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
Jamaica to Luxembourg

Jamaica has adopted laws which ensure the availability of adequate records of narcotics investigations to appropriate USG personnel and those of other governments. Banks can be requested to report suspicious transactions, and bankers are protected against liability for evading bank secrecy.

However, banks and other financial institutions are not required to know, record, and report the identity of customers engaging in significant large currency transactions. Nor is there a time limit for retention of records. There are no controls on the amount of currency which can be brought into or out of the country. An assets forfeiture law was passed in August 1994; it requires prior conviction for a drug offense and the assets must be related to the offense.

Japan. (Medium High) Money laundering remains a criminal offense only if related to drug trafficking. In other key respects, Japanese law is consistent with the 1988 UN Convention, which it has ratified, and with FATF recommendations. Japan is the only member of the P-8, which created the FATF, that has not criminalized the laundering of proceeds from all serious crimes. At the recent P-8 Conference in Paris, Japan representatives discussed extension of non-narcotic money laundering legislation within 2-3 years. The minister of justice will act as the initiator of the new laws.

Japanese banks and financial institutions are required to report suspicious transactions, and to know, record, and report the identity of customers engaging in significant, large currency transactions, and to maintain for an adequate time records necessary to reconstruct significant transactions through financial institutions in order to be able to respond quickly to information requests from appropriate government foreign as well as domestic authorities in narcotics-related cases. However, Japan has shared such information with other nations only on an informal basis.

Bankers are protected by law with respect to their cooperation with law enforcement entities. Japan has placed controls on the amount of currency which can be brought into or out of the country. It has also extended money laundering controls to non-bank financial institutions.

There were no arrests or prosecutions for money laundering in 1995.

Japan has established systems for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets but does not share seized narcotics assets with other governments. The Japanese seizure statute allows the government to seize only those funds which can be directly linked to a specific drug investigation or violation: illicit proceeds, any property derived from illicit proceeds, any property obtained in reward for conducting an offense, any property ruled fruit of the crime. In the event illicit funds have been commingled with legitimate funds, an amount equivalent to the illicit amount can be seized. Although seizure laws are in place since 1989, only one money seizure has occurred to date.

Jordan. (No Priority) Jordanian officials state that money laundering is not now a major problem in Jordan but is a concern. There are no laws for financial institutions to follow, and no programs in place to deal with money laundering. Local authorities know that the transportation and distribution of drugs is largely handled on a cash basis by nomadic Bedouin tribesmen. This situation does not allow for the easy tracking of drug money. Jordan is not viewed as a major financial center for drug traffickers, in the region. Foreign exchange facilities are government-regulated and directly linked to banks.

Kenya. (Low) Kenya is East Africa's financial hub, but the country is not a significant money laundering center. ANU officers in Nairobi and the coast suspect, however, that Kenya's casino industry may be an avenue for narcotics-related laundering. In 1995 the ANU did not seize any assets in connection with drug trafficking, except for one car. Under the Narcotic Drugs and Psychotropic Substances Control Act, proceeds from narcotics-related asset seizures go into a rehabilitation fund for drug addicts. Currently Kenya does not have agreements with other countries to share seized assets or information on money laundering. The narcotic drugs law nevertheless allows the Kenyan government to provide such assistance to other countries upon request.

During the year the Central Bank issued and then almost immediately withdrew a circular notice that requested banks to identify the sources of their depositors' funds before accepting their accounts. Later the national assembly adopted an amendment to the Central Bank Act that authorized restrictions on foreign exchange transfers for purposes of meeting treaty obligations. The amendment also required that all payments to, from, or within Kenya be processed through authorized banks. According to the Attorney General, this provision enabled the Central Bank to ensure that international payments were not connected with money laundering.

Korea. (Medium) US officials have had difficulty in tracing the movement of funds to specific drug shipments. However, there have been reports of Nigerians and Colombians entering Korea with thousands of US dollars in bulk. Moreover, Korea is known to be a depository for funds generated by the large trade in methamphetamines which reaches from East Asia to Hawaii. During 1995, Korea, was stung by admissions from former President Roh Tae Woo that he had deposited nearly US$250 million in secret bank accounts outside his country, is taking actions to prevent financial crimes, including money laundering. Asset seizure laws related to drug trafficking were proposed in 1995 which would allow freezing of accounts and prevent traffickers from moving assets out of Korea, while also permitting Korea to honor foreign forfeiture orders. False name bank accounts have been banned, and banks are required to advise the authorities of suspected drug-related deposits. However, foreign banks in Korea are not subject to the same regulations as domestic banks, and citizens can hold unlimited amounts in foreign currency accounts. Korea has a vast underground banking system whose volume is estimated at more than US$32 billion annually. While the system is not believed to be used extensively by money launderers, it may become more attractive as the banking system is regulated.

Kuwait. (Medium) Despite a lack of hard data on money being laundered there, Kuwait remains a Medium priority because of its potential as a money laundering center, given its absence of currency controls and reporting requirements and its loosely regulated network of money exchangers, coupled with the known and assumed flows of money into and out of Kuwait the country.

Kyrgystan. (No Priority) The Kyrgyz banking system is undeveloped. It is not easy to electronically transfer funds into and out of the country. It is not an attractive center for money laundering. There have been allegations that drug money has been deposited into local banks for use then in legitimate enterprises. There are no laws which specifically address money laundering. The GOK is more concerned with the larger problem of money from other forms of illegal activity, such as government corruption. There is no specific Kyrgyz law on asset forfeiture. The legal basis for such action is contained in the corresponding articles of the criminal code of the former USSR. If a person has been found guilty and convicted by the court, the person's property is to be confiscated, with thirty percent of the proceeds going to the law enforcement agencies.

Laos. (Low) Laos is not considered a major financial center and its commercial banking system is only in the early stages of development, with the assistance of international financial institution consultants. Nonetheless, the Lao government has expressed interest in development of money laundering legislation. Although the government welcomes foreign banks, only one Thai bank to date has begun operations in Vientiane. The draft legislation package which was prepared by the UNDCP legal expert includes a section on money laundering. In 1995, a Lao banking official attended a money laundering symposium conducted for Asian countries by FATF and hosted by the Japanese government. The Lao Kip is not a free currency. The GOL has very strict laws on its export.

Lao customs legislation, enacted in 1994, specifically authorizes asset seizure in that the law states that the means of conveyance of contraband can be seized along with the contraband. The UNDCP advisor, who departed in mid-1995 after a one year assignment to Vientiane, stated that under current laws and judicial procedure, provisions are adequate to deal with narcotics violations and that the courts can order seizure of assets. He stated, however, that additional legislation would be required should the current authoritarian system of national political administration be modified in the direction of greater individual rights, including the rights of those accused of crimes. The previously referenced draft legislation also included a section on asset forfeiture. Asset seizure does in fact occur in Laos. A boat seized in connection with a 1994 drug case in Bokeo province was turned over to law enforcement agencies by the court following conviction of the traffickers ln 1995. In another case, which is still pending, a pickup truck being used to transport drugs was seized and is being held by police until the court rules on the case. Customs officials are of the opinion that the court will forfeit the property to the Lao government since it was being used to smuggle drugs.

Latvia. (Low Priority) Latvia has the potential to be a money laundering center because of its lack of effective banking regulation for its sizable banking industry. UNDCP and UNDP have been assisting the Bank of Latvia on draft money laundering legislation. The lack of anti-money laundering legislation, the absence of strict banking accountability and the large number of banks formed under very loose regulations could attract money launderers. A scandal involving the then largest bank in Latvia, Banka Baltija, occurred in Spring 1995, amid public allegations that the bank's owners and top management raided its assets prior to its closure for financial improprieties by the Latvian National Bank. Major international investigations into the affair are ongoing with the FBI and other law enforcement agencies from other countries conducting their own investigations on Banka Baltija's dealings. Despite some efforts at liaison, there continues to be a lack of coordination among the police, border guards and customs officials. Low salaries and lack of proper training and equipment for these civil servants severely hamper efforts to stop illegal trafficking at the borders.

Lebanon. (Medium) Lebanon's bank secrecy laws, which do not allow for law enforcement discovery, create an opportunity which money launderers are likely to exploit. This year Lebanon ratified the 1988 UN Convention. In its accession, however, the legislature made reservations to the language on bank secrecy laws. Thus, current bank secrecy protections, which do not allow for legitimate law enforcement concerns, foster an environment for both money laundering and corruption.

The GOL has proposed legislation which will criminalize money laundering and reportedly will deal harshly with convicted money launderers. But, for now, Lebanon imposes none of the measures which are deemed essential to combat money laundering or to ensure adequate levels of prudential supervision of banks.

Lesotho. (No Priority) Lethoso is not now, and is unlikely to become a significant center of production, trafficking, money laundering or precursor chemical production related to illicit narcotics. Money laundering has not emerged as an issue in Lesotho. Lesotho is an active participant in a new regional initiative to foster counternarcotics cooperation,. Lesotho participated in the inaugural meeting of this body in October 1995 and is now considering the "Draft Protocol on Combating Drug Trafficking in Southern African Development Community (SADC)". That protocol like the UN Convention, would require signatories to criminalize drug abuse, narcotrafficking, money laundering and other attendant activities.

Liberia. (No Priority)

Liechtenstein. (Medium-High) A major offshore banking center, Liechtenstein adopted legislation criminalizing laundering of drug proceeds in 1993 and is now preparing a more comprehensive law which will criminalize money laundering as a stand-alone offense. Pursuant to an MLAT request from the United States, Liechtenstein has blocked a bank account holding US$8 million in the name of an Ecuadorian endowment fund. The GOL conducted its own investigation of a second account sought by the US and located and froze another US$9 million.

Lithuania. (Low) The regulation of Lithuania's private banking sector is still in its formative stage, hence the country's banks could be vulnerable to money laundering operations. The law on commercial banking and legislation of income and asset declaration for tax purposes that was passed in 1994 helped to strengthen the legal framework for fighting the narcotics problem. There were no reported cases of high- level corruption associated with the drug trade in 1995.

Luxembourg. (Medium High) A major world financial center, hosting more than 230 international banks which operate as "universal banks" with an unrestricted range of activities, Luxembourg is a tax haven due to its banking secrecy, absence of exchange controls, lack of withholding tax on interest, and politically stable environment. However, banking secrecy does not apply in criminal cases, including money laundering.

Government officials acknowledge that narcotics money laundering occurs, but they do not consider Luxembourg more of a center for such activity than other places with highly developed banking systems. Virtually all recent money laundering cases involved funds introduced into the world financial system elsewhere (usually from within Europe) which were then transferred to Luxembourg for layering or integration. In all money laundering cases, Luxembourg law holds bankers personally liable if they fail to establish the bona fides of the beneficial owners of funds when they are received. The Monetary Institute has stepped up its efforts to police the banks' anti-money laundering performance.

There have been no indications that the non-banking financial sector has been involved in money laundering. The government continues to closely monitor non-bank institutions, such as building companies, real estate agencies, jewelry stores, art galleries, and antique dealers.

Asset forfeiture remains the focus of bilateral relations with the US on money laundering. The Luxembourg government has been very active in information sharing and joint investigations with the United States and other countries. The Luxembourg authorities have made good use of tips provided by US agencies to seize money and assets belonging to drug traffickers.

Luxembourg plans to ratify the 1990 Strasbourg Convention in 1996. Luxembourg ratified the 1988 UN Convention on March 17, 1992. The legislation ratifying the convention brought Luxembourg's law into conformity with the convention. Luxembourg is also a member of the FATF and has implemented many of its recommendations. Luxembourg is party to both the European Convention on judicial assistance and the BENELUX Convention on extradition and assistance.

Under current Luxembourg legislation, only drug-related money laundering is a criminal offense. The laws will be changed once Luxembourg ratifies the Strasbourg convention to criminalize all money laundering. Under Luxembourg's 1992 law, the punishment for money laundering is a minimum jail term of two years and a minimum fine of 10,000 Luxembourg francs (approximately US$ 345).

Under Luxembourg's financial sector law of April 10, 1993, bankers and other financial dealers are required to keep documents or information on transactions for at least five years. The 1993 law also requires financial sector professionals to report suspicious transactions to the public prosecutor. exchange dealers, lawyers, notary publics, and bankers who handle securities are under the same obligation. As stated above, the first annual report on banks' performance of the duty to report "suspicious transactions" was published in March 1995.

Bankers are criminally responsible if their institution knowingly launders drug money. Client identity must be verified for transactions exceeding 500,000 Luxembourg francs (approximately usdols 16,000 at the current rate of exchange). The 1993 law protects from criminal or civil prosecution under Luxembourg's bank secrecy law those financial professionals who in good faith provide information on clients to the Authorities. There are no controls on money brought into or taken out of the country.

Luxembourg law provides for asset forfeiture in criminal cases, and the first funds to be forfeited occurred in 1994. Forfeiture can follow a finding that the assets to be forfeited were involved in narcotics- related money laundering or following criminal conviction. It remains unclear whether Luxembourg courts will enforce civil forfeiture orders from elsewhere, because the concept of civil forfeiture does not exist in Luxembourg law. In criminal matters, seized funds cannot be forfeited directly under pre-1992 Luxembourg law, which requires a criminal conviction in order for the money to be forfeited. There were no major seizures in 1995.