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
Eastern Carribean, Ecuador to Ethiopia

In the Eastern Caribbean, where the phenomenon is newer than elsewhere in the region, few jurisdictions have been able to develop adequate mechanisms for regulation and oversight of the offshore industry. A significant feature in 1995 is the expansion of non-drug money laundering, including from the former Soviet Union.

The heads of government of the regional organization CARICOM issued strong statements calling for enhanced efforts to counter money laundering. In July 1995, CARICOM prime ministers agreed on the coordination of money laundering laws. CARICOM member states' central banks promulgated guidance notes to bankers for money laundering prevention in June 1995. According to these guidelines, bankers are encouraged to practice due diligence in dealing with clients, to keep good records, and to remain vigilant for suspicious transactions. There were, however, no reports of successful prosecutions for money laundering in any of the Eastern Caribbean nations, although some countries instituted proceedings to restrain the assets of accused drug traffickers pending completion of their trials.

In 1990, the Caribbean basin states and territories (26 jurisdictions by 1995) joined to create the Caribbean Financial Action Task Force (CFATF), a joint effort in the region modeled on the Paris-based FATF. In 1994, a secretariat was established in Port of Spain, Trinidad and Tobago, to promote anti-laundering measures in its members and to serve as a coordinator and focal point for donor assistance. The Caribbean region has begun to implement CFATF/FATF recommendations, which center on implementation of anti-laundering laws already in place. The first step, self- assessment, was performed in 1994-1995 in all 26 jurisdictions. The results were presented, with analysis, to the ministerial meeting in May 1995. Resolutions adopted included the organization of national committees on money laundering. CFATF performed mutual evaluations of the Cayman Islands, Trinidad and Tobago, and Costa Rica. CFATF assisted in the evaluation of Aruba and the Netherlands Antilles, within the context of an FATF evaluation of the Kingdom of the Netherlands.

Antigua and Barbuda. (Medium-High) Antigua continues to be one of the more vulnerable financial centers in the Caribbean yet its government has failed to take preventive measures. The US concern about that vulnerability prompts an increase in the priority to Medium-High for 1996. However, we note that the Antiguan government prepared a draft of new anti-money laundering legislation, to be submitted to parliament in early 1996, focusing on the regulation of financial institutions.

Antigua has an active offshore financial services industry, which has experienced rapid growth in recent years. In 1995, the number of offshore banks increased by about 75 percent to 42. Several of these banks have links to Russia, generating concern about investors and depositors whose funds are of unknown origin. The casino industry provides an opportunity for non-bank money laundering. Strict bank secrecy laws protect confidentiality of depositors, except in cases of violation of Antiguan law, which includes drug cases. The financial services/offshore banking industry is, in practice, unregulated. Bank licenses are freely granted by the Minister of Finance without the involvement of any recognized central bank. There are no mandatory reporting requirements for either large or suspicious transactions. This situation enhances the potential for abuse by those seeking to launder the proceeds of crime.

The Proceeds of Crime Act covers funds earned or received from money laundering of narcotics proceeds. One reported seizure, based on a US case, may have netted the government several million dollars.

Barbados. (Low) The offshore financial services industry continues to develop in Barbados, with particular prominence given to companies based in Canada. Due to favorable tax treaties, Barbados is characterized as a low-tax rather than no-tax jurisdiction. Government officials repeatedly assert their determination to maintain a financial industry free of taint. This was underscored at the end of 1995 in a speech by the Attorney General to the Hemispheric money laundering ministerial conference in Buenos Aires, echoing a theme earlier presented to the banking community by the trade minister. Barbados signed an MLAT with the United States in August 1995.

The government keeps the financial sector under surveillance, and limits "tax haven" privileges. In 1995, at least one financial services operator was denied permission to operate because a background check revealed a history of money laundering. Strong offshore bank laws and enforcement, backed by existing currency controls, provide a defense against the threat of laundering. Banks are expected to report large and unusual transactions voluntarily. Barbados has organized a CFATF- recommended national committee on money laundering. Sector growth will likely increase the potential for abuse.

Dominica. (No Priority) Money laundering is believed to be minimal, due in part to the underdeveloped financial sector. Some domestic-based trafficker groups launder proceeds through non-financial sectors of the economy. The government has ratified the 1988 UN Convention and criminalized money laundering. There are controls on the export of money and a requirement for banks to report unusual foreign exchange transactions.

Grenada. (No Priority) In part as a result of the limited development of the financial services industry, there is no evidence of significant money laundering.

St. Kitts and Nevis. (Low) The announced determination of the newly elected government in 1995 to develop a financial services industry has raised the risk of money laundering activities. Substantial trafficking through St. Kitts and trafficker activities have put this mini-state at greater risk for money laundering. Some money laundering may have occurred in 1995 through the purchase of substantial real and business property. Nonetheless, the overall volume is relatively low.

St. Lucia. (Low) Under the proceeds of the crime bill, money laundering is illegal and there are controls on foreign exchange. Officials are adamant about protecting their banking system by ensuring adherence to offshore banking laws. There are some instances of money laundering. In 1995, a new anti-money laundering coordination group was formed under the attorney-general. The government of St. Lucia was considering steps to develop an offshore banking industry.

St. Vincent and the Grenadines. (Medium) There have been indicators over the past year that both domestic and foreign funds earned from drug trafficking and other crimes are laundered here. Moreover, there have been allegations of corrupt payments and loans to public officials. Offshore activity is conducted without any effective regualtion. Being outside the direct control of the Eastern Caribbean central banks, the offshore industry is administered only by local officials.

St. Vincent has strong laws which are in full consonance with the 1988 UN Convention. Authorities have cooperated, when requested, with US agencies on laundering cases. In recognition of the money laundering challenge, the government invited a UK financial investigating officer, who worked with the St. Vincent police from January-July 1995. His efforts resulted in the freezing of approximately 300,000 US dollars in assets from a drugs case awaiting trial, and a further US$350,000 in the bank accounts of a second, alleged drug trafficker. The continuation of this work since the officer left has come under question.

Ecuador. (Medium) While Ecuador is not considered an important financial center in its own right, it is widely viewed as a significant center for money laundering activities, largely because of its proximity to Colombia and the close economic and social ties between the two countries.

Money laundering is illegal under the 1990 narcotics law. However the law lacks specificity, stating only that it is illegal for anyone to try to hide the proceeds of drug trafficking activity. There is no specific mention of the words "money laundering" or any comparable terminology. There is no requirement in Ecuadorian law for officials of financial institutions to exercise due diligence against money laundering activities. Another weakness in the law is that it makes it illegal to help another party to launder money, but does not criminalize laundering one's own money. The GOE has advised that it intends to correct this legal loophole.

Money laundering occurs in both the banking system and the non-banking financial system. Most narcotics-related money laundering stems from the sale of cocaine, although as heroin production increases in Colombia, the percentage of money laundering due to heroin sales profits will undoubtedly increase as well. The great bulk of laundered money is believed to be owned by Colombians. Estimates of the annual value of money laundered in Ecuador range in the hundreds of millions of dollars. Ecuador has signed an agreement with the United States to share information on currency transactions over $10,000, but the agreement has not yet been tested. In late 1994, The Superintendent of Banks issued new instructions to all banks to require them to keep internal records on the identity of persons engaging in these large transactions. The National Drug Council issued instructions to all Ecuadorian financial institutions in late 1995 requiring them to file regular reports on individuals engaging in large transactions. The information will be stored in a computerized data bank, and then be readily available for sharing with the police and the USG under the terms of the bilateral agreement.

Ecuador has ratified, the 1988 UN Convention, and cooperates with the USG on money laundering investigations and has received from the USG assets seized with its assistance from Ecuadorian narcotraffickers.

The GOE intends to issue instructions requiring all persons entering or leaving Ecuador to declare any negotiable monetary instruments above a certain amount; however, there would be no limit on the value of these instruments that could be transported.

The Ecuadorian association of private banks has drafted its own manual on banking procedures to prevent money laundering. There are different points of view as to the liability of bankers who report suspicious transactions, but bankers often cite the potential to be sued for moral defamation as one reason for not reporting suspicious transactions. Several banks maintain offshore offices, but these have come under closer regulation under the 1994 banking reform legislation. Exchange houses (casas de cambio) and other financial institutions are equally controlled under the banking regulations.

Ecuadorian law permits the GOE to temporarily seize practically all assets belonging to narcotics traffickers, as well as those assets legally held by other persons where the GOE can made a credible case that the assets actually belong to the trafficker. The banking community has cooperated in several such cases, beginning with the Reyes-Torres arrest in 1992, and as recently as the Edgar Sisa case in 1995.

El Salvador. (No Priority) El Salvador has ratified the 1988 UN Convention. The USG is not aware of any significant money laundering activity.

Egypt. (Low-Medium) There are no anti-money laundering laws in Egypt, which is still trying to attract hard currency deposits. Egypt, which is not an important financial center in the region has not addressed the problem of the international transportation of illegal-source currency and monetary instruments. There are no controls on the amount of currency which can be brought into or out of Egypt. Individual bankers are not held responsible if their institutions launder money. However, the GOE reportedly continues to study amendments to improve the monitoring and investigation of suspect funds.

Estonia. (Low) Authorities profess serious concern about financial crimes, especially money laundering, as Estonia's role as a regional financial center grows. Law enforcement officials recognize that they are ill- prepared to deal with sophisticated financial crimes. Beyond seeking additional training for police, the government has still to enact laws that make money laundering an offense.

Ethiopia. (No Priority) There is no evidence that Ethiopia's archaic banking system is used for money laundering.