious revisions as noted by the Council of Europe’s recommendations to the Georgian Government. Amendments to the law proposed in 2003 would enhance suspicious transaction reporting, customs declarations, customer identification, record keeping, the development of compliance programs and asset freezing. These amendments will be presented to parliament for enactment early in 2004.

The GOG also created the National Money Laundering Prosecution Unit within the Prosecutor General’s Office of Georgia. The National Money Laundering Prosecution Unit, which is currently hiring and vetting members, will form a special task force of investigators and prosecutors to: collect, investigate and, where appropriate, prosecute matters arising from receipt of suspicious transaction reports from the FMS; and investigate and, where appropriate, prosecute violations of the AML Law which may come to their attention by referral from law enforcement or other agencies of the government and/or based on their in-house assessment of information suggesting violations of the AML Law or its predicate offenses. The Unit will begin work in early spring 2004.

Until the recent changes in the Georgian leadership, asset forfeiture was perceived by GOG officials as unconstitutional, therefore, legislators did not include asset forfeiture provisions in their Penal and Criminal Procedure Codes. This interpretation was based on a landmark ruling of the Constitutional Court of Georgia to remove the confiscation clause as a form of punishment from the Criminal Code of Georgia. Instead of strictly adhering to the Court’s decision and removing only confiscation as a punitive measure, legislators removed all forms of confiscation from the law. Confiscation as a punitive measure was deemed unconstitutional because it also applied to proceeds that may derive from an individual’s legal activity, and was used in Soviet times (according to a 1961 law) to leverage punishment for any type of crime. Soviet legislation also included “special confiscation”, which was used to seize assets obtained from illegal proceeds. This provision was also eliminated from the Criminal Code when the Constitutional Court made its ruling in July 1997. From 1997 through 2003, the Government made no serious attempts to amend the legislation or to correctly interpret the constitutionality of the confiscation clause. Many anticipate the new leadership in the Georgian government will resolve this issue. Members of the new government have repeatedly emphasized that they will use the asset forfeiture mechanism against corrupt officials.

The GOG has taken important first steps toward the development of an anti-money laundering regime. The GOG should enact the pending amendments to its anti-money laundering legislation. The GOG should also take whatever additional action is necessary to bring its anti-money laundering/antiterrorist financing regime into accordance with international standards. If it has not already done so, the GOG should specifically criminalize the financing and support of terrorism and terrorists. Georgia should provide sufficient training and resources to its new FMS and National Money Laundering Prosecution Unit to enable them to efficiently perform their new duties. The GOG should adequately supervise and regulate nonbank financial institutions, alternative remittance systems and nongovernmental organizations, including charitable organizations, to ensure they are not used for terrorist or other criminal ends. Until it does so, Georgia’s financial institutions will remain vulnerable to abuse by organized crime as well as terrorist organizations and their supporters.

Germany

Germany has the largest economy in Europe and a well-developed financial services industry. Russian organized crime groups, the Italian Mafia, and Albanian and Kurdish narcotics-trafficking groups launder money through German banks, currency exchange houses, business investments, and real estate.

The Money Laundering Act, which was amended by the Act on the Improvement of the Suppression of Money Laundering and Combating the Financing of Terrorism of August 8, 2002, criminalizes money laundering related to narcotics trafficking, fraud, forgery, embezzlement, and membership in a terrorist organization, and imposes due diligence and reporting requirements on financial institutions. Under the current law, financial institutions are required to obtain customer identification for transactions exceeding 15,000 euros that are conducted in cash or precious metals. Germany has had this requirement for some time (in DM), but the information was only used for statistical purposes; only recently has the information been used in money laundering investigations. Germany also has fully incorporated the FATF Forty Recommendations for combating money laundering and its Eight Special Recommendations regarding the financing of terrorism. This includes questionable actions carried out via the Internet.

The amendments described above also brought German laws into line with the first and second European Union money laundering directives (Directive 91/308/EEC on the prevention of the use of the financial system for the purpose of money laundering, as revised by Directive 2001/97/EC). These include the mandate that member states standardize and expand suspicious activity reporting requirements to include information from notaries, accountants, tax consultants, casinos, luxury item retailers, and attorneys. Since 1998, the Federal Banking Supervisory Office has licensed and supervised money transmitters, and has issued anti-money laundering guidelines to the industry. Germany also has a law, entered into force in 1998, that gives border officials the authority to compel individuals to declare imported currency above a certain threshold (currently 15,000 euros).

The new anti-money laundering package also requires the country’s banking supervisory authority to compile a central register of all bank accounts, including 300 million deposit accounts. As a result, on April 1, 2003, a central database at the federal financial supervisory authority was established, which collects basic data on the bank and security accounts held in Germany. Banks use computers to analyze their customers and their financial dealings to identify suspicious activity. The legislation also calls for stiffer checks on the background of owners of financial institutions and tighter rules for credit card companies. Banks that have suspicions of money laundering must report their suspicions to the FIU as well as to the Staatsanwaltschaft (State Attorney), and then they may freeze the account in question.

In May 2002, the German banking, securities, and insurance industry regulators were merged into a single financial sector regulator known as BaFIN. Also in 2002, Germany established a single, central, federal financial intelligence unit (FIU) within the Bundeskriminalamt (National Police Office). The FIU functions as an administrative unit and is staffed with financial market supervision, customs, and legal experts. The FIU is responsible for developing money laundering cases before they go to prosecutors for formal investigation. It also exchanges information with its counterparts in other countries. Actual enforcement is carried out by the states, as is traditional in German federalism. Each state has a joint customs/police/financial investigations unit (“GFG”), which works closely with the federal FIU. U.S. Customs has conducted joint investigations with GFGs on a number of transnational cases. A new system is being implemented that will allow federal authorities access to certain information in all bank accounts in Germany, potentially a very effective tool against money laundering.

Regulations for freezing assets are in place, and the Ministry of Finance is considering amending the Banking Act further to increase the ability to freeze accounts. The Government of Germany (GOG) has established procedures to enforce its asset seizure and forfeiture law. The number of asset seizures and forfeitures remains low because of the high burden of proof that prosecutors must meet in such cases. German law requires a direct link to narcotics trafficking before seizures are allowed. German authorities cooperate with U.S. efforts to trace and seize assets to the extent that German law allows, and the GOG investigates leads from other nations. However, German law does not allow for sharing forfeited assets with other countries.

The GOG moved quickly after September 11, 2001 to identify weaknesses in Germany’s laws that permitted at least some of the terrorists to live and study in Germany, unobserved and unnoticed, prior to September 11. Germany’s strict data privacy laws have made it difficult for authorities to monitor and take action against financial accounts and transfers used by terrorist networks. Germany’s cabinet has submitted, and the Bundestag has passed, two packages of legislation to modify existing laws. The first package closes large loopholes in German law that have permitted members of foreign terrorist organizations to live and raise money in Germany, e.g., through supposedly charitable organizations, and that have allowed extremists to advocate violence in the name of religion under “religious privilege” protections. Germany has undertaken legislative and law enforcement efforts to thwart the misuse of charitable entities. Germany has used its Law on Associations (Vereinsgesetz) to ban administratively extremist associations that threaten the constitutional order. The second package went into effect January 1, 2002. It enhances the capabilities of federal law enforcement agencies, and improves the ability of intelligence and law enforcement authorities to coordinate their efforts and share important information, as they attempt to identify terrorists residing and operating in Germany. Germany’s internal intelligence service is provided access to information from banks and financial institutions, postal service providers, airlines, and telecommunication and Internet service providers.

After Germany and other EU member states adopted UNSC Resolution 1373 on December 27, 2001, the EU developed a list of persons and organizations against whom antiterrorist financing measures were to be taken. Germany adheres to this list, which is updated periodically by EU representatives. The Wirtschaftsministerium (Ministry of Economics) receives the international lists of suspected terrorists and distributes the lists as separately issued regulations to the industries. Banks are directed to freeze the accounts of individuals and groups on the list and report them to the FIU, independent of the standard regulations. On the basis of relevant UN Security Council resolutions, Germany participated in international efforts to freeze terrorism-related financial assets. The GOG responded quickly to freeze over 30 accounts of entities associated with terrorists. The bulk of assets initially frozen have since been released. At the end of 2003, approximately 13 accounts containing 3532 euros remained frozen in Germany under these resolutions. This does not include accounts frozen under the administrative banning of extremist organizations under the law on associations. In 2002, the Bundestag added terrorism and terrorism financing to the predicate offenses for money laundering as defined by Penal Code 161.

Germany continues to be an active partner in the fight against money laundering, and participates actively in a number of international fora. The GOG has always cooperated fully with the United States on anti-money laundering initiatives, even before it signed a Mutual Legal Assistance Treaty (MLAT) with the United States in October 2003. The GOG exchanges information with the United States through bilateral law enforcement agreements and other informal mechanisms. Germany has MLATs with numerous countries, and German law enforcement authorities cooperate closely at the EU level, such as through Europol.

Germany is a member of the Financial Action Task Force (FATF), the European Union, the Council of Europe, and in 2003 became a member of the Egmont Group. The head of BaFIN, Jochen Sanio, is the outgoing President of FATF. Germany is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering Search, Seizure and Confiscation of the Proceeds from Crime. In December 2000, Germany signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. Germany signed the UN International Convention for the Suppression of the Financing of Terrorism in 2000, and is expected to ratify it in early 2004.

Since 2001, the GOG has put forward a number of important proposals to strengthen its anti-money laundering and counterterrorist financing regime. The GOG’s new anti-money laundering package reflects Germany’s commitment to combat money laundering, and to cooperate with international governments. Germany’s cooperation is likely to be strengthened as a result of the implementation of its financial intelligence unit. The GOG should continue to enhance its anti-money laundering regime and its active participation in international fora. The GOG should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Ghana

Ghana is not a regional financial center. However, nonbank financial institutions such as foreign exchange bureaus are suspected of being used to launder the proceeds of narcotics trafficking. In addition, donations to religious institutions allegedly have been used as a vehicle to launder money. There has also been an increase in the number of “advanced fee” scam letters that originate in Ghana.

Ghana has criminalized money laundering related to narcotics trafficking and other serious crimes. Law enforcement can compel disclosure of bank records for drug-related offenses, and bank officials are given protection from liability when they cooperate with law enforcement investigations. Ghana has cross-border currency reporting requirements. In December 2001, the Bank of Ghana began drafting money laundering legislation designed to increase the government’s financial oversight capabilities. As of December 2003, the bill has not been submitted to Parliament.

The Narcotic Drug Law of 1990 provides for the forfeiture of assets upon conviction of a money laundering offense. The Government of Ghana made no arrests or prosecutions related to money laundering in 2003.

In August and September 2002, the Narcotics Control Board in collaboration with the Ghana Police Service, Ghana Immigration Service, Bureau of National Investigations, Aviation Security, and Customs, Excise and Preventive Service conducted an interdiction exercise at Ghanaian airports. Through this exercise, currency worth approximately $200,000 was seized on suspicion of money laundering.

Ghana participated in the formation of the Inter-Governmental Action Group Against Money Laundering (GIABA) at the December 2001 meeting of the Economic Community of West African States in Dakar. In July 2002, Ghana also hosted the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against narcotics trafficking, terrorism, and money laundering. In May 2003, more than 40 representatives from financial institutions and law enforcement agencies participated in and Economic and Financial Anti-Fraud and Computer Crime Training Course.

Ghana is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. Ghana has endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision”. Ghana has bilateral agreements for the exchange of money laundering-related information with the United Kingdom, Germany, Brazil, and Italy.

Ghana should take steps to develop an anti-money laundering regime in accordance with international standards. Ghana should also become a party to the UN Convention against Transnational Organized Crime.

Gibraltar

Gibraltar is a largely self-governing overseas territory of the United Kingdom, which assumes responsibility for Gibraltar’s defense and international affairs. As part of the European Union, Gibraltar is required to transpose all relevant EU directives, including those relating to anti-money laundering.

The Financial Services Commission (FSC) is responsible for regulating and supervising Gibraltar’s financial services industry. It is required by statute to match UK supervisory standards. Both onshore and offshore banks are subject to the same legal and supervisory requirements. Gibraltar has 18 banks, ten of which are incorporated in Gibraltar, and all except one are subsidiaries of major international financial institutions. The FSC also licenses and regulates the activities of trust and company management activities insurance companies, and collective investment schemes. There were 8464 international business companies (IBCs) registered in Gibraltar as at 31 December 2003. Bearer-shares are permitted but the Government is committed to abolishing them. In addition, banks dealing with such warrants require their immobilization. The Government of Gibraltar also requires the immobilization of such warrants in respect of IBCs. Internet gaming is permitted by the Government of Gibraltar (GOG) and is subject to a licensing regime.

The Drug Offenses Ordinance (DOO) of 1995 and Criminal Justice Ordinance of 1995 criminalize money laundering related to all crimes and mandate reporting of suspicious transactions by any person whose suspicions of money laundering are aroused and includes such entities as banks, mutual savings companies, insurance companies, financial consultants, postal services, exchange bureaus, attorneys, accountants, financial regulatory agencies, unions, casinos, charities, lotteries, car dealerships, yacht brokers, company formation agents, dealers in gold bullion, and political parties.

Gibraltar was one of the first jurisdictions to introduce and implement money laundering legislation that covered all crimes. The Gibraltar Criminal Justice Ordinance to combat money laundering, which related to all crimes, entered into effect in January 1996. Comprehensive anti-money laundering Guidance Notes (which have the force of law) were also issued to clarify the obligations of Gibraltar’s financial service providers.

Also in 1996, Gibraltar established the Gibraltar Coordinating Centre for Criminal Intelligence and Drugs (GCID) to receive, analyze, and disseminate information on financial disclosures filed by institutions covered by the provisions of Gibraltar’s anti-money laundering legislation. The GCID incorporates the Gibraltar Financial Intelligence Unit (GFIU), and is a sub-unit of the Gibraltar Criminal Intelligence Department. The GFIU consists mainly of police and customs officers, but is independent of law enforcement. The GFIU has applied to join the Egmont Group of FIUs but this application was blocked by Spain. The Egmont application process has recently been revived.

In 2000, the Financial Action Task Force (FATF) conducted a review of Gibraltar’s anti-money laundering program against the 25 Criteria employed in the Non-Cooperative Countries and Territories (NCCT) exercise. While Gibraltar was not placed on the NCCT list, the FATF noted a number of concerns, particularly with regard to suspicious transaction reporting and customer identification and verification.

In response to the issues raised by the FATF, the GOG is currently drafting amendments to their anti-money laundering legislation. The amendments will provide direct reporting requirements of suspicious transactions, and extend the provisions of the anti-money laundering legislation to cover company formation agents and trusts services providers.

The FSC redrafted the anti-money laundering guidance notes (in July 2002) to abolish the present system for introducer certificates and to require institutions to review all accounts opened prior to April 1, 1995 to ensure that they are in compliance with the new “know your customer” (KYC) procedures. The FSC also took this opportunity to introduce new guidelines related to correspondent banking, politically exposed persons, and bearer securities as well as clearer and more defined KYC procedures. Gibraltar has adopted and implemented the European Union (EU) Money Laundering Directive 91/308/EEC on the prevention of the use of the financial system for the purpose of money laundering. Gibraltar has implemented the 1988 UN Drug Convention pursuant to its Schengen obligations. However, the Convention has not yet been extended to Gibraltar by the United Kingdom. The Mutual Legal Assistance Treaty between the United States and the United Kingdom also has not been extended to Gibraltar. However, application of a 1988 U.S. –UK agreement concerning the investigation of drug trafficking offenses and the seizure and forfeiture of proceeds and instrumentalities of drug trafficking was extended to Gibraltar in 1992. Also, the DOO of 1995 provides for mutual legal assistance with foreign jurisdictions on matters related to narcotics trafficking and related proceeds. Gibraltar has passed legislation as part of the EU decision on its participation in certain parts of the Schengen arrangements, to update mutual legal assistance arrangements with the EU and Council of Europe partners.

Gibraltar is a member of the Offshore Group of Banking Supervisors (OGBS). The FATF (under the aegis of the OGBS) conducted an on-site evaluation of Gibraltar in April 2001 against the FATF Forty Recommendations on Money Laundering. The report on Gibraltar found that “Gibraltar has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering,” adding: “The authorities clearly demonstrate the political will to ensure that their financial institutions and associated professionals maximize their defenses against money laundering, and cooperate effectively in international investigations into criminal funds. Gibraltar is close to complete adherence with the FATF Forty Recommendations”.

The Government of Gibraltar also invited the International Monetary Fund (IMF) to perform an assessment in May 2001 of the extent to which Gibraltar’s supervisory arrangements for the offshore financial sector complied with certain internationally accepted standards. The assessment was carried out on the basis of the “Module 2” assessment in accordance with the procedures agreed by the IMF’s Executive Board in July 2000. The evaluation found that “…supervision is generally effective and thorough and that Gibraltar ranks as a well-developed supervisor.” Gibraltar was found to be fully compliant or partially compliant with all but one of the 67 international standards of supervision in the areas of banking, insurance and securities. The standard that was found not to be met was in relation to on-site visits to insurance companies. This has been fully addressed by the FSC.

Gibraltar has also implemented the FATF Eight Special Recommendations on Terrorist Financing and giving effect to the relevant UN resolutions on the same issue. Arrangements are presently being made to introduce a licensing and supervisory regime in relation to money transmission services.

Gibraltar should take steps to ensure that Internet marketers of financial services do not engage in false advertising that can harm Gibraltar’s reputation as a well-regulated offshore financial center.

Greece

While not a major financial center, Greece is vulnerable to money laundering related to narcotics trafficking, prostitution, contraband cigarette smuggling, and illicit gambling activities conducted by criminal organizations originating in CIS countries, as well as Albania, Bulgaria, and other Balkan countries. Money laundering in Greece is controlled by organized local criminal elements associated with narcotics trafficking, and narcotics are the primary source of laundered funds. Most of the funds are not laundered through the banking system. Rather, they are most commonly invested in real estate, hotels, and consumer goods such as automobiles. Capital disclosure requirements for prospective foreign investors are weak. As a result, Greece’s five private and two state-owned casinos are susceptible to money laundering. The cross-border movement of illicit currency and monetary instruments is a continuing problem. Greece is not considered an offshore financial center, and there are no offshore financial institutions or international business companies operating within Greece. Senior Government of Greece (GOG) officials are not known to engage in or facilitate money laundering. Currency transactions involving international narcotics-trafficking proceeds are not believed to include significant amounts of U.S. currency.

The GOG criminalizes money laundering derived from all crimes in the 1995 Law 2331/1995. That law, “Prevention of and Combating the Legalization of Income Derived from Criminal Activities,” imposes a penalty for money laundering of up to ten years in prison and confiscation of the criminally derived assets. The law also requires that banks and nonbank financial institutions file suspicious transaction reports (STRs). Legislation passed in March 2001 targets organized crime by making money laundering a criminal offense when the property holdings being laundered are obtained through criminal activity or cooperation in criminal activity.

The 1995 law also establishes the Competent Committee (CC) to receive and analyze STRs and to function as Greece’s financial intelligence unit (FIU). The CC is chaired by a senior judge and includes representatives from the Central Bank, various government ministries, and the stock exchange. If the CC believes that an STR warrants further investigation, it forwards the STR to the Financial Crimes Enforcement Unit (SDOE), a multi-agency group that functions as the CC’s investigative arm. The CC is also responsible for preparing money laundering cases on behalf of the Public Prosecutor’s Office.

In 2003 Greece enacted legislation (Law 3148) that incorporates European Union (EU) provisions in directives dealing with the operation of credit institutions and the operation and supervision of electronic money transfers. Under the new legislation, the Bank of Greece has direct scrutiny and control over transactions by credit institutions and entities involved in providing services for funds transfer. The Bank of Greece will issue operating licenses after a thorough check of the institutions, their management, and their capacity to ensure the transparency of transactions.

The Bank of Greece (through its Banking Supervision Department), the Ministry of National Economy and Finance (which supervises the Capital Market Commission), and the Ministry of Development (through its Directorate of Insurance Companies) supervise and closely monitor Greek credit and financial institutions. Supervision includes the issuance of guidelines and circulars, as well as on-site examinations aimed at checking compliance with anti-money laundering legislation. Supervised institutions must send to their competent authority a description of the internal control and communications procedures they have implemented to prevent money laundering. In addition, banks must undergo internal audits. Bureaux de change are required to send to the Bank of Greece a monthly report on their daily purchases and sales of foreign currency.

Banks in Greece must demand customer identification information when opening an account or conducting transactions that exceed 15,000 euros. In case of suspicion of illegal activities, banks can take reasonable measures to gather more information on the identification of the person. Greek citizens must provide a tax registration number if they conduct foreign currency exchanges of 1,000 euros or more, and proof of compliance with tax laws in order to conduct exchanges of 10,000 euros or more. Banks and financial institutions are required to maintain adequate records and supporting documents for at least five years after ending a relationship with a customer, or in the case of occasional transactions, for five years after the date of the transaction. Reporting individuals are protected by law.

Every bank and credit institution is required by law to appoint an officer to whom all other bank officers and employees must report any transaction they consider suspicious. Reporting obligations also apply to government employees involved in auditing, including employees of the Bank of Greece, the Ministry of Economy and Finance, and the Capital Markets Commission. Reporting individuals are required to furnish all relevant information to the prosecuting authorities.

Greece has adopted banker negligence laws under which individual bankers may be held liable if their institutions launder money. Banks and credit institutions are subject to heavy fines if they breach their obligations to report instances of money laundering; bank officers are subject to fines and a prison term of up to two years. There have been no objections from banking and political groups to the Greek government’s policies and laws on money laundering.

All persons entering or leaving Greece must declare to the authorities any amount they are carrying over 2,000 euros. Reportedly, however, cross-border currency reporting requirements are not uniformly enforced at all border checkpoints.

There have been several arrests for money laundering since January 2002. These involved the Greek owners (and their spouses) of vessels transporting cocaine from Colombia and other Western Hemisphere countries. The guilty parties received five-year sentences.

With regard to the freezing of accounts and assets, the GOG is preparing draft legislation to harmonize its laws with relevant legislation of the EU and other international organizations. The basic law on money laundering, Law 2331/1995, will be amended and supplemented accordingly. SDOE has established a mechanism for identifying, tracing, freezing, seizing, and forfeiting narcotics-related and other assets of serious crimes; the proceeds are turned over to the GOG. According to the 1995 law, all property and assets used in connection with criminal activities is seized and confiscated by the GOG following a guilty verdict. Legitimate businesses can be seized if used to launder drug money. Approximately $10 million was seized over the past year for drug-related crimes The GOG has not enacted laws for sharing seized narcotics-related assets with other governments.

The Ministry of Justice unveiled legislation on combating terrorism, organized crime, money laundering, and corruption in March 2001; Parliament passed the legislation in July 2002. The Ministry of National Economy and Finance is preparing new legislation on money laundering and terrorist financing that it hopes to introduce in Parliament in the first quarter of 2004. Under this new bill, individuals convicted of financing terrorist groups could face imprisonment of up to ten years. The bill will also incorporate the FATF recommendations on terrorist financing.

The Bank of Greece and the Ministry of National Economy and Finance have the authority to identify, freeze, and seize terrorist assets. The Bank of Greece has circulated to all financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee’s consolidated list as being linked to the al-Qaida organization or the Taliban, or that the EU has designated under relevant authorities. Suspect accounts (of small amounts) have been identified and frozen.

There are no known plans on the part of the Greek government to introduce legislative initiatives aimed at regulating alternative remittance systems. Illegal immigrants or individuals without valid residence permits are known to send remittances to Albania and other destinations in the form of gold and precious metals, which are often smuggled across the border in trucks and buses. Charitable and nongovernment organizations are closely monitored by the financial and economic crimes police as well as tax authorities; there is no evidence that such organizations are being used as conduits for the financing of terrorism.

Greece is a member of the Financial Action Task Force (FATF), the European Union, and the Council of Europe. The CC is a member of the Egmont Group. The GOG is a party to the 1988 UN Drug Convention, and in December 2000 became a signatory to the UN Convention against Transnational Organized Crime. On June 8, 2000, Greece signed, but has not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Greece has signed bilateral police cooperation agreements with Egypt, Albania, Armenia, France, the United States, Iran, Israel, Italy, China, Croatia, Cyprus, Lithuania, Hungary, the Former Yugoslav Republic of Macedonia, Poland, Romania, Russia, Tunisia, Turkey, and Ukraine. It also has a trilateral police cooperation agreement with Bulgaria and Romania.

Greece exchanges information on money laundering through its Multilateral Assistance Treaty (MLAT) with the United States, which entered into force November 20, 2001. The Bilateral Police Cooperation Protocol provides a mechanism for exchanging records with U.S. authorities in connection with investigations and proceedings related to narcotics trafficking, terrorism, and terrorist financing. Cooperation between DEA and SDOE has been extensive, and the GOG has never refused to cooperate. The Competent Committee can exchange information with other FIUs, although it prefers to work with a memorandum of understanding in such exchanges.

The GOG should extend and implement suspicious transaction reporting requirements for gaming and stock market transactions, and should to adopt more rigorous standards for casino ownership or investments. Additionally, Greece should ensure uniform enforcement of its cross-border currency reporting requirements. The GOG should also take legislative action to specifically criminalize the financing and support of terrorists and terrorism and should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Grenada

There has been improvement in Grenada’s anti-money laundering regime and the supervision of its financial sector. Grenada also has demonstrated consistently good cooperation with the U.S. Government by responding rapidly to requests for information involving money laundering cases. Like those of many other Caribbean jurisdictions, the Government of Grenada (GOG) raises revenue from the offshore sector by imposing licensing and annual fees upon offshore entities. As of December 2003, Grenada has two offshore banks, both of which are under GOG regulatory control, one trust company, one management company, and one international insurance company. Grenada is reported to have over 20 Internet gaming sites. There are 2,293 international business companies (IBCs), and the domestic financial sector includes 6 commercial banks, 26 registered domestic insurance companies, 20 credit unions, and 4 money remitters. The GOG has repealed its economic citizenship legislation, but there are indications that some individuals subsequently were able to purchase citizenship.

In September 2001, the Financial Action Task Force (FATF) placed Grenada on the list of noncooperative countries and territories in the fight against money laundering (NCCT). The FATF in its report cited several concerns: inadequate access by Grenadian supervisory authorities to customer account information, inadequate authority by Grenadian supervisory authorities to cooperate with foreign counterparts, and inadequate qualification requirements for owners of financial institutions. In April 2002, the U.S. Department of Treasury issued an advisory to banks and other financial institutions operating in the United States, to give enhanced scrutiny to all financial transactions originating in or routed to or through Grenada, or involving entities organized or domiciled, or persons maintaining accounts, in Grenada. Grenada’s efforts to put into place the legislation and regulations necessary for adequate supervision of Grenada’s offshore sector prompted the FATF to remove Grenada from the NCCT list in February 2003. The Department of Treasury also lifted its advisory on Grenada in April 2003.

Grenada’s Money Laundering Prevention Act (MLPA) of 1999, which came into force in 2000, criminalizes money laundering related to offenses under the Drug Abuse (Prevention and Control) Act, whether occurring within or outside of Grenada, or other offenses occurring within or outside of Grenada, punishable by death or at least five years’ imprisonment in Grenada. The MLPA also establishes a Supervisory Authority to receive, review, and forward to local authorities suspicious activity reports (SARs) from covered institutions and imposes customer identification requirements on banking and other financial institutions.

Financial sector legislation was strengthened, and the Grenada International Financial Services Authority (GIFSA), which monitors and regulates offshore banking, was brought under stricter management. An amendment to the GIFSA Act (No. 13 of 2001) eliminates the regulator’s role in marketing the offshore sector. GIFSA makes written recommendations to the Minister of Finance in regards to the revocation of offshore entities’ licenses and also issues certificates of incorporation to international business companies. In the future, GIFSA is expected to assume authority for regulating both onshore and offshore institutions, in some areas sharing supervision with the Eastern Caribbean Central Bank (ECCB). GIFSA will be renamed the Grenada Authority for the regulation of Financial Institutions.

The International Companies Act regulates IBCs and requires registered agents to maintain records of the names and addresses of directors and beneficial owners of all shares, as well as the date the person’s name was entered or deleted on the share register. Currently, there are 15 registered agents licensed by the GIFSA. There is an ECD$30,000 ($11,500) penalty, and possible revocation of the registered agent’s license, for failure to maintain records. The International Companies Act also gives GIFSA the authority to conduct on-site inspections to ensure that the records are being maintained on IBCs and bearer shares. GIFSA began conducting inspections in August 2002.

The International Financial Services (Miscellaneous Amendments) Act 2002 required all offshore financial institutions to recall and cancel any issued bearer shares and to replace them with registered shares. The holders of bearer shares in nonfinancial institutions must lodge their bearer share certificates with a licensed registered agent. These agents are required by Grenada law to verify the identity of the beneficial owners of all shares and to maintain this information for seven years. GIFSA was given the authority to access the records and information maintained by the registered agents and can share this information with regulatory, supervisory, and administrative agencies.

The Minister of Finance has signed a memorandum of understanding (MOU) with the ECCB that grants the ECCB oversight of the offshore banking sector in Grenada. Legislation that would incorporate the ECCB’s new role into existing offshore banking legislation was adopted in 2003 and is expected to go into effect in 2004. The ECCB will have the authority to share bank and customer information with foreign authorities. The ECCB already provides similar regulation and supervision to Grenada’s domestic banking sector.

During 2003, the GOG passed the Exchange of Information Act No. 2 of 2003, which will strengthen the GOG’s ability to share information with foreign regulators. The Proceeds of Crime (Amendment) Act of 2003 extends anti-money laundering responsibilities to a number of nonbank financial institutions.

Grenada’s legal framework now effectively enables GIFSA to obtain customer account records from an offshore financial institution upon request, and to share the customer account information (regulated financial institutions are required to conduct due diligence checks on account holders) with other regulatory, supervisory, and administrative bodies. GIFSA also has the ability to access auditors’ working papers, and can share this information as well as examination reports with relevant authorities.

The Supervisory Authority issues anti-money laundering guidelines pursuant to section 12(g) of the MLPA, that direct financial institutions to maintain records, train staff, identify suspicious activities, and designate reporting officers. The guidelines also provide examples to assist bankers to recognize and report suspicious transactions. The Supervisory Authority is authorized to conduct anti-money laundering inspections and investigations. The Supervisory Authority can also conduct investigations and inquiries on behalf of foreign counterpart authorities and provide them with the results. Financial institutions could be fined for not granting access to Supervisory Authority personnel.

Financial institutions must report SARs to the Supervisory Authority within 14 days of the date that the transaction was determined to be suspicious. A financial institution or an employee who willfully fails to file a SAR or makes a false report is liable to criminal penalties that include imprisonment or fines up to ECD$250,000, and possibly revocation of the financial institution’s license to operate.

In June 2001, the GOG established a financial intelligence unit (FIU) that is headed by a prosecutor from the Attorney General’s office; the staff includes an assistant superintendent of police, four additional police officers, and two support personnel. In 2003, Grenada enacted an FIU Act (No. 1 of 2003). The FIU, which operates within the police force but is assigned to the Supervisory Authority, is charged with receiving SARs from the Supervisory Authority and with investigating alleged money laundering offenses. By November 2003, the FIU had received 66 SARs. The GOG has obtained two drug-related money laundering convictions and has confiscated $19,000. Three other drug-related money laundering cases are pending before the courts, and $56,000 has been frozen in connection with those cases.

In 2003, Grenada enacted antiterrorist financing legislation, which provides authority to identify, freeze, and seize terrorist assets. The GOG circulates lists of terrorists and terrorist entities to all financial institutions in Grenada. There has been no known identified evidence of terrorist financing in Grenada. The GOG has not taken any specific initiatives focused on alternative remittance systems or the misuse of charitable and nonprofit entities.

A Mutual Legal Assistance Treaty and an Extradition Treaty have been in force between Grenada and the United States since 1999. Grenada also has a Tax Information Exchange Agreement with the United States. Grenada’s cooperation under the Mutual Legal Assistance Treaty has recently been excellent. Grenada is an active member of the Caribbean Financial Action Task Force (CFATF), and underwent a second CFATF mutual evaluation in September 2003. Grenada is a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Grenada is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism.

Although Grenada has significantly strengthened the regulation and oversight of its financial sector, it must remain alert to potential abuses and must steadfastly implement the laws and regulations it has adopted. The GOG should continue to expose GIFSA, Supervisory Authority, and FIU staff to available training opportunities. The GOG should also continue to enhance its information sharing, particularly with other Caribbean jurisdictions.

Guatemala

Guatemala is a major transshipment country for illegal narcotics from Colombia and precursor chemicals from Europe. Those factors, combined with a historically weak anti-money laundering regime, corruption and increasing organized crime activity, lead authorities to suspect that significant money laundering occurs in Guatemala. According to law enforcement sources, narcotics trafficking is the primary source of money laundered in Guatemala; however, the laundering of proceeds from other illicit sources, such as kidnapping, tax evasion, vehicle theft, and corruption, is on the rise. Officials of the Government of Guatemala (GOG) believe that couriers, offshore accounts, and wire transfers are used to launder funds, which are subsequently invested in real estate, capital goods, or large commercial projects. The large sums of money seized in airports—totaling nearly $6 million in 2003—suggest that proceeds from illicit activity are regularly hand-carried over Guatemalan borders.

Guatemala is not considered a regional financial center, but it is an offshore center, and some larger banks conduct significant business through their offshore subsidiaries. The Guatemalan financial services industry is comprised of 25 commercial banks, approximately 13 offshore banks, seven licensed money exchangers (hundreds exist informally), 18 insurance companies, 21 financial societies (bank institutions that act as financial intermediaries specializing in investment operations), 32 bonded warehouses, five wire remitters, 160 cooperatives (similar to credit unions), and 13 fianzas (financial guarantors). The Superintendence of Banks (SIB), which operates under the general direction of the Monetary Board, has oversight and inspection authority over the Bank of Guatemala, as well as over banks, credit institutions, financial enterprises, securities entities, insurance companies, currency exchange houses, and other institutions as may be designated by the Bank of Guatemala Act.

All offshore institutions are subject to the same requirements as onshore institutions. In June 2002, Guatemala enacted the Banks and Financial Groups Law (No. 19-2002), which places offshore banks under the oversight of the Superintendent of Banks. The law requires offshore banks to be authorized by the Monetary Board and to maintain an affiliation with an onshore institution. It also prohibits an offshore bank that is authorized in Guatemala from doing business in another jurisdiction; however, banks authorized by other jurisdictions may do business in Guatemala under certain limited conditions. Guatemala has recently completed the process of reviewing and licensing its offshore banks, which included performing background checks of directors and shareholders. In order to authorize an offshore bank, the financial group to which it belongs must first be authorized, under a 2003 resolution of the Monetary Board. As of January 2004, thirteen banks have requested Monetary Board authorization through the SIB. Of those, one has withdrawn its petition, one was denied authorization for failure to meet requirements and eleven have been authorized. By law, no offshore financial services businesses other than banks are allowed, but there is evidence that they exist in spite of that prohibition. No offshore trusts have been authorized. Offshore casinos and Internet gaming sites are not regulated.

In June 2001, the Financial Action Task Force (FATF) placed Guatemala on the list of noncooperative countries and territories in the fight against money laundering (NCCT). In its report, the FATF noted that: (1) secrecy provisions in Guatemalan law constitute a significant obstacle to administrative authorities’ anti-money laundering efforts; (2) Guatemalan law fails to provide for the sharing of information between Guatemalan administrative authorities and their foreign counterparts; (3) Guatemala’s laws criminalize money laundering only in relation to drug offenses and not for all serious crimes; and (4) Guatemala’s suspicious transaction reporting system does not prohibit “tipping off” the person involved in the transaction.

Since the FATF designation, the GOG has taken important steps to reform its anti-money laundering program in accordance with international standards. On April 25, 2001, the Guatemalan Monetary Board issued Resolution JM-191, approving the “Regulation to Prevent and Detect the Laundering of Assets” (RPDLA) submitted by the Superintendence of Banks. The RPDLA, effective May 1, 2001, requires all financial institutions under the oversight and inspection of the SIB to establish anti-money laundering measures, and introduces requirements for transaction reporting and record keeping. Obligated institutions must establish money laundering detection units, designate compliance officers, and train personnel in detecting suspicious transactions.

In November 2001, Guatemala enacted Decree 67-2001, “Law Against Money and Asset Laundering”, to address several of the deficiencies identified by the FATF. Article 2 of the law expands the range of predicate offenses for money laundering from drug offenses to any crime. Individuals convicted of money or asset laundering are subject to a noncommutable prison term ranging from six to 20 years, and fines equal to the value of the assets, instruments, or products resulting from the crime. Convicted foreigners will be expelled from Guatemala. Conspiracy and attempt to commit money laundering are also penalized. Guatemalan authorities have had some success using these conspiracy provisions to target narcotics-traffickers.

Decree 67-2001 adds new record keeping and transaction reporting requirements to those already in place as a result of the RPDLA. These new requirements apply to all entities under the oversight of the SIB, as well as several other entities including credit card issuers and operators, check cashers, sellers or purchasers of travelers checks or postal money orders, and currency exchangers. The law establishes that owners, managers, and other employees are expressly freed from criminal, civil, or administrative liability when they provide information in compliance with the law. However, it holds institutions and businesses responsible, regardless of the responsibility of owners, directors, or other employees, and they may face cancellation of their banking licenses and/or criminal charges for laundering money or allowing laundering to occur.

The requirements also apply to offshore entities that are described by the law as “foreign domiciled entities” that operate in Guatemala but are registered under the laws of another jurisdiction. Obligated institutions are prohibited from maintaining anonymous accounts or accounts that appear under fictitious or inexact names; bearer shares, however, are permitted by nonbanks, and there is banking secrecy. Obligated entities are required to keep a registry of their customers as well as of the transactions undertaken by them, such as the opening of new accounts, the leasing of safety deposit boxes, or the execution of cash transactions exceeding approximately $10,000. Under the law, obligated entities must maintain records of these registries and transactions for five years.

Decree 67-2001 also obligates individuals and legal entities to report cross-border movements of currency in excess of approximately $10,000 with the competent authorities. At Guatemala City airport, a new special unit was formed in 2003 to enforce the use of customs forms. Compliance is not regularly monitored at land borders.

Decree 67-2001 establishes a financial intelligence unit (FIU), the Intendencia de Verificación Especial (IVE), within the Superintendence of Banks, to supervise obligated financial institutions and ensure their compliance with the law. The IVE began operations in 2001 and has a staff of 23. The IVE has the authority to obtain all information related to financial, commercial, or business transactions that may be connected to money laundering. Obligated entities are required to report to the IVE any suspicious transactions within twenty-five days of detection and to submit a comprehensive report every trimester, even if no suspicious transactions have been detected. Entities also must maintain a registry of all cash transactions exceeding approximately $10,000 or more per day, and report these transactions to the IVE. The IVE may impose sanctions on financial institutions for noncompliance with reporting requirements.

After receiving the suspicious activity reports (SARs) and currency transaction reports (CTRs), the IVE evaluates the information to determine if its contents are highly suspicious. If so, the IVE gathers further information from public records and databases, other obligated entities, and foreign FIUs, and assembles a case. Bank secrecy can be lifted for the investigation of money laundering crimes. The case must receive the approval of the SIB before being sent to the Anti-Money or Other Assets Laundering Unit within the Public Ministry for investigation. Under current regulations, the IVE cannot directly share the information it provides to the Anti-Money or Other Assets Laundering Unit with any other special prosecutors (principally the anti-corruption or antinarcotics units) in the Public Ministry. From January 2003 to October 31, 2003, the IVE received 439 SARs and forwarded two cases to the Public Ministry for further investigation and prosecution.

Within the Public Ministry, the Anti-Money or Other Assets Laundering Unit processes cases involving money laundering. Since January 1, 2003, there have been three arrests and 50 prosecutions connected to money laundering. The first public trial for money laundering is scheduled for early 2004.

In 2002, failure to comply with money laundering commitments was cited in the U.S. decision to decertify Guatemala as a cooperating country in the fight against narcotics trafficking. However, Guatemala was re-certified in 2003, and its efforts to comply with anti-money laundering commitments were identified as a factor in the decision. Still, the following impediments remain in the implementation of effective anti-money laundering measures: the applicable law does not permit undercover investigations; Guatemala lacks both the legislation and technology to permit police and prosecutors immediate access to public registries; corruption hampers enforcement; and authorities are not permitted to use seized assets to fund anti-money laundering initiatives.

During the FATF’s most recent review of noncooperative countries and territories, the FATF inspectors found Guatemala generally to be in compliance in the fight against money laundering. Three specific weaknesses were identified, however. These weaknesses are: (1) bearer shares are still allowed for nonbank entities, preventing true owners or beneficiaries from being traced; (2) authorities have insufficient resources to carry out anti-money laundering investigations; and (3) supervision of offshore banks remains weak. Guatemala remains on the FATF NCCT list.

Under current legislation, any assets linked to money laundering can be seized. Within the GOG, the IVE, the National Civil Police, and the Public Ministry have the authority to trace assets; the Public Ministry can seize assets temporarily or in urgent cases; and the Courts of Justice have the authority to permanently seize assets. The GOG passed reforms in 1998 to allow the police to use narcotics traffickers’ seized assets. These provisions also allow for 50 percent of the money to be used by the IVE and others involved in combating money laundering. In 2003, the Guatemalan Congress approved reforms to enable seized money to be shared among several GOG agencies, but the Constitutional Court (CC) temporarily suspended those provisions. This impasse will have to be addressed by the new government that will take office in mid-January 2004.

An additional problem is that the courts do not allow seized currency to be deposited into accounts. For money laundering and narcotics cases, any seized money is deposited in a bank safe and all material evidence is sent to the warehouse of the Public Ministry. There is no central tracking system for seized assets, and it is currently impossible for the GOG to provide an accurate listing of the seized assets in custody. In 2003, Guatemalan authorities seized more that $20 million in bulk currency, including the largest bulk seizure in Guatemalan history: $14.5 million.

Guatemala has taken a number of initiatives with regard to terrorist financing. According to the GOG, Article 391 of the Penal Code already sanctions all preparatory acts leading up to a crime, and financing would likely be considered a preparatory act. Technically, both judges and prosecutors could issue a freeze order on terrorist assets, but no test case has validated these procedures. There is no known credible evidence of terrorist financing in Guatemala, and the GOG has been very cooperative in looking for such funds. Recently, in accordance with international obligations, a comprehensive counterterrorism law that includes provisions against terrorist financing was introduced in Congress. However, it was not passed during the 2003 election season and will have to be re-introduced in the new Congress in 2004.

Guatemala is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. In November 2000, the GOG ratified the Central American Convention for the Prevention of Money Laundering and Related Crimes. The GOG ratified the UN Convention against Transnational Organized Crime on September 25, 2003, and signed the UN Convention Against Corruption on December 9, 2003. Guatemala is a member of OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD), and the Caribbean Financial Action Task Force (CFATF). In 2003, Guatemala’s FIU became a member of the Egmont Group. The SIB, through the IVE, has signed Memorandums of Understanding (MOUs) with 16 jurisdictions, including Bolivia, Brazil, Colombia, El Salvador, Spain, Honduras, Mexico, Montserrat, Panama, and the Dominican Republic. During 2003, Guatemala signed MOUs with Venezuela, Argentina, Barbados, Costa Rica, Bahamas and Peru. The SIB has also begun negotiations to sign an MOU with Puerto Rico. On November 5, 2003, the GOG signed an agreement with the USG Office of the Currency Comptroller to cooperate on supervision issues.

Guatemala has made efforts to comply with international standards and improve its anti-money laundering regime. In 2003, Guatemalan authorities applied new procedures to license and monitor offshore banks and demonstrated they could use anti-money laundering laws to successfully target criminals. However, the GOG should pass legislation on the financing of terrorists and terrorism, and continue efforts to implement the needed reforms. Guatemala should also focus its efforts on boosting its ability to successfully investigate and prosecute money launderers, and on distributing seized assets to law enforcement agencies to assist in the fight against money laundering and other financial crime. Corruption and organized crime remain strong forces in Guatemala and may prove to be the biggest hurdles facing Guatemala in the long term.

Guernsey

The Bailiwick of Guernsey (the Bailiwick) covers a number of the Channel Islands (Guernsey, Alderney, Sark, and Herm in order of size and population). The Islands are a Crown Dependency because the United Kingdom (UK) is responsible for their defense and international relations. However, the Bailiwick is not part of the UK. Alderney and Sark have their own separate parliaments and civil law systems. Guernsey’s parliament legislates criminal law for all of the islands in the Bailiwick. The Bailiwick alone has competence to legislate in and for domestic taxation. The Bailiwick is a sophisticated financial center and, as such, it continues to be vulnerable to money laundering at the layering and integration stages.

There are 16,340 companies registered in the Bailiwick. Nonresidents own approximately half of the companies, and they have an exempt tax status. These companies do not fall within the standard definition of an international business company (IBC). The remainder of the companies are owned by local residents and include trading and private investment companies. Exempt companies are not prohibited from conducting business in the Bailiwick, but must pay taxes on profits of any business conducted in the islands. Companies can be incorporated in Guernsey and Alderney, but not in Sark, which has no company legislation. Companies in Guernsey may not be formed or acquired without disclosure of beneficial ownership to the Guernsey Financial Services Commission (the Commission).

Guernsey has 65 banks, all of which have offices, records, and a substantial presence in the Bailiwick. The banks are licensed to conduct business with residents and nonresidents alike. There are 578 international insurance companies, and 507 collective investment funds. There are also 19 bureaux de change, which file accounts with the tax authorities. Many are part of a licensed bank, and it is the bank that publishes and files accounts.

Guernsey has put in place a comprehensive legal framework with which to counter money laundering and the financing of terrorism. The Proceeds of Crime (Bailiwick of Guernsey) Law 1999 (as amended) is supplemented by the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002. The legislation criminalizes money laundering for all crimes, except for drug trafficking, which is covered by the Drug Trafficking (Bailiwick of Guernsey) Law, 2000. The Proceeds of Crime Law and the Regulations are supplemented by Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism, issued by the Commission. There is no exemption for fiscal offenses. The 1999 law creates a system of suspicious transaction reporting (including about tax evasion) to the Guernsey Financial Intelligence Service (FIS). The Bailiwick narcotics trafficking, anti-money laundering, and terrorism laws designate the same foreign countries as the UK to enforce foreign restraint and confiscation orders.

The Drug Trafficking (Bailiwick of Guernsey) Law 2000 consolidates and extends money laundering legislation related to narcotics trafficking. It introduces the offense of failing to disclose the knowledge or suspicion of drug money laundering. The duty to disclose extends outside of financial institutions to others, for example, bureaux de change and check cashers.

In addition, the Bailiwick authorities have recently approved the enactment of the Prevention of Corruption (Bailiwick of Guernsey) Law of 2003 and have resolved to merge existing drug trafficking, money laundering and other crimes into one statute, and to introduce a civil forfeiture law.

On April 1, 2001, the Regulation of Fiduciaries, Administration Businesses, and Company Directors, etc. (Bailiwick of Guernsey) Law of 2000 (“the Fiduciary Law”), came into effect. The Fiduciary Law was enacted to license, regulate, and supervise company and trust service providers. Under Section 35 of the Fiduciary Law, the Commission creates Codes of Practice for corporate service providers, trust service providers, and company directors. Under the law, all fiduciaries, corporate service providers, and persons acting as company directors of any business must be licensed by the Commission. In order to be licensed, these agencies must pass strict tests. These include “Know Your Customer” requirements and the identification of clients. These organizations are subject to regular inspection, and failure to comply could result in the fiduciary being prosecuted and/or its license being revoked. The Bailiwick is fully compliant with the Offshore Group of Banking Supervisors Statement of Best Practice for Company and Trust Service Providers.

Since 1988, the Commission has regulated the Bailiwick’s financial services businesses. The Commission regulates banks, insurance companies, mutual funds and other collective investment schemes, investment firms, fiduciaries, company administrators, and company directors. The Bailiwick does not permit bank accounts to be opened unless there has been a “Know Your Customer” inquiry and verification details are provided. Company incorporation is by act of the Royal Court, which maintains the registry. All first-time applications to form a Bailiwick company have to be made to the Commission, which then evaluates each application. The court will not permit incorporation unless the Commission and the Attorney General or Solicitor General have given their prior approval. The Commission conducts regular on-site inspections and analyzes the accounts of all regulated institutions.

The Guernsey authorities have established a forum, the Crown Dependencies Anti-Money Laundering Group, where the Attorneys General from the Crown Dependencies, Directors General and other representatives of the regulatory bodies, and representatives of police, Customs, and the FIS, the Bailiwick’s financial intelligence unit, meet to coordinate the anti-money laundering and antiterrorism policies and strategy in the Dependencies.

The FIS, a joint Police and Customs/Excise Service, is mandated to place specific focus and priority on money laundering and terrorism financing issues. Suspicious transaction reports are filed with the FIS, which is the central point within the Bailiwick for the receipt, collation, evaluation, and dissemination of all financial crime intelligence.

The Criminal Justice (International Cooperation) (Bailiwick of Guernsey) Law, 2000, furthers cooperation between Guernsey and other jurisdictions by allowing certain investigative information concerning financial transactions to be exchanged. Guernsey cooperates with international law enforcement on money laundering cases. In cases of serious or complex fraud, Guernsey’s Attorney General can provide assistance under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law 1991. The Commission also cooperates with regulatory/supervisory and law enforcement bodies.

On September 19, 2002, the United States and Guernsey signed a Tax Information Exchange Agreement. The agreement provides for the exchange of information on a variety of tax investigations, paving the way for audits that could uncover tax evasion or money laundering activities. Currently, similar agreements are being negotiated with other countries, among them members of the European Union.

There has been antiterrorism legislation covering the Bailiwick since 1974. The Terrorism and Crime (Bailiwick of Guernsey) Law, 2002, replicates equivalent UK legislation. The provisions of UN Security Council Resolutions 1373 and 1390 were enacted in domestic law at the same time as they were enacted in the UK. The Bailiwick has requested that the UK Government seek the extension to the Bailiwick of the UN International Convention on the Suppression of the Financing of Terrorism and the UN International Convention for the Suppression of Terrorist Bombing.

In November 2002, the International Monetary Fund (IMF) undertook an assessment of Guernsey’s compliance with internationally accepted standards and measures of good practice relative to its regulatory and supervisory arrangements for the financial sector. The IMF report states that Guernsey has a comprehensive system of financial sector regulation with a high level of compliance with international standards. As for anti-money laundering and combating terrorist financing (AML/CFT), the IMF report highlights that Guernsey has a developed legal and institutional framework for AML/CFT and a high level of compliance with the Financial Action Task Force Recommendations.

The Attorney General’s Office is represented in the European Judicial Network and has been participating in the European Union’s PHARE anti-money laundering project. The Commission cooperates with regulatory/supervisory and law enforcement bodies. It is a member of the International Association of Insurance Supervisors, the Offshore Group of Insurance Supervisors, the International Association of International Fraud Agencies, the International Organization of Securities Commissions, the Enlarged Contact Group for the Supervision of Collective Investment Funds, and the Offshore Group of Bank Supervisors. The FIS is a member of the Egmont Group.

After extension to the Bailiwick, Guernsey enacted the necessary legislation to implement the 1959 Council of Europe Convention on Mutual Assistance in Criminal Matters, the 1990 Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds of Crime, and the 1988 UN Drug Convention. The 1988 Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to the Bailiwick in 1996.

Guernsey has put in place a comprehensive anti-money laundering regime, and has demonstrated its ongoing commitment to fighting financial crime. Bailiwick officials should continue both to carefully monitor its anti-money laundering program to assure its effectiveness, and to cooperate with international anti-money laundering authorities.

Guinea

Guinea has an unsophisticated banking system and is not a regional financial center. Banking leaders in Guinea estimate that 70 to 80 percent of business transactions take place in cash. Several expatriate communities in Guinea maintain strong ties to their countries of origin and are sources of international currency transfers. Both formal and informal money transfer services have expanded greatly in Guinea in recent years. Guinea has an active black market for foreign currency—especially euros, U.S. dollars, and CFA francs. Contraband is common. Merchants dealing in small quantities comprise most of the business transactions in Guinea. Guinea’s mining industry leads to an influx of foreign currency. In addition to large mining operations, Guinea has an industry of small-scale, traditional mining. This industry, which deals primarily with diamonds and gold, lends itself to money laundering, as few records are kept and sales are made in cash. In 2002, Guinean police seized over $1.5 million high-quality counterfeit U.S. currency tied to gold and diamond trade. Some narcotics trafficking occurs in Guinea.

Instability in the region surrounding Guinea also contributes to a permissive environment. Given Guinea’s status as a relatively stable country in a troubled region, rebels and/ or refugees from neighboring nations may bring substantial amounts of cash, counterfeit currency and precious stones into Guinea.

Section 4 of the Guinean Penal Code criminalizes money laundering related to narcotics trafficking. Violations are punishable by 10 to 20 years in prison and a fine of $2,500 to $50,000. While some commercial banks in Guinea are voluntarily using software or other methods to detect suspicious transactions, no anti-money laundering regime is in place. The Ministry of Finance has approached an international accounting and consulting firm to assist the Government of Guinea in writing an anti-money laundering law.

No money laundering arrest or prosecutions for money laundering have been prosecuted since January 1, 2003.

Guinea is a party to the 1988 UN Drug Convention. Guinea is also a party to the UN International Convention for the Suppression of the Financing of Terrorism. A lack of resources makes full implementation of these international standards difficult for the Government of Guinea.

Guinea should enact comprehensive anti-money laundering legislation that criminalizes money laundering and terrorist financing.

Guinea-Bissau

Guinea-Bissau is not considered an important regional financial center. It is a Central Bank of West African States (BCEAO) member country. While anecdotal evidence of money laundering exists, Bissau-Guinean officials are not aware of its extent. Guinea-Bissau has an unofficial money transfer system, similar to the hawala alternative remittance system, but authorities are unaware of the scope of this system. However, there are numerous cases of corruption, narcotics trafficking, arms dealing and other crimes that could engender money laundering. Contraband smuggling exists at border points with neighboring countries, but it is not known whether the resulting funds are being laundered through the banking system. Guinea-Bissau’s courts did not function during most of 2003. Public servants are owed months of salary by a government in arrears and corruption is rampant. Money laundering could occur in all these areas and would be extremely difficult to detect.

Guinea-Bissau is a member of the Intergovernmental Group Against Money Laundering (GIABA), a regional body established by the Economic Union of West African States (ECOWAS) to facilitate regional coordination and harmonization of anti-money laundering programs in the region. GIABA recently hosted a self-evaluation exercise on anti-money laundering capabilities in conjunction with the International Monetary Fund and ECOWAS member states.

Guinea-Bissau is reportedly going to adopt a Uniform Act on Money Laundering that implements standards drafted by the West African Economic and Monetary Union (WAEMU) member states in conjunction with GIABA and the BCEAO. Under the harmonized WAEMU standards, Guinea-Bissau will join the other seven WAEMU countries and ultimately the 15 members of ECOWAS in updating the judicial and penal code concerning money laundering and crimes of corruption, establishing a Financial Intelligence Unit (FIU), and strengthening law enforcement and detection capability of money laundering and corruption.

A regulation at the regional level was approved by the council of ministers of the WAEMU on September 19, 2002; this regulation permits the freezing of accounts and other assets related to the financing of terrorism.

No arrests or prosecutions for money laundering or terrorist financing were made in 2003.

Guinea-Bissau is a party to the 1988 UN Drug Convention and has signed, but has not yet ratified, both the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. It has not signed the UN Convention Against Corruption.

Guinea-Bissau should criminalize terrorist financing and should take steps to develop an anti-money laundering regime in accordance with international standards. Guinea-Bissau should become a party to the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. It should avail itself of the opportunity to work closely with BCEAO and GIABA, as well as other international organizations, toward these ends.

Guyana

Guyana is neither an important regional financial center nor an offshore financial center, nor does it have any notable offshore business sector. The scale of money laundering, though, is thought to be large given the size of the informal economy, which is estimated to be at least 30 percent of the size of the formal sector. Money laundering has been linked to trafficking in drugs, firearms and persons, as well as corruption and fraud. Political instability, government inefficiency, an internal security crisis, and a lack of resources have significantly impaired Guyana’s efforts to bolster its anti-money laundering regime. Investigating and trying money laundering cases is not a priority for law enforcement. The Government of Guyana (GOG) made no arrests or prosecutions for money laundering in 2003.

The Money Laundering Prevention Act passed in 2000 is not yet fully in force, due to inadequate implementing legislation, difficulties associated with finding suitable personnel to staff the Financial Investigations Unit (FIU) and the Bank of Guyana’s lack of capacity to fully execute its mandate. Crimes covered by the Money Laundering Prevention Act include illicit narcotics trafficking, illicit trafficking of firearms, extortion, corruption, bribery, fraud, counterfeiting, and forgery. The law also requires that incoming or outgoing funds over $10,000 be reported. Licensed financial institutions are required to report suspicious transactions, although banks are left to determine thresholds individually according to banking best practices. Suspicious activity reports must be kept for seven years. The legislation also includes provisions regarding confidentiality in the reporting process, good faith reporting, penalties for destroying records related to an investigation, asset forfeiture, international cooperation, and extradition for money laundering offenses.

The GOG established a financial intelligence unit in 2003, although by the end of the year it was not yet fully staffed or equipped.

Asset forfeiture is provided for under the Money Laundering Act, although the guidelines for implementing seizures/forfeitures have not yet been finalized.

The Ministry of Foreign Affairs and the Bank of Guyana (the country’s Central Bank), continue to assist U.S. efforts to combat terrorist financing by working towards coming into compliance with UNSCRs 1333, 1368, and 1373. In 2001 the Central Bank, the sole financial regulator as designated by the Financial Institutions Act of March 1995, issued orders to all licensed financial institutions expressly instructing the freezing of all financial assets of terrorists, terrorist organizations, individuals and entities associated with terrorists and their organizations. Guyana has no domestic laws authorizing the freezing of terrorist assets, but the government created a special committee on the implementation of UNSCRs, co-chaired by the Head of the Presidential Secretariat and the Director General of the Ministry of Foreign Affairs. To date the procedures have not been tested, due to an absence of identified terrorist assets located in Guyana.

Guyana is a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. A 2002 CICAD review of Guyana’s efforts against money laundering noted numerous deficiencies in implementation, resources, and political will. Guyana is now also a member of the Caribbean Financial Action Task Force (CFATF), but has not yet participated in that organization’s mutual evaluation process. Guyana is a party to the 1988 UN Drug Convention. Guyana has not signed the UN Convention against Transnational Organized Crime nor the UN International Convention for the Suppression of the Financing of Terrorism, although Guyana was debating the Convention in late 2003 and may sign it in early 2004.

Guyana should enact legislation and/or regulations to implement its Money Laundering law. Guyana should provide appropriate resources and awareness training to its regulatory, law enforcement and prosecutorial personnel. Guyana should criminalize terrorist financing and adopt measures that would allow it to block terrorist assets.

Haiti

Haiti is not a major regional financial center, and given Haiti’s dire economic condition and unstable political situation, it is doubtful it is a major player in the region’s formal financial sector. Most money laundering activity appears to be related to narcotics proceeds (primarily cocaine), although there is a significant amount of contraband passing through Haiti. While the informal economy in Haiti is significant and partly funded by narcotics proceeds, smuggling is historically prevalent and pre-dates narcotics trafficking. Money laundering occurs in the banking system and the nonbank financial system, including in casino, foreign currency, and real estate transactions. Further complicating the picture is the cash that is routinely transported to Haiti from Haitians and their relatives in the United States in the form of remittances. While there is no indication of terrorist financing, Haiti is often a stopover for illegal migrants from several countries.

In recent years, Haiti has taken steps to address its money laundering problems. Since August 2000, Haiti, through Central Bank Circular 95, has required banks, exchange brokers, and transfer bureaus to obtain declarations identifying the source of funds exceeding 200,000 gourdes (approximately $4,550) or its equivalent in foreign currency. Covered entities must report these declarations to the competent authorities on a quarterly basis. Failure to comply can result in fines up to 100,000 gourdes (approximately $2,275) or forfeiture of the bank’s license. Unfortunately, because of widespread official laxity and rampant corruption, and the fact that nearly two thirds of Haiti’s economy is informal, large amounts of money do not flow through the legitimate financial system that is governed by these regulations.

Since 2001, Haiti has used the “Law on Money Laundering from Illicit Drug Trafficking and other Crimes and Punishable Offenses” (AML Law) as its primary anti-money laundering tool. All financial institutions and natural persons are subject to the money laundering controls of the AML Law. The AML Law criminalizes money laundering, which it defines as “the conversion or transfer of assets for the purpose of disguising or concealing the illicit origin of those assets or for aiding any person who is involved in the commission of the offense from which the assets are derived to avoid the legal consequences of his acts; the concealment or disguising of the true nature, origin, location, disposition, movement, or ownership of property; and the acquisition, possession or use of property by a person who knows or should know that this property constitutes proceeds of a crime under the terms of this law.”

The AML Law provides for relatively long prison sentences and large fines totaling millions in gourdes, and applies to a wide range of financial institutions, including banks, money changers, casinos, and real estate agents. Insurance companies are not covered, but they represent only a minimal factor in the Haitian economy. The AML Law requires natural persons and legal entities to verify the identity of all clients, record all transactions, including their nature and amount, and submit the information to the Ministry of Economy and Finance.

Specifically, the AML Law requires financial institutions to establish money laundering prevention programs and to verify the identity of customers who open accounts or conduct transactions that exceed 200,000 gourdes (approximately $4,550). Banks are required to maintain records for at least five years and are required to present this information to judicial authorities and financial information service officials upon request. When stock or currency transactions exceed 200,000 gourdes and are of a suspicious nature, financial institutions are required to investigate the origin of those funds and prepare an internal report. These reports are available (upon request) to the Unite Centrale de Renseignements Financiers (UCREF), Haiti’s financial intelligence unit (FIU). Bank secrecy or professional secrecy cannot be invoked as grounds for refusing information requests from these authorities.

In 2002, Haiti formed a National Committee to Fight Money Laundering, the Comite National de Lutte Contre le Blanchiment des Avoirs (CNLBA). The CNLBA is in charge of promoting, coordinating, and recommending policies to prevent, detect, and suppress the laundering of assets obtained from the illicit trafficking of drugs and other serious offenses. The CNLBA, through UCREF, is responsible for receiving and analyzing reports submitted in accordance with the AML Law. The UCREF was created through an August 2000 circular by the Ministries of Justice and Public Security and is referenced in the AML Law. The FIU officially opened in December 2003, and by law, has the authority to exchange information with foreign countries. Entities or persons are required to report to the UCREF any transaction involving funds that appear to be derived from a crime. Failure to report such transactions is punishable by more than three years’ imprisonment. Although established in 2002, the CNLBA is still not fully functional or funded. Additionally, the UCREF does not meet the international standards established by the Egmont Group of FIUs.

The AML Law has provisions for the forfeit and seizure of assets; however, the government cannot declare the asset or business forfeited until there is a conviction, which does not happen often in Haiti. The judicial branch is the deciding organization, but seizures and use of seized assets is on an ad hoc basis. Haiti is considering modifications to the law to strengthen the judicial procedure and asset seizure and forfeit provisions.

Corruption and the large informal economy continue to prevent the full implementation and enforcement of Haiti’s 2001 anti-money laundering law. This is evidenced by the fact that in 2003 there were no arrests or prosecutions for money laundering or terrorism.

Haiti has made little progress regarding terrorist financing in the past year. The government still has not passed legislation criminalizing the financing of terrorists and terrorism, nor has it signed the UN International Convention for the Suppression of the Financing of Terrorism. The AML Law provides for investigation and prosecution in all cases of illegally derived money. Under this law, terrorist finance assets may be frozen and seized. The commission printed and circulated to all banks the list of individuals and entities on the UN 1267 Sanctions Committee’s consolidated list. The Central Bank chaired meetings with all bank presidents and requested their cooperation.

Although Haiti has signed the UN Convention against Transnational Organized Crime, the government has not yet ratified the treaty. Haiti is a party to the 1988 UN Drug Convention. Haiti is a member of the OAS/CICAD Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force (CFATF).

In the coming year, the Government of Haiti should make every effort to fully implement the AML Law. Haiti should criminalize terrorist financing and work toward becoming a party to the UN International Convention for the Suppression of the Financing of Terrorism. It should also bring the UCREF into compliance with the Egmont Group standards and seek greater assistance and training for personnel involved in the fight against money laundering.

Honduras

Honduras is not an important regional or offshore financial center and is not considered to have a significant black market for smuggled goods. The vulnerabilities of Honduras to money laundering stem primarily from significant narcotics trafficking throughout the region. In Honduras, money laundering takes place through the banking sector, and most likely in currency exchange houses, casinos, and front companies as well. Corruption remains a serious problem, particularly within the judiciary and law enforcement sectors. The operation of offshore financial institutions is prohibited; casinos, however, remain unregulated.

In 2002, there were major developments in the fight against money laundering in Honduras. On February 28, 2002, the National Congress passed long-awaited legislation to widen the definition of money laundering and strengthen enforcement. Prior to the new law, the Honduran anti-money laundering program was based on Law No. 27-98 of December 1997. Law No. 27-98 criminalized the laundering of narcotics-related proceeds, and introduced customer identification (no anonymous bank accounts were permitted), record keeping (five years), and transaction reporting requirements for financial institutions, including banks, currency exchange houses, money transmitters, and check sellers/cashiers. Under the new legislation, Decree No. 45-2002, the Law No. 27-98 was expanded to define the crime of money laundering to include any non-economically justified sale or movement of assets, as well as asset transfers connected with trafficking of drugs, arms, and people; auto theft; kidnapping; bank and other forms of financial fraud; and terrorism. The penalty for money laundering is a prison sentence of 15-20 years. The law includes banker negligence provisions that make individual bankers subject to two- to five-year prison terms for allowing money laundering activities.

Decree No. 45-2002 also creates a financial intelligence unit, the Unidad de Información Financiera (UIF), within the Honduras National Banking and Securities Commission. Banks and other financial institutions are required to report to the UIF currency transactions over $10,000 in dollar denominated accounts or 200,000 lempiras (approximately $11,200) in local currency accounts. The law requires the UIF and reporting institutions to keep a registry of reported transactions for five years. The UIF receives over 2,000 reports per month of transactions over the designated threshold. Banks and other financial institutions are also required to report all unusual or suspicious financial transactions to the UIF. In 2003, the UIF initiated investigations into 74 unusual or suspicious transactions, up from the 24 investigated in 2002. The UIF also responded to 156 requests for investigation made by the Public Ministry, compared to 48 in 2002.

Decree No. 45-2002 requires that a public prosecutor be assigned to the UIF. In 2002, a prosecutor from the Public Ministry was assigned to the unit full-time. In 2003, however, the Public Ministry changed this arrangement so that there are now four prosecutors assigned to the UIF, each on a part-time basis, with responsibility for specific cases divided among them depending on their expertise. The prosecutors, under urgent conditions and with special authorization, may subpoena data and information directly from financial institutions. Public prosecutors and police investigators are permitted to use electronic surveillance techniques to investigate money laundering.

Early in 2003, there was ambiguity as to which of two units within the police forces would have responsibility for the investigation of financial crimes. This issue was resolved by mid-year, with primary responsibility for the investigations assigned to the Office of Special Investigative Services (DGSEI). By the end of 2003, it appeared the various government entities involved in the fight against money laundering—the DGSEI, the UIF and the Public Ministry—were beginning to work well together and communicate more effectively among themselves. In 2003, there were ten cases brought to court under the new law, which were still pending at the year’s end.

The National Congress enacted an asset seizure law in 1993 that subsequent Honduran Supreme Court rulings had substantially weakened. Decree No. 45-2002 strengthens the asset seizure provisions of the law, establishing an Office of Seized Assets under the Public Ministry. The law authorizes the Office of Seized Assets to guard and administer “all goods, products or instruments” of a crime. However, the actual process of establishing and equipping this office to carry out its functions has been slow. The implementing regulations governing the Office of Seized Assets were finalized and published in March 2003, and a director of the office was named at the same time. Plans to build separate offices and a warehouse for this entity, however, are still incomplete, resulting in seized assets currently being kept in various locations under dispersed authority. Moreover, in September another government entity made an unsuccessful attempt to take over the function of controlling seized assets from the nascent Office. Consequently, the Office of Seized Assets cannot be said to have established firm control over the asset seizure and forfeiture process. The physical transportation of large sums of cash is a growing phenomenon in Honduras, and since the beginning of 2003, there have been seizures of cash and assets totaling over two million dollars.

The Government of Honduras (GOH) has been supportive of counterterrorism efforts. Decree No. 45-2002 states that an asset transfer related to terrorism is a crime; however, terrorist financing has not been identified as a crime itself. This law does not explicitly grant the GOH the authority to freeze or seize terrorist assets; on separate authority; however, the National Banking and Insurance Commission has issued freeze orders promptly for the organizations and individuals named by the UN 1267 Sanctions Committee and those organizations and individuals on the list of Specially Designated Global Terrorists designated by the United States pursuant to Executive Order 13224 (on terrorist financing). The Ministry of Foreign Affairs is responsible for instructing the Commission to issue freeze orders. The Commission directs Honduran financial institutions to search for, hold, and report on terrorist-linked accounts and transactions, which, if found, would be frozen. The Commission reported that, to date, no accounts linked to the entities or individuals on the lists have been found in the Honduran financial system.

While Honduras is a major recipient of flows of remittances (estimated at $800 million in 2003), there has been no evidence to date linking these remittances to the financing of terrorism. Remittances primarily flow from Hondurans living in the United States to their relatives in Honduras. The great majority of these remittances is sent through wire transfer or bank services.

The GOH cooperates with U.S. investigations and requests for information pursuant to the 1988 UN Drug Convention. Honduras has signed memoranda of understanding to exchange information on money laundering investigations with Panama, El Salvador, Guatemala, and Colombia. The GOH also adheres to the Basel Committee’s “Core Principles for Effective Banking Supervision.” At the regional level, Honduras is a member of the Central American Council of Bank Superintendents, which meets periodically to exchange information.

Honduras is a party to the 1988 UN Drug Convention. The GOH is also a party to both the UN International Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism. The GOH has signed, but not yet become a party to, the OAS Inter-American Convention on Terrorism, and has not yet signed the UN Convention Against Corruption. Honduras is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. In 2002, Honduras became a member of the Caribbean Financial Action Task Force (CFATF). The UIF has been nominated by Spain for inclusion in the Egmont Group of Financial Intelligence Units. Its entry nomination will be voted upon in October of 2004.

In 2003, the GOH took positive steps to implement Decree No. 45-2002 by establishing and equipping the various government entities responsible for combating money laundering. However, there are only limited resources available for training officials, most of whom lack experience in dealing with money laundering issues. Due to a lack of available technology, most analysis of suspicious transactions reports and cash transaction reports is done manually, which increases the risk of human error and corruption. Further progress in implementing the new money laundering legislation will depend on the training and retention of personnel familiar with money laundering and financial crimes, clearer delineation of responsibility between different government entities, and improved ability and willingness of the Public Ministry to aggressively investigate and prosecute financial crimes. The GOH should continue to support the developing government entities responsible for combating money laundering and other financial crime, and ensure that resources are available to strengthen its anti-money laundering regime. The GOH should ensure full implementation and proper oversight of its asset forfeiture program. The GOH should also criminalize terrorist financing. The GOH should adequately supervise and regulate casinos, nongovernmental organizations, including charities, and alternative remittance systems to lessen their vulnerability to abuse by criminal and terrorist organizations and their supporters.

Hong Kong

Hong Kong is a major international financial center. Its low taxes and simplified tax system, sophisticated banking system, the availability of secretarial services and shell company formation agents, and absence of currency and exchange controls facilitate financial activity but also make it vulnerable to money laundering. The primary sources of laundered funds are narcotics trafficking (particularly heroin, methamphetamine, and ecstasy), tax evasion, fraud, illegal gambling and bookmaking, and illegal alien smuggling. Laundering channels include Hong Kong’s banking system, and its legitimate and underground remittance and money transfer networks. Hong Kong is substantially in compliance with the Financial Action Task Force’s (FATF) Forty Recommendations on Money Laundering, and has pledged to adhere to the Revised 40 FATF Recommendations. Overall, Hong Kong has developed a strong anti-money laundering regime, though improvements should be made. It is a regional leader in anti-money laundering efforts. Hong Kong has been a member of the FATF since 1990. It served as President of the FATF for the 2001/2002 term and served on the FATF’s Steering Group from 2001 to 2003.

Money laundering is a criminal offense in Hong Kong under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and Organized and Serious Crimes Ordinance (OSCO). The money laundering offense extends to the proceeds of drug-related and other indictable crimes. Money laundering is punishable by up to 14 years’ imprisonment and a fine of HK$5,000,000 ($643,000).

Money laundering reporting requirements apply to all persons, including banks and nonbank financial institutions, as well as to intermediaries such as lawyers and accountants. All persons must report suspicious transactions of any amount to the Joint Financial Intelligence Unit (JFIU). The JFIU does not investigate suspicious transactions itself, but receives, stores and disseminates suspicious transactions reports (STRs) to the appropriate investigative unit. Typically, STRs are passed to either the Narcotics Bureau or the Organized Crime and Triad Bureau of the Hong Kong Police Force, or to the Customs Drug Investigation Bureau of the Hong Kong Customs and Excise Department.

Financial regulatory authorities issue anti-money laundering guidelines to institutions under their purview and monitor compliance through on-site inspections and other means. Hong Kong law enforcement agencies provide training and feedback on suspicious transaction reporting.

Financial institutions are required to know and record the identities of their customers and maintain records for five to seven years. Hong Kong law provides that the filing of a suspicious transaction report shall not be regarded as a breach of any restrictions on the disclosure of information imposed by contract or law. Remittance agents and money changers must register their businesses with the police and keep customer identification and transaction records for cash transactions equal to or over $2,564 (HK$20,000). Hong Kong does not require reporting of the movement of currency above a threshold level across its borders or reporting of large currency transactions above a threshold level.

There is no distinction made in Hong Kong between onshore and offshore entities, including banks, and no differential treatment is provided for nonresidents, including on taxes, exchange controls, or disclosure of information regarding the beneficial owner of accounts or other legal entities. Hong Kong’s financial regulatory regimes are applicable to residents and nonresidents alike. The Hong Kong Monetary Authority (HKMA) regulates banks. The Insurance Authority and the Securities and Futures Commission regulate insurance and securities firms, respectively. All three impose licensing requirements and screen business applicants. There are no legal casinos or Internet gambling sites in Hong Kong.

In Hong Kong, it is not uncommon to use solicitors and accountants, acting as company formation agents, to set up shell or nominee entities to conceal ownership of accounts and assets. Hong Kong is a global leader in registering international business companies (IBCs), with nearly 500,000 registered in 2002. Many of the IBCs created in Hong Kong are owned by other IBCs registered in the British Virgin Islands. Many of the IBCs are established with nominee directors. The concealment of the ownership of accounts and assets is ideal for the laundering of funds. Additionally, some banks permit the shell companies to open bank accounts based only on the vouching of the company formation agent. However, solicitors and accountants have filed a low number of suspicious transaction reports in recent years, and have become a focus of attention to improve reporting, as a result.

The open nature of Hong Kong’s financial system has long made it the primary conduit for funds being transferred out of China, which maintains a closed capital account. Hong Kong’s role has been evolving as China’s financial system gradually opens. In November 2003, for instance, China’s State Council allowed China’s Central Bank, the People’s Bank of China, to provide clearing arrangements for banks in Hong Kong to take deposits in the mainland Chinese currency, the yuan, and offer personal banking business in yuan on a trial basis for the first time. This could bring some financial transactions related to China out of the money-transfer industry and into the more highly regulated banking industry. However, this new yuan-denominated banking also carries the risks associated with money laundering.

Under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and the Organized and Serious Crimes Ordinance (OSCO), a court may issue a restraining order against a defendant’s property at or near the time criminal proceedings are instituted. Both ordinances were strengthened in January 2003, through a legislative amendment lowering the evidentiary threshold for initiating confiscation and restraint orders against persons or properties suspected of drug trafficking. Property includes money, goods, real property, and instruments of crime. A court may issue confiscation orders at the value of a defendant’s proceeds from illicit activities. Cash imported into or exported from Hong Kong that is connected to narcotics trafficking may be seized, and a court may order its forfeiture. As of December 1, 2003, the value of assets under restraint was $164 million, and the value of assets under confiscation order, but not yet paid to the government was $12.98 million, according to figures from the Hong Kong Joint Financial Intelligence Unit. It also reported that as of December 1, 2003, the amount confiscated and paid to the government since the enactment of DTRoP and OSCO was $49.1 million, and a total of 96 persons had been convicted of money laundering over that period. Hong Kong has shared confiscated assets with the United States.

In July 2002, the legislature passed several amendments to the DTRoP and OSCO to strengthen restraint and confiscation provisions. These changes, which became effective on January 1, 2003, include the following: no longer requiring actual notice to an absconded offender; requiring the court to fix a period of time in which a defendant is required to pay a confiscation judgment; permitting the court to issue a restraining order against assets upon the arrest (rather than charging) of a person; requiring the holder of property to produce documents and otherwise assist the government in assessing the value of the property; and creating an assumption under the DTRoP, to be consistent with OSCO, that property held within six years of the period of the violation, by a person convicted of drug money laundering, is proceeds from that money laundering.

Since legislation was adopted in 1994 mandating the filing of suspicious transaction reports (STRs), the number of STRs received by Hong Kong’s Joint Financial Intelligence Unit has continually increased. In the first ten months of 2003, a total of 10,149 STRs were filed, compared to a total of 10,871 for the twelve months of 2002. Notwithstanding the trend of increased filings, the Hong Kong Joint FIU hopes to further improve the quality and quantity of STRs by setting up two intelligence analysis teams in April of 2004 in the financial intelligence unit (FIU). They will be tasked with analyzing STRs to develop information that could aid in prosecuting money laundering cases—the number of which has also increased since 1996, soon after the passage of OSCO (1994). In the first nine months of 2003, there were 656 money laundering investigations, compared to 687 cases for all of 2002. In terms of actual prosecutions for money laundering, there were 25 during the first nine months of 2003, compared to 32 for the entire year of 2002. Of the 25 cases prosecuted in this period, 24 of them were prosecuted under OSCO, while only one was prosecuted under DTRoP. From 1996 to September 30, 2003, a total of 163 money laundering cases were prosecuted under OSCO, while only 18 cases were prosecuted under DTRoP.

In July 2002, Hong Kong’s legislature passed the United Nations (Anti-Terrorism Measures) Ordinance that criminalizes the supply of funds to terrorists. This legislation was designed to bring Hong Kong into compliance with UNSCR 1373 and the FATF’s Special Recommendations on Terrorist Financing. Hong Kong introduced additional legislation in May 2003 to implement UNSCR 1373 and the Financial Action Task Force (FATF) Special Recommendations on Anti-Terrorist Financing. The United Nations (Anti-Terrorism Measures) (Amendment) Bill was submitted to Hong Kong’s Legislative Council in May. After the first reading of the bill, it was referred to the Bills Committee for consideration. The bill aims to implement the remaining requirements of the international conventions against terrorism under UNSCR 1373 and the FATF Special Recommendations.

Hong Kong’s financial regulatory authorities have directed the institutions they supervise to conduct record searches for terrorist assets using U.S. Executive Order 13224 and United Nations lists. By late 2003, Hong Kong had applied eight of the twelve international antiterrorism conventions, and the government had submitted legislation to Hong Kong’s Legislative Council to apply two more. The People’s Republic of China has yet to ratify two conventions—the International Convention for the Suppression of the Financing of Terrorism and the Convention on the Physical Protection of Nuclear Material. As such, they have yet to be applied in Hong Kong, since the PRC represents Hong Kong on defense and foreign policy matters, including UN affairs.

In 2003, Hong Kong financial authorities arranged outreach activities to raise awareness of terrorism financing in the financial community. For instance, Hong Kong’s bank regulatory agency restructured its bank examinations to focus more on antiterrorism financing. Also, the Hong Kong Monetary Authority (HKMA) drafted a best practice guide for use by financial institutions on how to guard against money laundering in alternative remittance systems and wire transfers. The HKMA, the Securities and Futures Commission (SFC), and the Insurance Authority also circulated new regulations and best practice guides regarding the reporting of terrorist-related property. The Hong Kong government has modified its regulations in line with the FATF’s updating of its recommendations. On February 1, 2002, the FATF held a Special Forum on Terrorist Financing at the close of the FATF Plenary meeting in Hong Kong, which was attended by FATF members and members of the FATF-style regional bodies. Hong Kong continued to serve as a FATF Steering Group member until June 30, 2003, during which time it participated in the FATF’s Terrorist Financing Working Group, which clarified recommendations on freezing terrorist assets and on combating the abuse of alternative remittance systems and nonprofit organizations.

Domestically, Hong Kong’s judicial system tried one terrorism-related case in 2003, pursuant to Section 11(2) of the United Nations antiterrorism measures ordinance. The case concerned a man claiming to be a terrorist who made a hoax bomb threat at a hotel. The man had a previous record of psychiatric treatment, and was sentenced to serve a six-month hospital order. Also, in 2002 and 2003, Hong Kong authorities cooperated with U.S. law enforcement in a case involving the exchange of drugs for Stinger missiles allegedly for use by al-Qaida in 2002. In a sting operation coordinated with the U.S., the suspects came to Hong Kong to finalize the deal, and were arrested in 2002. Hong Kong extradited them to the U.S. in 2003. The Hong Kong police also assisted the U.S. in additional terrorism investigations in 2003. In one such case, Hong Kong provided law enforcement assistance in a case involving seven people charged with conspiracy to provide material support to terrorist organizations.

In 2003, Hong Kong took part in the International Monetary Fund’s Financial Sector Assessment Program (FSAP), which aims to strengthen the financial stability of a jurisdiction by identifying the strengths and weaknesses of its financial system and assessing compliance with key international standards. As part of the FSAP, a team of IMF and World Bank-sponsored legal and financial experts assessed the effectiveness of Hong Kong’s antiterrorist financing regime against the FATF Forty Recommendations and the FATF Eight Special Recommendations on Terrorist Financing. In its assessment published in June 2003, the IMF described Hong Kong’s anti-money laundering measures as “resilient, sound, and overseen by a comprehensive supervisory framework.”

At the October 2002 meeting of the Asia/Pacific Group on Money Laundering (APG), the Hong Kong delegation noted that underground banking and remittance agents remain major mechanisms through which criminals transfer proceeds of crimes across borders. Another major area of concern for Hong Kong is the laundering of criminal proceeds by nonfinancial services professionals.

Through the PRC, Hong Kong is subject to the 1988 UN Drug Convention. It is an active member of the FATF and Offshore Group of Banking Supervisors and also a founding member of the APG. Hong Kong’s banking supervisory framework is in line with the requirements of the Basel Committee on Banking Supervision’s “Core Principles for Effective Banking Supervision.” Hong Kong’s JFIU is a member of the Egmont Group and is able to share information with its international counterparts. Hong Kong cooperates closely with foreign jurisdictions in combating money laundering. Hong Kong’s mutual legal assistance agreements provide for the exchange of information for all serious crimes, including money laundering, and for asset tracing, seizure, and sharing. Hong Kong signed and ratified a mutual legal assistance agreement with the United States that came into force in January 2000.

As of October 2003, Hong Kong had mutual legal assistance agreements with a total of fifteen other jurisdictions: Australia, Canada, the U.S., Italy, the Philippines, the Netherlands, Ukraine, Singapore, Portugal, Ireland, France, the United Kingdom, New Zealand, the Republic of Korea, and Switzerland. Hong Kong has also signed surrender of fugitive offenders agreements with 13 countries—including the U.S.—and has signed transfer of sentenced persons agreements with seven countries, including the U.S. Hong Kong authorities exchange information on an informal basis with overseas counterparts, with Interpol, and with Hong Kong-based liaison officers of overseas law enforcement agencies. An amendment to the Banking Ordinance in 1999 allows the HKMA to disclose information to an overseas supervisory authority about individual customers, subject to conditions regarding data protection. The HKMA has entered into memoranda of understanding with overseas supervisory authorities of banks for the exchange of supervisory information and cooperation, including on-site examinations of banks operating in the host country.

Hong Kong should strengthen its anti-money laundering regime by establishing threshold reporting requirements for currency transactions and putting into place “structuring” provisions to counter evasion efforts. Hong Kong should also establish cross-border currency reporting requirements and encourage more suspicious transactions reporting by lawyers and accountants, as well as business establishments, such as auto dealerships, real estate companies, and jewelry stores. Hong Kong should also take steps to thwart the use of “shell” companies, IBCs, and other mechanisms that conceal the beneficial ownership of accounts by more closely regulating corporate formation agents.

Hungary

Hungary has a pivotal location in Central Europe, with a well-developed financial services industry. Criminal organizations from Russia and other countries are entrenched in Hungary. The economy is largely cash-based.

Hungary has an offshore market but prohibits offshore companies from providing financial and banking services. Hungary has licensed approximately 600 international businesses that are mainly owned by foreigners and enjoy a corporate tax rate of three percent as opposed to the usual rate of 18 percent. This favorable tax treatment will be abolished, effective in 2005. Hungary does not have current provisions concerning the criminal liability of legal persons. Act CIV of 2001, which addresses this omission, is expected to enter into force on May 1, 2004—the day the Act Proclaiming the International Treaty on the Accession of the Republic of Hungary to the European Union enters into force.

Money laundering related to all serious crimes is a criminal offense in Hungary. In April 2002, Section 303 of the Penal Code on Money Laundering was amended to criminalize the laundering of one’s own proceeds, laundering through negligence, and conspiracy to commit money laundering, as punishable offenses. Laundering one’s own proceeds has been applied in cases currently under investigation. The Government of Hungary (GOH) has also adopted a new government decree to further strengthen its Financial Intelligence Unit (FIU) and tighten anti-money laundering provisions.

Act No. XV of 2003, “On the Prevention and Impeding of Money Laundering,” which passed on February 25, 2003 and became effective June 16, 2003, amends the 1994 law, criminalizing tipping off and forcing self-regulating professions to submit internal rules to identify asset holders, track transactions, and report suspicious transactions. Self-regulating bodies have oversight responsibility but are not required to report suspicious transactions themselves. Hungary’s financial regulatory body, the Hungarian Financial Supervisory Authority (PSzAF), will harmonize these rules and ensure compliance. In addition, more professions were added to the list of obligated entities, including lawyers and notaries. These professions, like others without a supervisory body, will be supervised by Hungary’s FIU, the Anti-Money Laundering Section (AMLS). The Act also places Hungary’s laws into compliance with the Second European Union (EU) Directive and settles all aspects of the regulations previously left pending, such as the coverage of lawyers, notaries and nonfinancial businesses and professions. The amendments also set a deadline of December 31, 2003, for financial institutions to register their client information into their records. However, because of concerns expressed by banks regarding the new identification requirements, this deadline has been extended to April 2004. 2003 also brought changes in the cross-border currency transactions; now, all monetary instruments exceeding one million Hungarian forint (HUF) (about 3,800 euro) must be reported to customs at the border, with the penalty for nonreporting 50,000 HUF and confiscation. On July 1, 2003, Hungary’s new Criminal Procedure Code went into effect.

In January 2002, the GOH created the Commission for Anti-Money Laundering Policy to better implement and coordinate efforts to improve Hungary’s anti-money laundering regime. This is an inter-ministerial body incorporating the FIU, Ministries of Finance, Justice, Interior, the Prosecutor’s Office, Supreme Court and PSzAF. The Commission is particularly important with regard to combating terrorism, because of its ability to respond quickly and effectively to international requests to identify and freeze assets of terrorists.

The cross-border movement of cash greater than one million HUF (approximately $4,000) must be declared to the customs authority, which immediately forwards it to the AMLS. Reporting and record keeping requirements, internal control procedures, and customer identification practices are required for a broad range of financial institutions. Banks, insurance companies, securities brokers and dealers, investment fund management companies, and currency exchange houses must file suspicious transaction reports (STRs), including those that could be related to terrorist financing.

That requirement must now be met by other classes of professionals, including attorneys, antique dealers, casinos, tax consultants, real estate sales people, and accountants. Due diligence regarding the identification of beneficial owners must be exercised.

Hungary’s financial regulatory body, PSzAF, supervises the financial sector, including compliance with anti-money laundering requirements and including bureaux de change. PSzAF oversees about 2,000 institutions. PSzAF has authority to conduct money laundering inspections and to impose sanctions upon noncompliant institutions. In 2002, PSzAF decided to increase oversight over the currency exchange sector by forcing moneychangers without an agreement with a commercial bank to cease operations on July 1, 2002. Of the 120 completed on-site inspections of financial institutions conducted between July 1, 2002, and June 1, 2003, PSzAF found irregularities serious enough to justify supervisory sanctions, including fines. Most fines were due to deficiencies in customer identification and registration procedures. By June 2003, PSzAF had withdrawn the licenses of three bureaux de change because of faulty internal regulations. In the third quarter of 2003, PSzAF undertook 74 specific money laundering inspections, and one case is currently under investigation. In October 2003, legislation was submitted to Parliament that would restructure the PSzAF (effective by 2004). It eliminates the current one-person head of PSzAF, replacing it with a board of supervisors elected by Parliament at the proposal of the Prime Minister and President. In addition, the Finance Minister’s supervision would be more explicitly set forth. It appears that the independence of PSzAF will remain unaffected and the amendment could, in fact, have the potential to increase PSzAF’s accountability in supervising financial markets.

In June 2001, the FATF placed Hungary on the list of noncooperative countries and territories (NCCT), in the fight against money laundering, principally due to the continued existence of anonymous savings accounts and the lack of concrete plans for their elimination. In its accompanying report, the FATF also noted as a deficiency the fact that Hungarian financial institutions failed to collect information concerning the beneficial owners of accounts. The U.S. Treasury issued an advisory to all U.S. financial institutions instructing them to “give enhanced scrutiny” to all financial transactions involving Hungary. As a result of actions taken by Hungary in 2001 and 2002 to correct those deficiencies, the FATF removed Hungary from the NCCT list and the U.S. advisory was lifted. In summer 2003 the FATF lifted its monitoring of Hungary entirely.

As of January 1, 2002, all anonymous passbook accounts were to be phased out. Now, savings deposits may only be placed or accepted on a registered basis by identifying both the depositor and the beneficiary. The GOH concentrated on the accounts with the largest deposits during the first six months of 2002. After July 1, 2002, any conversion of anonymous passbooks holding more than two million HUF (approximately $8,800) was automatically forwarded to the AMLS. After December 31, 2004, conversion of any remaining accounts will need written permission from the AMLS. By June 2003, 90 percent of the anonymous passbooks had been transferred to identifiable accounts. A recent modification of the Anti-Money Laundering legislation (2003. XV) requires that all account holders who have not provided the required identification data and/or have not declared sole authority over their account and named beneficiaries should provide such information by April 1, 2004 or their transactions will be denied.

Also as of January 1, 2002, only credit institutions and their agents may be authorized by the PSzAF to offer currency exchange services, and as of January 2003, currency exchange activities are licensed and supervised by the PSzAF. Under new regulations, managers and employees of bureaux de change are subject to enhanced scrutiny, including a criminal background check. Some of this enhanced scrutiny will be conducted by the AMLS. In addition, the exchange services have to carry out a legally required identification procedure and file an STR with AMLS for any currency exchange transaction meeting or exceeding 300,000 HUF (approximately $1,300). The bureaux also are required to have in operation video surveillance systems in their offices to record currency exchange activities.

A reorganization has placed the AMLS in the Directorate against Organized Crime (ORFK(SZEBI)). As a police unit, the AMLS also investigates cases. The AMLS has considerable authority to request and release information, nationally and internationally, related to money laundering investigations. To December 2003, AMLS received 11,269 STRs, 2000 from nonbanking institutions. Staffing at the AMLS has tripled since 2002 in order to deal with the rapid increase in the number of STRs received from the expanded range of reporting institutions, and further increases are coming, commensurate with its increased responsibility. AMLS staff members, along with PSzAF employees, are involved in training and raising awareness of employees within the obligated institutions, as well as members of the general public. Most recently, they held training for police, prosecutors, and customs agents in May 2003. Of the STRs received in 2003, only ten are currently under investigation. AMLS officials note that there are problems with the quality of the reporting as well as overreporting due to a fear of negligent money laundering. On January 14, 2004 Monika Lamperth, Minister for Home Affairs, announced the replacement of the Directorate Against Organized Crime, incorporating AMLS with a National Bureau of Investigation. The reorganization of SZEBI and the AMLS will take place in summer 2004. At this point it appears that the AMLS, which is a clearly defined, separate unit, would be merged and/or incorporated into other police sections.

In 2000, Hungary established a criminal investigation bureau within the Tax and Financial Inspection Service, to help spur tax and money laundering prosecutions. Based on information derived from STRs, the GOH initiated ten money laundering investigations in 2003. Two individuals were apprehended and arrested, resulting in two prosecutions—one acquittal and one conviction. In these cases, the predicate offense was fraud. Recent legislative changes, including one that clarifies that money laundering convictions can be obtained without conviction on the predicate offense, may well increase the number of money laundering prosecutions and convictions.

In June 2003, a money laundering scandal broke involving a Hungarian subsidiary of a Dutch-owned bank. A broker apparently skimmed funds from some clients in order to pad the returns of other, more favored clients. Money was laundered through several banks as well as some foreign nationals. The AMLS is currently investigating the case, which has expanded to 12 suspects and financial damages estimated at $45 million. With the organizational changes in AMLS, it is unclear how long it will take to conclude the investigation. It also is unclear whether PSzAF could be held responsible for improper reporting, as it warned the bank of improper recording procedures as early as 2000. The prosecution has denied the AMLS request to call the Head of PSzAF as a witness and has not responded to repeated requests for supporting evidence.

Act CXXI of 2001 provides for reversal of the burden of proof in cases of confiscations from persons part of a criminal organization; however, this provision has not been used in practice. Hungary’s confiscation regime is also defined by Act CXXI of 2001, which came into force on April 1, 2002, and considers all benefits or enrichment originating from a criminal act to be illegal. The present provision in force contains no reference to the knowledge of the origin of assets as a condition of asset confiscation from third parties, although assets obtained by a third party in a bona fide manner may not be confiscated. Hungary cooperates with requests for provisional orders, in one case freezing a bank account, in another freezing all assets, and in a third case carrying out an external confiscation order for the German Ministry of Justice in accordance with the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime.

In November 2001, the Hungarian Parliament approved Parliamentary Resolution 61/2001 (IX.24) on Hungary’s contribution to Operation Infinite Justice (the U.S. operation against Afghanistan), Parliamentary Resolution 62/2001 (IX.25) on foreign and security policy measures undertaken by Hungary following the terrorist attacks on the United States, and Bill No. T/5216 on counterterrorism and money laundering. The last was passed on November 27, 2001, and authorizes economic and other sanctions against countries, their commercial enterprises, and their citizens involved in terrorism. It also empowers the GOH to immediately impose further restrictions on the basis of UN Security Council resolutions or positions held by the Council of Europe, and eliminates legal ambiguities concerning the search for and seizure of terrorist assets.

The AMLS also carries out intelligence activity regarding terrorism financing, by way of receiving disclosures from institutions, information exchange with foreign counterparts, and examination and provision to relevant authorities of the lists of persons and organizations related to terrorism issued by the United States, the UN 1267 Sanctions Committee, and the EU Council. Thus far, no such accounts or transactions have been identified, but the GOH authorities state they are prepared to freeze any such accounts in the future. With the Act on the International Co-Operation of Investigative Bodies, AMLS has the right to directly exchange information with all types of FIUs. (The head of the National Police still retains the right to sign MOUs.)

Hungary is party to a Mutual Legal Assistance Treaty with the United States, and signed, in January of 2000, a nonbinding information-sharing arrangement with the United States, which is intended to enable U.S. and Hungarian law enforcement to work more closely to fight organized crime and illicit transnational activities. In furtherance of this goal, in May 2000, Hungary and the U.S. Federal Bureau of Investigation established a joint task force to combat Russian organized crime groups. Hungary has signed similar cooperation arrangements with 22 other countries and has arrangements for the exchange of information related to money laundering with Austria, Slovakia, and Cyprus. The AMLS has been a member of the Egmont Group since 1998.

Hungary is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) and underwent a mutual evaluation in 1998. Hungary is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Hungary also signed the UN Convention Against Corruption on December 10, 2003. Hungary became a party to the UN International Convention for the Suppression of the Financing of Terrorism in October 2002.

While it is clear that Hungary has made progress in improving anti-money laundering legislation, there is room for improvement, particularly in financial supervision and prosecution. Hungary should continue to improve the effectiveness of its prosecutions by further training prosecutors, judges, and police so that it may successfully prosecute money laundering cases under the post-2001 legislation. The GOH should criminalize terrorist financing. The GOH should also move forward to implement effectively its new legislation so that its anti-money laundering regime comports with international standards.

Iceland

Money laundering is not considered a major problem in Iceland. A 1997 amendment to the criminal code criminalizes money laundering regardless of the predicate offense, although the maximum penalty for money laundering is greater when it involves drug trafficking. The Icelandic Penal Code specifies that sentences be determined based on the worst crime. Therefore, if a case involves both drug offenses and money laundering, the sentence will be based on the laws that concern the drug case. In cases that concern money laundering activities only, the maximum sentence is ten years’ imprisonment.

Iceland based its money laundering law on the Financial Action Task Force’s (FATF’s) Forty Recommendations. In 1999, Iceland amended its 1993 Act on Measures to Counteract Money Laundering (MCML). The amendments increase the number and types of occupations and individuals that fall under the anti-money laundering law. The amendment also applies due diligence laws to all banks, nonbanking financial institutions, and intermediaries (such as lawyers and accountants). There are provisions in the law that allow for a fine or imprisonment for up to two years for failure to comply.

In 2003, two additional amendments were made to counteract money laundering. The first amendment is based on the European Union Directive and requires the National Commissioner of Police to provide the public with general information and advice on how to detect money laundering and suspicious transactions. Additionally, the first amendment requires banks and financial institutions to pay special attention to noncooperative countries and territories (NCCTs) that do not follow international recommendations on money laundering. The Financial Supervisory Authority (FME), the main supervisor of the Icelandic financial sector, is to publish announcements and instructions if special caution is needed in dealing with any such country or territory.

The second amendment to the MCML moves the responsibility of the National Registry of Firms from the Icelandic Statistical Office to the Internal Revenue Directorate. This amendment imposes new obligations on legal entities to provide greater information about their activities when registering, and increases the measures that Icelandic authorities can take to enforce the MCML.

The MCML requires banks and other financial institutions, upon opening an account or depositing assets of a new customer, to have the customer prove his or her identity by presenting personal identification documents. Additionally, if the individual is not a regular customer, the financial institution is required to obtain proof of identification for transactions in excess of 1,000,000 krona (approximately $15,000). The financial institutions may also request identification for transactions under the reporting requirement if the transaction is of a suspicious nature.

Financial institutions record the name of every customer who seeks to buy or sell foreign currency. All records necessary to reconstruct significant transactions are maintained for at least seven years. Employees of financial institutions are protected from civil or criminal liability for reporting suspicious transactions. The MCML requires that banks and other financial institutions report all suspicious transactions to the Economic Crime Division of the National Commissioner of Police, which is Iceland’s financial intelligence unit (FIU).

Suspicious transaction reports (STRs) are on the rise in Iceland, but the authorities believe this increase is due to increased training of bank employees, increasing cooperation between authorities and financial institutions, and an increased awareness of the importance of the issue. During the first 11 months of 2002, the number of STRs totaled 163 and for the same period in 2003 the number had increased to 213. All the STRs in 2003 were domestic in origin and were either narcotics-related (83 percent) or financial transaction-related (17 percent). The ratio of STRs that are linked to illegal financial operations has been increasing in recent years.

The first successful prosecution under the money laundering law occurred in 2000. Five additional cases were tried in 2001, all of which resulted in convictions; three were appealed to the Supreme Court where the convictions were upheld. There were no prosecutions in 2002. In 2003 two cases were tried and resulted in convictions, but they also may be appealed to the Supreme Court.

The Icelandic National Commissioner of Police’s Economic Crime Division (NCP) is the primary government agency responsible for asset seizures. According to Iceland’s Code on Criminal Procedure, if there is suspicion of criminal activity, the NCP can take measures such as freezing or seizing funds. There are no significant obstacles to asset seizure, as long as the NCP, when requesting such measures, can demonstrate a reasonable suspicion of illegal activity to the court. The FME and the NCP make every effort to enforce existing drug-related asset seizure and forfeiture laws. Asset seizure has in recent years become quite common in embezzlement crimes, while only a small fraction of total asset seizures have related to money laundering. Under the Icelandic Penal Code, any assets confiscated on the basis of money laundering investigations must be delivered to the Icelandic State Treasury. There have been no instances of the U.S., or another government, requesting seized assets from Iceland. If such a situation arose, the sharing of seized assets with another government would only become possible through new legislation drafted for this specific purpose.

The Parliament of Iceland passed comprehensive domestic legislation that specifically criminalizes terrorism and terrorist acts and requires the reporting of suspected terrorist-linked assets and transactions involving possible terrorist operations or organizations. In March 2003, an amendment to the Law on Official Surveillance on Financial Operations was passed. It strengthens Iceland’s ability to adhere to international money laundering and asset freezing initiatives and agreements. In accordance with international obligations or resolutions to which Iceland is a party, the FME shall publish announcements on individuals or legal entities (companies) whose names appear on the UN or European Union lists and whose assets or transactions Icelandic financial institutions are specifically obliged to report to authorities and freeze. Prior to the amendment the government had to publish the names of terrorist individuals and organizations in the National Gazette in order to make them subject to asset freezing. The government formally enacted financial freeze orders against individuals and entities on the UNSCR 1267/1390 consolidated list of terrorists. Government of Iceland (GOI) officials have said they will consider applying their terrorist asset freeze strictures against U.S.-only designated entities (i.e., names not on UN or EU lists), on a case-by-case basis. To date, Iceland has discovered no terrorist-related assets or financial transactions.

When dealing with other European Economic Areas (EEA) member countries, the FME can disclose confidential information to their supervisory authorities provided that this sharing constitutes an act of law enforcement cooperation and is beneficial for conducting investigations of suspicious money laundering activities, and information provided is kept confidential by the receiving countries’ authorities as prescribed by law. Concerning requests for information from countries outside of the EEA, the FME may, on a case-by-case basis, disclose to supervisory authorities information under the same conditions of confidentially. To date there have been no requests from either EEA or non-EEA countries for an exchange of information concerning suspected acts of money laundering. This likely explains why there is currently no agreement (or discussions toward one) between Iceland and the U.S. to exchange information concerning financial investigation, and no MLAT (Mutual Legal Assistance Treaty). The National Commissioner of Police has acted on tips from foreign law enforcement agencies in the investigation of money laundering activities, and the process of international cooperation with the law enforcement authorities of other countries appears to work smoothly.

Iceland is a party to the 1988 UN Drug Convention; the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime; and the UN International Convention for the Suppression of the Financing of Terrorism. Iceland has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Iceland is party to several multilateral conventions on terrorism and rules of territorial jurisdiction, including the 1977 European Convention on the Suppression of Terrorism. Iceland is a member of the FATF, and its financial intelligence unit is a member of the Egmont Group.

Iceland should continue to enhance its anti-money laundering/antiterrorist financing regime. If it has not already done so, Iceland should specifically criminalize the financing of terrorism and terrorists.

India

As a growing regional financial center, India is vulnerable to money laundering activities. Some common sources of illegal proceeds in India are narcotics trafficking, trade in illegal gems (particularly diamonds), smuggling, trafficking in persons, corruption, and income tax evasion. However, India’s historically strict foreign-exchange laws, transaction reporting requirements, and banking industry’s know-your-customer policy make it difficult for criminals to use banks or other financial institutions to launder money. Rather, large portions of illegal proceeds are laundered through the alternative remittance system called “hawala” or “hundi” (estimated to account for up to 30 percent of India’s GNP). Under this system, individuals transfer funds or other items of value from one country to another, often without the actual movement of currency. The system provides anonymity and security; permits individuals to convert currency into other currencies; and lets them convert narcotics, gold, or trade items into currency. In addition, many individuals are suspicious of banks and prefer to avoid the lengthy paperwork required to complete a money transfer through a financial institution. Hawala dealers can provide the same service with little or no documentation and at rates less than that charged by banks.

Historically, gold has been one of the most important instruments involved in Indian hawala transactions. There is a widespread cultural demand for gold in the region. (India liberalized its gold trade restrictions in the mid-1990s). In recent years, it is believed that the growing the Indian diamond trade has also been increasingly important in providing countervaluation or a method of “balancing the books” in external hawala transactions. Invoice manipulation, for example, inaccurately reflecting the value of a good sold on the invoice, is also pervasive and is used extensively to both avoid customs duties and taxes and launder illicit proceeds through trade-based money laundering.

Perhaps the largest source of money laundering activity in India is income tax evasion. Changes in the tax system are gradually being implemented, as the Government of India (GOI) now requires individuals to use a personal identification number to pay taxes, purchase foreign exchange, and apply for passports. However, tax evasion remains widespread.

The Criminal Law Amendment Ordinance allows for the attachment and forfeiture of money or property obtained through bribery, criminal breach of trust, corruption, or theft and of assets that are disproportionate to an individual’s known sources of income. The 1973 Code of Criminal Procedure, Chapter XXXIV (Sections 451-459), establishes India’s basic framework for confiscating illegal proceeds. The Narcotic Drugs and Psychotropic Substances Act (NDPS) of 1985, as amended in 2000, calls for the tracing and forfeiture of assets that have been acquired through narcotics trafficking, and prohibits attempts to transfer and conceal those assets. However, punishment under NDPS is minimal and no cases have been prosecuted to date. In 2002, the last year for which statistics are available, the Narcotics Control Bureau froze assets of about $104,000; about $262,000 was forfeited pursuant to the NDPS, although there still have not been any prosecutions.

The Foreign Exchange Management Act (FEMA), which was enacted in 2000, is one of the GOI’s primary tools for fighting money laundering. Like its predecessor, the Foreign Exchange Regulation Act, the FEMA’s objectives include the establishment of controls over foreign exchange, the prevention of capital flight, and the maintenance of external solvency. FEMA also imposes fines on unlicensed foreign exchange dealers. A closely related piece of legislation is the Conservation of Foreign Exchange and Prevention of Smuggling Act (COFEPOSA), which provides for preventive detention in smuggling and other matters relating to foreign exchange violations. The Ministry of Finance’s Enforcement Directorate enforces FEMA and COFRPOSA.

The Reserve Bank of India (RBI), India’s Central Bank, plays an active role in the regulation and supervision of foreign exchange transactions. Hawala can also be synonymous with foreign exchange. Although hawala is widespread in India, hawala transactions continue to be illegal. In response to questions from U.S. Treasury officials in November 2003 about the possibility of having hawala dealers register, as has been the case in some neighboring jurisdictions, Indian Ministry of Finance (MOF) officials said they have no plans to do so. RBI has become more receptive to anti-money laundering initiatives, especially those related to terrorist financing, and in 2002 set up a special unit to provide anti-money laundering guidance to the Ministry of Finance (MOF). RBI worked with the police in the state of Kashmir to provide financial information in relation to a fraud case. Also in 2002, the Government of India (GOI) formed a high-level interministerial group to coordinate all anti-money laundering and terrorist financing issues. The group includes representatives from the regulatory, law enforcement, and intelligence communities.

On November 27, 2002, the lower house of Parliament finally passed the Prevention of Money Laundering Bill, which had first been introduced in 1998. The bill was amended in August 2002 by the upper house to include terrorist financing provisions. India’s President signed the law in January, 2003. This legislation criminalizes money laundering, establishes fines and sentences for money laundering offenses, imposes reporting and record keeping requirements on financial institutions, provides for the seizure and confiscation of criminal proceeds, and creates a financial intelligence unit (FIU) that will be part of the MOF. However, MOF officials note that the law does not, significantly, list tax evasion as a predicate offense. A series of implementing rules and regulations to the law will be finalized in early 2004.

Many banking institutions have taken steps on their own to combat money laundering. Each bank has compliance officers to ensure that existing anti-money laundering regulations are observed. The RBI issued a notice in 2002 to commercial banks instructing them to adopt the know-your-customer rule. The Indian Bankers Association established a working group to develop self-regulatory anti-money laundering procedures. Foreign customers applying for accounts in India must show positive proof of identity when opening a bank account. Banks also require that the source of funds must be declared if the deposit is more than the equivalent of $10,000. Finally, banks have the authority to freeze assets in accounts when there is suspicious activity.

The new FIU is scheduled to become operational in January 2004. The FIU will be an independent unit located within the MOF’s Central Economic Intelligence Bureau. Its initial staff of about 50 people will come from various government ministries, including the security agencies, RBI, Customs, Inland Revenue, and the private sector. Top management will come from the MOF’s revenue department. It will be an analytical unit and will not have investigative powers.

Until the new FIU becomes fully operational, the Central Economic Intelligence Unit (CEIB) will continue to serve as the GOI’s lead organization for fighting financial crime; it already receives suspicious transaction reports, of which, according to GOI officials in November 2003, there is a backlog. The Central Bureau of Investigation is also active in anti-money laundering efforts and hawala investigations. Other organizations such as the Directorate of Revenue Intelligence, Customs and Excise, the RBI, and the MOF are active in anti-money laundering efforts.

India does not have an offshore financial center but does license offshore banking units (OBUs). These OBUs are required to be “ . . . predominantly owned by individuals of Indian nationality or origin resident outside India and include overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60 percent by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60 percent of the beneficial interest is irrevocably held by such persons.” OBUs must also be audited to affirm that ownership by a nonresident Indian is not less than 60 percent. These entities are susceptible to money laundering activities, in part because of a lack of stringent monitoring of transactions. Finally, OBUs must be audited financially, but the firm that does the auditing does not have to have government approval.

India is a party to the 1988 UN Drug Convention, and is a member of the Asia/Pacific Group on Money Laundering. It is a signatory to but has not yet ratified the UN Convention against Transnational Organized Crime. In October 2001, India and the United States signed a mutual legal assistance treaty, which the U.S. Senate ratified in November 2002. India took steps in 2003 to move towards ratification of the treaty. The Cabinet Committee on Security will make the formal decision on ratification, which is expected in early 2004. India has also signed a police and security cooperation protocol with Turkey, which among other things provides for joint efforts to combat money laundering. An evaluation team from the FATF was scheduled to visit India during the second half of December 2003, preparatory to India’s joining that organization. The nascent FIU, after it becomes operational, will seek to join the Egmont Group.

India became a party to the UN International Convention for the Suppression of the Financing of Terrorism in April 2003. The Government of India maintains tight controls over charities, which are required to register with the RBI. In April 2002, the Indian Parliament passed the Prevention of Terrorism Act (POTA), which criminalizes terrorist financing. In March 2003, the GOI announced that it had charged 32 terrorist groups under POTA and had notified three others that they were involved in what were considered illegal activities. In July 2003, the GOI announced that it had arrested 702 persons under POTA. Terrorism financing in India, as well as the entire sub-continent, is directly linked to the use of hawala.

India should cooperate fully with international initiatives to provide increased transparency in hawala, and, if necessary, should increase law enforcement actions in this area. Indian involvement in the underworld of the international diamond trade should be examined. India should pursue its efforts to join the FATF. It also needs to quickly finalize the implementing regulations to the anti-money laundering law and bring the new FIU up to speed in order to enhance information sharing with its counterparts around the world. Meaningful tax reform will also assist in negating the popularity of hawala and lessen money laundering. Increased enforcement action should also be taken to combat invoice manipulation and trade-based money laundering.

Indonesia

Although neither a regional financial center nor an offshore haven, Indonesia remains vulnerable to money laundering and terrorist financing due to the lack of a poorly regulated financial system, the lack of effective law enforcement and widespread corruption.

Most laundered money derives from nondrug criminal activity such as gambling, prostitution, bank fraud, or corruption. Indonesia also has a long history of smuggling, facilitated by thousands of miles of unpatrolled coastline and a law enforcement system riddled with corruption. The proceeds of these illicit activities are easily parked offshore and only repatriated as required for commercial and personal needs.

The Financial Action Task Force (FATF) included Indonesia on the list of noncooperating countries and territories (NCCT) at its June 2001 plenary. The designation was based on the following: Indonesia had no basic set of anti-money laundering provisions, money laundering was not a criminal offense, there was no reporting of suspicious transactions to a financial intelligence unit (FIU), and recently introduced customer identification requirements only applied to banks. The U.S. Treasury Department issued an advisory to all U.S. financial institutions instructing them to “give enhanced scrutiny” to all transactions involving Indonesia; the advisory is still in effect. Indonesia remained on the FATF NCCT list, as of December 2003.

Until recently, banks and other financial institutions did not routinely question the sources of funds or require identification of depositors or beneficial owners. Financial reporting requirements were put in place only in the wake of the financial crisis when the Government of Indonesia (GOI) became interested in controlling capital flight and recovering foreign assets of large-scale corporate debtors or alleged corrupt officials.

In April 2002, Indonesia passed Law No. 15 on Criminal Acts of Money Laundering, Indonesia’s anti-money laundering (AML) law, which made money laundering a criminal offense. The law identifies 15 predicate offenses related to money laundering, including narcotics trafficking and most major crimes. The law provides for the establishment of a financial intelligence unit (FIU), the Center for Reporting and Analysis of Financial Transactions (PPATK), to develop policy and regulations to combat money laundering. The PPATK was established in December 2002 and became fully functional in October 2003.

The PPATK is an independent agency that receives, maintains, analyzes, and evaluates currency and suspicious financial transactions, provides advice and assistance to relevant authorities, and issues publications. As of September 2003, the PPATK has received 244 STRs from over 27 banks. 43 STRs have been referred to the police; four STRs has been referred to the Attorney General. However, no cases have progressed o the level of court hearings.

In September 2003, Parliament passed The Amending Law that amended its anti-money laundering legislation. The FATF publicly welcomed this law which addresses the key deficiencies previously identified by the FATF. As a result this substantial progress, Indonesia avoided additional countermeasures and was invited to submit an implementation plan.

The Amending Law provides a new definition of the crime of money laundering making it an offense for anyone to deal intentionally with assets known or reasonably suspected to constitute proceeds of crime with the purpose of disguising or concealing the origins of the assets, as seen in Articles 1(1) and 3. The Amending Law removes the threshold requirement for proceeds of crime and expands the definition of proceeds of crime to cover assets employed in terrorist activities. Article 1(7)(c) expands the definition of Suspicious Transaction Reports (STR) to include attempted or unfinished transactions. Article 12A introduces a scheme of administrative sanctions (in addition to criminal sanctions) for failure to make STRs. Article 13(2) shortens the time to file an STR to 3 days or less after the discovery of an indication of the suspicious transaction. Article 17A creates an offense of disclosing information about reported transactions to third parties, which carries a maximum of five years’ imprisonment and a maximum of one billion rupiah (approximately $118,000). Articles 44 and 44A provide for mutual legal assistance, with the ability to provide assistance using the compulsory powers of the court. Article 44B imposes a mandatory obligation on the PPATK to implement provisions of international conventions or recommendations on the prevention and eradication of money laundering.

Bank Indonesia (BI), the Indonesian Central Bank, issued Regulation No. 3/10/PBI/2001, “The Application of Know Your Customer Principles,” on June 18, 2001. This regulation requires banks to obtain information on prospective customers, including third party beneficial owners, and to verify the identity of all owners, with personal interviews if necessary. The regulation also requires banks to establish special monitoring units and appoint compliance officers responsible for implementation of the new rules and to maintain adequate information systems to comply with the law. Finally, the regulation requires banks to analyze and monitor customer transactions and report to BI within seven days any “suspicious transactions” in excess of Rp 100 million (approximately $11,800). The regulation defines suspicious transactions according to a 39-point matrix that includes key indicators such as unusual cash transactions, unusual ownership patterns, or unexplained changes in transactional behavior. BI specifically requires banks to treat as suspicious any transactions to or from countries “connected with the production, processing and/or market for drugs or terrorism.”

Separately, banks must report all foreign exchange transactions and foreign obligations to BI. Individuals who import or export more than Rp 100 million in cash must report such transactions to Customs. The PPATK is currently drafting presidential decrees that would protect reporting individuals and witnesses who cooperate with law enforcement entities on money laundering cases.

Indonesia has bank secrecy laws concerning information regarding a depositor and his accounts. Such information is generally kept confidential and can only be accessed by the authorities in limited circumstances. However, Article 27(4) of the ML Law now expressly exempts the PPTAK from “the provisions of other laws related to bank secrecy and the secrecy of other financial transactions” in relation to its functions in receiving and requesting reports and conducting audits of providers of financial services. In addition, Article 14 of the ML exempts providers of financial services from bank secrecy provisions when carrying out their reporting obligations, and Article 15 of the Law gives providers of financial services, their official and employees protection from civil or criminal action in making such disclosures.

Indonesia’s laws provide only limited authority to block or seize assets. Under BI regulations 2/19/PBI/2000, police, prosecutors, or judges may order the seizure of assets of individuals or entities that have been either declared suspects, or indicted for a crime. This does not require the permission of BI, but, in practice, for law enforcement agencies to identify such assets held in Indonesian banks, BI’s permission would be required. In the case of money laundering as the suspected crime, however, bank secrecy laws would not apply, according to the anti-money laundering law.

The October 18, 2002, emergency antiterrorism regulations, the Government Regulations in Lieu of Law of the Republic of Indonesia No. 1 of 2002 on Eradication of Terrorism (Perpu), criminalize terrorism and provide the legal basis for the GOI to act against terrorists, including the tracking and freezing of assets. The Perpu provides a minimum of three years and a maximum of 15 years imprisonment for anyone who is convicted of intentionally providing or collecting funds which are known to be used partly or wholly for acts of terrorism. This regulation is necessary because Indonesia’s anti-money laundering law criminalizes the laundering of proceeds of crimes, but it is unclear to what extent terrorism generates proceeds. Policy makers are currently drafting clarifying amendments.

The GOI has the authority to trace and freeze assets of individuals or entities designated by the UNSCR 1267 Sanctions Committee, and has circulated the UN 1267 Sanctions Committee’s consolidated list to all banks operating in Indonesia, with instructions to freeze any such accounts. The interagency process to issue freeze orders, which includes the Foreign Ministry, Attorney General, and BI, takes several weeks from UN designation to bank notification. The GOI, to date, reports that it has not found any terrorist assets.

The GOI has not taken into account alternative remittance systems or charitable or nonprofit entities in its strategy to combat terrorist finance and money laundering. The PPATK, however, is working on draft regulations under the AML Law to cover the securities and insurance markets.

Indonesia is a member of the Asia/Pacific Group on Money Laundering and the Bank for International Settlements. This implies endorsement of the Basel Committee’s “Core Principles for Effective Banking Supervision,” that BI claims it follows voluntarily. The GOI is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Indonesia has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.

Indonesia does not have any bilateral agreements allowing for on-site examinations of foreign banks by home country supervisors, nor does it have specific agreements for international exchange of information on non-money laundering cases. However, BI asserts that, in principle, it would not object to on-site supervision by host country authorities and would deal with requests for exchange of information on money laundering cases on an ad hoc basis, in accordance with existing criminal law. The AML Law contains a specific provisions (Article 44 and 44 A) with provide for mutual legal assistance with respect to money laundering cases. The Government of the Republic of Indonesia should continue to implement its money laundering legislation. In particular, the GOI must effectively implement the laws and procedures it has put in place and should streamline its asset seizure and forfeiture procedures. Indonesia should review the adequacy of the Code for Criminal Procedure and the Rules of Evidence and enact legislation to allow the use of intelligence for investigations and the use of modern techniques to enter evidence in court proceedings. The Republic of Indonesia should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Iran

The U.S. Department of State has designated Iran as a State Sponsor of Terrorism. Iran is not a regional financial center. Iran has a robust underground economy and the use of alternative remittance systems to launder money is widespread. The underground economy is spurred—in part—by attempts to avoid restrictive taxation. In 2003, a prominent Iranian banking official was quoted as estimating that money laundering encompasses 20 percent of Iran’s economy and that the under-development of financial institutions leads to an imbalance in financial markets causing underground financial activities to flourish. Further, Iran’s real estate market is used to launder money. Real estate transactions take place in Iran, but often no funds change hands there; rather, payment is made overseas. This is typically done because of the difficulty in transferring funds out of Iran and the weakness of Iran’s currency, the rial. The real estate market, in at least one instance, has been used to launder narcotics-related funds. Hawala is also used to transfer value to and from Iran. Factors contributing to the widespread use of hawala are currency exchange restrictions and the large number of Iranian expatriates. The smuggling of goods into Afghanistan from Iran is also involved with barter trade and trade-based money laundering. Goods purchased in Dubai are sent to the port of Bandar Abbas in Iran and then via land routes to other markets in Afghanistan and Pakistan. The goods imported into Iran and sent into Afghanistan are often part of the Afghan Transit Trade. Many of these goods are eventually found on the regional black markets. Iran is also a major transit route for opiates smuggled from Afghanistan.

In 2003 the Majlis (Parliament) passed an anti-money laundering act. The law includes customer identification requirements, mandatory record keeping for five years after the opening of accounts, and the reporting of suspicious activities.

Iran is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. It does not have a law on terrorist financing. In 2003, the Government of Argentina moved forward on indictments against four Iranian officials involved with the material support and funding of the 1994 terrorist bombing of the Argentine-Jewish Cultural Center in Buenos Aires.

Iran should construct a viable anti-money laundering/terrorist financing regime that adheres to international standards. Iran should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism and should stop the support and funding of terrorism.

Ireland

The primary sources of funds laundered in Ireland are narcotics trafficking, fraud and tax offenses. Money laundering mostly occurs in financial institutions and bureaux de change. Additionally, investigations in Ireland indicate that some business professionals have specialized in the creation of legal entities, such as shell corporations, as a means of laundering money. Trusts are also established as a means of transferring funds from the country of origin to offshore locations. The use of shell corporations and trusts makes it more difficult to establish the true beneficiary of the funds, which makes it difficult to follow the money trail and establish a link between the funds and the criminal.

The use of solicitors, accountants, and company formation agencies in Ireland to create “shell companies” has been cited in a number of suspicious transaction reports (STRs), and in requests for assistance from Financial Action Task Force (FATF) members. Investigations have disclosed that these companies are used to provide a series of transactions connected to money laundering, fraudulent activity, and tax offenses. The difficulties in establishing the “beneficial owner” have been complicated by the fact that the directors are usually nominees and are often principals of a solicitors’ firm or a company formation agency.

Money laundering relating to narcotics trafficking and other offenses was criminalized in 1994. Financial institutions (banks, building societies, the Post Office, stockbrokers, credit unions, bureaux de change, life insurance companies, and insurance brokers) are required to report suspicious transactions and currency transactions exceeding approximately $15,000. The financial institutions are also required to implement customer identification procedures, and retain records of financial transactions In July 2003, Ireland amended its Anti-Money Laundering law to extend the requirements of customer identification and suspicious transaction reporting to lawyers, accountants, auditors, real estate agents, auctioneers, and dealers in high-value goods, thus aligning its laws with the European Union’s Second Money Laundering Directive of 2001. The Irish Financial Services Regulatory Authority (IFSRA) supervises the financial institutions for compliance with money laundering procedures. In addition to STRs, there are customs reporting requirements for anyone transporting more than 12,700 euros.

Ireland’s international banking and financial services sector is concentrated in Dublin’s International Financial Services Centre (IFSC). Approximately 400 international financial institutions and companies operate in the IFSC. Services offered include banking, fiscal management, re-insurance, fund administration, and foreign exchange dealing. The IFSRA regulates the IFSC companies which conduct banking, insurance, and fund transactions. Tax privileges for IFSC companies have been phased out over recent years and will totally expire in 2005.

In 1999, the Corporate Law was amended to address problems arising from the abuse of Irish-registered nonresident companies (companies which are incorporated in Ireland, but do not carry out any activity in the country). The legislation requires that every company applying for registration must demonstrate that it intends to carry on an activity in the country. Companies must maintain at all times an Irish resident director or post a bond as a surety for failure to comply with the appropriate company law. In addition, the number of directorships that any one person can hold, subject to certain exemptions, is limited to 25. This is aimed at curbing the use of nominee directors as a means of disguising beneficial ownership or control.

In August 2001, the Government of Ireland (GOI) enacted the Company Law Enforcement Act 2001 (Company Act), to deal with problems associated with shell companies. The legislation establishes the Office of the Director of Corporate Enforcement (ODCE), whose responsibility it is to investigate and enforce the Company Act. The ODCE also has a general supervisory role in respect of liquidators and receivers. Under the law, the beneficial directors of a company have to be named. The Company Act also creates a mandatory reporting obligation for auditors to report suspicions of breaches of company law to the ODCE. In 2003, the ODCE had 18 prosecutions resulting in fines of varying amounts.

The Bureau of Fraud Investigation (BFI) serves as Ireland’s financial intelligence unit (FIU) and has moved from the Department of Crime and Security to the Department of National Support Services. The Bureau analyzes financial disclosures. On May 1, 2003, a new Irish legal requirement went into effect, mandating obligated reporting institutions to file STRs with the Revenue (Tax) Department in addition to the BFI. Ireland estimates that up to 95 percent of STRs may involve tax violations. The Value Added Tax (VAT) fraud scams are the most prolific and have increased significantly over the past two years.

The STRs filed by financial institutions have increased over the past four years from 1,421 reports filed in 1999 to 4,398 filed in 2002. Investigations of money laundering cases have increased from 1,520 in 1999 to 4,398 in 2002. Convictions for money laundering offenses under the Criminal Justice Act totaled seven in 1999, ten in 2000, four in 2001 and two in 2002. A conviction on charges of money laundering carries a maximum penalty of 14 years’ imprisonment and an unlimited fine.

Under certain circumstances, the High Court can freeze, and where appropriate, seize the proceeds of crimes. The exchange of information between police and the Revenue Commissioners, where criminal activity is suspected, is authorized. The Criminal Assets Bureau (CAB) was established in 1996 to confiscate the proceeds of crime in cases where there is no criminal conviction. The CAB includes experts from Police, Tax, Customs and Social Security Agencies. In 2002, the CAB obtained High Court orders to confiscate assets totaling 44 million euros.

In 2002, the GOI introduced new legislation targeting fundraisers for both international and domestic terrorist organizations. The “Suppression of the Financing of Terrorism” bill, currently undergoing parliamentary committee review, will extend the existing powers of the Government to seize property and/or other financial assets belonging to groups suspected of involvement with the financing of terrorism. The bill will allow the Garda Siochana (the national police) to apply to the courts to freeze assets where certain evidentiary requirements are met. Ireland has reported to the European Commission the names of six individuals who maintained a total of nine accounts that were frozen in accordance with the provisions of the EU Anti-Terrorist Legislation. The aggregate value of the funds frozen was approximately 90,000 euros.

A money laundering investigation concerning a bureau de change operation uncovered evidence of the laundering of terrorist funds derived from international smuggling. Substantial cash payments into the bureau de change were not reflected in the principal books, records, and bank account. The bureau de change held a large cash reserve that was drawn upon when necessary by members of the terrorist organization. The bureau de change remitted payments from its legitimate bank account to entities in other jurisdictions, on behalf of the terrorist organization.

In January of 2001, Ireland and the United States signed a Mutual Legal Assistance in Criminal Matters Treaty (MLAT); however, it is not yet in force. An extradition treaty between Ireland and the United States is in force. Ireland is a member of the EU, the Council of Europe and the FATF. The FIU is a member of the Egmont Group. Ireland has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. Ireland is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.

Expeditious enactment of the pending antiterrorist funding bill, implementation of Ireland’s new anti-money laundering law amendments plus stringent enforcement of all such initiatives, will ensure that Ireland maintains an effective anti-money laundering program. Ireland should become a party to the UN International Convention for the Suppression of the Financing of Terrorism Ireland should ensure its offshore sector is adequately supervised. Ireland should require the beneficial owners and nominee directors of shell companies and trusts are properly identified.

Isle of Man

The Isle of Man (IOM) is a Crown Dependency of the United Kingdom located in the Irish Sea. Its large and sophisticated financial center is potentially vulnerable to money laundering at the layering and integration stages.

As of September 30, 2003, the IOM’s financial industry consists of approximately 18 life insurance companies, 22 insurance managers, more than 170 captive insurance companies, more than 14.7 billion pounds (approximately $24.9 billion) in life insurance funds under management, 57 licensed banks and two licensed building societies, 85 investment business license holders, 28.9 billion pounds (approximately $49.1 billion) in bank deposits, and 192 collective investment schemes with 5.3 billion pounds (approximately $9 billion) of funds under management. There are also 159 licensed corporate service providers, with approximately another 25 seeking licenses.

Money laundering related to narcotics trafficking was criminalized in 1987. The Prevention of Terrorism Act 1990 made it an offense to contribute to terrorist organizations, or to assist a terrorist organization in the retention or control of terrorist funds. In 1998 money laundering arising from all serious crimes was criminalized. Financial institutions and professionals such as banks, fund managers, stockbrokers, and insurance companies, are required to report suspicious transactions. In addition, financial businesses such as lawyers, registered legal practitioners, accountants holding or handling clients’ funds, corporate service providers, trust service providers, and money service businesses (MSBs), such as bureaux de change and money transmitters, are obligated to know their customer.

The Financial Supervision Commission (FSC) and the Insurance and Pension Authority (IPA) regulate the IOM financial sector. The FSC is responsible for the licensing, authorization, and supervision of banks, building societies, investment businesses, collective investment schemes, corporate service providers, and companies. The IPA regulates insurance companies, insurance management companies, general insurance intermediaries, and retirement benefit schemes and their administrators. Instances of failure to disclose suspicious activity would result in both a report being made to the Financial Crimes Unit (FCU), the IOM’s financial intelligence unit (FIU), and possible punitive action by the regulator, which could include revoking the business license. To assist license holders in the effective implementation of anti-money laundering techniques, the regulators hold regular seminars and additional workshop training sessions in partnership with the FCU and the Isle of Man Customs and Excise.

In December 2000, the FSC issued a consultation paper, jointly with the Crown Dependencies of Guernsey and Jersey, called “Overriding Principles for a Revised Know Your Customer Framework,” to develop a more coordinated approach on anti-money laundering. Further work between the Crown Dependencies is being undertaken to develop a coordinated strategy on money laundering, to ensure compliance as far as possible with the newly revised FATF Forty Recommendations issued in June 2003. The IOM is also assisting the FATF Working Groups considering matters relating to customer identification and companies’ issues.

In August 2002, new regulations were introduced that require MSBs which are not already regulated by the FSC or IPA to register with Customs and Excise. This has the effect of implementing, in relation to MSBs, the 1991 EU Directive on Money Laundering, revised by the Second Directive 2001/97/EC, and provides for their supervision by Customs and Excise to ensure compliance with the AML Codes.

The IPA, as regulator of the IOM’s insurance and pensions business, issues Anti-Money Laundering Standards for Insurance Businesses (the “Standards”). The Standards are binding upon the industry and include the Overriding Principles. These include a requirement that all insurance businesses check their whole book of businesses to determine that they have sufficient information available to prove customer identity. The current set of Standards became effective March 31, 2003.

Additionally, the IOM has introduced the Online Gambling Regulation Act 2001 and an accompanying AML (Anti-Money Laundering) (Online Gambling) Code 2002. The Act, Regulations, and dedicated anti-money laundering Code are supplemented by anti-money laundering guidance notes issued by the Gambling Control Commission, a regulatory body which provides more detailed guidance on the prevention of money laundering through the use of online gambling. The Online Gambling legislation brought regulation to what was technically an unregulated gaming environment. The dedicated Online Gambling Anti-Money Laundering Code was at the time unique within this variant of the gambling industry. The revised FATF Forty Recommendations now require all jurisdictions to have similar anti-money laundering provisions for this industry in the future.

The Companies, Etc. (Amendment) Act 2003 received Royal Assent on December 9, 2003. A provision that took effect in December 2003 calls for additional supervision for all licensable businesses, e.g., banking, investment, insurance and corporate service providers. The act further provides that no future bearer shares will be issued after April 1, 2004, and all existing bearer shares must be registered before any rights relating to such shares can be exercised.

FCU, formed on April 1, 2000, evolved from the police Fraud Squad and now includes both police and customs staff. It is the central point for the collection, analysis, investigation, and dissemination of suspicious transaction reports (STRs) from obligated entities. The entities required to report suspicious transactions include banks/financial institutions, bureaux de change, casinos, post offices, lawyers, accountants, advocates, and businesses involved with investments, insurance real estate, gaming/lotteries, and money changers. The FIU received 1,613 STRs in 2001, 1,727 in 2002 and 1,850 in 2003.

The Criminal Justice Acts of 1990 and 1991, as amended, extend the power to freeze and confiscate assets to a wider range of crimes, increase the penalties for a breach of money laundering codes, and repeal the requirement for the Attorney General’s consent prior to disclosure of certain information. Assistance by way of restraint and confiscation of assets of a defendant is available under the 1990 Act to all countries and territories designated by Order under the Act, and the availability of such assistance is not convention-based nor does it require reciprocity. Assistance is also available under the 1991 Act to all countries and territories in the form of the provision of evidence for the purposes of criminal investigations and proceedings, and under the 1990 Act the provision of documents and information is available to all countries and territories for the purposes of investigations into serious or complex fraud. Similar assistance is also available to all countries and territories in relation to drug trafficking and terrorist investigations.

The law also addresses the disclosure of a suspicion of money laundering. Since June 2001, it has been an offense to fail to make a disclosure of suspicion of money laundering for all predicate crimes, whereas previously this just applied to drug and terrorism-related crimes. The law also lowers the standard for seizing cash from “reasonable grounds” to believe that it was related to drug or terrorism crimes to a “suspicion” of any criminal conduct. The Acts also provide powers to constables, which include customs officers, to investigate whether a person has benefited from any criminal conduct. These powers allow information to be obtained about that person’s financial affairs. These powers can be used to assist in criminal investigations abroad as well as in the IOM.

The IOM also introduced the Customs and Excise (Amendment) Act 2001, which gives various law enforcement and statutory bodies within the IOM the ability to exchange information, where such information would assist them in discharging their functions. The Act also permits Customs and Excise to release information it holds to any agency within or outside the IOM for the purposes of any criminal investigation and proceeding. Such exchanges can be either spontaneous or by request.

The Government of the IOM has enacted the Anti-Terrorism and Crime Act, 2003. The purpose of the Act is to enhance reporting, by making it an offense not to report suspicious transactions relating to money intended to finance terrorism. The Act is expected to come into force during 2004.

The IOM Terrorism (United Nations Measure) Order 2001 implements UNSCR 1373 by providing for the freezing of terrorist funds, as well as creating a criminal offense with respect to facilitators of terrorism or its financing. All other UN and EU financial sanctions have been adopted or applied in the IOM, and are administered by Customs and Excise. Institutions are obliged to freeze affected funds and report the facts to Customs and Excise.

The FSC’s anti-money laundering guidance notes have been revised to include information relevant to terrorist events. The Guidance Notes were issued in December 2001.

The IOM is a member of the Offshore Group of Banking Supervisors. The IOM is also a member of the International Association of Insurance Supervisors and the Offshore Group of Insurance Supervisors. The FCU belongs to the Egmont Group. The IOM cooperates with international anti-money laundering authorities on regulatory and criminal matters. Application of the 1988 UN Drug Convention was extended to the IOM in 1993.

The IOM has a developed a legal and constitutional framework for combating money laundering and the financing of terrorism. There appears to be a high level of awareness of anti-money laundering and counterterrorist financing issues among the industry, and considerable effort has been made to put appropriate practices into place. In November 2003 the IOM’s Government published the full report made by the International Monetary Fund (IMF) following its recent examination of the regulation and supervision of the IOM’s financial sector. In this report the IMF commended the IOM for its robust regulatory regime. The IMF found that “the financial regulatory and supervisory system of the Isle of Man complies well with the assessed international standards.” The report concludes that the Isle of Man fully meets international standards in areas such as banking, insurance, securities, anti-money laundering, and combating the financing of terrorism.

Isle of Man officials should continue to closely monitor its anti-money laundering program to assure its effectiveness, and IOM authorities should continue to work with international anti-money laundering authorities to deter financial crime and the financing of terrorism and terrorists.

Israel

The Government of Israel (GOI) has made substantial progress enacting anti-money laundering legislation to support its efforts to strengthen its anti-money laundering regime. That progress prompted the Financial Action Task Force (FATF) to remove Israel from its list of noncooperative countries and territories (NCCT) in the fight against money laundering in June 2002 and from its monitoring list in the fall of 2003.

Israel enacted the “Prohibition on Money Laundering Law” (PMLL), on August 8, 2000. The PMLL established a legal framework for an anti-money laundering system, but required the passage of several implementing regulations before the law could fully take effect. Among other things, the PMLL criminalized money laundering and noted more than 18 serious crimes as predicate offenses for money laundering, in addition to offenses described in the prevention of terrorism ordinance. The PMLL also authorized the issuance of regulations requiring financial service providers to identify, report, and keep records for specified transactions for seven years. The law also provided for the development of the IMPA to gather financial intelligence to combat money laundering and terrorist financing. In November 2000, Israel enacted an implementing regulation called for by the PMLL. The “Prohibition on Money Laundering (Reporting to Police)” regulation established mechanisms for reporting to the police transactions involving property that was used to commit a crime or that represents the proceeds of crime.

Israel continued its efforts to reform its anti-money laundering system, and enacted additional implementing regulations provided for by the PMLL. The “Prohibition on Money Laundering (The Banking Corporations Requirement Regarding Identification, Reporting, and Record Keeping) Order” was approved in 2001. The Order establishes specific procedures for banks with respect to customer identification for account holders and beneficial owners, record keeping, and reporting of irregular and suspicious transactions reporting. The “Prohibition of Money Laundering (Methods of Reporting Funds when Entering or Leaving Israel) Order,” also approved in 2001, requires individuals who enter or leave Israel with cash, bank checks, or traveler’s checks above the equivalent of $12,500 to report that information to customs authorities. Failure to comply is punishable by imprisonment of up to six months and a fine of approximately $37,000 or ten times the amount not declared, whichever is greater. Additional regulations passed in 2001 addressed financial sanctions for covered institutions that fail to comply with their obligations under the PMLL, including requirements for customer identification, record keeping, and reporting of irregular transactions upon their respective financial sectors.

The PMLL also authorized the issuance of regulations requiring financial service providers to identify, report, and keep records, for specified transactions for seven years. The law also provided for the development of a Financial Intelligence Unit.

In 2002 Israel enacted several new amendments to the PMLL that resulted in: the addition of currency service providers to the list of entities required to file CTRs and STRs; the establishment of a mechanism for customs officials to input into the IMPA database, the creation of regulations stipulating the time and method of bank reporting, and the creation of rules on safeguarding the IMPA database and rules for requesting and transmitting information between IMPA and Israeli national police and the Israel security agency.

In February 2002, Israel’s FIU, the Israeli Money laundering Prohibition Authority (IMPA), began operations. In 2003, the IMPA has received over 120,000 currency transaction reports (CTRs) and 1,300 suspicious transaction reports (STRs). Banks, portfolio managers, stock exchange members, currency service providers, customs, the postal bank, insurance providers, and provident fund mangers must file CTRs and STRs with the IMPA. IMPA develops intelligence cases that it passes on to the Israeli National Police, Customs, and the Israeli Security Agency for Criminal Investigation and Enforcement.

The FATF removed Israel from the NCCT list in June 2002. Israel was removed from the FATF monitoring list in the fall of 2003. Israel’s efforts to meet FATF’s recommendations include establishing currency-reporting guidelines, creating an FIU, criminalizing money laundering associated with serious crimes, and improving Israel’s ability to locate and freeze assets associated with terrorism. In June 2002, IMPA was admitted into the Egmont Group of Financial Intelligence Units. A U.S. advisory issued by the Department of Treasury’s Financial Crimes Enforcement Network in June 2000 to U.S. financial institutions, emphasizing the need for enhanced scrutiny of certain transactions and banking relationships in Israel to ensure that appropriate measures are taken to minimize risk for money laundering, was withdrawn in 2002, acknowledging Israel’s enactment and implementation of reforms in its anti-money laundering system.

Under the legal assistance law, Israeli courts are empowered to enforce forfeiture orders executed in foreign courts for crimes committed outside Israel. This ability has recently been enhanced by the new anti-money laundering law. Informally, the GOI has cooperated with requests from U.S. law enforcement in matters of financial crime, including those involving narcotics and terrorism. In 2002, Israeli and U.S. law enforcement cooperated as part of an “Operation Joint Venture,” a long-term money laundering investigation focusing on an international Israeli network that launders cash proceeds from Colombian drug-trafficking organizations. The Israeli National Police have provided U.S. law enforcement with information on the network that has led to the arrest of six individuals, including two Colombian traffickers. The United States and Israel also have a Mutual Legal Assistance Treaty that entered into force in May of 1999.

In August 2003, the GOI passed a comprehensive amendment to the PMLL that in addition to other things: lowered the threshold for reporting CTRs from new Israeli shekels (nis) 200,000 ($42,000) to nis 50,000 ($10,500), lowered the document retention threshold from nis 50,000 to nis 10,000 ($2,100), and imposed more stringent reporting requirements. As a result of the lowering of the reporting thresholds, the IMPA expects the number of CTRS and STRS to increase in 2004.

In 2003, the GOI reports that there have been 48 money laundering and/or terrorist financing cases that have reached various stages of investigation and/or adjudication. Ten of these cases have yielded indictments. In 2003, the GOI seized approximately $13 million in illicit assets. In addition, the GOI transferred $6.8 million to Swiss authorities as part of an Israeli-Swiss collaboration in the investigation of an Israeli businessman suspected of money laundering.

In 2004, Israel expects to pass an amendment to the PMLL that will modernize Israel’s antiterrorist financing laws by adapting them to existing tools and arrangements for countering terrorist financing.

Israel is a party to the 1988 UN Drug Convention, and has signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism. Israel has also signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which recently entered into force internationally.

The Government of Israel continues to make progress in strengthening its anti-money laundering and terrorist financing regime in 2003. Israel has enacted several new laws pertaining to money laundering and continues to improve the role of its FIU. Israel should examine the misuse of the international diamond trade to launder funds. Israel should continue to enact all regulations pursuant to the PMLL and continue improving its anti-money laundering and antiterrorist financing regime. Israel should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Italy

Italy is not an important regional financial center or an offshore financial center. However, money laundering is a concern both because of the prevalence of home-grown organized crime groups and the recent influx of criminal bands from abroad, especially from Albania and Russia. Counternarcotics efforts are complicated by heavy involvement in international narcotics trafficking of domestic and Italy-based foreign organized crime groups. Italy is a consumer country and a major transit point for heroin coming from the Near East and Southwest Asia through the Balkans en route to Western/Central Europe and, to a lesser extent, the United States. Italian and ethnic Albanian criminal organizations work together to funnel drugs to and through Italy. In addition to the narcotics trade, money to be laundered comes from myriad criminal activities, such as alien smuggling, contraband cigarette smuggling, pirated goods, extortion, usury, and kidnapping. Financial crimes not directly linked to money laundering such as credit card and Internet fraud are increasing. Money laundering occurs both in the regular banking sector and, more frequently, in the nonbank financial system, i.e., casinos, real estate, and the gold market. Money launderers predominantly use nonbank financial institutions for the illicit export of currency--primarily U.S. dollars and euros--to be washed in offshore companies. Significant amounts of international narcotics-trafficking proceeds generated in the United States are used for legitimate commercial transactions in Italy, which leads to a cycling of drug-tainted U.S. currency through the Italian financial system. There is a substantial black market for smuggled goods in the country, but it is not funded significantly by narcotic proceeds.

Money laundering is defined as a criminal offense when it relates to a separate felony offense punishable by imprisonment for a minimum of three years, such as narcotics trafficking. Italy has strict laws on the control of currency deposits in banks. Banks must identify their customers and record and report to the Italian exchange office (UIC)--Italy’s financial intelligence unit (FIU)--any cash transaction that exceeds approximately $15,000. A banking industry code of ethics requires reporting all suspicious cash transactions and other activity--such as a third party payment on an international transaction--on a case-by-case basis. These reports are submitted regularly. Italian law prohibits the use of cash or nonregistered securities for transferring money in amounts in excess of approximately $15,000, except through authorized intermediaries/brokers.

Banks and other financial institutions are required to maintain for an adequate period of time records necessary to reconstruct significant transactions, including information about the point of origin of funds transfers and related messages sent to or from Italy. Banks operating in Italy must remit account data to a central archive controlled by the Bank of Italy. This information is accessible to Italian law enforcement agencies. A “banker negligence” law makes individual bankers responsible if their institutions launder money. Bankers and others are protected by law with respect to their cooperation with law enforcement entities.

Italy has addressed the problem of international transportation of illegal-source currency and monetary instruments by applying the $15,000 -equivalent reporting requirement to cross-border transport of domestic and foreign currencies and bearer bonds. Reporting is mandatory for cross-border transactions involving bearer monetary instruments (e.g., checks), but not for wire transfers; nevertheless, due diligence is required for such transfers. Italian officials are reviewing bank deposit trends. The Anti-Mafia Directorate is conducting a retrospective analysis of irregular and suspect money flows from groups--especially those suspected of links to terrorism--and 19 countries of concern. In particular, the directorate is looking at the transfer of funds, incoming and outgoing, and their origins and destinations.

Because of these banking controls, narcotics-traffickers are using different ways of laundering drug proceeds. To deter nontraditional money laundering, the Government of Italy (GOI) has enacted a decree to broaden the category of institutions and professionals required to abide by anti-money laundering regulations. The list now includes debt collectors, exchange houses, insurance companies, casinos, real estate agents, brokerage firms, gold and valuables dealers and importers, and antiques dealers. Although Italy now has comprehensive internal auditing and training requirements for its (broadly-defined) financial sector, implementation of these measures by nonbank financial institutions lags behind that of banks, as evidenced by the relatively low number of suspicious transaction reports (STRs) filed by nonbank financial institutions.

The UIC, which is an arm of the Bank of Italy, receives and analyzes STRs filed by covered institutions then forwards them to either the Anti-Mafia Directorate (including local public prosecutors) or the financial police for further investigation. The UIC compiles a register of financial and nonfinancial intermediaries that carry on activities that could be exposed to money laundering. The UIC also performs supervisory and regulatory functions such as issuing decrees, regulations, and circulars.

From January to October 2003, according to official statistics from the Guardia di Finanza (financial police), 370 individuals have been investigated for crimes involving money laundering, with the value of the money laundered amounting to $12 million.

Italy has established reliable systems for identifying, tracing, freezing, seizing, and forfeiting assets from narcotics trafficking and other serious crimes, including terrorism. These assets include currency accounts, real estate, vehicles, vessels, drugs, legitimate businesses used to launder drug money, and other instruments of crime. Law enforcement officials have adequate powers and resources to trace and seize assets; however, their efforts can be affected by which local magistrate is working a particular case.

Under anti-mafia legislation, seized financial and nonfinancial assets of organized crime groups can be forfeited. The law allows for forfeiture in both civil and criminal cases. To date, nonfinancial assets belonging to terrorists can only be frozen, seized and forfeited with a court order. However, the GOI is working on a legislative measure that would extend existing anti-mafia legislation on asset seizure to allow the freezing, seizing and forfeiture of nonfinancial assets belonging to terrorist groups and individuals. The GOI cooperates fully with efforts by the United States to trace and seize assets. Italy is involved in multilateral negotiations with the European Union (EU) to enhance asset tracing and seizure.

Italy does not have any significant legal loopholes that allow traffickers and other criminals to shield assets. However, the burden of proof is on the Italian government to make a case in court that assets are related to narcotics trafficking or other serious crimes. Official statistics for asset seizures and forfeitures from January to October 2003 indicate that the Financial Police seized $225 million in financial and nonfinancial assets from criminals and organized crime gangs. Funds from asset forfeitures are entered into the general State accounts.

In October 2001, Italy passed a decree (subsequently converted into legislation) that created the Inter-ministerial Financial Security Committee, which is charged with coordinating GOI efforts to track and interdict terrorist financing. The committee includes representatives from the Economics, Justice and Foreign Affairs Ministries, law enforcement agencies, and the intelligence services. The Committee has far-reaching powers that include waiving provisions of the Official Secrecy Act to obtain information from all government ministries and the authority to order a freeze of terrorist-related assets.

A second October 2001 decree (also converted into legislation) made financing of terrorist activity a criminal offense, with prison terms of between seven and 15 years. The legislation also requires financial institutions to report suspicious activity related to terrorist financing. Both measures facilitate the freezing of terrorist assets. Italy arrested dozens of individuals in 2003 on terrorist-related charges (e.g., use of false documents, criminal association), although none arrested were specifically charged with terrorist financing. Nevertheless, in 2003, dozens of accounts belonging to groups/individuals suspected of terrorist activity were frozen, based partly upon designations made by the UN and the EU.

The UIC is responsible for transmitting to financial institutions the EU, UN and USG lists of terrorist groups and individuals. The UIC may provisionally freeze funds deemed suspect for 48 hours, by issuing an order subject to confirmation by the courts, which may then order that the assets be seized. Under Italian law, financial and economic assets linked to terrorists can be seized through a criminal sequestration order. Courts may issue such orders as part of criminal investigation of crimes linked to international terrorism. The sequestration order may be issued with respect to any asset, resource, or item of property, provided that these are goods or resources linked to the criminal activities under investigation.

Alternative remittance systems are rare in Italy. Italy does not regulate charities per se. Primarily for tax purposes, Italy in 1997 created a category of “not-for-profit organizations of social utility” (ONLUS). Such an organization can be an association, a foundation or a fundraising committee. To be classified as an ONLUS, the organization must register with the Economics Ministry and prepare an annual report. The ONLUS register has been used mainly for tax purposes, but Italian authorities are exploring how to use it for other purposes, including the investigation of possible terrorist activity and links.

Italian cooperation with the United States on money laundering has been exemplary. The U.S. and Italy have signed a customs assistance agreement as well as extradition and Mutual Legal Assistance treaties (MLAT). Both in response to requests under the MLAT and on an informal basis, Italy provides the United States records related to narcotics trafficking, terrorism, and terrorist financing investigations and proceedings. Italy also cooperates closely with U.S. law enforcement agencies and other governments investigating illicit financing related to these and other serious crimes. Italy shares assets with member states of the Council of Europe. An effort to provide a mechanism under the MLAT for asset forfeiture and the sharing of forfeited assets has not yet come to fruition. Recently, assets can only be shared bilaterally if agreement is reached on a case-specific basis.

Italy is a member of the Financial Action Task Force (FATF). It held the FATF presidency from 1997-98. Italy is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Italy has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.

As a member of the Egmont Group, the UIC shares information with other countries’ FIUs. The UIC has been authorized to conclude information-sharing agreements concerning suspicious financial transactions with other countries. To date, Italy has signed memoranda of understanding with France, Spain, the Czech Republic, Croatia, Slovenia, and Australia. Italy also is negotiating agreements with Japan and Switzerland and has a number of bilateral agreements with foreign governments in the areas of investigative cooperation on narcotics trafficking and organized crime. We are not aware of any instances of refusals to cooperate with foreign governments.

The GOI is firmly committed to the fight against money laundering and terrorist financing both domestically and internationally. Although the GOI has comprehensive internal auditing and training requirements for its financial sector, implementation of these measures by nonbank financial institutions still lags behind that of banks, as evidenced by the relatively low number of STRs that have been filed by such entities. The GOI should increase its training efforts and supervision in the area of nonbank financial institutions to decrease their vulnerability to abuse by criminal or terrorist groups. The GOI should also continue its active participation in multilateral fora dedicated to the global fight against money laundering and terrorist financing.

Jamaica

Jamaica, the foremost producer and exporter of marijuana in the Caribbean, is also a major transit country for cocaine flowing from South America to the United States and other international destinations. The profits from these massive illegal drug flows must be legitimated, and Jamaica is therefore a prime candidate for money laundering activities.

Jamaica is not an offshore financial center. Additionally, Jamaica’s banking system has been under intense scrutiny from regulators in the wake of several major banking scandals in the mid-to-late 1990s. As a result, much of the proceeds from narcotics trafficking and other criminal activity is used to acquire tangible assets such as real estate or luxury cars, while still more merely passes through Jamaica as cash shipments to South American countries. Further complicating the picture are the hundreds of millions of U.S. dollars in legitimate remittances sent home to Jamaica by the substantial Jamaican population overseas.

The Money Laundering Act (MLA), approved by Parliament in December 1996 and implemented on January 5, 1998, governs Jamaica’s anti-money laundering regime. The MLA criminalizes narcotics-related money laundering and introduces record keeping and reporting requirements for financial institutions on all currency transactions over $10,000. Exchange bureaus and cambios have a reporting threshold of $8,000. The MLA was amended in March 1999 to raise the threshold to $50,000 for financial institutions, after complaints from financial sector institutions that had difficulties with the amount of paperwork resulting from the $10,000 threshold. At that time, a requirement was also added for banks to report suspicious transactions of any amount to the Director of Public Prosecutions. In February 2000, the MLA was amended to add fraud, firearms trafficking, and corruption as predicate offenses for money laundering. The most recent legislative update, in February 2002, imposes a requirement for money transfer and remittance agencies to report transactions over $50,000.

In August 2003, the Government of Jamaica (GOJ) introduced a new Customs arrival form that incorporates a requirement to declare currency or monetary instruments over $10,000 or equivalent. This measure should assist law enforcement efforts to combat the movement of large amounts of cash through Jamaica, often in shipments totaling hundreds of thousands of U.S. dollars.

In 2003, the Jamaican unit established to assist in the implementation of the anti-money laundering program moved from the Office of the Director of Public Prosecutions to the Ministry of Finance. The new Financial Investigations Division of the Ministry of Finance includes four police officers who have full arrest powers. No money laundering-related arrests or prosecutions were reported in 2003.

Further action is required in the area of asset forfeiture to permit the GOJ to take full advantage of the mechanism to seize and forfeit the proceeds of criminal activities. Law enforcement authorities are hampered by the fact that Jamaica has no civil forfeiture law, and under the 1994 Drug Offenses (Forfeiture of Proceeds) Act, a criminal narcotics-trafficking conviction is required as a prerequisite to forfeiture. This often means that even when police discover illicit funds, the money cannot be seized or frozen and must be returned to the criminals.

In 2003, the GOJ tabled the Terrorism Prevention Act in Parliament. If passed as written, the Act would amend the MLA to include acts of terrorism as predicate offenses. At this time, the GOJ does not have the legal authority under the MLA to identify, freeze and seize terrorist finance-related assets. A court may order, however, that suspected terrorist assets be frozen. The Terrorism Prevention Act would remove the need for a court order and allow the GOJ to freeze and seize terrorist assets. As an interim measure, the Bank of Jamaica currently requires all banks and financial institutions (including remittance companies) to abide by the “Guidance Notes for Financial Institutions in Detecting Terrorist Financing” issued by the Financial Action Task Force (FATF) in April 2002. Additionally, the Ministry of Foreign Affairs and Foreign Trade distributes to all relevant agencies the list of individuals and entities included on the UN 1267 Sanction Committee consolidated list. To date, no accounts owned by those included on the consolidated list have been discovered in Jamaica.

Jamaica and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. Jamaica is a party to the 1988 UN Drug Convention, the Inter-American Convention Against Corruption, and the UN Convention against Transnational Organized Crime as well as a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. Jamaica is also a member of the Caribbean Financial Action Task Force and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering.

The GOJ has made progress in fighting money laundering, but further work is necessary to bring its regime into line with international standards. The scope of predicate offenses for money laundering should be extended to encompass all serious crimes. The legislation that has been proposed, but not yet enacted, to expand asset forfeiture provisions should be approved. Serious thought should also be given to returning the reporting threshold to $10,000, as originally mandated. The GOJ should provide the Financial Crimes Division with sufficient resources to enable it to combat money laundering effectively.

Japan

Japan is an important world financial center, and as such is at major risk for money laundering. The principal sources of laundered funds are narcotics trafficking and financial crimes (illicit gambling, extortion, abuse of legitimate corporate activities, and all types of property-related crimes) as well as the proceeds from violent crimes, mostly linked to Japan’s criminal organizations, e.g., the Boryokudan. The National Policy Agency of Japan estimates the aggregate annual income from the Boryokudan’s illegal activities is approximately $10 billion, $3.38 billion of which is derived from income from the trafficking of methamphetamine. U.S. law enforcement reports that drug-related money laundering investigations initiated in the United States periodically show a link between drug-related money laundering activities in the United States and bank accounts in Japan. The number of Internet-related money laundering cases is increasing. In some cases, criminal proceeds were concealed in bank accounts obtained through the Internet market.

Prior to 1999, Japanese law only criminalized narcotics-related money laundering. The Anti-Drug Special Law, which took effect in July 1992, criminalizes drug-related money laundering, mandates suspicious transaction reports for the illicit proceeds of drug offenses, and authorizes controlled drug deliveries. This legislation also creates a system to confiscate illegal profits gained through drug crimes. The seizure provisions apply to tangible and intangible assets, direct illegal profit, substitute assets, and criminally derived property that have been commingled with legitimate assets. The limited scope of the law and the burden required of law enforcement to prove a direct link between money and assets to specific drug activity severely limits the law’s effectiveness. As a result, Japanese police and prosecutors have undertaken few investigations and prosecutions of suspected money laundering. Many Japanese officials in the law enforcement community, including Japanese Customs, believe that the Boryokudan have been exploiting Japan’s financial institutions.

Pursuant to the 1999 Anti-Organized Crime Law, which came into effect in February 2000, Japan expanded its money laundering law beyond narcotics trafficking to include money laundering predicates such as murder, aggravated assault, extortion, theft, fraud, and kidnapping. The new law also extends the confiscation laws to include the additional money laundering predicate offenses and value-based forfeitures. It also authorizes electronic surveillance of organized crime members and enhances the suspicious transaction reporting system.

To facilitate exchange of information related to suspected money laundering activity, the Anti-Organized Crime Law established the Japan Financial Intelligence Office (JAFIO) on February 1, 2000, as Japan’s financial intelligence unit. Financial institutions in Japan report suspicious transactions to the JAFIO, which analyzes them and disseminates them as appropriate. JAFIO also issued “Examples of Typical Suspicious Transactions” as a guideline for financial institutions. The guideline was revised in March 2002 to add more specific suspicious transaction cases, such as transactions carried out by Boryokudan and their associates. Additionally, JAFIO held meetings with financial institutions in various regions in October and November 2003 to introduce current money laundering methods and trends, with the intent of improving the quality of suspicious transaction reports. JAFIO continued in 2003 to try to improve its collection and analysis of relevant data from banks by encouraging feedback from law enforcement authorities. In addition, in January 2003, the Law on Customer Identification and Retention of Records on Transactions by Financial Institutions took effect, which reinforced and codified the customer identification and record keeping procedures which banks had practiced on their own for years.

The Financial Services Agency (FSA) supervises public-sector financial institutions and securities transactions. The FSA classifies and analyzes information on suspicious transactions reported by financial institutions, and provides law enforcement authorities with information relevant to their investigation. Japanese banks and financial institutions are required by law to record and report the identity of customers engaged in large currency transactions. There are no secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement authorities. Under the 1998 Foreign Exchange and Foreign Trade Control Law, banks and other financial institutions had to report transfers abroad of thirty million yen (approximately $275,229) or more. In April 2002, Parliament enacted the Law on Customer Identification and Retention of Records on Transactions with Customers by Financial Institutions, and revised the Foreign Exchange and Foreign Trade Law, so that financial institutions, as of January 2003, are required to make positive customer identification for both domestic transactions and transfers abroad in amounts of more than two million yen (approximately $18,439.) Banks and financial institutions are also required to maintain records for seven years.

Japanese financial institutions have cooperated, when requested, with law enforcement agencies, including U.S. and other foreign government agencies investigating financial crimes related to narcotics. In 2003, the U.S. and Japan concluded a Mutual Legal Assistance Treaty (MLAT). Japan has not adopted “due diligence” or “banker negligence” laws that make individual bankers responsible if their institutions launder money, but there are administrative guidelines in existence that require due diligence. The law does, however, protect bankers and other financial institution employees who cooperate with law enforcement entities.

The 1998 Foreign Exchange and Foreign Trade Control Law requires travelers entering and departing Japan to report physically transported currency and monetary instruments (including securities, and gold weighing over one kilogram) exceeding one million yen (approximately $9,174), or its equivalent in foreign currency, to customs authorities. Failure to submit a report, or submitting a false or fraudulent one, can result in a fine of up to 200,000 yen (approximately $1,835) or six months’ imprisonment. However, the reporting requirement is enforced only sporadically.

In response to the events of September 11, 2001, the FSA used the anti-money laundering framework provided in the Anti-Organized Crime Law to require financial institutions to report transactions where funds appeared to both stem from criminal proceeds, and to be linked to individuals and/or entities suspected to have relations with terrorist activities. The 2002 Act on Punishment of Financing of Offenses of Public Intimidation added terrorist financing to the list of predicate offenses for money laundering and provided for the freezing of terrorism-related assets. It was enacted in July 2002. Japan signed the UN International Convention on the Suppression of the Financing of Terrorism on October 30, 2001, and accepted it on June 11, 2002. After September 11, 2001, Japan froze accounts related to the Taliban. Since then, Japan has regularly frozen assets and accounts linked to terrorists listed by the UN and others.

Underground banking systems operate widely, especially in immigrant communities. Such systems violate the Banking Law and the Foreign Exchange Law. The police have investigated 35 underground banking cases in which foreign groups transferred illicit proceeds to foreign countries. The aggregate value of such transfers has amounted to 420 billion yen (approximately $3.5 billion) since the beginning of 1992. About 120 billion yen ($1 billion) have been illegally transferred to China and Korea, and about 90 billion yen ($750 million) to Peru.

Japan has not enacted laws that allow for sharing of seized narcotics assets with other countries. However, the Japanese Government cooperates with efforts by the United States and other countries to trace and seize assets, and makes use of tips on the flow of drug-derived assets from foreign law enforcement efforts to trace funds and seize bank accounts.

Japan is a party to the 1988 UN Drug Convention. In December 2000, Japan signed the UN Convention against Transnational Organized Crime (UNTOC), which came into force internationally in September 2003. The bills for ratification of the UNTOC are scheduled to be submitted to the Diet in 2004. Japan is a member of the Financial Action Task Force. The JAFIO joined the Egmont Group of FIUs in 2000. Japan is also a member of the Asia/Pacific Group on Money Laundering. In 2002, Japan’s FSA and the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission signed a nonbinding Statement of Intent (SOI) concerning cooperation and the exchange of information related to securities law violations. The SOI assists in the investigation and prosecution of securities and futures fraud, predicate offenses to money laundering. Japan has actively supported anti-money laundering efforts in developing countries in Asia. For example, in 2003 Japan provided assistance to the Philippines and to Indonesia for the development of their anti-money laundering framework, and is expected to continue to do so through 2004.

Japan has many legal tools and agencies in place to successfully detect, investigate, and combat money laundering. In order to strengthen its anti-money laundering regime, the Government of Japan should stringently enforce the Anti-Organized Crime Law. Japan should enact penalties for noncompliance with the Foreign Exchange and Foreign Trade Law, adopt measures to share seized assets with foreign governments, and enact banker “due diligence” provisions.

Jersey

The Bailiwick of Jersey (BOJ), one of the Channel Islands, is a Crown Dependency of the United Kingdom. The Islands are known as Crown Dependencies because the United Kingdom is responsible for their defense and international relations. Jersey’s sophisticated array of offshore services is similar to that of international financial services centers worldwide.

The financial services industry consists largely of banks with deposits of $282 billion; mutual funds valued at $177 billion; insurance companies (which are largely captive insurance companies); investment advice, dealing, and management companies ($44 billion under management); and trust and company administration companies. In addition, the companies offer corporate services, such as special purpose vehicles for debt restructuring and employee share ownership schemes. For high net worth individuals, there are many wealth management services.

The International Monetary Fund (IMF) conducted a study of the anti-money laundering regime of Jersey in October 2003. The IMF found Jersey’s Financial Services Commission (JFSC), the financial services regulator, to be in compliance with international standards, but it provided recommendations for improvement in three areas.

The Jersey Finance and Economics Committee is the government body responsible for administering the law regulating, supervising, promoting, and developing the Island’s finance industry. The IMF recommended that the power the Finance and Economics Committee has to give direction to the JFSC could appear as a conflict of interest between the two agencies, and suggested that a separate body should be established to speak for the industry’s consumers. The IMF’s second proposal was that rules for banks’ dealing with market risk should be established, along with a code of conduct for collective investment funds. The IMF’s recommendation for the third area was that a contingency plan be established for the failure of a major institution.

Jersey is currently addressing the issues and has already published the rules for collective investment funds. The JFSC intends to continue strengthening the existing regulatory powers with amendments to the Financial Services Commission Law 1998, to provide legislative support for its inspections and the introduction of monetary fines for administrative and regulatory breaches. The amendments will also include stricter codification of industry guidelines and tighter enforcement of anti-money laundering and terrorist financing controls. The next IMF inspection is planned for 2005.

Jersey’s main anti-money laundering laws are: the Drug Trafficking Offenses (Jersey) Law of 1988, which criminalizes money laundering related to narcotics trafficking; the Prevention of Terrorism (Jersey) Law, 1996, which criminalizes money laundering related to terrorist activity; and the Proceeds of Crime (Jersey) Law, 1999, which extended the predicate offenses for money laundering to all offenses punishable by at least one year in prison. The Terrorism (Jersey) Law 2002 is a response to the events of September 11, 2001, and enhances the powers of the insular authorities to investigate terrorist offenses, to cooperate with law enforcement agencies in other jurisdictions, and to seize assets. The law was adopted by the Island Parliament and is now in force. Application of the 1988 UN Drug Convention was extended to Jersey on July 7, 1997.

The JFSC has issued anti-money laundering Guidance Notes that the courts take into account when considering whether or not an offense has been committed under the Money Laundering Order. The reporting of suspicious transactions is mandatory under the narcotics trafficking, terrorism, and anti-money laundering laws.

After consultation with the financial services industry, the JFSC issued a position paper (jointly issued in Guernsey and the Isle of Man) that set out a number of proposals for further tightening the essential due diligence requirements that financial institutions should meet regarding their customers. The position paper states the JFSC’s intention to insist, inter alia, on affirming the primary responsibility of all financial institutions to verify the identity of their customers, regardless of the action of intermediaries. The paper also states an intention to require a progressive program to obtain verification documentation for customer relationships established before the Proceeds of Crime (Jersey) Law came into force in 1999. Each year working groups review specific portions of these principles and draft Anti-Money Laundering Guidance Notes to incorporate changes.

Approximately 30,000 Jersey companies are registered with the Registrar of Companies, who is the Director General of the JFSC. In addition to public filing requirements relating to shareholders, the JFSC requires details of the ultimate individual beneficial owner of each Jersey-registered company to be filed, in confidence, with the Commission. That information is available, under appropriate circumstances and in accordance with the law, to U.S. and other investigators.

In addition, a number of companies that are registered in other jurisdictions are administered in Jersey. Some companies, known as “exempt companies,” do not have to pay Jersey income tax and are only available to nonresidents. Jersey does not provide “offshore” licenses. All regulated individuals are equally entitled to sell their services to residents and nonresidents alike. All financial businesses must have a “real presence” in Jersey, and management must be in Jersey.

Jersey has established a financial intelligence unit known as the Joint Financial Crime Unit (JFCU). This unit is responsible for receiving, investigating, and disseminating suspicious transaction reports (STRs). The unit includes Jersey Police and Customs officers, as well as a financial crime analyst. In 2001 the JFCU received 972 suspicious activity reports, 1,612 reports in 2002, and 1,272 in 2003. The JFCU is a member of the Egmont Group.

Jersey has extensive powers to cooperate with other law enforcement and regulatory agencies and regularly does so. The JFSC is also able to cooperate with regulatory authorities, for example, to ensure that financial institutions meet anti-money laundering obligations. The JFSC reached agreements on information exchange with securities regulators in Germany (July 2001), France (November 2001), and the United States (May 2002). The 1988 Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to Jersey in 1996. Jersey authorities have also put in place sanction orders freezing accounts of individuals connected with terrorist activity.

Jersey has established an anti-money laundering program, that in some instances, such as the regulation of trust company businesses and the requirement for companies to file beneficial ownership with the JFSC, go beyond what international standards require in order to directly address Jersey’s particular vulnerabilities to money laundering. Jersey should establish reporting requirements for the cross-border transportation of currency and monetary instruments. Jersey should continue to demonstrate its commitment to fighting financial crime by enhancing its anti-money laundering/antiterrorist financing regime in areas of vulnerability.

Jordan

Jordan is not a regional or offshore financial center and is not considered a major venue for international criminal activity. The banking and financial sectors, including moneychangers, are supervised by competent authorities according to international standards. The Central Bank of Jordan, which regulates foreign exchange transactions, issued anti-money laundering regulations designed to meet the FATF Forty Recommendations on Money Laundering in August 2001. Under Jordanian law, money laundering is considered an “unlawful activity” subject to criminal prosecution.

An October 8, 2001 revision to the Penal Code criminalized terrorist activities, specifically including financing of terrorist organizations. Jordan ratified and became a full party to the International Convention for the Suppression of Financing of Terrorism on June 16, 2003. Jordan has checked for assets of terrorists and terrorist groups identified by the United Nations 1267 Sanctions Committee, although no such assets have been identified in Jordan to date. In early 2003 there were unconfirmed press reports that millions of dollars of charitable donations given to an unlicensed and unregistered Islamic charity in New York, were smuggled out of the U.S and subsequently laundered through Jordanian banks en route to Iraq. There have also been investigations into the smuggling of cigarettes and other commodities into Iraq via a Jordanian network that laundered kickbacks to the regime of Saddam Hussein.

Jordan has neither enacted a comprehensive anti-money laundering law, nor established an independent financial intelligence unit (FIU). Anti-money laundering efforts are handled by an anti corruption agency, within the Jordanian Intelligence Services. However, Jordanian officials report that financial institutions file suspicious transactions reports and cooperate with prosecutors’ requests for information related to narcotics trafficking and terrorism cases. Jordan’s Central Bank has instructed financial institutions to be particularly careful when handling foreign currency transactions, especially if the amounts involved are large or if the source of funds is in question. The Banking Law of 2000 waives banking secrecy provisions in cases of suspected money laundering and terrorism financing.

Jordan is a party to the 1988 UN Drug Convention. Jordan has signed, but not ratified, the UN Convention against Transnational Organized Crime. Jordan is a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Jordan has taken steps in constructing an anti-money and antiterrorist finance program, but much remains to be done. Specific anti-money laundering legislation should be passed recognizing all types of predicate offenses. Jordan should establish a Financial Intelligence Unit (FIU) that receives, analyzes and disseminates suspicious transaction reports to law enforcement agencies. Jordanian law enforcement and customs should examine forms of trade-based money laundering.

Kazakhstan

Kazakhstan has a relatively advanced financial infrastructure in comparison to other countries in the region. When combined with the presence of organized crime, entrenched smuggling networks, and corruption in the sizeable oil industry, the country is vulnerable to money laundering. Smuggling of cash is also an ongoing problem in Kazakhstan. Although travelers are required to report the amount of cash they are carrying as they enter or exit the country, porous borders and corrupt officials allow a large amount of cash to pass undetected. Most of the smuggled cash is probably related to illegal capital flight, but there are reports that Kazakhstan has become a transport route for narcotics into Russia and cash and trade items moving into Afghanistan to finance terrorist organizations. It is estimated that 80-90 percent of drugs seized in Kazakhstan originate in Afghanistan.

Relatively large cash seizures of U.S. dollars have been seized at Kazakhstan’s borders. And in one money laundering case, an undeclared $831,200, originally from Kazakhstan, was seized by French customs. There was a recent scandal involving the Kazakh Eurasian Bank group, three of whose officials were charged in Belgium with money laundering in connection with the purchase of a villa near Brussels. Kazakhstan suffers high levels of illegal capital flight despite the existence of currency controls and capital transfer restrictions. The Ministry of Finance has estimated that between $500 million and $1 billion are lost annually in illegal fund transfers abroad. Much of the capital flight is achieved via the practice of transfer pricing, particularly in the oil sector. Oil swaps are also common. The arrangement provides a way to get oil to refineries and then to market from remote oil fields and isolated nations like Kazakhstan. Title to oil in one location is transferred to an available oil supply that might be thousands of miles away. Oil swaps can be appropriate and even necessary but they also create perceptions that the energy sector is vulnerable to bribery and money laundering. Kazakhstan is ranked low on the Transparency International Corruption Perceptions Index.

Money laundering was criminalized in Kazakhstan by Article 30 of the 1998 antidrug law, which makes it illegal to launder money in connection with the sale of illegal drugs. However, the definition of money laundering used in the act is narrow. A further limit to the effectiveness of the law is that bank records may not be examined until after a criminal case has been initiated. In January 2002, the Tax Committee was replaced by the Financial Police Agency, which has authority to investigate money laundering and other financial crimes. The Government of Kazakhstan (GOK) is reportedly aware of the problems with the policing of financial crimes, including money laundering, and is taking corrective measures. The GOK has made limited efforts to pass anti-money laundering legislation, but it is not anticipated that this will happen before 2005. The National Bank has established a “know your customer” program and has asked local banks to report suspicious financial activities. Perhaps as a result, there are reports that large amounts of money seem to be moving into less regulated parts of the economy.

Kazakhstan ratified the 1988 UN Drug Convention and in December 2000 the country signed the UN Convention against Transnational Crime. On February 24, 2003 Kazakhstan ratified the UN International Convention for the Suppression of the Financing of Terrorism. Kazakhstan is also a signatory of the Central Asian Agreement on Joint Fight Against Terrorism, Political and Religious Extremism, Transnational Organized Crime and Illicit Drug Trafficking, signed in April 2000 by Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Kazakhstan is still in the process of developing some of the key legal and institutional frameworks to guarantee successful economic security and development. As part of this program, Kazakhstan should pass comprehensive anti-money laundering and terrorist and terrorism financing laws that adhere to world standards. Kazakhstan law enforcement and customs authorities should examine smuggling and trade-based money laundering.

Kenya

As a regional financial and trade center for East, Central, and Southern Africa. Kenya’s economy has a large informal sector and a thriving network of cash-based, unrecorded transfers, primarily used by expatriates to send and receive remittances internationally. As such, Kenya is vulnerable to money laundering. Recently Kenya has taken steps to trace millions of dollars of public funds that were laundered abroad; corruption facilitated the removal of the money.

Section 49 of the Narcotic Drugs and Psychotropic Substance Control Act of 1994 criminalizes money laundering related to narcotics trafficking. Narcotics-related money laundering is punishable by a maximum prison sentence of 14 years, though up to now no clear instances of laundering of funds from narcotics trafficking appear to have come to light. The Central Bank is the regulatory and supervisory authority for Kenya’s deposit taking institutions and has responsibility for over 51 entities.

In October 2000, the Central Bank issued regulations that require deposit institutions to verify the identity of customers wishing to open an account or conduct a transaction. The regulations also stipulate that these institutions report suspicious transactions. Under the regulations, banks must maintain records of large transactions and report them to the Central Bank. These regulations do not cover nonbank financial institutions such as money remitters, casinos, or investment companies, and there is no enforcement mechanism behind the regulations. Some banks do file suspicious transaction reports voluntarily, but they run the risk of civil litigation as there are no adequate “safe harbor” provisions for reporting such transactions to the Central Bank. The trigger amount is also very high: on a daily basis, all commercial banks are required to submit reports detailing all transactions greater than $100,000. Controls on money laundering as such are rarely if ever applied to financial institutions or intermediaries outside the banking sector.

Kenya has little in the way of cross-boundary currency controls. Kenyan regulations require that any amount of cash above $5,000 be disclosed at the point of entry or departure. In reality this provision is rarely enforced. Central Bank guidelines call for currency exchange firms to furnish reports on a daily basis on any single foreign exchange transaction above about $10,000, and on cumulative daily foreign exchange inflows and outflows of about $100,000. Under September 2002 guidelines, foreign exchange dealers are required to ensure that cross-border payments are not connected with illegal financial transactions.

The Banking Act amendment of December 2001 authorizes disclosure of financial information by the Central Bank of Kenya to any monetary authority or financial regulatory authority within or outside Kenya. In 2002, the Kenya Bankers Association issued guidelines requiring banks to report suspicious transactions to the Central Bank. These guidelines do not have the force of law.

Kenya is a party to the 1999 UN International Convention for Suppression of the Financing of Terrorism. It has cooperated fully with the United States and the UK, but does not itself have the investigative skills or equipment to conduct complex investigations independently. In April 2003, the GOK introduced the Suppression of Terrorism Bill into Parliament. The bill contains provisions that will strengthen the GOK’s ability to combat terrorism, but the legislation is opposed by many for fear of human rights violations, not because of the bill’s antiterrorism aspects as such. The public does support the government’s attempts to increase transparency and to clean up corruption, which include its efforts related to money laundering.

There is no legislation permitting the seizure of the financial assets of terrorists. All charitable and nonprofit organizations are registered with the Government and have to submit annual reports. Noncompliance could lead to de-registration; however, this is rarely enforced. The government did de-register some NGOs with Islamic links in 1998 in the wake of the bombing of the U.S. Embassy in Nairobi, although they were later re-registered.

Kenya is a party to the 1988 UN Drug Convention. Kenya is an active member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. Kenya has an informal agreement with the U.S. for the exchange of information regarding narcotics, terrorism financing, and other serious crime investigations.

At present the government entities responsible for tracing and seizing assets include the Central Bank of Kenya Banking Fraud Investigation Unit, the Kenya Police through the Anti-Narcotics Unit and the Anti-Terrorism Police Unit, and the Kenya Revenue Authority.

The passage of anti-money laundering legislation and the creation of a financial intelligence unit by Kenya will help to formalize its relationship with the U.S. and with other countries. In 2001, the Government of Kenya formed the Anti-Money Laundering Task Force with the mandate of drafting a comprehensive anti-money laundering law, sensitizing the public and government to money laundering issues, and addressing terrorist financing.

After the inception of the task force, a bill on money laundering was drafted, but has not yet been passed. The key points of legislation currently under consideration include tracing, seizing and freezing suspect accounts, including those involved in the financing of terrorism; confiscation of the proceeds of crime, declaration of the source of funds; outlawing of anonymous bank accounts; and introduction of mandatory reporting of suspicious transactions above a certain amount. However, much drafting is still to be done, and the provisions regarding the financing of terrorism may be subsumed in the Suppression of Terrorism Bill discussed above. The proposed legislation is not explicit on seizing legitimate business if used to launder money. The draft legislation provides for criminal forfeiture only. Actual seizure of assets and forfeiture under current law is rare.

Kenya should expedite the passage of its comprehensive anti-money laundering legislation and Suppression of Terrorism Bill legislation.

Korea, Democratic People’s Republic of

The Department of State has designated North Korea as a State Sponsor of Terrorism. Information about the money laundering situation in North Korea is generally unavailable. North Korea’s self-imposed isolationism and secrecy as well as its refusal to participate in international organizations make knowledge of the role of North Korea’s financial system and drug trafficking situation supposition at best.

What little is known and documented, however, includes North Korea’s continued use of Macau as a base of operations for money laundering and other illicit activities. Macau is a useful intermediary, for it provides North Koreans with access to global financial systems. There are reports that Pyongyang also has used Macau to launder counterfeit $100 bills and Macau’s banks as a repository for the proceeds of North Korea’s growing trade in illegal drugs.

North Korea should enact a comprehensive anti-money laundering regime and take steps to stop financial crimes originating in North Korea.

Korea, Republic of

South Korea is not considered an attractive location for international financial crimes or terrorist financing, partly because of existing foreign exchange controls. However, such activities do exist. As law enforcement authorities have gained more expertise investigating money laundering and financial crimes, they have also become more cognizant of the problem. In general, the still fairly strict foreign exchange controls in place make it difficult for drug-related or terrorism-related money laundering to flourish. Most money laundering appears to be associated with domestic criminal activity or corruption and official bribery. Still, criminal groups based in South Korea maintain international associations with others involved in human and contraband smuggling and related organized crime. On the whole, the South Korean government has been a willing partner in the fight against financial crime, and has pursued international agreements toward that end.

Money laundering related to narcotics trafficking has been criminalized since 1995, and financial institutions have been required to report transactions known to be connected to narcotics trafficking to the Public Prosecutor’s Office since 1997. All financial transactions using anonymous, fictitious, and nominee names have been banned since the 1997 enactment of the Real Name Financial Transaction and Guarantee of Secrecy Act. The Act also requires that, apart from judicial requests for information, persons engaged in financial institutions not provide or reveal to others any information or data on the contents of financial transactions without receiving a written request or consent from the parties involved. However, secrecy laws do not apply when such information must be provided for submission to a court or as a result of a warrant issued by the judiciary.

In a move designed to broaden its anti-money laundering regime, the Republic of Korea (ROK) also criminalized the laundering of the proceeds from 38 additional offenses, including economic crimes, bribery, organized crime, and illegal capital flight, through the Proceeds of Crime Act (POCA), enacted in September 2001. The POCA provides for imprisonment and/or a fine for anyone receiving, disguising, or disposing of criminal funds. The legislation also provides for confiscation and forfeiture of illegal proceeds.

South Korea still lacks specific legislation on terrorism financing. In 2002, the National Intelligence Service (NIS) submitted an antiterrorism bill to the National Assembly, but it has not yet been passed. Many politicians and nongovernmental organizations (NGOs), recalling past civil rights abuses in Korea by the government, oppose the pending antiterrorism legislation because of fears about possible misuse by the National Intelligence Service. The proposed legislation is crafted to allow the Republic of Korea Government (ROKG) additional latitude in fighting terrorism, though general financial crimes and money laundering have already been criminalized in previously enacted laws.

The pending antiterrorism bill, if passed, would permit the ROKG to seize legitimate businesses that support terrorist activity. Currently, under the special act against illicit drug trafficking and other related laws, legitimate businesses can be seized if they are used to launder drug money, but businesses supporting terrorist activity cannot be seized unless other crimes are committed. At this time, there are no known charitable or nonprofit entities operating in Korea that are used as conduits for the financing of terrorism.

Through its Korean Financial Investigative Unit (KoFIU, authorized by the Ministry of Finance and Economy) the ROK circulated to its financial institutions the list of individuals and entities that have been included in the UN 1267 Sanctions Committee’s consolidated list as being linked to Usama Bin Ladin or members of the al-Qaida organization or the Taliban, or that the U.S. Government (USG) or the European Union have designated under relevant authorities. The ROK implemented regulations on October 9, 2001, to freeze financial assets of Taliban-related authorities designated by the UN Security Council. The government then revised the regulations, agreeing to list immediately all U.S. Government-requested terrorist designations under Executive Order 13224 of December 12, 2002. Due in part to Korea’s remaining restrictive foreign exchange laws, which persist despite some recent liberalization, and which render the country unattractive as an offshore financing center, no listed terrorists are known to be maintaining financial accounts in Korea at this time. Korean banks have not identified any terrorist assets. There have been no cases of terrorism financing identified since January 1, 2002.

ROK authorities are just beginning to assess whether the hawala system is an area of concern. Currently, gamblers who bet abroad often use alternative remittance and payment systems; however, government authorities have already criminalized those activities through the Foreign Exchange Regulation Act and other laws. Hawala-type vendors do exist in South Korea and operate primarily among the country’s small population of approximately 30,000 foreigners from the Middle East.

The Financial Transactions Reports Act (FTRA), passed in September 2001, requires financial institutions to report suspicious transactions to a financial intelligence unit (FIU) within the Ministry of Finance and Economy. In November 2001 the Korean Cabinet issued regulations implementing the newly enacted FTRA, and officially launched the Korea Financial Intelligence Unit (KoFIU). KoFIU is composed of 60 experts from various agencies, including the Ministry of Finance and Economy, the Justice Ministry, the Financial Supervisory Commission, the Bank of Korea, the National Tax Service, the National Police Agency, and the Korea Customs Service. KoFIU analyzes suspicious transaction reports (STRs) and forwards information deemed to require further investigation to domestic law enforcement and the Public Prosecutor’s office. Currently, financial institutions must report transactions of over 50 million won (about $42,000) that are suspected of being tied to criminal proceeds or to tax evasion, and they may report transactions in lesser amounts if there are “reasonable” grounds for doing so. Efforts are being made to lower the reporting threshold to 20 million won for suspicious transactions for 2004. Improper disclosure of financial reports is punishable by up to five years imprisonment and a fine of up to 30 million won (about $25,000). In addition, KoFIU supervises and inspects the implementation of internal reporting systems established by financial institutions.

Since its inception in November 2001, KoFIU has received a total of 1,713 suspicious transaction reports (STRs) from financial institutions. It has completed analysis of 1,276 of them, and provided 413 reports to law enforcement agencies as of November 30, 2003, according to KoFIU. Results were disseminated to law enforcement agencies such as the Public Prosecutor’s Office (PPO), National Police Agency (NPA), National Tax Service (NTS), Korea Customs Service (KCS), and the Financial Supervisory Commission (FSC). In terms of large cases, the managing directors of the SK Group, a conglomerate, were prosecuted for laundering 10 billion won ($8.4 million), in checks and securities, in November 2003.

Money laundering controls are applied to nonbanking financial institutions, such as exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings, finance companies, credit unions, credit cooperatives, trust companies, securities companies, insurance companies, credit insurance corporations, and exchange houses. Intermediaries such as lawyers, accountants, or broker/dealers are not covered. Any traveler carrying more than $10,000 or the equivalent in other foreign currency is required to report the currency to the Korea Customs Service.

The ROK actively cooperates with the United States and other countries to trace and seize assets. The Anti-Public Corruption Forfeiture Act of 1994 provides for the forfeiture of the proceeds of assets derived from corruption. In November 2001, the ROK established a system for identifying, tracing, freezing, seizing, and forfeiting narcotics-related and/or other assets of serious crimes. Under the system, KoFIU is responsible for analyzing and providing information on STRs that require further investigation. The Bank Account Tracing Team under the Narcotics Investigation department of the Seoul District Prosecutor’s Office (established in April 2002) is responsible for tracing and seizing drug-related assets. The Seoul District Prosecutor’s Office seized $1.6 million worth of assets related to seven drug trades in 2003, representing a big increase from 2002. The prosecutor’s office seized $109,000 of assets related to illegal foreign exchange transactions in 2002, of which $53,000 was related to drug trafficking. The ROKG plans to establish six additional new bank account tracking teams in 2004 to serve out of the District Prosecutor’s offices in the metropolitan cities of Busan, Daegu, Kwangju, Incheon, Daejon and Ulsan, to expand its reach.

The ROK continues to address the problem of the transportation of counterfeit international currency. In the first ten months of 2003, the Central Bank reported that local banks uncovered 136 cases of counterfeit foreign currency—representing an increase of 25 percent over the same period of 2002. Among these counterfeit cases, 89 percent involved U.S. dollars, an increase of about one percent from the previous year.

The ROK is a party to the 1988 UN Drug Convention and, in December 2000, signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. In October 2001, the ROK signed the UN International Convention for Suppression of the Financing of Terrorism, but has not yet ratified it. The ROK also signed in Dec. 2003, but has not ratified, the UN Convention Against Corruption, which is not yet in force. The ROK is an active member of the Asia/Pacific Group on Money Laundering, and in 2002 KoFIU assumed the position of co-chair. The ROK also became a member of the Egmont Group in 2002 and applied for membership in the Financial Action Task Force. An extradition treaty between the United States and the ROK entered into force in December 1999. The United States and the ROK cooperate in judicial matters under a Mutual Legal Assistance Treaty, which entered into force in 1997.

In addition, the Korean FIU continues to actively pursue information-sharing agreements with a number of countries. KoFIU signed memoranda of understanding with Belgium (March 2002), Poland (October 2002), the United Kingdom (October 2002), Brazil (February 2003), Australia (May 2003), and Colombia and Venezuela (November 2003) to facilitate the exchange of information on money laundering. KoFIU is negotiating similar MOUs with the United States, Japan, and Canada. These agreements are expected to enhance the government’s asset tracing and seizure abilities.

The passage of the terrorism financing bill, if coupled with existing recent measures, would provide the ROKG with powerful tools to combat money laundering. Korea should criminalize the financing and support of terrorism and should continue to move forward to adopt and implement its pending legislation. The ROK should extend its anti-money laundering regime to financial intermediaries. The ROK should continue its policy of active participation in international anti-money laundering efforts, both bilaterally and in multilateral fora. Spurred by enhanced local and international concern, South Korean law enforcement officials have begun to fully grasp the negative potential impact such activity has in their country and to take steps to combat its growth. The ROK should also accede to the UN International Convention for the Suppression of Terrorism.

Kuwait

Kuwait is not a major regional financial sector; it has seven commercial banks and one Islamic bank, all of which provide traditional banking services comparable to those of Western-style commercial banks. Kuwait also has two specialized banks, the Real Estate Bank of Kuwait and the government-owned Industrial Bank of Kuwait, that provide medium and long-term financing. Regulators do not believe that money laundering is a significant problem, and most laundered funds are generated as a byproduct of local drug and alcohol smuggling. Funds and assets generated by criminal activity are subject to forfeiture.

On March 10, 2002, the Emir (Head of State) of Kuwait signed Law No. 35, which criminalizes money laundering. The law stipulates that banks and financial institutions may not keep or open any anonymous accounts or accounts in fictitious or symbolic names and banks must require proper identification of regular and occasional clients. The law also requires banks to keep all records of transactions and customer identification information for a minimum of five years, perform training and establish internal control systems, and report any suspicious transactions. Currency smuggling is also outlawed.

Law No. 35 designates the Public Prosecution Department (PPD) as the sole authority to receive reports on money laundering operations, and to take the necessary actions. Reports of suspicious transactions are referred from PPD to the Central Bank’s financial intelligence unit (FIU) for analysis. The law provides for a penalty of up to seven years’ imprisonment in addition to fines and asset confiscation. The penalty is doubled if an organized group commits the crime, or if the offender took advantage of his influence or his professional position. The law includes articles on international cooperation, and on monitoring cash and precious metals transactions. Provisions of Article 4 of Law No. 35 state that every person shall, upon entering the country, inform the customs authorities of any national or foreign currency, gold bullion, or any other precious materials in his/her possession valued in excess of Kuwait dinars 3,000 (about $ 10,000). There are no similar reporting requirements for outbound currency or precious metals.

The law authorizes the Minister of Finance to set forth the resolutions necessary to ensure its implementation. The Minister of Finance can issue resolutions to enhance combating money laundering operations without the need to amend the legislation. Moreover, banks and financial institutions may face a steep fine (approximately $3.3 million) if found in violation of the law.

In addition to Law No. 35, anti-money laundering reporting requirements and other rules are contained in the Central Bank of Kuwait’s (CBK’s) instructions no. (2/sb/92/2002), which took effect on December 1, 2002, superseding instructions no. (2/sb/50/97). The revised instructions provide for, inter alia: customer identification and the prohibition of anonymous or fictitious accounts (articles 1-5), the requirement to keep records of all banking transactions for five years (article 7), electronic transactions (article 8), the requirement to investigate transactions that are unusually large or have no apparent economic or lawful purpose (article 10), the requirement to establish internal controls and policies to combat money laundering and terrorism finance, including the establishment of internal units to oversee compliance with relevant regulations (article 14 and 15), and the requirement to report to the CBK all cash transactions in excess of KD3,000 (article 20). A detailed appendix to the instructions has guidelines to help bank employees identify suspicious transactions.

In September 2002, insurance companies, exchange bureaus, gold and precious metals shops, brokers in the Kuwait Stock Exchange, and all other financial brokers, were placed under the supervision of the Ministry of Commerce and Industry. Such sectors must abide by all regulations concerning customer identification, record keeping of all transactions for five years, internal control systems, and the reporting of suspicious transactions.

In addition, CBK issued circular no. (2/sb/95/2003) in 2003, which was directed toward money changing companies and which contained similar instructions with respect to combating money laundering and suspicious activities reporting guidelines. A similar order (31/2003) was issued by the Kuwait Stock Market to all companies under its jurisdiction.

Kuwait’s one Islamic bank, Kuwait Finance House (KFH), is licensed and supervised by the Ministry of Commerce and Industry, which apparently does not examine KFH’s books. KFH does, however, produce annual audited financial reports. The CBK will take over supervision of KFH in 2004.

Following the September 11, 2001, attacks against the United States, certain Islamic charity organizations such as the Revival of Islamic Heritage Society (RIHS) and its subsidiary, the Afghan Support Committee (ASC), which operate from Kuwait and have branches in Pakistan and Afghanistan, were suspected of providing funds to al-Qaida. U.S. authorities have designated the branches in Pakistan and Afghanistan as being used to funnel funds to terrorist organizations. There is no indication that such activities occurred with the knowledge of the Kuwaiti head office, which thus remains undesignated.

In August 2002, the Kuwaiti Ministry of Social Affairs and Labor issued a ministerial decree to create a Department of Charitable Organizations. The primary responsibilities of the new department are to receive applications of registration from charitable organizations, monitor their operations, and establish a new accounting system to insure that such organizations comply with the law both at home and abroad. The Department has established guidelines explaining how charities must collect donations and finance their activities. The new Department is also charged with conducting periodic inspections to insure that they maintain administrative, accounting, and organizational standards according to Kuwaiti law. However, in February 2003, a prominent member of the Kuwaiti ruling family, who also held positions with the Cabinet, accused some Islamic movements in the country of financing terrorist acts in Kuwait earlier that year. He warned of the existence of unlicensed charitable associations and organizations in the country, which had infiltrated the Parliament, and go unsupervised by the authorities.

On June 23, 2003, the Central Bank of Kuwait issued resolution no. 1/191/2003 establishing the Kuwaiti Financial Intelligence Unit (KFIU) as an independent entity within the Central Bank. The goals of KFIU are to receive and analyze reports of suspected money laundering from the public prosecution department, to establish a database of suspicious transactions, to conduct anti-money laundering training, and to carry out domestic and international exchanges of information in cooperation with the PPD. KFIU has a staff of seven.

Several cases have been opened under Law No. 35. but the majority of them were closed after investigations did not disclose prosecutable offenses. Only two cases have gone to courts, where they were under litigation at year’s end. The cases reportedly involve money smuggling and failure to report currency transactions, and do not involve banks.

The 2002 law on money laundering does not cite terrorist financing as a crime; however, the definition of criminal activity is broad. Kuwait established a national committee to follow up on all issues concerning terrorism. Two terrorist suspects were charged in late 2002 with “gathering funds for, and financing the establishment of, military training camps abroad.”

The Gulf Cooperation Council represents Kuwait on the Financial Action Task Force (FATF). Kuwait is a party to the 1988 UN Drug Convention. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Kuwait should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Kuwait is making progress in enforcing its domestic anti-money laundering program. The passage of the CBK’s anti-money laundering clarifying instructions represents a significant step forward. However, KFIU needs to gain experience in dealing with suspicious transactions. The KFIU also needs to assemble and automate various financial databases. Kuwait should also make outbound currency and precious metals declarations mandatory. More interagency cooperation and coordination between KFIU and other concerned parties could yield significant improvements in proactive investigations and international information exchange. A specific counterterrorism finance law should also be enacted.

Kyrgyzstan

Kyrgyzstan (the Kyrgyz Republic) is not a regional financial center. Money laundering is not a crime in the Kyrgyz Republic. Moreover, it has a comparatively underdeveloped banking system. And like other countries in the region, the Kyrgyz Republic is susceptible to alternative remittance systems to launder money or transfer value such as hawala and trade fraud. The major sources of illegal proceeds are domestic and include narcotics trafficking, smuggling of consumer goods, tax and tariff evasion, and official corruption.

The Central Bank has provisions that require customer identification procedures and make an exception to bank secrecy rules for suspicious transaction reporting, but these provisions are reportedly ignored by the commercial banks. Oversight of the banking sector remains weak and Kyrgyzstan’s law enforcement agencies lack the resources and expertise to conduct effective financial investigations.

In 2002, the Kyrgyz legislature began consideration of a draft law to criminalize money laundering, the law “On Opposition to Legalization (Laundering) of Incomes Obtained in Illegal Way in the Kyrgyz Republic.” The bill has not yet been passed. The draft law defines predicate offenses or criminal conduct as income “obtained as a result of committed crime.” Mandatory suspicious transaction reporting by Kyrgyzstan financial institutions is included in the draft law. The law does not address money laundering methodologies that by-pass financial institutions. Details and possible revisions of the draft legislation are as yet unclear.

The Kyrgyz Republic is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Also in 2003, Kyrgyzstan signed the UN International Convention for the Suppression of the Financing of Terrorism.

The Kyrgyz Republic should approve comprehensive anti-money laundering and antiterrorism finance legislation that adheres to international standards. The Kyrgyz Government should also be aware that money laundering can easily by-pass financial institutions and take enforcement measures to address these vulnerabilities.

Laos

Laos is on the fringe of the region’s banking network. Its banking sector is dominated by state-owned commercial banks in need of extensive reform. The small scale and poor financial condition of Lao banks may make them more likely to be venues for certain kinds of illicit transactions. Lao banks are not optimal for moving large amounts of money in any single transaction, due to the visibility of such movements in a small, low-tech environment. What money laundering does take place through Lao banks is likely to have been from illegal timber sales or domestic criminal activity, including drug trafficking. In a recent high-profile case involving a foreign-owned company accused of securities fraud, Lao customs authorities seized $300,000 in cash a businessman was transporting to Thailand, in contravention of Lao law. Subsequent investigation indicated that this business had transferred several million dollars from abroad through the Lao banking system in the past year, much of which was reportedly withdrawn in cash. The case revealed the weakness of the Lao banking system in monitoring suspicious transactions.

Laos is drafting a money laundering law with antiterrorism finance components, based upon a model law provided by the Asian Development Bank. It is anticipated the proposed legislation will be introduced during the first quarter of 2004. The law is expected to criminalize money laundering and terrorist financing. A Financial Intelligence Unit (FIU) is to be established, which will supplant the very small and informal one currently in place. It is believed a provision will be made for the freezing of suspect transactions and forfeiture of laundering proceeds. The Bank of Laos currently has a very small Banking Supervision Department, and it is believed the Department will be augmented and used to help implement the new legislation. Provision will be made for mutual assistance in criminal matters between Laos and other countries. Before it is enacted into law, the draft legislation will be reviewed by the National Assembly and may undergo significant changes.

Laos currently has strict laws on the export of its currency, the Lao kip. It is likely that the currency restrictions and undeveloped banking sector encourage the use of alternative remittance systems.

The GOL is a party to the 1971 UN Convention on Psychotropic Substances and has stated its goal to become a party to the 1988 UN Drug Convention. GOL sends its officials to relevant Association of Southeast Asian Nations (ASEAN) regional conferences on money laundering. Laos also has observer status in the Asia Pacific Anti-Money Laundering Group, and plans to join fully once its anti-money laundering law is enacted.

Laos should pass anti-money laundering and antiterrorism financing legislation. Laos should also become a party to the International Convention for the Suppression of Financing of Terrorism and the UN Convention against Transnational Organized Crime.

Latvia

Latvia’s role as a regional financial center, its large number of commercial banks and those banks’ sizeable nonresident deposit base continue to pose significant money laundering risks in Latvia, even as Latvian financial institutions, regulators and law enforcement and judicial authorities seek tighter adherence to legislative norms, regulations and “best practices” designed to fight financial crime. Sources of laundered money include counterfeiting, corruption, white-collar crime, extortion, financial/banking crimes, stolen cars, and prostitution. Organized crime is thought to account for two-thirds of laundered proceeds. Latvia’s mainly cash economy has been moving toward the use of electronic, credit, and other noncash payments. At the same time, there are no restrictions in Latvia on cross-border currency movement (cash or noncash, domestic or foreign) or the physical movement of other financial instruments. In December 2003 there were 20 casinos, 503 gaming halls, 1,487 gambling places (such as cafes and bars), and 10,597 gambling machines.

The Government of Latvia (GOL) criminalized money laundering for all serious crimes in 1998. There are requirements for customer identification, the maintenance of records on all transactions, and the reporting of large cash transactions and suspicious transactions to the Office for the Prevention of the Laundering of Proceeds Derived from Criminal Activity (Control Service), which is Latvia’s financial intelligence unit (FIU).

The Law on the Prevention of Laundering of Proceeds Derived from Criminal Activity (the AML law) requires all institutions engaging in transactions to report suspicious activity. Amendments to the AML law, currently in review by the Parliament, will include a list of reporting institutions in order to comply with international requirements. The new law will include auditors, lawyers, and high-value dealers, as well as credit institutions. Another proposed amendment to the AML law will make all offenses listed in the criminal law predicate offenses for money laundering. If passed, the new amendments will to go into force early in 2004.

The European Union 2001 Report on Latvia’s Progress towards Accession to the EU characterized the perceived level of corruption in Latvia as relatively high. This finding has been consistently echoed in Transparency International’s Corruption Perceptions Index, which in 2003 assigns Latvia a score of 3.8. (“Highly clean” rates a “10.”) Latvia continues to take steps to combat both real and perceived corruption. In January 2002, the government formally established the Anti-Corruption Bureau (ACB), an independent agency whose specific charter is to prevent and combat corruption. The government of Prime Minister Einars Repse also continued to remove from public office high-ranking officials associated with previous corruption and conflict-of-interest scandals. In April 2002, the Parliament adopted the Law on Prevention of Conflict of Interest of Public Officials; and in May, the Law on Corruption Prevention and Enforcement Bureau was also adopted. Starting April 1, 2003, a new regulation entered into force obligating all state officials to declare their income to the State Revenue Service. The Control Service also has the ability to review this information for any cases suspected of public corruption.

The Control Service, which employs 17 persons, was established under the oversight of the Prosecutor’s Office. Additional allocations for financing the Control Service for the year 2004 were made for the purpose of increasing the staff, purchasing technical resources, and enhancing software development. Approximately 30 percent of all reports filed with the Control Service are suspicious transaction reports (STRs); the other 70 percent consist of unusual currency transaction reports (transactions over 40,000 lats, approximately $75,400). The Control Service received 3,303 reports in 2001, 7,902 reports in 2002, and 14,251 (through November) in 2003. The growth in the number of reports for the year 2003 is due to the more pro-active efforts on the part of most banks to report unusual activity above the mandatory threshold requirements, and the additional research conducted by the financial institutions to trace the funds. In 2002, 67 criminal cases were initiated by the Prosecutor’s Office, and in 2003, 86 cases were opened.

Since July 2001, the Finance and Capital Market Commission (FCMC) has served as the GOL’s unified public financial services regulator, overseeing commercial banks and nonbank financial institutions, the Latvian Stock Exchange, and insurance companies. The Lottery and Gambling Supervision Inspection Service (under the Ministry of Finance) supervises the gambling sector, and the currency exchange sector is supervised by the Bank of Latvia. The FCMC has approved guidelines for identifying customers and unusual and suspicious transactions as well as guidance on the internal control mechanisms that financial institutions should have in place. It has advised financial institutions to pay much closer attention to transactions involving the Financial Action Task Force (FATF)-designated list of Non-Cooperative Countries and Territories or NCCTs.

Financial institutions have the ability to freeze accounts for an unlimited amount of time. If a financial institution finds the activity of an account questionable, it may close the account on its own initiative. If the institution considers the activity undesirable but not suspicious, there is no obligation to file a suspicious transaction report with the Control Service.

Latvia continues to address the issue of offshore investments. Information on offshore company owners had been confidential. A commercial law, effective January 2002, now requires more information on the branches of offshore companies in Latvia. The law requires that at least half the board members of such companies be permanent residents of Latvia, parent companies must submit their annual reports to a new commercial register, and changes in the parent companies’ authorized personnel in Latvia must likewise be reported, in order to facilitate checking suspicious transactions.

Reportedly, interagency cooperation between Latvian law enforcement agencies tends to be best at the highest governmental levels, but weaker at the working level due to lack of financial, material, and human resources. The investigative and gathering of evidence processes need streamlining. Two teams were created to work only on money laundering investigations. One was formed at the Latvian Finance Ministry (the Financial Police), the other at the Latvian Interior Ministry (the Economic Police). The latter has been operational since March 2002. To date, there have been no criminal convictions and no forfeitures of illicit proceeds based on money laundering.

The GOL has initiated a number of measures aimed at combating the financing of terrorism, and became a party to the UN International Convention for the Suppression of the Financing of Terrorism (November 14, 2002), as well as to five other international conventions on combating terrorism. Regulations have been adopted regarding the implementation of sanctions imposed by UNSCR 1267 and 1333. Regulations of the Cabinet of Ministers No. 437 “On the Sanction Regime of the United Nations Security Council against the Afghan Islam Emirates in the Republic of Latvia” guides the implementation of the sanctions imposed by the above-referenced UNSCRs. Latvia already had a mechanism for freezing financial resources or other property.

The Law on Credit Institutions has been supplemented with a new provision for suspected terrorist cases. The provision allows for police to obtain information from credit institutions during the operative stage, prior to the initiation of a criminal case. In addition, in July 2003, the government adopted Regulation 387 on Countries and International Organizations that Issue Lists of Persons Suspected of Being Involved with Terrorist Acts, which allows the FIU to order a credit or financial institution to freeze suspected terrorist funds. Latvia, however, still lacks clear legal authority for asset seizures and forfeitures associated with financial crimes. The government has formed, under the leadership of the Control Service, an inter-ministerial working group to propose legislative changes to enable seizures and forfeitures resulting from both criminal and civil proceedings.

Amendments to the AML law have been in force since February 2002, which, among other things, provide for: 1) recognizing terrorism as a predicate offense for money laundering, 2) classifying financial resources or other property as proceeds derived from crime if they are directly or indirectly controlled or owned by a physical or juridical person included in the terrorist watch list, 3) making the Latvian FIU the authority that disseminates information on the watch list to credit and financial institutions, 4) giving the FIU authority to demand that credit and financial institutions suspend debit operations in the accounts of such persons or suspend movement of other property of such persons for up to six months, and 5) giving the FIU the authority to cooperate with foreign or international antiterrorism agencies concerning issues of control over the movement of financial resources or other property linked to terrorism.

Since September 11, 2001, Latvian authorities have taken concrete steps to implement the above regulations. They have given considerable effort to tracing transactions executed by terrorists or their accomplices. Other practical measures include organizing relevant training courses for personnel in financial institutions, creating a special antiterrorism information network within the financial system, nominating a person to deal with antiterrorism issues at the FIU, and establishing an FIU reporting system and procedures concerning terrorist finances.

Latvia participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-money Laundering Measures (MONEYVAL), and, as a member, underwent a mutual evaluation in March 2000 that resulted in many of the aforementioned changes. The second round of evaluations was completed in 2002, and Latvia will account for the results before the MONEYVAL committee in May 2004. Latvia ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of Proceeds from Crime in 1998, and the Council of Europe Criminal Law Convention on Corruption in December 2001. A Mutual Legal Assistance Treaty has been in force between the United States and Latvia since 1999. Latvia is a party to the 1988 UN Drug Convention, and in December 2001, ratified the UN Convention against Transnational Organized Crime.

The Control Service has been a member of the Egmont Group since 1999 and has cooperation agreements on information exchange with FIUs in Belgium, Bulgaria, the Czech Republic, Estonia, Finland, Italy, Lithuania, Slovenia, and Poland. In addition, Latvia has signed multilateral agreements with 10 accession countries for automatically exchanging information between the European Union financial intelligence units using FIU.NET.

The GOL should continue to research ways to improve cooperation between Latvian law enforcement agencies at the working level, and strengthen its capacity and record in aggressively prosecuting, and convicting, those involved in financial crimes. Latvia’s success in combating money laundering will depend on its perseverance and political will to combat corruption and organized crime. The GOL should adopt and implement cross-border currency controls, pass asset seizure and forfeiture legislation, and regulate its bureaux de change and its gaming industry as well as the offshore companies that it licenses. Although the GOL believes its existing laws are adequate to prosecute terrorist financing cases, this belief has not been tested. The GOL should, therefore, specifically criminalize terrorist financing to ensure adequate legal tools are in place to successfully prosecute such cases.

Lebanon

Since the 1950s, Lebanon has been a leading hub for banking activities in the Middle East. In the past decade, the strength of the country’s banking sector has increased significantly. As evidence to this strength, deposits have soared and the number of banks has flourished. By the end of 2001, total deposits exceeded $40 billion and the number of banks—despite numerous mergers and acquisitions—had reached 69, with over 800 branch offices, in a country with an estimated population of about four million. Combined with the tradition of bank secrecy, the extensive use of foreign currency (particularly dollars), the influx of remittances from expatriate workers, and lax enforcement of money laundering laws, this plethora of banks allows for an environment conducive to laundering money from sources that include narcotics, counterfeiting, smuggling, evasion of international sanctions as well as of domestic tax and currency regulations, and other organized criminal activity.

In 2003, Lebanon made significant progress in institutionalizing its anti-money laundering efforts, which culminated in the Financial Action Task Force’s (FATF’s) removal of Lebanon from the list of noncooperative countries or territories (NCCT) in June 2002. With its removal from the NCCT list, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) advisory which had instructed all U.S. financial institutions to “give enhanced scrutiny” to all transactions involving Lebanon was also lifted. Lebanon’s efforts to meet the FATF’s recommendations include criminalizing money laundering, establishing currency-reporting guidelines, and creating a financial intelligence unit (FIU).

In April 2001, Lebanon adopted Law No. 318, which created a framework for the lifting of bank secrecy, broadening the criminalization of money laundering beyond drugs, mandating suspicious transaction reporting, requiring financial institutions to obtain customer identification information, and facilitating access to banking information and records by judicial authorities. The provisions of Law No. 318 expand the type of financial institutions subject to the provisions of the Banking Secrecy Law of 1956, to include institutions such as exchange offices; financial intermediation companies; leasing companies; mutual funds; insurance companies; companies promoting, building, and selling, real estate; and dealers in high-value commodities. In addition, companies engaged in transactions for high-value items (precious metals, antiquities) and real estate are obligated to report suspicious transactions in accordance with Law 318. Charitable and nonprofit organizations must be registered with the Ministry of Interior, are required to have proper “corporate governance.” including audited financial statements, and are subject to the same suspicious reporting requirements.

All financial institutions and money exchange houses are regulated by the Central Bank (Banque du Liban). In May 2001, Law 318 was further delineated by Banque du Liban to require financial institutions to identify all clients, including transient clients; maintain records of customer identification information; request information about the beneficial owners of accounts; conduct internal audits; and exercise due diligence in conducting transactions for clients.

Law No. 318 also established a financial intelligence unit (FIU), called the Special Investigation Commission (SIC), which is an independent entity with judicial status that can investigate money laundering operations and monitor compliance of banks and other financial institutions with the provisions of Law No. 318. SIC serves as the key element of Lebanon’s anti-money laundering regime and has been the critical driving force behind the implementation process.

The SIC is responsible for receiving and investigating reports of suspicious transactions. SIC is the only entity with the authority to lift bank secrecy for administrative and judicial agencies, and it is the administrative body through which foreign requests for assistance are processed.

During 2003, incorporating the FATF recommendations, Lebanon adopted additional measures to strengthen efforts to combat money laundering and terrorism finance. Furthermore, anti-money laundering units were set up in customs and the police. In July 2003, Lebanon joined the Egmont Group of financial intelligence units.

In an effort to more effectively combat money laundering and terrorist financing, Lebanon adopted Law 547 in October 2003, which expanded article one of Law 318, making illicit any funds resulting from the financing or contribution to the financing of terrorism or terrorist acts or organizations, based on the definition of terrorism as it appears in the Lebanese penal code (which distinguishes between “terrorism” and “resistance”). The new bill also criminalizes acts of theft or embezzlement of public or private funds, or their appropriation by fraudulent means, counterfeiting, or breach of trust, for banks and financial institutions, or falling within the scope of their activities. It also criminalizes counterfeiting of money, credit cards, debit cards, or charge cards, or any official document or commercial paper, including checks. Law 553 added an article to the penal code, article 316 on terrorist financing. This article stipulates that any person who voluntarily, either directly or indirectly, finances or contributes to terrorist organizations or terrorists acts is punishable by imprisonment with hard labor for a period not less than three years and not more than seven years, as well as a fine not less than the amount contributed but not exceeding three times that amount.

Since its inception, Lebanon’s SIC has been active in providing support to international case referrals. From January through November 2003, the SIC investigated over 250 cases involving allegations of money laundering and terrorist financing activities. Twenty-eight of these cases were related to terrorist financing, of which five were local terrorism financing cases. Bank secrecy regulations were lifted in 127 instances, and three cases relating to money laundering were transmitted by the Supreme Court state prosecutor to the criminal court for trial. The cases included 22 requests from the United States. SIC circulates to all financial institutions the list of individuals and entities included on the UN 1267 sanctions committee’s consolidated list of entities linked to Usama Bin Ladin, al-Qaida, or the Taliban.

Offshore banking is not permitted in Lebanon. Current legislation stipulates that assets proven by a final court ruling to be related to or proceeding from money laundering will be confiscated. In addition, conveyances used to transport narcotics will be seized. Legitimate businesses established from illegal proceeds after passage of Law 381 are also subject to seizure. The SIC has signed a number of memoranda of understanding with some FIUs concerning anti-money laundering and combating terrorist financing. The SIC closely cooperates with competent U.S. authorities on exchanging records and information within the framework of Law 318. Lebanon has endorsed the Basel Core Principles and is in the process of implementing them. Lebanon is party to the 1988 UN Drug Convention (although it has expressed reservations concerning several sections of the Convention relating to bank secrecy), and in December 2001 it signed the UN Convention against Transnational Organized Crime.

Lebanon has made significant progress in its efforts to develop an effective anti-money laundering and terrorism finance regime. Although there are signs of interagency cooperation, more efficient coordination between SIC and other concerned parties, such as police and customs, could yield significant improvements in investigations or in their initiation. In addition, Lebanon should focus greater attention and resources towards achieving successful prosecution of money laundering offenses. Lebanon should also examine the role of its expatriate community in Africa and Latin American and its role in alternative remittance systems, including the misuse of precious metals and gems. Finally, Lebanon should sign the UN International Convention for the Suppression of the Financing of Terrorism.

Lesotho

Lesotho does not have a significant money laundering problem. There is currently no legislation criminalizing money laundering or terrorist financing. In 2003, the Government of Lesotho (GOL) finished drafting an all-encompassing “Money Laundering and Proceeds of Crime” bill that is expected to be tabled before parliament in 2004.

Lesotho requires banks to know the identity of their customers and to report suspicious transactions to the Central Bank. The GOL also requires banks to report all transactions exceeding 100,000 maloti (approximately $16,000) to the Central Bank. Financial institutions are also required to maintain, for a period of ten years, all necessary records to enable them to comply with information requests from competent authorities.

No cases of money laundering were reported within the past year.

The GOL created a multisectoral committee to assist in its implementation of UNSCR 1373. The Commonwealth Secretariat is assisting members of the committee to formulate national policy and draft legislation on terrorism, and has sponsored related training for countries of the region.

Lesotho is a party to the UN International Convention for the Suppression of the Financing of Terrorism, the 1988 UN Drug Convention, and the UN Convention against Transnational Organized Crime. Lesotho recently joined the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the FATF-style regional body.

Lesotho should criminalize money laundering and terrorist financing and should develop a viable anti-money laundering regime.

Liberia

Liberia is vulnerable to money laundering because it has been a major transshipment point for illegal diamond smuggling and illegal arms trading. Liberia is also a growing transit country for narcotics on their way to Europe from Nigeria. During the Liberian civil war, which was declared officially over on August 11, 2003, diamonds were used on a broad scale to purchase arms and fund the conflict. However, the exploitation and export of Liberia’s natural resources, particularly timber and diamonds, has continued. The Liberian government has not met the conditions for becoming a participant in the Kimberley Process Certification Scheme, which requires that certain minimum standards be met in order to assure that diamonds being traded are not conflict diamonds and their origin is known. Diamond traders, including Eastern Europeans and Lebanese, often travel to Monrovia to purchase rough diamonds on the black market and then smuggle and export them out of Liberia, documenting them as coming from some other source, in violation of a UN Security Council Resolution prohibiting all trade in Liberian rough diamonds. The under valuation of diamond exports and use of double invoicing are common tactics employed to transfer value out of the country, often in conjunction with other illicit activities. There continue to be press allegations that al-Qaida has exploited the West African diamond trade, but such a connection has not been conclusively established.

When entering the country, amounts of money that exceed $10,000 must be declared to customs officers upon entering the country. Cash in excess of $7,500 must be declared on departure. However, these regulations are not regularly enforced, and widespread corruption exists in Liberia’s customs authorities. Money laundering is a criminal offense in Liberia. Since January 2003, there have not been any arrests and/or prosecutions for money laundering or terrorist financing.

Liberia’s offshore activity is concentrated in the ship registry business, which is managed by the Liberian International Ship and Corporate Registry (LISCR), based in Virginia. The LISCR also manages Liberia’s corporate registry. Offshore companies are permitted to issue bearer shares.

In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar. Liberia is a member of GIABA. Liberia is not a party to the 1988 UN Drug Convention. In 2003, Liberia became a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Liberia should enact a comprehensive anti-money laundering regime that criminalizes money laundering and terrorist financing. Liberia should also enforce its cross-border reporting requirements, take steps to properly regulate its diamond industry, and become a participant in the Kimberley Process. Liberia should become a party to the UN Convention against Transnational Organized Crime.

Liechtenstein

The Principality of Liechtenstein’s well-developed offshore financial services sector, relatively low tax rates, loose incorporation and corporate governance rules, and tradition of strict bank secrecy have contributed significantly to the ability of financial intermediaries in Liechtenstein to attract funds from abroad. These same factors have historically made the country attractive to money launderers. Rumors and accusations of misuse of Liechtenstein’s banking system persist in spite of the progress the principality has made in its efforts against money laundering.

Liechtenstein’s financial services sector includes 17 banks, three nonbank financial companies, and 16 public investment companies, as well as insurance and reinsurance companies. Ninety percent of the market is covered by the three largest banks. Liechtenstein’s 230 licensed fiduciary companies and 60 lawyers serve as nominees for, or manage, more than 75,000 entities (mostly corporations, Anstalts, or trusts) available primarily to nonresidents of Liechtenstein. Approximately one third of these entities hold the controlling interest in other entities, chartered in countries other than Liechtenstein. Laws permit corporations to issue bearer shares. Like many of its neighbors, Liechtenstein has bearer passbook accounts as well. Although the owner is identified at the opening of the account, and due diligence practices should force any bearer to identify him/herself at the counter, there is still the possibility of transferability. The Government of Liechtenstein (GOL) has decided that bearer accounts will no longer be opened.

Narcotics-related money laundering has been a criminal offense in Liechtenstein since 1993, but the first general anti-money laundering legislation was added to Liechtenstein’s laws in 1996. Although the 1996 law applied some money laundering controls to financial institutions and intermediaries operating in Liechtenstein, the anti-money laundering regime at that time suffered from serious systemic problems and deficiencies.

Following the Financial Action Task Force’s (FATF) 2000 identification of Liechtenstein as noncooperative in international efforts to fight money laundering (NCCT), the U.S. Treasury Department issued an advisory instructing U.S. financial institutions to “give enhanced scrutiny” to all transactions involving Liechtenstein. The GOL took legislative and administrative steps to improve its anti-money laundering regime. Specifically, the GOL amended its Due Diligence Act to incorporate “know your customer” principles that require banks and all other financial intermediaries to identify their clients and the beneficial owners of accounts. In addition, financial intermediaries must set up profiles of their clients, which go beyond identification to include their assets and how the clients obtained them. These laws also address the independence of accountants reporting on anti-money laundering compliance.

The GOL has made progress in strengthening its anti-money laundering regime and implementing recent reforms. It has put measures into place that implement the improvements cited in the 2nd European Union (EU) Directive. Attorneys have become obligated entities, as have dealers in high-value goods, and the practice of “tipping off” is prohibited. The list of predicate offenses for money laundering has been expanded through Article 165 of the Criminal Code. Article 165 also criminalizes laundering one’s own funds, and imposes higher penalties for money laundering. However, negligent money laundering is not addressed.

Liechtenstein has increased the resources, both human and financial, devoted to fighting money laundering. Domestically, an inter-ministerial body called the Money Laundering Coordination Group meets quarterly to work on coordination between agencies. The GOL has also improved its international cooperation provisions in both administrative and judicial matters, and has committed all financial institutions (banks and nonbank intermediaries) to obtain full identification of accounts’ beneficial owners. To comply with legislation that froze unidentified accounts on January 1, 2002, trustees and other financial intermediaries identified and filed client profiles with banks for over 45,000 customers, or approximately 97.2 percent of the total unidentified accounts, by December 31, 2001.

The FATF recognized in June 2001 that Liechtenstein had remedied the serious deficiencies in its anti-money laundering regime, and removed Liechtenstein from the FATF NCCT list. Similarly, the U.S. Treasury Department withdrew its advisory against Liechtenstein. On July 24, 2002, the FATF informed the GOL that it would end its monitoring of the country, thus recognizing the measures taken against money laundering.

Liechtenstein’s financial intelligence unit (FIU), the Einheit fuer Finanzinformationen (EFFI), became operational in March 2001, and a member of the Egmont Group in June 2001. The EFFI works closely with the prosecutor’s office and law enforcement authorities, as well as with a new unit of the National Police that deals with economic and organized crime. The FIU began operations on the basis of an executive order, but Liechtenstein formally adopted a law in May 2002 providing a statutory basis for the FIU’s authority. EFFI also has responsibility for analysis and transactions in the countering of terrorism financing.

Originally, the Financial Supervision Authority (FSA) was responsible for supervising all banks and fiduciaries licensed to operate in Liechtenstein. The FSA had the authority to conduct on-site spot checks and to request information as required. To remedy problems that arose with the implementation of the laws, a Due Diligence Unit (SSP) was also established to supervise compliance with anti-money laundering regulations. In 2002 the GOL assigned the SSP to handle all supervisory responsibilities, removing them entirely from the FSA. Currently, supervisory responsibility is split between EFFI and the SSP. The SSP has completed over 80 audits covering over 25,000 banking relationships, and works effectively and closely with the EFFI, the Office of the Prosecutor, and the police. The GOL is currently working on reorganizing this system via the establishment of an integrated regulatory unit, combining all sectors under one roof. The legislation for the new regulatory unit is expected to be in force sometime in 2004, with the actual unit to begin work in 2005.

The EFFI has developed a system for suspicious transaction reporting (STR) analysis that involves internal examination, consultation with police, and a ten-day period to decide whether to forward the report to prosecutors for further action. EFFI has set up a database to analyze the STRs and has access to various governmental databases, although it cannot seek additional financial/bank information unrelated to a filed STR. Currently, banks, insurers, financial advisers, postal services, bureaux de change, attorneys, financial regulators, and casinos are required to file STRs. The GOL also reformed its STR system to permit reporting for a much broader range of offenses and based on a suspicion rather than the previous standard of “a strong suspicion.” Nonetheless, the new law continues to require that financial institutions undertake some “clarification” of transactions before making a report, and there is some concern that this may be inhibiting the level of reporting or involve some risk of “tipping off”. Another problem is that if a transaction is not completed, it is at the institution’s discretion whether to report it.

The reforms to Liechtenstein’s anti-money laundering regime have had positive results. In 2002, EFFI received over 200 STRs, compared with 158 in 2001 and 67 in 2000. Other financial intermediaries, such as attorneys, investment companies, insurance companies, and the postal service, filed 11 of the 264 STRs received in 2002. As in the preceding year, fraud, money laundering, and embezzlement were the most prevalent types of offense. The number of STRs involving fraud increased from 38 percent to 48 percent, while the STRs involving money laundering and embezzlement remained almost stable, at 27.7 percent and 9.9 percent, respectively.

The relatively small number of STRs filed by financial institutions in Liechtenstein has generated several money laundering investigations. 184 STRs were sent to the public prosecutor’s office, which has doubled its staff to better handle the caseload, and three indictments resulted from the investigations. Liechtenstein has not adopted the EU-driven policy of reversing the burden of proof, i.e., making it necessary for the defendant to prove that he had acquired assets legally instead of the state’s having to prove he had acquired them illegally, but has established a kind of compromise policy. Most of the customers involved in money laundering activities were from Switzerland, Germany and Italy, although the EFFI reports that $667 million worth of suspicious money originated from the United States, followed by France and Russia with $533 million and $146 million, respectively. On March 21, 2002, the Liechtenstein Ministry of Justice filed a complaint against Gabriel Marxer, a former member of the Liechtenstein Parliament, on the grounds he participated in the laundering of $6.5 million originating from United States businessman James C. Sexton. United States authorities initiated the investigation as part of a large anti-fraud operation. Police authorities arrested eight people and blocked two bank accounts.

A special unit of eight to ten police, known as EWOK, was established specifically to address money laundering crimes. When authorized to do so by a Special Investigative Judge, the police can use Special Investigative Measures.

In late 2002, the International Monetary Fund (IMF) responded to a GOL invitation to assess its financial sector. The IMF’s assessment was overall a positive one, noting that deficiencies that existed with staffing throughout Liechtenstein’s agencies (particularly the FSA and the Insurance Supervisory Authority) were due to lack of personnel and not the competence and professionalism of the existing staff. The IMF also suggested that legal liability in money laundering be extended to legal entities, and found that while the then current legislation addressed terrorism financing to an extent, it was not completely covered.

Liechtenstein has in place legislation to seize, freeze, and share forfeited assets with cooperating countries. The Special Law on Mutual Assistance in International Criminal Matters gives priority to international agreements. Money laundering is an extraditable offense, and legal assistance is granted on the basis of dual criminality. Article 235A provides for the sharing of confiscated assets; this has been used in practice. Liechtenstein has issued ordinances to implement UNSCR 1267 and UNSCR 1333. Amendments to the ordinances in October and November 2001 allow the GOL to freeze the accounts of individuals and entities that were designated pursuant to these UNSCR resolutions. The GOL updates these ordinances regularly. On November 7, 2001, law enforcement entities in Switzerland, Liechtenstein, and Italy conducted raids and seized documents relating to Al Taqwa and Nada Management. Liechtenstein froze five Al Taqwa accounts and investigated five companies. In connection with these actions, the GOL responded to a mutual legal assistance request from Switzerland and opened a domestic investigation based on money laundering and organized crime. The total value reported frozen to date (December 2003) by the Liechtenstein authorities based on UNSCR 1267 is $145,300 (SFr 182’000). According to the 2003 Liechtenstein Terrorism Report to the UN, six Taliban-related entities have been located in Liechtenstein. Their assets have been frozen and overlap with the $145,300 already reported above.

Liechtenstein is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) and is a party to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. On July 9, 2003, Liechtenstein deposited the instrument of ratification of the UN International Convention for the Suppression of the Financing of Terrorism. The Convention was later enforced on August 8, 2003. Liechtenstein has now ratified all twelve relevant international conventions and protocols. The implementation of the Convention required a series of amendments to Liechtenstein law, which were adopted by Parliament on May 15, 2003. The legal package includes a new catchall criminal offense for terrorist financing along with amendments to the Criminal Code, the Code of Criminal Procedure, and the Due Diligence Act. Final implementing regulations are expected to be finalized in early 2004. Liechtenstein has also signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Liechtenstein has endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision” and has adopted the EU Convention on Combating Terrorism.

A Mutual Legal Assistance Treaty (MLAT) between Liechtenstein and the United States entered into force on August 1, 2003. The EFFI has in place a memorandum of understanding (MOU) with the Belgian FIU. Further MOUs are being prepared with Switzerland, France, Italy, Croatia, Poland, San Marino, and Lithuania. In addition, preliminary talks are being held with Russia and Germany.

Liechtenstein has made consistent progress in addressing previously noted shortcomings in its anti-money laundering regime. The GOL should continue to build upon the foundation of its evolving anti-money laundering/antiterrorist financing regime. The GOL should eliminate all bearer passbook accounts, require reporting of cross-border currency movements and insist that trustees and other fiduciaries comply fully with all aspects of the new anti-money laundering legislation and attendant regulations, as well as be obliged to report attempted transactions. EFFI should be given access to additional financial information. While Liechtenstein recognizes the rights of third parties and protects uninvolved parties in matters of confiscation, the GOL should distinguish between bona fide third parties and others.

Lithuania

Lithuania is not a regional financial center. However, its geographic location and limited experience in regulating financial institutions and transactions makes it attractive for money launderers. Although some money laundering is related to narcotics proceeds, most is tied to tax evasion, smuggling, illegal production and sale of alcohol, capital flight, and profit concealment. It is estimated that the shadow economy accounts for some 20 percent of the total economy. There is a significant cross-border flow of money from neighboring countries and from China, often en route to offshore accounts and companies. Large-scale laundering via commercial banks carries significant risk, but money laundering outside the banking system is widespread due to loopholes in the tax system, corruption, and the prevalence of alternative remittance systems.

Lithuania criminalized the act of money laundering in 1997 with the Law on the Prevention of Money Laundering (LPML), which entered into force in 1998. The LPML requires all financial institutions (credit institutions, brokerage enterprises and leasing companies) to report suspicious or unusual transactions and to identify customers whose transactions exceed 50,000 litas (approximately $17,500). The LPML also includes provisions for maintaining a register of customers who engage in transactions that exceed 50,000 litas, and the retention of certain documents for a minimum of ten years. Individuals must declare to Customs cash they transport into or out of the country in excess of LTL 10,000 ($3,677).

During 2003 Lithuania took significant steps to construct a more effective anti-money laundering regime. On November 25, 2003, the Lithuanian Parliament adopted the Amendment to the Law on the Prevention of Money Laundering (the LPML Amendment), which came into force on January 1, 2004, in order to comply with the obligations specified in the European Union’s Second Money Laundering Directive and Convention against Financing of International Terrorism as well as the FATF Forty Recommendations.

The LPML Amendment extends to additional financial institutions, including post offices, lawyers, high value goods dealers, notaries and insurance companies, the requirement to report suspicious or unusual activity. It also expands the list of professions that have to implement preventive measures against money laundering to include auditors, accountants, tax advisors, enterprises providing bookkeeping or tax consultation services, lawyers and their assistants, and people who are engaged in commercial or economic activity related to real estate, precious stones, metals, works of art, antiquarian cultural valuables, or other high value goods. The LPML Amendment also mandates a stricter customer identification policy for insurance companies and casinos.

The Central Bank of Lithuania (BOL) issues currency transaction reporting requirements and regulations and is required to share money laundering violation information with law enforcement and other state institutions upon request. Credit institutions (banks) are all privately owned and also function as bureaux de change. They must be licensed by the BOL and follow special record keeping requirements. The BOL has the authority to examine the books, records, and other documents of all financial institutions and casinos. The BOL then informs law enforcement authorities of any violations recorded during its examination. Nonbank financial institutions operate under guidelines similar to banks. Insurance and brokerage companies are under supervision by the Insurance and Brokerage Commission, which can execute administrative measures or revoke the company’s license.

The LPML specifies that suspicious and unusual transactions are to be reported to the Financial Crimes Investigation Service (FCIS) located in the Ministry of the Interior (formerly the Tax Police Department). The Money Laundering Prevention Division (MLPD) of the FCIS is Lithuania’s financial intelligence unit. The FCIS has 460 people assigned to ten regional units and one special unit. One hundred fifty of the 460 people are police officers and 220 people are County Auditors (for financial crimes and tax crimes) and other financial experts. From January 1998 to June 2003, the MLPD sent a total of 730 cases (200 in 2002, from approximately 90 percent of the banks) to the regional units for investigation. Sixty-two criminal cases (of which 14 were initiated in 2002) were opened based on the financial reports, and 15 of the cases were investigated for money laundering violations. Investigators initiated four pretrial investigations into money laundering in 2003.

In addition to suspicious transaction reports (STRs), the MLPD receives currency transaction reports (CTRs) for currency exchanges over 20,000 litas (approximately $7,000). There were 83 STRs filed with the MLPD in 2001, 156 STRs and 43,164 CTRs in 2002, and 153 STRs and 30,508 CTRs for the period January 1 through October 31, 2003. There are a total of approximately 70,000 CTRs and 480 STRs on file with the MLPD.

On May 1, 2003, the new Criminal Code of the Republic of Lithuania came into force, replacing the 1961 Criminal Procedures Code. Article 216 of the Code increases the role of prosecutors and closes loopholes with regard to corruption. Under the new procedure code, the role of prosecutors increases. Under the previous code the police could freeze/seize assets, but now they must first go to the prosecutors with the named property and ask for authority to freeze/seize the assets of a suspected crime. The suspect may appeal to a higher court, and the decision of the Supreme Court is final. The LPML Amendment gives the FCIS the right to order reporting institutions to suspend a money transaction for 48 hours if suspicion arises that it may be related to money laundering or terrorist financing, while a preliminary investigation or analysis is conducted. The reporting institutions are obligated to refrain from carrying out money transactions if they know or suspect they may be related to money laundering, until they notify the FCIS. The FCIS froze over LTL 52 million ($19.1 million) in assets in 2003, up from LTL 35.1 million ($12.9 million) the previous year (In 2003, the Court did not order the forfeiture of drug-related assets. There are no figures available for the total value of forfeited crime-related assets.) The police state that they lack resources to perform seizures of property. Lithuania does not share crime-related assets with other governments.

Article 250 of the Lithuanian Criminal Code criminalizes terrorist financing. Lithuania also introduced the concept of terrorist financing in the LPML Amendment that includes a short definition of terrorist financing and preventive measures. The preventive measures obligate the reporting institutions to notify the FCIS immediately about money transactions (both cash and noncash) that might be related to terrorist financing, irrespective of the amount of the transaction. The LPML Amendment also includes terrorist financing as a predicate offense for money laundering.

On May 15, 2003, the Governmental Decree “On the Approval of the Criteria in Observance Whereof a Monetary Operation is Considered Suspicious” was supplemented. One of the new criteria pertains to the prevention of terrorism. It states that if data identifying the customer of a credit institution, a representative of the customer conducting a transaction, or the subject on behalf of whom the monetary operation is being conducted, correspond to the data about persons related to terrorist activity, and included on the lists produced by the respective authorities of foreign countries and international organizations, such person is to be considered suspicious, and treated accordingly. The State Security Department and the FCIS circulated to financial institutions the names of all terrorist individuals and entities on the UN 1267 Sanctions Committee’s consolidated asset freeze list and/or whom the USG has designated and whose assets it has frozen. To date, the government has provided no indication that searches have yielded evidence of terrorist assets. Charitable and nonprofit entities do not play a role as conduits to finance terrorism. Alternative remittance systems reportedly do not exist in Lithuania.

Lithuania has signed memoranda on exchange of money laundering-related financial and intelligence information with the financial intelligence units of Belgium, Croatia, the Czech Republic, Estonia, Finland, Latvia, Bulgaria, Slovenia and Poland. The Lithuanian Tax Police Department, in charge of investigations of financial crimes, also has cooperation agreements with law enforcement agencies of Belarus, Georgia, Kazakhstan, Russia, and Ukraine. In May 2002, the Lithuanian parliament ratified an agreement with Germany on cooperation in work against organized crime, terrorism, and other serious crimes. There is a mutual legal assistance treaty (MLAT) between the United States and Lithuania, which entered into force in 1999. Lithuania voluntarily exchanges with the U.S. information regarding on-site examinations of banks and trust companies. The FCIS joined the Egmont Group’s Secure Web (ESW) in December 2003.

Lithuania is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism. Lithuania is also a party to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. Lithuania is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). The MLPD is a member of the Egmont Group.

Lithuania should continue its efforts to enhance its anti-money laundering/antiterrorist financing regime. In particular, Lithuania should ensure its asset forfeiture regime is adequate and should consider enactment of measures to allow asset sharing with third party jurisdictions that participate in the investigation of international money laundering cases. Lithuania also should ensure nongovernmental organizations, including charities, are adequately supervised and regulated to prevent their abuse by criminal or terrorist groups.

Luxembourg

Despite its standing as the smallest member of the European Union (EU), Luxembourg is the seventh-largest financial center in the world, with more than 175 international financial institutions that benefit from the country’s strict bank secrecy laws and operate a wide range of services and activities. Luxembourg is currently the third largest domicile for investment funds (behind the United States and France), with over $950 billion in net assets managed by the investment fund industry. Luxembourg is considered an offshore financial center. Foreign-owned banks account for around 94 percent of total bank assets, the majority of which are subsidiaries of German, French and Belgian banks. For this reason, and given these countries’ proximity to Luxembourg, a significant share of suspicious transaction reports in Luxembourg are generated from transactions involving clients in these countries. Luxembourg currently has no cross-border currency reporting requirements.

As of December 2003, 180 banks were operating. As of September 2003, Luxembourg had 1,912 “undertakings for collective investment” (UCIs), or mutual fund companies, and about 900 investment companies. There were 13,819 holding companies, 95 insurance companies and 264 reinsurance companies. The Luxembourg stock exchange has over 23,000 international securities listed. The size and sophistication of Luxembourg’s financial center create opportunities for money laundering. Although Luxembourg bank secrecy rules may appear vulnerable to abuse by those transferring illegally obtained assets, under Luxembourg law the secrecy rules are waived in the prosecution of money laundering and other criminal cases.

Luxembourg has a well-developed legal and regulatory system to combat money laundering, and financial sector laws are modeled to a large extent after EU directives. The Law of 7 July 1989, updated in 1998, serves as Luxembourg’s primary anti-money laundering law, criminalizing the laundering of proceeds for an extensive list of predicate offenses. The Law of 5 April 1993 implements the EU’s 1991 First Anti-Money Laundering Directive, (Directive on the Prevention of the Use of the Financial System for the Purpose of Money Laundering, 91/308/EEC), and includes customer identification, record keeping and suspicious transaction reporting requirements. The Act of 1 August 1998 extends anti-money laundering provisions to notaries, casinos and external auditors; and adds corruption, weapons offenses and organized crime to the list of predicate offenses for money laundering. Among other things, the Act of 10 June 1999 extends anti-money laundering provisions to accountants.

In July 2003, Luxembourg’s parliament passed a multifaceted antiterrorism financing law known as Projet de Loi 4954, designed to strengthen Luxembourg’s ability to fight terrorism and the financing of it. Aside from ratifying the UN International Convention for the Suppression of the Financing of Terrorism, the law defined terrorist acts, terrorist organizations, and terrorism financing in the Luxembourg Criminal Code for the first time. In addition, the specific crimes, as defined, will carry penalties of 15 years to life. The law also extends the definition of money laundering to incorporate new terrorism-related crimes, and, with regard to Special Investigative Measures, provides an exception to notification requirements in selected wiretapping cases.

Luxembourg is presently in the domestic implementation phase of the EU’s Second Anti-Money Laundering Directive (2001/97/EC). In May 2003, a draft bill, Projet de Loi 5165, which implements that directive, was submitted for consideration. Although Luxembourg’s laws were written mainly to harmonize with the Directive, the draft bill went beyond the Directive by extending the list of covered entities to include legal services providers, certain real estate professionals, high-value goods dealers and insurance companies; and by lowering the value of transactions subject to anti-money laundering rules to 10,000 euros from the EU requirement of 15,000 euros. Government of Luxembourg (GOL) officials believe that the law will be passed by June 2004.

The Cellule de Renseignement Financier FIU-LUX (formerly known as Parquet Economique et Financier Luxembourg/Service Anti-Blanchiment) serves as Luxembourg’s financial intelligence unit (FIU), receiving and analyzing STRs from the financial sector. The Commission de Surveillance du Secteur Financier (CSSF) is an independent government body that serves as the oversight authority for banks and the securities market, and supervises professionals covered by the country’s anti-money laundering laws. The Commissariat aux Assurances (CAA) has oversight authority over the insurance sector, and the Luxembourg Central Bank oversees the payment and securities settlement system. The identities of the beneficial owners of accounts are available to all entities involved in oversight functions, including registered independent auditors, in-house bank auditors, and the CSSF.

The GOL is actively engaged in efforts to combat money laundering and to further develop its effectiveness in this area. Under the direction of the Ministry of the Treasury, the CSSF has established a public-private committee comprising supervisory authorities, law enforcement authorities, the FIU, and representatives of financial professions and other professions within the scope of EU and Luxembourg anti-money laundering rules. The committee, the Comite de Pilotage Anti-Blanchiment (COPILAB) meets monthly to develop a common approach to strengthen Luxembourg’s anti-money laundering regime.

No distinctions are made in Luxembourg laws and regulations between onshore and offshore activities. Foreign institutions seeking establishment in Luxembourg must demonstrate prior establishment in a foreign country and meet stringent minimum capital requirements. Companies must maintain a registered office in Luxembourg, and background checks are performed on all applicants. A government registry publicly lists company directors, and although nominee (anonymous) directors are not permitted, bearer shares are permitted. Banks must undergo annual audits under the supervision of the CSSF (CSSF reg. No. 27). Independent auditors have established a “peer review” procedure in compliance with a EU recommendation on quality control for external audit work to assure the adherence to international standards on auditing.

Suspicious transaction reporting requirements apply not only to banks, but also to auditors, accountants, notaries, and life insurance providers. Financial institutions are required to retain records for a period of five years. Individuals aiding government officials in money laundering investigations are protected by law. As of mid-December 2003, there were 804 STRs filed (up from 631 in 2002 and 431 in 2001). There are currently two major ongoing money laundering investigations, which have led to one arrest to date. There is a consistently high level of cooperation between U.S. and Luxembourg law enforcement authorities on money laundering investigations.

Since September 11, 2001, Luxembourg has committed itself to fighting the financing of terrorism. Luxembourg authorities have been actively involved in bilateral and international fora and training in order to become more effective at fighting the financing of terrorism. Dialogue and other bilateral proceedings between the GOL and the United States have been particularly extensive. The GOL also has actively disseminated information concerning suspected terrorists throughout its institutions in an effort to identify and freeze the assets of these individuals.

Upon request from the United States, Luxembourg froze the bank accounts of individuals suspected of involvement in terrorism. Luxembourg also froze eighteen accounts on its own. Five court challenges have been filed thus far by the account holders. During 2002, over $200 million in suspect accounts were frozen by Luxembourg authorities pending further investigations (most of which were not fruitful, and the assets were then released). Luxembourg authorities have not found evidence of the widespread use in Luxembourg of alternative remittance systems such as hawala, black market exchanges, or trade-based money laundering. Officials comment that existing anti-money laundering rules would apply to such systems, and no separate legislative initiatives are currently being considered to address them.

Luxembourg is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. In November 2003, Luxembourg ratified the UN International Convention on the Suppression of the Financing of Terrorism. Luxembourg laws facilitating international cooperation in money laundering include the Act of 8 August 2000, which enhanced and simplified procedures on international judicial cooperation in criminal matters, and the Law of 14 June 2001, which ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Luxembourg has a definitive system not only for the seizure and forfeiture of criminal assets, but also for the sharing of those assets with other governments.

Luxembourg is a member of the European Union, the Financial Action Task Force (FATF), and the Organization for Economic Cooperation and Development (OECD). The Luxembourg FIU is a member of the Egmont Group and has negotiated memoranda of understanding with several countries, including Belgium, Finland, France, Korea, Monaco, and Russia. Luxembourg and the United States have had a Mutual Legal Assistance Treaty (MLAT) since February 2001. Luxembourg’s Agency for the Transfer of Financial Technology (ATTF) has consistently provided training and acted as a consultant in money laundering matters to government and banking officials in countries whose regimes are in the development stage. Since 2001, ATTF has provided assistance to government and banking officials from Bosnia, Bulgaria, Croatia, Cape Verde, China, the Czech Republic, Egypt, Macedonia, Romania, Russia, and the Ukraine. The ATTF budget has grown steadily from approximately 700,000 euros in 2000, to nearly 2 million euros in 2003.

Luxembourg has enacted laws and adopted practices that help to prevent the abuse of its bank secrecy laws. The GOL should continue to strengthen enforcement to prevent international criminals from abusing Luxembourg’s financial sector and should continue its active participation in international fora. The GOL should give serious consideration to legislative amendments to address the continued use of bearer shares and the lack of cross-border currency reporting requirements.

Macau

Under the one country-two systems principle that underlies Macau’s 1999 reversion to the People’s Republic of China, Macau has substantial autonomy in all areas except defense and foreign affairs. Macau’s free port, lack of foreign exchange controls, and significant gambling industry create an environment that can be exploited for money laundering purposes. In addition, Macau is a gateway to China, and can be used as a transit point to remit funds and criminal proceeds to and from China. Macau has a small economy and is not a financial center. Its offshore financial sector is not fully developed.

The IMF conducted a financial sector assessment of Macau, and the results published in August 2002 stated that Macau was “materially noncompliant” with the money laundering principles of the Basel Committee’s “Core Principles for Effective Banking Supervision.” The assessment concluded that an anti-money laundering legal framework was in place in Macau, but recommended improvements in implementation and enforcement.

Since the IMF’s assessment, Macau has taken several steps to try to improve its institutional capacity to tackle money laundering. These will be helpful if they lead to greater legal enforcement. In October 2002, the Judiciary Police set up the Fraud Investigation Section. One of its key functions is to receive all suspicious transaction reports (STRs) in Macau and undertake subsequent investigations. In 2003, the Macau Special Administrative Region Government (MSARG) also prepared an administrative regulation establishing a financial intelligence unit. The FIU will be set up pending passage of the legislation. An interagency body consisting of representatives from the Monetary Authority of Macau, Macau Customs Service, Judicial Police, and other economic and law-enforcement agencies has been working on issues related to the FIU since 2002, according to Macau officials. The government also drafted new money laundering and terrorist financing bills which, if passed and enforced, would strengthen its efforts.

Macau’s financial system is governed by the 1993 Financial System Act and amendments, which lay out regulations to prevent use of the banking system for money laundering. It imposes requirements for the mandatory identification and registration of financial institution shareholders, customer identification, and external audits that include reviews of compliance with anti-money laundering statutes. The 1997 Law on Organized Crime criminalizes money laundering for the proceeds of all domestic and foreign criminal activities, and contains provisions for the freezing of suspect assets and instrumentalities of crime. Legal entities may be civilly liable for money laundering offenses, and their employees may be criminally liable.

The 1998 Ordinance on Money Laundering sets forth requirements for reporting suspicious transactions to the Judiciary Police and other appropriate supervisory authorities. These reporting requirements apply to all legal entities supervised by the regulatory agencies of the MSARG, including pawnbrokers, antique dealers, art dealers, jewelers, and real estate agents. There is no significant difference in the regulation and supervision of onshore versus offshore financial activities.

The gaming sector and related tourism are critical parts of Macau’s economy. Taxes from gaming comprised 63 percent of government revenue in 2002, while tourism and gaming combined accounted for 40 percent of GDP in 2001. The MSARG ended a long-standing gaming monopoly early in 2002 when it awarded concessions to two additional operators. These two firms have yet to begin gaming operations. Under the old monopoly framework, organized crime groups were, and continue to be, associated with the gaming industry through their control of VIP gaming rooms, and activities such as racketeering, loan sharking, and prostitution. The VIP rooms cater to clients seeking anonymity within Macau’s gambling establishments and are particularly removed from official scrutiny. As a result, the gaming industry, in particular, provides an avenue for the laundering of illicit funds.

The Macau Inspectorate of Gaming has not played an active role in preventing money laundering in the casinos. The casinos have not filed any suspicious transaction reports. The MSARG is drafting regulations designed to prevent money laundering in the gambling industry as part of the restructuring of that sector. The legislation aims to make money laundering by casinos more difficult, improve oversight, and tighten reporting requirements. A separate proposed measure governs the granting of credit by casinos, which would make it harder for criminal organizations to penetrate the casinos.

Terrorist financing is criminalized under the Macau criminal code (Decree Law 58/95/M of November 14, 1995, Articles 22, 26, 27, and 286). The MSARG has the authority to freeze terrorist assets, although a judicial order is required. Macau financial authorities directed the institutions they supervise to conduct record searches for terrorist assets, using U.S. Executive Order 13224 and United Nations lists. No assets have been found to date.

The Macau legislature passed an antiterrorism law in April 2002 that increases Macau’s compliance with UNSCR 1373. The legislation criminalizes violations of UN Security Council resolutions, including antiterrorist resolutions, and strengthens antiterrorist financing provisions. The UN International Convention for the Suppression of the Financing of Terrorism will apply to Macau when the People’s Republic of China accedes to it.

In 2003, the MSARG drafted a new counterterrorism bill aimed at strengthening antiterrorist financing measures. As of December 2003, the bill was under consultation within the administration. The law—also drafted to comply with UNSCR 1373—would make it illegal to conceal or handle finances on behalf of terrorist organizations. Individuals would be liable even if they were not members of designated terrorist organizations themselves. The Macau government drafted additional measures which are still under discussion. These include an administrative regulation giving the Chief Executive of Macau the authority to designate terrorists and freeze assets of terrorists not on UN lists, and permitting assets to be frozen without first obtaining a court order. Additional proposed legislation would allow prosecution of persons who commit terrorist acts outside of Macau and would mandate stiffer penalties.

The increased attention paid to financial crimes in Macau after the events of September 11 has led to a general increase in the number of suspicious transaction reports. From October 1, 2002, to September 30, 2003, 107 STRs were received by Macau’s Judiciary Police from individuals, banks, insurance companies and government agencies. That represents a substantial increase over the 55 reports filed from January to November, 2002. In prior years, only a handful of reports were filed each year.

In 2003, the MSARG drafted a new money laundering bill that broadened the definition of money laundering to include all serious predicate crimes. The legislation also mandated greater customer identification, a more comprehensive reporting system regarding suspicious transactions, a duty to refuse to undertake suspicious transactions, more specific guidelines for the nonbanking sector—such as real estate—and penalties for entities that fail to report suspicious transactions. In November 2003, the Monetary Authority of Macau issued a circular to banks requiring that STRs be accompanied by a table specifying the transaction types and money laundering methods, in line with the collection categories identified by the Asia Pacific Group on Money Laundering.

In May 2002, the Macau Monetary Authority revised its anti-money laundering regulations for banks to bring them into greater conformity with international practices. Guidance also was issued for banks, money changers, and remittance agents addressing record keeping and suspicious transaction reporting for cash transactions over $2,500.

The United States has no law enforcement cooperation agreements with Macau, though international cooperation can be requested on the basis of international conventions in force in Macau. The Judiciary Police have been cooperating with law enforcement authorities in other jurisdictions through the Macau branch of Interpol to suppress cross-border money laundering. In addition to Interpol, the Fraud Investigation Section of the Judiciary Police has established direct communication and information sharing with authorities in Hong Kong and mainland China.

The Monetary Authority of Macau also cooperates internationally with other financial authorities. It has signed memoranda of understanding with the People’s Bank of China—China’s Central Bank—the China Insurance Regulatory Commission, the China Banking Regulatory Commission, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, the Insurance Authority of Hong Kong, and Portuguese bodies including the Bank of Portugal, the Banco de Cabo Verde and O Instituto de Seguros de Portugal.

Macau participates in a number of regional and international organizations. It is a member of the Asia/Pacific Group on Money Laundering (APG), the Offshore Group of Banking Supervisors, the International Association of Insurance Supervisors, the Offshore Group of Insurance Supervisors, the Asian Association of Insurance Commissioners, and the International Association of Insurance Fraud Agencies. In 2003, Macau hosted the annual meeting of the Asia Pacific Group on money laundering, which adopted the revised FATF Forty Recommendations and a strategic plan for anti-money laundering efforts in the region from 2003 to 2006. In September 2003, Macau became a party to the UN Convention against Transnational Organized Crime as a result of China’s ratification. Macau also became a party to the 1988 UN Drug Convention through the People’s Republic of China’s ratification.

Macau has taken a number of steps in the past three years to create an effective anti-money laundering regime. Macau is urged to implement and enforce existing laws and regulations. Macau should ensure that regulations, structures, and training are put in place to prevent money laundering in the gaming industry, including implementing, as quickly as possible, the regulations it has drafted on the prevention of money laundering in casinos. Macau should pass legislation to establish a financial intelligence unit as soon as possible. The MSARG should also consider measures that provide for cross-border bulk currency and threshold reporting. Macau should increase public awareness of the money laundering problem, improve interagency coordination, and boost cooperation between the MSARG and the private sector in combating money laundering.

Macedonia

Macedonia is not a regional financial center. The country’s economy is heavily cash-based because of the population’s distrust of the banking, financial, and tax systems. Money laundering in Macedonia is most likely connected to financial crimes such as tax evasion, smuggling, financial and privatization fraud, bribery, and corruption. A small portion of money laundering is believed to be connected to narcotics trafficking.

Article 273 of Macedonia’s criminal code, which came into force in 1996, criminalizes money laundering related to all crimes. The legislation specifically identifies narcotics and arms trafficking as predicate offenses, and contains an additional provision that covers funds that are acquired from other punishable actions. In November 2001, Parliament passed the Law on Money Laundering Prevention (LMLP), which explicitly defines money laundering for the first time in Macedonian legislation. The LMLP, which went into effect in March 2002, requires financial institutions to know, record, and report the identity of clients that perform cash transactions exceeding 20,000 euros, to prepare programs to protect themselves against money laundering, and to report suspicious transactions. Reporting entities are protected by law in their cooperation with enforcement authorities. The LMLP provides penalties for individuals and entities which do not comply. Banks and other financial institutions are required to maintain records necessary to trace and/or reconstruct significant transactions for up to 5 years. The Customs administration is required to register and report the cross-border transport of currency or monetary instruments exceeding 10,000 euros.

A new draft anti-money laundering law passed the Parliament on September 10, 2003. This new law will improve the original Law on Money Laundering Prevention by strengthening the Anti-Money Laundering Directorate, by putting into place more preventive measures, and by harmonizing Macedonia’s anti-money laundering regime with the European Union (EU) directives as well as all international standards including the FATF Special Recommendations. The amendments to the LMLP that just underwent the first reading in the Parliament envision a decrease of the limit for the obligatory reporting from 20,000 to 15,000 and obligatory electronic payments through banks or other financial institutions of amounts larger then 15,000.)

Nonbank financial institutions such as exchange offices and nonbank money transfer agents are poorly supervised and audited. However, the Law on Money Transfer by entities other than banks was passed in December 2003 defining the rules of licensing, operating and supervising money transfer agents.

The LMLP establishes the Directorate for Money Laundering Prevention within the Ministry of Finance. The Directorate collects, processes, analyzes, and stores data received from financial institutions and other government agencies. Reporting entities are legally protected in their cooperation with law enforcement entities. The Directorate has the authority to submit collected information to the police and the judiciary. In its first twenty months of existence, the Directorate received nearly 30,000 reports, most from banks, 65 of which were investigated further; six of these were sent to the prosecutor’s office. Four of these cases were dropped and the other two were turned into tax evasion cases. So far, there have been no prosecutions or convictions for money laundering or terrorism financing. The Directorate had planned to join the Egmont Group in July 2003, but membership was postponed because of ambivalence regarding the future status of the Directorate. In mid-2003, the GOM planned to fold the Directorate into the Financial Police organization; however, in November 2003, the government decided to leave the Directorate as an independent body.

In June 2002, parliament passed a Law establishing a Financial Police Unit, situated within the Ministry of Finance. The unit was slated to become operational in fall 2003, but still lacks a director, which is considered as an obstacle for the unit to become fully operational. The unit will investigate money laundering and suspicious transactions reported to the Directorate as well as other potential financial crimes such as tax evasion, corruption and organized crime. Since Macedonia has no bank secrecy laws, supervisory authorities have full access to all bank records. Although not completely staffed, the unit has received some preliminary training on money laundering, with more advanced training planned before it becomes operational.

Terrorism financing would become a new crime after the adoption of amendments to the Criminal Code, expected in 2004. The National Bank and Ministry of Finance circulate the lists of entities involved in terrorist financing that they receive from the Embassy to financial institutions. The authorities are allowed to identify named accounts, but require court orders before they can freeze assets with suspected links to money laundering or terrorist financing. The Government of Macedonia (GOM) has proposed amendments to the LMLP that will allow financial institutions to temporarily freeze assets of suspected money launderers and terrorist financiers.

An amendment to Article 17 of Macedonia’s Constitution allowing for the use of what are known as “special investigative procedures,” was finally adopted on December 26, 2003. Macedonia is also working to amend the Law on Criminal Procedure and Criminal Code to implement the new amendment. Together, all the legislative reforms should strengthen the GOM’s efforts to combat organized crime, corruption, money laundering, terrorism, and other related crimes by increasing penalties; tightening definitions; providing for effective asset freezing, seizure, and forfeiture; and defining authority more clearly. The changes should also harmonize the LMLP with European Commission and MONEYVAL recommendations as well as the EU Conventions.

Macedonia agreed to be evaluated in the pilot of the World Bank’s Financial Sector Assessment Program (FSAP), and the FSAP was conducted in April 2003. Preliminary findings indicate that Macedonia has made much progress, and that the government has set anti-money laundering as a high priority. The evaluation also identifies needs, which include various compliance audits.

The GOM has concluded Police Cooperation Agreements with almost all of the countries from the region (Albania, Bulgaria, Croatia, Romania, Slovenia, Austria, Turkey, Greece, Russian Federation, Ukraine, Egypt) and has mutual legal assistance agreements with many countries. Exchange of police information is regularly provided through Interpol channels. The GOM also provides law enforcement information in connection with requests from other countries with which it lacks a formal information exchange mechanism, including the United States. Although the framework to support the measure has not become effective yet, Macedonia has agreed to accept valid U.S. civil legal judgments. The GOM has concluded bilateral police agreements for exchanging information on money laundering with Bulgaria, Croatia, Slovenia, France, Romania, Greece, Russia and Italy and is a signatory to the Council of Europe’s Convention on Suppression of Laundering Criminal Proceeds.

Macedonia is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), and in October 1999 and October 2002 underwent mutual evaluations by the group. Macedonia is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. The GOM has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism.

The GOM should work to pass the pending legislation to tighten its anti-money laundering and counterterrorism financing regime, and the amendments to the criminal legislation to implement the Constitutional amendment allowing the use of special investigative procedures and authorizing financial institutions to freeze assets on a temporary basis. The GOM should mandate the supervision of wire transfers for nonbank financial institutions. The GOM should take steps to assist the Financial Police Unit with its operating requirements and improve interagency cooperation to develop a viable anti-money laundering regime. The GOM should explicitly criminalize the support and financing of terrorists and terrorist organizations.

Madagascar

Madagascar is not a regional financial center. Criminal activity in Madagascar reportedly includes smuggling in animal products such as tortoise shells and reptile skins for sale in the international market. These schemes have in the past been related to money laundering activities within the country.

Madagascar’s 1997 anti-money laundering law criminalizes money laundering related to narcotics trafficking; however, far broader money laundering legislation was recently introduced by an inter-ministerial working group. The draft legislation addresses money laundering, seizures, confiscation, and international cooperation in dealing with the proceeds of crime. The legislation was approved by the cabinet and should be considered by the May 2004 legislative session. The banking regulatory framework and the internal policies of the banks provide for retention of significant documents generally for at least five years. Current banking regulations and individual bank policies require financial institutions to know their customers and to document and retain proof of their efforts to carry out that function.

The draft legislation defines prohibited activities and covered actors very broadly. There are broad definitions of “money laundering”, “proceeds of crime”, and “assets”. The provisions apply to physical persons and legal entities involved in operations involving the movement of capital. They apply to banking and credit establishments, intermediate financial institutions, insurance companies, mutual savings institutions, stock brokerages, moneychangers, casinos, gaming establishments, and entities involved in real estate operations. The draft would also require financial institutions to establish internal programs against money laundering, including centralization of information, training, internal controls and designation of a responsible official at each branch or office.

The draft law would authorize the establishment of a financial intelligence service, which would serve as a clearinghouse for customer information and liaison with judicial authorities. The Government of Madagascar seeks to provide for the freezing and seizure of assets, punishment of fines and imprisonment for money laundering and other infractions. The GOM currently distributes lists of individuals and organizations linked to terrorism finance throughout the banking system.

No arrests or prosecutions for money laundering or terrorist financing were presented during calendar year 2003.

Madagascar is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which entered into force in September 2003. Madagascar is a party to the UN International Convention for the Suppression of the Financing of Terrorism.

Madagascar should join the Eastern and Southern African Anti-Money Laundering Group and enact a comprehensive anti-money laundering regime that criminalizes terrorist financing and money laundering for all serious crimes.

Malawi

Malawi is not a regional financial center. The Reserve Bank of Malawi (RBM), Malawi’s Central Bank, supervises the country’s six commercial banks. Some money laundering is tied to smuggling and converting remittance savings systems abroad. Under Malawi’s existing exchange control regime, foreign exchange remittances not backed by a “genuine transaction” are illegal; traders, therefore, launder funds in their efforts to remit savings abroad.

Financial institutions are required to record and report the identity of customers making large transactions, and banks must maintain those records for seven years. Banks are allowed, but not required, to submit suspicious transaction reports to the RBM. The RBM inspects banks’ records every quarter and has access to those records on an “as needed” basis for specific investigations.

Malawi’s current laws do not specifically criminalize money laundering, but can be used to prosecute money laundering cases. The Government of Malawi (GOM) drafted a “Money Laundering and Proceeds of Serious Crime” bill, which was considered in Parliament’s Commerce and Industry Committee in 2003. The committee requested revisions in the proposed legislation before it is considered in the full Parliament. The draft law would criminalize money laundering related to all serious crimes. The draft law would also establish a legal framework for identifying, freezing, and seizing assets related to money laundering. The bill stipulates that the seized assets become the property of the GOM and should be used in the fight against money laundering.

While the GOM has not specifically criminalized terrorist financing, the RBM has the legal authority to identify and freeze assets suspected of involvement in terrorist financing. The RBM has circulated to the financial community all names included on the UN 1267 Sanctions Committee consolidated list and all other names designated under E.O. 13224 by the United States Government. The RBM continues to monitor the financial system for money laundering activity.

Malawi has signed the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) Memorandum of Understanding. Malawi is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.

Malawi should take steps to strengthen its anti-money laundering and counterterrorist financing regimes as it has agreed to do as a member of ESAAMLG. Malawi should become a party to the UN Convention against Transnational Organized Crime.

Malaysia

Malaysia has made a strong effort to combat money laundering and terrorist financial flows. Malaysia not a major regional center for money laundering, but does offer a variety of financial services in both its domestic and offshore sectors that could be misused by those intent on laundering money or supporting terrorism.

Malaysia’s Anti-Money Laundering Act 2001 (AMLA) was enacted in January 2002. The AMLA criminalizes money laundering and lifts bank secrecy provisions for criminal investigations involving approximately 150 predicate offenses. The law also created a financial intelligence unit (FIU) located in the Central Bank, Bank Negara Malaysia (BNM). The FIU, now operational, is tasked with receiving and analyzing information, and sharing financial intelligence with the appropriate enforcement agencies for further investigations. The Malaysian FIU works with at least 12 other agencies to identify and investigate suspicious transactions. Malaysia’s longstanding National Coordination Committee to Counter Money Laundering (NCC) is composed of members from 13 government agencies. The NCC oversaw the drafting of the anti-money laundering law and coordinates government-wide anti-money laundering efforts.

All reporting institutions are subject to the same review by the FIU and enforcement agencies, and must file suspicious transaction reports under the AMLA. Reporting institutions include: commercial banks, merchant banks, finance companies, Islamic banks, money changers, discount houses, insurance brokers, Islamic insurance (Takaful) operators, offshore banks, offshore insurers, offshore trusts, the Pilgrims Fund, Malaysia’s Postal Service, development banks such as Malaysia’s National Savings Bank, the People’s Cooperation Bank, and licensed casinos. Money laundering controls have not been extended to some nonbanking financial institutions, including exchange houses and stock brokerages or to intermediaries such as lawyers, accountants, and brokers.

The securities commission has established a working committee charged with implementing the requirements of the anti-money laundering act for entities falling within its supervision. Bank Negara’s financial intelligence unit is working with the Malaysian Bar Council and the Malaysian Institute of Accountants to help them in drafting reporting obligations within the scope of their own code of ethics/fiduciary duties.

The Government of Malaysia (GOM) has a well-developed regulatory framework, including licensing and background checks, to oversee onshore financial institutions. BNM guidelines require customer identification and verification, financial record keeping, and suspicious activity reporting. These guidelines are intended to require banking institutions to determine the true identities of customers opening accounts and to develop a “transaction profile” of each customer with the intent of identifying unusual or suspicious transactions. The actual examination coverage of anti-money laundering efforts is still in development for all segments. Currently, there are 300 examiners who are responsible for money laundering inspections for both onshore and offshore banks. A comprehensive supervisory framework has been implemented to audit financial institutions’ compliance with AMLA.

In 1998 Malaysia imposed foreign exchange controls that restrict the flow of the local currency, the ringgit, from Malaysia. Onshore banks must record cross-border transfers over RM5,000 (approximately $1,300). Since April 2003, an individual form is completed for each transfer above RM50,000 (approximately $13,170). Recording is done in a bulk register for transactions between RM5,001 and RM50,000, where information on the amount and purpose of the transaction is recorded by the bank concerned.

Malaysia has a substantial offshore sector located in the east Malaysian region of Labuan. The Offshore Financial Services Authority (LOFSA), which is under the authority of the Central Bank, Bank Negara. The offshore sector has different regulations for the establishment and operation of offshore businesses. However, the offshore sector is governed by the same anti-money laundering laws as those governing domestic financial services providers. Offshore banks, insurance companies, and trust companies are required to file suspicious transaction reports under the country’s anti-money laundering law. LOFSA licenses offshore banks and insurance companies and performs stringent background checks before granting an offshore banking license. The financial institutions operating in Labuan are generally among the largest international banks and insurers. Nominee (anonymous) directors are not permitted for offshore banks or insurance companies. Most observers believe that the regulatory authority exercises adequate control of the banking and insurance groups active in Labuan.

Labuan has over 4000 registered offshore companies. All offshore companies must be established through a trust company. Offshore companies are not required to reveal their beneficial owners to the supervisory authority. Instead trust companies are charged by law with establishing the true beneficial owners and submitting suspicious transaction reports, as necessary. Bearer instruments are prohibited in Labuan, but there is also no requirement to reveal the true identity of the beneficial owner of international corporations. If queried by the supervisory authority, LOFSA, all financial service providers must disclose information on the beneficial owner of accounts and directors of organizations operating in Labuan. Malaysia bans offshore casinos and Internet gaming sites.

In November 2003, the AMLA was amended to include the financing of terrorism as one of the predicate offenses covered under the Act. Once the amendments come into force, the AMLA will be renamed “The Anti-Money Laundering and Anti-Terrorist Financing Act”. As of the end of 2003, the government has not yet prosecuted a money launder case, but government officials report that several cases are in the investigative stages. Additionally, the GOM has the authority to identify, freeze, and seize terrorist- or terrorism-related assets. Malaysia has issued orders to all licensed financial institutions, both onshore and offshore, to freeze the assets of individuals and entities listed by the UN Security Council Resolution (UNSCR) 1267.

Malaysia forbids illegal deposit taking, unlawful compensation deals, illegal remittance or transfer, and money laundering, which provides the legal groundwork to deal with alternative remittance systems, such as hawala, black market exchanges and trade-based money laundering. However, Malaysia faces a challenge in regulating alternative remittance systems that are, by their nature, unofficial and unrecorded. The Registrar of Societies regulates nongovernment organizations. The registrar has put in place a monitoring mechanism, whereby it is mandatory for every registered society of a charitable nature to submit to the Registrar the annual returns, which includes the audited financial statements.

In conjunction with Malaysia’s anti-money laundering unit within the Central Bank, the Ministry of Foreign Affairs opened the Southeast Asian Region Centre for Counter Terrorism (SEARCCT) in August 2003. Malaysia allows foreign countries to check the operations of their banks’ branches. Malaysia has cooperated closely with U.S. law enforcement in investigating terrorist, counternarcotics, and other cases. The financial intelligence unit has signed memoranda of understanding with the Australian FIU AUSTRAC, while MOUs with South Korea and the United States are pending. In April 2002, the GOM passed the Mutual Assistance in Criminal Matters Bill 2002. The GOM signed a joint declaration to combat international terrorism with the United States in May 2002.

Malaysia has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which came into force in September 2003. The GOM has not signed the UN International Convention for the Suppression of the Financing of Terrorism. Malaysia is a party to the 1988 UN Drug Convention. Malaysia has endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision” and is a member of the Offshore Group of Banking Supervisors and the Asia/Pacific Group on Money Laundering. The financial intelligence unit in Bank Negara Malaysia has been admitted as a member of the Egmont Group of Financial Intelligence Units at its Plenary meeting in July 2003. Appropriate antiterrorist legislative provisions were passed by the GOM in November 2003, which enables Malaysia to accede to the UN Convention for the Suppression of the Financing of Terrorism. The amendments criminalize terrorist acts, and enable freezing, seizing, and forfeiture of terrorist properties. These amendments will come into force on a date to be appointed by the Minster, after royal assent.

The GOM has made important strides towards the fight against money laundering and terrorist financing. The GOM should continue to issue and implement all regulations, as required in the AMLA, and issue standardized requirements that are applied consistently to all financial institutions, bank and nonbank, supervised by Bank Negara Malaysia. For all entities such as trust companies and IBCs, Malaysia should insist on “fit and proper tests” for all management, and identification of all beneficial owners. The GOM should also insist on the registration of trusts and of the beneficial owners of the 4000 IBCs and stringent auditing and examination requirements in its offshore financial center, to prevent the misuse of the offshore financial center by organized crime and terrorist organizations and their supporters. The Government of Malaysia should also become a party to the UN Convention against Transnational Organized Crime and to the UN International Convention for the Suppression of the Financing of Terrorism.

The Maldives

The Maldives is not considered an important regional financial center. The financial sector of the Maldives is very narrowly based with five commercial banks (one international bank, three branches of public banks from neighboring countries and the state owned bank), two insurance companies, and a government provident fund. There are no offshore banks.

The Maldives Monetary Authority (MMA) is the regulatory agency for the financial sector. MMA has authority to supervise the banking system through the Maldives Monetary Authority Act. These laws and regulations provide the MMA access to records of financial institutions and allow it to take actions against suspected criminal activities. Banks are required to report any unusual movement of funds through the banking system on a daily basis. Separate laws address the narcotics trade, terrorism, and corruption: Law No. 17/77 on Narcotic Drugs and Psychotropic Substances prohibits consumption and trafficking of narcotics. The law also prohibits laundering of proceeds from narcotics trade. Law No 2/2000 on Prevention and Prohibition of Corruption prohibits corrupt activities by both public and private sector officials. It also provides for the forfeiture of proceeds and also empowers judicial authorities to freeze accounts pending a court decision.

As of 2002, the Government of Maldives (GOM) was considering draft money laundering legislation and the establishment of a Financial Intelligence Unit. However, there is no recent reporting on the progress of the Maldives’ anti-money laundering program.

Law No. 10/90 on Prevention of Terrorism in the Maldives deals with some aspects of money laundering and terrorist financing. Provision of funds or any form of assistance towards the commissioning or planning any such terrorist activity is unlawful. The MMA has issued “know your customer” directives and other instructions to banks enforcing freeze order requests, which are binding on banks and other financial institutions. The MMA monitors unusual financial transactions through banks, financial institutions, and money transfer companies through its bank supervision activities. The four foreign banks operating in the country also follow instructions issued with regard to terrorist financing by their parent organizations. To date, there have been no known cases of terrorist financing activities through banks in the Maldives.

The Maldives is a party to the 1988 UN Drug Convention.

The Maldives should enact comprehensive anti-money laundering and antiterrorist financing legislation that adheres to world standards. The GOM should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime.

Mali

Mali is not a regional financial center nor is money laundering considered to be a problem.

Mali has participated in the past in regional seminars and conferences on combating money laundering and promoting law enforcement cooperation against drug trafficking, terrorism, and money laundering. Mali has drafted a new banking law with International and European standards that is expected to be ratified by the Malian National Assembly in early 2004. The new banking law will also regulate the transfer of currency. Terrorism and terrorist financing are considered serious crimes in Mali. Malian law has the authority to identify, freeze, and seize terrorist finance-related assets. All proceeds from seized assets remain with the Government of Mali.

Money laundering controls are also applied to nonbanking financial institutions, such as exchange houses, stock brokerages, casinos, insurance companies, as well as intermediaries such as lawyers, accountants, and broker/dealers. There have been no known arrests or prosecutions for money laundering or terrorist financing in Mali since January 1, 2003.

Mali is a party to the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the 1988 UN Drug Convention.

Mali should enact comprehensive anti-money laundering legislation that criminalizes terrorist financing and money laundering for all serious crimes.

Malta

Malta has spent the last decade preparing itself for accession to the European Union (EU). As a result, it has toughened up its regulations to attract European investors, and introduced several laws designed to shed its image as an offshore tax haven. Malta has made significant headway, introducing EU-compliant legislation for the prevention of money laundering and strong financial services legislation. Malta does not appear to have a serious money laundering problem.

Since 1997, Malta has been closing the loopholes on all offshore financial activities. As of December 31, 2003, 101 companies, down from 285 a year before, retain offshore status compared to some 30,000 that do not. Offshore registration of banks and international business corporations (IBCs) was halted in January 1997. The number of IBCs has declined from 417 in 2001 to 120 as of November 2003. Legislation dealing with offshore business will remain in force until 2004; the Government of Malta (GOM) has legislated that offshore businesses must close and has stated that all such entities will be completely closed down by September 2004. Companies and trusts are now fairly well regulated, and international entities are subject to 35 percent tax. Bearer shares or anonymous accounts are no longer permitted in Malta. The last of the offshore banks, Erste Bank, came on-shore in October 2003; presently there are no offshore banks in Malta.

The GOM criminalized money laundering in 1994. Maltese law imposes a maximum fine of approximately $2.5 million and/or 14 years in prison for those convicted. Also in 1994, the GOM issued the Prevention of Money Laundering Regulations, applicable to financial and credit institutions, life insurance companies, and investment and stock brokerage firms. These regulations impose requirements for customer identification, record keeping, the reporting of suspicious transactions, and the training of employees in anti-money laundering topics. In August 2003, a new set of regulations combined the 1994 money laundering law and the 2nd EU Directive on the Prevention of Money Laundering, and became the national law which expanded anti-money laundering requirements to designated nonfinancial businesses and professions.

The Maltese Financial Services Authority (MFSA) is the regulatory agency responsible for licensing new banks and financial institutions; additionally the MFSA has been responsible for monitoring financial transactions going through Malta since the supervisory function of the Central Bank of Malta was passed to the MFSA in 2002. It has recently widened its regulatory scope to encompass banking, insurance, investment services, company compliance, and the stock exchange. MFSA also took over the role of supervisory authority of the banking sector. The MFSA has a rigorous process of analyzing companies prior to granting a license. This entails detailed analyses of all the applications it receives, including of information about the directors and other persons involved in the management of the company. Presently there is an initiative, lead by the Financial Intelligence Analysis Unit (FIAU) in corroboration with the relevant authorities and the industry, to consolidate all guidance notes for all of the covered financial services and other businesses. In 2003, the FIAU together with the Banking Unit at the MFSA, updated the Guidance Notes for Credit and Financial Institutions issued by the Central Bank of Malta in 1996.

In December 2001, Malta’s parliament established the FIAU through an amendment to the Prevention of Money Laundering Act, 1994, to serve as Malta’s financial intelligence unit. The unit became fully functional in October 2002. Its board consists of members nominated by the Central Bank of Malta, the MFSA, the Police, and the Attorney General. The FIAU co-ordinates the fight against money laundering, collects information from financial institutions, and liaises with parallel international institutions as well as local investigative authorities (the MFSA and the GOM Police). The GOM requires banks, bureaux de change, stockbrokers, insurance companies, money remittance/transfer services, and other designated nonfinancial businesses and professions to file suspicious transaction reports (STRs) with the FIAU. The FIAU is charged with the financial investigation of STRs and has organized training sessions for Maltese financial practitioners to make them aware of the implications of the 2001 Money Laundering Act. The FIAU is an independent unit and neither the unit nor its board members are subject to the direction or control of any other agency or authority.

STRs are not required to be filed for subjects suspected of negligence; only intentional and willful blindness offenses are penalized in Malta at this time. The marked increase in the number of STRs, up from nine in 1998 to 76 as of the end of 2003, and the expansion of reporting institutions that have submitted these reports indicate Malta’s determination to crack down on money laundering. Enforcement should continue to strengthen as the FIAU continues analyzing STRs for referral for police investigation.Malta has also moved to bolster the prosecutorial opportunities for financial crime investigations. The GOM has recently designated one of the country’s five prosecutors to deal solely with money laundering cases. Bank secrecy laws are completely lifted by law in cases of money laundering (or other criminal) investigations. The Attorney General is currently pursuing an investigation into an alleged money laundering case involving an alleged smuggling operation.

In January 2002, MONEYVAL conducted a second round mutual evaluation of the overall effectiveness of the Maltese anti-money laundering system and practices, including compliance with the FATF Eight Special Recommendations on Terrorist Financing. The review found that Malta was in full compliance with Special Recommendations No. 2 through No. 7. Malta was in partial compliance with Special Recommendation No. 1 (ratification and implementation of UN instruments), because it had signed and ratified the UN Conventions, but had not yet fully implemented UNSCR 1269, 1373, and 1390.

Malta has criminalized terrorist financing. In 2002, the criminal code was amended in such a way that terrorist financing would meet the standard for categorization as a “serious crime” under Malta’s Prevention of Money Laundering Act. To date, the Act itself does not specifically mention or define terrorist financing.

The MFSA circulates to its financial institutions the names of individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list. To ensure compliance, the list is posted on the MFSA website and the MFSA contacts every financial institution directly to confirm whether or not the institution has done business with any person or entity appearing on the consolidated list. To date no assets have been identified, frozen, and/or seized as a result of this process.

Alternative remittance systems such as hawala, black market exchanges, and trade-based money laundering, are not a problem in Malta. Such activities are against the law in Malta, and if discovered, those participating would be prosecuted. Anyone wishing to raise money for charitable reasons must receive a government license.

Malta is a founding member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) and chaired the committee until December 2003. The FIAU became a member of the Egmont Group in July 2003. Malta is no longer a member of the Offshore Group of Banking Supervisors, but has joined the International Organization of Securities Commissions (IOSCO). Malta is a party to the 1988 UN Drug Convention. Malta has ratified the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and the UN Convention against Transnational Organized Crime. Malta ratified the UN International Convention for the Suppression of the Financing of Terrorism in November 2001. Malta has also ratified the Council of Europe European Convention on the Suppression of Terrorism and has amended its criminal code to be in alignment with these conventions.

Malta’s recent acceptance by the Organization of Economic Cooperation and Development (OECD) is perhaps the best indicator that Malta is no longer considered a tax haven. Malta should continue to enhance its anti-money laundering regime; in particular, Malta should adopt cross-border currency transportation reporting, including the reporting of international wire transfer activity, and should enact a safe harbor provision to protect those who report suspicious activity in accordance with GOM requirements. Marshall Islands

The Republic of the Marshall Islands (RMI), a group of atolls located in the North Pacific Ocean, is a sovereign state in free association with the United States. The population of RMI is approximately 60,000. The financial system in RMI has total banking system assets of $90.1 million and total deposits of $76.4 million, with domestic deposits exceeding 50 percent of the gross domestic product. The RMI financial sector consists of three banks, two of which are insured by the Federal Deposit Insurance Corporation, and a government-owned development bank whose primary function is to perform development lending in government-prioritized sectors; and several low-volume insurance agencies that primarily sell policies on behalf of foreign insurance companies. In realization of the country’s vulnerability to systemic shock in the financial sector, the government introduced a reform program geared toward enhancing transparency, accountability, and good governance. Among other initiatives, the reform program calls for the establishment of the requisite infrastructure for detecting, preventing, and combating money laundering and terrorist financing.

In June 2000, the Financial Action Task Force (FATF) placed the Marshall Islands on the list of noncooperative countries and territories (NCCT) in the fight against money laundering. The designation was based on RMI’s lack of basic anti-money laundering regulations (including the criminalization of money laundering), of customer identification requirements, and of a suspicious transaction reporting system. Additionally, the RMI had registered about 4,000 international business corporations. The relevant information regarding the beneficial owners of these IBCs was guarded by secrecy provisions in its law, and consequently this information was not accessible to financial institutions, international regulatory bodies, or law enforcement agencies.

Over the past two years, the Marshall Islands enacted significant legislative reforms to address the major deficiencies identified by the FATF. Money laundering was criminalized and customer identification and suspicious transaction reporting were mandated. The Marshall Islands also issued guidance to its financial institutions for the reporting of suspicious transactions. In addition, the RMI drafted anti-money laundering regulations. The substantial and comprehensive effort to align the Marshall Islands’ anti-money laundering regime with international standards, including the adoption of new laws, a new regulatory scheme, and the establishment of an FIU, resulted in its removal from the FATF’s NCCT list in 2002.

In November 2000, the Government of the Marshall Islands (GRMI) approved the establishment of a financial intelligence unit that may exchange information with international law enforcement and regulatory agencies. The Domestic Financial Intelligence Unit (DFIU) is located within the Banking Commission. The DFIU has the power to receive, analyze, and disseminate financial intelligence. In 2003, its processes have been streamlined and automated to the fullest extent possible, given the limited resources available to the DFIU.

Standard operating procedures have been established and documented to systematize the FIU process. An electronic database that is Excel-based has been created, and all disclosures from the financial industry are recorded and analyzed electronically. File links have also been created in this database to support a separate worksheet dedicated to supervisory and regulatory measures. Financial institutions and cash dealers continue to file Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) with the DFIU. For 2003, a total of 2,706 CTRs and five SARs were filed with the DFIU. These filings have led to three investigation cases for potential money laundering, all of which are still on going.

In May 2002, the RMI passed and enacted its Anti-Money Laundering Regulations, 2002. The 2002 regulations provide the standards for reporting and compliance within the financial sector. Components of this legislation include reporting of beneficial ownership, internal training requirements regarding the detection and prevention of money laundering by financial institutions, record keeping, and suspicious and currency transaction reporting. Additionally, the Banking Commission and the Attorney General’s office worked with the U. S. Government to develop a set of examination policies and an examination procedures manual. Both sets of documents are being used by examiners from the Banking Commission as guides in the on-site reviews of banks’ and financial institutions’ compliance with the anti-money laundering regulations. Since the establishment of the statutory and regulatory framework, the Banking Commission has conducted on-site examinations of financial institutions and cash dealers.

Since the passage of its anti-money laundering law, and a suite of counterterrorism laws, as well as the subsequent promulgation of implementing regulations, the Government of the GRMI has undertaken a number of initiatives to further strengthen its anti-money laundering/counterterrorist financing regime.

The Banking Commission has issued two sets of advisories on suspicious transaction reporting and currency transaction reporting. The advisories are accompanied by reporting forms and instructions that are similar to those used in the United States. Guidelines on customer due diligence and record keeping have also been issued to the industry, as a supplement to the advisories.

In September 2002, amendments were made to the anti-money laundering legislation. The first amendment was to remove the $10,000 threshold for transaction record keeping. The original legislation stated that banks only had to keep the records of transactions that were over $10,000.

The RMI offshore financial sector is vulnerable to money laundering. Nonresident corporations (NRCs), the equivalent of international business companies, can be formed. Currently, there are 5,500 registered NRCs, half of which reportedly are companies formed for registering ships. NRCs are allowed to offer bearer shares. Corporate officers, directors, and shareholders may be of any nationality and live anywhere. NRCs are not required to disclose the names of officers, directors, and shareholders or beneficial owners, and corporate entities may be listed as officers and shareholders. Although NRCs must maintain registered offices in the Marshall Islands, corporations can transfer domicile into and out of the Marshall Islands with relative ease. Marketers of offshore services via the Internet promote the Marshall Islands as a favored jurisdiction for establishing NRCs. In addition to NRCs, the Marshall Islands offer nonresident trusts, partnerships, unincorporated associations, and domestic and foreign limited liability companies. Offshore banks and insurance companies are not permitted in the Marshall Islands.

Having established, with assistance from FDIC in 2002, the requisite supervisory processes to ensure compliance with legislative mandates for detection and suppression of money laundering and terrorist financing, the GRMI’s main emphasis in 2003 was on fine-tuning these processes. After undertaking nine on-site examinations of financial institutions, following procedures developed in cooperation with the FDIC, the Banking Commission has now gained a better understanding of the risk profile of these institutions with respect to their exposure to money laundering and terrorist financing. This has proven especially useful in amalgamating some supervisory processes with the routine FIU processes, thereby maximizing benefit for the limited resources available to the GRMI. The Banking Commission had planned that some of the supervisory processes would be incorporated into the required annual audits of banks, but this initiative was not completed in 2003; it will be continued in 2004. In 2003, the Banking Commission recruited an Assistant Commissioner who will spearhead this task along with other examination tasks relating to anti-money laundering compliance and prudential banking practices.

At present, there is no system for reporting cross-border transportation of currency. The GRMI, however, has a draft amendment, which will effectively create such a system. Officials are still deciding whether to incorporate this amendment into the anti-money laundering (AML) legislation or to make it a part of the Customs Act. The RMI’s offshore sector comprises largely of a shipping registry and to a lesser extent a corporate registry. The corporate registry program, however, does not allow the registering of offshore banks, offshore insurance firms, and other companies which are financial in nature.

The Marshall Islands is not a signatory to the 1988 UN Drug Convention. As of September 2002, RMI has enacted a Proceeds of Crime Act, Counter-Terrorism Act, and Foreign Evidence Act. Although the GRMI is not a signatory to the UN Vienna Convention on Drug Trafficking, RMI has acceded to all twelve UN Counter-Terrorism, including the International Convention for the Suppression of the Financing of Terrorism, Conventions.

The Marshall Islands is a member of the Asia/Pacific Group on Money Laundering. The DFIU became a member of the Egmont Group of FIUs in June 2002. RMI is also a founding member of the recently established Pacific Islands Financial Supervisors, a group of regulators from the Pacific Islands Forum countries that will be representing the region in the Basel group.

The GRMI continues to strengthen its key defenses against money laundering and terrorist financing, and has commenced work aimed at aligning its AML system with the revised 40 recommendations of the Financial Action Task Force on Money Laundering. These tasks are highlighted in the draft 4th AML Implementation Plan, covering the period from 2004 onward. The RMI remains committed to the international fight against money laundering and terrorist financing. The GRMI should expand the record keeping, reporting, and licensing requirements for all nonbank financial institutions.

Mauritius

Mauritius is a developing financial hub and a major route for foreign investments into the Asian sub-continent. Officials in Mauritius indicate that the majority of money laundering in Mauritius takes the form of schemes to purchase goods in other countries with illegal funds and selling the goods in Mauritius.

Money laundering is a criminal offense in Mauritius. In February 2002, Mauritius approved the Financial Intelligence and Anti-Money Laundering Act, which replaced the Economic Crime and Anti-Money Laundering Act of 2000. The Financial Intelligence and Anti-Money Laundering Act provides for the establishment of a financial intelligence unit (FIU) located within the Ministry of Economic Development, Financial Services, and Corporate Affairs. The FIU became operational on August 9, 2002. The Financial Intelligence and Anti-Money Laundering Act also imposes penalties on persons committing money laundering offenses; establishes suspicious activity reporting obligations for banks, financial institutions, cash dealers, and relevant professions; and provides for cooperation with the FIUs of other countries.

The FIU has the responsibility of collecting and analyzing suspicious activity reports (SARs), and forwards those reports to the Independent Commission Against Corruption (ICAC). The ICAC, set up in June 2002, has the power to investigate money laundering offenses. The ICAC also has the authority to freeze and seize the assets related to money laundering. Since its inception, the FIU has developed into a fully functioning organization recognized by and admitted to the Egmont Group of FIUs. Its major challenge continues to be the development of an information technology structure to store SARs, perform complex analyses, and be accessible to other law enforcement entities.

In 2000, the Financial Action Task Force (FATF) conducted a review of Mauritius’s anti-money laundering regime against the 25 specified criteria for evaluating noncooperative countries and territories. After conducting the review, the FATF did not designate Mauritius as a noncooperative country. More recently, in August 2003, Mauritius underwent a joint IMF-World Bank Financial Sector Assessment Program (FSAP). The FSAP report noted the GOM progress towards addressing deficiencies developing a comprehensive anti-money laundering program.

Mauritius has an active offshore financial sector. In 2001, the Financial Services Development Act was passed. This Act established the Financial Service Commission (FSC), which performs the functions that were formerly carried out by the Mauritius Offshore Business Activities Authority (MOBAA). The FSC is responsible for the regulation, which includes the licensing and regulating, of the nonbank financial sector. All applications to form offshore companies must be reviewed by the FSC. Information on companies can also be requested from the FSC. Along with reviewing of applications, the FSC supervises activities of offshore companies.

The Prevention of Terrorism Act of 2002 was promulgated in Mauritius on February 19, 2002. This legislation criminalizes terrorist financing. Finally, the legislation gives the Government of Mauritius powers to track and investigate terrorist-related funds, property, and assets, and cooperate with international bodies.

Mauritius is a party to the 1988 UN Drug Convention. Mauritius has signed, but not yet ratified, both the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. Mauritius is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. In August 2003, representatives from Mauritius attended the ESAAMLG sixth meeting of the Task Force in Uganda. Mauritius also completed the first round of ESAAMLG mutual evaluations in 2003. Mauritius is a member of the Offshore Group of Banking Supervisors.

Mauritius should continue to take a leadership role in regional outreach through the Egmont Group. Mauritius should become a party to the UN International Convention for the Suppression of the Financing of Terrorism and to the UN Convention against Transnational Organized Crime.

Mexico

The illicit drug trade continues to be the principal source of funds laundered through the Mexican financial system. Other crimes, including corruption, kidnapping, firearms trafficking, and immigrant trafficking, are also major sources of illegal proceeds. The smuggling of bulk shipments of U.S. currency into Mexico and the movement of the cash back into the United States via couriers, armored vehicles, and wire transfers, remain favored methods for laundering drug proceeds. Mexico’s financial institutions are vulnerable to currency transactions involving international narcotics-trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States.

Remittances from the United States to Mexico are at an all-time high, and are expected to total $12 billion in 2003. Although nonbank companies continue to dominate the market for remittances, many U.S. banks have teamed up with their Mexican counterparts to develop systems to simplify and expedite the transfer of money. These measures include wider acceptance by U.S. banks of the matricula consular, a consular identification card issued to Mexican citizens residing in the U.S. that has been criticized based on security issues. In some cases, neither the sender nor the recipient of the remittance is required to open a bank account in the U.S. or Mexico, but simply provide the matricula consular as identification and pay a flat fee. Although these systems have been designed to make the transfer of money quicker and less expensive for the customers, the rapid movement of such vast sums of money, by persons of questionable identity, leaves the new money transfer systems open to potential money laundering and exploitation by organized crime groups.

According to U.S. law enforcement officials, Mexico remains one of the most challenging money laundering jurisdictions for the United States. While Mexico has taken a number of steps to improve its anti-money laundering system, significant amounts of narcotics-related proceeds are still smuggled across the border. In addition, such proceeds can still be introduced into the financial system through Mexican banks or casas de cambio, or repatriated across the border without record of the true owner of the funds. Furthermore, despite advances in international cooperation and information sharing, it still remains difficult for U.S. law enforcement to obtain key financial records from Mexico and to extradite money laundering defendants. These problems have hampered a number of recent U.S. law enforcement initiatives.

The Government of Mexico (GOM) continues efforts to implement an anti-money laundering program according to international standards such as those of the Financial Action Task Force (FATF), which Mexico joined in June 2000. Money laundering related to all serious crimes was criminalized in 1996 under Article 400 bis of the Federal Penal Code, and is punishable by imprisonment of five to fifteen years and a fine. Penalties are increased when a government official in charge of the prevention, investigation, or prosecution of money laundering commits the offense. In 1997, the GOM established a financial intelligence unit, the Dirección General Adjunta de Investigación de Operaciones (DGAIO), under the Secretariat of Finance and Public Credit (Hacienda).

Regulations have been implemented for banks and other financial institutions (mutual savings companies, insurance companies, financial advisers, stock markets, and credit institutions) to know and identify customers, and maintain records of transactions. These entities must report suspicious transactions, transactions over $10,000, and transactions involving employees of financial institutions who engage in unusual activity, to the DGAIO. The DGAIO receives 500 suspicious transaction reports (STR) per month, and the volume of cash transaction reports averages $500,000 per month. In 2001, Mexico established STR requirements for the smaller foreign exchange houses that process most of the remittances from Mexican workers in the United States. Current provisions do not include reporting requirements for offshore banks, casinos, real estate brokerages, attorneys, notaries, and accountants. The DGAIO also receives reports on the cross-border transportation of currency or monetary instruments. In December 2000, Mexico amended its Customs Law to reduce the threshold for reporting inbound cross-border transportation of currency or monetary instruments from $20,000 to $10,000; at the same time, it established a requirement for the reporting of outbound cross-border transportation of currency or monetary instruments of $10,000 or more.

Following analysis of reports on currency transactions, suspicious transactions, and cross-border movements of currency or monetary instruments, the DGAIO sends reports that are deemed to require further investigation to the Office of the Attorney General (PGR). As part of a more comprehensive approach to fighting organized crime, the PGR incorporated its special financial crimes unit—which has the authority to initiate, coordinate, and determine the course of preliminary financial crimes inquiries—into the Office of the Deputy Attorney General for Organized Crime (SIEDO). The DGAIO works closely with SIEDO in carrying out money laundering investigations. In 2003, SIEDO initiated 59 inquiries and transferred 28 of these to the judiciary for prosecution, issued various arrest warrants that ultimately resulted in 13 convictions with sentences, and seized large quantities of foreign and domestic currency. In addition to working with SIEDO, DGAIO personnel have initiated working level relationships with other federal law enforcement entities, including the Federal Investigative Agency (AFI), in order to support the investigations of criminal activities with ties to money laundering.

In November 2003, the Senate passed proposed amendments to the Federal Penal Code that would link terrorist financing to money laundering. This legislation, once passed by the lower house of Congress, will bring Mexico into compliance with UN Security Council Resolution 1373 against Terrorism and the FATF Special Recommendations on Terrorist Financing. The proposed amendments also create two new crimes: conspiracy to launder assets and international terrorism (when committed in Mexico to inflict damage on a foreign state). In addition, the legislation strengthens “know your client” provisions and requires suspicious transaction reporting by money exchange and remittance businesses. The GOM has responded to USG efforts to identify and block terrorist-related funds, and although no assets were frozen, it continues to monitor suspicious financial transactions.

Mexico has developed a broad network of bilateral agreements with the United States, and regularly meets in bilateral law enforcement working groups with the U.S. The GOM and the United States Government (USG) continue to implement other bilateral treaties and agreements for cooperation in law enforcement issues, including the Financial Information Exchange Agreement (FIEA) and the memorandum of understanding (MOU) for the exchange of information on the Cross-border Movement of Currency and Monetary Instruments. In October 2001, the U.S. Customs Service and Mexico City entrepreneurs inaugurated a Business Anti-Smuggling Coalition (BASC) that includes the establishment of a financial BASC chapter created to deter money laundering. Although the United States and Mexico both have forfeiture laws and provisions for seizing assets abroad derived from criminal activity, USG requests to Mexico for the seizure, forfeiture, and repatriation of criminal assets have not met with success, as Mexican authorities have difficulties handling assets seized for forfeiture in Mexico if these assets are not clearly linked to narcotics. In two significant U.S. cases involving fraud, authorities seized real property and money generated from the crime. Although authorities gained forfeiture of the property in the United States, counterparts in Mexico did not carry out such orders in Mexico, nor have they returned related assets to the United States for forfeiture.

In addition to its membership in the FATF, Mexico participates in the Caribbean Financial Action Task Force (CFATF) as a cooperating and supporting nation and in the South American Financial Action Task Force (GAFISUD) as an observer member. Mexico is a member of the Egmont Group and the OAS/CICAD Experts Group to Control Money Laundering. The GOM is a party to the 1988 UN Drug Convention. In 2003, the GOM ratified several other international treaties, including the UN Convention against Transnational Organized Crime, the UN International Convention for the Suppression of the Financing of Terrorism, and the Inter-American Convention Against Terrorism, which entered into force on July 10, 2003. The GOM also signed the UN Convention Against Corruption on December 9, 2003.

The GOM should improve the mechanisms and implementation for asset forfeiture and money laundering cooperation with the United States, and increase efforts to control the bulk smuggling of currency across its borders. The GOM should also closely monitor remittance systems for possible exploitation by criminal or terrorist groups. The GOM should enact its proposed legislation to criminalize the financing and support of terrorists and terrorism. Furthermore, despite the preventive mechanisms that have been put in place, improved cooperation among law enforcement authorities and a strong public campaign against corruption, the GOM continues to face challenges in prosecuting and convicting money launderers, and should continue to focus its efforts on improving its ability to do so.

Micronesia

The Federated States of Micronesia (FSM) is a sovereign state in free association with the United States. The FSM is not a regional financial center. There has not been any known money laundering schemes related to narcotics proceeds. Financial crimes, such as bank fraud, are rare and do not appear to be increasing in frequency. Misappropriation of public funds has generated illicit proceeds and has led to a number of indictments against politicians and associated businessmen on money laundering grounds. There may be limited financial crimes outside the formal banking sector by cash dealers involved in remittances to the home countries of some foreign workers.

There are three financial institutions in the country: Bank of Guam, Bank of the FSM, and the FSM Development Bank. The Bank of Hawaii closed its FSM branches in November 2002. The Bank of the FSM and the FSM Development Bank are local institutions. The Bank of the FSM is the only non-U.S. bank insured by the Federal Deposit Insurance Corporation (FDIC). The Bank of Guam is also FDIC insured. The FSM Banking Board performs “spot audits” on all the banks.

In December 2000, FSM enacted the Money Laundering and Proceeds of Crime Act (the Act), which went into effect July 1, 2001. The IMF Legal Department conducted a technical review of the law and issued a detailed and favorable report in November 2002. The Act criminalizes money laundering and provides for the freezing and seizure of assets. Predicate crimes include all serious offenses punishable by imprisonment of more than one year. The law also provides for collection of financial information and intelligence and international cooperation in money laundering matters. The FSM Administration plans to submit updated money laundering legislation to Congress in 2004, bringing the statute up to full international standards, strengthening forfeiture rules, expanding reporting requirements by banks and nonbank financial institutions, and establishing a financial investigative unit in the Justice Department.

Legislation aimed at enhancing law enforcement cooperation with the United States and other countries in investigating serious crimes was enacted as the Mutual Assistance in Criminal Matters Act of 2000. The law sets forth procedures for requesting assistance and responding to requests from other countries.

Legislation to explicitly criminalize terrorist financing is pending. Pending new legislation, the FSM could apply the current money laundering law against terrorist financing if the predicate acts of terrorism constitute a criminal violation. FSM became a party to the UN International Convention for the Suppression of the Financing of Terrorism on September 23, 2002. The FSM Department of Justice has established a protocol for regular notification to the Banking Board of the names of suspected terrorist individuals and organizations. No assets of individuals or entities have been seized or frozen.

FSM should become a party to the UN Convention against Transnational Organized Crime. FSM should continue to enhance its anti-money laundering regime by criminalizing terrorist financing and adopting and implementing the pending laws and regulations.

Moldova

Moldova is not considered an important regional financial center. Its significance in terms of money laundering is as a transit country, the exact extent of which is unknown. Moldova continues to suffer from severe economic conditions and incomes are generally low. Criminal proceeds laundered in Moldova are derived substantially from foreign criminal activity and, to a lesser extent, domestic criminal activity and corruption. There has been a rise in Internet-related fraud schemes. Although a significant black market exists in Moldova for all manner of goods, narcotics proceeds are not deemed to be a significant funding source. Instances of money laundering have been through the banking system. Organized crime syndicates, from within Moldova and abroad, are believed to control most money laundering proceeds, and Government of Moldova (GOM) authorities are not known to encourage or facilitate laundering of proceeds from criminal or terrorist activity. While currency transactions involving laundered proceeds may include U.S. currency (counterfeit or genuine), profits from regional organized crime activities likely account for the majority.

Moldova criminalized money laundering on November 15, 2001, and the law was amended on June 21, 2002. It remained unchanged when the new criminal code was adopted on June 12, 2003. The legislation applies to “all crimes,” not just narcotics activity, with banks and nonbank financial institutions (NBFIs) required to report suspicious transactions to proper GOM authorities. The threshold for suspicious activity at the current exchange rate is any single transaction of $7,600 for individuals, $15,200 for wire transfers, and $22,800 when transferred by a company or firm. Banks must maintain transfer records for a period of five years after an account is opened or after any financial transaction takes place, and seven years after foreign currency contract transactions, whichever is later. Suspicious transactions have been reported, as required, since the law was enacted.

Both banks and NBFIs are protected from criminal, civil, and administrative liability asserted as a result of their compliance with the reporting requirements, and no secrecy laws exist that would prevent law enforcement or banking authorities from accessing financial records. An amendment dated May 29, 2003 states that forwarding such information to law enforcement or the courts is not a breach of confidentiality as long as it is done in accordance with the regulations.

Only two foreign banks exist in Moldova, Banca Comerciala Romana, a Romanian bank; and Unibank, in which Russian bank Petrocomert holds 100 percent of the shares; both are regulated in the same manner as Moldovan commercial banks. Offshore banks are permitted, so long as they are licensed by the National Bank of Moldova (NBM) and background checks are conducted on shareholders and bank officials. Nominee (anonymous) directors are not allowed, and banks do not permit bearer shares. The Ministry of Finance currently licenses five casinos, although they are reportedly not well regulated or controlled. GOM efforts against the international transportation of illegal-source currency and monetary instruments largely focus on cross-border currency reporting forms, completed at ports of entry by travelers entering Moldova.

Current legislation contains provisions authorizing sanctions of commercial banks for negligence and, as mentioned above, money laundering legislation applies not only to banks but also to NBFIs and to any person involved in laundering money. While banks were initially resistant towards money laundering legislation, they have since adopted compliance programs as required by the law. Money laundering investigations are difficult, particularly as Moldova remains predominantly a cash society with people having little trust in banks.

Money laundering crimes are the purview of the Center for Combating Economic Crimes and Corruption, while narcotics-related seizures are within the jurisdiction of the Ministry of Interior. The Office of the Prosecutor General has created a Financial Investigations Unit to pursue suspicious transactions. Moldovan authorities report that there are currently 11 criminal investigations underway for money laundering, with two suspects under arrest. Moldova has made no arrests for terrorist financing.

Article 106 of the Moldovan criminal code, enacted June 12, 2003, relates specifically to asset seizure and confiscation. The article, titled “Special Seizures,” describes a special seizure as the forced and free passage to the State of goods used during or resulting from crimes. The article may be applied to goods belonging to persons who knowingly accepted things acquired illegally, even when prosecution is declined. It remains unclear if asset forfeiture may be invoked against those unwittingly involved or tied to an illegal activity. The GOM currently lacks adequate resources, training, and experience to trace and seize assets effectively.

Moldova codified the criminalization of terrorist financing in the Law on Combating Terrorism, enacted November 12, 2001. Article 2 defines terrorist financing, and Article 8/1 authorizes suspension of terrorist and related financial operations. Current GOM capabilities to identify, freeze, and seize terrorist assets are rudimentary, with investigators lacking advanced training and resources. While the NBM receives updated lists of suspected terrorists, no al-Qaida or Taliban related assets have been identified, frozen, or seized in Moldova. No hawala system exists in Moldova; however, current anti-money laundering legislation also covers gold, gems, and precious metals. Investigation into misuse of charitable or nonprofit entities is nonexistent, as the GOM has neither the resources nor ability to perform these tasks.

No agreements, bilateral or otherwise, exist between the U.S. and Moldova relating to the exchange of records in connection with narcotics, terrorism, terrorist financing, or other serious criminal investigation. No negotiations are underway in establishing such a mechanism. Current legislation does not prohibit cooperation on a case-by-case basis. GOM authorities continue to solicit USG assistance on individual cases and cooperate with U.S. law enforcement personnel when presented with requests for information/assistance. There are no known cases of GOM refusal to cooperate with foreign governments or of sanctions or penalties being imposed upon the GOM for a failure to cooperate.

Moldova is a party to the 1988 UN Drug Convention, the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and the UN International Convention for the Suppression of the Financing of Terrorism, and cooperates in accordance with these agreements where resources and abilities permit. Moldova has also signed, but not yet ratified, the UN Convention against Transnational Organized Crime. In addition to these, Moldova has signed an agreement with CIS member states for the exchange of information on criminal matters, including money laundering.

The GOM should continue to enhance and implement its anti-money laundering/antiterrorist financing regime. Moldova should establish a financial intelligence unit to facilitate the sharing of information with foreign governments. The GOM should improve the mechanisms and assure implementation of its asset forfeiture laws and provide appropriate training for officials involved in this program.

Monaco

The Principality of Monaco is considered vulnerable to money laundering, because of its strict bank secrecy laws, network of casinos, and unregulated offshore sector. The principality does not face standard forms of organized crime, and the crimes that exist do not seem to generate significant illegal proceeds (save for fraud and offenses under the Law on Checks); rather, money laundering offenses relate mainly to offenses committed abroad. Russian organized crime and the Italian Mafia reportedly have laundered money in Monaco. Monaco remains on an OECD list of so-called “noncooperative” countries in terms of provision of tax information.

Monaco is the smallest country in Europe, after the Vatican. There are approximately 70 banks and financial institutions in Monaco, with more than 300,000 accounts (with a population of about 7,000 Monegasque nationals and another 25,000 foreign residents). Approximately 85 percent of the banks’ customers are nonresident. In 2002, the financial sector represented over 17 percent of Monaco’s turnover. Aside from banks, the nonbanking financial institutions include insurance companies, portfolio management companies, and trusts created through notaries, of which there are three, all nominated by the Prince. Accountants and the 25 legal professionals in the country are also included. The real estate sector is quite important because of the high prices involved. There are also four casinos run by the Société des Bains de Mer (with a state-owned majority interest).

Monaco’s banking sector is linked to the French banking sector through the Franco-Monegasque Exchange Control Convention signed in 1945 and supplemented periodically, most recently in 2001. Monaco therefore uses banking legislation and regulations issued by the French Banking and Financial Regulations Committee, including Article 57 of France’s 1984 law regarding banking secrecy. Most of the Monegasque banking sector is concentrated in portfolio management and private banking. The subsidiaries of foreign banks operating in Monaco can withhold customer information from the parent bank. Monaco also has an offshore sector, and permits the formation of both trusts and five different types of international business companies (IBCs): limited liability companies, branches of foreign parent companies, partnerships with limited liability, partnerships with unlimited liability, and sole proprietorships. However, ready-made “shelf companies” are not permitted. The incorporation process generally takes four to nine months. Monaco does not maintain a central registry of IBCs, and authorities have no legal basis for seeking information on the activities of offshore companies.

Although the French Banking Commission is the supervisor for Monegasque institutions, Monaco shoulders its own responsibility for legislating and enforcing measures to counter money laundering and terrorism financing. The Finance Councilor (within the Government Council) is responsible for anti-money laundering implementation and policy. Money laundering in Monaco is a criminal offense. It was criminalized by Act 1.162 of 7 July 1993, “On the Participation of Financial Institutions in the Fight against Money Laundering,” and Section 218-3 of the Criminal Code, and amended by Act 1.253 of 12 July 2002, “Relating to the Participation of Financial Undertakings in Countering Money Laundering and the Financing of Terrorism.” Banks, insurance companies, and stockbrokers are required to report suspicious transactions and to disclose the identities of those involved. Casino operators must alert the government of suspicious gambling payments possibly derived from drug trafficking or organized crime. Another law imposes a five-to-ten-year jail sentence for anyone convicted of using ill-gotten gains to purchase property (which is itself subject to confiscation).

The 2002 amendments to the 1993 money laundering legislation include bringing corporate service providers, portfolio managers, and Monaco Law 214 trustees, as well as institutions within the offshore sector, into line with the obligations of banks. New procedures have also been put into place, which include internal compliance, identification of the client, and records maintenance. Authorities held briefings to explain the new procedures to companies requiring a compliance officer. Meetings are also held with compliance officers so that implementation issues and concerns may be aired and addressed. Offshore companies are subject to the same due diligence and suspicious reporting obligations as banking institutions, and Monegasque authorities conduct on-site audits. The 2002 legislation also strengthened the Know Your Client obligations for casinos. Monegasque authorities envisage amending legislation to implement full corporate criminal liability before the middle of 2004.

Banking laws do not allow anonymous accounts, but Monaco does permit the existence of alias accounts, where the owner uses a pseudonym in lieu of the real name. Cashiers do not know the client, but the bank knows the customer and retains client identification information.

Monaco established its financial intelligence unit, the Service d’Information et de Controle sur les Circuits Financiers (SICCFIN), to collect information on suspected money launderers. SICCFIN receives suspicious reports, analyzes them, and forwards them to the Prosecutor when they relate to drug trafficking, organized crime, terrorism, terrorist activities, terrorist organizations, or the funding thereof. SICCFIN also is responsible for supervising the implementation of anti-money laundering legislation. Under Law 1.162, Article 4, SICCFIN may suspend a transaction for up to twelve hours and advise the judicial authorities to investigate. SICCFIN also has provided training to intermediaries, most recently to lawyers and notaries.

In 2000, the Financial Action Task Force criticized the anti-money laundering regime of Monaco for the insufficient resources provided to SICCFIN. In November 2001, Monaco and France reached an agreement on initiatives to counter money laundering in the principality. The French Finance Ministry stated that SICCFIN had doubled the number of its staff, and that there had been a “noteworthy” increase in the number of suspicious activity reports being filed. The authorities believe that this is due to a greater awareness of money laundering rather than an increase in money laundering itself. The 2002 amendments to the money laundering legislation increase SICCFIN’s investigatory powers. In 2002, SICCFIN received 275 disclosures, 33 of which were passed to the Public Prosecutor for further investigation. In the first eleven months of 2003, SICCFIN received 250 disclosures, 19 of which were referred to the public prosecutors.

Investigation and prosecution are handled by the two-officer Unite de lutte au blanchiment (Unit Against Money Laundering) within the police. The Groupe de repression du banditisme (Group Against Organized Crime) may also handle cases. Depending on the number and types of cases, there are seven police officers equipped to deal with money laundering. Monaco has had three convictions for money laundering, and one acquittal. Monaco encounters obstacles because predicate offenses for money laundering are committed abroad; despite the existence of money laundering, often the crime that receives the conviction is the predicate crime and not the money laundering offense.

Monaco’s legislation allows for confiscation of property of illegal origin as well as a percentage of illegally acquired and legitimate property that has been mingled. A court order is required for confiscation. In the case of money laundering, confiscation of property is restricted to the offenses listed in the Criminal Code. On the basis of letters rogatory, over 11.7 million euros have been seized. Monaco has extradited criminals, mainly to Russia.

The Securities Regulatory Commissions of Monaco and France signed a memorandum of understanding on March 8, 2002, on the sharing of information between the two bodies. The agreement was a step in Monaco’s efforts to conform to standards proscribed by the International Organization of Securities Commissions, whose mission is to establish international standards to promote the integrity of securities markets. The Government of Monaco sees the MOU as an important tool to strengthen the principality’s ability to fight financial crimes, particularly money laundering.

In 2003, SICCFIN signed information exchange agreements with counterpart units in Slovenia and Lebanon, in 2002, with Switzerland, Liechtenstein, and Panama, and in previous years with Luxembourg, France, Spain, Belgium, Portugal, and the United Kingdom. SICCFIN is a member of the Egmont Group of FIUs; in the first eleven months of 2003 it received 75 requests for information or assistance, and responded to every one. It is a priority for Monaco to satisfy mutual legal assistance requests, which are enforced swiftly, and there is no obstacle to international judicial cooperation.

Monaco is a candidate country to the Council of Europe. Despite its nonmember status, SICCFIN approached the MONEYVAL Committee in 2002 and requested full participation in that Committee, including having an evaluation conducted on its anti-money laundering regime. In October 2002, the evaluation was executed; the evaluators acknowledged the extensive and thorough regime that has been developed.

Monaco is a party to the 1988 UN Drug Convention. In June 2001 it ratified the UN Convention against Transnational Organized Crime. Monaco became a party to the UN International Convention for the Suppression of the Financing of Terrorism in November 2001. In April and August 2002, Monaco promulgated Sovereign Orders to import into domestic law the international obligations it accepted when it ratified that Convention. In May 2002, Monaco acceded to the Council of Europe Convention on the Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. In July and August 2002, Monaco passed Act 1.253 and promulgated two Sovereign Orders, intended to implement UNSCR 1373 of 2001, which outlaw terrorism and its financing.

Monaco’s actions to increase the resources of SICCFIN should increase the efficacy of Monaco’s anti-money laundering regime. Monaco should amend the Criminal Code to include the “all-crimes” approach, rather than the current list of predicate offenses. Monaco should also amend its legislation to implement full corporate criminal liability and establish a central registry for IBCs. Monaco should continue to enhance its anti-money laundering and confiscation regimes.

Mongolia

Mongolia is not a financial center. Mongolia’s vulnerability to transnational crimes such as money laundering has grown with the country’s increased levels of international trade, tourism, and banking. Mongolia’s long, unprotected borders with Russia and China make it particularly vulnerable to smuggling and narcotics trafficking. The growing North Korean presence in Mongolia also makes the country vulnerable to counterfeit U.S. currency. Illegal money transfers and public corruption are other sources of illicit funds. Although the Government of Mongolia is drafting anti-money laundering legislation, it has been slow in establishing interagency coordination mechanisms to help monitor international financial transactions. Moreover, growing corruption, a weak legal system, an inability to effectively patrol its borders to detect smuggling, and lack of capacity to conduct transnational criminal investigations all hamper Mongolia’s ability to fight all forms of transnational crime.

Mongolia is a party to the 1988 UN Drug Convention. In recent years Mongolia has increased its participation in fora that focus on transnational criminal activities and has observer status in the Asia/Pacific Group on Money Laundering. Mongolia has signed and ratified the UN International Convention for Suppression of the Financing of Terrorism.

Mongolia should pass and implement anti-money laundering and antiterrorist financing legislation.

Montserrat

Montserrat has one of the smallest financial sectors of the Caribbean overseas territories of the United Kingdom. Volcanic activity between 1995 and 1998 reduced the population and business activity on the island, although an offshore financial services sector remains that may attract money launderers because of a lack of regulatory resources. There are no exchange controls for transactions below EC$250,000.

Montserrat’s offshore sector consists of 11 offshore banks, all owned and controlled by Latin American interests, approximately 22 international business companies (IBCs) and 30 Companies Act companies, the majority of which engage only in conducting local business. IBCs may be registered using bearer shares, providing for anonymity of corporate ownership. The Financial Services Centre (FSC) regulates offshore banks, while the Eastern Caribbean Central Bank (ECCB) supervises Montserrat’s two domestic banks. In 2002, the government entered into a memorandum of understanding (MOU) with the ECCB to provide assistance in the supervision of Montserrat’s offshore banking sector. MOUs also have been entered into with overseas regulators to provide a mechanism for collaboration in the supervision of most of the offshore banks.

The Proceeds of Crime Act (POCA), 1999 criminalizes the laundering of proceeds from any indictable offense and provides for freezing and confiscation of the proceeds of crime and international cooperation. The legislation also imposes broad requirements on financial institutions regarding customer identification and record keeping and mandates the reporting of suspicious transactions to a designated authority.

The Offshore Banking Act (OB Act) and the Financial Services Commission Act, 2001 (FSC Act) are the governing pieces of legislation for the offshore sector. The OB Act addresses licensing of offshore banks, prudential and supervision requirements, and liquidation issues. The FSC Act establishes the FSC and sets out its authorities and administration.

The Reporting Authority was established in 2002 to serve as Montserrat’s financial intelligence unit (FIU); however, it is not yet operational. Under the POCA, the Governor has issued a nonmandatory code of practice establishing further guidance for financial institutions.

The UN International Convention for the Suppression of the Financing of Terrorism has not been extended to Montserrat; however, Montserrat has implemented provisions in local legislation to put into practice applicable provisions of the Convention.

U.S. law enforcement cooperation with Montserrat is facilitated by a treaty with the United Kingdom concerning the Cayman Islands, relating to mutual legal assistance in criminal matters, that was extended to Montserrat in 1991. Montserrat’s current legislation, however, makes information exchange difficult between regulators and foreign authorities. Montserrat is a member of the Caribbean Financial Action Task Force (CFATF) and is subject to the 1988 UN Drug Convention.

Montserrat should issue regulations to implement the POCA and make the full operation of the Reporting Authority a priority. It should enact measures to identify and record the beneficial owners of IBCs and immobilize bearer shares. If it has not already done so, Montserrat should criminalize the financing and support of terrorists or terrorist organizations. Montserrat should ensure adequate oversight and supervision of its offshore sector to deter criminal and terrorist organizations from abusing its financial services sector.

Morocco

Morocco is not a regional financial center and the extent of the money laundering problem in Morocco is not known. There have been reports of money laundering activities within the country related to international arms smuggling. Morocco remains an important producer and exporter of cannabis, with estimated revenues of $3 billion annually. Some of these proceeds may be laundered in Morocco and abroad. Large numbers of Moroccans have a strong economic dependence on the narcotics trade. There is no indication that international or domestic terrorist networks have engaged in widespread use of the narcotics trade to finance terrorist organizations and operations in Morocco. Morocco has a significant informal economic sector, including remittances from abroad and cash-based transactions. There are unverified reports of trade-based money laundering, including bulk cash smuggling, under-and over-invoicing, and the purchase of smuggled goods. Banking officials have indicated that the country’s system of unregulated money exchanges provides opportunities for launderers. Morocco has offshore banks.

The Moroccan financial sector is modelled after the French system and consists of 16 banks, five government-owned specialized financial institutions, approximately 30 credit agencies, and 12 leasing companies. The monetary authorities in Morocco are the Ministry of Finance and the Central Bank, Bank Al Maghrib (CBM), which monitors and regulates the banking system. A separate Foreign Exchange Office regulates international transactions. Morocco has used administrative instruments and procedures to freeze suspect accounts.

However, CBM issued Memorandum No. 36 in December 2003, in advance of passage of the AML, instructing banks and other financial institutions to conduct their own internal analysis/investigations.

Morocco has in effect: (a.) legislation prohibiting anonymous bank accounts; (b.) foreign currency controls that require declarations to be filed when transporting currency across the border, although not strictly enforced; and, (c.) internal bank controls designed to counter money laundering and other illegal/suspicious activities.

In June 2003, Morocco implemented a comprehensive antiterrorism bill that provided the legal basis for the freezing of suspect accounts and prosecution of terrorist finance related crimes. As of January 2004, Morocco is moving towards the enactment of two laws that will further strengthen Morocco’s anti-money laundering system: a banking/financial sector reform bill and an anti-money laundering bill. The AML bill reportedly includes, among other provisions, a suspicious transaction-reporting scheme and creation of a financial intelligence unit (FIU). The bills are based on the FATF Forty Recommendations and will help bring Morocco’s financial sector in-line with international standards. Together, the three bills will enhance the supervisory and enforcement authority of the Central Bank and outline investigative and prosecutorial procedures. In the interim, the Central Bank has already mandated “know your customer” requirements and the reporting of suspicious transactions by financial institutions. All money transfer activities that take place outside the realm of the official Moroccan banking system—as set by the CBM guidelines—are deemed illegal

Morocco has taken a proactive approach to anti-money laundering and has solicited USG and international technical assistance. Morocco is a party to the UN International Convention for the Suppression of Financing of Terrorism, and the UN Convention against Transnational Organized Crime.

Morocco should move expeditiously to pass the banking sector reform bill and the proposed anti-money laundering law. As part of its anti-money laundering program, Morocco should establish a centralized financial intelligence unit (FIU) that will receive and analyze suspicious transaction reports and disseminate them to appropriate law enforcement agencies for investigation. Moroccan law enforcement and customs should also focus its efforts on informal remittance systems and various forms of trade-based money laundering.

Mozambique

Mozambique is not a regional financial center. Most money laundering in Mozambique is related to bank fraud and corruption. However, lax oversight and weak banking regulations suggest that Mozambique’s financial institutions are vulnerable to money laundering. In particular, there is growing concern that the proceeds of arms-trafficking, stolen vehicles sales, narcotics trafficking, prostitution, and contraband smuggling may be laundered through Mozambique’s financial institutions.

Mozambique’s nonbank financial sector, primarily comprised of exchange houses, may be susceptible to money laundering. In August 2002, an Indian national with connections to a Maputo exchange house was detained at an airport in Mozambique attempting to board a flight to Johannesburg with approximately $1 million. He subsequently escaped from jail.

Mozambique’s National Assembly passed an anti-money laundering law in December 2001, which was ratified by the Council of Ministers on February 5, 2002. As of the end of 2003, however, implementing regulations had not been drafted. The law extends the crime of money laundering to encompass predicate offenses beyond narcotics trafficking to most other serious crimes. The law also allows for asset seizure and forfeiture and requires financial institutions to verify the identity of their customers, keep transaction records for at least 15 years, and report suspicious transactions. The law protects employees of financial institutions who cooperate with money laundering investigations and exempts such cooperation from bank and professional secrecy rules. The law also contains “banker negligence” provisions, which hold individual bankers responsible for money laundering.

Bankers have the right to refuse service to anyone who refuses to identify the beneficiary of an account. Judicial authorities are given the right to request account information from financial institutions and to gain access to computer records from banks, individuals, and companies that are suspicious. Judicial authorities also have the right to authorize the tapping of phone conversations as part of financial investigations.

Customs regulations require those entering or leaving the country with foreign currency or negotiable instruments in amounts greater than $5,000 to file a report with Customs. Taking local currency out of the country is prohibited. In December 2002, South African authorities apprehended a Pakistani national attempting to cross the South Africa-Swaziland border with $40,000 hidden under his clothing. He had traveled numerous times between South Africa and Mozambique.

The Government of Mozambique (GOM) has the authority to freeze and seize assets related to terrorist financing. The GOM has also circulated the list of terrorist individuals and entities designated by the UN 1267 Sanctions Committee, as well as the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224.

Mozambique is a member of the Eastern and Southern African Anti-Money Laundering Group, a FATF-style regional body. Mozambique is a party to the UN International Convention for the Suppression of the Financing of Terrorism and the 1988 UN Drug Convention. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime.

Mozambique should implement its anti-money laundering law, establish a Financial Intelligence Unit, and criminalize terrorist financing.

[Countries N through Z]