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U.S. DEPARTMENT OF STATE
INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT MARCH 1996:
FINANCIAL CRIMES AND MONEY LAUNDERING
United States Department of State
Bureau for International Narcotics and Law Enforcement Affairs
INCSR 1996 COUNTRY CHAPTERS
Vanuatu to Zimbabwe
Vanuatu. (Low-Medium) While there have been few reports of drug
traffickers laundering proceeds in Vanuatu, the island remains a concern
because of its strict bank secrecy, its lack of foreign exchange
controls, and the ease of creating offshore shell corporations. An
offshore financial center for more than 20 years, Vanuatu has registered
more than 100 foreign banks, and incorporated more than 1,000 companies,
over 600 of which are considered offshore companies. It is believed
that traffickers use these corporations to establish bank accounts in
countries other than Vanuatu, and then launder money through these
foreign banks.
Venezuela. (High) Venezuela is a major drug money laundering center due
to its proximity to Colombia as well as to the size and sophistication
of its financial markets. However, Venezuela is not considered a tax-
haven or as an off-shore banking center. Rather, Venezuela generally
exports capital in the form of capital flight to the US and other tax
havens. Most money laundering occurs through exchange houses,
commercial banks, casinos, fraudulently invoiced foreign trade,
contraband, and real estate transactions. Money laundering in Venezuela
is closely linked to cocaine trafficking by Colombian organizations.
While the narcotics proceeds are primarily owned by Colombian or other
third-country nationals, the money laundering networks are generally run
by Venezuelans. Laundering transactions usually involve the exchange of
US dollars in cash or in monetary instruments such as postal money
orders for Colombian pesos or Venezuelan bolivares.
Venezuelan government exchange controls were imposed in 1994 to staunch
the outflow of flight capital occurring during the financial crisis.
While not intended, these policies tended to stimulate the growth of a
large illegal parallel exchange market, which created new opportunities
for money launderers to exploit. Since July 1995, the government has
permitted a legal parallel exchange market to exist through the trading
of Brady Bonds on the Caracas Stock Exchange.
The enactment of the 1993 Organic Drug Law was a major step forward in
compliance with the 1988 UN Convention and other international
agreements. The law explicitly criminalized money laundering associated
with narcotics trafficking. The law applies to all financial
institutions as well as non-financial businesses such as real estate
brokers. Article 37 of the 1993 Organic Law defines money laundering as
a crime with two formulations consistent with the terms of the UN
Convention.
Money laundering is defined as (a) "hiding or concealing the origin,
nature, location, movement or destination of capital or income, either
liquid or fixed, with knowledge of their origin as products of the
illicit traffic in drugs, narcotics and toxic substances", and (b)
"transfer or conversion of assets, capital or other rights, with
knowledge that they are products of illicit activities". The law
imposes sanctions of 15 to 25 years imprisonment for money laundering
crimes. In addition, the law establishes asset seizure/forfeiture
procedures. Other important aspects of the law include:
- Banks and other financial institutions are required to self-initiate
reporting of suspicious transactions to the technical judicial police.
- A "Due Diligence" principle is imposed on directors and officers of
financial institutions.
- The use of anonymous accounts or fictitious names is prohibited.
Complete identification of account holders is required.
- Financial institutions are required to maintain records for five
years of all account transactions and to make them available to law
enforcement investigators.
- Financial institutions are required not to divulge to account
holders when they are under investigation.
- The Superintendency of Banks is required to monitor financial
institutions to ensure that they develop adequate internal control
policies and to conduct audits to ensure compliance.
- Officers and employees of financial institutions who report
suspicious transactions are not subject to civil liability if sued by
account holders.
- The Central Bank of Venezuela is required to design and develop a
database on all foreign currency transactions and to provide information
on such transactions to the PTJ or other law enforcement agencies.
- The Ministry of Justice and the Office of Notaries are required to
maintain computerized databases on real estate transactions and to
maintain special vigilance over any cash transactions.
- The Ministry of Finance is required to exercise control over trade
in precious metals, stones, and jewelry as well as monitor invoicing of
export/import transactions and commercial loans that are not considered
normal business operations.
Despite the provisions of the 1993 Organic Law, in practice few banks or
other financial institutions have complied fully with these
requirements. The Venezuelan financial crisis which erupted in 1994 has
diverted government attention and resources away from enforcing controls
on money laundering. Government takeovers of failing banks makes the
government increasingly directly responsible for monitoring suspicious
transactions. (The Venezuelan Government now controls about 30 percent
of the commercial banking system).
The financial crisis also led to the negotiation and signing of a mutual
legal assistance agreement between the United States and Venezuela, to
facilitate the exchange of information about illegal banking practices,
which may ultimately benefit cooperative anti-money laundering efforts.
Venezuela and the US signed a "Kerry Amendment" Agreement in November
1990 for the exchange of information on cash transactions in excess of
USD 10,000. The agreement was put into effect by Central Bank
Resolution No. 90-12-05. However, the agreement applies only to
transactions in foreign currencies, including the US dollar, but does
not cover cash transactions in Venezuelan bolivares.
Venezuelan police agencies have initiated investigations and enforcement
actions against several major money laundering organizations under the
1993 Organic Drug Law, but these cases have been frustrated by the
courts. In October 1993, the Venezuelan National Guard successfully
dismantled the "Sinforoso Caballero" money laundering organization which
operated on the Colombian border with links to the Cali Cartel.
Subsequent investigations revealed that a multinational financial group
acted as the international connection for this money laundering
organization. Indictments were issued by a Caracas criminal court judge
against 34 individuals. However, due to pressure on the judicial system
by the defendants, jurisdiction in the case was changed to the state of
Tachira, where most of the defendants resided. In may 1994, the Tachira
judge dismissed the arrest warrants against all defendants in the case.
While the Venezuelan Supreme Court later overturned this decision in
December 1994, no action was taken during 1995 to reopen the case.
In 1995, The Venezuelan Congress began consideration of two key pieces
of legislation which will have important implications for controlling
money laundering. The first is the Casinos Law, which will impose cash
transaction reporting requirements on casinos as well as tighten up law
enforcement oversight of gambling activities. The second is the
Organized Crime Bill, which will introduce conspiracy provisions into
Venezuelan criminal law.
Vietnam. (Low) Vietnam currently offers few attractions to drug money
launderers, but that situation could change as foreign banks open
branches. Vietnamese are known to engage in heroin trafficking and
Australian officials report incidents of Vietnamese nationals smuggling
gold between Australia and Vietnam, which they believe is related to
heroin trafficking. It is believed that payment for some heroin
shipments to Australia has been made by wire transfers from Australia to
the United States. In 1995, the government began consideration of drug
trafficking controls; US officials urged the Vietnamese to consider
incorporation of FATF's 40 money laundering countermeasures.
Yemen. (No Priority) There are no statistics indicating there is money
laundering in Yemen.
Yugoslavia (Serbia & Montenegro). (Low) Laundering of drug money has
been reported anecdotally, but persuasive evidence is lacking. There
are no specific laws prohibiting money laundering. If the practice
occurs, it is probably on a limited scale. Belgrade is neither an
important financial center, tax haven nor offshore banking center.
Belgrade's financial system is primitive compared with other Western
European capitals.
Given the insolvency of local banks and their complete inability to
effect rapid electronic transfers, banks here would be an unlikely
vehicle for laundering large sums of money. Furthermore, with the
scandals that have rocked the banking system over the past several
years, including the freezing of more than USD four billion in hard
currency savings deposits, there are factors that would discourage
anyone (drug traffickers included) from depositing large sums into local
banks. Banking authorities here point to Cyprus and Switzerland as more
likely candidates for money laundering by Yugoslavian nationals.
Belgrade, however, does harbor organized criminal elements, who are
known to be active in drug trafficking. During the period of U.N.
sanctions, organized crime was heavily involved in the smuggling of
prohibited strategic materials -- principally oil and oil products.
With the suspension of U.N. sanctions in late November 1995, and the
legalization of imports of oil and fuel, organized crime is likely to
seek more profitable alternatives, including both drugs and arms.
Zambia. (Low) The Bank of Zambia (BOZ) and the Drug Enforcement
Commission (DEC) are increasingly concerned that money laundering is
rampant in the banking industry. They have proposed tightening banking
standards through legislative action. The government publicly denounces
drug trafficking and supports the ongoing efforts of the autonomous DEC.
The DEC has used strengthened narcotics laws this year to confiscate the
property of traffickers. The head of the DEC collaborates with his
counterparts in the sub-region to improve regional anti-trafficking
efforts. Zambia ratified the 1988 UN Convention in 1993. The DEC has
increasingly used its legal authority to confiscate property of
suspected drug traffickers and money launderers. The courts have not,
however, always sustained these confiscations.
The DEC and the Ministry of Legal Affairs cooperate with their
counterparts in the Southern African Development Council (SADC). The
DEC has received training from British anti-narcotics teams and works
closely with their British counterparts . Germany, South Africa, and
the US have also provided limited assistance to the DEC. Zambia's anti-
narcotics master plan was developed in cooperation with the United
Nations drug control program.. The Zambian Anti-Corruption Commission
(ACC) investigates allegations of corruption, some of which has touched
even the ministers of the government. Such allegations, never fully
proven to the satisfaction of President Chiluba, led to the resignation
of then Foreign Minister Vernon Mwaanga in January 1994. Mwaanga
remains an important officer in the ruling MMD Party. This year,
corruption allegations have focused on embezzling state funds and not on
narcotics related corruption. It is alleged that drug traffickers are
taking advantage of the weak enforcement of banking laws and launder
drug money in a number of banks and foreign exchange houses.
No legal proceedings have yet been directed against the allegedly
corrupt financial institutions or the government officials who have
financial interests in those banks or foreign exchange houses.
Zimbabwe. (No Priority) Zimbabwe's currency regulations continue to make
it less than ideal place for money laundering. An asset forfeiture act
was passed in 1990 but remains underutilized as both the judiciary and
law enforcement seem to lack an understanding of its application.
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