1998 International Narcotics Control Strategy Report

Bureau for International Narcotics and Law Enforcement Affairs
United States Department of State
February 26, 1999

MONEY LAUNDERING AND FINANCIAL CRIMES

Afghanistan (Other). The present state of political turmoil in Afghanistan, which has destroyed most of the country's primitive banking infrastructure, is not conducive to domestic money laundering. Afghanistan does play a key role in the heroin trade, the proceeds of which appear to be laundered outside the country or through the hawala alternative remittance system. Reports indicate that the Taliban and other factions have been involved in narcotics trafficking.

Albania (Concern). Albania is still recovering from the pyramid scheme scandal and the subsequent collapse of its economy in 1997. Government enforcement structures remain weak, and the growth of organized crime threatens government institutions and the economy. Albanian banks do not strictly enforce existing anti-money laundering measures, and as a result, money laundering is widespread. Narcotics trafficking, organized crime, terrorism, arms trafficking, alien smuggling, corruption, prostitution, and the counterfeiting of local and U.S. currency are the primary sources of illegal proceeds. According to an official source, Albania has become a base of operations for organized criminal groups from Italy, Turkey, Greece, and Macedonia. Alien smuggling is the largest and best- organized criminal activity between Albania and Italy, and the two nations have announced a coordinated effort to combat alien smuggling across the Adriatic Sea. Joint investigations conducted by Italian and Albanian authorities have uncovered Italian Mafia involvement in the pyramid scheme and money laundering schemes through investments in Albania.

Terrorist groups, using Albania as a base of operations and meeting ground, have established financial enterprises there to finance their activities abroad. A special investigation conducted by Albanian authorities on the activities of Islamic terrorist groups revealed that these groups are involved in narcotics trafficking and the laundering of illicit proceeds to finance their operations.

An audit conducted by an international accounting firm selected by the Albanian Finance Ministry to examine the companies involved in the pyramid schemes revealed that the five largest firms took in more than $400 million from over 300,000 depositors (roughly 10 percent of Albania's population), of which only $50 million in assets are on hand. The Albanian finance minister stated that some of these companies were based solely on pyramid schemes and were involved in narcotics trafficking and money laundering.

In early 1998, the Ministry of the Interior announced the creation of two specialized police units to combat narcotics trafficking and financial crimes. The units will be centralized at the national level, with regional units reporting to the national headquarters. However, a lack of resources and official corruption are severely hampering the establishment and operation of these units.

An anti-money laundering law, based on recommendations provided by the UN and the IMF, was drafted by the Albanian central bank, the Prosecutor General's Office, and the Ministry of Justice. It was submitted to the Parliament for ratification in November 1998. The proposed law mandates customer identification, record-keeping requirements, and suspicious and currency transaction reporting by banks and other financial institutions, with fines for non-compliance. It also calls for the creation of a financial intelligence unit and imposes criminal penalties for money laundering.

Albania participates in the Southeastern Europe Cooperative Initiative (SECI), among whose goals are to control the increasing flow of drugs across borders and to combat trans-border organized crime. These efforts will attack on a regional level the predicate crimes, which generate illegal proceeds that are subsequently laundered in Albania and neighboring countries. Albania participates in the Council of Europe's PC-R-EV, and is scheduled to undergo a mutual evaluation in the year 2000.

Algeria (Other). There is no official evidence of widespread money laundering in Algeria, but there are unofficial reports of money laundering being carried out in conjunction with various types of smuggling. In particular, hashish is smuggled into Morocco and smugglers reportedly purchase Algerian farmland near border (the costliest in the country), either to stock the hashish or facilitate contact with Moroccan producers.

Algeria is a party to the 1988 UN Drug Convention. However, it has not enacted any laws against money laundering. There is a requirement that any foreign currency imported into the country be declared upon entry, but it is not clear how strictly this is enforced.

Anguilla (Other). Anguilla is a UK Overseas Territory with a small offshore financial services sector, which includes offshore banks, trusts, and international business corporations. Since the early 1980s Anguilla has increased oversight of its offshore sector by enacting new financial services legislation and enforcing strict licensing requirements, along with sharply reducing the number of licensed banks. According to United States law enforcement sources, there are approximately 300 banks in Anguilla, of which 290 are Class B, or "paper", banks, which have no presence but are legally incorporated.

Money laundering in Anguilla seems to be minimal at present, but appears to be on the upswing. Bulk transport of currency and the use of the offshore financial institutions by drug traffickers are the most prevalent methods.

As Anguilla attempts to compete with larger jurisdictions and increase revenues by expanding its offshore sector, diligent oversight, along with enactment and enforcement of comprehensive anti-money laundering legislation, will be needed to prevent potential abuse of the industry by money launderers. As is the case with other UK overseas territories, local officials are currently working with British officials in drafting all- crimes money laundering legislation to apply to the domestic and offshore sectors.

Anguilla is a member of the CFATF.

Antigua and Barbuda (Primary). Antigua, with an active offshore financial services industry, a growing Internet gaming industry, stringent bank secrecy and limited regulatory capabilities, continues to be one of the most attractive financial centers in the Caribbean for money launderers. In October 1998, Antigua enacted amendments to the Money Laundering (Prevention) Act and the International Business Corporations (IBC) Act which appear to significantly erode the effectiveness of Antigua's anti- money laundering regime. The amendments to the Money Laundering (Prevention) Act weaken the original legislation by (1) strengthening bank secrecy rather than making financial transactions more transparent; (2) inhibiting the scope of investigations; and (3) allowing bank secrecy to infringe on international cooperation. While some of the amendments to the IBC Act include positive features, other amendments contravene the Basle Principles of effective supervision in that they allow persons with interests in supervised entities to serve on a regulatory body. The amendments also create a serious imbalance between the powers of the Board of Directors and the Executive Director of the International Financial Sector Authority (IFSA).

Despite assurances to the contrary, the Government of Antigua and Barbuda (GOAB) failed to take adequate steps to implement effectively the Money Laundering (Prevention) Act during 1998. The GOAB is only now beginning to create and staff the Supervisory Authority mandated by the law, and the Ministry of Finance has not issued regulations or created mechanisms to implement the mandated suspicious financial transaction reporting. The GOAB has not issued regulations to implement the mandated inbound/outbound currency reporting by issuing customs declarations for the movement of large currency and negotiable instruments. It has also not established a system for the maintenance and retrieval of such records, nor has it established effective customs and regulatory controls at ports of entry and departure.

Antigua has an active offshore financial services industry consisting of 47 offshore banks and thousands of international business corporations. Numerous criminal investigations in the United States have revealed that several of the offshore banks engage in business with funds of questionable origin. In November 1996, the Antiguan government, faced with ever increasing international criticism of its offshore banking industry, agreed to suspend the issuance of offshore banking licenses until better vetting procedures were established and to raise bank reserve capitalization requirements. Despite these assurances, the government licensed three new offshore banks in 1997 and two in 1998. However, the Antiguan government is in the process of conducting a review of the bona fides of existing offshore banks. Those banks which do not provide audited financial statements, records regarding beneficial owners and other requested information, or who are found to be participating in illegal activities such as fraud and money laundering, are being closed. Nine banks have been closed or sent closure notices.

The United States continues to be concerned about the lack of assistance from the GOAB in investigative and forfeiture matters over the past several years. Since April 1994, The United States DOJ has attempted to work with Antiguan authorities to enforce a criminal forfeiture order for $7.5 million entered by the U.S. District Court in Boston against John Fitzgerald, a convicted drug dealer and money launderer. The funds were transferred by Swiss American Bank to the Government of Antigua, but Antigua has not cooperated in repatriating the funds. In December 1997, the United States filed suit against Swiss American Bank to recover the funds. The United States is currently appealing the dismissal of the case for lack of jurisdiction by the U.S. District Court in Boston, Massachusetts.

The United States has also been disappointed with the lack of Antiguan assistance in investigating the Antiguan-licensed European Union Bank (EUB), an offshore bank which collapsed in August 1997. The two Russian founders of EUB absconded with approximately $10 million of depositors' funds. U.S. investigators are being given only limited access to bank records due to Antigua's strict bank secrecy laws, which protect the confidentiality of depositors except in cases of a violation of Antiguan law. Additionally in 1998, U.S. law enforcement officials were given assurances that they would receive access to bank records of Caribbean American Bank (CAB). To date, these records have not been provided to the FBI or U.S. Customs, despite promises of cooperation from the Antiguan authorities. In 1997, a director of CAB was convicted in the Middle District of Tennessee of laundering approximately $3.4 million in advanced fee fraud proceeds through CAB, and two officers of CAB were convicted in the Northern District of Florida of conspiracy to commit money laundering for their participation in the fraud and money laundering scheme. The victims of the fraud scheme were required to wire-transfer funds to CAB in Antigua. The money was then wire-transferred from CAB's bank account at American International Bank in Antigua to the defendants' bank accounts in the United States. Both EUB and CAB are currently in receivership in Antigua.

The pace of change in Antigua has been disappointing, given the commitments, which the GOAB has made to U.S. authorities and to the CFATF. Lack of political will and corruption may be factors inhibiting effective enforcement. In order to overcome these criticisms, the GOAB must focus its efforts on fully implementing the Money Laundering (Prevention) Act, ensuring compliance with the new regulations of the IBC Act, and enhancing international cooperation on law enforcement matters. In addition, the GOAB should further amend its anti-money laundering and IBC laws to correct deficiencies in the current legislation, in order to strengthen them and bring them into compliance with international standards.

Argentina (Concern). While Argentina has not yet developed into a major money-laundering center, it is an important regional financial center with a strong economy. Money laundering is thought to occur in both the banking system and in non-bank financial institutions. There have been no indications of Argentine banks being knowingly involved in the laundering of proceeds from U.S. narcotics sales, but money laundering derived from contraband and tax evasion does occur.

The newly appointed Counternarcotics Secretary has re-submitted to the Argentine Congress an anti-money laundering bill, which expired in 1997. This bill criminalizes the laundering of proceeds derived from numerous illicit activities and mandates the reporting of suspicious financial transactions by a wide spectrum of financial institutions. The bill also creates a multi-agency financial intelligence unit (FIU) to receive the suspicious transactions reports, initiate money laundering investigations, and forward cases for prosecution. The Commissions of the Chamber of Deputies of the Argentine Congress are reviewing the bill, but disagreements over the structure and location of the FIU--as well as concerns about privacy protection--continue to delay its enactment.

The Central Bank of Argentina has issued a comprehensive set of regulations to safeguard the financial system from abuse by criminals, including a prohibition on cashing third-party or bearer checks of more than $50,000, the mandatory reporting of bank accounts which move more than $200,000 per month or $500,000 per year, and the required maintenance for five years of records of all transactions of more than $10,000. Customer identification guidelines are in place, as are guidelines for the detection and reporting of suspicious activities. In practice, however, few suspicious transactions are reported to the central bank.

Argentina has been a supportive partner of the international community's efforts to fight narcotics trafficking and related money laundering. It chairs the Money Laundering Experts Group of the OAS/CICAD, and in 1998 hosted the annual meeting of the Egmont Group of FIUs. In June 1998, the Argentine Ministry of Interior signed an agreement with the Russian Interior Ministry for cooperation in combating organized and economic crime, despite the fact that there have been no indications that Russian organized criminal groups are operating in Argentina. Under a December 1995 MOU, the Argentine Counternarcotics Secretariat (SEDRONAR) and FinCEN continue to exchange financial intelligence for use in money laundering investigations. Argentina has expressed an interest in becoming a member of the FATF.

While its actions on the international front are commendable, the Government of Argentina needs to move quickly to pass its anti-money laundering bill. In view of the fact that Argentina has dollarized its economy and is considering a complete move to the U.S. dollar, passage of this legislation is even more essential.

Armenia (Other). Armenia is not known as a money-laundering haven. However, current economic and developmental factors create an environment favorable to money laundering. Armenia's gray economy is officially estimated to be 40-70 percent of the gross domestic product, and the unemployment rate lies somewhere in the range of 60-70 percent. Tax collection is a significant problem. Forty percent of public expenditures are derived from foreign remittances, primarily from Armenian diaspora communities. Official corruption, particularly within customs and other state regulatory agencies, is endemic and discourages international investment. In fact, perceived official corruption is causing a drop in diaspora remittances to Armenia. Four high-ranking officials in Armenia's Ministry of Defense were arrested in July 1998 on suspicion of attempted embezzlement of $1 million from ministry funds. The scheme involved the director of the ministry's financial department, who committed suicide on the eve of a planned audit. Armenia is increasingly becoming an important transit country for narcotics trafficking and smuggling due to lax border controls between Commonwealth of Independent States (CIS) countries and Armenia's location along an important Iran-CIS trade route.

Organized crime has a fairly strong presence in Armenia, is armed, and has room for future growth. Criminal groups operating in Armenia maintain ties to those in other CIS countries and with Armenian communities abroad. Economic crime is primarily connected to smuggling, tax evasion, looting of privatized companies, embezzlement of state funds, and diversion of foreign assistance. High unemployment, low salaries, a large underground economy, corruption, and organized crime provide classic conditions for money laundering.

Although no evidence as of yet has been uncovered of the transferring of foreign illegal proceeds to Armenia for laundering, Armenian authorities admit that enforcement agencies have not focused on investigating money- laundering operations. However, domestically generated illegal proceeds are laundered in the local economy. Various schemes are employed to launder funds, including the under-invoicing of imports, false invoicing, double bookkeeping, and the use of the banking system to launder questionable funds. One bank specializes in conducting foreign transactions, primarily to Russia, Cyprus, and other offshore centers, with the aim of moving funds out of Armenia.

The prosecution of economic crimes is a government priority as part of the ongoing reform process of the current administration. Much legislative activity in the area of enforcement occurred in 1998. A new criminal procedure code went into effect on January 12, 1999, and a complete new criminal code, including provisions dealing with economic crime, such as the criminalization of money laundering (draft Article 193), is expected to be passed by the current parliament early in 1999. However, implementation of these laws will be difficult. Interagency cooperation is good in the enforcement sector, but investigators have a poor understanding of the concept of money laundering. A more fundamental problem is the lack of financial resources to effectively combat money laundering and other crimes.

Bank secrecy laws create difficulties in obtaining bank records for investigations. Anti-money laundering measures do not exist in either banks or non-bank financial institutions. In addition, the gray economy affects the banking system due to the U.S. dollarization of the economy and the magnitude of cash circulating outside the banking sector. Even if anti- money laundering regulations are introduced into the financial sector, they would serve to regulate only a fraction of the financial transactions conducted in Armenia.

Aruba (Concern). Aruba, with its free trade zone and offshore industry, is vulnerable to being used by criminal entities to launder money through wire transfers and the smuggling of cash. Suspicions of money laundering in Aruba persist, particularly through casinos, the free trade zone, and financial institutions. In May 1998, the Government of Aruba (GOA) approved the extradition of Aruban nationals Alex and Eric Mansur from Aruba to Puerto Rico to stand trial for laundering millions of dollars of drug proceeds from Puerto Rico to Aruba. The cousins, members of a politically powerful Aruban family, were among approximately 50 people indicted in the District of Puerto Rico in 1994 as part of a major money laundering conspiracy. Also extradited in May 1998 was Aruban national Randy Habibe, who had been indicted in the Southern District of Florida for his participation in a drug conspiracy. Habibe is accused of laundering approximately $800 million in drug proceeds.

The GOA continues to make progress in its anti-money laundering efforts. A draft law to implement crossborder currency reporting requirements was expected to be presented to Parliament in early February 1999. Plans are also underway to extend the requirement for the reporting of unusual transactions to casinos and the free zone, although the legal framework for doing so is not yet in place. The extension of the requirements to casinos should be in effect in a few months, while a bill to extend the requirements to the free zone is expected to reach Parliament by May 1999.

The GOA established Free Zone Aruba, N.V., as a limited liability company to regulate the free zone in accordance with guidelines developed by the Mixed Committee on Free Zones. The GOA apparently has succeeded in its efforts to curb the flow of cash into and out of the free zone, because the cash flow has been virtually non-existent since 1997. The GOA has also drafted, and distributed for comment, legislation on the registration and supervision of trust companies and corporations. In October 1998, Aruba enacted asset seizure legislation, which became effective in January 1999. The law provides for administrative seizure and forfeiture of the proceeds and instrumentalities of crime, and allows Aruban and Antillean authorities to seize assets based on a conviction in a foreign court, with no requirement for a parallel conviction in Aruba or the Netherlands Antilles. The legislation does not, however, provide for asset sharing.

Aruba is a leading member of the CFATF. At a CFATF Plenary held in August 1998 in Tortola, British Virgin Islands, the Manager of Aruba's Free Trade Zone proposed that a typologies exercise be conducted on free zones around the world as a useful tool in identifying money laundering trends. Additionally, he suggested that, as a result of the study, a code of conduct be established whereby all free trade zones would be subject to the same regulations. On the basis of this proposal, the CFATF agreed to conduct a free trade zone typologies exercise in the latter half of 1999.

The Aruban banking system consists of 15 financial institutions: six onshore commercial banks, two offshore banks, two mortgage banks, two credit unions, and three other credit institutions (an investment company, a finance company, and a local government bank). All 15 institutions are under the direct supervision of the central bank.

Bearer shares and certificates are provided by companies located in Aruba. Aruba advertises its offshore services on government-sponsored websites.

As part of the Kingdom of the Netherlands, Aruba is a member of the FATF. Aruba's financial intelligence unit, the Meldpunt Ongebruikelijke Transacties (MOT), is a member of the Egmont Group. The MOT works closely with the local police, and several money-laundering investigations are reportedly being conducted, although Aruba has not yet successfully prosecuted any money laundering cases. The GOA needs to show its commitment to implementing its anti-money laundering laws by successfully prosecuting launderers.

Australia (Primary). Australia has in place a balanced, comprehensive system to detect, prevent, and prosecute money laundering, which is thought to be a multi-billion dollar business concealed within the country's sophisticated financial services sector. The Government of Australia (GOA) has enacted comprehensive anti-money laundering legislation, which encompasses cash transaction reporting, mandatory suspicious transaction reporting, international wire transfer reporting, the criminalization of money laundering for serious crimes, asset seizure and forfeiture, and mutual assistance. Under the Financial Transaction Reporting Act, financial institutions must identify their customers and file a report on all cash transactions exceeding approximately $6,670 with AUSTRAC, which functions as Australia's financial intelligence unit; most of the reports from the major banks are filed electronically.

The use of wire transfers is a common method of money laundering in Australia. In 1998, there were several cases in which wire transfers were used to launder illegal proceeds. Various individuals initiated wire transfers using cash amounts just under the Australian significant cash transaction threshold of $6,670. The proceeds usually were then transferred abroad. The individuals performing these transactions provided fictitious names and addresses to the financial institutions facilitating the transfer of these funds. The purchase of bank drafts and bank checks (in amounts just under the reporting threshold) also takes place. These drafts and checks are then carried out of Australia on the person or in luggage. Traveler's checks are an easily obtainable financial instrument whose movement need not be declared. In several cases, traveler's checks, bank drafts, and bank checks have been used in conjunction to launder illegal proceeds.

Australia takes an active role in the FATF, the Asia Pacific Group on Money Laundering, the South Pacific Forum, and the Commonwealth Secretariat. AUSTRAC is active in the Egmont Group of FIUs. The United States ratified the Australian-U.S. MLAT in January 1999, but the treaty is not yet in force. Australia also has bilateral agreements with the UK, New Zealand, Belgium, France, and Denmark, allowing the exchange of information on money laundering.

Austria (Primary). The Austrian Penal Code criminalizes the laundering of all assets derived from serious crimes. The legislation extends to banks, mutual savings bodies, insurers and bureaux de change, all of which are required to report suspicious transactions to the Reporting Unit of the EDOK (Central Department against Organized Crime), which collects and investigates all intelligence relating to money laundering. However, the reporting requirement generally does not apply to non-bank financial institutions or to businesses such as casinos, attorneys, and real estate brokers.

Customer identification measures are in place, but are a point of dispute due to the continued existence of anonymous passbook savings accounts ("sparbuchs"). Although technically only Austrian residents may open anonymous accounts, the passbooks can be sold later to any buyer and remain anonymous. Information concerning the availability of these anonymous accounts is widely available via the Internet. United States law enforcement agencies indicate that there is no evidence to support claims that these anonymous accounts are being used to launder drug money, pointing out that no wire transactions are permitted, which makes the accounts unattractive for money laundering purposes. In 1997, the European Commission referred Austria to the Court of Justice concerning the continued existence of these anonymous accounts. The case is working its way through the legal process, and no decision is expected for at least a year.

Austrian law permits the freezing and forfeiture of assets.

Austria is still not in full compliance with FATF recommendations, nor has it fully implemented the EU Money Laundering Directive. The FATF conducted a high level mission to Austria in 1998 to discuss the concern about sparbuchs, and was expected to consider a joint public statement on the matter at the FATF plenary meeting in February 1999.

Austria is a member of the FATF and the Council of Europe. Its FIU, Edok Meldestelle, participates in the Egmont Group.

Azerbaijan (Other). Azerbaijan is a conduit for narcotics, illegal aliens, and other contraband which result in illegally derived proceeds. There is a strong organized crime presence, which, combined with the country's rich natural resources, weak legal system, and official corruption, provide the potential for money laundering and other financial crimes.

Azerbaijan's current legislation does not address money laundering and is inadequate to deal with official corruption. Azerbaijan is a party to the 1988 UN Drug Convention.

The Commonwealth of The Bahamas (Primary). The Bahamas is an attractive venue for money laundering and other financial crimes due to its strong bank secrecy laws and immense offshore financial services sector. The Government of the Commonwealth of The Bahamas (GCOB) has taken significant measures to implement a strong anti-money laundering program to combat financial crimes on the islands. These measures included the passage of the Money Laundering (Proceeds of Crime) Act 1996, the implementation of the Proceeds of Crime Act Regulations 1996, and the issuance of central bank guidance notes. The Proceeds of Crime Act Regulations require financial institutions to report suspicious transactions, follow customer identification procedures, record large value transactions, and institute anti-money laundering training programs. The Central Bank of the Bahamas maintains watchful oversight of the financial sector, ensures compliance with the Proceeds of Crime Act regulations, and conducts money laundering seminars for bank personnel.

During 1998, the GCOB made considerable progress in combating financial crimes, including creating the Tracing & Asset Forfeiture Money Laundering Unit. This unit is responsible for money laundering and asset forfeiture investigations, and will also function as the Bahamas' financial intelligence unit (FIU). The GCOB has indicated that that its FIU is operational and has been receiving suspicious activity reports from financial institutions.

The Tracing & Asset Forfeiture Money Laundering Unit has augmented its financial investigation capability by attending intensive U.S. financial investigation training and by participating in U.S.-sponsored money laundering seminars. The Unit has also undertaken several asset forfeiture investigations and has cooperated with international law enforcement agencies on significant money laundering cases. This has resulted in the restraining of $1.5 million in Operation Casablanca-related accounts and several million dollars in other third country-laundered deposits that were held in The Bahamas.

The Bahamas maintains a considerable international offshore center (the world's fifth largest), with over 70,000 international business corporations (IBCs), 400 offshore banks, 97 trust companies, and 62 insurance companies. The offshore banks, trusts and insurance companies are regulated by the Bahamian Central Bank and subject to strict licensing requirements; however, the IBCs are liberally licensed and are basically unregulated. In addition, bearer shares and certificates are provided by companies located within the Bahamas. These factors all make the IBCs particularly susceptible to money laundering. The entire offshore sector, including the gaming industry, is covered under the Proceeds of Crime Act and implementing regulations. Furthermore, the central bank can impose special additional conditions on the offshore banks, such as prohibiting them from accepting third party deposits.

The Bahamas has "Internet casinos" and sports betting websites located on the Internet.

The Bahamas is a member of the CFATF and has submitted to a CFATF mutual evaluation. The Tracing & Asset Forfeiture Money Laundering Unit has expressed an interest in joining the Egmont Group. The Bahamian-U.S. MLAT facilitates the exchange of information and evidence, including bank records.

Although the GOB made considerable progress in developing a comprehensive anti-money laundering program in 1998, continued supervision and enforcement of the offshore banking sector are still necessary. The GCOB appears to be moving too slowly in reaching its target of training all financial sector employees in their responsibilities under the anti-money laundering law. Although the number of suspicious transaction reports increased in 1998 compared to 1997, the number is still very small, given the size of The Bahamas' financial services sector.

Bahrain (Concern). Bahrain is a financial and offshore center, albeit no longer a growing one, and is potentially vulnerable to money laundering. In 1992 and 1993, the government introduced various incentives to foreign investment, such as the elimination of personal, corporate and withholding taxes, the removal of restrictions on the repatriation of profits, and rebates on land, rent and power charges. However, the government bureaucracy and the absence of institutional reform remain deterrents to foreign investment.

Bahrain has a number of Islamic banks, which generate profits through fees, rather than interest; these fees are often paid in cash. The hawala/hundi alternative remittance system, a potential venue for money laundering, is widely used in the Gulf, particularly by Indian and Pakistani workers. These foreign workers send money home via this system, which is generally more reliable and less expensive than traditional banking channels.

Bahrain is known for its offshore banking units, which specialize in financial services. Bahrain permits international business companies with limited liability from parent companies In addition, Bahrain advertises its government-sponsored services on the Internet.

Bahrain has not yet criminalized money laundering, but Bahrain's banking law and regulations require the reporting of suspicious transactions and a know-your-customer regime. Although Bahrain has been working through the GCC on efforts to develop uniform legislation to criminalize money laundering, it does not appear that any will be enacted anytime soon. Although Bahrain is a party to the 1988 UN Drug Convention, it is not considered to be in compliance with the Convention's goals. The Bahrain Monetary Agency, which is Bahrain's central bank, has an Inspection Directorate with fairly wide powers, but it is not known to what extent this organization has taken steps to prevent money laundering or to deal with instances of suspected money laundering.

Bahrain is represented at the FATF by the GCC, of which it is a member. Bahrain is a member of the OGBS and has agreed to undergo a mutual evaluation under the auspices of this body.

Bahrain should act immediately to enact anti-money laundering legislation to protect its financial system from abuse.

Bangladesh (Other). Bangladesh is not an important financial center, and narcotics smuggling and trafficking take place only on a small scale. Bank regulation and control are not strong, so the banking system could conceivably be used to launder money. However, there is no indication this is being done.

Bangladesh is a party to the 1988 UN Drug Convention. It is also a member of the Asia Pacific Group on Money Laundering.

Barbados (Concern). Barbados is not known to have a serious money- laundering problem. The Government of Barbados (GOB) has already taken many steps to provide a defense against the threat of money laundering, including enacting legislation, issuing anti-money laundering guidelines, enacting offshore banking laws and oversight, and promulgating exchange control regulations that limit the outflow of cash. In December 1998, the Parliament enacted the Prevention of Money Laundering Bill, which extends the predicate offenses for money laundering beyond drug trafficking to include other serious crimes. The legislation also establishes reporting requirements for suspicious and large cash transactions and establishes a centralized unit, the Anti-Money Laundering Authority, to receive suspicious transactions and investigate money laundering cases. Penalties for money laundering include up to 25 years in prison and a $1 million fine.

The GOB originally criminalized money laundering in 1990 in its Proceeds of Crime Act, No. 13. The law authorizes asset confiscation and forfeiture and provides a disclosure protection "safe harbor" for individuals reporting suspicious activities. In March 1997, the GOB issued Anti-Money Laundering Guidelines for Licensed Financial Institutions. These guidelines largely followed the FATF 40 Recommendations, and included requirements for customer identification, record keeping, and reporting of suspicious transactions. Banks were also required to record large cash transactions and make them available for police investigations. But there was no mechanism for the central bank or other government authority to enforce compliance with the Guidelines, nor was there any system established for the reporting of suspicious transactions, leading to confusion over when and to whom to file such reports. As a result, no reports of suspicious transactions have been filed since the Guidelines were issued. The new bill should rectify these shortcomings.

Barbados offers offshore banking, trusts, exempt insurance companies, international business corporations (IBCs) and foreign sales corporations. The Barbadian offshore financial services industry continues to expand, driven largely by Canadian-based companies. A bilateral tax treaty with Canada allows profits from banks and IBCs in Barbados to be repatriated to Canada tax-free. The Off-Shore Banking Act (1980) gives the central bank authority to supervise and regulate offshore banks, in addition to domestic banks. The Ministry of Finance issues licenses after the central bank receives and reviews applications and recommends applicants for licensing.

The International Business Companies Act (1992) provides for general administration of IBCs. The Ministry of International Trade and Business vets and grants licenses to IBCs after applicants first register with the Registrar of Corporate Affairs. Barbados overall maintains a reputation as a reputable offshore center.

Barbados and United States authorities already cooperate closely in the fight against narcotics trafficking and other forms of transnational crime. In 1996, the United States and Barbados signed an MLAT and an updated extradition treaty. Both treaties were ratified by the United States in January 1999 but are not yet in force. In May 1997, Barbados hosted a summit of 15 Caribbean nations to reaffirm common values and interests, re- invigorate a partnership for prosperity and security, and address more effectively the common threat of destabilizing international crimes, including drug trafficking and money laundering.

Barbados is a member of the CFATF, and chaired the group from November 1997 to October 1998.

Enactment and implementation of the Prevention of Money Laundering Bill, along with the establishment of a centralized financial investigation unit, should help the government of Barbados to coordinate its efforts and enforce comprehensive anti-money laundering policies.

Belarus (Other). Belarus is not a major financial center or a significant country for drug-money laundering. Although some money laundering occurs, there is no estimate of its magnitude. Money laundering is thought to be derived primarily from domestic sources, including organized crime, narcotics trafficking, smuggling, and tax evasion, although Belarusian banks are known to transfer questionable proceeds from neighboring countries. In addition to banks, institutions such as casinos, currency exchanges, real estate companies, and non-bank financial institutions are also suspected of laundering illegal proceeds. Common methods used include false invoicing schemes, contract fraud, and keeping double books.

Given the poor conditions and instability of the state-controlled economy, foreign criminal proceeds are unlikely to be laundered in Belarus. The size of the Belarusian shadow economy is estimated to be 43 percent of the GDP and serviced by half the money in circulation, according to official statistics. The volume of barter transactions and rampant tax evasion threaten the economic security of the state. The president of Belarus has called for the ouster of organized crime from the state-controlled alcohol and tobacco market and has ordered enforcement and state security agencies to more effectively regulate the state's monopoly in these areas.

There are no anti-money laundering laws on the books in Belarus, although a draft law is being written and is undergoing review in the Ministry of Justice. As part of a recent government campaign to exert stricter control over the banking system, banks in Belarus must report transactions of more than $10,000 and must maintain indefinitely records on customer identification and transactions. However, they are not required to report unusually large or suspicious transactions. There are no laws regulating non-bank financial institutions.

The government of Belarus has made numerous public statements calling for legislative and regulatory measures to control crime, corruption, and money laundering. However, no measurable improvement has been made. Anti-crime laws have been adopted and decrees promulgated, but implementation is ineffective. The absence of anti-money laundering laws will significantly hinder the attempts made to combat money laundering and organized crime, and will contribute further to the deterioration of the economy. Belarus urgently needs to enact legislation as the foundation of an anti-money laundering regime.

Belgium (Concern). The Kingdom of Belgium is an active financial center, with strong anti-money laundering laws covering the laundering of the proceeds of all crimes. Belgian authorities are constantly responding to new trends in money laundering; most recently, Parliament adopted legislation in August 1998 that extends anti-money laundering laws to professions and activities other than financial institutions, including real estate agents, notaries, bailiffs, accountants and auditors, estate agents, casinos, and security firms that transport money. The legislation imposes an obligation on these entities to report suspicious transactions. In addition, Parliament continues to debate an organized crime bill, which defines a "criminal organization" and criminalizes membership in such an organization. The legislation endorses the use of undercover operations and wiretaps by law enforcement agents.

Financial institutions are required to keep records on the identities of all of their clients. In addition, they are required to report transactions that are suspicious or that involve approximately $13,000 or more. They are required to train their personnel in the detection and handling of suspicious transactions. No civil, penal or disciplinary actions can be taken against institutions or individuals for reporting such transactions in good faith.

The Cellule de Traitement des Informations Financieres or Cell Voor Financiele Informatieverwerking (CTIF/CFI), which serves as Belgium's financial intelligence unit (FIU), receives, processes and transmits information related to money laundering. It refers any cases of suspected money laundering to prosecutors, and plays a key role in the international coordination of policies to control money laundering. During its first 54 months of operation (December 1993-June 1998), the CTIF/CFI referred 1,416 cases to the judicial system, representing transactions worth $3.92 billion. Of these, 65.6 percent involved manual foreign exchange transactions and 9.8 percent concerned international payments. The principal criminal activities behind these money laundering cases were drug trafficking (64 percent), other forms of organized crime (11 percent), and illegal traffic in goods and merchandise (8 percent). The principal financial organizations involved in money laundering were foreign exchange offices (42 percent), credit institutions (42 percent) and brokerage houses (15 percent).

Belgium has fully implemented the EU Directive on Money Laundering and is in compliance with the FATF Forty Recommendations. An MLAT between the United States and Belgium, signed in 1988 and ratified in 1990, is expected to enter into force in 1999. Cooperation between the United States and Belgium continues to be excellent, and is expanding. Belgium is a member of the FATF and the Council of Europe. Its FIU, the CTIF/CFI, participates actively in the Egmont Group.

Belize (Concern). Money laundering remains a significant potential threat in Belize despite the enactment of the Money Laundering Prevention Act of 1996. This law criminalized the laundering of proceeds derived from numerous illicit activities, allowed for international cooperation and the freezing and forfeiture of assets, and introduced money laundering prevention measures such as the reporting of large, suspicious or unusual transactions, record-keeping requirements, and the declaration of outbound currency or negotiable bearer instruments in excess of $10,000. However, Belize has yet to seize any assets or try a case using this law. The efforts of the Belizean Government continue to be hampered by a severe lack of manpower, training and equipment, particularly in the security forces and in the judiciary and prosecutors' offices. A new financial investigations unit has been established and trained within the Belizean Police Forces, and numerous officials have attended regional and international law enforcement seminars and conferences.

Belize continues to attract the attention of the offshore financial world, particularly since the enactment in June 1996 of the Offshore Banking Act. The Central Bank of Belize has jurisdiction over this industry, and it is proceeding cautiously in granting licenses to offshore banks. Licenses have been granted to several banks, although only one has actually set up operation (in September 1998). Two more applications, both from American investors, are reportedly under consideration. At the same time, the central bank, in cooperation with the Inter-American Development Bank and the French Technical Cooperation Fund, is developing a system for the supervision and regulation of the offshore banking sector, including comprehensive provisions for the detection and control of money laundering activities. Another increasingly important sector of the Belizean economy is the availability of international business corporations (IBCs). Deficiencies remain in the regulation and supervision of this sector which present viable loopholes for money laundering. For example, although banks must regularly report the total amount of all IBC account holdings, patterns in and changes to individual accounts are not provided to central bank authorities unless specifically ordered. Another serious weakness is the lack of a registry for offshore trusts. Currently there is no way for any outside party to determine the beneficial owners of these offshore trusts.

Belize is a member of the CFATF.

Belize should enforce its money laundering law, activate its anti-money laundering unit, and move quickly to implement the planned system for the oversight of the offshore banking sector.

Benin (Other). Benin adopted an anti-narcotics law in 1997 that criminalized drug-related money laundering. The law also permits the seizure and forfeiture of assets derived from the drug trade and money laundering. Money laundering occurs in Benin, primarily through businesses and the import and resale of commodities such as automobiles. There is evidence that Nigerian criminal groups and other criminal organizations are establishing a presence in Benin.

Benin should devote additional resources to enforcing the anti-narcotics law. It also needs to criminalize money laundering beyond drugs to meet international standards.

Bermuda (Other). Bermuda, a British Overseas Territory, is one of the world's premier offshore international financial and business centers, with a large number of international business corporations (IBCs). The Government of Bermuda (GOB) instituted commendable measures to combat money laundering and made considerable progress in combating financial crimes during 1998. In January, the Proceeds of Crime Act 1997 and Proceeds of Crime Act Regulations 1998 came into force. These measures criminalize money laundering, mandate the reporting of suspicious transactions, provide for protection against liability for making any such disclosure, require that customer identification and currency transaction record- keeping procedures be put in place, and develop internal reporting procedures. The GOB issued extensive guidance notes to all financial institutions. In addition, the GOB underwent a mutual evaluation by the CFATF.

An extension of the Proceeds of Crime Act is currently being discussed. The bill would substantially increase the amount of reporting, internal controls, and training that companies are required to carry out to prevent money laundering. It would also provide the Bermuda Monetary Authority (BMA), Bermuda's Central Bank, with the authority to investigate the finances of a convicted person and to confiscate crime-related cash and property. The GOB is developing a financial investigation unit under the Bermuda Police Service. This unit has been receiving suspicious activity reports and investigating money laundering since early 1998. The Police Service reported that this unit will function as Bermuda's financial intelligence unit.

The offshore banking sector in Bermuda consists of approximately three offshore banks and 37 trust companies. As in the case of domestic banks, the BMA has regulatory authority over these entities. Authority to issue licenses for the offshore sector is vested with the Minister of Finance, who may seek the advice and assistance of the BMA. Additionally, nearly 10, 000 IBCs are registered in Bermuda.

Continued supervision and enforcement of rules in the offshore banking sector in Bermuda are necessary to discourage infiltration of organized crime and money launderers.

Bolivia (Concern). Although Bolivia is the second largest producer of cocaine in the world, most money laundering in Bolivia is derived from contraband smuggling rather than narcotics trafficking. Bolivia is not a significant financial center, offshore banking center or tax haven, but in the past strict bank secrecy has facilitated the laundering of illicit profits. Progress is being made in implementing the 1997 amendments to the Penal Code, which criminalized the laundering of proceeds related to illicit narcotics, organized crime and public corruption. These provisions will also strengthen oversight of the banking and financial sectors by requiring financial institutions to identify customers, maintain records, and report suspicious financial transactions. They will also facilitate access to bank records for use in criminal investigations. The Director of the Financial Intelligence Unit, which is located within the Superintendency of Banks and Financial Entities, has been appointed, and efforts are underway to have a fully operational unit which will complement the anti-money laundering work being done by the financial investigations unit within the Special Narcotics Task Force.

Of the comprehensive judicial reform package introduced during the last two years, only the proposed new Code of Criminal Procedures remains pending. The Senate is debating the proposal, and the final bill will, it is hoped, include provisions for the use of undercover agents and informants, controlled deliveries, plea bargaining, and in rem asset seizure and forfeiture. These provisions constitute essential tools needed by law enforcement to investigate and prosecute narcotics offenders and money launderers. At the same time, the Directorate of Seized Assets needs to continue its efforts toward implementing a system for the effective accounting and prompt processing and liquidation of seized assets. The ability to deny access to the legitimate banking and financial sector is an essential weapon against criminals. The Bolivian government's determination to implement the necessary legislative and regulatory measures that will safeguard its system from criminal infiltration is encouraging, but vigorous enforcement is equally vital.

Botswana (Other). Botswana is not a financial center, and there are no indications that significant money laundering is occurring there. The Government of Botswana has implemented legislation, which allows the courts to identify, freeze and forfeit drug-related assets. The Bank of Botswana is authorized to provide information on large cash transactions to law enforcement agencies.

Brazil (Primary). Money laundering related to drug trafficking and white- collar crime occurs in Brazil. The highly developed financial sector, increasing local drug consumption and trafficking, and the absence of laws against money laundering until 1998 all have contributed to make Brazil a money laundering center. The drug trade and domestic drug consumption have been growing in recent years, creating large profits that are laundered through Brazil's urban centers. One survey, based on central bank data of 1996, indicated that unusually high amounts of money flowed through rural banks, in towns close to the borders of Bolivia, Colombia and Peru, to the urban centers of the southeast. Since these towns lie on international cocaine trafficking routes, it was suspected that these funds showed a pattern of laundering profits from local drug sales.

In response, Brazil made significant progress during 1998. The comprehensive Law No. 9613, Law Concerning Crimes of Laundering and Concealment of Goods, Rights, and Securities, came into force in March 1998. The law criminalizes the laundering of proceeds relating to the following crimes: drug trafficking, terrorism, contraband or trafficking in weapons or ammunition, extortion involving kidnapping, corruption, crimes against the financial system, and crimes committed by a criminal organization. Penalties range from three to 10 years, 16 years if committed through a criminal organization. The law also includes asset seizure and forfeiture provisions. Assets from crimes committed abroad can be seized and shared with foreign governments.

Reporting and record-keeping requirements contained in the law apply to a wide range of financial institutions. These institutions are required to identify and maintain a registry of their clients and to maintain records of all transactions over an amount to be determined. Institutions are required to report all suspicious transactions, and all transactions over a threshold amount to be determined. There are also new reporting requirements for the international transfer of funds. Failure to comply will result in civil and administrative sanctions. The law also contains a "safe harbor" provision that protects bankers from criminal and civil liability when complying in good faith with reporting requirements. Finally, the law creates the Council for the Control of Financial Activities (COAF), within the Ministry of Finance, to receive reports of suspicious or illicit activities and to coordinate the detection and investigation of money laundering activities. Members of the COAF will be drawn from various government regulatory and law enforcement bodies.

Regulations issued in October 1998 require that individuals transporting more than $12,000 in cash, checks or traveler's checks fill out a customs declaration that is sent to the central bank. Regulations also require financial institutions remitting more than $12,000 to make a declaration to the central bank.

In May 1998, the central bank asked federal authorities to examine large suspicious donations for public works projects and charities, specifically to respond to allegations concerning a money laundering scheme involving state governors running for reelection.

In December 1998 the central bank hosted a money laundering conference in Brasilia, and invited international experts from the FATF and the United States to discuss with Brazilian authorities international anti-money laundering programs and implementation of the Brazilian law, and to help establish the COAF.

Over the past year, the government of Brazil has clearly increased its commitment to fight money laundering. The passage of Law No. 9613, along with new regulations monitoring currency flows and the signing of an MLAT with the United States in October 1997, represent major steps forward in Brazil's fight against international crime and money laundering. The MLAT still awaits the advice and consent of the respective senates in both the United States and Brazil. When fully implemented, new regulations and the COAF should demonstrate Brazil to be a regional leader in this global fight.

British Virgin Islands (Concern). The British Virgin Islands (BVI) is a UK overseas territory and has one of the larger financial services centers in the region. The BVI continues to develop a strong anti-money laundering regime. In January 1998, the BVI enacted the Proceeds of Criminal Conduct Act, which expands the scope of anti-money laundering legislation to cover the proceeds of all serious crime. The Proceeds of Criminal Conduct Act is closely modeled on British law and has created four types of money laundering offenses: assisting another to retain the benefit of the proceeds of criminal conduct; acquisition, possession or use of the proceeds of criminal conduct; concealing or transferring the proceeds of criminal conduct; and tipping off another person to prejudice an investigation. Under the Act, suspicious transactions must be reported to a Reporting Authority, of which the Director of the Financial Services Department is the chairman.

Financial services constitute the largest sector of the BVI economy. The BVI has developed as an important jurisdiction for international finance and commerce, incorporation and management of offshore companies, and provision of offshore financial and corporate services. There are over 200, 000 offshore corporations registered in the BVI. Offshore banks can be formed in the BVI by individuals who are financially strong and are willing to file and publish audited financial statements. All banking institutions and trusts must obtain a license from the government prior to conducting business. All banks are required to follow the Banking License Guidelines proposed by the UK for its overseas territories. They must have a principal office in the Islands and appoint at least two directors and two individuals that will serve as authorized agents and as intermediaries between the licensee and the Inspector of Banks and Trust Companies.

Bearer shares and certificates are offered by companies located in the BVI. Asset protection trusts are also available to persons or companies doing business in the BVI. These services allow BVI offshore entities to insulate and protect the assets of their customers.

Progress on the financial sector's regulatory measures outlined by the UK Foreign Secretary was to have been reviewed at the end of 1998. The BVI will be expected to complete a checklist of measures to combat money laundering by the end of 1999. The package of regulatory legislation meets recognized international standards, such as those established by the FATF and the Basle Group of Banking Supervisors, but the BVI needs to fully implement its Proceeds of Criminal Conduct Act to have an effective anti- money laundering regime.

The BVI is a member and chairman-elect of the CFATF.

Bulgaria (Concern). Money laundering is flourishing in Bulgaria and presents a serious enforcement concern. Economic conditions provide excellent opportunities for the laundering of illegal proceeds generated by organized crime. The major predicate offenses generating illegal proceeds include narcotics trafficking, racketeering, smuggling, stolen vehicle trafficking, and financial fraud. Albanian narcotics traffickers have shifted their operations to Bulgaria in the wake of the ongoing conflict in Kosovo, thus increasing the amount of illegal proceeds to be laundered. Bulgaria's gray economy accounts for up to 30 percent of the gross domestic product, according to a July 1998 report released by the Bulgarian National Statistics Institute. The report states that 25 percent of registered businesses are involved in illicit business transactions and that the trend is growing. High taxes are cited as the major reason for the growth of the gray economy. The size of the gray economy and the cash-based nature of the Bulgarian economy in general provide ample avenues to launder illegal proceeds.

Laundered proceeds in Bulgaria are often invested in real estate or businesses. Other money laundering methods include trade schemes and deposits made directly into bank accounts. Financial institutions used to launder funds include banks, casinos, currency exchange houses, real estate firms, used car dealerships, and non-bank financial institutions such as brokerage firms and insurance companies. The main types of monetary instruments used are cash (primarily U.S. dollars and German marks), bank drafts, traveler's checks, and wire transfers.

Bulgaria has made progress in creating the legislative framework to address crime, corruption, and money laundering. The government has also been successful in drastically lowering the embezzlement level of state funds. However, implementation of these initiatives will take several years. Restructuring of Bulgaria's enforcement agencies and judicial system will allow organized crime groups to continue their activities, as well as afford them the opportunity to adapt to the evolving enforcement and regulatory environment. In addition, official corruption is a significant and widespread problem and threatens all government enforcement reforms.

In July 1998, Bulgaria enacted an anti-money laundering law, which superseded the ineffectual law passed in 1996. The new law criminalizes money laundering, sets up a suspicious transaction reporting system for financial institutions, and establishes a financial intelligence unit to process suspicious transactions for referral to enforcement authorities. Other anti-money laundering measures include customer identification and record-keeping requirements. The law applies to both banks and non-bank financial institutions. The law is based on the EU Council Directive No. 10 on the Prevention of the Use of the Financial System for the Purpose of Money Laundering, and meets international standards to combat money laundering.

Bulgaria has signed a number of bilateral and multilateral initiatives to combat organized crime and financial crime. A positive step in this direction is Bulgaria's participation in the Southeastern Europe Cooperative Initiative (SECI) among whose goals are to control the increasing flow of drugs across borders and to combat trans-border organized crime. In a September 1998 SECI meeting held in Bucharest, the government of Bulgaria initialed a draft agreement on cooperation to prevent and combat trans-border crime. These efforts will attack the predicate crimes, which generate illegal proceeds that are subsequently laundered in Bulgaria and neighboring countries.

Bulgaria participates in the Council of Europe's PC-R-EV and is scheduled to undergo a mutual evaluation by that group in the year 2000.

Burma (Primary). There is no reliable information on the extent of money laundering in Burma. However, there is reason to believe that money laundering and the return of narcotics profits laundered elsewhere are very significant factors in the overall Burmese economy. Burma has a heavily cash-based economy and an unsophisticated banking system in which transactions are often based on personal relationships. The formal banking system is highly regulated with respect to currency convertibility. One consequence has been the development of foreign exchange black markets. The Government of Burma (GOB) has encouraged ethnic cease- fire groups which have been involved in narcotics trafficking to invest in legitimate businesses instead of narcotics. However, the GOB has not instituted a system of safeguards to prevent the investment of drug-related proceeds. Under current policy, the GOB levies a 40 percent tax rate on declared assets other than real property, but so long as the tax is paid, there is no inquiry into the source of the assets. In the case of real property, the tax rate is 10 percent. This facilitates drug money laundering.

An alternative remittance system sometimes called the Chinese underground banking system, in conjunction with import/export businesses, is probably the most prevalent mechanism for laundering money occurring in Burma today. In a typical case, funds are deposited into the underground banker's account in Thailand. The money is then either exchanged and given out by his associate (in Burmese currency) to the source of supply, or it may be used to pay off import/export debts in another country such as Singapore. The import/export companies generally deal in items such as cigarettes, electronics or fabrics, and they are often owned by underground bankers who knowingly facilitate drug traffickers' proceeds in order to expedite payment to their sister companies. The merchandise is usually shipped from Burma to Singapore, although the trade can go both ways. Burma's black market for gems and precious metals is also an incentive to launder through this system.

Under the 1993 Narcotic Drugs and Psychotropic Substances Law, narcotics- related money laundering is a crime, and money, property or benefits involved in or derived from narcotics may be seized. In practice, the government does not enforce this regulation in cases where assets are involved in legitimate businesses so long as the taxes are paid. In 1996, the Burmese government established a 12-member multi-agency Property Examination Committee, purportedly to investigate narcotics-related financial crimes. To date there have been no arrests or prosecutions for money laundering. Burmese policy-level officials have stated repeatedly that they lack the expertise and resources to prosecute money launderers.

Burma's underdeveloped financial system and struggling economy enable money laundering activities to be disguised as legitimate business. Burma urgently needs to reform its banking system and break away from whatever dependence it has on the narcotics trade. It also needs to enforce and expand its anti-money laundering laws.

Cambodia (Concern). Money laundering is a problem in Cambodia, but its extent and the methods used are mostly unknown. Cambodia is not a major financial center. The 1996 Counter Narcotics Statute criminalizes money laundering and limits cash transactions to an amount determined by the Ministry of Finance. It also includes requirements for suspicious transaction reporting and customer identification by financial institutions, but enforcement of these provisions is almost non-existent. Many of the estimated 32 private banks operating in the country are reportedly only fronts which accept cash deposits but offer no other normal banking services such as accounts or checks. The law does not require the release of information on individuals' accounts for any reason.

The law also calls for formation of a commission to combat narcotics- related money laundering, but to date this group has not been established, and there have been no prosecutions for money laundering. Control over the import and export of currency is weak. United States law enforcement, commenting on media reports about casinos operated by people with organized crime connections, notes that the casinos will likely be used to facilitate the movement and laundering of funds for the Cambodian narcotics trade.

According to press reporting of early 1998, political instability has contributed to Cambodia's becoming a center for drug trafficking and attendant money laundering. Cambodia is increasingly being used as a money laundering center by criminal syndicates based in Hong Kong, China, Taiwan and Macau. United States and Cambodian law enforcement sources have alleged that corrupt officials encourage money laundering.

Cambodia needs to develop a strong anti-money laundering regime and focus on enforcement to prevent criminal organizations from abusing the financial system through money laundering and other financial crimes.

Canada (Primary). Canada is attractive to money launderers because of its advanced financial sector, lack of mandatory reporting requirements for suspicious financial transactions, and heavy crossborder movements of currency and monetary instruments. Currency exchange houses, particularly near the U.S.-Canadian border, are believed to move large amounts of drug money between the United States and Canada. Canada has financial institutions which engage in currency transactions involving international narcotics proceeds that include significant amounts of U.S. dollars. The U.S. Drug Enforcement Administration has indicated that real estate transactions and gold shops are being used to launder illicit narcotics proceeds. In addition, the cross-border movement of currency and monetary instruments, in the form of bulk currency shipments, continues to be an alternative for laundering illicit proceeds in Canada.

Canada's current anti-money laundering regulations fall under the Proceeds of Crime Act, which requires depositors and financial institutions to maintain a record of any cash transaction at or above $6,600 for five years. However, these reports are merely intended to preserve the audit trail. Currently, there is no system for the mandatory reporting of suspicious transactions. Under an MOU with the Royal Canadian Mounted Police (RCMP), chartered bank branches "voluntarily" report suspicious transactions to any of the RCMP's 19 Integrated Proceeds of Crime offices. The MOU, however, fails to cover other financial institutions and is a fragmented approach to suspicious transaction reporting.

During 1998, the Government of Canada (GOC) made some progress in the fight against money laundering. In March, the Canadian Federal Solicitor General published long-awaited draft new anti-money laundering measures to amend the Proceeds of Crime Act. These new measures would move Canada closer to compliance with FATF guidelines. The proposed legislation includes mandatory reporting of suspicious financial transactions and crossborder movements of currency and monetary instruments. In addition, the legislation calls for the establishment of an independent federal financial intelligence unit (FIU) to collect, analyze and disclose financial information. The proposed FIU would receive all currency and monetary instrument reports and "unusual" transaction reports from financial institutions and analyze them to determine which merit investigation. Currency transactions reports (CTRs) would not be provided to the FIU, but rather to Revenue Canada, which could share these reports only if they involved a criminal tax matter related to money laundering. Only suspicious activity reports (SARs) related to money laundering and deemed suspicious by the FIU would be forwarded to an investigating agency. However, the SAR referral to the investigating agency would include only limited information concerning an individual transaction, such as the transactor's name and address, the financial institution's name and address, and the transaction amount. The actual details of the SAR, including the text field describing why the transaction was "unusual", as well as all data and analysis developed by the FIU, would not be released to the investigating agency until the FIU received a search warrant from the agency. The warrant would be issued only after the agency developed "probable cause" that a crime had been committed.

The Solicitor General remains committed to amending Canada's Proceeds of Crime Act through introducing these proposed anti-money laundering measures as legislation. In October, the GOC began requiring Canadian casinos to maintain records on individuals who spend or win more than $6,600. The requirement is one of several changes to regulations aimed at preventing money laundering.

The GOC should move immediately to require the reporting of suspicious transactions and crossborder movements of monetary instruments, as well as to set up an FIU. The GOC should ensure that the FIU meets Egmont FIU standards, particularly as they relate to the international sharing of information. Serious consideration should be given to expanding money laundering offenses to include all serious crimes, not just drug offenses and enterprise crimes. Additionally, the GOC should move to address the deficiencies and suggestions for improvement outlined in the FATF evaluation report. It is essential that the GOC provide its law enforcement sector with the legal tools to effectively counter financial crimes. These initiatives, along with the proposed legislation, would be positive steps to move Canada closer to compliance with FATF guidelines.

Cayman Islands (Primary). A UK Overseas Territory, the Cayman Islands remains diligent in its anti-money laundering efforts. The UK Foreign Secretary has advised that British overseas territories will have to enforce the highest international standards of financial regulation to avoid being used for money laundering. To that end, the Cayman Islands is expected to complete a checklist of measures to combat money laundering by the end of 1999. A temporary anti-money laundering committee, consisting of representatives of both the government and the financial services industry, is drafting a code of conduct, which will focus on know-your-customer issues, suspicious activity and money laundering. The Executive Council is responsible for final approval of the code of conduct. It has not yet been decided whether the code will be mandatory, or voluntary, like the conduct codes already in place.

In December 1998, the Cayman Islands took a big step forward by removing from the 1996 Proceeds of Criminal Conduct Law the Fiscal Exemption clause, which had prevented law enforcement from cooperating with other jurisdictions concerning fiscal offenses. Changes were made in close consultation with the private financial sector, to ensure that the privacy rights of account holders are carefully balanced with the need for public disclosure of records in combating crime. In July 1998, the Drug Trafficking (International Cooperation Law) was enacted. This law enables any country that is a party to the 1988 UN Drug Convention to apply to the Cayman Islands Attorney General for information on drug trafficking and related offenses.

The Government of the Cayman Islands has, in general, been extremely cooperative with United States law enforcement in connection with criminal investigations, including financial investigations.

The Cayman Islands encourages the use of the Islands as a legitimate tax shelter for operations of foreigners and as a tax haven for foreign investment. The Cayman Islands has a large offshore financial sector, offering strict confidentiality, and has thus historically been attractive to money launderers. There are an estimated 590 offshore banks on the Islands. The Caymans' financial center provides a wide range of services, including private banking, brokering, mutual funds and company management. The financial services industry is regulated by the Monetary Authority, which manages currency and reserves.

Offshore banking licenses are usually easy to obtain, and officials are very cooperative. The Governor can refuse to grant a license, or revoke a license, if he believes the licensee is conducting business illegally or in a manner, which is harmful to his clients. For offshore investors, the most popular type of arrangement is a private bank holding a "B" restricted license. These banks can receive or request funds only when doing business with people named on a list accompanying the application. A private bank has the power to issue letters of credit and bank guarantees and to carry on business free of taxation and currency restrictions. This permits U.S. investors to trade in Eurodollar markets freely without having to provide an accounting to the United States Government. A restricted "B" license is granted only to a bank or trust with a net worth of at least $24, 000, or more if required by the governor. A much higher net worth ($480,000) is required for an unrestricted "B" license, which allows the holder to conduct business freely with any client outside the Caymans. This type of offshore bank pays $15,120 for a banking or combined banking and trust license, and the same amount for an annual fee. An "A" or full-service bank, allowed to conduct banking business inside and outside the Caymans, must pay $50,400 annually for a license. Approval is usually granted only to international banks with a sterling reputation.

Bearer shares and certificates are offered by companies located in the Cayman Islands. Asset protection trusts are also available. These services allow business entities to further insulate and protect the assets of their customers.

The Cayman Islands is an active member of the CFATF, and the Caymanian Financial Secretary serves as Chairman of the CFATF.

Due to its significant offshore banking industry and confidentiality laws, it is essential that the Cayman Islands continue its diligence in regulating and enforcing its anti-money laundering program.

Chile (Concern). Chile is not an important tax haven or offshore banking center, but its dynamic economy, sophisticated financial sector, and proximity to drug-producing countries have made it progressively attractive to, and vulnerable to abuse by, money launderers. The Government of Chile (GOC) remains committed to complying with the goals and objectives of the 1988 UN Drug Convention. Narcotics-related money laundering was criminalized in 1995, and the GOC is vigorously enforcing the law. Its most recent application occurred in April 1998, with the arrest of 13 major drug traffickers and money launderers.

The Department for the Control of Narcotics Trafficking , Chile's financial intelligence unit (FIU), actively participates in the Egmont Group of FIUs, and has engaged in information exchanges with FinCEN. In addition, significant progress has been achieved in the implementation of a judicial reform law signed by President Frei last year; full implementation is expected by 2003. This law converts the judicial system from an inquisitorial to an adversarial system, creates a national prosecutor's office, and facilitates extradition.

Chile's determination that it will not become a safe haven for drug traffickers and money launderers is hampered by its inability to convince the banking industry that the mandatory reporting of suspicious financial transactions is a necessary requirement for an effective anti-money laundering regime. Chile must therefore expand its money laundering law to include mandatory suspicious transaction reporting, as well as non- narcotics-related money laundering predicates.

China (People's Republic of China) (Primary). Although China has a large and growing economy, it is not yet a major regional financial center. However, with the booming economy providing greater opportunities for investment, and with the increasing number of foreign banks opening branches in China, U.S. law enforcement sources expect that narcotics traffickers and other organized criminal elements will be tempted to use China to move their proceeds. With reports of corruption among customs agents, China is becoming accessible as an alternative route through which drug proceeds can be moved into Asia.

Banking and government officials recognize that both the weakness in and the liberalization of the country's financial system have led to an increase in financial crime, primarily fraud. China's Supreme People's Court, according to 1998 press reports, is seeking stiffer penalties for anyone convicted of illegally trading in foreign currencies. Anyone convicted of money laundering or receiving a fraudulent export tax rebate from the government could face the same penalties as those found guilty of smuggling.

Laundering the proceeds of narcotics trafficking, smuggling, and organized crime are criminal offenses under a 1997 law. The 1997 regulations require that foreign currency transactions over $10,000 for individuals, or $100, 000 for authorized businesses, be verified and registered with the State Administration of Foreign Exchange. China also has asset forfeiture and seizure legislation.

In the financial sector, Chinese banks have been frustrated by difficulties in attracting foreign investment. Outside drug organizations have been taking advantage of this frustration to launder their funds through the banks on the pretext that the money is investment capital for factories and other enterprises. China has also seen an increase in foreign investors setting up holding companies; it is believed that drug traffickers are among these investors. Hainan Island, located off the southern coast, also presents significant opportunities for laundering illicit proceeds, since a number of the financial institutions there offer numbered bank accounts in both local and foreign currency. Over 3,000 foreign investors have set up companies on the island.

United States sources indicate that money couriers are bringing U.S. dollars into China in bulk, bypassing Hong Kong. According to post reporting, most of this money is being brought in for business use and is unrelated to the drug trade. There is no limit on the amount of currency, which can be imported, provided a customs declaration form is filled out. Forms must also be filled out as foreign currency goes into or out of banks.

In May 1998, the United States and China signed an MOU establishing a joint liaison group on law enforcement cooperation. The two sides agreed to convene a subgroup to discuss specific forms of cooperation within the year and to begin negotiations of an agreement on mutual legal assistance in criminal matters at an early date. They also held preliminary discussions on cooperation in such fields as combating international organized crime, narcotics trafficking, alien smuggling, counterfeiting, and money laundering. In October 1998, the Research Center for Criminal Law and the Central Prosecutors College, along with the Vancouver-based International Society for Criminal Law Reform and Criminal Justice Policy, mounted a four-day conference in Beijing on the prevention and control of financial fraud, which included sessions on money laundering controls.

China and the United States are developing a framework for mutual legal assistance. China is a party to the 1988 UN Drug Convention. China participated in early meetings of the Asia Pacific Group on Money Laundering, but has not attended recent meetings of that body.

The Chinese government needs to vigorously enforce its anti-money laundering legislation and to consider enhancing it, to prevent the use of the Chinese financial system for money laundering.

Colombia (Primary). Colombia is still experiencing major problems with money laundering. Colombian drug traffickers are reported to be forming alliances with Russian organized crime groups in the Caribbean and obtaining cocaine for delivery to Europe. Colombians are laundering hundreds of millions of dollars in drug proceeds through offshore banks in the Caribbean. Colombia has financial institutions which engage in currency transactions involving international narcotics proceeds that include significant amounts of U.S. dollars. Colombia has the anti-money laundering legislative and regulatory infrastructure that it needs to attack its drug money launderers, but it must combine and apply these resources in a consolidated fashion. To date, that combination of efforts has not been made. Passage of laws and regulations is not enough; there must be interagency implementation of those laws and regulations, in order to address what most perceive as the largest money laundering scheme in the Western Hemisphere--the Colombian black market peso exchange.

Of special importance in this effort is the creation of a central financial intelligence unit (FIU) that can receive, analyze and act upon suspicious transaction reports, large value transaction reports, and other financial intelligence information.. Internal debate continues among the Congress, Ministry of Finance, and the Banking Superintendency regarding the organization and placement of such a unit. In July 1998, the House of Representatives was presented with Project 4-98, which contained a comprehensive plan for an FIU within the Banking Superintendency. The proposal was endorsed by OAS/CICAD and the World Bank, and had the support of the private sector in Colombia. The proposal was tabled in the House. A companion bill has been referred out of Committee and is pending before the full Senate. The Finance Ministry has issued a decree (number 1964) establishing, as of November 1, 1998, what it calls an FIU. However, the unit established by the decree is really a high level task force within the Ministry of Finance. The task force will make its database available to the Justice Ministry. Under the decree, the task force will not a have a separate budget, permanent staff, judicial investigatory powers, or any real autonomy. Accordingly, although it is not clear whether the current administration supports the bill in the Senate, Congressional action to establish the FIU along the lines of Project 4-98 would be welcome.

Since 1996, Colombian law has provided for criminal forfeiture of drug and money laundering proceeds, forfeiture of substitute assets, and in rem forfeiture when assets are held in the name of a nominee or have been transferred. Nevertheless, Colombia continues to have difficulty in implementing this asset forfeiture law, and legislative reform may be necessary. Despite using this statute to seize over $1 billion in assets, Colombia obtained its first and only final forfeiture under this law in 1998.

There were positive developments during 1998. Of great importance was the realization by both Colombia and the United States that a primary method for the laundering of billions of dollars of drug proceeds was the conversion of U.S. drug cash proceeds into United States and foreign commodities smuggled into Colombia through the Colombian Black Market Peso Exchange system. Both governments are exchanging information concerning this process, and have pledged to work closely in the future. Most recently, the Department of Justice shared with Colombian authorities "innocent owner" affidavits filed by Colombian nationals in the Bahamas seeking to gain the return of proceeds identified in Operation Casablanca and frozen by Bahamian authorities. The United States also shared with Colombian authorities Colombian destination accounts identified in Operation Casablanca, and the Colombians have frozen those accounts at our request. In order to more effectively attack the smuggling of commodities paid for with drug proceeds, Colombia has tightened its anti-smuggling law, reducing the threshold for its coverage and enhancing its fines and penalties.

In 1998, Colombia's Office of the Prosecutor General (Fiscalia) created a new special unit of prosecutors and agents dedicated to the investigation and prosecution of forfeiture and money laundering cases. However, despite intensive training, both in-country and in Washington, the new unit accomplished little in 1998. We have also received information about high turnover among prosecutors in this unit.

Colombia and the United States were joint participants in major asset forfeiture anti-money laundering seminars this year. During June, 1998, two Narcotics Money Laundering and Asset Forfeiture Training Seminars were held in the Washington, DC area for over 100 Colombian investigators, prosecutors and regulators (including the newly-created Asset Forfeiture and Money Laundering Unit in the Fiscalia) engaged in anti-money laundering enforcement in Colombia. The seminar was led by the U.S. DOJ, and presenters included representatives of DOJ, U.S. Postal Service, DEA and FinCEN, as well as Colombian participants. From July 13-15, 1998, Colombia held a money laundering seminar in Bogota, Colombia, which was sponsored by the Colombian Banker's Association (ASOBANCARIA). Discussions focused on bank examinations, banking internal controls, and methods of Money Laundering in Latin America. Despite this intensive training, the new Unit accomplished little in 1998.

In October 1998, Colombia signed a supplemental memorandum of understanding with the United States that establishes a bilateral committee to review and approve projects to be funded in Colombia, using assets forfeited by the United States with the help of Colombian authorities. However, Colombian law still does not permit reciprocal asset sharing with the United States.

Colombia should rejoin and become an active player in the CFATF, and should submit to a mutual evaluation by the CFATF. The Colombian Congress should be urged to enact legislation that will create an effective interagency FIU that could join the Egmont Group of FIUs.

Congo (DROC) (Other). The Democratic Republic of the Congo (DROC) is not a major money laundering center due to its political instability. There is currently no anti-money laundering regime in existence in the DROC, nor is it a priority, given the tenuous nature of the current government.

Cook Islands (Concern). The Cook Islands offers a myriad of offshore services, including offshore banks, offshore insurance companies, and international trusts. A resident company can easily be established by filing with the Commercial Registrar certified copies of its Certificates of Incorporation, Charter and Articles of Association, list of directors, a memorandum of appointment of power-of-attorney stating the name of a trustee company authorized to accept documents from a process server, data about its authorized capital, and the address of the registered office in the Islands. The Minister of Finance can, in theory, restrict foreign companies from performing specific business activities within the Cook Islands, and individuals who want to set up an offshore insurance company or bank must submit evidence of their financial stability to the Cook Islands Monetary Board. However, there is a wide range of permitted exemptions, as well as anonymity in company and trust formation.

As a lure to customers seeking a "safe harbor" for their funds, the Cook Islands has creditor protection planning legislation, known as the "Asset Protection Trust", which provides customers with unusually strong protection against creditors. The original International Trusts Act of 1984 and its amendments offer complete exemption from taxation, but, more importantly, also explicitly state that rights under foreign law cannot be used to nullify Cook Islands legislation. Thus, enforcement of a foreign court order is virtually impossible. The Asset Protection Trust legislation is frequently abused as a tax evasion mechanism.

Bearer shares and certificates are provided by companies located in the Cook Islands.

In September 1998, the Cook Islands passed the Offshore Financial Services Act, which provides for the creation of the Office of the Commissioner of Offshore Financial Services.

The Offshore Industry (Criminal Provisions) Act of 1993 identifies money laundering as a crime, but the Cook Islands currently has no specific anti- money laundering laws. It needs to develop effective anti-money laundering legislation to protect its financial services industry from being exploited by money launderers.

The Cook Islands is a member of the South Pacific Forum.

Costa Rica (Concern). The Government of Costa Rica (GOCR) made significant progress in the fight against money laundering in 1998. In May, it reformed its Anti-Drug Act with law 7786 (Law on Narcotics, Psychotropic Substances, Drugs Not Authorized for Use, and Related Activities). This law significantly strengthened Costa Rica's anti-money laundering controls by requiring the reporting of "unusual" financial transactions, currency transactions exceeding $10,000, and cross-border movements of currency; regulating casinos and exchange houses; and providing liability protection for banking employees. The law also established a Joint Counter- Narcotics Intelligence Center (CICAD), including a Financial Analysis Unit (FAU) responsible for compiling and analyzing "unusual" transactions and for investigating money laundering and other financial crimes.

Money laundering remains a problem in Costa Rica. Anecdotal evidence suggests that criminals are using financial institutions, casinos, exchange houses, and real estate holdings to launder the proceeds of their crimes. The offshore banking sector also poses a significant problem for law enforcement agencies. The offshore financial sector consists of 20 foreign corporations (referred to as financial entities) that currently operate offshore banks in Costa Rica. In addition, there are approximately 24 Costa Rican private banks that have offshore branches within the country. According to the General Superintendent of Financial Entities (SUGEF), foreign offshore banks follow the regulations established by the parent bank located outside Costa Rica, but are not subject to effective local supervision. Moreover, the 20 previously mentioned financial entities are required only to provide monthly balance sheets and year-end audited statements to SUGEF. However, unlike state and private banks, their compliance is infrequent. These unsupervised offshore banks represent a threat since they are vulnerable to criminal abuse and can be used to facilitate money laundering and other financial crimes in or outside Costa Rica.

Costa Rica allows the formation of international business corporations within its jurisdiction. It also offers on-line Internet gambling sites, comprised of "visual casinos" and sports betting.

In May 1998, the GOCR began implementation of an innovative criminal procedure code, which mandates close cooperation between prosecutors and police investigators. In June, several Costa Rican officials attended a financial investigative course to increase the investigative capabilities of CICAD. The GOCR actively participated in several regional anti-money laundering meetings during 1998, including the CFATF and the OAS International Commission for Drug Abuse Control. In November, the GOCR requested that its FAU be considered for membership in the Egmont Group of financial intelligence units.

The GOCR needs to develop a regulatory regime for its offshore banking sector to protect its industry against financial crime and money laundering.

Cote d'Ivoire (Other). Cote d'Ivoire is developing a money laundering problem. It is a major regional financial center and hub for international air travel in West Africa. Abidjan, the capital, is a narcotrafficking crossroads, with Middle Eastern and other African groups represented. These characteristics, along with lax enforcement, make it one of the most popular drug transit and money laundering countries in Africa. Despite an abundance of international law enforcement training initiatives, enforcement is too often sporadic and lacking focus. Often narcotics investigations focus on small drug dealers, ignoring the major organizers, who are often located outside of the country.

The laundering of money related to any activity is a criminal offense in Cote d'Ivoire. Banks are required to report large cash transactions to the Government of Cote d'Ivoire and to maintain records of these transactions for an adequate amount of time. These controls are not applied to non-bank financial institutions. There were no arrests or prosecutions for money laundering in Cote d'Ivoire in 1998.

While it has anti-money laundering legislation in place, Cote d'Ivoire now needs to vigorously enforce this legislation and develop an effective regime to combat financial crime and money laundering.

Croatia (Other). Although money laundering in Croatia is not as prevalent as in neighboring countries, it does occur. Hostilities resulting from the break up of Yugoslavia had practically closed Croatia's borders with Bosnia and Serbia, which resulted in a temporary reduction in crossborder crime such as narcotics and arms trafficking and its associated money laundering. However, the relaxation in the political climate has brought about the reopening of all of Croatia's land borders so that trans- border crime is on the upswing.

Croatian money laundering activities tend to be connected to financial crime rather than the laundering of narcotics proceeds. These offenses include tax evasion, financial and privatization fraud, bribery, corruption, abuse of official and corporate power, and loansharking. The incidence of organized crime has increased, especially in larger cities. These turbulent conditions, combined with the cash-based nature of the economy, make Croatia vulnerable to money laundering. Croatian authorities are monitoring aspects of financial activity in the economy that indicate potential money laundering. These include increased activity in financial markets by foreign and domestic firms, an increase in currency shipments across Croatia's borders, and the transfer of illegal proceeds to offshore centers and the return of these funds to private and corporate accounts in Croatia.

In response to the threat of money laundering, Croatia criminalized money laundering with the adoption of the new penal code in September 1997, and enacted anti-money laundering legislation in November 1997. The anti-money legislation established suspicious transaction reporting requirements for financial institutions such as banks, insurance companies, and currency exchange offices. The reporting requirements include the reporting of any currency transaction, or a series of related transactions, exceeding $17, 000. The government has established criteria on suspicious transaction indicators. The legislation also provides for the establishment of a financial intelligence unit, the Anti-Money Laundering Department, which is subordinate to the Ministry of Finance. Since the law was enacted, Croatia has carried out one money laundering investigation that was later referred to the Prosecutor's Office.

According to United States law enforcement sources, casinos, currency exchange houses, real estate companies and banks are used in Croatia to launder funds. Monetary instruments involved include cash, bank drafts, travelers checks, credit cards, wire transfers, and letters of credit.

Croatia's participation in the Southeastern Europe Cooperative Initiative (SECI) is a welcome development. Among SECI's goals are to control the increasing flow of narcotics trafficking across borders and to close the links to trans-border organized crime. Cooperation with other SECI states will assist Croatia's efforts to combat the predicate offenses that generate illegal proceeds laundered in Croatia. In addition, Croatia has signed a number of bilateral and regional agreements to combat organized crime, narcotics trafficking, and financial crimes. In September 1999, Croatia will undergo a mutual evaluation conducted by the Council of Europe's PC-R-EV. The evaluation will provide detailed suggestions on how to improve Croatia's anti-money laundering program.

Croatia is in the process of developing a legal structure, which will effectively address its money laundering problem. It now needs to focus on implementation.

Cuba (Other). Drug money laundering does not pose a significant problem in Cuba because it is not considered an important financial center, and the Cuban peso is not accepted in the international market. However, a potential framework for money laundering operations has been created by Cuba's growing tourist trade, aggressive pursuit of foreign investment, and procedures for purchasing materials around the United States trade embargo.

The Cuban penal code has neither any specific provision making money laundering a criminal offense, nor any known requirements for banks to report suspicious transactions. In addition, although the Government of Cuba (GOC) regularly seizes and retains property suspected of being connected with illegal activity, it lacks a specific system for seizing and forfeiting assets derived from international narcotics trafficking.

In June 1997, Decree-Law 172 created the Cuban Central Bank and divided among several separate institutions the various functions previously carried out by the National Bank of Cuba. One secondary result of the reconfiguration of the state-run banking system is an increase in the efforts of Cuban authorities to prevent money laundering on the island. The president of the central bank announced a new initiative to guard against money laundering and prevent Cuba from becoming a haven for money launderers. The initiative focused on banks knowing their clients, investigating unusual transactions, and requiring bank customers to declare the source of funds in any transaction greater than $10,000. Although described as binding on banks, the measures appear to be only guidelines. The GOC has not written a money laundering provision into the Cuban Penal Code.

The GOC needs to pass and implement regulations to bring it into compliance with international anti-money laundering standards, including the criminalizing of money laundering and a mandatory reporting requirement for all suspicious transactions.

Cyprus (Primary). The Cypriot government was extremely active in 1998 in its efforts to implement the provisions of the 1996 anti-money laundering law (The Prevention and Suppression of Money Laundering Activities Law), which for the first time criminalized non-drug-related money laundering; provided for the confiscation of proceeds from all serious crimes; codified actions which banks and financial institutions must take, including customer identification; and mandated the establishment of a financial intelligence unit (FIU). 1998 amendments to the Law expanded the list of predicate offenses and allowed Cyprus's FIU to legally cooperate with other nations' FIUs to exchange information on money laundering investigations. Cyprus's determination to take concrete and effective steps to carry out the provisions of the law were reflected in its reception of two visits by high-ranking U.S. officials to discuss and assess its anti-money laundering efforts, as well as a visit by a FATF team to assist Cyprus in furthering these efforts. In addition, in January 1998 a team from FinCEN visited the FIU and found its efforts to be commendable. In June, the Cypriot FIU became a member of the Egmont Group of FIUs. That same month, Cyprus received a favorable evaluation from a Council of Europe PC-R-EV money laundering assessment team.

In January 1997, Cyprus established the Unit for Combating Money Laundering, which receives and investigates suspicious transactions and serves as the Cypriot FIU. The Unit, which is comprised of three representatives each from the Attorney General's office, Cypriot Customs, and the Police, evaluates evidence generated by both the unit member organizations and from elsewhere to determine if investigation is necessary. Since its inception, the Unit has evaluated over 125 cases (more than half referred by other governments), and has closed more than 82. It has also issued a number of freezing and restraining orders. There has been one money laundering conviction (July 1998) which resulted in a prison term of 4 years. Two other cases are currently being tried. The Unit has conducted training seminars for over 500 Cypriot police officers, as well as for bankers, accountants, and other financial officers. The Cypriot police force now includes a module on money laundering in its basic training for new officers.

Cyprus restricts foreign ownership of property, and it controls the transit of currency and bullion, which further discourages money laundering. At present, its exchange control law strictly limits the amount of money residents can take out of the country each year, although the government strongly supports liberalization of the financial system and is likely to gradually implement change in this area. Neither offshore nor domestic banks may accept foreign currency deposits unless accompanied by the appropriate declaration forms. All banks must similarly file reports with the central bank of all cash deposits over the equivalent of $10,000. The provisions of the 1996 law have now been extended to apply to the insurance industry, the stock exchange, and cooperative banks. The central bank in April 1998 issued additional guidelines to Cypriot banks on the reporting of suspicious transactions and record maintenance. Banks are expected to pay special attention to all complex, unusual large transactions, especially substantial cash deposits or withdrawals. The guidelines also mandate the reporting of inbound and outbound electronic funds transfers in excess of $500,000 per month. In one enforcement action, the central bank revoked the operating license of Inkombank, a Russian offshore bank, for failing to meet its obligations. The case has been remanded to the courts for liquidation of Inkombank's assets in Cyprus.

Cyprus has a growing offshore banking sector consisting of over 29 offshore banks, four administrative banking units, five representative offices, 92 offshore financial services companies, seven management companies of collective investment schemes, and eight offshore trusts. Because of the complex and extensive nature of the offshore sector in Cyprus, it remains vulnerable to money laundering activity, although the central bank states that it has in place a strict regulatory framework aimed at preventing abuses, and in fact, offshore banks in Cyprus are required to adhere to the same legal, administrative and reporting requirements as domestic banks. In addition, prospective offshore banks face strict entry requirements and a detailed vetting procedure designed to ensure that only banks from jurisdictions with proper supervision will be allowed to operate in Cyprus. There have been press reports, however, that Russians connected with organized crime control some of the offshore banks in Cyprus.

There are also about 33,000 offshore companies registered in Cyprus, of which approximately 3,000 are owned by Russians and other Central Europeans. Of the 33,000 offshore companies, we estimate that approximately half are dormant. Given the level of illicit activity in Russia and other central European countries, this raises questions about the use of these companies to shelter proceeds from activities such as drug trafficking, arms theft, and the sale of state resources. In some instances, Russian and Central Europeans have used offshore entities in Cyprus as a base to establish operations in known money laundering havens in the Caribbean and the South Pacific, a known technique to integrate illicit funds. Offshore companies may maintain anonymity of ownership, although the names of the real owners must be filed with the Cypriot Central Bank. Significant involvement of Russian entities in Cyprus's offshore sector will likely continue as a result of the December 1999 renewal of the Cypriot-Russian dual taxation treaty.

Money laundering reportedly occurs in the "Turkish Republic of Northern Cyprus", which is recognized only by Turkey. Press reports indicate a burgeoning drug trade (and resultant money laundering) between Northern Cyprus and Turkey, but these reports are difficult to evaluate. Turkish Cypriot financial and other regulations are lax. Banks are lightly regulated, subject to low capital requirements, and mostly family-owned. There is also a lightly supervised casino industry. An anti-money laundering law has been drafted by Turkish Cypriot authorities, but it is not expected to take effect until sometime in 1999. The main provisions of the law would work to reduce the number of cash transactions in Northern Cyprus, to improve the tracking of any transactions above the equivalent of $10,000, and to provide for asset seizure. The proposed law would be an adjunct to the existing 1997 Exchange Control law, which required banks to report to Turkish Cypriot banking authorities the identity of anyone transferring more than $100,000, as well as the source of the funds and the destination.

The Cypriot government's obvious dedication to combating money laundering is encouraging, but like other susceptible nations, it needs to focus on the increasing supervisory challenges of the offshore banking and business sector and the relationship of its free ports and free trade zones in Limassol and Larnaca to the transshipment of illicit cargo. We commend the GOC's participation in international fora dedicated to fighting money laundering, such as the Council of Europe's PC-R-EV, and encourage it to continue. We also encourage the Cypriot FIU to be an active participant in the Egmont Group, of which it became a member in June 1998.

Czech Republic (Concern). The Czech Republic has made commendable progress in combating money laundering during the past several years through the adoption and implementation of its anti-money laundering legislation. Despite this success, it remains vulnerable to money laundering in several areas. The cash-intensive nature of the Czech economy, combined with the number and variety of financial institutions, provide a wide range of money laundering possibilities. The availability of anonymous savings accounts in the form of bearer passbooks offers a mechanism to conceal illegal proceeds. Although Czech authorities believe they have been successful in lessening the presence and impact of foreign organized crime groups, the activities of domestic organized crime groups have increased. Illegal proceeds are generated in the Czech Republic through its role as a transit country for the smuggling of goods and trafficking in narcotics and arms. Czech financial institutions are used to launder foreign illegal proceeds, and money laundering schemes using investments in the Czech economy are common for both foreign and domestically-generated criminal proceeds.

The establishment of the Financial Analysis Unit (FAU) has been a positive addition to the Czech Republic's anti-money laundering effort, but it is hampered by several problems. These include a lack of resources, personnel issues, the need for training, poor feedback to financial institutions reporting unusual transactions, and the low level of, and uneven, reporting by financial institutions. The FAU requires access to tax and customs information to adequately analyze money laundering in these sectors. Greater cooperation in information sharing with domestic law enforcement agencies would enhance the effectiveness of the FAU.

The Czech Republic is an active international participant in anti-money laundering efforts. The FAU is a member of the Egmont Group. The Czech Republic is a party to the 1988 UN Drug Convention, the Council of Europe (CE) Convention on Money Laundering, the European Convention on Extradition, and the European Convention on Mutual Assistance in Criminal Matters. It has applied for membership in the FATF and participates in the CE's PC-R- EV. During 1998 the Czech Republic underwent a mutual evaluation conducted by the PC-R-EV, which was reported on at the December 1998 PC-R- EV plenary meeting.

The United States and the Czech Republic signed an MLAT in 1998 which was ratified by the United States in January 1999 but is not yet in force. This treaty complements the existing bilateral Customs Mutual Assistance Agreement in force between the two countries.

Despite the Czech Republic's progress in stemming financial crime through the implementation of its anti-money laundering regime, practical experience has shown the need for modifications for optimal functioning of the system. The Czech Republic needs to better coordinate its law enforcement and regulatory efforts to combat money laundering.

Denmark (Other). Denmark is a major financial center, but money laundering is not considered to be a significant problem within the country. The Danish Money Laundering Act of 1993 extends to all crimes, although money laundering is not a separate offense under Danish law. This Act applies to banks, life insurance companies, investment firms, mortgage credit institutions, securities brokers, bureaux de change, and all branches of foreign credit and financial institutions. It allows for the confiscation of assets and requires the reporting of suspicious transactions to the Money Laundering Secretariat, which serves as Denmark's financial intelligence unit (FIU). Financial records must be maintained and made available to government authorities if requested.

Denmark is a member of the FATF and the Council of Europe. Its FIU participates in the Egmont Group of FIUs.

Dominica (Primary). In the wake of declining revenue from banana exports and tourism, Dominica, like a number of other Caribbean jurisdictions, has sought to compete in the market for financial services. Dominica advertises complete confidentiality, low fees, and little government supervision, making the jurisdiction increasingly attractive to money launderers.

Dominica has greatly expanded its offshore services in the past two years, with the Offshore Banking Act 1996, the International Business Companies Act 1996, the Exempt Insurance Act 1997, and the International Exempt Trust Act 1997. Dominica also offers economic citizenship, Internet gambling and rapid processing of Internet gaming license applications. A government- sponsored web-site advertises on-line registration of companies in as little as eight hours and "layers of financial privacy" to protect assets and confidentiality. These advertisements appear to be successful, since the government has incorporated 4,600 international business corporations, five offshore banks, and five Internet gaming companies, and earned at least $3.6 million in revenue from the offshore sector in 1997. The International Business Unit of the Ministry of Finance screens applications for offshore banks, but oversight of banks and businesses is minimal. The Attorney General of Dominica himself stated in late 1998 that while his country was in control of the banking sector, it still "had some work to do" on offshore sectors such as Internet gaming (which is not addressed at all in any Dominican legislation.).

The process for obtaining economic citizenship in Dominica is very loosely regulated, and Dominican officials apparently do not maintain control over the program. Most persons who obtain economic citizenship are checked out by a British solicitor. Dominican officials rely on the word of the applicants that the information they provide is true. The cost of obtaining economic citizenship is $50,000 deposited in a local bank, or $75,000 in government bonds. Between 200 and 300 Russians have reportedly purchased citizenship, increasing suspicions of Russian money laundering activities on the island.

Dominica has criminalized money laundering placed controls on the export of money, and requires banks to report unusual foreign exchange transactions. However, the rapid expansion of the offshore sector without proper supervision and the lack of a comprehensive anti-money laundering regime make Dominica fertile ground for money laundering and other financial crimes. The Government of Dominica cooperates with the United States in narcotics interdiction efforts. The United States ratified the Dominica- U.S. MLAT in January 1999, but the treaty is not yet in force. The government of Dominica now needs to enact and enforce comprehensive measures that meet international standards to protect its financial sector from the very real risk of abuse.

Dominica is a member of the CFATF. It is scheduled to undergo a CFATF mutual evaluation from 12-16 April 1999.

Dominican Republic (Primary). The Dominican Republic is not considered a major international financial center, but it continues to face a growing and systemic problem of narcotics-related money laundering. The main source of foreign exchange in the Dominican Republic is dollars generated by the tourism industry, free zone companies and remittances from Dominicans living in the United States. Through these sectors, capital obtained from the illegal drug trade is brought into the country, and electronic banking and non-banking services provided legitimately by local and international institutions have been used to facilitate the laundering. The Dominican Republic has financial institutions which engage in currency transactions involving international narcotics proceeds that include significant amounts of U.S. dollars.

The Dominican Republic is cognizant of the problem and is gradually building an anti-money laundering framework. Act 17 of December 1995 criminalizes the laundering of the proceeds of illicit drug trafficking and allows for the seizure and forfeiture of assets. Penalties range from imprisonment of two to five years and fines of $3,100 to $6,200. The implementing regulation for this Act is Decree 288 of 1996 which, among other things, prohibits the use of anonymous bank accounts, mandates the recording of transactions exceeding $10,000, and requires the declaration of exports of currency exceeding $10,000 and the reporting of suspicious transactions. In July 1998, the Government of the Dominican Republic (GODR) amended the Dominican Extradition Law to incorporate the laundering of proceeds derived from a number of serious crimes as an extraditable offense. Pursuant to a request to the United States by the GODR, a technical assistance team was set up in May 1998 to review the GODR's anti-money laundering activities.

The National Drug Control Directorate (DNCD) has responsibility for investigating narcotics-related money laundering and has authority to request the cooperation of all government departments as necessary. It has established a financial investigations unit, which is operative. The Superintendency of Banks supervises and inspects all financial institutions and certain non-bank financial institutions such as exchange houses, casinos, and other gaming establishments. Its financial intelligence unit receives the reports of suspicious financial transactions submitted by the financial institutions; however, further efforts need to be directed at the analysis of the information and its timely sharing with the DNCD. The Superintendency of Banks should also intensify its efforts at conducting inspections of financial institutions for compliance with the anti-money laundering regulations.

The GODR is striving to bring corruption under control, particularly within the judiciary. The process for the selection of judges is becoming more transparent, since judges are now appointed by the National Council of Magistrates and are chosen on technical, not political, grounds. The GODR is urged to continue making the eradication of corruption one of its highest priorities, and to intensify its vigilance in its supervision of the financial industry, particularly the exchange houses and remittance sector.

There is no bilateral agreement between the United States and the Dominican Republic on a mechanism for exchanging records or other evidence in connection with criminal investigations, including narcotics investigations and proceedings, nor does Dominican law ensure their availability to United States personnel or those of other governments.

The Dominican Republic is a member of the CFATF.

Ecuador (Concern). Ecuador is not a major financial center, but it is believed that money laundering occurs in both the banking and non-banking sectors. Efforts by the Government of Ecuador (GOE) in 1998 to combat money laundering were not as successful as could be desired. Although money laundering is illegal under the 1990 Narcotics Law, the GOE has not been able to enforce this law because there are other statutes, which are or could be interpreted as being in conflict with the Narcotics Law. For example, there is a bank secrecy law, which severely limits the amount of information that can be released by a bank. There is also a banking law designating the Superintendency of Banks as the only agency authorized to receive information from a bank. At the same time, there is a criminal defamation law, which adds to the reluctance on the part of financial institutions to report suspicious financial transactions.

This contradictory legal framework hinders the effective collection and exchange of financial information among the enforcement and regulatory agencies. For example, the Ecuadorian National Police can seek and obtain court orders to search and obtain financial information, but the banking sector will not honor such orders, claiming that banking regulations make it answerable only to the Superintendency of Banks. The Superintendency of Banks will not accept requests for information directly from the Ecuadorian National Police (ENP), insisting that such requests come from the National Drug Council (CONSEP), and it will forward such information only to the CONSEP. In turn, the CONSEP is very slow in forwarding information to the ENP, and the two agencies do not have a solid working relationship.

Other regulatory weaknesses also provide an ideal environment for money laundering to thrive. These weaknesses include the fact that money laundering is considered a crime only if it can be linked to the illicit narcotics trade, and the lack of protection from defamation suits for officials who report suspicious transactions. Ecuadorian law also requires that targets of an investigation be notified that they are being investigated. Moreover, there is a total absence of controls on the amount of currency that can be brought into or taken out of the country.

The GOE needs to clarify its laws and regulations to eliminate conflicting interpretations, in order to have an effective anti-money laundering system.

Egypt (Concern). Egypt is not considered an important financial center or a tax haven. Nevertheless, in July 1998 the Egyptian Federation of Banks estimated that money laundering in Egypt amounts to approximately $3 billion annually, about 70 percent generated by drug trafficking and the rest by terrorism and organized crime. This money is recycled through bank deposits, trade schemes, real estate purchases, private money exchanges, and investments in financial markets. The Ministry of Interior has accused Muslim militants of being heavily involved in the drug trade and in money laundering in order to fund their operations.

Despite indications of significant money laundering in Egypt, both private and government officials continue to debate the wisdom--and even the desirability--of anti-money laundering controls. Those opposed to such controls cite the need to attract foreign investment to Egypt and the possibly deterrent effect anti-money laundering laws would have on such investment.

Egypt is a party to the 1988 UN Drug Convention. In 1996, a special anti- money laundering unit was established within the Anti-Narcotics General Administration (ANGA), and in 1997 it received preliminary training from the Swedish financial intelligence unit (FIU). However, the unit currently has no operational role. The ANGA has drafted legislation for the People's Assembly on money laundering and asset forfeiture, but there is no major impetus to pass it. A 1989 law provides for severe penalties for drug trafficking, while a 1971 law allows the Public Prosecutor to seize and confiscate illegal wealth emanating from specific circumstances, but these laws by no means fully address the problem of money laundering. In February 1999, a six-person team from the Financial Crimes Unit attended a U.S. Secret Service-sponsored seminar in Washington, DC, on financial crime. The head of the unit expressed interest in receiving more extensive training for his group in the area of money laundering.

Egypt needs to give priority to enacting anti-money laundering legislation, which meets international standards, including the criminalization of money laundering from all sources and the mandatory reporting of suspicious transactions by financial institutions.

El Salvador (Concern). The growth of El Salvador's financial sector, its stable currency and an increase in narcotics trafficking activity all make the country fertile ground for money laundering. The Salvadoran banking system is one of the largest in the region, and it maintains important financial contacts with neighboring countries, Mexico, the Caribbean, and the United States

The government of El Salvador (GOES) took a significant step forward in 1998 with the passage of comprehensive anti-money laundering legislation in December. Passage of this legislation culminates a comprehensive, year-long effort by the governments of El Salvador and the United States, and by Salvadoran legislators and bankers. After several financial scandals exposed the weaknesses of El Salvador's financial system in 1997, all sectors agreed on the need for new legislation and spent much of 1998 debating alternative money laundering bills. Key Salvadoran officials, including the Attorney General and an opposition party leader, were instrumental in the process. The GOES also invited experts from the United States to advise and to assist legislators and bankers in developing the legislation.

The new law criminalizes the laundering of money from drug trafficking and other serious offenses. Financial institutions must identify their customers, maintain bank records for five years and make them available to investigative authorities, and report all suspicious transactions and any transaction exceeding approximately $57,000. The law contains penal sanctions, fines, and asset forfeiture provisions. It also establishes a financial intelligence unit (FIU) housed within the Attorney General's office (Fiscalía) to receive financial disclosures and to investigate alleged money laundering violations. The legislation will take effect following a six-month implementation phase to provide training and establish the FIU.

The United States is also working with the GOES on additional legislation regarding asset seizures.

Estonia (Other). Money laundering has been a problem in Estonia since the early 1990s for various historic, economic, and geographic reasons. Estonian financial institutions have been linked to the laundering of questionable foreign funds, especially from Russia and other members of the Commonwealth of Independent States. Analysis and investigation of requests for foreign legal assistance attest to the scope of the money laundering problem. The privatization process remains a known avenue for the laundering of illegal proceeds, and irregularities in the privatization of state property highlight the problems in this area. For example, organized crime groups, most from Russia, use illegal proceeds to purchase homes, factories and land by bribing government officials responsible for privatization of state-owned assets. The groups then resell the property for a profit or use them to conduct legitimate business. Fraud, theft and forgery are growing problems in Estonia, and criminals are becoming more sophisticated in perpetrating financial crimes such as money laundering, tax evasion, counterfeiting, and smuggling. In addition, Estonia's police forces have been publicly criticized for their inability to counter organized crime and the extortion of businesses.

Estonia's record in fighting corruption shows mixed results, but the government is committed to eliminating corruption. The former director of the central bank and one of his advisors are currently under investigation for abuse of official position and misappropriation of $10 million funds transferred to Switzerland. Although Estonia has been successful in combating corruption at the national level, it still remains a significant problem at the local level, where little progress has been made since Estonia regained sovereignty in 1991.

Estonia has made steady progress in developing an anti-money laundering framework. In January 1995, Estonia enacted anti-money laundering legislation as part of its Law on Credit Institutions, which provided a definition of money laundering and required credit institutions to prevent the use of the banking system for money laundering purposes. In November 1998, the Estonian Parliament enacted an anti-money laundering law, which is scheduled to become effective in June 1999. The legislation establishes a suspicious transaction reporting system and sets up a financial intelligence unit, the Money Laundering Information Bureau, which is subordinate to the Police Board in the Ministry of Internal Affairs. Other amendments to existing legislation are envisioned prior to the implementation of the anti-money laundering law--for example, the criminal code must be amended to fully criminalize money laundering.

Estonia is active in international and regional efforts to combat money laundering and other crimes. In November 1999, Estonia will undergo a mutual evaluation conducted by the Council of Europe's PC-R-EV. The evaluation will provide detailed suggestions to improve Estonia's anti- money laundering program. In July 1998, Estonia signed an agreement with Russia's Pskov region to jointly combat trans-border crime such as the smuggling of raw materials, narcotics and arms, as well as financial crimes.

Ethiopia (Other). Ethiopia is not a financial center, and there are no indications that significant money laundering is occurring there. Given current government policies, Ethiopia is unlikely to develop a significant money laundering problem. The country's largest commercial bank is government-owned, and foreign investment is prohibited in Ethiopia's seven private banks.

Ethiopia has not enacted anti-money laundering legislation, but is a party to the 1988 UN Drug Convention.

Fiji (Other). There is little information on money laundering or the financial system in Fiji other than the reported near-collapse of the government-run National Bank of Fiji in 1995. Fiji, like many Pacific Islands, is a ripe target for money laundering and financial fraud scams, since it has very few laws to guard against money laundering. Fiji enacted two pieces of legislation in December 1997 that assist in the fight against financial crimes: the Mutual Assistance in Criminal Matters Act and the Proceeds of Crime Act.

Fiji is a member of the Asia Pacific Group on Money Laundering.

Finland (Other). Finland is not a major money laundering country, nor is it a major financial or offshore banking center. According to Finnish authorities, there were ten minor cases of narcotics-related money laundering in 1998. Finnish authorities have expressed concern about Russian organized crime, as well as money laundering from fraud (including tax fraud) and other economic crimes. The money laundering provision in the Finnish Penal code covers the proceeds of all crimes, and there are no thresholds for predicate offenses.

The most significant change in 1998 was the enactment of the Act on Preventing and Clearing Money Laundering, which entered into force on March 1, 1998, and served to bring all of Finland's anti-money laundering measures into one piece of legislation. This Act established a Money Laundering Clearing House (MLCH) at the National Bureau of Investigation (NBI) as the central unit to receive suspicious transactions. Prior to this Act, there was a two-part system by which transactions reports were made to both the Financial Supervision Authority and the Ministry of Social Affairs and Health, which in turn analyzed these reports before sending them to the police. The Act also extends the reporting requirement to all credit and financial institutions and to most non-bank financial institutions, including bureaux de change, betting agencies, casinos, real estate agencies, pawnshops, insurance companies, and investment firms. There is currently no plan to extend the Act to accountants or lawyers.

There are a few parts of the law that could use improvement. Although there are customer identification measures in place, there is an exemption in cases of certain insurance premium and real estate transactions paid from an account located in the European Economic Area. This does not pose too much difficulty if the other European country is subject to strict regulation, but such is not always the case. If money remittance or transfer services are provided by a business in which this service is not its main activity, then the business is not subject to the Act. Another difficulty is that bureaux de change, as well as money remittance and transfer businesses, are not subject to licensing or supervision.

The MLCH will be the recipient of all suspicious transaction reports and will pass relevant cases to other units of the NBI or to local police for investigation. The MLCH serves as the financial intelligence unit and participates in the Egmont Group. Finland is also a member of the FATF and the Council of Europe.

France (Primary). France is vulnerable to money laundering, as it is both a drug transit country and an important financial center. The Government of France has tried to reduce vulnerabilities by enacting broad ranging anti- money laundering legislation.

The French Penal Code criminalizes money laundering relating to the proceeds of all crimes. It also requires that financial institutions, insurance brokers, post offices, and bureaux de change report suspicious transactions to Traitement du Renseignement et Action Contre les Circuits Financiers Clandestins (TRACFIN). Since July 2, 1998, notaries and property agents have also been required to report suspicious transactions to TRACFIN.

In the past year, suspicious transaction reporting has decreased slightly from banks, doubled in the insurance sector and also continued to rise in the area of bureaux de change. This is a positive sign that with the proper legislation and training of various sectors, there is increased vigilance in the fight against money laundering. TRACFIN is in the process of preparing reference manuals with basic anti-money laundering rules for each profession, which should further educate employees in these areas.

France is a member of the FATF, and TRACFIN participates in the Egmont Group of financial intelligence units. France is a party to the 1988 UN Drug Convention and is in compliance with the EU Money Laundering Directive. As a member of the Council of Europe, France attends the PC-R-EV meetings.

Georgia (Other). Georgia is not currently considered a significant financial center. The banking sector is unsophisticated and relatively small. However, commercial banks have the ability to clear and transfer funds electronically. The central bank has begun to play a larger role in regulating the banking industry, despite resistance on the part of some commercial bankers. The Georgian economy is too small to absorb large flows of illicit foreign funds, and Georgian organized crime groups are known to use countries in Central Europe to launder proceeds from their operations there. Locally-derived proceeds, which are often the result of alcohol and tobacco smuggling, are fairly easy to launder, given the cash- intensive nature of the Georgian economy. This small-scale laundering often takes place through retail outlets, although some commercial banks have also reportedly become involved in the laundering of funds derived from smuggling. No Georgian government official has been publicly linked to money laundering, despite the corruption endemic in government law enforcement agencies.

Money laundering is not a criminal offense in Georgia. There is no requirement that suspicious transactions be reported, nor are legal safeguards in place to protect banks which cooperate with law enforcement (in any case, there are no known instances of Georgian law enforcement's carrying out any money laundering investigations.) There are also no controls on inbound or outbound currencies.

Georgia does have laws providing for asset seizure, although no legislation specifically designates asset forfeiture for narcotics-related offenses. Georgia has not entered into any agreement with a foreign country providing for the exchange of information on money laundering.

The Government of Georgia became a party to the 1988 UN Drug Convention in August 1998.

Germany (Primary). Money laundering is a criminal offense pursuant to Section 261 of the German Criminal Code and extends to all major crimes. The German Money Laundering Act (GMLA) was amended in 1998 and now applies to credit institutions, financial service institutions, financial enterprises and insurance companies. A new organized crime law was also passed by the Bundestag on January 16, 1998, which is intended to improve the fight against organized crime by extending the list of predicate offenses.

As part of the new GMLA of 1998, customer identification is required for transactions in cash, securities or precious metals valued at approximately $17,600 or more. Institutions are also required to maintain identification records for six years. Institutions and casinos are required to report suspicious transactions to the competent prosecution authorities without delay. The Act also requires that credit institutions, insurance companies, auctioneers, financial service institutions, financial institutions, bullion dealers and gambling casinos appoint a compliance officer responsible for reporting suspicious transactions and for developing internal control procedures and training programs for employees.

Since January 1998, money transmitters have been required to be licensed and are subject to supervision by the Federal Banking Supervisory Office (FBSO). Anti-money laundering guidelines were also issued to these newly supervised businesses in February 1998 which require know-your-customer policies for transfers of $8,500 or above. The guidelines also mandate procedures to prevent structuring and require the filing of monthly statistics to the FBSO.

With the development of electronic commerce, the FBSO has taken a proactive approach to its regulation of this industry by requiring, as part of the GMLA, customer identification for non-account linked transactions. This requirement became effective in June 1998.

Germany participates in the FATF and is a member of the Council of Europe. The Gemeinsame Finanzermittlungsgruppe Geldwasche - Bundeskriminalamt (BKA) has participated in the Egmont Group. However, German law does not currently allow for the creation of a national centralized financial intelligence unit. As a member of the G-7, Germany has made a political commitment to create such a unit; it should act on that commitment.

Ghana (Other). Illicit trade in gold, diamonds and narcotics is responsible for the major part of money laundering in Ghana, which occurs primarily through bureaux de changes. Money laundering was criminalized under Narcotics Drug Law 1990 PNDC Law 236, but there were no arrests or prosecutions for money laundering in 1998. Banks and other financial institutions are not required to report the identities of customers engaging in large cash transactions, but they do enjoy safe haven protection when cooperating with law enforcement.

The 1990 law gives the Attorney General special powers to investigate narcotics offenses suspected of having been committed under this law or any foreign law. The Serious Fraud Office also handles non-narcotics-related money laundering.

Ghana is a party to the 1988 UN Drug Convention.

Gibraltar (Concern). Gibraltar is an Overseas Territory of the UK and a tax haven, which offers a 25-year guarantee against income and estate taxes for offshore companies. It has also emerged as a flourishing offshore center for companies, trusts, banks, insurance companies, and other offshore entities. Gibraltar offers bearer shares and certificates to companies operating within its jurisdiction.

Money laundering on an all-crimes basis was criminalized in 1995, and the Financial Services Commission in 1996 issued Guidance Notes. The Gibraltar Financial Intelligence Unit (FIU) within the Government of Gibraltar (GOG) Coordinating Centre for Criminal Intelligence and Drugs was established in 1996 and is the recipient of suspicious transaction reports. All financial institutions, insurance companies, bureaux de change, accountants, company formation agents, casinos, attorneys and others are obliged to report suspicious transactions.

Currently, the Gibraltar FIU is applying to the Egmont Group to be recognized as an FIU. Although Gibraltar is not a member of the FATF, the GOG has given its explicit endorsement to the FATF Forty Recommendations. Gibraltar is a member of the OGBS and has agreed to undergo an OGBS mutual evaluation in 1999. This further underlines the commitment of Gibraltar to adhere to international anti-money laundering standards.

Gibraltar is within the EU as part of the UK Member State. It implemented the EU Money Laundering Directive in 1995, and its anti-money laundering legislation is fully in line with EU requirements.

Greece (Concern). According to both Greek and U.S. authorities, narcotics is a growing problem in Greece and is the major source of illicit proceeds which need to be laundered. These proceeds are invested in real property, Greek government bearer bonds (although new bearer bonds are no longer being issued, there is still a large resale market), stocks, and purchases of companies. The illicit cross-border movement of currency and monetary instruments, despite being addressed in the anti-money laundering law, still presents a major problem, according to Greek authorities. Casinos are also becoming a problem, particularly investment in casinos, since Greek law does not require disclosure of the source of capital for such investments. There are currently ten private and two state-owned casinos in Greece. Greek officials believe that proximity to other financial centers such as Cyprus is having an impact on Greece.

In late 1995, the Greek Government enacted a comprehensive law, which criminalized all forms of money laundering. The law established a central authority called the Competent Committee (the "Committee") to receive suspicious transaction reports (STRs) and thus to function as Greece's financial intelligence unit (FIU). The Committee, which became operational in January 1997, is an eight-member group chaired by a senior judge and consisting of representatives of various ministries, the central bank, and the Athens Stock Exchange. Banks and other financial institutions are required to file STRs with the Committee, which decides if they warrant further investigation. A supplementary anti-money laundering law is being prepared for submission to Parliament in 1999, which will, among other provisions, extend the STR requirement to casinos. The Committee refers STRs to the Financial Crimes Enforcement Unit (SDOE), a multiagency group which functions as the investigative arm of the Committee. Should SDOE find evidence of possible criminal violation, it sends the STR back to the Committee, which then prepares the case for the public prosecutor's office. At present, the Committee and SDOE are still in the process of defining their relationship and the coordination process. The Committee stated that during the first nine months of 1998, it received 200 STRs, 20 of which were ultimately referred to the public prosecutor.

The Central Directorate of SDOE is in the process of preparing a comprehensive report on money laundering in Greece which will examine how the anti-money laundering law is functioning; what the banking sector is doing to comply with STR requirements; practices, techniques, and methodologies of money laundering in Greece; and how the Greek experience conforms to international standards. This report will be provided to U.S. authorities when it is ready, probably in mid-1999.

Greece is a member of the FATF and the Council of Europe. The Committee participates in the Egmont Group of FIUs.

Grenada (Other). There has been little evidence of money laundering in Grenada, but new vulnerabilities have been created by the government's rapid and relatively unsupervised venture into offshore services. Like other Caribbean jurisdictions, Grenada has sought revenue by competing for offshore dollars, and in 1996 it passed the International Companies Act (Amended 1996), the Offshore Banking Act 1996, the International Trust Act 1996, the Offshore Insurance Act 1996, and the Company Management Act 1996. The Minister of Finance reviews applications and issues licenses for offshore banks. Grenada also offers economic citizenships and Internet gaming licenses. As of spring 1998, Grenada had issued ten offshore banking licenses, six Internet gaming licenses, and nine economic citizenships. The Registrar of Offshore Services, which in 1998 consisted of one person, supervises the sector.

The Government of Grenada (GOG) has indicated that it will lift confidentiality restrictions for legitimate requests in relation to money laundering and drug trafficking investigations. In May 1996, the GOG signed mutual legal assistance and extradition treaties with the United States. The United States ratified the MLAT in January 1999, but the treaty is not yet in force.

Grenada is a member of the CFATF. It is scheduled to undergo a CFATF mutual evaluation from 8-12 November 1999.

With the new venture into financial services, the Government of Grenada should move quickly to develop and implement strong anti-money laundering laws to avoid an escalation of financial crimes and money laundering abuses. Particular attention should be focused on due diligence investigations of offshore bank applications.

Guatemala (Concern). Guatemala continues to be a significant part of the drug transshipment route from Colombia to the United States. The potential for money laundering remains very high due to the lack of laws specifically designed to combat it, as well as the weak monitoring and control of financial transactions. The openness of the economy, along with the lack of economic and financial regulation, the volume of foreign exchange transactions, and the widespread availability of false identity documents suggest that money laundering is taking place. The Government of Guatemala (GOG) also has problems with tax evasion and corruption.

The 1992 Narcotics Law outlaws any attempts to disguise the proceeds from drug-related activities, and it is frequently cited as an adequate tool for combating money laundering. However, there has never been a prosecution or conviction for money laundering under this law. The supervision of banks and other financial institutions is inadequate, and financial regulators lack the resources to effectively monitor banks' activities. There are minimal transaction reporting requirements but no mechanism in place to routinely collect and analyze the information. Although the Guatemalan Bankers Association has claimed that its internal controls are sufficient to prevent money laundering, there is no evidence of this. In fact, a number of high-profile cases involving corruption, smuggling, forgery and narcotics trafficking suggest that moving large amounts of illicit funds through the financial system has not been too difficult for the perpetrators of numerous serious offenses.

For the past two years, a comprehensive anti-money laundering law, based on the OAS model and consistent with models in other Latin American countries, has been presented to the legislature. However, bankers and other groups in the private sector continue to oppose this legislation, mainly because it would allow financial information to be made available to investigative and law enforcement entities. The United States has urged Guatemala to adopt this comprehensive anti-money laundering legislation and has provided ample support for this initiative, but the GOG has been unresponsive.

The GOG needs to enact legislation that meets international standards to effectively combat financial crime and money laundering. Guatemala should also consider becoming an active member of the CFATF and establishing a financial crimes investigative unit.

Guernsey (Primary). The Bailiwick of Guernsey is a UK Crown Dependency composed of the islands of Guernsey, Alderney, and Sark, among others. Drug money laundering is a crime in Guernsey, and legislation is pending to extend this to all crimes. The new legislation would allow for the tracing, restraining and confiscation of proceeds of all crimes including tax evasion.

Guernsey has a large offshore insurance sector that provides captive and life insurance products to non-resident companies. It also offers special tax incentives to attract international business. Guernsey licenses and regulates both open- and closed-ended collective investment schemes, and plans to extend this control to other forms of investment businesses. In 1998, Guernsey introduced the Channel Islands Stock Exchange, which is regulated by the Financial Services Commission.

Guernsey was a subject of the 1998 UK Review of Financial Regulation in the Crown Dependencies. The report commended the dependencies for what they had already done but suggested various legislative and regulatory improvements which might be made. In Guernsey's case, one of the deficiencies cited was the fact that the Guernsey Financial Services Commission does not have the power to search and seize when irregularities are discovered.

Guernsey has proposed a "safe harbor" law, which would protect those who report suspicions about money laundering, and it is also considering a statute, which would prohibit insider trading. The authorities also plan to require all companies administered or operating on the island to be subject to licensing and to declare beneficial ownership.

The Guernsey Joint Police and Customs Financial Investigation Unit serves as the financial intelligence unit and participates in the Egmont Group. Guernsey is a member of the OGBS and has agreed to undergo a mutual evaluation.

Guernsey should enact its all-crimes anti-money laundering legislation as soon as possible.

Guyana (Other). Guyana is not an important regional financial center and there is no evidence of major money laundering activity. However, the country's porous borders, the government's lack of resources and internal political conflicts, combined with the absence of laws to combat money laundering, make the country increasingly vulnerable to such activity. In addition to narcotics trafficking, contraband smuggling generates funds that are laundered. Currency exchanges, which are essentially unregulated, facilitate laundering in Guyana. Drug money may also be laundered through the acquisition of real property and in other investments. In 1997, the Government of Guyana (GOG) investigated the illegal export of large quantities of gold, which was suspected to have been purchased with narcotics proceeds. However, in one important case, charges against seven prominent businesspeople were dropped after the GOG mysteriously failed to compile an adequate case against them.

Guyanese law requires that funds over $10,000 imported into or exported out of Guyana be reported to government authorities, but mechanisms have not yet been put into place to facilitate such reporting. The Financial Institutions Act of March 1995 designated the Bank of Guyana as the sole financial regulator and extended the coverage of legislation, regulations and penalties to all deposit-taking institutions. However, at this time there are no laws requiring banks or other financial institutions to know, record, or report the identities of customers engaging in large currency transactions, or to maintain transaction records.

Anti-money laundering legislation was drafted in 1997 but is still pending in the legislature. The Money Laundering (Prevention) Bill criminalizes money laundering related to narcotics and other serious crimes, and it allows for the expansion of predicate offenses. The bill establishes requirements for reporting suspicious transactions by financial and non- financial institutions, as well as cross-border transaction reporting. It requires confidentiality in the reporting process, provides a "safe harbor" for good faith reporting, and contains provisions for asset forfeiture, international cooperation, and extradition for money laundering. The bill also creates a Supervisory Authority to receive financial disclosures and supervise financial institutions' activities to prevent and detect money laundering.

The proposed legislation falls short of the FATF Forty Recommendations and the amended OAS Model Regulations on Money Laundering in several respects, specifically in the reporting of large cash transactions and transactions by non-bank financial institutions.

Guyana should rejoin and become an active player in the CFATF. It should also submit to a mutual evaluation by the CFATF.

The government of Guyana needs to move quickly to pass this legislation, implement regulations, and establish the Supervisory Authority to work with international authorities to help fight money laundering in Guyana and the region. Guyana also needs to become an active member of the CFATF.

Haiti (Concern). Haiti's already weak democratic and economic institutions have been further weakened by a political impasse since June 1997, rendering the country more vulnerable to drug trafficking, corruption, and money laundering.

Although large-scale money laundering probably does not occur in Haiti because of the country's weak economic and political sectors, banking executives anecdotally report some money laundering activities. In addition, the Royal Canadian Mounted Police, in the course of an investigation into a Haiti-Quebec cocaine ring, discovered a money laundering operation. Haitian currency exchange houses, which are essentially unregulated, are also vulnerable to money laundering.

In 1997, the Ministry of Justice drafted anti-money laundering legislation and updated counternarcotics legislation. If enacted, these laws would criminalize drug-related money laundering, establish procedures for asset seizure and forfeiture, impose customer identification requirements, and mandate suspicious activity reporting. However, consideration of these laws and all other legislation has been halted pending the selection of a Haitian Prime Minister. Given its vulnerability, the Government of Haiti needs to enact and enforce comprehensive anti-money laundering legislation if it is to protect its territory and its financial sector from the increased threat of narcotics trafficking, financial crime, and money laundering.

Honduras (Concern). Honduras is neither a major financial center nor an offshore tax haven. However, narcotrafficking organizations continue to exploit Honduras as a transit point for drugs moving into the United States. The sudden and unexplained purchase (often with cash) of land, buildings, vehicles, and expensive consumer goods may represent the proceeds of drug trafficking and other criminal activities (stolen vehicles, contraband, alien smuggling, kidnapping) entering the economy. U.S. investigations indicate that money exchange services, travel agencies, banks and stolen car rings are among the money laundering venues in use in Honduras.

The Government of Honduras (GOH) has detected these trends and publicly acknowledged the possibility of widespread money laundering activities. The December 1997 anti-money laundering law has not proven effective, as it applies only to narcotics-related money laundering. Additional legislation was passed in 1998 permitting the use of undercover operations and wiretapping in narcotics investigations, which should greatly assist in enforcing the 1997 law. Regulations were also issued requiring banks to report transactions over $10,000, and exchange houses to report all transactions, regardless of amount, to the National Banking Commission. Reforms have been introduced in the Congress to extend the criminalization of money laundering to include other serious crimes, and stronger legislation to allow for the seizure and forfeiture of assets is expected to be enacted in 1999.

The Superintendent of Banking regulates commercial banks, savings and loans and exchange houses in Honduras. Non-bank financial institutions are authorized to operate by the Superintendent of Banking and are subject to supervision by the central bank. The four casinos in Honduras are unregulated.

Despite the arrest of judges, police officials and military personnel for their participation in the illicit narcotics trade, corruption still constitutes a major problem in all aspects of national life and is a major deterrent to the effective enforcement of available laws.

Honduras is making slow but steady progress in the fight against money laundering. The GOH needs to enhance its anti-money laundering program by criminalizing money laundering for all serious crimes and implementing an effective anti-money laundering regime .

Hong Kong (Primary). Hong Kong, even after its reversion to China, continues to be a major international financial center providing a wide range of services to local and international clients. It is Asia's second- largest financial market and a premier offshore banking center. The financial markets in Hong Kong have a high degree of liquidity and in general are effectively regulated. There are no restrictions on capital flows into and out of Hong Kong, and no exchange controls. Because of China's closed banking policies, Hong Kong frequently serves as a broker for China in the offshore banking arena.

The Hong Kong Monetary Authority (HKMA) regulates the estimated 344 authorized banking institutions in Hong Kong, while the Insurance Authority and the Securities and Futures Commission serve as the regulatory bodies for those respective industries. All three groups impose licensing provisions and conduct background checks on prospective applicants, and the supervisory system is generally well-regarded. Hong Kong's estimated 150 money changers and 300 remittance agents are largely unregulated at present, although they technically fall under Hong Kong police supervision with respect to money laundering. However, legislation to regulate the industry is expected to be introduced sometime in 1999. Issues being considered include customer identification and record-keeping requirements, as well as registration of both remittance agents and money changers.

In the area of banking, financial institutions are required to record the identities of their customers and to report customer information when requested by the authorities. They must also report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) for review and investigation. From January through mid-November 1998, over 4,700 suspicious transactions were reported to the JFIU. To encourage suspicious transaction reporting, the JFIU provides periodic feedback to financial institutions on their submissions, and also makes available trend reports and sanitized case histories. The JFIU can release information to its foreign counterparts, with the understanding that the information can be used only for investigative purposes, not as evidence, without further authorization upon written request.

Money laundering related to drug trafficking and other serious crimes, including organized crime, is a criminal offense in Hong Kong. Drug trafficking is considered the most significant source of illicit proceeds, although Hong Kong authorities have also identified loansharking, gambling, and smuggling as potential sources. The institutions most commonly used for laundering funds include banks, remittance agents, secretarial companies, and shell companies (although the latter have been required since 1997 to implement strong customer identification policies to ascertain beneficial owners).

Methods used by money launderers in Hong Kong include bank accounts held in the names of the launderer's friends or paid employees, or opened with forged documents; the layering or structuring of funds among accounts; bank accounts in the names of shell companies, or the use of offshore shell companies themselves; and international cash couriers. The bulk movement of cash is also widely used. An extensive unregulated underground banking system is used to move drug proceeds throughout Asia. Underground bankers often have accounts at area banks under the names of their businesses.

A new mutual legal assistance ordinance became effective in February 1998, which has greatly enhanced Hong Kong's capacity to assist foreign criminal law enforcement agencies. The ordinance can also be used as a tool to combat money laundering, especially in cases where Hong Kong is being been used as a conduit or hiding place for illicit assets. Hong Kong has signed an MLAT with the United States. It was ratified by the United States Senate in January 1999, but it is not yet in force.

At a December 1998 seminar organized for the Hong Kong Association of Banks, representatives of several U.S. agencies gave presentations on United States anti-money laundering efforts, emphasizing the importance of threshold deposit and currency entry/exit reporting requirements, both of which Hong Kong lacks. This impedes the efforts of Hong Kong law enforcement authorities to combat money laundering. The bankers, led by the Hong Kong Monetary Authority, opposed the threshold reporting requirement, calling it costly, ineffective, and inappropriate for Hong Kong as a cash- based society. Hong Kong government officials admitted, however, that additional legislation is needed to address money laundering by non- bank financial institutions such as remittance and foreign exchange agents.

Hong Kong is a party to the 1988 UN Drug Convention. It is a member of the FATF and has implemented most of the FATF Forty Recommendations. A FATF team visited Hong Kong in 1998 to review its progress; the team's report will be discussed in the FATF plenary early in 1999. Hong Kong is also an active member of the OGBS and the Asia Pacific Group on Money Laundering.

Hong Kong has in place a strong anti-money laundering regime. However, it needs to enact cross-border currency controls in order to be better equipped to deal with the massive flows of currency into and out of its economy. It should also consider requiring the reporting of large cash transactions. United States law enforcement officials suggest that Hong Kong take a more proactive approach to investigations of money laundering.

Hungary (Primary). Money laundering is a significant problem in Hungary for two major reasons--the strong presence of organized crime and the ineffectiveness of Hungary's anti-money laundering regime. The activities of foreign and domestic organized crime groups have become pervasive. Organized crime undermines government institutions through corruption, and criminal proceeds are invested in many sectors of the Hungarian economy. Organized crime syndicates are attracted to Budapest in particular because of the good infrastructure, a well-developed financial system, and the city's geographical location allowing easy travel to both Western and Eastern Europe. An April 1998 conference sponsored by the Hungarian National Criminology and Crime Research Institute examined the issues associated with money laundering, including the success of laws to counter it. It was reported at the conference that although more than 2, 000 suspicious transaction reports have been filed by Hungarian financial institutions since 1994, only four cases of money laundering have been initiated. Hungary has had no successful prosecutions for money laundering.

In launching a new anti-organized crime assistance program for Hungary, the United States will provide expertise to assist in developing and implementing money laundering legislation.

Hungary is planning other measures to address organized crime and money laundering. The Hungarian Parliament is debating the creation of a tax police force to combat tax evasion and fraud. Hungary also plans to outlaw anonymous bank accounts, according to a statement made by Ministry of Finance officials. In 1998, Hungary underwent a mutual evaluation conducted by the Council of Europe's PC-R-EV. The evaluation's findings will be discussed and published in final form during the June 1999 plenary of the PC-R-EV. The final report will provide detailed suggestions to improve Hungary's anti-money laundering program.

Hungary's financial intelligence unit, the Money Laundering Section of the Hungarian National Police (ORFK-MLS), is a member of the Egmont Group.

Iceland (Other). Money laundering has not yet become a problem in Iceland, but the government has taken proactive steps by enacting legislation to combat it. Icelandic regulators take their anti-money laundering responsibilities seriously and are committed to supervising the compliance of institutions within the requirements of the legislation. Suspicious transaction reporting is required and the reports are sent to the Rikisssaksoknari, which serves as Iceland's financial intelligence unit (FIU).

Iceland is a member of the FATF and adheres to the Forty Recommendations that have been set out by that body. It is also a member of the Council of Europe. The Rikisssaksoknari participates in the Egmont Group of FIUs.

India (Primary). The extent of money laundering in India is unknown. The country is not a major international financial center, although Bombay (Mumbai) is a regional financial center. Substantial volumes of drug money laundering are not apparent. The most significant sources of laundered money in India are financial crimes (including tax evasion) and corruption. Although money laundering is not a criminal offense per se, those suspected of hiding funds can be prosecuted for income tax evasion, or under sections of customs or foreign exchange regulations. Also, current law stipulates that persons opening a bank account must present photographic identification, and transactions over the equivalent of $1,000 cannot take place in cash. All transactions over $2, 400 must be reported to bank management, which then decide whether to notify the authorities. The Government of India (GOI) has issued administrative instructions to financial institutions to report suspicious transactions, but they are under no legal obligation to do so, although they enjoy "safe harbor" protection if they do.

The GOI completed drafting its anti-money laundering legislation in late 1997 and introduced it into Parliament in mid-1998, but as of late 1998, it had not passed. This legislation calls for full criminalization of money laundering, requires reporting of all transactions over approximately $62, 000, and contains provisions for increased international cooperation in money laundering investigations. Passage of this legislation is tied to passage of other legislation dealing with foreign exchange transactions.

The new legislation seeks, in part, to consolidate anti-money laundering efforts in India. India already has several pieces of legislation that address various aspects of money laundering, particularly the Smugglers and Foreign Exchange Manipulators Act, the Narcotic Drugs and Psychotropic Substances Act, the Benami Transactions Prohibition Act, the Customs Act, the Foreign Exchange Regulation Act, the Income Tax Act, and the Banking Act. Each of these Acts is administered by a different department of the GOI, and there is no single authority to coordinate anti- money laundering efforts or to serve as a central repository for information on money laundering. India's central bank, the Reserve Bank of India, and some of the larger banks, such as the State Bank of India, have also instituted various policies, both in India and abroad, to combat money laundering.

India has cooperated with law enforcement authorities of the United States and other foreign countries in the freezing of accounts and by exchanging information. Travelers bringing into, or taking out of, the country the equivalent of $10,000 or over must make a customs declaration. The assets of persons convicted of crimes may be frozen or forfeited; however, those who have been only arrested are not subject to forfeiture and have ample opportunity to hide their assets. By law, forfeited assets may not be shared with other countries.

A great deal of legitimate business in India is conducted on a cash basis. Large cash transactions are not considered unusual or suspicious. In addition, the hawala/hundi alternative remittance system is often used to conduct licit and illicit domestic and international transactions because it is faster, cheaper, and more reliable than traditional banking channels. Even though most hawala transactions are illegal under existing Indian law, hawala is by no means "underground" in India.

The hawala system operates either with few, if any, records, or with records that are kept in code, so illicit transactions are often essentially undetectable, making investigations difficult, if not impossible. In addition, the hawala "networks" that are often established specifically for criminal activities are highly resistant to infiltration by law enforcement authorities. It is only in rare cases like the "Jain Hawala Case," where diaries detailing the transactions were seized, that any significant progress can be made in conducting an investigation. The GOI and the United States are currently cooperating on several hawala investigations. In one, hawala is being used to launder the proceeds of alien smuggling; in another, it is being used to move the proceeds of illegal securities transactions.

An important aspect of the hawala system is the connection with Dubai, where unregulated foreign exchange businesses have been shown to play a significant role in licit and illicit transactions. These transactions do not always involve India. Discussions with Indian law enforcement and regulatory officials have also indicated that Dubai provides very little in the way of investigative cooperation.

The United States should continue to encourage the GOI to enact and implement its proposed money laundering legislation, which, based on information available, seems to be an excellent first step. In addition, the two sides should continue to address the hawala alternative remittance system and its implications for international money laundering.

India is a member of the Asia Pacific Group on Money Laundering.

Indonesia (Primary). Indonesia's money laundering problem is growing rapidly. Inadequate legislation, strict bank secrecy laws, and strategic geographical location all combine to leave Indonesia vulnerable to money laundering. It is alleged that ex-President Suharto laundered money extensively while amassing a large fortune in overseas bank accounts.

To revitalize national economic activity, and to regain public confidence in the country's banking industry, the Indonesian government took measures in late August 1998 to rebuild the banking system through recapitalization, tightening laws, and enforcing prudential regulations. In October 1998, the Indonesian parliament passed a law permitting foreign investors to own 100 percent of an Indonesian bank. The law requires banks to be more transparent about their financial conditions and limits their right to refuse to disclose information on the accounts of their clients. It makes Bank Indonesia, the central bank, more independent from the Finance Ministry and empowers it to oversee banks' activities in general, including mergers among or creation of new banks.

The extent to which money laundering in Indonesia involves narcotics is unknown. One United States law enforcement agency estimates that $500,000 is laundered weekly in Jakarta by West African and Southeast Asian trafficking organizations. The illicit proceeds enter Indonesia via West African couriers who transport the money via commercial airlines.

Indonesia is not a party to the 1988 UN Drug Convention. The Indonesian government has not directly addressed the problem of money laundering. Indonesia should take prompt action to enact and enforce anti-money laundering legislation, which complies with international standards, along with financial regulations, which will prevent fraud and abuse of the banking system. Development of a strong anti-money laundering regime will aid in the restoration of confidence in the Indonesian financial system.

Although it is not a member, Indonesia actively participates in activities sponsored by the Asia Pacific Group on Money Laundering.

Iran (Other). Iran is not considered a financial center, and it has no specific laws against money laundering. The United States considers Iran a state sponsor of international terrorism, which requires laundered "operating" funds. In addition, Iran's border with Afghanistan makes it an important transit country for drugs entering the European market. UNODCCP reports that Iranian law enforcement officials carry out financial investigations in the context of drug crimes. However, asset and property confiscation are difficult, since proof of ownership is required before articles can be seized. Traffickers therefore divest themselves of nominal ownership of property to relatives and friends to thwart law enforcement efforts.

The Iranian real estate market is widely used as an alternative remittance system similar to the hawala system. Real estate transactions take place in Iran, but no funds change hands there. Instead, payments are made overseas. In many cases this is done because of the difficulty in getting funds out of Iran and the relative worthlessness of Iranian currency. In at least one case, however, the real estate market was used to facilitate the laundering of drug funds under the cover of legitimate businesses.

Iran's Foreign Minister told the UN General Assembly in June 1998 that his country is a party to all international drug control treaties.

Iraq (Other). There are no anti-money laundering laws in Iraq, and there is little hard information available on the extent of money laundering which may take place there. The once-powerful Rafidain Bank has not regained its former position of prominence following the Gulf War and the imposition of UN sanctions. The Iraqi currency, the dinar, is practically worthless on the world market. (In actuality, there are two versions of the dinar in circulation: the "old" dinar, with pictures of historic Iraqi monuments, is worth about half of one U.S. dollar; the "new" dinar, with Saddam Hussein's picture on it, is worth about 1/2,000 of one U.S. dollar. The Iraqi government simply prints more new dinars as needed, further devaluing it.) A former Iraqi official stated in late 1998 that Saddam Hussein has set up a widespread network of front companies in Jordan, Lebanon, Cyprus, and the northern part of Iraq itself to launder funds which are then used to purchase arms.

In September 1998, press reports stated that the British Secret Service had broken up a money laundering ring in which associates of Saddam Hussein had persuaded Iran, supposedly Iraq's sworn enemy, to "launder" Iraqi oil by exporting it as Iranian oil. These associates also used a network of front companies to smuggle the oil to the west. Daily earnings of up to $1.5 million per day were deposited in Jordanian banks and used to buy weapons. Also according to press reports of mid-1998 (citing Uruguayan intelligence officials), Saddam has been using the financial systems of Uruguay and Argentina to launder money, as follows: the Iraqi Central Bank sends dinars into Jordan, where they are converted into dollars which are then sent through the financial systems of Lebanon and Cyprus to Uruguay and Argentina. Citizens of these two nations reportedly deposit the money in their own accounts in return for commissions. These "clean" accounts are then used to purchase arms, which are smuggled into Iraq through Beirut. The operation is masterminded by Iraqi front companies recently established in the Cypriot port of Limassol.

Ireland (Concern). The Republic of Ireland is an emerging financial center. Money laundering is acknowledged as a problem, with a 50 percent increase in the number of reported suspicious transactions and an estimated figure of $126 million in suspected laundered funds in 1998. Offshore banking, although growing, is still relatively underdeveloped. According to the Bureau of Fraud Investigation, Ireland's financial intelligence unit (FIU), only four percent of suspicious disclosures concern operations of the International Financial Services Center.

Irish government and supervisory authorities view money laundering as a priority. Money laundering is a criminal offense in Ireland whenever it is related to criminal activity. Banks, money brokers, providers of services in futures and options, post offices, credit unions, stockbrokers and bureaux de change must report suspicious transactions and any transactions over the equivalent of $15,000. The requirement is expected to be extended to solicitors, accountants, estate agents and auctioneers in the near future. Records adequate to reconstruct financial transactions must be maintained for a "sufficient" amount of time. There is "safe harbor" protection under the law.

Ireland's asset seizure laws have been used frequently since their adoption in 1996, and Irish authorities report that the amount of seized and forfeited assets has dramatically increased in the past year. The government is currently awaiting a parliamentary commission report that contains recommendations to increase regulatory controls on financial institutions. Such recommendations may result in new legislation in 1999. The "due diligence" and "banker negligence" laws are under review by this commission.

Ireland is a member of the FATF and the Council of Europe. Its FIU participates in the Egmont Group.

Isle of Man (Primary). The Isle of Man (IOM) offshore sector offers a wide range of services, including asset-sheltering trusts, international business corporations, and corporate bearer shares and certificates. As a Crown Dependency, the IOM was subject to a review of its financial regulatory regime in 1998 as part of the UK Review of Financial Regulations in the Crown Dependencies. Following this review, the IOM has made substantial legislative changes in the money laundering arena.

In June 1998, All Crimes Anti-Money Laundering Provisions were introduced as primary legislation which carries a maximum penalty of 14 years. In December 1998, the All Crimes Anti-Money Laundering Code (Criminal Justice Act 1990) came into force. This new code requires customer identification and the maintenance of these documents, record retention for five years, and the reporting of suspicious transactions, as well as staff training. The law covers all regulated financial businesses, bureaux de change, estate agents, casinos, betting shops, company and trust service providers, as well as accountants and lawyers. The Isle of Man Fraud Squad serves as the financial intelligence unit and is the recipient of suspicious transaction reports.

As is the case in the UK, IOM authorities will be able to cooperate with overseas authorities in search and seizures, restraint and confiscation of assets in cases where the predicate crimes would be indictable if committed in the home jurisdiction. The all-crimes legislation will also allow the disclosure of information relating to suspicious transaction reports to similar overseas authorities. Once all of these measures are in place, the Isle of Man will be in compliance with the major international money laundering directives.

A new Banking Act was also enacted in 1998, which widens offenses to include misleading statements or practices and significantly widens international regulatory cooperation.

The Financial Supervision Commission (FSC) will be responsible for company registration, Companies Act investigations and insider dealing investigations. It is also expected that in 2000, the FSC will be responsible for regulating corporate service providers. All of these providers will be required to adhere to compliance testing, with no grandfather clause for those currently providing this service. This means that any licensable activity will be subject to regulation.

The FSC has also written draft Guidance Notes concerning money laundering prevention and the "know-your-customer" principle. The Notes are expected to be issued in final form is the near future.

The Isle of Man is a member of the OGBS, and the Isle of Man Fraud Squad participates in the Egmont Group of FIUs.

Israel (Primary). Most observers believe a significant amount of money is laundered in Israel each year, but no reliable estimate can be given. Significant numbers of Russian and Eastern European international crime figures began to emigrate to Israel in the early 90s, drawn by liberal immigration laws and, in some cases, using forged documents. According to press and other reports, these transplanted criminals engage in money laundering and other criminal activities such as tax and health care fraud, extortion, and arms and narcotics trafficking. Their absorption into and operations in Israel are facilitated by the common language and culture they share with their fellow Russian-speaking émigrés in Israel, who number about one million. The Government of Israel (GOI) itself in 1996 identified a list of 35 major crime bosses from Russia and Ukraine who had established a presence in Israel and were laundering the proceeds of their European operations. (Although occasional reports surface of Russian criminals consorting with members of the Knesset, there is no indication that organized crime figures have infiltrated the apparatus of government). These mobsters in many cases have laundered money by investing in legitimate businesses and property in Israel or by channeling money to various locations around the world. The banking system is thought to be a major venue for money laundering because of strong bank secrecy laws, although Israel is not considered a tax haven, a regional financial center or an offshore banking center.

As of January 1999 money laundering was still not an independently prosecutable crime in Israel. A 1989 asset forfeiture law allows for the seizure and forfeiture of the assets of convicted drug traffickers, including legitimate businesses, which launder money. The law is difficult to apply, but in 1998 $6 million of assets were seized and $250,000 were forfeited, a marked increase from the previous year. The banking community cooperates with law enforcement (insofar as it can in the absence of anti- money laundering legislation) to trace funds and seize bank accounts.

A proposed anti-money laundering law, which is considered a strong one by U.S. officials and has the support of Israeli law enforcement, has been stalled for several years. It is due to be brought up again for consideration in early 1999. However, a senior Israeli official stated in October 1998 that in view of recent political and security developments in the Middle East, it was impossible to predict whether, or when, the bill would pass. In addition, the upcoming elections make it likely that the money laundering bill will be pushed even further into the background. Some Knesset members may be reluctant to support the bill because they think it might be viewed as targeting Russian immigrants, who constitute a large segment of their constituency.

The proposed law makes money laundering a crime, with penalties of up to ten years in prison and heavy fines. It designates a wide range of offenses as predicates for a money laundering charge, including drug offenses, extortion, forgery, trafficking in arms and persons, dealing in antiquities, counterfeiting, and gambling. The Israeli banking industry, which is now known for its laissez faire approach to controls, would be required to institute customer identification procedures and to maintain transaction records for a set period of time. Banks and other financial entities (such as insurance companies and money exchangers) would also be required to report to the police suspicious transactions, including large currency transactions. Financial institutions, which comply with all regulations, will not be subject to prosecution under the proposed law. It would also set up a financial intelligence unit (FIU) within the Ministry of Justice, to receive the suspicious transaction reports. Finally, the law would require travelers entering or leaving Israel to report cash or monetary instruments in their possession if the amount is approximately $9,000 or more. Casinos are not covered under the legislation. However, the only large casino is in Jericho, which is under the jurisdiction of the Palestinian Authority. The casino caters to a largely Israeli clientele.

The GOI has used its asset forfeiture law creatively to allow the international sharing of information on the flow of drug-related assets. A U.S.-Israeli MLAT was signed and ratified in 1998 but has not yet entered into force. However, the United States and Israel already cooperate and exchange MLAT information in connection with law enforcement investigations, as permitted under existing U.S. and Israeli law..

As a first step, the GOI should secure passage of the proposed anti-money laundering legislation and implement an effective money laundering regime to protect against money laundering, financial crime and the expansion of organized crime in Israel.

Italy (Primary). Italy has a large financial sector, although the country itself is not considered to be an important regional financial center. Italy is a drug consumption and transshipment point for western European nations, and thus a site for the laundering of drug proceeds. The primary money laundering threat in Italy comes from organized criminal groups, located mainly in the southern part of the country. They engage in narcotics smuggling (in which South American drug traffickers are also believed to be involved), extortion, usury, kidnapping, and illegal immigrant smuggling. The collapse of the Soviet bloc has strengthened links between Italian organized crime and its Russian and Albanian counterparts. Much of the illicit money is funneled into commercial and financial entities in Italy and abroad, including the bank and non- bank financial sector. The fight against money laundering in Italy is therefore centered on this area. Money launderers are reportedly buying up large amounts of real estate in Italy, especially hotels in resort areas, and are exporting large amounts of their ill- gotten gains to other countries in Europe for similar purchases. The increasing openness of the European market is likely to heighten this activity. The illegal gold market is also believed to be heavily used by money launderers. Money laundering activity in Italy was estimated informally in 1997 to total over $50 billion annually.

The Italian government in 1997 passed its newest piece of legislation aimed at combating money laundering, Act. No. 153, which contained four vital features. First, it designated the Ufficio Italiano dei Cambi (UIC) as the recipient of suspicious transaction reports, which had previously gone to local police precincts and then to various authorities. The UIC thus functions as the financial intelligence unit (FIU) of Italy. After receiving and analyzing the suspicious transactions (and storing them in a unified computer archive), it forwards them to the appropriate law enforcement agency, either the Anti-Mafia Directorate or the Guardia di Finanza, for action if deemed necessary. Second, the law authorized the creation of an interministerial commission to coordinate anti-money laundering activities among the large number of Italian law enforcement and regulatory agencies, which are involved in the effort. Third, the new law ensures the confidentiality of anyone reporting a suspicious transaction. Fourth, it establishes organizational links between the financial, investigative and judicial authorities in regard to organized crime, and encourages law enforcement, judicial, and administrative bodies to facilitate international cooperation on money laundering.

Italy's anti-money laundering law requires the identification of clients, the recording of significant transactions, which are defined as those above the equivalent of $11,500, and the compulsory reporting of suspicious transactions. It also limits the use of cash in banking transactions. In addition, any crossborder transfer of funds in amounts exceeding $11,500 must be reported. About thirty million such transactions a month are the object of scrutiny, which is accomplished via the aid of sophisticated computer hardware operated by the UIC. Non-bank financial institutions such as stock brokerages, exchange houses, and insurance companies are subject to the law as well as banks. Italy is considering extending the reporting requirement to entities now excluded, such as casinos and notaries. Another loophole is unregistered deposit books of under $11, 500, which allow launderers to shield assets.

Italy is committed to enforcing its anti-money laundering laws. In late July 1998, Italian law enforcement officials launched a massive police operation aimed at a wide range of business entities laundering money across Italy. These businesses were accused of setting up front companies in the adjoining Republic of San Marino and hiding criminal proceeds by issuing false invoices. Authorities estimate that the amount of money laundered annually in this scam amounted to more than $1.4 billion.

In July 1998, the Italian Minister of Justice announced plans to examine and review Italy's money laundering laws with an eye to "making any necessary adjustments and filling in the loopholes" in the area of organized crime. He added that more prevention in the economic field was needed, as well as more cooperation with banks, noting that while in the past money laundering was related primarily to drug trafficking, it is now much more extensive. The Interior Minister stated in July 1998 that the introduction of the new European single currency would facilitate money laundering and that coordinated action among European nations was vitally needed.

In the international arena, Italy has served as president of the FATF and underwent a successful second round FATF mutual evaluation in 1997. The UIC is an active member of the Egmont Group. Italy has a number of bilateral agreements with foreign governments in the field of investigative cooperation on drug trafficking and organized crime, including a very successful MLAT and an extradition treaty with the United States. The Italian government has in place an established system for tracing, freezing, seizing, and confiscating assets, which under Council of Europe procedure it is committed to sharing with other governments with which it cooperates. Civil forfeiture is permitted as a precautionary measure apart from criminal conviction.

Italian-U.S. law enforcement cooperation on money laundering cases has been described as exemplary, and the joint working of cases is common. However, Italian prosecution can be lengthy. In addition, under Italian law a person may be charged with money laundering only if he did not play a role in the underlying predicate offense, which means the United States cannot obtain extradition of someone for trial on both money laundering and the underlying offense. Conversely, Italian prosecutors do not always identify the underlying offense when charging someone with money laundering, which can prevent the United States from responding to an Italian extradition request, since such information is necessary under U.S. law.

Jamaica (Concern). Jamaica is not considered an important regional financial center, offshore center or tax haven. However, it is very attractive to drug smugglers and vulnerable to money laundering due to its status as a source and transit country for narcotics and to its large tourism industry. The DEA reports that illicit proceeds from narcotics trafficking are being laundered in Jamaica, primarily by exchanging large amounts of currency for high value items such as automobiles, car rental establishments, and real estate investments.

The Government of Jamaica (GOJ) made some progress in the fight against money laundering in 1998. The GOJ had enacted weak money laundering legislation in 1996, which did not criminalize the laundering of proceeds of all serious crimes nor require the reporting of suspicious transactions. In January 1998, the regulations for the Money Laundering Act came into force. These regulations encouraged financial institutions to report suspicious transactions, but did not require them to do so. The GOJ is in the process of amending the Act to require the mandatory reporting of suspicious transactions and to increase the currency reporting threshold to $50,000. The amendment was passed by the House of Representatives in December and is awaiting final passage by the Senate.

The GOJ is currently developing a financial analysis unit (FAU) to combat financial crimes and to assist in the implementation of its anti-money laundering program. The unit, whose budget has already been approved, will be responsible for receiving, analyzing, and developing information from suspicious activity reports. The GOJ is in the process of selecting personnel for the FAU and has requested the United States to provide training and technical assistance to develop a computer system to analyze and manage the suspicious transaction and currency disclosure reports.

The proposed mandatory reporting of all suspicious transactions, in conjunction with the development of an FAU, indicates that the GOJ is taking steps to combat money laundering. However, as a member of the CFATF, the GOJ still needs to criminalize money laundering beyond narcotics- related offenses in order to fulfill its CFATF obligations and strengthen its anti-money laundering regime.

Japan (Primary). While there are no precise estimates concerning the scope of money laundering in Japan, there is reason to believe that the amounts involved are substantial. The principal sources of these laundered gains are drug crime and fund-raising offenses (illicit gambling, extortion, violent crime, abuse of legitimate corporate activities, and all types of property related crimes) committed by criminal organizations, e.g., the boryokudan. The Japanese National Police Agency estimates that the boryokudan's illegal activities generate annually several billion dollars in proceeds which then must be laundered.

Until recently, the Japanese Government had focused its attention on combating only drug money laundering. The Anti-Drug Special Law, enacted in 1991, criminalized drug-related money laundering, mandated suspicious transaction reports for the illicit proceeds of drug offenses, and authorized controlled drug deliveries. The limited scope of the law and the burden required of law enforcement to prove a direct link between money and assets to specific drug activity have severely limited the law's effectiveness. Few investigations and prosecutions into suspected money laundering have been undertaken by Japanese police and prosecutors. As of October 1998, police had applied the money laundering law in only eighteen cases. The largest of these cases originated in September 1997, when police in Osaka arrested a boryokudan leader who had received $1.3 million in drug proceeds from junior gang members. In February 1998, the Osaka District Court, in the first use of the provisions of the money laundering law which proscribes the receipt of illicit drug proceeds, imposed a penalty of $1.3 million on the boryokudan leader.

The anti-drug money laundering legislation of 1991 also created a system to confiscate illegal profits gained through drug crimes. The seizure provisions apply to tangible and intangible assets, direct illegal profit, substitute assets, and criminally derived property that has been commingled with legitimate assets. Since 1992, police have seized approximately $6.3 million in drug proceeds in 82 investigations. The seizures are believed to account for only a small fraction of the estimated $3.5 billion earned through illegal drug sales in Japan.

While the police appear to be highly motivated to conduct money laundering investigations, they often lack valuable tools to assist their efforts. In addition, law enforcement and prosecutors must become more proactive in their approaches to detecting and prosecuting money laundering. Additional measures, such as the creation of independent financial investigatory units within the National Police, improved cooperation among law enforcement and the Financial Supervisory Agency and its soon-to-be-created financial intelligence unit, as well as the use of special investigation methods such as electronic surveillance, will greatly assist in the fight against money laundering.

The comprehensive Anti-Organized Crime Law (AOCL) continues to be stalled in the Japanese Diet. Enactment of the law would significantly alter the current situation in Japan with respect to money laundering. Among the provisions contained in the crime package are: (1) an expanded definition of money laundering to include approximately 200 drug and non-drug related predicate offenses; (2) the extension of the confiscation laws to include the additional money laundering predicates and value-based forfeitures; (3) the authority to conduct legal electronic surveillance; and (4) the authority to establish a financial intelligence unit to collect and analyze financial data.

Pending the adoption of the AOCL, Japan's current legal anti-money laundering provisions are virtually ineffective because of the limited scope of the money laundering predicates and the direct tracing requirements placed on law enforcement. In addition, the low level of suspicious transaction reporting by Japanese financial institutions indicates an obvious weakness in Japan's anti-money laundering system. While the cash intensive nature of the Japanese economy may contribute to a lower level of suspicious transaction reporting than western economies, it is difficult to understand why an economy of Japan's size, and with its drug problem has not resulted in a more reasonable level of disclosures.

Japan is a member and the current President of the FATF. It is also a member of the Asia Pacific Group on Money Laundering.

Jersey (Primary). The Bailiwick of Jersey is a Crown Dependency of the UK. Jersey began to market itself as an offshore financial center in the mid- sixties and, according to an official UK report, has since registered 79 blue chip banks and 62 major trust and finance houses. Bank deposits stand at $170 billion, and collective investment funds under management amount to $64.5 billion.

Jersey was a subject of the 1998 UK Review of Financial Regulation in the Crown Dependencies. The report praised the dependencies for what they had already accomplished, and suggested further steps, which might be taken. Jersey is beginning to address many of the issues cited in the report.

In December 1998, the States of Jersey passed all-crimes money laundering legislation. Enactment is expected in early 1999. Guidance noted are expected to be issued shortly to the industries affected. This new legislation will allow authorities to trace, restrain and confiscate the proceeds of all crimes, including tax evasion.

One of the main difficulties with Jersey fraud legislation in the past has been the requirement that international requests for cooperation in cases involve more than $3.4 million. This threshold has now been abolished, which should allow for an increase in the number of international investigations being initiated.

The new legislation will require all financial institutions, trust and company administrators, accountants and lawyers to report suspicious transactions to the Joint Police and Customs Financial Investigation Unit. It also requires that these sectors know their customers.

The Jersey Financial Services Commission (established in 1998) will be addressing other areas where difficulties still remain. It is anticipated that companies administered or operating on the island, but incorporated elsewhere, will be required to register and declare beneficial ownership in the same way as locally incorporated companies.

Jersey's Financial Investigation Unit participates in the Egmont Group. Jersey is a member of the OGBS and has agreed to undergo a mutual evaluation.

Jersey should move to enact the proposed all-crimes anti-money laundering legislation now before its Parliament.

Jordan (Other). Money laundering is a concern but not a major problem, since Jordan is not a major financial center, and foreign exchange entities are regulated by the government. There is a cash economy among nomadic Bedouin tribesmen involving narcotics distribution, but the Jordanian government has no estimate of its size. The only major instances involving Jordan with money laundering took place in 1992 and 1993, when investigators accused the Arab Bank in Amman of taking deposits of over $5 billion from Iraq in order to create a new trading entity for Saddam Hussein's government to purchase embargoed goods. Local bankers in Amman quietly confirmed that they were financing Iraqi imports through Jordan and trading in Iraqi commercial paper. Also in 1992, the Central Bank of Jordan was accused of laundering secret Iraqi funds in Switzerland through such entities as the Iraqi Finance Corporation and the Jordanian Gulf Bank. The central bank denied the accusations.

Jordan is a party to the 1988 UN Drug Convention, but has no anti-money laundering laws in place and no plans to enact any. However, in June 1998 the General Director of the National Bank of Jordan stated that Jordanian banks have realized the impact money laundering has on a nation's economy, and the central bank has instructed Jordanian banks to be on the lookout for customers making "dubious transfers." The banks have been told to be particularly careful when dealing with exchanges made in foreign currency, especially if the levels are unusually high or if the bank has no information about the source of the funds. Another banking official has stated that although in his view money laundering was not yet widespread in the Jordanian banking system, it would probably become so unless anti-money laundering legislation is enacted.

Jordan needs to take steps to enact anti-money laundering legislation in order to protect its financial system from abuse.

Kazakhstan (Other). An advanced financial infrastructure, enormous petroleum and mineral reserves, and a high level of organized crime and corruption all make Kazakhstan vulnerable to money laundering. Abuse of its mineral wealth by criminal elements is of particular concern--Kazakhstani authorities estimate that $10 billion in illegal raw material exports have occurred through illegal joint ventures. There are currently an estimated 125 organized crime groups operating in the country, and according to senior Kazakhstani security officials, these groups maintain links to, and learn more sophisticated techniques from, organized crime groups in Europe and the United States. Infiltration of the Kazakhstani economy by foreign criminal groups from Russia and Uzbekistan is a particular danger. These groups target banks, casinos, and businesses engaged in food processing, distilling, and trade in export commodities such as grain. Kazakhstan is also a leading transit country for the trafficking of narcotics from South Asia. Foreign organized crime groups use Kazakhstan as a base of operations for narcotics heading to Russia and Europe.

Kazakhstan is waging a vigorous war against corruption. In June 1998 the president vowed to root out graft and nepotism and to restore the reputation of government officials. The following month Kazakhstan adopted an anti-corruption law. In September 1998, the president appointed a senior aide to head the National Security Committee in an effort to improve the effectiveness of national anti-corruption efforts. Corruption charges have been brought against a number of officials in the prosecutor's office, judiciary, tax authorities, customs, and Ministry of Internal Affairs. In September 1998 the president dismissed a minister and a regional leader for abuse of official office, and called on enforcement agencies to more effectively crack down on public corruption.

Although Kazakhstan criminalized money laundering in 1998, anti-money laundering legislation has not been adopted. Enactment of such legislation and implementing regulations is essential to effectively combat money laundering and financial crimes in Kazakhstan.

Kenya (Other). Kenya has been home to all types of smuggling along its coastline for generations. However, only recently has the political leadership decided that money laundering may occur through smuggling activity, as well as in the banking sector, where bearer financial instruments such as certificates of deposit and bonds have been available for purchase. Kenya has decided to eliminate the availability of the bonds, effective June 1999. A contributing factor in the decision to take stronger steps against money laundering was the realization that there was significant investment in short-term high-yielding instruments, which caused financial stresses on the economy.

The President of Kenya has issued a statement denouncing money laundering. Kenya heretofore had been very reluctant to advance any legislation that would have even the remotest effect on foreign investment. Other steps taken by the government include measures to strengthen the role of the Central Bank of Kenya in supervising the banking sector. There is still no comprehensive anti-money laundering legislation that criminalizes money laundering beyond narcotic drugs.

In July 1998, the East African Cooperation Council, of which Kenya is a member, indicated it planned to hold a regional conference on money laundering. The conference is tentatively scheduled to take place in mid- 1999.

Korea (Republic of Korea) (Concern). South Korea is not a major drug money laundering country. However, there have been reports in previous years of both Nigerians and Colombians entering the country with thousands of U.S. dollars in bulk cash, although linking these incidents with specific drug shipments has proven difficult. There is also a problem with abuse of the real name financial transaction system, through which South Koreans are "borrowing" legitimate names to carry on dubious transactions. Currently South Korea does not have any anti-money laundering legislation.

Amid the latest rise in money smuggling, the Korea Customs Service declared war on smugglers, invoking its right to investigate and prosecute firms and individuals. The crackdown targeted all types of money smuggling and international money laundering. A new computer system is expected to be operational in 1999, which will provide customs officials access to the foreign exchange holdings and transactions of any corporation or individual.

In February 1998, the Organization for Economic Co-Operation and Development (OECD) reported that the Korean government had finalized a plan to reform the central banking and financial supervisory systems during a special session of the National Assembly in December 1997. The central bank has the right to request information necessary for the implementation of monetary policy from financial institutions and the financial supervisory bodies. It also has the right to request a supervisory body to inspect commercial banks and to implement corrective measures. If necessary, the central bank may also request joint inspections.

The Financial Supervisory Commission (FSC) has become a special juridical entity and is responsible for the inspection, audit and sanction of financial institutions. The Chairman of the Financial Supervisory Board holds the position of head of the FSC.

South Korea joined the Asia Pacific Group on Money Laundering in March 1998.

South Korea needs to enact anti-money laundering legislation meeting international standards to protect its financial services industry from financial crime and money laundering.

Kuwait (Other). Although Kuwait has not yet enacted anti-money laundering legislation, Kuwait's Central Bank in June 1997 ordered domestic banks to take measures to prevent money laundering, including checking clients' identities and the nature of their business. The banks are also to inform the central bank of all cash deposits exceeding $13,000, as well as notify authorities about any "irregular" fund transfers. The Governor of the central bank has denied that Kuwait's banks are involved in money laundering, but stated that these measures were being taken to forestall any such attempts. Kuwait's banking sector is composed of six commercial banks, two specialized banks, one Islamic bank, and one branch of a Bahrain- based bank.

A senior official in Kuwait's Ministry of Finance stated in late 1998 that the Kuwaiti government had drafted anti-money laundering legislation, which was currently being examined by an interministerial committee. He could provide no estimate of when the legislation might be submitted to the Kuwaiti Parliament.

As is the case with the other members of the GCC, Kuwait is represented in the FATF by virtue of the GCC's membership in that body.

Kuwait needs to continue development and subsequent implementation of anti- money laundering legislation that meets international standards.

Kyrgyzstan (Other). Money laundering is a potential threat in Kyrgyzstan. The major source of illegal proceeds in Kyrgyzstan comes from its role as a transit country for narcotics and arms trafficking, and from crossborder smuggling. The Minister of Interior has stated that the majority of the tobacco, alcohol, and gasoline imported into Kyrgyzstan is brought in illegally. The smuggling of goods and narcotics across Kyrgyzstan's borders is relatively easy.

Money laundering is not perceived to be a major problem through Kyrgyzstan's financial system, but laundering of locally-derived criminal proceeds is facilitated by the cash-based nature of business transactions, the gray economy, corruption, and the presence of organized crime groups.

There is no anti-money laundering legislation in Kyrgyzstan. The central bank has instituted provisions on customer identification and suspicious transaction reporting for banks, but bank oversight is minimal.

The President of Kyrgyzstan has become a major proponent of the eradication of corruption. He has given the go-ahead for strict actions aimed at eradicating corruption at all levels and has issued a decree establishing a coordination council on economic crime and corruption.

The level of crime and corruption, and absence of anti-money laundering laws, encourage a climate favorable to money laundering and other financial crimes in Kyrgyzstan. The Government of Kyrgyzstan needs to act expeditiously to enact legislation as the foundation for an anti-money laundering regime.

Laos (Other). Laos is not a major Asian financial center. The poor economy, however, may drive illegal activity and cause money launderers to take advantage of Laos's lax financial system. Effective money laundering legislation will require an underlying body of banking regulations, most of which do not exist. The UNODCCP is assisting Laos in developing this framework, as well as in drafting basic anti-money laundering legislation.

In May 1998, six Asian nations agreed to take strong measures against drug trafficking and abuse that have become a major threat to the region. A statement issued at the end of a two-day drug control meeting in Hanoi indicated that anti-drug officials from Cambodia, China, Laos, Burma, Thailand, and Vietnam signed a 14-point joint declaration in which they agreed, among other things, to enforce laws, combat drug-related money laundering, and boost information sharing.

Continued efforts to pass anti-money laundering legislation are necessary to protect the Laotian financial system against criminal abuse.

Latvia (Concern). Latvia remains vulnerable to money laundering due to its role as a commercial center and to its central geographic location in the Baltic region, which attracts organized crime groups from Lithuania, Russia and Central Asia. These groups use Latvia as a base of operation or as a refuge. Latvia is also a transit country for narcotics trafficking and smuggling, and Latvian banks are reputed by officials in neighboring countries to facilitate the laundering of questionable proceeds originating in those countries.

Corruption and abuse of power are widespread among Latvian officials, according to a World Bank study, which also indicates that bribery is most prevalent among customs officials, traffic police, and the judiciary. Latvia's defense minister and a top military commander were dismissed in October 1998 for misappropriation of state funds.

According to U.S. law enforcement sources, proceeds laundered in Latvia are usually sent abroad, primarily to Russia, The Netherlands, France, Sweden, and Switzerland. Wire transfers flow to both Eastern and Western Europe. Cash movements are exclusively bound for Russia. One method used to launder money is from the illegal sale of oil or natural gas: a foreign company opens a subsidiary company in Latvia, then opens a shell corporation in an offshore zone. The subsidiary orders a payment transfer from the shell corporation to the subsidiary's company account in a Latvian commercial bank. When the funds arrive, they are withdrawn in U.S. dollars and sent to the seller of the oil or gas in Russia.

In December 1998, the European Commission released its annual progress report on potential EU members in which it states that while Latvia has made progress in combating corruption, it remains an important problem. The report also noted that Latvia has more work to do in the reform of public administration and in the judiciary.

Latvia has enacted legislation to support its anti-money laundering efforts. Amendments to the criminal code made money laundering a criminal offense, and the Latvian Parliament in December 1997 adopted anti-money laundering legislation, which became effective June 1, 1998. The legislation created a suspicious transaction reporting system that includes criteria on suspicious transaction indicators. It also provides for the establishment of a financial intelligence unit, the Office for the Prevention of the Laundering of Proceeds Derived from Criminal Activity (Control Service for short), which is subordinate to the Prosecutor's Office.

Latvia's anti-money laundering program is still in the early stages of implementation, but the legislative framework appears to be in conformity with international anti-money laundering standards. Initial assessments of the implementation of Latvia's anti-money laundering program reveal certain areas that need to be addressed. These include the general lack of interest by financial institutions in providing information on suspicious transactions and the need for increased training of government officials involved in the anti-money laundering program.

Latvia is an active participant in international and regional anti-money laundering efforts such as the Council of Europe's PC-R-EV, and is scheduled to undergo a mutual evaluation by that body in the year 2000. Latvia seeks to establish working relationships with other foreign agencies involved in combating money laundering.

Lebanon (Primary). An anti-narcotics bill, which criminalizes narcotics- related money laundering and makes it easier for the government to prosecute launderers was approved by the Lebanese Parliament on March 6, 1998, and went into effect three weeks later. The law had been under consideration for at least two years. The law contains a provision for the seizure of assets and provides for piercing bank secrecy on a case-by-case basis. It does not require the reporting of suspicious or large transactions. The legislation is generally considered inadequate for combating money laundering, and the Government of Lebanon (GOL) needs to enhance its legislation to meet international standards to effectively combat financial crime and money laundering. At the GOL's request, the United States provided technical assistance in developing the 1998 legislation, and we will provide similar assistance to craft the next steps in legislation to combat money laundering.

One of the major obstacles to enactment of an effective anti-money laundering law in Lebanon is its long tradition of bank secrecy. The head of the Lebanese Bankers' Association denied that there is any money laundering in Lebanon, stating that his banks have "taken steps" (unspecified) to combat it. Government supervision of banking activities, through regular examinations and the 1997 Due Diligence Convention, is comprehensive on paper, but sanctions for non-compliance are weak. Government officials concede there may be some drug money laundering, but argue that the small size of the Lebanese economy renders it unattractive to money launderers. They also insist that bankers' "personal knowledge" of their customers serves as a curb to money laundering. This stance by the bankers probably reflects their desire to reinstate Beirut as a financial center in the Middle East, a position it occupied until the devastating civil war of the 1970s and 1980s. The banking industry likely believes that maintaining the tradition of bank secrecy makes Lebanon more attractive as a regional financial hub.

Lebanon is in the process of trying to revive its once-flourishing offshore sector. The services offered by Lebanon's offshore sector are advertised on the Internet.

Lebanon is a party to the 1988 UN Drug Convention. However, the GOL expressed reservations about the sections of the Convention pertaining to bank secrecy. Lebanon is an observer in the OGBS, having lost its full membership status when it refused to undergo an OGBS mutual evaluation.

Liberia (Other). Liberia is not a financial center, and money laundering is not considered a significant problem at this time. Liberia does have an offshore sector, which is used as a shipping registry. Bearer shares are permitted in company formation. A company located in the United States manages the offshore sector.

Liechtenstein (Primary). Liechtenstein continues to be one of the world's leading offshore financial centers, which makes it vulnerable to money laundering. Liechtenstein offers a variety of offshore services and products, including anonymous accounts, bearer shares, and insurance and re- insurance company formation. Notice of these services can be found on many Internet websites. Liechtenstein is not part of the English common law tradition and, therefore, does not provide asset protection trusts (APTs) as defined in the explanatory notes to the Offshore Financial Centers chart. Liechtenstein's Anstalt is an offshore trust with a potent difference. Unlike most trusts, the Anstalt is a commercial entity capable of doing business. It can make the settler of assets the ultimate beneficiary, thereby undermining the fundamental notion of a trust--its irrevocability. Similarly, while Liechtenstein does not offer international business corporations, it provides for the formation of exempt companies, which serve a similar purpose. Liechtenstein, taking advantage of its geographic location vis-à-vis other offshore countries, is developing a stronger offshore, as well as onshore, sector. While Liechtenstein's extremely rigorous bank secrecy laws can make cooperation difficult. Liechtenstein's cooperation with the United States has been good.

Money laundering, both drug-related and non-drug-related, has been a criminal offense in Liechtenstein since 1993. Asset forfeiture legislation is also in place. A Due Diligence Act, in effect since January 1997, implements the EU Directive on money laundering. Under the Act, financial institutions, insurance companies, investment firms, fiduciaries and attorneys have a legal obligation to report suspicious transactions. Customers must be identified and beneficial ownership information must be on file. In November 1998, Parliament abolished the requirement that a transaction be greater than approximately $10,500 for money laundering to be considered a crime.

As a member of the European Economic Area (EEA), Liechtenstein has incorporated much of the EEA legislation into its laws, but its financial services are not affected. Foreign banks are allowed to set up branches in Liechtenstein, and foreign attorneys or fiduciaries can establish businesses as long as they follow the ethics listed in the EEA statutes. Currently the EU is pushing for tax harmonization within the Union, which could lessen the advantages for those who choose to put their monies in Liechtenstein.

Liechtenstein is not a party to the 1988 UN Drug Convention and is not a member of the FATF. Liechtenstein is a member of, and an active participant, in the Council of Europe's PC-R-EV, and is scheduled to undergo a mutual evaluation in the year 2000.

Lithuania (Other). Money laundering remains a problem in Lithuania, which is a transit country for narcotics trafficking and smuggling, and for the transfer of funds of questionable origin. Illegal proceeds are laundered through Lithuanian banks in international money laundering schemes. In court papers filed in Canada, Lithuanian bank accounts linked to YBM Magnex International are implicated in a $multimillion dollar scheme to launder organized crime proceeds. The scheme involves banks and businesses located in Russia, Lithuania, Hungary, and the United States. Domestic and foreign organized crime groups are active in Lithuania and account for the majority of money laundering activity in the country.

Corruption has been an ongoing enforcement concern. Since Lithuania instituted an anti-corruption program in 1997, 171 corrupt public officials have been dismissed, according to the deputy director of Lithuania's Department of Special Investigations, Ministry of Internal Affairs. The depth of corruption was illustrated in November 1998, when the director and deputy director of Lithuania's tax police department resigned after the Cabinet of Ministers issued a negative performance assessment. The tax police department has responsibility for investigating financial crime, including tax and money laundering offenses.

Lithuania has made significant progress in its legislative efforts to develop an anti-money laundering framework. Money laundering is now an offense under the criminal code, and the Lithuanian Parliament adopted anti- money laundering legislation in 1997, which became effective January 1, 1998. The legislation establishes a suspicious transaction reporting system that includes the automatic reporting of transactions or a series of related transactions exceeding $12,500 and also establishes criteria on suspicious transaction indicators. The legislation also provides for the establishment of a financial intelligence unit, the Money Laundering Prevention Division, which is subordinate to the Tax Police Department, Ministry of Internal Affairs. As of October 1988, two money laundering investigations had been opened, and six preliminary investigations were underway.

Lithuania's anti-money laundering program is still in the early stages of implementation, but the legislative framework appears to be in conformity with international anti-money laundering standards. The Government of Lithuania has proposed several amendments to Parliament to strengthen the law. However, government officials as well as financial institution employees need training to make the anti-money laundering program work. Initial assessments indicate that commercial banks are reluctant to provide information on suspicious transactions, which is an experience encountered by many countries in the early stages of implementing anti-money laundering measures.

Lithuania is an active participant in international anti-money laundering efforts. In 1998 Lithuania underwent a mutual evaluation conducted by the Council of Europe's PC-R-EV. The final report will be published in 1999.

Luxembourg (Primary). Luxembourg in 1998 passed a comprehensive money laundering law which expands the crime of money laundering to include the proceeds of kidnapping, prostitution, child exploitation, arms trafficking and organized crime. It also imposes reporting duties and potential liability on finance sector professionals, insurance employees, notaries, accountants and casino employees. Prior to the passage of the new law, narcotics crimes were the only legal grounds for a money laundering offense, so it is unclear whether narcotics offenses will continue to be the predicate offenses for the majority of money laundering offenses. In the past five years there have been ten money laundering investigations and one conviction.

Luxembourg, an important regional financial center, offers offshore services and favorable tax treatment, and has strong bank secrecy laws. These factors, which make for an attractive banking environment, also present money laundering opportunities. Previously Luxembourg's financial sector had been a major recipient of laundered funds. In the past several years, however, the Government has exerted efforts into reducing money laundering by vigorously cooperating with foreign law enforcement authorities, tightening reporting requirements and strengthening legislative measures.

The government of Luxembourg (GOL) licenses offshore banks and businesses, which are vetted by the Luxembourg Central Bank (formerly the Luxembourg Monetary Institute). All foreign institutions applying for a license must indicate that they are already established in a foreign country and have at least $10 million in capital, and they must keep at least $7.2 million on deposit in Luxembourg banks. Banks are required to undergo yearly audits, but most are audited twice per year. National law sets minimum capital requirements, which are strictly observed. Luxembourg authorities have refused licenses to businesses failing to meet minimum legal requirements. Minimum capital requirements also exist for other businesses in the finance sector, and investment funds are also regulated through the Luxembourg Central Bank. Luxembourg has 215 offshore banks, 1,440 offshore trusts, 94 insurance companies and 254 reinsurance companies. Luxembourg offers bearer shares for companies and businesses operating within its jurisdiction.

In Luxembourg, notaries, lawyers, company auditors and financial consultants all advise people how to set up companies and accounts and how to shelter assets. Such advice is primarily used by people who wish to avoid taxes. Because Luxembourg's legal system is not rooted in the English common law tradition, its trusts are not asset protection trusts (APTs) as defined in the Offshore Financial Centers chart. However, both its trusts and exempt companies serve the functions of APTs and international business corporations. Under the 1998 money laundering law, all these professionals, with the exception of lawyers, are required to know the identities of their clients and report suspicious transactions. However, because tax evasion is not a crime in Luxembourg, there is a significant risk that money launderers may gain access to sophisticated financial services in Luxembourg simply by representing themselves to be interested in tax avoidance.

Money laundering occurs in both the banking system and the non-bank financial system. According to the government, in 1997, 65 banks reported suspicious transactions while only five financial professionals did so. In the past several years, banks have appeared to be more actively discouraging large suspicious transactions which would trigger the reporting requirement. This is consistent with increased awareness among banking professionals of the legal reporting requirements and the legal liability for those who do not comply with these laws.

Luxembourg and United States law enforcement authorities continue to cooperate closely in counternarcotics and judicial matters, particularly as they relate to money laundering. The most recent statistics show that, since 1994, the GOL has seized approximately $25 million in money laundering assets in response to foreign government mutual assistance requests.

Luxembourg is a party to the 1988 UN Drug Convention and has signed an MLAT and an extradition treaty with the United States, which have not yet entered into force. It also participates in the FATF and the Council of Europe, and its FIU is a member of the Egmont Group.

Although Luxembourg's anti-money laundering law has been greatly strengthened, there is still no obligation to report suspicions of money laundering if an institution refuses a transaction or closes an account. An amendment requiring reporting on these types of actions would be extremely useful in strengthening the existing law.

Macau (Concern). Macau is a Portuguese dependency, which will revert to the People's Republic of China on December 20, 1999, when it will become a Special Administrative Region of China similar to Hong Kong. Crime has already taken a toll on Macau's economy, which is heavily dependent on gambling and tourism; more than a quarter of the territory's gross domestic product comes from gaming. The government earns half its revenue from gambling taxes, which declined in April to a three-year low. Macau is conducive to money laundering because of strict bank secrecy laws. Asian organized crime and drug trafficking groups are suspected of using Macau's unregulated casinos to launder money. Russian organized crime has reportedly also emerged in Macau.

According to reports of January 1998, Macau is aiming to establish itself as a financial center by deepening and broadening the range of financial services it currently offers. However, the existing banking sector is unsophisticated, with none of the attributes of a modern financial center such as an independent capital market. A banking ordinance was passed in July 1992 allowing the establishment of development banks, and the sector was opened up to foreign competition. In 1993 six major international banks were granted full banking licenses, and three Portuguese banks were granted offshore banking licenses. By December 1998 there were 21 banks, eight of them local and the other 13 incorporated abroad.

Macau's Financial Systems Act of 1993 requires financial institutions to record suspicious transactions and to cooperate with police investigations. A proposed anti-money laundering bill reportedly pending in the legislature would impose prison terms of up to three years for money laundering.

Macau actively participates in regional meetings of the Asia Pacific Group on Money Laundering, despite not being an official member.

Macau needs to enact and enforce anti-money laundering legislation meeting international standards to protect against financial crime and money laundering.

Madagascar (Other). Although Madagascar is not a major financial center, there is credible information that international criminal syndicates are present there. Such a presence suggests money laundering operations could develop in Madagascar, as law enforcement, border, and financial control systems are very limited.

Malaysia (Concern). Malaysia is occasionally used as a transit country for illicit proceeds. The country's offshore center, Labuan, has conditions conducive to money laundering, but there is little evidence to confirm that large scale money laundering is taking place.

Malaysia's economy has suffered in the past year due to the economic crisis in Asia. After the government announced tighter restrictions on the ringgit, a black market in the currency blossomed in the border towns of southern Thailand, threatening Kuala Lumpur's efforts to insulate its economy. Using techniques employed by ethnic-based banking systems and money launderers, black marketers have set up front companies in Thailand and Malaysia. Malaysians who want to illegally transfer large amounts of money out of the country deposit ringgit at a black market exchange company on the Malaysian side of the border, receiving a coded sheet of paper in exchange. Leaving the country with an amount of cash well below legal limits, the Malaysian presents the coded sheet of paper to the corresponding black market company in Thailand and is given Thai baht for the ringgit deposited in Malaysia.

Malaysia is known for its offshore banking center in Labuan. There are 1, 809 offshore companies in banking, insurance and trust funds operating in the Labuan International Offshore Financial Center, which was set up in February 1996. The total assets of offshore banks in Labuan as of May 1998 totaled $24 billion. The Labuan Offshore and Financial Services Authority (LOFSA) from time to time issues regulations, such as in 1996 when it distributed guidelines concerning money laundering to Labuan banks. Meanwhile, to prevent money laundering activities, offshore banks are required to conduct stringent customer background checks before opening an account. Offshore banks are not allowed to issue bearer shares.

Amendments to Malaysia's securities law, which took effect in April 1998, allow the Securities Commission (SEC) to charge those accused of insider trading with harsher civil and criminal penalties and to obtain damages from them based on a "balance of probabilities". Corporate lawyers view the new powers of the SEC as significant. One lawyer stated, "Before, the SEC could not use the information from nominee accounts in their prosecution. Now they can circumvent Malaysia's banking secrecy laws."

Malaysia actively participates in regional meetings of the Asia Pacific Group on Money Laundering, despite not being an official member.

The government of Malaysia recognizes the problem of money laundering, but failed to pass comprehensive anti-money laundering legislation in 1998. Malaysia needs to pass such legislation and to implement adequate oversight of the LOFSA to prevent it from being abused by criminals for money laundering.

Maldives (Other). The Maldives is not a significant money laundering center. Some individuals in the Maldives hope to establish the country as an offshore financial center, but its banking laws were written long ago and there are currency controls in place.

The Maldives has no laws specifically addressing money laundering or asset forfeiture. It is not a party to the 1988 UN Drug Convention

Malta (Other). The Government of Malta (GOM) first addressed money laundering with the passage of the Prevention of Money Laundering Act of 1994, which criminalized money laundering and imposed a maximum fine of approximately $2,633,000 and/or a prison sentence of up to 14 years for those convicted of this crime. The Act defined money laundering in terms of the 1988 UN Drug Convention and contained a list of predicate offenses, ranging from bribery to arms trafficking and piracy. The Act also provides for asset forfeiture. The Central Bank of Malta, also in 1994, issued the complementary Prevention of Money Laundering Regulations, applicable to financial and credit institutions, life insurance companies, and investment and stock firms. The regulations impose requirements for customer identification, record-keeping, the mandatory reporting of suspicious transactions, and training of employees. Suspicious transactions reports must be reported to the competent authority which supervises an institution (in the case of banks, the Central Bank of Malta). Should the authority find evidence of money laundering, it is required to forward the report to the police.

Based on available information, Malta does not have a serious money laundering problem. The crime rate is low, and the major sources of illegal proceeds are drug dealing and fraud. However, Malta's bank secrecy laws and tax code, which are designed to attract outside investors, especially with those countries with which Malta has double taxation treaties (29 in force), provide possible incentives for money laundering. The Maltese Financial Services Centre (MFSC), which was founded in 1994, vies with Luxembourg and Dublin in attracting financial services companies--as of January 1999 it housed four licensed offshore banks, 14 credit institutions, 16 Malta-based collective investment schemes (mutual funds), and 84 overseas-based collective investment schemes. The head of the MFSC has stated categorically that everything about the Centre is "clean" and that investigators are welcome. The GOM decided in 1994 to phase out all offshore operations by the end of 2004. Until the phase-out is completed, however, Malta's offshore sector will face the same vulnerabilities to money laundering as those faced by other nations with offshore facilities.

Malta is a member of the Council of Europe.

Marshall Islands (Concern). The Marshall Islands is an independent South Pacific Republic, which allows both offshore banking and businesses. Its offshore financial center (OFC) was created specifically to compete in the "hot" new market developing in the South Pacific. There is no supervision of the OFC, which offers international business corporations, other exempt companies, bearer shares, and trusts, all of which provide nearly impenetrable layers of protection against law enforcement agencies. The offshore sector is advertised on the Internet.

The Marshall Islands has no central bank, and uses the United States dollar as legal tender. The Marshall Islands has laws granting freedom from income, asset, withholding, and stamp taxes to foreign entities, as well as to non- resident corporations, partnerships, trusts, and unincorporated associations. Asset protection features in the Marshall Islands Trust Act state that a creditor suing to recover property from a Marshall Islands trust on the grounds of fraud must do so within two years after either the transfer occurred or the trust was settled (one year if the assets were transferred to a Marshall Islands trust in the two years before the plaintiff's cause of action arose). Even if the plaintiff succeeds in proving that the trust was created with the intent to defraud, the trust's liability is limited to the amount of money that would have been available at time of transfer.

In view of the opportunities, which the current offshore climate provides for money laundering, it is important that the Marshall Islands enact and implement legislation criminalizing money laundering.

Mauritius (Other). Mauritius is a growing regional financial center with ambitions to become the major financial center for the Indian Ocean and Southern and Eastern Africa. Since passage of the Mauritius Offshore Business Activities Act in 1992, over 7,000 offshore companies have been formed. There is an Internet website that provides information to the potential investor. The offshore sector is regulated and managed by the Mauritius Offshore Business Activities Authority (MOBAA).

Mauritius promotes itself as a low tax jurisdiction whose offshore sector serves as the gateway to investment in Asia and Africa. The majority of Mauritius' offshore business is conducted with India. Mauritius' offshore sector offers international business corporations, bearer shares, and asset protection trusts.

Regional money laundering probably occurs in both the offshore and onshore sectors in Mauritius. The increasing incidence of heroin addiction in the general population is an indication that narcotics trafficking, with its attendant money laundering, is occurring on an increasing basis. Mauritius failed to meet its self-imposed deadline of introducing the Money Laundering Prevention Bill to Parliament by the end of 1998. Recently, the Attorney General announced plans to introduce the bill when Parliament returns from its summer recess in March 1999.

Mauritius is a member of OGBS.

Given Mauritius' broad offshore banking sector, it needs to adopt strong anti-money laundering legislation to protect its financial services industry and economy from criminals and criminal organizations.

Mexico (Primary). During 1998, Mexico advanced its efforts to implement and enforce its 1996/97 anti-money laundering laws. Nonetheless, Mexico continues to be the primary haven for money laundering in Latin America. The smuggling of U.S. currency in bulk shipments into Mexico and the misuse of Mexican bank drafts, drawn on U.S. accounts, continue to be favored methods of money laundering. Mexico has financial institutions which engage in currency transactions involving international narcotics trafficking proceeds that include significant amounts of U.S. dollars. Further, as was shown in the U.S. Customs Service-led Operation Casablanca, Colombian and Mexican trafficking organizations continue to take advantage of Mexican banks, casas de cambio, and smaller centros cambiarios--many of which are unregulated--to introduce and later transfer their illicit proceeds throughout the world's financial system. Despite recent positive steps by the Mexican government to bolster its still fledgling anti-money laundering regime, coopted Mexican bankers and corruptible government auditors continue to stifle the implementation and enforcement of the recently- instituted anti-money laundering regime.

Money laundering related to narcotics or other illegal activities has been a criminal offense in Mexico since 1996. The key players for the implementation and enforcement of the law--the Secretariat of the Treasury (Hacienda y Credito Publico) and the Office of the Attorney General (Procuraduria General de la Republica or PGR)--are working to improve coordination. In April 1998, new regulations specifying the rules and criteria for the reporting of large currency transactions and suspicious financial activities went into effect. These regulations require financial institutions to know their customers by identifying where the customers' business is carried out and knowing the business history of the individual or business. The penalties for financial institutions and employees convicted of money laundering range from 5 to 15 years imprisonment and may include substantial fines; fines and sentences for Government officials may be increased by half. Hacienda implemented the automated filing of currency transactions reports (CTRs) by the banks to the Financial Investigations Unit (FIU) created in September 1997. During 1998, the FIU received more than four million CTRs, prompting the need to upgrade the computer system to effectively process and analyze these reports.

In January 1998, the PGR established a money laundering unit to carry out enforcement activities such as executing search, seizure, and arrest warrants. The PGR has indicated that it is developing a staff of in-house money laundering experts to present cases before the Judiciary to establish probable cause. In the past, the absence of these experts was a key factor in the Government of Mexico's (GOM's) inability to obtain convictions. Approximately 17 major simultaneous money laundering investigations were conducted in 1998 by Hacienda and the PGR in cooperation with United States government agencies. There was one money laundering conviction in 1998, the first since the adoption of the May 1996 law.

In May 1998, the U.S. Departments of Treasury and Justice announced the culmination of a United States Customs Service undercover money laundering operation coded Operation Casablanca. This investigation targeted Mexico's Juarez drug cartel and Colombia's Cali cartel. It resulted in arrests and indictments against Mexican banks and bankers, and the seizure of $100 million in drug proceeds. While Operation Casablanca strained U.S.-Mexico law enforcement relationships, it exposed and confirmed a long-standing United States concern with the presence of corruption within the Mexican banking sector. It also sent a strong message to the banking community on the importance of knowing their customers. With assistance from the United States, the GOM and the banking sector collaborated in conducting a series of seminars and conferences for Mexican bankers, regulators, examiners, and policy making officials on their obligations under the money laundering law. Mexican officials have indicated that the filing of suspicious activity reports by banks has significantly increased.

The GOM has also enhanced its efforts at cooperation with the international community. The U.S./Mexico Money Laundering Working Group continues to be a valuable forum for the exchange of ideas and reaching agreements on training and technical assistance, information exchange, and joint investigations. The Financial Information Exchange Agreement between the GOM and the United States serves as a mechanism for the exchange of information on currency transactions through financial institutions. The GOM has expressed an interest in becoming a member of the Financial Action Task Force and a Cooperating and Supporting Nation of the CFATF. As part of the membership process, Mexico has agreed to undergo a mutual evaluation of its anti-money laundering system and of its compliance with the FATF Forty Recommendations.

Several weaknesses remain in Mexico's anti-money laundering program. The customer identification provisions do not apply to possible third party beneficiaries, which affects the large volume of transactions conducted by individuals on behalf of the principal account holder. In addition, some financial institutions are exempt from the reporting and record-keeping requirements of transactions of $10,000 or more when the customer is another financial institution (such as a currency exchange house). Although Mexican law requires the reporting of the inbound transportation of currency, there are no corresponding outbound reporting requirements. In addition, in January 1999 Mexico increased the reporting threshold for the inbound transportation of currency from $10,000 to $20,000. The GOM has introduced legislation that would strengthen the existing asset forfeiture regulations and allow Mexico to cooperate with other nations in this fundamental area.

Moldova (Other). Extremely favorable money laundering conditions exist in Moldova, and investigations confirm that such activity does take place. The activities of organized crime in many sectors of the economy and the high level of official corruption suggest a high prevalence of money laundering activity, which is confirmed by United States law enforcement sources. Several Moldovan banks regularly export large amounts of bulk currency whose volume is not correlated to or justified by business transactions. It is reported that several banks in Moldova exist solely to launder money.

Economic crime provides the bulk of laundered proceeds, primarily through schemes to smuggle petroleum, alcohol, and tobacco into the country with the intent of evading duties and other taxes. Corrupt border officials facilitate these smuggling schemes. The unresolved political situation regarding the Transdniestria region of Moldova facilitates smuggling. Contraband goods are smuggled into Moldova through Transdniestria, over which the Moldovan government has no de facto control. The under-invoicing of goods and the use of fraudulent contracts to export credit are also major enforcement problems. Avenues to launder proceeds also exist through the gray economy, which is estimated to be 30-50 percent of the gross domestic product.

Moldova has drafted anti-money laundering legislation, which, if adopted, would meet international standards. The proposed law would mandate the reporting of suspicious, large or unusual transactions by financial institutions, as well as customer identification. Successful implementation of the bill will require amendments to, or inclusion of, anti-money laundering provisions in draft legislation of the Criminal Code, Criminal Procedural Code, banking and commercial laws, and laws dealing with investigative and prosecutorial agencies.

Moldova's participation in the Southeastern Europe Cooperative Initiative (SECI) is a positive step in addressing the predicate crimes generating illegal proceeds laundered in Moldova. Among SECI's goals are to control the increasing flow of narcotics trafficking across borders and to close the links to trans-border organized crime. In a September 1998 SECI meeting held in Bucharest, Moldova initialed a draft agreement on cooperation to prevent and combat trans-border crime. Cooperation with member SECI states will assist Moldova's efforts to combat the predicate offenses that generate illegal proceeds. Moldova has signed a number of bilateral and regional agreements to combat organized crime, narcotics trafficking, and financial crimes. In June 2000, Moldova has agreed to undergo a mutual evaluation conducted by the Council of Europe's PC-R-EV. The evaluation will provide an overall assessment of Moldova's anti-money laundering program after its implementation.

Monaco (b). Tourism, casinos, and the banking sector sustain the economy of Monaco. Despite its having enacted anti-money laundering legislation, Monaco's strict bank secrecy laws and casinos make it vulnerable to money laundering. It is also an attractive tax haven due to zero income tax and low business taxes. There are 37 banks operating in Monaco, with most of the banking sector based on portfolio management and private banking. Monaco also is an offshore financial center, and permits the formation of international business corporations.

A recent report claimed that Monaco has accepted the proceeds of organized crime and tax fraud. There have been allegations that judges were interfered with in conducting financial prosecutions, and the French government has refused to extend the mandate of the principality's chief prosecutor, who was suspected of being too lax in financial investigations.

Money laundering in Monaco is a crime. The Monegasque government has established the Service D'Information et de Controle sur les Services Financiers (SICCFIN), which serves as the financial intelligence unit to collect information regarding suspected money launderers. On June 30, 1994, Monaco tightened legislation to combat money laundering by obliging banks, insurance companies and stockbrokers to report suspicious transactions, and to disclose the identities of those involved. The law also stipulates that casino operators must alert the government about payments for gambling chips, which are suspected to be derived from drug trafficking or organized crime. Another law imposes a 5-10 year jail sentence for anyone using ill-gotten gains to purchase property.

Mongolia (Other). Mongolia is not a major money laundering center, but organized crime, narcotics and arms trafficking, and smuggling generate illegal proceeds. Mongolia's long borders with Russia and China are difficult to control and thus make Mongolia a transit country for contraband.

In mid-1998 Mongolia law enforcement officials acknowledged to their United States counterparts that most of Mongolia's enforcement problems are caused by Russia and China. They confirmed that Mongolia is experiencing an increase in organized crime, drugs and financial crime, and that Russia's organized crime activities have found their way to Mongolia. Financial fraud is occurring involving illegal transfers of money and public corruption, including the police. Mongolian authorities expressed concerns that money laundering and fraud will undermine the security of their economy.

Montserrat (Concern). All financial and business activities on Montserrat slowed dramatically after the eruption of its volcano began in 1995. The Royal Bank of Canada is currently the only fully functional financial institution on Montserrat, and is operating out of a temporary location. However, a number of offshore financial services are being provided out of residential locations.

As a British Overseas Territory, Montserrat is working closely with UK officials to increase the regulatory and supervisory structure of the financial system before Montserrat looks to expand its small offshore sector in the next few years. The Financial Services Centre provides supervision for offshore banks and international business corporations. Montserrat is in the process of drafting all-crimes legislation, which would criminalize all forms of money laundering and increase investigative authority for financial crimes.

Montserrat is a member of the CFATF.

Morocco (Other). The Government of Morocco (GOM) maintains that Morocco is unsuitable for large-scale money laundering, in view of its low-level financial system and foreign exchange controls. However, a 1995 FATF mission to Morocco concluded that the large volume of cash transactions in Morocco, the absence of any obligation to report the import of foreign currency, and the development of an offshore banking center at Tangier all facilitated money laundering. Moroccan customs authorities stated at that time that money was being laundered by the physical transport of cash and the purchases of smuggled goods. The central bank, however, considered that only money-changers (which are unregulated) posed any threat of money laundering.

Observers believe that there is corruption in Morocco, which contributes to the money laundering problem. Drug deals are also an important source of illicit funds. Much of the laundering which does take place is believed to be invested in real estate, especially in northern Morocco, where there has been a construction boom--numerous unfinished high-rise apartment buildings in Tangier are believed to have been financed by drug profits. However, traffickers are reportedly looking for new areas to hide their funds as the area is becoming sated.

Morocco is a party to the 1988 UN Drug Convention. However, the GOM has not criminalized money laundering. There are a few measures intended to preclude the use of the financial sector for money laundering: banks must ascertain the identification of customers; anonymous accounts are not allowed; and certain transaction documents must be maintained for a set period of time.

The GOM needs to develop anti-money laundering legislation meeting international standards to protect against financial crimes and money laundering. The offshore financial center is particularly vulnerable to financial crime without implementation of an effective anti-money laundering regime.

Mozambique (Other). Although Mozambique is not considered an international money laundering haven, regional money laundering occurs involving illegal proceeds generated in Mozambique and neighboring countries. Mozambique is a known transit country for narcotics, arms, tobacco, alcohol, and other consumer goods being smuggled into South Africa. Illegal gold and stolen vehicles are smuggled from South Africa into Mozambique, and arms are reportedly smuggled to Angola via Mozambique. According to reputable estimates, 70 percent of Mozambique's consumer goods are smuggled into the country because of high tariffs and official corruption.

According to U.S. law enforcement sources, the government of Mozambique (GOM) in 1997 enacted an extensive anti-drug law; however, only one of its 94 articles addresses the financial crimes to which narcotics trafficking can give rise. The GOM is reportedly organizing the drafting of anti-money laundering legislation, but there is no evidence that it has progressed beyond this stage.

In April 1998, the United States Embassy in Mozambique sponsored an anti- money laundering seminar for the National Assembly of Mozambique. Participants in the seminar included representatives of the United States, the Financial Services Board of South Africa, and the FATF.

The GOM needs to enact and implement an anti-money laundering law that meets international standards to protect against financial crime and money laundering.

Nauru (Concern). Nauru is an independent republic and an associate member of the British Commonwealth. Nauru is an established "zero" tax haven--it does not levy any income, corporation, capital gains, real estate, inheritance, estate, gift, sales or stamp tax. The establishment and management of Nauru trusts is handled by the Nauru Trustee Corporation, which was established by charter of the Nauru Trustee Corporation Act, 1972. The Nauru Trustee Corporation acts as executor or administrator of wills of nonresidents made in respect of such Nauruan property as shares, debentures, or investments in Nauru or in Nauruan corporations. Nauru banks are known for dealing in bearer shares, and for providing secrecy of operations and anonymity.

Russian organized crime is increasingly exploiting Nauru's offshore financial sector. One common scheme is to employ middlemen to open accounts or charter banks in Nauru, to give the perception of legitimate business by non-Russian entities (no Russian names attached to the bank and/or accounts, or front companies). Many United States-based Asians use the offshore banking facilities here. Tracking particular banks operating in Nauru is difficult, however, since all banks have the same post office box.

Given Nauru's expansion into offshore banking, it needs to adopt strong anti-money laundering legislation to protect its financial services industry and economy from criminals and criminal organizations. Nauru's current offshore banking regime, in the absence of proper safeguards, is an open invitation to financial crime and money laundering.

Nepal (Concern). The Government of Nepal (GON) has drafted legislation calling for full criminalization of money laundering, reporting of suspicious transactions and the establishment of a central authority for overseeing anti-money laundering activities in Nepal. As of late 1998, this draft law had not been enacted.

The GON is continuing with its plans for the formation of an international business center, which will offer certain offshore banking services. United States officials are assisting the GON with the establishment of this center to ensure that it will have the proper regulatory framework to deter money laundering.

At present, money laundering is likely derived from the proceeds of drug trafficking and various financial frauds associated with the open India/Nepal border. Nepal has casinos in the five-star hotels in Katmandu. It is possible that Indian nationals may, to some extent, be using these casinos to evade Indian income tax and launder illicitly derived funds.

The GON should enact and enforce its proposed anti-money laundering legislation, in addition to taking steps to ensure that, if offshore facilities are developed, adequate supervision and anti-money laundering measures are in place.

The Netherlands (Primary). A considerable portion of the illicit money laundered in the Netherlands is believed to be generated from financial fraud, while other money laundering is believed to be conducted by major drug cartels and other criminal organizations.

While the anti-money laundering legislation currently in effect in The Netherlands is comprehensive, there are various initiatives underway by the government to improve it. Legislation making money laundering a separate offense (apart from the possession of the proceeds of crime or "fencing" offense) is pending before Parliament; passage and adoption is expected in 1999. Currently, the Dutch Penal Code requires that prosecutors prove the underlying offense before being able to address the offense of money laundering..

Effective in May 1998, the requirement to report unusual transactions was extended to the Netherlands Central Bank. Money transfer businesses will also soon be subject to supervision. Currently, these businesses are only required to be licensed by the central bank. Notaries, accountants and lawyers report suspicious transactions on a voluntary basis, and there are plans to include real estate agents and precious metal dealers in the future.

The Netherlands' offshore banking sector has expanded to include international business corporations and bearer shares. The Netherlands advertises its offshore sector on the Internet and has established websites for Internet gaming.

Currently, The Netherlands requires the reporting of unusual or large transactions to the Meldpunt Ongebruikelijke Transacties (MOT), its financial intelligence unit (FIU). The reports are analyzed by the MOT to determine if they are suspicious. If suspicious, they are then passed to the police along with all relevant information from national police and foreign counterparts. A lingering problem in the Dutch system--which also affects Aruba and the Netherlands Antilles--is that the foreign affairs ministry has taken the position that the MOT cannot legally exchange information with its FIU counterparts without first negotiating treaties with the various foreign governments. The Dutch urgently need to revisit this position and, if necessary, implement legislation to reverse it.

The Netherlands is a member of the FATF and the Council of Europe, and the MOT participates in the Egmont Group of FIUs.

Netherlands Antilles (Primary). The Netherlands Antilles is composed of Curacao, Bonaire, the Dutch part of the island of Sint Maarten/St. Martin, Saba and Sint Eustatius. The jurisdiction--led by Curacao--has become a leading offshore center in the Caribbean for property investment and inter- company financial flows. With the growth of their offshore industry (although it has shrunk as a percentage of the economy), lack of border controls with the French part of Sint Maarten/St. Martin, and ineffectively regulated casinos, the islands are vulnerable to money laundering. The 50 offshore banks in the Netherlands Antilles are supervised by the central bank. Under central bank guidelines, to be admitted as an offshore bank, an entity must obtain, in addition to the foreign exchange license required for all offshore companies, a Declaration of No-Objection from the Ministry of Justice, which certifies that all legal requirements have been met. But the significant offshore financial sector--comprised of mutual funds, group financing companies, and trust companies--is extremely sophisticated and largely unsupervised.

Under close watch by The Netherlands, the Netherlands Antilles remains vigilant in its efforts to combat money laundering. On October 15, 1998, the parliament of the Netherlands Antilles enacted asset seizure legislation. Under the new law, the judicially ordered seizure of assets can occur if the profits or assets are obtained by means of, or from the proceeds of, a proven punishable act; if the profits or assets are from additional unproven criminal acts if there is reasonable suspicion that the acts took place; if the sentence is four years or more; or if there is evidence from an official financial investigation that a crime producing profits or assets took place. Antillan officials can use a conviction in a United States court as the basis for seizing assets in the Netherlands Antilles The legislation permits asset confiscation early in the judicial process; previously, traffickers and launderers could move their assets into safe havens during the pre-trial period. Also promising is the work of a joint Dutch/Antilles police effort to build the capacity of the island police to conduct effective, coordinated investigations of financial crime.

As part of the Kingdom of The Netherlands, the Netherlands Antilles is a member of the FATF and is a leading participant in the CFATF. Additionally, the Meldpunt Ongebruikelijke Transacties (MOT) NA, which is the financial intelligence unit in the Netherlands Antilles, is a member of the Egmont Group.

The Government of the Netherlands Antilles has taken a number of strong measures to combat money laundering. However, it is essential that it fully implement its anti-money laundering legislation, thereby establishing a strong program to successfully prosecute money launderers. The Netherlands Antilles needs to devise a way to supervise the offshore financial sector, implement planned consolidated supervision of the casino sector, receive help from The Netherlands to enable the MOT to share information with its foreign counterparts, and test the effectiveness of its criminal money laundering statute by prosecuting cases.

New Zealand (Other). Money laundering became an offense in New Zealand on September 1, 1995, as a result of an amendment to the Crimes Act 1961. There are two offenses which fall under this Act: 1) engaging in a money laundering transaction, knowing that the property at issue has resulted from the commission of a serious offense; 2) possession of property knowingly gained through the commission of a serious offense for the purposes of money laundering. The amendment also offers a "safe harbor" from any liability resulting from a breach of confidence in disclosing transactions to the authorities.

There is evidence of the presence of international organized criminal elements in New Zealand. There is also evidence that money laundering takes place, and that commercial crime and drug funds play a role in these operations. New Zealand financial institutions are not believed to be used significantly for the laundering of funds derived internationally.

Some evidence of a small underground banking system has been uncovered in recent months. Preliminary investigations indicate that this system is being used by immigrant and refugee communities to remit money to relatives in their home countries. The main conduit detected to date appears to be from New Zealand to Iraq via Jordan.

New Zealand is not a party to the 1988 UN Drug Convention. It is a member of the FATF, the Asia Pacific Group on Money Laundering, the South Pacific Forum, and the Commonwealth. Its FIU participates in the Egmont Group.

Nicaragua (Other). Nicaragua's financial sector is very small at present, which somewhat limits its attraction to money launderers. However, Nicaragua is vulnerable to money laundering because of drug trafficking and a lack of resources to combat it. Legislation enacted in 1994 put in place some anti-money laundering measures, but it needs to be enhanced to fully protect and regulate Nicaragua's growing banking system.

In 1994, the Government of Nicaragua (GON) passed Law No. 177, Law on Narcotics Drugs and Psychotropic and Other Controlled Substances, which contains some anti-money laundering measures. This law criminalized drug- related money laundering (imposing a penalty of 3 to 20 years confinement) and provided for the seizure and forfeiture of drug proceeds. The law required banks to report deposits exceeding $10,000 to a Financial Commission, which also was tasked with detecting, analyzing and proposing ways to combat money laundering. The law also lifted bank secrecy for narcotics investigations.

A proposed comprehensive anti drug law, Law No. 285, which tightens the anti-money laundering provisions of Law 177, was vetoed by the Nicaraguan President, who objected to some of the language in the bill with respect to money laundering, apparently out of concern that it would complicate foreign investment in Nicaragua. The law is expected to be enacted sometime in 1999, after a compromise is reached on the anti-money laundering language.

The proposed law changes the name of the Financial Commission to the Financial Analysis Commission, and establishes the National Anti-Drug Council as the supervising body. Banks are required to report withdrawals exceeding $10,000, in addition to deposits, to the Superintendency of Banks (which then passes the information to the Commission). A wide range of financial institutions, including credit unions, stock exchanges, savings and loan cooperatives, exchange houses, credit card operations, and casinos must identify their customers, maintain records for five years, and make records available for investigations. Individuals will be required to report cross-border inbound (but not outbound) currency for amounts exceeding $10,000.

The proposed law takes several steps forward in Nicaragua's fight against money laundering, including increasing the reporting requirements for banks and international movements of funds, along with increasing the authority of a centralized unit to receive financial disclosures and analyze and investigate money laundering trends. However, the law has some deficiencies. Although it requires institutions to pay special attention to complex and unusual transactions, there is no requirement to report suspicious transactions. Also, money laundering is still a crime only if related to drug trafficking offenses. These deficiencies need to be addressed if Nicaragua is to fully comply with international anti-money laundering standards and protect the financial sector from money laundering abuses.

Nicaragua is a member of the CFATF.

Nigeria (Primary). Nigeria is the narcotics trafficking, money laundering, and financial fraud hub of West Africa and increasingly the continent. Its oil-driven economy dwarfs that of its neighbors, but the country's overall economic frailties and the continuing fragility of its financial sector mean that Nigeria is not a major financial center, except in a limited West African context.

The Nigerian government has made some progress in stabilizing the banking sector; it has dissolved 31 failed banks and raised capitalization requirements. However, the massive check-kiting frauds that rocked several large Nigerian banks in 1998 underscored the continuing lack of transparency and effective institutional controls in many banks.

Nigerian money launderers operate sophisticated global networks to repatriate illicit proceeds from narcotics trafficking, financial fraud, and other crimes. Nigeria has not made major changes in anti money laundering legislation since Money Laundering Decree No. 3 was placed into effect in 1995. Decree No.3 criminalized only drug-related money laundering. Implementation of the decree has been hampered by the bifurcation of responsibilities between the Money Laundering Surveillance Unit (MLSU) of the Bank Examination Department of the central bank and the Money Laundering Unit within the National Drug Law Enforcement Agency (NDLEA). Currently, transaction reports go to the MLSU and the Money Laundering Unit of the Office of Investigations of the NDLEA. The NDLEA, in the furtherance of its primary charter, requires the drug nexus as a precondition for the initiation of an investigation. NDLEA is the enforcement agency. The Miscellaneous Offenses Tribunal has been identified as the prosecutorial agency. NDLEA attempts to prosecute narcotics and money laundering kingpins have been stymied by a dysfunctional judicial system and sometimes by government corruption.

The Nigerian government's comprehensive money laundering decree allows for seizure of the property and assets of suspected narcotics trafficking and money laundering organizations. Despite some initial seizures, there have been no prosecutions, and some of the seized assets were conditionally returned to their owners. NDLEA enforces monthly bank reporting requirements, but the actual disposition of the collected data is unclear.

Since a December 1996 United States interagency mission to Nigeria, the government of Nigeria has shown a willingness to work with U.S. law enforcement agencies on money laundering and other enforcement issues. During a follow-up law enforcement mission to Nigeria in October 1998, the government demonstrated its political commitment to take concrete action by allowing the U.S. team access to a number of documents and facilities that had not previously been made available.

In collaboration with the International Monetary Fund and the African Capacity Building Foundation, the Central Bank Governors of Gambia, Ghana, Liberia, Nigeria, and Sierra Leone established the West African Institute for Financial and Economic Management (WAIFEM) in July 1996. WAIFEM began operations in January 1997 as a private company of international standing aiming to provide member countries with short-term programs for public sector officials involved in policy formulation, execution, and monitoring. In 1998, WAIFEM and the United States co-sponsored a workshop for public and private sector officials on money laundering techniques and countermeasures.

Nigeria needs to criminalize money laundering beyond narcotics, and to develop and fund a strong law enforcement mechanism to ensure compliance with anti-money laundering laws and protect its financial system from continued abuse by criminals and criminal organizations. Nigeria also needs to demonstrate its ability to take action against corruption and fraud.

Niue (Concern). Niue is a self-governing territory in a free association with New Zealand. Internet gambling, which generates approximately $1.5 million a month in the South Pacific, represents a major new business trend and creates a vulnerability to money laundering and financial crimes in Niue. Niue has a close relationship with a law firm based in Panama; a principal in the firm has expressed an interest in establishing an office in Niue's time zone, to service clients based in East Asia.

All international business corporations (IBCs) based in Niue are exempt from income tax, including dividends, interest, rents, royalties, compensation, and capital gains. No estate, inheritance, succession, or gift tax, rate, duty, levy, or other charge is payable with respect to any shares, debt obligations, or other charges payable with respect to securities of an IBC. Offshore banks and insurance companies fall into the same category. These IBCs have the characteristics of offshore exempt companies, which include exemption from exchange controls and low license and annual fees for all offshore entities. Niue is considering selling economic citizenship passports.

Like the Cook Islands, Niue has asset protection features. The Courts will not change, set aside, or recognize the validity of any claim against the trust pursuant to another country's laws or court order in regards to matrimonial property, succession rights, and claims of creditors for insolvency. The Register of Trusts is open to inspection by a foreign Government or court. However, the high court must be satisfied that the information will only be used to investigate or prosecute an individual who has been charged with either selling drugs or laundering funds derived from drug dealing or another serious criminal activity.

Niue's current offshore banking regime, in the absence of proper safeguards, is an open invitation to financial crime and money laundering. Given Niue's broad multi-services offshore sector, it needs to adopt and enforce strong anti-money laundering legislation to protect its reputation, financial services industry and economy from criminals and criminal organizations.

North Korea (Democratic People's Republic of Korea) (Concern). Little is known about the banking situation and the extent of money laundering in North Korea. However, there have been reports that due to the extremely poor economy, the state supports illegal businesses such as drug trafficking, gold smuggling, smuggling of endangered species and trafficking in counterfeit United States currency.

Reports indicate that North Korea is planning to open its economy by establishing free economic zones and allowing greater opportunity for private economic activities. In a report on the North Korean economy, the Korea Trade-Investment Promotion Agency (KOTRA) predicted that Pyongyang will likely initiate changes to resolve its economic crisis, to the extent that its current system is not threatened. North Korea is expected to redouble its efforts to obtain more foreign funds from the IMF and Asian Development Bank through improving relations with the United States, according to the same KOTRA report. As part of its moves to enhance economic cooperation with neighboring countries, North Korea has established two joint venture firms with Thailand.

Norway (Other). Norway is not a major regional financial center, as there are only 20 commercial banks and 132 savings banks serving a population of 4.4 million people. There are no offshore banks or casinos in Norway.

What money laundering occurs in Norway is not primarily related to narcotics proceeds, but to funds generated by the smuggling of liquor and cigarettes and to illegal capital flight from Russia and the Newly Independent States. Financial crimes, especially bank fraud, have been on the increase since the early 1990s when the financial markets were liberalized. Most money laundering is done outside of the usual bank and non-bank financial systems due to the obligation on the part of these sectors to report large or suspicious transactions and to maintain transaction records for five years. Structuring of deposits (breaking them up into smaller amounts to circumvent reporting requirements) appears to be the biggest problem for financial institutions.

All forms of money laundering are criminal offenses according to the Norwegian Penal Code. Legislation has been strengthened over the past few years in order to conform to the FATF Forty Recommendations. ØKOKRIM, Norway's Special Unit on Economic Crimes, has set up a money laundering unit which serves as the country's financial intelligence unit and is the recipient of all suspicious transaction reports.

Norway participates in the FATF and the Council of Europe, and ØKOKRIM participates in the Egmont Group.

Oman (Other). Oman is not known to have significant money laundering activity, and Oman's banking system is the smallest among the GCC nations. Banking in Oman is not heavily regulated, although the Central Bank of Oman (CBO) is authorized to suspend or reorganize a bank's operations. A circular was distributed to a broad range of financial institutions several years ago advising that they report all suspicious transactions to the CBO and the Royal Oman Police and conform to some of the FATF Forty Recommendations, but no such reports are known to have been filed, and there are no known money laundering cases under investigation. The CBO is currently updating its circular. It is not known whether the CBO has taken any other steps to deter or detect money laundering.

Cash transactions are common in Oman. The hawala/hundi remittance system is a cost-effective and efficient means for the many expatriate workers in Oman to transfer money to their homelands.

Oman's failure to enact legislation or regulations to criminalize money laundering and formalize its anti-money laundering regime make it vulnerable to financial crime. Oman should take steps to enact and implement anti-money laundering laws, including providing for the full criminalization of money laundering and the reporting of suspicious transactions to a central organization.

Oman is a party to the 1988 UN Drug Convention and is a member of the GCC, which holds membership in the FATF.

Pakistan (Primary). It is likely that Pakistan's role in the production and transportation of narcotics necessitates the laundering of at least some of these proceeds within Pakistan. There is little if any information available on the nature or extent of money laundering in Pakistan. However, anecdotal evidence from a variety of sources and data from cases indicate that Pakistanis play a role in the often illicit transfer of funds between Pakistan, India, Dubai and other locations via the hawala (or "hundi") alternative remittance system. In one recent case, it was shown that the proceeds from the sale of Pakistani heroin were laundered through a worldwide hawala network with significant connections to Dubai. However, the lack of documentation on hawala/hundi transactions makes it difficult to quantify them. Bulk shipments of cash have also been noted leaving Pakistan.

Sources of laundered money include corruption, illicit financial activities and smuggling. Details of the continuing investigation of the financial activities of former Pakistani Prime Minister Benazir Bhutto and her husband, Asif Zardari, indicate that corruption-related money laundering occurs on a significant scale outside of Pakistan. However, it is very difficult to provide an assessment of the nature of these activities, particularly the extent to which the laundering actually takes place in Pakistan.

Pakistan's Control of the Narcotics Substances Act was amended in 1997 to add some anti-money laundering provisions. These provisions criminalize narcotics-related money laundering (money laundering violators of Pakistan's tax laws may also be prosecuted) and establish procedures for the tracing, identifying and freezing of assets, as well as participation in mutual legal assistance requests. The primary authority for fighting money laundering under the Act is Pakistan's Anti-Narcotics Force (ANF). The ANF is part of the Pakistani military, and few ANF personnel have experience in fighting money laundering. Banks are to report suspicious drug-related transactions to the ANF, but they have not been making reports. The United States has also advised the Government of Pakistan (GOP) that steps need to be taken to address the problems presented by the use of hawala as a means of facilitating money laundering.

Pakistan's central bank, the State Bank of Pakistan, has issued regulations that all banks are to report all foreign currency transactions, and licensed money exchange houses were recently required to report all transactions over $10,000. Banks and other financial institutions must know, record and report to the State Bank the identities of all customers; the State Bank is supposed to pass the information to tax and law enforcement authorities. However, apart from money exchangers, no other smaller non- bank institutions are subject to controls. Reports of crossborder currency movements are not made to the State Bank unless Pakistani Customs discovers suspicious currency movements. Pakistan permits hard currency bank accounts, although it imposed strict currency controls after the Pakistani nuclear tests. No inquiries are made to foreigners or Pakistanis living abroad concerning the source of funds deposited in those accounts.

Various provisions of Pakistan's banking laws empower the State Bank to obtain certain information and investigate improper banking activities. The United States has advised that such provisions, which could be effective in dealing with certain aspects of hawala-based money laundering, need much wider enforcement. The U.S. Treasury Department continues to work with the GOP on hawala and on possible legislative changes to broaden the scope of Pakistani anti-money laundering activities, and is working through the international financial institutions to improve overall administration of Pakistan's banking sector.

Pakistan is a party to the 1988 UN Drug Convention. It is not a participant in the FATF and has not entered into any bilateral agreements for the exchange of money laundering information with foreign governments. Pakistan has double taxation agreements with a number of nations which provide for the exchange of information on financial transactions between tax authorities of the two countries.

The GOP should modify its existing laws to bring them into compliance with the standards established by the FATF, specifically the full criminalization of money laundering, establishment of mandatory reporting of suspicious transactions by financial institutions, and establishment of a central authority to process these reports and coordinate anti-money laundering activities. In addition, Pakistan needs to continue to take steps to address the use of the hawala system for illegal purposes.

Palau (Other). Palau is not currently known as a money laundering haven. However, the Government of Palau has legislation pending which would permit offshore banking. If this is enacted, it would raise the possibility of another nation in the South Pacific becoming at risk for money laundering. The proposed legislation, called the Corporate Registration Act, would allow the creation of shell offshore holding companies. It was drafted with the assistance of financial experts from Hong Kong. Palau offshore banking licenses--the legitimacy of which is unknown--are being advertised on the Internet by a Latvian bank.

Panama (Primary). Panama remains extremely vulnerable to money launderers, in view of its status as a major financial center, the presence of the Colón Free Zone, a dollar-based economy, and major drug producing neighbors. Panamanian financial institutions engage in currency transactions involving international narcotics trafficking proceeds that include significant amounts of U.S. currency. The Government of Panama (GOP) has good formal anti-money laundering mechanisms in place, but its ability to identify, investigate and prosecute money laundering suffers from an inadequate legal framework. Senior GOP officials reportedly will seek reforms to make prosecution of money laundering offenses easier.

In June 1998, Panama enacted a new banking law which is considered a major step forward. The law calls for the creation of a Superintendency of Banks to serve as the new bank regulatory and supervisory entity. The Superintendency will have the authority to grant banking licenses, including general licenses for local and foreign operations and international licenses for Panama's 28 offshore banks, and to establish capital adequacy. The law requires banks to have minimum capital of $10 million and establishes a minimum liquidity level of 30 percent of total gross deposits. Banks must maintain assets in Panama that are equal to at least 85 percent of local deposits and treated on a consolidated supervisory basis. Foreign supervisory entities will be permitted, under prior agreement with the Superintendency, to inspect the branch offices of foreign banks in Panama which have consolidated supervision.

The legal changes in consolidated banking supervision and the financial controls stipulated in the new law will not only help strengthen the banking system, but also entice top foreign banks into Panama. The Banking Superintendent is currently in the process of preparing implementing regulations, and has reminded banking officials of their responsibilities with regard to combating money laundering.

Panama has a large offshore sector which offers an additional layer of security for entities, including more than 350,000 international business corporations, registered within its jurisdiction.

Panama has established a financial analysis unit, the UAF. The UAF was one of the first such units in the region to be admitted to the Egmont Group in 1998. The UAF reports directly to the President of Panama, and the Director of Panama's UAF, in an expansion of her role, now serves as the national coordinator for all money laundering affairs in Panama. Panama is a member of the CFATF.

A weakness of Panama's anti-money laundering regime is the fact that only drug-related money laundering is a criminal offense. Prosecutors must prove that the money laundering is directly connected to drug trafficking, which is extremely difficult to accomplish. Additionally, Panama's anti-money laundering law does not permit the UAF to share information with financial intelligence units (FIUs) in foreign countries.

We encourage the GOP to take steps to criminalize non-drug-related money laundering and to authorize the UAF to share information with its foreign counterparts, in order to enhance Panama's anti-money laundering regime. Panama needs to be able to demonstrate that its anti-money laundering laws have been implemented through the successful prosecution of, and cooperation with foreign authorities in, major money laundering cases.

Paraguay (Primary). Paraguay is considered a significant money laundering center due to its status as a transit country for cocaine trafficking, its weak regulation of the formal financial sector, the absence of regulation over the informal financial sector, and lack of implementation of its money laundering law. Most of the money laundering in Paraguay occurs in the Ciudad del Este area in the form of tax evasion, re-export of contraband, capital flight and, to a lesser extent, narcotics operations. In January 1997, the Government of Paraguay (GOP) criminalized money laundering related to serious crimes, but since tax evasion, contraband smuggling and capital flight (the primary forms of money laundering) are not classified as serious crimes, the laundering of their proceeds does not fall under the new statute's prohibitions. This, coupled with endemic official corruption, creates a serious difficulty in combating money laundering in Paraguay, as does the existence of an offshore financial center.

Paraguay's anti-money laundering law 1015/96 (Preventing and Suppressing Illegal Acts Committed for the Purpose of Laundering Money or Assets) mandated the reporting of suspicious financial transactions, instituted currency transaction record-keeping requirements, provided for cooperation with international law enforcement, permitted asset forfeiture, and established know-your-customer provisions for banks and other financial institutions. It also created three anti-money laundering agencies to counter financial crimes: the Secretariat for the Prevention of Money Laundering (SEPRELAD); the Financial Crimes Investigative Unit (FCIU); and the financial analysis unit (FAU).

SEPRELAD was established in July 1997 as an independent umbrella agency responsible for the implementation of the anti-money laundering law. SEPRELAD includes the inter-agency FAU, which is charged with collecting, analyzing and processing information it receives for the purpose of detecting suspicious financial activities involving money laundering. This unit will function as Paraguay's financial intelligence unit (FIU), as it is the central national agency which receives disclosures of financial information such as suspicious activity reports (SARs).

Although the GOP made progress in combating money laundering during 1997, it has not taken sufficient measures during 1998. There has yet to be a prosecution for money laundering under the 1997 law. SEPRELAD and its FAU commenced operations in 1997, but they are still not considered operational because they lack an approved budget. Furthermore, the FAU lacks personnel, equipment and a permanent location. During 1998, the FAU received 3,000 SARs, of which 24 were forwarded to SEPRELAD for investigation. However, those 24 SARs have not been investigated because of budgetary problems with the SEPRELAD and the absence of the FCIU, whose creation was mandated under the new money laundering law.

During the early part of 1998, Paraguay's FAU appeared to be making progress in obtaining personnel and equipment, and in June 1998, it was officially recognized by the Egmont Group of FIUs. However, the FAU still cannot exchange information concerning financial crimes with other members of Egmont.

The GOP has the legal tools and agencies in place that will combat money laundering. However, it still has not taken the appropriate measures to fully implement its anti-money laundering law. It is essential that the GOP redirect its efforts and properly fund the SEPRELAD and the FAU. Only through the proper funding of these agencies, as well as establishing the FCIU, will the GOP be able to counter money laundering and financial crimes and to cooperate with other FIUs.

Peru (Concern). Although Peru is not a major regional financial center, tax haven or offshore banking center, narcotics-related money laundering does occur. The Peruvian Penal Code sanctions money laundering related to the illicit narcotics trade and terrorism, although there were no prosecutions in 1998.

Peru's regulations to implement its 1996 anti-money laundering law went into effect in July 1998. Among the regulations' most significant provisions are the requirements for financial institutions to record cash transactions over about $10,000, implement know-your-customer policies, develop internal compliance programs and designate compliance officers, and report suspicious financial transactions to the Attorney General's office. Under pressure from the business community, the Superintendency of Banks and Insurance Companies suspended the cash transaction recording requirement for financial institutions. The banking community has been a vocal opponent of this requirement, expressing concerns about the cost and resources needed to comply and fear of misuse of the information. Inconsistent and overzealous identification requirements imposed by some financial institutions such as fingerprinting and the submission of sworn declarations, as well as bad timing in the issuance of other regulations mandating the disclosure of financial and tax information, combined to create discomfort throughout the business community. All other provisions of the regulations, however, remain intact, and financial institutions have already begun to submit reports of suspicious transactions. The Attorney General's Office has granted access to the information to the Financial Investigations Unit operated by the Peruvian National Police, which conducts research to determine if the transactions have a narcotics connection.

Efforts are also underway to expand the anti-money laundering articles of the Penal Code to include other illicit acts, and possibly remove current articles which restrict the initiation of investigations. Despite the setback caused by the suspension of the cash transactions recording requirement, the Government of Peru's (GOP's) efforts to implement a comprehensive anti-money laundering regime are commendable. The Superintendency should continue the dialogue with the banking and financial services industry, and seek ways to modify the regulations, but remain firm in its efforts to reinstate this essential requirement. The GOP should also continue its efforts to establish a financial intelligence unit.

Philippines (Concern). Philippine government officials have long recognized that the drug menace is the cause of a rising crime wave, and that effective anti-money laundering measures are a critical part of the fight against the drug problem. Despite this recognition, anti-money laundering legislation has not been enacted. It was reported in July 1998 that the illegal drug trade in the Philippines has become a billion dollar industry. Part of the money flows into the pockets of corrupt government officials in the form of bribes, while part is invested in legitimate businesses.

The Philippines is not a major financial or offshore banking center, but strict bank secrecy laws contribute to the potential for money laundering in this sector to become a major problem. The new Central Bank Act does allow the government to check, examine, supervise and regulate the activities and transactions of banking entities, money lending firms, foreign exchange dealers and money changers. Financial institutions are required to record, but not to report, the identities of customers engaging in large transactions. However, bankers have not been generally cooperative, since they do not enjoy "safe harbor" protection. Regulations are in place to ensure that records are available in response to United States requests, but the process is cumbersome.

The Philippines tax code provides for offshore banking units (OBUs), which are required to register with the government. Income derived by OBUs authorized by the central bank are exempt from almost all taxes. While there is no indication of an extensive offshore banking sector in the Philippines to date, this section of the tax code may play an important role in the future.

Philippine law enforcement officials are currently focusing on two draft major crime bills (on RICO and money laundering) and are developing a system to monitor large volume bank transactions. They believe there is a proliferation of businesses (such as bars, pawnshops, foreign exchange dealers and casinos) engaging in money laundering, but they are hampered by the lack of legislation allowing them to act against these businesses. The Philippines needs to act promptly to enact laws and regulations to prevent its financial institutions and businesses from being used as money laundering conduits.

The Philippines is a member of the Asia Pacific Group on Money Laundering.

Poland (Concern). The rate of money laundering in Poland is increasing rapidly. According to various official Polish sources, the amount laundered ranges from $3 to 9 billion annually. The FATF estimated that figure to be $8 billion for 1998. Poland is attractive for money laundering for a variety of reasons. The Polish economy is large by regional standards and offers many avenues to launder illicit proceeds through its correspondingly large gray economy, which is promoted by a complex tax regime. Despite improving bank supervision, weaknesses in money laundering legislation, combined with the large number of registered businesses and financial institutions, foster the growth of money laundering. The strong presence of organized crime groups provides a steady source of illegal proceeds. In addition, Poland serves as one of the major routes in narcotics trafficking to Western Europe and is considered a major international producer of amphetamines.

The most important sources of criminal proceeds include extortion; narcotics trafficking; the counterfeiting of currency, excise tax stamps, securities and other commercial documents; the smuggling of alcohol, tobacco, fuel; and more recently, the theft of bulk commodities such as coal and metallurgical products. International organized crime groups are known to use Poland to launder their proceeds, especially through the real estate, restaurant, and securities markets. The slow and cumbersome money transfer procedures in Poland somewhat reduce its attractiveness as a money laundering venue for foreigners. However, foreign organized crime groups from Russia, Ukraine, Italy, and Colombia are known to use Polish banks to launder illegal proceeds that are eventually transferred to offshore centers.

In response to the growing threat of organized crime and money laundering, the Polish Banking Supervision Commission in June 1998 introduced a resolution to strengthen the effectiveness of anti-money laundering measures in existing banking laws. Specifically, procedures for identification and record-keeping have been further stipulated. Besides the requirement to report criminal transactions to law enforcement authorities, banks must now report suspected money laundering transactions as well. This enhanced reporting requirement will complement the prosecutor's office's newly-invested power to freeze accounts which are the subjects of money laundering investigations. Banks must also implement in-house anti- money laundering programs. In November 1998, Poland centralized its efforts to combat organized crime and narcotics trafficking by creating two national-level police agencies that will report directly to the national police headquarters. These specialized agencies will work in close cooperation with Poland's tax, customs, and border patrol authorities, and with a proposed financial intelligence unit (FIU) to investigate financial crime.

The Ministry of Finance continues its work on draft anti-money laundering legislation. Thus far, no successful money laundering prosecutions have taken place in Poland, despite the criminalization of money laundering in 1994. The focus of the draft legislation is the creation of a large currency and suspicious transaction-based reporting system centralized at an FIU for analysis. Whether the FIU will be a new agency or a subdivision within an existing agency is under debate within the government. The goals of the draft money laundering legislation are to close loopholes in current existing anti-money laundering legislation, and to strengthen the ability of law enforcement to investigate and prosecute money laundering offenses.

Poland has concluded a number of anti-crime agreements with countries in Europe and continues to align its policies to EU standards to include measures to combat money laundering. It became a party to the Council of Europe Convention on Money Laundering in November 1998. Next steps include the passage and implementation of the draft money laundering law and the training of personnel in all facets of the national anti-money laundering regime.

Portugal (Concern). Although Portugal is not considered an important regional financial center and money laundering has not historically been an issue, in 1997 Portugal reportedly detected $148.5 million in funds laundered as a consequence of drug trafficking. Narcotics-related money laundering was criminalized in 1993. Decree-Law 15/93 penalizes the transfer of proceeds related to narcotics trafficking and calls for confiscation of property and assets connected with money laundering. Decree- Law 313/93 mandates anti-money laundering requirements for banks and non- bank financial institutions, including customer identification, record- keeping for ten years, and customer statements concerning the origin and destination of the funds for transactions exceeding $14,700. Reports of suspicious transactions are also mandatory and are sent to the Office of the Prosecutor, then referred to the Brigada de Investigação de Branqueamento de Capitais of the Judicial Police for analysis and investigation. The Judicial Police (PJP) has the exclusive authority to investigate money laundering crimes in Portugal. Decree-Law 170/93 introduced reporting requirements for large cross-border movements of cash or the import/export of gold.

In 1995, Decree-Law 325/95 extended the crime of money laundering to proceeds of economic crimes, terrorism, arms dealing, kidnapping, corruption and other crimes and gave the PJP the ability to trace illicitly obtained assets, including assets passing through casinos and lotteries.

Portugal is a member of the Council of Europe and of the FATF, and is President-elect for FATF-XI (1999-2000). It is a party to the 1988 UN Drug Convention.

Madeira/Azores is one of the few offshore centers within the European Union. Madeira's international business center is fully integrated into the EU and complies with both national and EU laws on banking coordination and supervision. Decree-Law 10/94 permits the establishment of branches of existing banks and insurance companies. Applications are submitted to the Central Bank of Portugal either for notification, in the case of EU institutions, or authorization, in the case of non-EU or new entities. The Central Bank of Portugal also supervises these entities. Companies established under the Madeiran Free Trade Zone legislation are exempt from corporate, capital gains, withholding and value added taxes until 2011. They are also regulated as Portuguese companies and can take advantage of Portugal's double taxation agreements.

Qatar (Other). Qatar is not thought to be at major risk for money laundering. Although it has not enacted anti-money laundering legislation, the Qatari Central Bank has a strict policy mandating customer identification, the reporting of large transactions, and the maintenance of records for a specified period of time.

Qatar is a party to the 1988 UN Drug Convention and a member of the GCC, which is a member of the FATF.

In order to maintain the integrity of its financial system, Qatar should consider enacting money laundering legislation to criminalize money laundering and to require the reporting of suspicious transactions.

Romania (Concern). Money laundering related to the laundering of domestic proceeds from organized crime is a significant problem in Romania. Predicate crimes include narcotics trafficking, smuggling, fraud, tax evasion, prostitution, arms trafficking, and alien smuggling. Romania is a transit country and a staging area for narcotics trafficking from Asia into Europe. Romanian banks have been targeted by foreign investment schemes that seek to obtain letters of guarantee or promissory notes from Romanian banks in exchange for false letters of guarantee from foreign banks. Illegal proceeds are readily laundered through banks, casinos, and front companies. Other methods include the use of forged documents, fictitious transactions, and false invoicing schemes. Although Romanian businessmen rarely contend with organized crime attempts to extort or blackmail their firms, employee theft of funds and goods is a major problem.

The major factors hindering the ability of the Government of Romania (GOR) to root out organized crime and corruption are inadequate legislation and the lack of training for law enforcement personnel, according to a September 1998 statement made by Romania's justice minister. The incidence of public corruption is another factor slowing the pace of government efforts to combat crime in general. In July 1998, a senior government official was arrested for accepting a bribe in exchange for issuing official approval to a businessman for a construction permit. The president of Romania acknowledged, in his recently published book on corruption and organized crime, that many foreign investors are forced to pay bribes to government officials in order to do business in Romania.

In May 1998, the Romanian National Supreme Defense Council called on Romanian law enforcement agencies to combat smuggling, particularly of alcohol and tobacco, more effectively, since smuggling not only damaged the national economy but also threatened national security. The Council called on the government to develop legislative and regulatory measures to control smuggling.

The Romanian government has made combating organized crime, corruption, financial crimes, and money laundering a major priority. Draft legislation is pending in the Romanian Parliament that addresses these activities. A positive step in this direction is Romania's participation in the Southeastern Europe Cooperative Initiative (SECI). SECI's goals are to control the increasing flow of drug trafficking across borders and to combat trans-border organized crime. In a September 1998 SECI meeting held in Bucharest, the GOR initialed a draft agreement on cooperation to prevent and combat trans-border crime. These efforts will attack the predicate crimes that generate illegal proceeds laundered in Romania.

Romania participates in the Council of Europe's PC-R-EV and is scheduled to undergo a mutual evaluation in April 1999.

Russia (Primary). For the most part, the Russian banking system never developed along a standard Western commercial banking model, taking deposits and providing loans to business on an arm's-length basis. Rather, many engaged in currency trading, lending to the government on the short- term debt market, or making loans to related firms. Because of poor supervision, many banks are reputed to be conduits for Russian organized crime money laundering operations. The banking industry has also contributed to capital flight from Russia by assisting with fraudulent trade finance schemes. The Russian banking system has been a major factor in the severe economic crisis Russia faces both domestically and on the international front.

Seven months after the August crash, the Russian payments system remains barely functional; many depositors' accounts are frozen and domestic credit is very scarce. Prospects for near term recovery are slim, given that the government has failed to move forward on bank restructuring. The industry, which has already shrunk by one-third since the crash, is expected to implode further as more insolvent banks are forced into bankruptcy. From late 1994 through late 1998, the number of banks in Russia plummeted from over 2,500 to 1,474, or a failure rate of 40 per cent.

Despite the lack of a specific anti-money laundering law, Russia is making some progress in detecting and prosecuting money laundering offenses. However, a more aggressive legislative approach is needed to address the conditions that encourage a destabilizing level of capital flight and money laundering. Legislation in the areas of foreign exchange, corruption, money laundering, and taxation are in varying stages of debate in the Parliament. These and other laws are prerequisites for an effective regulatory and enforcement framework to prevent and detect money laundering. The threat of financial crimes to Russian economic security has become paramount in that the resources of Russia's Federal Security Service (FSB) have been engaged to combat it alongside existing enforcement agencies.

Russia remains a source of illegal proceeds transferred abroad for laundering. Sources of these funds include those derived from traditional predicate crimes, with those in the financial sphere connected to organized crime or corruption predominating. Several Russian government agencies, including the Central Bank, the Tax Police, and the State Taxation Service, conducted a yearlong investigation of commercial banks that illegally transfer funds abroad. Results of this investigation demonstrated that firms and individuals are using fictitious imports as a mechanism for transferring funds abroad. The shipments of goods never materialize, and the firms carrying out the transactions are long since dissolved by the time investigations are conducted. The three above mentioned Russian government agencies cited Latvian banks as the primary recipients of Russian funds wired abroad in these schemes.

An alarming trend identified this year by Russian authorities is the increasing use of forged securities by organized crime groups in financial transactions and in the emerging stock market. The proliferation of forged securities has been so extensive as to be considered a threat to Russia's economic security, according to a statement made by the Ministry of Internal Affairs (MVD). The MVD and Federal Commission for the Securities Market have jointly devised a program to address this growing threat. Adoption and implementation of this program is expected to take several years.

Official economic and law enforcement statistics estimate the magnitude of capital flight and money laundering in Russia. According to MVD statistics, $9 billion is smuggled out of Russia annually, and the country fails to receive payment for goods and services valued at $12 billion in contracts signed between state-owned (or partially state-owned) enterprises and foreign companies. In contrast, the central bank, which has greater financial expertise, quotes a more conservative figure of $5-6 billion for the nonpayment of Russian exports. Russian authorities recognize the extent to which public corruption facilitates financial crime and money laundering. Prime Minister Primakov stated that among the primary goals of his government is to protect the national economy from corruption. To that end, the government has established a special working group to investigate and prosecute public and corporate corruption, headed by the deputy procurator general. It is actively investigating instances of corruption that, according to MVD statistics, have more than doubled from 2,500 in 1991 to more than 5,500 in 1998. Statistics for 1998 show 5,807 cases of bribery involving officials and 974 involving commercial bribery registered by the MVD. Of the former, 3,747 were turned over to the courts, along with 414 of the latter. Targets of these investigations include former directors of executive branch agencies, regional administration heads, and managers of major banks.

Russia's robust gray economy facilitates capital flight and money laundering operations, and is a source of illegally-acquired proceeds by organized crime. In public statements, Russian government sources estimate the gray economy at 40 percent of the national economy. Factors encouraging the use of the gray economy by businessmen include the evasion of taxes and other duties, the transfer of capital abroad, the unreliable banking sector, the threat of organized crime extortion, and the desire to avoid official bureaucracy and corruption. The Russian government is making progress in addressing the problems associated with capital flight and the gray economy. Draft legislation is under consideration to improve taxation and anti-corruption policies, foreign exchange controls, customs procedures, the banking sector, and the development of securities and insurance markets. Some of these measures, such as greater foreign exchange controls, can have highly distorting and negative consequences for Russian financial and trade relations.

The use of offshore centers for the transfer of illegal proceeds is a major enforcement concern. Funds transfers occur not only to traditional offshore centers, but also to banks located in the neighboring Newly Independent States. Financial investigations conducted by Russian enforcement authorities are hampered by the nature of offshore transactions. The anonymity that offshore entities provide, coupled with the difficulty in obtaining information or records from offshore jurisdictions, severely limit investigative inquiries. In an effort to remedy these obstacles, Russia has initiated discussions to sign bilateral agreements on information sharing with cooperative offshore jurisdictions. Russia has signed an updated bilateral tax treaty with the Republic of Cyprus replacing the 1982 USSR-Cyprus treaty. The accord improves Russia's ability to collect taxes and to regulate Cypriot-based companies doing business in Russia. Entities located in the northern part of the island, the "Turkish Republic of Northern Cyprus" (TRNC) (which is recognized only by Turkey) are excluded from the provisions of the treaty. The agreement awaits parliamentary ratification by both nations. As part of its ongoing tax reform efforts, plans are underway to close Russia's estimated 40 special economic areas by eliminating tax and other regulatory exemptions, since the commercial advantages offered to businesses in the special economic zones made them virtual offshore zones within Russia.

Russian draft money laundering legislation titled "On Countering Legalization (Laundering) of Illegally Derived Proceeds" was approved by the Duma (lower chamber) on October 21, 1998. An important measure dropped from the draft was the provision to prevent the structuring of transactions to avoid reporting requirements. Despite this concession, the legislation was voted down in the Federation Council (upper chamber) on November 12, 1998. It is hoped that a joint Duma-Federation Council commission will negotiate a compromise draft. The major obstacle blocking passage of the law is the definition of money laundering. The term "illegal proceeds" as defined in the draft law is considered by many (including the central bank and the Federation Tax Service) as too broad, since it would include proceeds from civil and administrative violations, not just proceeds from criminal predicate offenses. Other concerns cited by opponents of the law include overly-broad access by regulatory and enforcement agencies to financial records, the low reporting requirement threshold, the role of the financial intelligence unit, and the obstacles the law's implementation would pose to bank restructuring and development. Experts believe that compromise legislation will include anti-money laundering measures considerably weaker than originally proposed. However, some Russian officials consider a weaker law better than no law at all. In their view, implementation and practice will eventually prove the need for amendments to strengthen weak anti-money laundering provisions.

Cooperation between United States and Russian law enforcement agencies continues to improve. The number of requests to U.S. agencies for information to assist in joint investigations conducted among Russian agencies--Ministry of Interior, Federal Service for Foreign Currency and Export Control, Federal Tax Police, and the Customs Committee--demonstrates the interagency approach needed to combat financial crime. Intergovernmental proposals are under consideration to significantly enhance coordination on the interagency level between the United States and Russia to combat organized crime and financial crime, including money laundering.

Russia has made progress in integrating itself into international anti- money laundering efforts. Russia's participation in the Council of Europe's PC-R-EV and its willingness to undergo a mutual evaluation by Committee member nations is a positive development. During 1998, Russia aggressively sought to enter into bilateral and regional anti-crime and information sharing agreements, including anti-money laundering initiatives, with a host of countries throughout the world.

Following enactment of anti-money laundering legislation, the success of Russia's anti-money laundering regime will depend on the systematic implementation of the law's provisions.

Samoa (Concern). Under Samoa's Offshore Banking Act, offshore banks, along with their shareholders and depositors, are exempt from income tax and other direct or indirect tax on income derived from offshore banking conducted outside Samoa. Offshore banks are also exempt from all currency and exchange control restrictions and the imposition of any foreign levy, as well as certain central bank requirements, including maintenance of specific reserve ratios and regulation of interest and credit arrangements. A number of tax and other incentives are also available to both domestic and foreign investors. Approved enterprises enjoy a five-year holiday from income tax and up to seven years relief from taxes on dividends. Registrars' records are not open to the public, and an international company's statutory records can be inspected only by its shareholders, directors, secretary or debenture holders. Anyone disclosing information about the affairs of an international company is subject to penal sanctions.

In light of its offshore banking environment and lack of transparency, Samoa is vulnerable to money laundering. It needs to develop an anti-money laundering regime, beginning with the enactment of anti-money laundering legislation, to protect the integrity of its financial sector.

Although Samoa is not a member of the Asia Pacific Group on Money Laundering, it participates in the group's activities.

Saudi Arabia (Other). The nature and extent of money laundering in Saudi Arabia are not known. However, the lack of an anti-money laundering regime, the widespread use of cash and the existence of a flourishing, unregulated hawala underground banking network (used largely by immigrant workers) suggest that Saudi Arabia is vulnerable to money laundering. Many of the banks operating in Saudi Arabia do so according to Islamic principles, which forbid the charging of interest. Islamic banks generate revenue through charging fixed fees for services, which are often paid in cash.

Saudi Arabia has not yet enacted any anti-money laundering legislation. However, in September 1998, the Saudi Arabian Monetary Agency (SAMA), the supervisor of financial institutions in the country, directed banks in Saudi Arabia to implement measures to contain money laundering. SAMA has prepared a directory on money laundering techniques, including directives on how to recognize suspicious transactions and how to coordinate with government agencies in this regard. Copies of the directory have been distributed to banks and other financial institutions. SAMA has established a special department to provide training to banking officials on how to recognize money laundering. The anti-money laundering measures apply to lending organizations, money transfer agents, dealers in travelers' checks, credit card issuers, money exchangers, insurance companies and investment firms, as well as to banks. These institutions are required to notify SAMA and the relevant police authorities when they suspect money laundering activity. SAMA has received over 700 such reports during the first six months of this reporting requirement.

Despite the lack of an anti-money laundering law, individuals or banks culpable in money laundering activities are subject to criminal prosecution under the banking control law, Saudi labor law, and Shari'a (religious) law. Money laundering cases come under the jurisdiction of the Shari'a Court, which prescribes harsh penalties for money launderers. An interministerial committee has reviewed all Saudi laws pertaining to money laundering and has prepared amendments that would bring them into conformity with the FATF Forty Recommendations. A key feature of the proposed legislation is the establishment of a board with the power to refer money laundering cases to the Saudi Board of Grievances, which would hear them in accordance with the new guidelines.

Saudi Arabia is a member of the GCC, which is a member of the FATF. The FATF has asked the countries of the GCC to initiate legislation and to conduct a self-assessment of money laundering countermeasures, but the response has been vague. Saudi Arabia recently hosted a United Nations financial seminar on money laundering, in which a number of Saudi and U.S. agencies took part.

Saudi Arabia needs to enact and implement anti-money laundering legislation that meets FATF standards to protect itself against financial crimes and money laundering.

Senegal (Other) Senegal is not a money laundering or financial center. However, the Director of the Judiciary Police (Senegal's "drug czar") believes that money laundering questions need to be addressed. The Government of Senegal has enacted legislation to prevent and punish narcotics-related public corruption, but the legislation does not specifically address money laundering.

Seychelles (Concern). The Seychelles is a growing offshore financial center and, consequently, has the potential to develop into a significant money laundering center, although there is little concrete evidence of such money laundering at present. The 1995 Economic Development Act, which would have facilitated money laundering and provided protection from extradition and assets seizures, remains on the books, but has not been brought into force. The Government has provided assurances that this law will remain inactive.

The two major sectors of the Seychelles economy are tourism and fishing. However, these sectors do not generate sufficient foreign reserves, and Seychelles is very dependent on foreign imports. Consequently, in hopes of generating more foreign exchange, it has taken steps to market itself as an international business center designed to facilitate the registration of non-resident companies. The most glaring weakness of this program is that it allows bearer shares, a feature that facilitates money laundering by making it extremely difficult to identify the beneficial owners and directors of an international business corporation (IBC). Seychelles has also created the Seychelles International Trade Zone (SITZ) which is managed by the Seychelles International Business Authority (SIBA).

SIBA acts as the central agency for the registration of IBCs in the offshore sector. Currently, more than 2,700 companies are registered. SIBA is the central agency for companies seeking IBC or SITZ status, and it also manages the offshore banking and insurance sectors. SIBA sponsors an Internet website which provides information to prospective investors.

Seychelles' Anti-Money Laundering Act of 1996 criminalized money laundering related to all serious crimes. While the law does not contain threshold reporting requirements, it does provide for suspicious transactions reporting, a "safe harbor" for those persons and institutions reporting suspicious transactions, forfeiture of the proceeds of crime, and record- keeping requirements and know-your-customer requirements.

Singapore (Primary). Singapore is a major financial center which, according to U.S. law enforcement sources, is widely favored by Asian heroin traffickers to move and launder their capital and profits. Some reasons include Singapore's strict bank secrecy laws, lack of currency regulations, and favorable geographic location. But the major contributing factor to Singapore's popularity with crime groups is the myriad of money remitters and money changers who operate internationally as part of the Chinese underground banking system.

International traffickers use Singapore as a base and conduit for the flow of their illicit proceeds to accounts worldwide. Singapore also has many shops trading in high-value goods, such as electronics and motorbikes, with other Asian nations. Many of these legitimate and semi-legitimate shops help facilitate payments through the underground banking system under the guise of legitimate trade business and money transfers. With investigations involving this method of money laundering now underway, it is becoming apparent that Singapore plays a crucial role in the movement of narcotics proceeds throughout Asia. There has also been recent evidence of smuggling of cash from the United States to Singapore, but no information on how the money is integrated into the financial system there.

Narcotics-related money laundering is a criminal offense in Singapore. Under the Drug Trafficking (Confiscation of Benefits) Act of 1992, banks and financial institutions must report suspicious transactions and must also identify customers engaged in large currency transactions. However, there are no controls on the amount of currency which can be brought into or taken out of Singapore. Banks must maintain "adequate" records to respond to law enforcement inquiries--the one exception to strict bank secrecy laws which prohibit the release of financial information or documents.

The Monetary Authority of Singapore (MAS) has issued guidelines for the prevention of money laundering to banks and non-bank financial institutions that operate in Singapore. The government plans to extend these guidelines to cover licensed money-changers and remittance agents. The Institute of Certified Public Accountants in Singapore and the Singapore Law Society have also drafted guidelines, parallel to the specifications already set by the MAS, to assist their members in reporting suspicious transactions. Singapore has indicated it will continue to widen the scope of money laundering offenses to include that derived from serious crimes other than narcotics.

Singapore's offshore sector offers 106 offshore banks, 13 restricted license banks and 78 merchant banks. It also offers international business corporations and other exempt companies. The offshore sector advertises on the Internet.

Singapore has just completed a mutual evaluation by the FATF, and is a member of the Asia Pacific Group on Money Laundering and the Commonwealth Secretariat. According to U.S. law enforcement sources, Singapore law enforcement officials have always provided excellent cooperation on counternarcotics cases. Although there is no formal agreement for the sharing of financial information, this is done on an informal basis.

Slovakia (Concern). Slovakia has made important progress in implementing its anti-money laundering legislation and is actively investigating instances of money laundering. Slovakia faces many of the same money laundering problems as its neighbors in the region, such as the activities of organized crime, the cash-based nature of the economy, the presence of a large variety of banks and non-bank financial institutions (including casinos and gambling houses), corruption, narcotics trafficking, financial crime, and gaps in money laundering legislation. The presence of Russian and Ukrainian organized crime groups is a threat, but to a lesser degree than in neighboring countries such as Hungary or Poland.

In late 1998 Slovakia, with the assistance of Czech police, uncovered a money laundering network spanning Slovakia, the Czech Republic, Panama, and four other European countries. The network had laundered $50 million.

One weakness in Slovakia's anti-money laundering regime is the ability to launder funds through non-bank financial institutions such as casinos, currency exchange bureaus, insurance businesses, real estate agencies, and securities brokerages, since these institutions are not required to report suspicious transactions. Another area of possible money laundering abuse is the availability of anonymous savings accounts in the form of bearer passbooks that may offer a mechanism to shield illegal proceeds. After four years of experience in implementing anti-money laundering measures, the Slovak government realizes that the law needs adjustments to make it work effectively. A committee has been established and is preparing amendments to address weaknesses in the anti-money laundering regime.

Slovakia is an active participant in international anti-money laundering efforts. It is a party to the 1988 UN Drug Convention and the European Convention on Mutual Legal Assistance. Slovakia's financial intelligence unit is an active participant in the Egmont Group and will host the plenary meeting in late May 1999. In June 1998, Slovakia underwent a mutual evaluation by the Council of Europe's PC-R-EV, which was reported on at the December 1998 plenary meeting. It has yet to accede to the Council of Europe Convention on Money Laundering, although it plans to in the near future.

Slovenia (Other). Slovenia's economic stability and strategic location on the Balkan drug route make it an attractive venue for money laundering. The major sources of illegal proceeds include narcotics trafficking, organized crime-related auto theft, fraud, tax evasion, alien smuggling, and the smuggling of goods. Organized crime activity is a problem, but to a lesser extent than in neighboring countries. Money laundering occurs through the banking sector, currency exchange businesses, casinos, real estate transactions, and the transportation of illegal proceeds across the borders. United States sources report that the international interbank money transmission system called SWIFT may also be used for money laundering.

Slovenia criminalized money laundering in 1994, with the passage of the Law of Prevention of Money Laundering. The Law requires financial institutions to report all cash transactions exceeding $22,000, and all suspicious transactions regardless of amount. Customer identification is also mandatory for all transactions, or series of transactions, exceeding $13, 500. Records must be maintained for five years. All these requirements also apply to casinos and to legal and private persons as defined in the Law.

The 1994 Law also established a financial intelligence unit (FIU), the Office for Money Laundering Prevention, to receive and analyze suspicious transactions. So far the Office has processed 166 reports, of which 28 were passed to law enforcement authorities for investigation. There have not yet been any successful prosecutions for money laundering. Slovenia's FIU is an active member of the Egmont Group of FIUs.

Slovenia has undergone an anti-money laundering mutual evaluation conducted by the Council of Europe's PC-R-EV. Slovenia participates in the Southeastern Europe Cooperative Initiative (SECI), among whose goals are to control the increasing flow of narcotics trafficking across borders and to close the links to trans-border organized crime. Cooperation with member SECI states will assist Slovenia's efforts to combat the predicate offenses that generate illegal proceeds laundered in Slovenia.

South Africa (Concern). South Africa is the major financial center in the region and its relatively sophisticated banking and financial sector harbors great money laundering potential. It is believed that the many syndicates active in criminal activity in South Africa, such as the Russian Mafia, are involved in diamonds and weapons smuggling. In addition, Chinese Triads, which specialize in the trade of endangered species, and Nigerian drug rings are active in South Africa. These organizations diversify and conduct legitimate operations as fronts to help launder their money.

South Africa continues to be a major transshipment point for narcotics trafficking and entry point to the continent for hundreds of domestic and international criminal organizations. Salient factors include its geographic position on major trafficking routes between East Asia and the Middle East, the Americas and Europe, the rapid expansion of international air links, a well developed transportation infrastructure, and modern international telecommunication and banking systems. Long, porous borders and weak border control, including undermanned ports and numerous secondary airports, provide criminal organizations nearly unfettered entry into South Africa.

In November 1998, Parliament passed the Prevention of Organized Crime Act. Chapter 3 of this Act, Offenses Relating To Proceeds of Unlawful Activities (Money Laundering), repeats portions of the Proceeds of Crime Act (November 1996), which criminalized money laundering. Chapter 3 of the Prevention of Organized Crime Act also establishes reporting requirements for suspicious transactions, contains a "safe harbor" provision for persons reporting such transactions, and obviates all obligations, contractual or otherwise, to secrecy on the part of the transactors with the exception of attorney-client privilege.

Criminal activity and its consequent money laundering are causing a serious problem for South Africa's law enforcement and banking institutions, as they race to catch up with the impact that crime has on newly-established democratic societies.

The delay caused by the transference of responsibility for promulgating the Money Laundering Control Bill from the Ministry of Justice to the Ministry of Finance, in January 1997, has contributed significantly to the success that criminal groups are having in South Africa. The Bill was nearly ready for presentation to Parliament when the transfer occurred. Upon receiving the new responsibility, the Minister of Finance decided to appoint a task team to study the impact the Bill would have on South Africa. That process is ongoing.

Spain (Primary). There is no evidence that money is being laundered in Spain from drug sales in the United States, but there is a significant black market for smuggled goods in Spain, and narcotics proceeds fund part of this black market, particularly in the area of computer technology. Money laundering occurs primarily in the financial system, although there are increasing indications that it is also being laundered through the acquisition and sale of real estate.

The financial sector, especially the banking community, has responded very positively to the requirements of the 1993 anti-money laundering law (Prevention Act) and to its corresponding 1995 implementing regulations, which require the reporting of the identities of customers engaging in large currency transactions and the maintenance of records. The money laundering statutes cover drugs, terrorism and organized crime, and the controls on financial transactions apply to bank and non-bank financial institutions, including casinos, property developers, antique dealers, and jewelers. The banking community cooperates with enforcement efforts to trace funds and seize bank accounts. The fact that the Executive Service of the Commission for the Prevention of Money Laundering (SEPBLAC), Spain's financial intelligence unit, is part of the Bank of Spain promotes a climate of trust and a close working relationship with the banking community. Banks have filed the greatest number of reports of suspicious transactions with SEPBLAC since the system took effect in 1995. The one area that drug traffickers may be able to exploit, because it falls outside of the money laundering legislation, is the stock market.

Significant progress has been achieved in implementing the 1997 National Drug Plan. However, one key element remains pending before the Spanish Legislature: the proposal to modify the Criminal Code to authorize the use of undercover operations against drug traffickers. The use of controlled deliveries in money laundering cases was approved in January 1999 and has already been put into practice.

Spain is actively engaged in providing training and promoting institutional building programs aimed at increasing the effectiveness of the judicial and law enforcement sectors in other nations, particularly in South and Central America. The Spanish government has signed criminal legal assistance agreements with the United States, Australia, Chile, Canada, Argentina, Mexico, the Dominican Republic, Uruguay, and Morocco. In addition, a number of Spain's bilateral agreements to fight drug trafficking and organized crime provide for cooperation by means of exchange of information and mutual assistance in combating money laundering. The countries with which Spain has concluded agreements in these areas include Morocco, France, Portugal, the UK, Sweden, Turkey, Italy, Chile, the Russian Federation, Israel, Bolivia, Mexico, El Salvador, Venezuela, Uruguay, Malta, and Panama.

In 1998, Spain joined the Steering Group of the FATF, and SEPBLAC volunteered to chair the newly-created Outreach Working Group of the Egmont Group. Spain is a member of the Council of Europe.

Sri Lanka (Other). Sri Lanka is not a major money laundering center, nor is it considered a tax haven, an offshore banking center, or an important financial center in the region. Under Sri Lanka's bank secrecy act, financial transactions relating to narcotics trafficking are illegal. Draft legislation amending the Dangerous Drugs Ordinance to include specific provisions against money laundering was still under review as of late 1998 and had not been presented to Parliament. A consultant from the U.S. Treasury Department played a key role in drafting this legislation, which contains specific provisions relating to forfeiture of assets from narcotics trafficking. Sri Lanka is a party to the 1988 UN Drug Convention.

The Government of Sri Lanka needs to enact its anti-money laundering legislation and should consider expanding its scope beyond narcotics- related money laundering, as well as adding additional anti-money laundering measures, such as a suspicious activity reporting system and due diligence requirements for Sri Lankan financial institutions.

Sri Lanka is a member of the Asia Pacific Group on Money Laundering.

St. Kitts and Nevis (Concern). St. Kitts and Nevis is a twin-island Federation and an independent member of the British Commonwealth. Drug- related violent crime has intensified in St. Kitts over the last few years. The presence of suspected drug traffickers in St. Kitts, the use of the twin islands as a transit point for narcotics, and the active development of an offshore financial services sector make St. Kitts and Nevis increasingly vulnerable to money laundering.

In 1995, the Government of St. Kitts and Nevis criminalized drug-related money laundering and mandated suspicious transaction reporting and record- keeping by financial institutions. Preparations are underway to amend the law to include non-drug offenses. The amended legislation, which is based on the Commonwealth Secretariat model, is expected to be presented to Parliament in 1999.

St. Kitts and Nevis each have separate offshore financial sectors. Under the Federation's 1996 Companies Act, public and private companies are exempt from income, capital gains and withholding taxes as long as they conduct their business exclusively with individuals who are not residents in the Federation. The Federation has not enacted a banking bill, but Nevis has its own Offshore Banking Ordinance of 1996. In October 1997, St. Kitts enacted a law permitting offshore financial centers on St. Kitts. St. Kitts' several hundred offshore companies compete with Nevis's offshore industry, which consists of approximately 9,000 companies. The Confidential Relationship Act of 1985 for St. Kitts and Nevis provides confidentiality in the event foreign authorities seek private banking and financial records.

St. Kitts and Nevis is a member of the CFATF, and as such, is required to undergo a mutual evaluation. The evaluation was scheduled for August 1998, but the government failed to respond. The evaluation was rescheduled for February 22, 1999. St. Kitts and Nevis needs to enact the amended anti- money laundering legislation and to develop the capacity in each jurisdiction to effectively oversee and supervise the offshore financial sector.

St. Lucia (Other). St. Lucia is not a major financial center. However, in an effort to expand its economy following the drop in revenue from banana exports, the Government of St. Lucia (GOSL) is expanding its tourism sector and developing an offshore financial services sector. The GOSL is looking to the regulatory structures of Jersey, Guernsey and the Cayman Islands as models for the offshore sector. In February 1999, the St. Lucia Foreign minister stated that China has expressed an interest in investing in offshore banking services in St. Lucia.

St. Lucia has criminalized money laundering beyond drugs, and there are controls on foreign exchange.

St. Lucia is a member of the CFATF.

St. Vincent and the Grenadines (Concern). St. Vincent and the Grenadines (SVG) has a growing offshore financial services sector which is protected by strict confidentiality laws. These factors combine to make the islands extremely vulnerable to criminal influences and money laundering. Although SVG has enacted some of the FATF and CFATF recommendations against money laundering, much work must still be done to strengthen the existing regulatory framework, to enact comprehensive anti-money laundering guidelines and train personnel on these issues, and to organize a coordinated government effort to enforce such policies.

SVG has not yet explicitly criminalized money laundering. The Drug Trafficking Offenses Act of 1993 criminalizes certain activities relating to the transfer and concealment of drug proceeds, and allows for some asset forfeiture and confiscation, but only after a conviction, and only in cases related to drug trafficking. In 1998 the government considered but did not pass a Proceeds of Crime Act which would have criminalized money laundering beyond drugs and subject corporations to criminal prosecution for money laundering.

The Eastern Caribbean Central Bank provides supervision of the domestic banking sector (six commercial banks), and in 1995 issued Anti-Money Laundering Guidance Notes for Licensed Banks. Although they follow CFATF recommendations, these guidelines lack any enforcement authority. Although the Drug Trafficking Offenses Act of 1993 requires institutions to record transactions exceeding $1,850, there is no system in place for reporting large or suspicious transactions to any authority.

Current SVG law does not allow for the exchange of financial information, asset sharing, or cooperative investigations with foreign authorities. The Confidential Relationships Preservation (International Finance) Act of 1996, for example, seems to impede international cooperation and contravene CFATF/FATF recommendations for enhanced mutual legal assistance and information sharing. SVG does have a framework for mutual legal assistance and extradition between SVG and Commonwealth countries, and for MLATs between SVG and non-commonwealth countries. The United States and SVG signed an updated extradition treaty in 1996 and an MLAT in January 1998. Both of these treaties were ratified by the United States in January 1999, but are not yet in force.

SVG has a growing offshore financial sector which offers offshore banks, trusts, insurance companies, and international business corporations (IBCs). In 1996, SVG passed a series of laws to regulate the sectors, including The International Banks Act, The International Trusts Act, and The International Business Companies Act. The government also created an Offshore Finance Authority to regulate offshore activities, but it lacks adequate staff (currently four), and there are no other mechanisms to ensure compliance by offshore entities. (Approximately 800 IBCs were registered in 1997 alone.) There are no regulations relating to customer identification, the reporting of suspicious and/or large transactions, or the identification of beneficial owners of licensed institutions.

St. Vincent is a member of the CFATF, but its participation is poor. Its CFATF evaluation has been completed but not reviewed because St. Vincent did not attend the CFATF meeting at which the review was scheduled to take place.

The government of SVG should move to enact the Proceeds of Crime Act, increase supervision of the offshore sector, and allow information exchange and cooperate with foreign authorities in order to prevent its financial sector from being used by international criminals and money launderers.

Sudan (Other). Sudan is not a financial center, and money laundering is not considered to be a significant problem at this time.

Suriname (Other). Suriname is not a major money laundering center. However, it is used as a drug transshipment point for cocaine, which is transported from Brazil, Venezuela and Colombia and is destined primarily for The Netherlands and other European countries. Money laundering in Suriname continues to take place through the overvaluation of goods purchased, the sale of gold bought with illicit funds and sold in Suriname, and the manipulation of accounts in commercial and state-controlled banks. The government has awarded plans to open a large number of casinos in Suriname, and Suriname officials have expressed concern that the casinos will be used for money laundering.

Drug related money laundering is a crime in Suriname. In 1997, the central bank issued guidelines mandating know-your-customer policies and suspicious transaction reporting. The guidelines also called for a central unit to be established within the Office of the Attorney General to collect and analyze suspicious transaction reports. If the Attorney General's office deems that there is sufficient information for prosecution, the case is referred to police investigators. Officials are currently drafting an amendment to the Bank Act that will incorporate new regulations concerning bank supervision by the central bank. It is expected that the final drafts will be presented to the Cabinet for approval in early 1999.

Money laundering charges have been filed against former Surinamese military dictator and ex-President Desi Bouterse, who is also the special advisor to Jules Wijdenbosch, the current Suriname President. According to the Dutch, the former army sergeant was a major participant in a cartel that transported tons of cocaine to The Netherlands and other European countries. Bouterse is suspected of smuggling 1,336 kilograms of cocaine into the Netherlands and Belgium.

Suriname needs to implement its anti-money laundering laws and new banking regulations. If casinos are opened, reporting requirements should be extended to those operations.

Suriname is a member of the CFATF.

Swaziland (Other). Several factors make Swaziland attractive to narcotics traffickers and money launderers, including its advantageous location in southern Africa, outdated legislation, limited enforcement capabilities, and ease of investment between it and South Africa.

Swaziland's anti-narcotics law dates from 1929 and does not specifically address money laundering. A Money Laundering Act was drafted in 1997 and was under review by the Attorney General's Office, but it is not clear if the Act has been enacted.

Swaziland is a party to the 1988 UN Convention.

Sweden (Other). Current Swedish legislation covers most types of proceeds from criminal activity, but the act is usually a receiving offense, such as receiving stolen goods. The Financial Supervisory Authority has issued guidelines, based on the law, which require financial institutions, insurance companies, and currency exchange houses to verify customer identification and to report suspicious transactions to the police. The guidelines are scheduled to be changed so that non-complying institutions will be sanctioned, rather than individual officers being held responsible.

The Government of Sweden is preparing additional legislation (to come into force in July 1999) which will enhance existing money laundering controls. The new law will create a specific money laundering offense as opposed to prosecution for receiving offenses, and will also allow customs and tax offenses to be predicate offenses to money laundering. Another legal proposal concerns confiscation and seizure of criminal property.

On January 1, 1999, a law on corporate activity came into force concerning certain types of economic crime. Work is ongoing to amend this law to encompass money laundering as well. The amendment would oblige auditors of a company to report suspected money laundering to the board of directors, unless the board was involved. In those cases, the report would be made directly to the police. If reports to the board fail to result in legal action, the auditors' duty would then be to go to the police.

Sweden is a member of the FATF and of the Council of Europe, and its financial intelligence unit participates in the Egmont Group.

Switzerland (Primary). Switzerland is an important financial center and holds a significant share of the world's private banking assets. Switzerland has long been recognized as one of the world's leading offshore financial service centers that provides its clientele with absolute bank secrecy, trusts, and exempt companies that can issue bearer shares. Because Switzerland's legal system is not rooted in English common law, it does not offer asset protection trusts (APTs) or international business corporations (IBCs) as literally defined in the offshore financial centers chart. Its trusts and exempt companies, however, serve the same functions as do APTs and IBCs. In 1998 Switzerland enacted a new anti-money laundering law which entered into force on April 1, 1998. This legislation requires the reporting of suspicious transactions by both the traditional banking sector and the non-bank sector. In addition, it requires the financial institution or non-bank financial institution to clarify with the customer the purpose of any transaction if it appears to be "unusual". The law also mandates know-your-customer, record keeping and due diligence measures. All of these provisions apply to accountants, solicitors, and insurance and financial advisors as well. The law also established the Money Laundering Reporting Office, which is the recipient of the suspicious transaction reports and thus serves as the Swiss financial intelligence unit (FIU).

Switzerland is a member of the FATF, and the Money Laundering Office participates in the Egmont Group of FIUs. It is not yet a party to the 1988 UN Drug Convention. Switzerland is a party to the Council of Europe Convention on Money Laundering and has an MLAT with the United States. For the past several years, Switzerland has continued to rank among the countries which exchange the most MLAT requests with the United States for all forms of crimes, including those involving drug trafficking. Cooperation under the MLAT is excellent.

It is too early to determine the effectiveness of this new legislation, but it is a positive response by Switzerland to the fight against money laundering. However, its effectiveness will depend on its implementation.

Syria (Other). Despite the lack of anti-money laundering legislation, opportunities for money laundering in Syria are considered limited. The banking system is state-controlled, and a separate law prohibits the handling or possession of, as well as transactions in, any foreign currency. The government still regulates the amount of currency that can be withdrawn from a bank or taken out of the country ($2,000).

In 1996, Syria began allowing individuals to open foreign currency accounts at the Commercial Bank of Syria. There are no restrictions on withdrawals from these accounts (or from any account in Syrian pounds.) Although illicit proceeds from the narcotics trade may flow through Syria, it is generally thought that they are moved to Lebanon for laundering.

Syria is a party to the 1988 UN Drug Convention. It has no anti-money laundering legislation on the books and no plans to draft any. It does have legislation authorizing the seizing of assets derived from profits from the narcotics trade.

As a first step, Syria needs to draft legislation criminalizing money laundering and mandating the reporting of suspicious transactions.

Taiwan (Primary). Taiwanese authorities recognize that money laundering-- which in the past has been linked in Taiwan not only to narcotics trafficking, but also to insider trading in the securities markets, tax evasion, land speculation, and the smuggling of contraband across the Taiwan Strait--has become a growing problem. Taiwan enacted an anti-money laundering law in late 1996 which criminalizes the laundering of proceeds acquired through narcotics trafficking and other major criminal activities. Banks and a wide range of non-bank financial institutions must record and report the identities of customers engaging in suspicious transactions or currency transactions exceeding the equivalent of $46,000. They must also keep receipts for five years and accounting records for ten years. The legislation also established the Money Laundering Prevention Center (MLPC) which functions as Taiwan's financial intelligence unit (FIU). The MLPC consists of approximately 25 investigators, analysts, computer specialists, and support personnel, and is subordinate to the Ministry of Justice Investigations Bureau. In June 1998 the MLPC became a member of the Egmont Group of FIUs.

Since January 1998, the MLPC has investigated 953 new cases involving possible money laundering activity. Disclosures of suspicious transactions by financial institutions generated 274 of those cases. Four cases have resulted in charges being filed; 242 cases have been referred to law enforcement agencies for further investigation. In late 1997, the MLPC referred a case involving over $52 million to the FBI for investigation, which resulted in charges being brought in California on customs violations. The MLPC has also been working closely with U.S. law enforcement officials in a corruption case involving $4 million.

In May 1998, dozens of black market exchange and money-remittance agencies were charged with illegally trading foreign currencies amounting to more than $313 million. Officials discovered that these businesses often assist drug traffickers, smugglers, kidnappers, economic criminals, and corrupt government officials in laundering money or covering up embezzled cash. Investigators also discovered that foreign laborers in Taiwan are favorite clients of illegal currency exchange and money remittance agencies. Some illegal exchange and money remittance agencies have also been found operating money laundering businesses across the Taiwan Strait via fishing boats.

Taiwanese officials are also investigating a growing underground market used by organized criminals, smugglers and drug dealers to transfer money between Taiwan and China. The market, which makes annual transactions of up to $1 billion a year, is increasingly used for money laundering. The foreign exchange network started in China's southeastern coastal provinces a few years ago as companies with Taiwanese investments remitted their profits abroad to bypass a Chinese ban. The network involves jewelry shops, travel agents, and money lenders in both Taiwan and China, and has good business connections with other Southeast Asian countries. Through the network, dozens of criminals who fled a Taiwanese anti-crime campaign by relocating to China regularly receive money from their families in Taiwan.

Taiwan is a member of the Asia Pacific Group on Money Laundering under the name of "Chinese Taipei".

Taiwan needs to continue to vigorously enforce its anti-money laundering legislation to protect against financial crimes and money laundering.

Tajikistan (Other). Although Tajikistan is a transit country for narcotics moving from Afghanistan to both Eastern and Western Europe, the primitive state of its banking sector, lack of investment opportunities and unsettled political conditions make it unattractive as a place to launder money. Nonetheless, given the official corruption and large quantities of cash generated by narcotrafficking, money laundering is likely to become an increasing problem. Anti-money laundering legislation and increased controls as the banking sector develops would help to deter possible future money laundering activity in Tajikistan.

Tanzania (Other). Tanzania is not a major financial center. However, it continues to be a major transit point for a number of illegal drugs. As a result of drug transshipment, there has been a sharp rise in organized crime, gang warfare, and other violent crimes. This activity in turn has given rise to a myriad of cash-intensive businesses set up to launder money, including travel agencies, import-export firms, the construction of new office buildings and apartment houses, and textile mills. Money laundering is also reportedly becoming pervasive in the non- bank financial system.

Money laundering is a criminal offense in Tanzania, but enforcement of the law is virtually nonexistent. The lack of complementary regulations, combined with inexperience and, very often, corruption on the part of law enforcement officials, has created an environment conducive to financial crimes in Tanzania.

Tanzania is a party to the 1988 UN Drug Convention.

Thailand (Primary). Thailand's extensive and efficient banking system is used by drug traffickers to hide and move their proceeds. The underground banking system is also widely in use as a money laundering method. Money is transported in bulk from the United States to other Asian countries, whence it is ultimately moved to Thailand. Casinos, underground lotteries and gambling dens account for a significant portion of Thailand's underground economy and are attractive venues for money laundering. There is also evidence that telegrams known as "moneygrams" are used to send money from the Untied States and other countries to Thailand in order to fund heroin shipments. In several instances, Africans were involved in both the money transmission and the heroin shipments. Gold is also being smuggled in Thailand and used as a method of laundering money.

Thailand failed again in 1998 to enact its long-awaited anti-money laundering law. The Lower House of Parliament passed the bill in June but gutted it from nine to only two predicate offenses--drug trafficking and sexual exploitation of women and children. The deletion of most of the original predicate offenses drew heavy criticism from the public and the media amid allegations that some legislators were trying to save themselves or their associates from punishment for certain crimes they had committed. The trimmed-down bill went to the Senate, which reconfigured it to include eight predicate offenses, a step supported by the government. A joint House-Senate Committee is expected to iron out the differences.

Two pieces of existing Thai legislation address money laundering to a minor extent. The 1992 Narcotics Conspiracy and Asset Forfeiture Laws authorize enforcement officials to solicit the cooperation of banks and financial institutions in obtaining the release of financial records in order to assist in the tracing of assets of convicted and suspected narcotics traffickers. However, banks are not obliged to cooperate, and many have chosen not to do so out of fear of losing accounts and possible lawsuits by customers. Also, the Bank of Thailand requested that Parliament amend the Commercial Bank and Finance Company Acts to allow it to trace suspect funds more quickly. In the past, the authorities had to file charges first and the court had to issue a formal order before bank account details could be disclosed, since they were regarded as private information.

An offshore banking facility was established in Thailand in 1992, with licenses issued by the Ministry of Finance. Offshore banks cannot take deposits from Thailand; they merely serve as windows for channeling offshore funds into Thailand.

Thailand is reportedly looking toward legalized gambling to help alleviate its economic problems. Thai officials believe that the plan to legalize casinos will bring in much-needed dollars for the ailing economy, while Thai police authorities have also said it may help minimize illegal gambling in the country. With the legalization of casinos, however, also come the risks that they may be used for money laundering.

Thailand and the United States signed an agreement in late September 1998 to establish an Asian law enforcement academy to combat transnational crime. The agreement to establish the International Law Enforcement Academy is part of a plan to combat crimes such as money laundering, intellectual property theft and counterfeiting. Thailand and the United States have an MLAT in force which has been utilized in several criminal cases.

Thailand is not yet a party to the 1988 UN Drug Convention; however, it hopes to become one after the anti-money laundering bill is enacted. Thailand is a member of the Asia Pacific Group on Money Laundering.

Thailand urgently needs to enact anti-money laundering legislation that fully complies with international standards, particularly the full criminalization of money laundering and the requirement for financial institutions to report suspicious transactions to a central authority to act on these reports. The absence of a strong anti-money laundering regime exposes Thailand's financial system to continued abuse by criminals and adversely affects its economy.

Togo (Other). Togo is not a financial center, but it has recently experienced an increase in financial crime, including advanced fee fraud schemes emanating from Nigeria. There are reports of money laundering occurring in businesses in Togo, but there are no indications that it is a significant problem at this time.

Tonga (Other). Tonga has an offshore financial center (OFC), which offers many of the services of fully-developed OFCs, including offshore banks, trusts and management companies, international business corporations, and other forms of exempt companies. Its services are advertised on the Internet, and Tonga sells economic citizenships.

Trinidad and Tobago (Concern). Trinidad and Tobago is neither a regional financial center nor an offshore center. The Government of Trinidad and Tobago (GOTT) has been taking aggressive action to combat money laundering and drug smuggling. For the first time, with the help of Trinidad and Tobago's Counter-Drug Crime Task Force, the GOTT charged four people with money laundering. The GOTT plans to amend its anti-money laundering legislation to criminalize non-drug related money laundering, and for the first time to require that financial institutions report suspicious transactions. Trinidad and Tobago has no laws authorizing the sharing of forfeited assets with other countries, but legislation permitting such asset sharing is currently being prepared.

Trinidad and Tobago is an active member and supporter of the CFATF, which is based in Port of Spain. The GOTT cooperates with the United States in drug-related financial investigations.

The GOTT should establish suspicious transaction reporting requirements for banks and for non-bank financial institutions, and should criminalize non- drug-related money laundering.

Tunisia (Other). There is little information available about possible money laundering in Tunisia. Although the government is a party to the 1988 UN Drug Convention, it has not enacted anti-money laundering legislation, and none is currently being considered. The one-party government keeps a strong hand in the management of even the private sector of the economy. However, there are a number of factors which make Tunisia potentially vulnerable to money laundering activities, such as an offshore banking sector of about 12 banks, the lack of cross border currency reporting requirements, and the absence of a regulation requiring currency declaration to customs (although amounts above $1,000 or its equivalent "should" be declared).

In mid-1998 a Tunisian government official stated publicly that drug- related money laundering was a "scourge" threatening all nations, both developed and developing, and that international cooperation was vital to overcome it.

In view of the factors which make Tunisia vulnerable to money laundering, Tunisia should consider enacting legislation criminalizing money laundering from all sources.

Turkey (Primary). The proceeds from drug smuggling are a significant source of illicit funds in Turkey. However, other areas are beginning to emerge as major risk factors. These include the cross-border trade ("the suitcase trade") in small commercial goods between Turkey and the nations of Central Europe. While this activity is mostly legitimate, it is a major source of profit for entrepreneurs who then launder these profits in Central Europe. The construction industry is widely thought to serve as a conduit for laundering funds. In addition, Turkey is becoming an increasingly sophisticated regional financial market, with all the dangers that poses vis-à-vis money laundering.

Casino operations, which were previously thought to serve as a money laundering venue, were closed down in February 1998. With the closing of the casinos and with strong implementation of the 1996 anti-money laundering law, it is expected that whatever money laundering occurred in the casino and banking systems may shift to the non-bank financial system of informal currency exchange houses. According to late 1998 information from Turkish Ministry of Finance officials, other major money laundering methods in Turkey include the cross-border smuggling of currency, bank transfers into and out of the country, and investment in high-ticket items such as real estate, gold, and luxury automobiles.

In November 1996, after years of multi-lateral pressure from the FATF, of which Turkey is a member, the Turkish government passed an anti-money laundering law which criminalized money laundering and met minimum FATF standards. The bill as first submitted covered money laundering derived from any criminal activity, but the bill which passed specified the following predicate offenses: arms and narcotics smuggling, trafficking in human organs, terrorism, and trafficking in antiquities. Despite the limitations, passage of the bill, which imposes monetary fines and prison terms for those convicted, was considered a major accomplishment, as Turkey was among the first countries in the area to enact such legislation. The law also covers such areas as seizure, confiscation, and controlled delivery.

Subsequently, in June 1997, the Turkish Council of Ministers passed a comprehensive set of regulations pertaining to the financial sector which cover such areas as suspicious transaction reporting (STR) requirements and customer identification. The regulations are applicable to banks and to a wide range of other financial institutions and non-bank financial institutions, including insurance firms and jewelry dealers. The regulations took effect on October 1, 1997.

Turkey's anti-money laundering law provides for the establishment of two organizations to enforce the law. The first, the Financial Crimes Investigation Board (FCIB) receives and analyzes suspicious transactions and functions as Turkey's financial intelligence unit (FIU). The second organization is an interministerial group called the Coordination Board for Combating Financial Crimes, which is responsible for coordinating the activities of the FCIB, determining policies concerning implementation of the anti-money laundering law, and evaluating draft legislation and proposals to expand the scope of the law.

The President of the FCIB is optimistic about elevating Turkey's money laundering standards and its regime to that of the other FATF nations. He stated in October 1998 that the number of STRs being filed by banks and other financial institutions has been steadily on the rise as these entities become more aware of what constitutes a suspicious transaction. Such transactions must be reported within ten days of occurrence. Also, the reporting of cross-border currency movements, which was provided for in the original law but was delayed in order to allow Turkish Customs time to put its data systems in order, is now in force. However, the regulation requiring the reporting of large cash transactions, which was to have been implemented in July 1998, was still not being enforced as of October 1998. The President of the FCIB stated that Turkey is a very cash- intensive society and that it was decided that the burden on banks would be too great at a time when they are still getting used to STRs.

Turkey has a mechanism in place with the United States to exchange records on narcotics investigations, including those involving money laundering. As of mid-1998, there had been one arrest under the new anti-money laundering legislation, and over 50 cases were being investigated. In addition, since the establishment of the FCIB, the government has stepped up enforcement of existing drug-related asset seizure and forfeiture laws.

As indicated, Turkey is a member of the FATF. It is also a member of the Council of Europe. The FCIB has been a member of the Egmont Group of FIUs since June 1998. Based on its demonstrated commitment to fighting money laundering, Turkey now needs to maintain the momentum it has shown.

Turkmenistan (Other). Turkmenistan is not a financial center, and its banking system is not sophisticated enough for money laundering activities. Government of Turkmenistan (GOT) officials are concerned that criminal groups may be laundering funds through the six casinos in the capital of Ashgabat or through luxury hotels, which are often foreign-owned. However, no actual cases of money laundering have been reported. The GOT is said to be considering new umbrella legislation aimed at money laundering.

Although money laundering is not currently a major problem, Turkmenistan should adopt its proposed legislation in order to deter money laundering and to protect the integrity of its financial system.

Turks & Caicos (Concern). The Turks and Caicos Islands (TCI), a British Overseas Territory, remains vulnerable to money laundering. Offshore services offer bank and corporate secrecy opportunities for criminals to hide their money. However, TCI cooperates closely with the United States in anti-narcotics measures, and in September 1998 TCI Governor John Kelly signed comprehensive anti-money laundering legislation.

The new legislation, The Proceeds of Crime Ordinance 1998, criminalizes money laundering related to any crime and establishes extensive asset forfeiture provisions. It also authorizes the governor to issue a "code of practice" mandating the reporting of large and suspicious transactions to a Reporting Authority. (Currently, the seven banks are already obliged under the law to report suspicious transactions.) The Reporting Authority is to consist of the Attorney General, the Collector of Customs (or his representative), the Superintendent of the Financial Services Commission or his representative, the Commissioner of Police or his representative, and the Superintendent of the Criminal Investigation Department or his representative. The Authority may disclose information it receives to law enforcement agencies in TCI or to foreign governments.

The Turks & Caicos Islands' offshore services include banking, insurance, trusts, international business corporations (IBCs) and other exempted companies. The Financial Services Commission (FSC), formed in 1989, is responsible for licensing and supervising all domestic and offshore finance- related operating entities, including banks, insurance companies, mutual funds, and securities firms. The Companies Registry, which monitors the incorporation or the registering of new companies, is also under the jurisdiction of the FSC. Public information indicated that as many as 12, 000 exempted companies were on the Registry in 1998.

Despite close supervision, the offshore sector remains vulnerable to abuse. In September 1998, eight men were indicted by a grand jury in Huntington, WV, in an alleged get-rich-quick scheme which defrauded investors out of $7.9 million. The ring allegedly advertised "Offshore Trading Programs," which promised a $73.3 million return on a $40,000 investment in one such program over 10 months. Once the ring received money from investors, it constantly moved the funds to and from bank accounts in the United States, England and the Turk and Caicos Islands.

Once fully implemented, the new legislation should help the Turks & Caicos Islands to protect its financial sector from abuse and to cooperate with foreign authorities in the fight against narcotics trafficking and money laundering.

Turks & Caicos is a member of the CFATF.

Uganda (Other). Uganda is experiencing a large influx of western currency, primarily from non-governmental organizations and donor nations. Ugandan authorities suspect some of the funds come from illicit sources, but are candid about their lack of expertise in investigating money laundering. After determining that at least three Ugandan companies were being used by a group of Nigerians and Ugandans as fronts for money laundering, the Governments of Uganda and Nigeria signed a bilateral initiative to cooperate in the fight against drug trafficking and money laundering.

Uganda needs to develop anti-money laundering measures to protect itself from financial crimes and money laundering.

Ukraine (Concern). Ukraine has a favorable combination of factors creating an ideal money-laundering environment, including organized crime, pervasive corruption, a sizable gray economy (officially estimated at 43 percent), abundant resources, the absence of legislation, and inadequate regulations. Financial crimes generating illegal proceeds include the smuggling of consumer goods, foodstuffs, alcohol, and cigarettes; embezzlement of state funds; tax evasion, tax fraud, and evasion of other duties; and narcotics and arms trafficking. Although these crimes occur in other countries in transition, Ukraine stands out in comparison to its Commonwealth of Independent States (CIS) neighbors because of the high degree of official corruption, especially at the mid-level of administration.

The Ukrainian President has criticized the enforcement and judicial sectors for unsatisfactory performance in fighting crime, pointing out that over 3, 000 organized crime groups and 7,000 instances of bribe-taking by government officials were uncovered in Ukraine in 1998. In addition, enforcement authorities have identified 2,000 front companies used by criminals for money laundering. In late 1998 Ukrainian authorities uncovered a money laundering network operating in Kiev that allegedly laundered funds for almost 3,000 private and state-controlled companies. The network would receive bank fund transfers from companies desiring to evade taxes and transfer the funds to front companies, which then paid the companies back in cash disguised as payment for fictitious services. The network laundered almost $300,000 daily, according to the Ukrainian Tax Police Service.

As part of its legislative reform process, Ukraine is in the early stages of drafting a comprehensive anti-money laundering bill that will meet international standards. Successful implementation of the bill will require amendments to anti-money laundering provisions in the existing Criminal Code, Criminal Procedural Code, banking and commercial laws, and laws dealing with investigative and prosecutorial agencies, or inclusion of such provisions in new draft laws in these areas. In a positive step, Ukraine repealed its law permitting anonymous bank accounts in July 1998.

Despite its relative lack of progress on the domestic anti-money laundering front, Ukraine is active in multilateral and bilateral efforts to combat crime. In June 1998 it joined the CIS Council of Ministers, whose goal is to combat crime in CIS countries. In May 2000, Ukraine will undergo a mutual evaluation conducted by the Council of Europe's PC-R-EV. The evaluation will provide detailed suggestions on improving Ukraine's proposed anti-money laundering program.

United Arab Emirates (Primary). The United States understands that the various member states of United Arab Emirates (UAE) have been drafting an anti-money laundering law for the past four years, but that no legislation has been enacted. Money laundering has not been criminalized. Some banks and financial institutions have internal policies calling for the identification of customers, record-keeping, and reporting of suspicious transactions, but it is not clear how rigorously these rules are enforced. There is also a network of unregulated currency exchanges in the UAE, and there are virtually no restrictions on the import or export of currencies by either foreigners or UAE nationals.

There is almost no U.S. law enforcement presence in the Gulf region, and cooperation with U.S. law enforcement is minimal. These factors have limited the amount of information available on money laundering in the UAE. However, several factors, supported by some reporting, suggest that the UAE is being used to launder substantial illicit funds. These factors include: a) the UAE's location near regional drug-producing countries and major smuggling routes; b) the UAE's status as a regional financial center with modern, state-of-the-art communications and transportation facilities and a tradition of bank secrecy; and c) the flourishing informal hawala alternative remittance system, widely used in south Asia, and the large gold market, both of which are likely venues for money laundering. These are often significant factors in criminal activity associated with India and Pakistan. Dubai played a significant role in the illicit financial activities of former Pakistani Prime Minister Benazir Bhutto. Laundered funds associated with the smuggling of aliens from India to the United States have also been traced to Dubai. Most money laundering activity in the UAE is believed to involve criminal organizations and illegal activity from outside the UAE.

The influx of Russian visitors into Dubai has grown over the past few years. Attracted by cheap prices for consumer goods, especially electronic products, the free-spending Russian visitors are welcome to the business community. However, they also bring with them drug trafficking and other organized criminal activity. Criminal groups are suspected of having used illicitly-generated funds to buy consumer goods in the UAE for re-export and sale in Russia. It is rumored that the Russian Mafia has deposited billions of dollars for laundering in Dubai's banks, where no questions are asked.

The UAE's loose federal structure and the free-wheeling merchant tradition of Dubai have led many observers to focus on Dubai's banking facilities as the biggest money laundering risk in the UAE.

The Sa'diyat Free Zone Authority in Abu Dhabi, touting "over $200 billion of excess liquidity" in Abu Dhabi, is trying to create a free market financial center, with a regional stock exchange, commodities storage, and futures trading.

The UAE itself is not a member of the FATF, but it is part of the GCC, which holds FATF membership.

The UAE should enact, implement, and enforce anti-money laundering legislation meeting international standards established by the FATF. Specifically, the legislation should include the full criminalization of money laundering, the requirement for financial institutions to report suspicious transactions to a central authority, and the establishment of an authority to act on these reports.

United Kingdom (Primary). The United Kingdom (UK) is one of the major financial centers in the world, and therefore continues to be vulnerable to money laundering. UK money laundering legislation is broad and in full compliance with all major money laundering directives and recommendations.

UK money laundering regulations mandate suspicious transaction reporting, customer identification and record-keeping. They provide "safe harbor" to institutions and individuals who comply with the regulations.. These provisions apply to both the banking sector and non-bank financial institutions. Suspicious transaction reports are filed with the Economic Crime Unit of the National Criminal Intelligence Service (NCIS), which serves as the UK's financial intelligence unit.

The UK's anti-money laundering law extends to other sectors, including lawyers, accountants, and other professionals. Bureaux de change are subject to the money laundering regulations, but they are not supervised or licensed. The gaming industry is not covered by the regulations, but has adopted a voluntary code covering these areas. Current legislation allows for the confiscation of assets belonging to persons convicted of serious crime.

The regulatory structure in the UK is currently in transition due to the creation of the new Financial Services Authority. This authority will be responsible for all regulatory functions within the UK that had previously been handled by nine separate financial service regulators.

Due to the government's concern over the offshore sector and its financial supervision in the crown dependencies, the Home Secretary commissioned a former UK Treasury official to conduct a review of financial regulation in these jurisdictions. The results of this review have recently been published, and a number of crown dependencies are already taking steps to implement its recommendations.

The UK is a member of the FATF. It is also a party to and has fully implemented both the 1988 UN Drug Convention and the Council of Europe Convention on Money Laundering. It has implemented the EU Directive on Money Laundering. NCIS participates in the Egmont Group.

Uruguay (Primary). Uruguay is a politically stable nation and an important regional financial center which attracts substantial foreign deposits. United States and European law enforcement officials believe that funds from the illicit narcotics trade and contraband are laundered through Uruguayan banks and exchange houses. There have been a few isolated but important cases; however, there is no solid evidence of widespread money laundering activities.

Uruguayan law permits the operation of offshore banks and businesses, but Uruguay is not considered a major international offshore center. The central bank conducts background inquiries on all applicants for offshore banking permits, but the thoroughness of these inquiries has been questioned. The offshore banks are not required to comply with the same requirements as other financial institutions in Uruguay, but they are subject to Government regulation and an annual audit, and must submit quarterly financial reports and a yearly action plan. The offshore institutions must also identify their clients and maintain records of transactions.

In October 1998, the Government of Uruguay adopted an anti-drug law which criminalizes the laundering of funds derived from narcotics trafficking. It prohibits financial institutions from opening or maintaining accounts without identification and imposes record-keeping requirements. The law authorizes Uruguayan courts to provide records to foreign governments in criminal investigations, subject to relevant procedures and statutes. It gives the courts power to seize and later confiscate property or financial instruments used in money laundering. The central bank and the courts have legal responsibility for asset tracing, and judges may issue seizure orders at any time and without notice. Currently, Uruguay does not permit the sharing of seized narcotics assets with other nations, but it has not ruled out such a possibility and has expressed a willingness to negotiate bilateral sharing agreements. The October anti-drug law does not allow for the monitoring of currency or monetary instruments entering or departing Uruguay.

The recording of currency transactions over $10,000 (including currency transactions with offshore banks) has been required since 1993 by central bank regulation. Approximately 29 institutions have been officially warned or fined for non-compliance with these requirements. The central bank is developing a computerized information system to monitor and analyze these reports.

In December 1998 the GOU approved the anti-corruption legislation that had been pending since early 1996. The law makes provisions for financial disclosure statements by public officials and criminalizes money laundering offenses connected to cases of public corruption.

Now that Uruguay has enacted anti-money laundering legislation, it needs to move as quickly as possible to issue the necessary complementary financial regulations. It also needs to establish a financial intelligence unit to process suspicious transactions. Uruguay needs to criminalize money laundering beyond drugs and to mandate the reporting of suspicious transactions.

Uzbekistan (Other). Uzbekistan is not an important financial center or a significant country for narcotics-related money laundering. The banking system is rudimentary and not likely to be used to launder illicit proceeds, especially since it is government-controlled, which ensures that the government is generally aware of banking activities. The Uzbeki currency is not convertible, so what money laundering does occur is in other currencies. Some ill-gotten gains may be funneled through the construction industry, but the amount is small and the origin of the money cannot be ascertained.

Uzbekistan is a party to the 1988 UN Drug Convention. It has criminalized money laundering beyond drugs, but the draft anti-money laundering legislation is still pending. According to United States law enforcement sources, the political will to support enforcement efforts is strong in Uzbekistan, and a specialized unit in the Ministry of Finance has been designated to investigate financial crimes and money laundering. Uzbekistan must first enact and implement its anti-money laundering legislation so that enforcement efforts can proceed.

Vanuatu (Concern). The attractiveness of Vanuatu as an offshore center can be attributed to its strict bank secrecy and to the absence of income, estate, gift and capital gains taxes. It is an extremely active financial center, with offshore companies, trusts, and banks. Vanuatu has no exchange controls, and is not a party to any tax treaties. Funds amassed in or remitted to Vanuatu in any currency can be held and transferred anywhere in the world. Any major world currency can be invested, earn interest and be repatriated in that currency or freely converted into other currencies. The role of administering the extensive financial and business facilities falls upon the Finance Centre Association.

International companies registering in Vanuatu must be formed as international business corporations. These companies benefit from a 20-year tax exemption and are not required to file financial statements or to be audited. The role of an exempt bank or financial institution is limited to conducting business outside Vanuatu; however, registered offices and records are held in-country. Exempt banks in Vanuatu are free of many of the reporting requirements of banking supervisors, and all records are protected from search by strict secrecy regulations. Beneficial owners of foreign entities operating in Vanuatu do not have to reveal their true identity when they register, so their financial activities may remain secret. Vanuatu is considering offering asset protections trusts. The Vanuatu offshore financial center is advertised on the Internet.

Vanuatu is preparing anti-money laundering legislation, which is likely to resemble the Commonwealth model, as well as an Offshore Banking Bill which will contain a know-your-customer requirement. The Vanuatu Government also has three other pieces of legislation that assist its fight against money laundering: The Extradition Act 1988, The Mutual Assistance in Criminal Matters Act 1989, and the Serious Offenses (Confiscation of Proceeds) Act 1989 (which deals specifically with money laundering.) Recently, Vanuatu's Financial Services Commission, the regulator of the financial sector, established an Offshore Banking Supervision Unit.

Vanuatu needs to enact and implement anti-money laundering legislation that meets international standards to protect its financial services industry from financial crimes and money launderers. Particular emphasis needs to be directed to its offshore financial center, which lacks prudential bank supervisory oversight.

Vanuatu is a member of the Asia Pacific Group on Money Laundering, the OGBS, the Commonwealth Secretariat, and the South Pacific Forum.

Venezuela (Primary). Venezuela continues to be a major drug transit country and money laundering center, as demonstrated in 1998 by a U.S. Customs investigation, Operation Casablanca, which has identified officials from two Venezuelan banks as having actively participated in a scheme to launder illegal proceeds. The Government of Venezuela (GOV) has acknowledged that Venezuelan financial institutions are a prime target for the laundering of drug proceeds. Venezuela has financial institutions which engage in currency transactions involving international narcotics proceeds that include significant amounts of U.S. dollars.

Overall, Venezuela has most of the laws, regulations and mechanisms necessary to prevent, detect and combat money laundering. The 1993 Organic Drug Law criminalizes narcotics-related money laundering, and strict regulations were issued for the banking and financial sectors requiring them to report currency transactions over $10,000, identify all customers, set up internal financial investigations units, and report all suspicious financial transactions to the Superintendency of Banks and Financial Institutions. The Superintendency established a financial intelligence unit to receive and analyze currency transactions reports and reports of suspicious financial activity. In 1998, 32 currency exchange houses in the border region were closed for suspicious activities possibly connected to money laundering. A new Code of Criminal Procedures was adopted in late 1997 which restructured the justice system from the current written, inquisitorial approach to an oral, adversarial system, and should improve the efficiency of the courts. The GOV has focused considerable efforts in preparing for the implementation of this Code by establishing a new infrastructure and providing extensive training programs for judges, prosecutors and police. Under the new Casinos Law, a regulating and overseeing commission was created and strict licensing requirements issued, including the posting of a substantial financial bond, a rigorous financial investigation, and personal investigations of all corporate officers. The regulations also require casinos to report transactions over $5,000. In addition, during 1998 the GOV succeeded in getting a comprehensive organized crime bill through the Lower House of the Congress. This bill contains provisions to expand money laundering investigations and facilitate asset seizure. However, the bill was not considered by the Senate before the Congress adjourned early to prepare for legislative and presidential elections.

Enactment of these laws and regulations signals the GOV's commitment to combat narcotics-related money laundering. In addition, Venezuela and the United States have an MLAT which was ratified by the United States in January 1999, although it is not yet in force. However, these efforts continue to be undermined by rivalry, lack of cooperation and especially corruption in all segments and at all levels of Venezuelan society. This corruption ranges from simple tax evasion at all income levels to large- scale bribery of government officials. Narcotics-related corruption within the law enforcement and judicial sectors continue to impact on counter- narcotics and anti-money laundering efforts. Corruption within the judiciary is evident in long delays, dismissal of charges on technicalities and the mishandling of evidence and cases. Inefficiency and outright rivalry among the various police organizations are further obstacles to success. The authorities have been openly addressing the issue through a series of conferences featuring international experts on the subject, and there have been successful prosecutions of officials for narcotics-related corruption. However, these prosecutions have not gone far enough in addressing this pervasive problem. The GOV must continue to take a strong stand against corruption in the private and public sectors, and vigorously enforce these laws. The GOV needs to also extend the offense of money laundering beyond drug-trafficking.

Venezuela is a member of the CFATF.

Vietnam (Concern). Although Vietnam's banking system is underdeveloped, Vietnam remains a country of concern with respect to money laundering for several reasons. Vietnam has no anti-money laundering legislation, and banks are not required to report large cash transactions. Financial, government and law enforcement corruption is pervasive. Vietnam serves as a transit country for Golden Triangle heroin destined for the United States and Australia. Chinese criminal syndicates are active in Vietnam and are believed to be laundering drug money through investment projects.

Cash is used for almost all transactions in Vietnam. Many people continue to hoard gold, dollars and other currencies in their homes, and enterprises often have difficulty obtaining foreign exchange to pay for imported goods. Vietnam restricts and controls both the import and export of currency.

In May 1998, Vietnam hosted five other Asian nations at a two-day drug control meeting in Hanoi. The statement issued at the end of the meeting noted that officials from Cambodia, Laos, Burma, Thailand, China, and Vietnam had signed a 14-point joint declaration to enforce laws, prevent drug money laundering, arrest traffickers, boost information exchange, and map out drug control programs.

In November 1998, the Minister of Public Security said that the volume, scale and seriousness of crime are on the rise in Vietnam, with transnational crime, money laundering, smuggling, and drug trafficking becoming serious problems.

The Vietnamese government has recognized the existence of problems with money laundering, and has expressed interest in learning more about control measures. Vietnam needs to criminalize money laundering, and money laundering controls need to be introduced, along with prudential and supervisory regulations in the banking system.

Yemen (Other). Little is known about the money laundering situation in Yemen, but profound underdevelopment and political instability minimize the risk of money laundering. Yemen is a party to the 1988 UN Drug Convention. It has also signed a cooperation agreement with the European Union calling for unspecified joint action in a number of areas, including money laundering.

Federal Republic of Yugoslavia (Serbia and Montenegro) (Concern). The Federal Republic of Yugoslavia (FRY) is neither an important financial center nor an offshore banking center. A 1996 law permits offshore development, but it is being implemented slowly and has not resulted in any activity. The FRY is a transit country for the trafficking of narcotics, arms, and stolen automobiles, and is considered a source of proceeds sent abroad for laundering. FRY officials are alleged to unofficially sanction corruption and organized crime. In an attempt to circumvent economic sanctions imposed in 1992, the FRY government has encouraged the establishment of organized smuggling rings which operate with the complicity of police and customs agents. Senior government officials manage state-owned companies and financial institutions for profit, in addition to their official duties. Since the sanctions were imposed, transactions conducted by state-owned banks and companies have resulted in the alleged movement of billions of dollars in state assets to Cyprus, Russia, and other overseas locations.

Zambia (Other). Realizing that the Narcotic Drugs Act of 1993 is ineffective in dealing with the money laundering problems created by drug barons, arms traffickers, and automobile theft rings, the Government of Zambia in September 1998 presented the Prohibition and Prevention of Money Laundering Bill to Parliament for a first reading. The bill, which has not yet had a second reading, will: (1) create a money laundering authority and a money laundering investigations unit; (2) provide for the forfeiture of property of persons convicted of money laundering; (3) make suspects legally obligated to disclose information on suspected money laundering; and (4) provide for international cooperation in investigations, prosecution and other legal processes for deterring and preventing money laundering.

The Zambia Institute of Bankers has called for the creation of a statutory body to deal with money laundering and other serious crimes. This body, if created, may encompass the Drug Enforcement Commission, Zambia's counter- drug enforcement agency.

Should the proposed bill be enacted by Parliament, it would make Zambia's anti-money laundering regime the most comprehensive and restrictive of any in Sub-Saharan Africa, and would be a model for other African jurisdictions.

Zimbabwe (Other). Southern African jurisdictions, including Zimbabwe, are becoming increasingly concerned with the effect that narcotics trafficking and money laundering are having on their economies and societies. The current Zimbabwean anti-money laundering law (the Anti-Money Laundering Act) criminalizes only drug-related money laundering. The Law Development Commission of Zimbabwe has drafted a bill to be presented to the Parliament of Zimbabwe that would strengthen the Money Laundering Act. The draft bill establishes a money laundering board consisting of representatives from government, public, and private financial institutions. In addition, it requires financial institutions to keep records identifying clients who deposit and withdraw funds and requires designated institutions to report deposits and withdrawals that exceed a specific sum to a central financial intelligence unit.