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
Afghanistan to Austria

Albania. (No Priority) Proximity to major European drug markets, connections with organized crime in Italy, Turkey, former Yugoslavia, and elsewhere, and the emergence of an active network engaged in migrant and arms smuggling across the Adriatic enable narcotics traffickers to stay well ahead of enforcement efforts. The beginnings of money laundering in Albania have been reported despite the poorly developed banking system. Incomplete criminal legislation and a corrupt and inexperienced judiciary hamper effective prosecution of criminal elements.

Andorra. (Low) Although not a major financial center or money laundering haven, Andorra has enacted strong laws. Any act designed to conceal the origin of money or other assets derived from drug trafficking, prostitution, or terrorism, by a person who is aware or should have been aware of that origin, and any subsequent lawful use of such money or assets by such person, is punishable by imprisonment and fine. GOA law enforcement officials are investigating the possible use of the Andorran financial system by Colombian traffickers and money launderers.

Anguilla. (Low) Money laundering is considered minimal in Anguilla, a dependent territory of the United Kingdom. In 1993, the UK and Anguilla allowed the US to set up a "paper bank" in an undercover money laundering sting operation, which culminated in December 1994. This operation resulted in the arrest of 116 defendants and the seizure of more than US$90 million in drug trafficker assets.

Argentina. (Medium-High) Argentina is an important regional financial center. Although growing amounts of money laundering are taking place in Argentina, the country is not yet considered to be a major money laundering center. Some money laundering is related to narcotics proceeds, but much of it consists of illicit funds from tax evasion, bribery, contraband, and other illegal activities. A very large share of transactions in Argentine financial institutions are denominated in US dollars and take place in cash.

In December 1995, the Argentine government hosted the Summit of the Americas Ministerial Conference on Money Laundering. Twenty six country delegations participated. At this meeting, Argentine officials announced the government's intention to establish a Financial Crimes Enforcement Network like the US Treasury's FinCEN. They also stated their intent to issue regulations which would require Argentine financial institutions to report large transactions, particularly those in cash.

There is no written agreement between the GOA and USG regarding money laundering specifically, but the MLAT covers exchange of information and evidence. Argentina has numerous bilateral anti-narcotics agreements with other countries which include cooperation against money laundering.

Money laundering is a criminal offense when explicitly linked to narcotics activity. There is no separate money-laundering law. There are no requirements for banks to "know, record and report on" customers involved in suspicious transactions. There are no "banker negligence laws." Voluntary guidelines of the two banking associations of private banks suggest that banking records be kept five years, but there are no legal requirements. Bankers are required by law to protect the identity of depositors, unless presented with a court order seeking specific information. The banking secrecy laws (incorporated in the central bank's charter) have left unclear how far bankers may go in voluntarily providing information, in the absence of a court order. There are no controls on the import and export of cash or other financial instruments.

There have been few cases prosecuted which were related exclusively to money laundering. To date no successful prosecutions have taken place for money laundering offenses. At the end of 1995, a federal judge ordered police to search 10 casinos in northern provinces based on suspicion that they were being used as fronts for money laundering operations. That investigation is ongoing.

Judicial and police officials systematically track assets when a narcotics arrest is made and seize assets when they are clearly connected with a narcotics crime. But narcotics traffickers can easily shield assets in Argentina. Asset seizures are made by the police with court authorization. Police, who are responsible for tracking money laundering, do not have adequate powers or resources to trace and seize assets. The total amount of assets seized in 1995 is not known. The GOA reacts positively toward USG efforts on this front and attempts to emulate USG success, including sharing of information among agencies. The GOA is active in the OAS on assets seizure discussions. National laws permitting sharing with other countries have not been tested. The Banking community cooperates informally in a limited way with law enforcement authorities on asset seizure.

Armenia. (No Priority) Due to the economic recession and major deficiencies in the present banking system, the amount of money laundered in Armenia is insignificant.

Aruba & Netherlands Antilles. (High) For 1996, the Netherlands Antilles joins Aruba on the High Priority list, reflecting increased USG concerns about the role these two parts of the Kingdom of the Netherlands play in money laundering in this Hemisphere. Offshore banking facilities, casino/resort complexes, high volume American tourism, and stable currencies continue to make Aruba and the Netherlands Antilles attractive to money laundering organizations. Neither government has taken all of the steps necessary to comply with international standards for money laundering countermeasures, including ratification of the 1988 UN Convention.

In both Aruba and the Netherlands Antilles, money laundering has been a criminal offense since December 1993. The law contains many strong features, including a wide range of predicate offenses, a knowledge requirement which allows for the prosecution of "willful blindness," a provision for corporate liability, and the provision of substantial penalties. Legislation establishing the legal requirement concerning customer identification and the reporting of unusual transactions became effective in both jurisdictions on February 1, 1996. The legislation also mandated the creation of a reporting center to analyze the reports of unusual transactions and, if necessary, to forward the reports to law enforcement for further investigation. The reporting centers became operational on February 1, 1996. These laws are supplemented and reinforced by the new "Money Laundering Guidance Notes" for banks and financial institutions issued by both central banks. The guidance notes set out detailed procedures concerning matters such as "know your customer" policies, sales of monetary instruments, book-keeping and wire transfer operations, reporting requirements, internal banking policies and procedures, record retention, staff training and the information to be provided to the central bank for its monitoring of money laundering deterrence and detection procedures.

Aruban and Antillian laws provide for the seizure and confiscation of proceeds or other property involved in or derived from money laundering or an underlying crime. A criminal conviction is a prerequisite for confiscation action, and it is necessary to prove that the money was directly derived from a specific crime. Proposed amendments to Aruban and Antillian law will give authorities more flexible powers including civil confiscation proceedings, and seizure before a criminal prosecution has been initiated. The amendments should be effective by the end of 1996.

Monetary laws have been established requiring financial institutions to verify the origin of cash deposits of ten thousand florins or more in on-shore banks in both the Antilles and Aruba, but this legislation does not apply to offshore facilities.

The pace of change has been disappointing given the commitments both governments made to adopting FATF standards, at a conference in Aruba in 1990, and their considerable participation in the Caribbean FATF. There is a question of political will, as corruption is believed to be a factor inhibiting effective enforcement. The impact of the recently passed anti-money laundering measures in both jurisdictions will depend on whether the laws being put into place are systematically enforced, and cases of money laundering prosecuted.

Australia. (Low Medium) Australia has pioneered money laundering and cash transactions reporting legislation designed to counter money laundering by organized crime. It is among the few who, like the United States, require direct reporting of significant as well as unusual transactions, and was the first to systematize the monitoring of wire transfers. The GOA ratified the UN Drug Convention, participates in the UN Drug Control Program, and is a leading member of the Financial Action Task Force. The Customs Act of 1901 and the Proceeds of Crime Act of 1987 allows for asset forfeiture and seizures in narcotics cases. The legislation is conviction-based.

(Note: during the eight weeks of preparing the INCSR, the group was inclined to accede to DEA's request that Australia be downgraded to Low-Medium priority. However, Australia's Austrac agency just recently reported that $1 billion in US currency is available for laundering in Australia. That volume is grounds for keeping Australia at Medium. If we concur, all of the charts have to be changed.)

Austria. (Medium High) Notwithstanding important improvements in its anti-money laundering policies, the priority for Austria has been raised to Medium-High, both because of continued shortcomings in overall policy and because of indications that Russian organized crime groups are using Austrian accounts to launder the proceeds of crime there.

In 1994 new legislation took effect requiring all banks to report transactions suspected of involving money laundering. Government officials released the results of the first full year under the legislation (1994) in 1995: 346 transactions were reported as suspicious to the special force for organized crime, with accounts totalling AS 298 million (USD 29 million at current exchange rates) blocked immediately by court order. In the first five months of 1995, Austrian banks reported 110 transactions, of which AS 386 million (USD 38 million) were blocked.

Although the regulation on suspicious transactions has proved useful, shortcomings still exist. Officials believe that the existence of anonymous securities accounts is a more significant problem. In September, the government submitted to parliament a penal code amendment to expedite extradition; to expand judicial assistance; and to enable courts to confiscate property and assets on the presumption that these stem from illegal activities, unless the accused could establish the lawful acquisition of the assets.

Anonymous passbook savings accounts are another problem area, representing 95 percent of the total 26 million Austrian savings accounts in which $150 billion usd is on deposit. Only Austrian residents are supposed to be able to hold anonymous passbook savings accounts, but banks require no proof of residency when opening an account. Banks are required to know and record the identity of customers, but they are not required to report customers engaging in significant, large currency transactions unless they are suspicious. Banks and financial institutes must keep identification records until at least five years after termination of the business relation with the customer; vouchers and record of transactions until at least five years after their execution. On February 13, 1996, The European Commission formally demanded that Austria take steps to abolish anonymity for all bank accounts stating that this facilitates money laundering and is inconsistent with EU anti-money laundering guidelines.