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
Romania to Syria

Russia. (High) As evidence continues to mount that organized crime groups are controlling large sectors of the economy, US concerns about the inadequate management of Russia's financial system with respect to money laundering and other financial crimes prompts raising the priority for Russia to High, putting Russia among that group of countries where we believe immediate remedial action is necessary.

Criminal and fraudulent activities in the Russian banking sector and the perception of such activities have serious potential implications for the safety and soundness of the banking system and consumer confidence in the commercial banks as an integral institutional component of a market economy. There has been substantial speculation on the control of Russian banks by organized crime, with one source estimating that 25 percent of Moscow's commercial banks are controlled by organized crime. The Russian Mafia allegedly uses bank records to obtain information about companies for extortion purposes. There continue to be reports that money laundering, including of funds derived from illegal narcotics transactions, remains a serious problem in commercial banks in Russia. While most such activity in Russia is thought to involve the laundering of funds from illegal activities not related to narcotics, reports abound of Russian banks laundering narcotics money for organized crime groups located outside of Russia (Cali Cartel, Sicilian Mafia). The Central Bank of Russia, working with the multilateral financial action task force (FATF) is introducing reporting and other requirements to combat illegal laundering of money.

Moscow is considered an important financial center in the former Soviet Union, but is not considered an important tax haven. Money laundering allegedly occurs in banks and exchange houses, insurance companies and real estate firms. The use of false contracts for import and export as a means of hiding revenue offshore has diminished somewhat over the past year with better customs and banking regulations over external trade, and increasing financial stabilization in Russia. In addition, the Central Bank revoked the licenses of 315 badly managed banks, twelve percent of the banking industry, in 1995, and restricted operations for another 423. This compares to the revocation of only 85 licenses in the preceding four years.

San Marino. (Low) There have been two events of note in San Marino. A Bank of Italy study discloses that deposits in San Marino, which has a strong tradition of bank secrecy, were three times higher than its GDP and that per capita bank deposits were then times higher than in Italy. However, San Marino, which is subject to Italian banking regulations, announced in November that its officials had signed the Council of Europe convention which commits the government to adopt legislation on money laundering which permits the courts to order disclosure of banking and commercial records, including documents requested by foreign governments for criminal investigation purposes.

Senegal. (No Priority) There has been speculation that narcotics money has been invested in some of Senegal's coastal tourist resorts. This speculation has not been corroborated. There have been no other indications that Senegal, which has ratified the 1988 UN convention, is experiencing a money laundering problem.

Seychelles. (Low) While there is currently no evidence that substantial money laundering is underway, the Seychelles attracted substantial international attention and criticism by adopting measures which have an inherent potential for attracting illegal proceeds. The Economic Development Act, officially adopted in December 1995, offers large scale investors who invest in Seychelles a no-questions-asked opportunity to deposit proceeds from any source, as well as protection against international requests for extradition and asset seizures.

The language of the Act, ostensibly designed to attract large foreign investments, strongly suggests its intention is to draw in tainted money. Under the Act, the GOS can grant someone investing more than ten million dollars "immunity from prosecution for all criminal proceedings whatsoever." The GOS also has authority to grant "immunity from compulsory acquisition or sequestration of the assets belonging to an investor." The United States and other nations, notably the United Kingdom and France have made known to the GOS our great concern with this legislation. The GOS has also announced plans to set up an offshore banking system, with secret, numbered accounts and a securities (stock market) system. The GOS, maintains it is not seeking to encourage money laundering. However, the Economic Development Act has been condemned by the 26-nation Financial Action Task Force on January 30, 1996, which asked nations to consider unusual transactions involving the Seychelles as potentially suspicious.

Singapore. (High) Singapore is one of Asia's most important financial centers and one of the world's fastest growing foreign exchange market. US and Singaporean officials disagree on the extent of money laundering through its banking system. Information sharing, which may reveal more of the level at which criminals are operating, will be enhanced by agreement in 1996 on a designation agreement which will enable US authorities to participate in the processes enabled by the GOS anti- money laundering laws.

Until the anti-money laundering law, passed in 1994, allowed the sharing of banking data in accord with bilateral agreements, information sharing in Singapore has been virtually precluded under bank secrecy laws, with only rare exceptions. US officials believe that significant laundering occurs both in the banking system and in the non-bank financial system of exchange houses.

Penalties for money laundering are onerous, including seizure of the account. Narcotics-associated money laundering is a criminal offense, in conformity with the U.N. Convention. Bankers can be held personally liable in money laundering cases. Under the Drug Trafficking (confiscation of benefits) Act of 1992, banks must report suspicious transactions. Banks must positively identify customers engaging in large currency transactions. There are no controls or reporting requirements on amounts of currency that can be brought into or out of Singapore. Banks maintain adequate records to respond quickly to GOS inquiries in narcotics related cases. Although reporting requirements placed on the legitimate banking sector are quite extensive, it is not yet clear how effectively the new legislation will restrict money laundering activities in the less regulated system of exchange houses.

Singapore has internal procedure for identifying, tracing, freezing, seizing and forfeiting narcotics-related assets. The USG worked closely with GOS counterparts in identifying several major accounts which the GOS froze in August, 1994. Conveyances, bank accounts, and businesses can be seized under the law, and the proceeds go the government. The USG knows of no loopholes to shield assets, although the law does protect the assets of innocent third parties. Singapore's CNB is responsible for tracing and seizing assets, with the assistance of the Commercial Affairs Division of the Ministry of Finance. Limited information sharing in money laundering cases is available under the 1992 legislation; however, enabling legislation requires that the GOS conclude an MOU or MLAT with foreign governments in order to gain access to such information. The GOS is willing to enter into such an agreement with the USG. We have provided a draft designation agreement to the GOS and will hold consultations between the two governments before mid-1996. Singapore is not a signatory to the UN Convention, but it is a member of FATF.

Slovakia. (Medium) Slovakia's banking sector remains primarily under state control, with only a handful of private banks currently operating in the country. Law enforcement officials believe, although they have no firm evidence on which to base this conclusion, that Slovak banks, both state-run and private are involved in money laundering. Anecdotal information suggests that criminal organizations are of increasing influence and are engaged in illicit financial activity. Unfortunately, the police do not have the experience or the resources to even begin to look at this problem. Therefore, it is impossible to identify precisely the type of money laundering that is being carried out, or to state categorically that it is related to narcotics trafficking.

There is no formal information sharing mechanism established between the USG and Slovak law enforcement entities. There do exist, however, good, informal contacts through which information requests related to specific cases are passed. It is not known if Slovakia has similar arrangements with any other countries.

Money laundering is incorporated as a criminal offense in the Slovak penal code, however, banks are under no requirement to report large cash transactions to a central authority. In addition, the authorities are simply not equipped to begin to focus attention on this problem.

South Africa. (Low Medium) South Africa is the major financial center in the Southern Africa region and has great potential as a money laundering base. Money laundering is not yet a criminal offense in South Africa, although money laundering legislation written in 1995 is expected to come before Parliament during early 1996. However, assets used by persons convicted of narcotics-related crimes may be seized through the 1992 drug control act and turned over to the state treasury.

The US Department of Treasury, including the Office of Asset Forfeiture, ATF, Customs, IRS and Secret Service, conducted a highly successful money laundering and asset forfeiture conference in September 1995. South African Customs, however, is a revenue-collecting agency in the midst of a major reorganization, and bureaucratic obstacles remain to be surmounted before Customs can take over narcotics interdiction at ports of entry.

Spain. (Medium High) Spain is increasingly aware of its potential as a significant money laundering center. Spanish financial institutions are being used by traffickers to launder illicit proceeds. Banks and institutions of neighboring Gibraltar and Andorra are similarly used. However, Spanish financial institutions are increasingly sensitized to the modus operandi and signature of money laundering activities, which has led Spanish financial institutions to be more cooperative in combating money laundering activities. Money laundering in Spain is suspected of being primarily related to narcotics proceeds.

Money laundering occurs primarily in the financial system, though there is increasing evidence that money is laundered through the acquisition and sale of real estate. Illicit activities are directly related to the sale/ distribution of heroin, cocaine and cannabis. Money laundering activities in Spain are often related to the large Latin American drug cartels.

According to Spanish national law enforcement investigative reports, an undetermined, yet significant amount of illicit proceeds are estimated to arrive in the United States from Spanish financial institutions. Agreement exists between the US and Spain on the exchange of records in connection with narcotics investigations and proceeds from these criminal activities.

Spain has adopted laws and regulations which ensure the availability of records of narcotics investigations to appropriate USG personnel and those of other governments.

Spain is a signatory of the 1988 Vienna Convention and has adopted formal articles of ratification. Spain is a member of FATF.

Spain is the originator and founder of the "Madrid group", a coalition of eight western European countries' national directors and heads of anti-drug agencies. The intended purpose of the group is to exchange information and intelligence relating to all aspects of criminal narcotics activity.

Money laundering became a criminal offense in December 1992, punishable by imprisonment or by fine. December 1993 legislation expanded money laundering activities to include terrorism and organized crime.

Banks and other financial institutions are required to report the identity of customers engaging in significant, large currency transactions. Banks and other financial institutions are required to maintain sufficient records to reconstruct significant transactions through financial institutions. This enables banks to respond quickly to information requests from appropriate government authorities in narcotics-related inquiries. The bank of Spain is the central, long- term depository of financial records. Branch offices of all banks operating in Spain maintain short-term records as well as provide them to the central bank on a daily basis. Bankers and others are protected by law with respect to their cooperation with law enforcement entities.

Spain is in full compliance with the 1988 Vienna Convention and its MLAT with the US Spain has cooperated fully with law enforcement agencies of the USG and other governments investigating financial crimes related to narcotics trafficking and money laundering.

Spain has addressed the problem of international transportation of illegal-source currency and monetary instruments. There are controls on the amount of currency which can be brought into or out of Spain, but the courts continue to apply lenient sentences when these controls are violated.

Spain continues to enforce the "due diligence" and "banker negligence" laws in money laundering legislation approved in December 1993. The money laundering controls are also applied to non- banking financial institutions, such as exchange houses. There have been no notable declines in deposits attributable to changes in money laundering laws.

There have been arrests, seizures, forfeitures and prosecutions for money laundering. The ongoing "charlines" case, involving a Galician crime organization, was the most significant such case in 1995. In 1995 Spain adopted broader laws permitting the use of controlled shipments, the forfeiture of drug traffickers' assets, and the use of undercover agents to infiltrate narcotics rings to gain evidence. The 1995 legislation also permits controlled money pick-ups to facilitate money laundering investigations. Financial instruments, real estate or personal property, particularly boats, automobiles and even shops or bars may be seized or frozen.

Spain has made progress, albeit slowly, to work with other governments to identify, trace and freeze narcotics assets. With the recent passage of legislation and revisions to the penal code, Spain is likely to coordinate more closely in the future with foreign governments in the areas of identifying, tracing and freezing assets resulting from drug trafficking. Under recently passed legislation, the government of Spain may share in asset forfeitures. National laws do not yet permit sharing of forfeited assets with other countries. This new legislation is intended to close legal loopholes that would otherwise allow traffickers and others to shield assets. Legislation allows for criminal forfeiture of assets seized in narcotics-related activities.

The Spanish national police narcotics division and the civil guard are all entitled to investigate criminal offenses related to drug money laundering. Under recently approved legislation, Spanish national law enforcement agencies are empowered to both seize and enforce forfeiture proceedings.

The dollar amount of assets seized in narcotics operations in 1994 by Spanish law enforcement authorities was roughly US $10.5 million. This represents a 20 fold increase and is likely to increase next year. This increase is due primarily to passage of money laundering legislation and the 60 ton increase in confiscated hashish in 1994. The government of Spain is engaged in bilateral or multilateral negotiations with other governments to harmonize efforts regarding asset tracing and seizure.

Sri Lanka. (Low ) Sri Lanka is not considered a major money laundering center, nor is it considered a tax haven, offshore banking center, or an important financial center in the region. The country does not facilitate or encourage money laundering as a matter of government policy.

Current legislation specifically excludes transactions relating to narcotics trafficking under its Bank Secrecy Act. Draft legislation amending the dangerous drugs ordinance to include specific provisions against money laundering, prepared by NDDCB, was not presented to parliament in 1995. It is due to be presented in early 1996. Sri Lanka is a signatory to the 1988 UN Convention.

Draft legislation to be presented to parliament in early 1996 contains specific provisions relating to forfeiture of assets from narcotics trafficking.

Sudan. (No Priority) Sudan is not a drug money laundering center.

Suriname. (Low) The primarily Dutch owned banks are sensitive to money laundering methodology, and money laundering by outside drug interests does not appear to be taking place. There are no structures in the country which would lend themselves to international drug laundering. However, laundering of money through real estates acquisitions and investments by local traffickers is of continuing concern. The government has no programs in place to identify or inhibit that illicit activity, but the Summit of the Americas Money Laundering Conference and communique is heightening the awareness of Suriname's officials to the dangers of money laundering.

Sweden. (Low) Sweden is not an important money laundering center, but the government has ratified the 1988 UN Convention, and criminalized money laundering. In compliance with the 1988 UN Convention and FATF recommendations, Sweden requires banks and other financial institutions to record and report the identity of customers engaging in significant and/or suspicious transactions. Sweden also have asset forfeiture and seizure laws relative to drug trafficking offense. The police have established a "National Financial Intelligence Service" Unit to enforce these laws.

Switzerland. (High) Switzerland is one of the world's leading financial centers, and its very sophisticated banking system, like those of other key financial centers, remains vulnerable to and is often exploited by money launderers. Money laundered in Switzerland involves proceeds from the sale of the three major drugs (cocaine, heroin, and cannabis) but also includes proceeds from other serious crimes. Switzerland serves as a transit point for money, licit and illicit, as well as a conversion point.

The major traffickers themselves are usually not present in Switzerland during these transactions, which are conducted by middlemen including professional money launderers. Switzerland is in fact more important as a tax haven than as a money-laundering site, since Swiss law does not allow legal assistance if tax evasion is the only alleged crime. Money laundering occurs through banks and non-banking financial institutions. Approximately $US 425 million has been frozen in Swiss banking institutions since 1990 and was identified primarily via narcotics investigations by DEA.

US and Swiss authorities have cooperated in many important cases. Whereas US authorities are required under the Swiss-US mutual legal assistance treaty to work through Swiss central government authorities, most actual enforcement in Switzerland takes place at the cantonal level. Switzerland routinely coordinates and exchanges information on money laundering cases with other countries, primarily with the US.

Switzerland has signed the 1988 UN Convention, and the Swiss government will seek ratification in 1997. Switzerland is a member of FATF and has moved to implement effectively FATF recommendations.

The Swiss penal code has explicitly recognized money laundering is a criminal offense since August 1990. The failure by banks or agents to exercise due diligence in identifying the beneficial owner of assets entrusted to their care also carries criminal sanctions. The requirement that trustees disclose the names of beneficial owners effectively lifted the veil of bank secrecy off the fabled Swiss numbered bank account. This first package of measures permitted Switzerland to participate actively in international cooperation, but did not deter money laundering to the degree desired. Consequently, the Cabinet and the Parliament adopted a second package of measures which came into force on August 1, 1994. These measures criminalize membership in or support of a criminal organization. The change in the law facilitates confiscation of illicitly acquired assets without having to establish an exact linkage between a given asset and a specific crime. In addition, the revised penal code allows bank employees to report suspicious transactions without fear of violating the bank secrecy regulations.

In 1994, the federal government presented a third package of measures which would extend the money laundering legislation to non-banking financial institutions and establish an obligation to report suspicious transactions. The Parliament is expected to decide on these proposed measures in the Spring of 1996. Non-banking financial institutions, such as exchange houses, are not affected by the due diligence convention or by the circular letter from the federal banking commission, since the commission has no authority over them. They are, however, subject to the penal code, notably the code's prohibition of money laundering and its requirement for due diligence in identifying the beneficial owner of assets.

In 1995, a federal administrative body was created to lead the fight against organized crime. This office coordinates operations between the cantons, collects and distributes information on organized crime, and develops contacts with similar bodies abroad.

In order to implement FATF recommendations, the Swiss banking commission prepared a "circular letter" which took effect in 1992. Swiss banks are already self-regulated on the issue of customer identification through the "due-diligence" convention of 1987. This "due-diligence" convention requires Swiss bankers to identify the beneficial owner of accounts and provides sanctions against banks which fail to live up to the convention. The Convention was renewed in 1992 and strengthened to conform with FATF regulations and the "circular letter". Banks are required to maintain records of currency transactions of SFR 100,000 or more; they are not required to report this data to a central authority. The banking commission, in consultation with the banks, plans to lower this threshold to SFR 25,000.

Switzerland, like several other financial centers, has never restricted international capital movements, relying instead on internal controls. Concern that a lack of restricts on cross-border currency movements could abet money laundering has spurred the Swiss government to sponsor legislation designed to curb any such abuses.

In November 1995, the Colombian national Sheila Miriam Arana de Nasser confessed in a Miami court to money laundering. Based on this confession, US and Swiss authorities anticipate dividing $US 160 million dollars in blocked Swiss bank accounts. At present, Swiss officials are cooperating with US and Mexican officials in the sensitive investigation of money laundering charges involving members of the Salinas family; over $US 100 million is frozen in Swiss-controlled bank accounts in this case.

Switzerland ratified the Council of Europe Convention on Asset Forfeiture and Confiscation. Notably, Swiss forfeiture law is not limited to narcotics trafficking cases, but instead focuses on criminal activity in general. The new law which came into force on August 1, 1994, allows confiscation of assets equivalent in value to the wealth derived from criminal activity. Judges have authority to estimate the amount of wealth that a criminal earned illegally. The court can then order confiscation of assets up to the established amount of criminal wealth, without having to prove that these assets derive from crime. If assets are forfeited, the proceeds go to the canton's general budget in which the legal action took place. The measure introduced in August 1994 also shifts the burden of the proof vis-a-vis the acquisition of wealth to the accused.

Syria. (Low) Syria is considered neither an important regional financial center nor a significant drug money laundering center. The absence of private banks, combined with harsh penalties for illegal currency dealings, limits money laundering, which, although possible, is much easier to carry out in neighboring Lebanon.