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
Taiwan to Uruguay

Tajikistan. (No Priority) Tajikistan is not a money laundering center.

Tanzania. (No Priority) Certain foreign investments on the Tanzania mainland and on the island of Zanzibar are alleged to be linked with money laundering activities, though hard evidence is lacking. Little information is available concerning money laundering in Tanzania. The lack of experience and training among bank officials and local law enforcement authorities is reflected in their lack of information.

Thailand. (High) Thailand is an important and growing regional center for financial activities whose importance in the worlds of both licit and illicit capital movement has not been matched to date by commensurate measures to prevent money laundering and other financial crimes. Its efficient network of banks and financial institutions are used by drug traffickers to move and hide their proceeds throughout Asia. Thus, Thailand remains one of the key money laundering concerns in Asia. Although these problems remain, two succeeding governments have pushed forward to introduce money laundering legislation, a move which has official, business and public support. These new laws are expected to be enacted in the Spring 1996 parliamentary session.

Rapid economic growth, real estate investment and an active stock market coupled with a major presence of international financial institutions make Thailand an attractive investment site. Thai investment in the region, especially in the economies of Cambodia, Laos and Vietnam, and also Burma, is a consequence of comparatively rapid economic growth and burgeoning investment capital and the fact that its banking and financial service sectors are far more developed than those of neighboring countries. An offshore banking facility in Bangkok, specifically designed to meet the needs of outside investors in these neighboring countries, was created in 1992.

Besides the official financial system, an extensive informal and less regulated financial system exists. This, coupled with the presence of large amounts of money from the illicit drug trafficking, smuggling of commodities and arms, and from gambling, prostitution, counterfeiting and other extra-legal practices has created a situation where, in the opinion of most international experts, money laundering is inevitable and relatively widespread. A committee set up under the authority of the Prime Minister's office completed draft money legislation in the Spring of 1995. This legislation was not introduced in Parliament due to the dissolution of the previous government in May. Following the July elections, resulting in the formation of a new coalition government, the draft legislation is again under consideration by the government. Senior government officials have said that legislation will be introduced and passed in the upcoming parliamentary session beginning in March 1996.

Since there is an absence of appropriate money laundering legislation and current bank secrecy practices make it nearly impossible for the Royal Thai government itself to obtain financial information required for narcotics-related financial investigations, little action has been taken to target the financial underpinnings of illegal activities including drug trafficking and other forms of smuggling. The issue is not the government's willingness to share information, so much as the inability under the present legal situation to obtain such information. Thailand has participated in meetings of the Financial Action Task Force (FATF), consulted with the governments of the United States, Great Britian and Australia and with the United Nations to gain information regarding money laundering laws and control systems. Thailand's current efforts to enact money laundering legislation are, in part, a response to the urgings of the FATF and other foreign countries, including Dublin Group.

Passage of appropriate money laundering legislation is the last hurdle Thailand needs to cross to permit it to accede to the 1988 UN Convention.

Pending the passage of the money laundering legislation, the only drug- related law governing assets is the 1991 Asset Seizure Law. Proposed money laundering legislation currently being reviewed within the government would initially criminalize only drug-related money laundering. Thai officials and members of the drafting committee have indicated that this initial restriction, believed necessary to get the legislation passed into law, should in the future be relaxed to cover money laundering of funds from any illicit source. The legislation drafting committee has studied a number of different legal models including UN and OAS Model Regulations and has built in bank reporting requirements in the law as well as provisions protecting bankers from consequences of their compliance with the reporting requirements. One area of US concern is the lack of specific language in the draft legislation covering the sharing of information internationally.

An asset seizure law was passed in 1991 and implemented in 1992. Until this year progress appeared slow in gaining convictions under the law. In September 1995, Thai authorities completed the first successful prosecutions under the asset seizure and conspiracy statutes. According to Thai officials, the newness of the legislation and the government's desire to present very solid cases accounted for the apparent slowness of implementation leading to these initial successes. In the future, it is hoped that prosecutions and convictions will proceed more rapidly.

The Property Examination Committee of the ONCB is the body having primary responsibility for action under the asset seizure law. As of late this year a total of 138 cases involving in excess of 9 million dollars in assets have been brought under the asset seizure law. ONCB Property Examination Committee officials have received good cooperation from banks and other financial institutions in instances where seizure orders have been issued, but -- absent legislation requiring them to do so -- banks will not necessarily provide information to law enforcement officials to assist in investigations.

Under the asset seizure and conspiracy laws, enforcement officials are not permitted to open investigations or bring charges relating to assets connected to drug-related crimes committed before the implementation date of the act. As time passes, this limitation will diminish in importance.

Trinidad and Tobago. (Low-Medium) While money laundering may take place in banks, credit unions, stock brokerages and insurance companies, no cases have established the extent of money laundering. Information is shared informally and through official channels such as the CFATF. The GOTT is currently negotiating a mutual legal assistance treaty with the United States. It has ratified the 1988 UN Convention. Money laundering is a criminal offense, not limited to drug trafficking. Banks voluntarily report transactions involving over about US$ 8,000 in cash. Banking records must be maintained for 14 years and the law requires banks to report suspicious transactions. Bankers and others reporting a suspicious transaction are protected by law from prosecution. Travellers entering and departing TT must declare currency of US$ 5,000 or more to customs; cash above US$ 10,000 in value may be seized by customs, with judicial approval, pending determination of its legitimate source.

Money laundering guidelines, set by the central bank, apply only to banks. However, employees of credit unions or exchange houses are subject to money laundering penalties. There have not been any arrests or prosecutions for money laundering.

Turkey. (High) Turkey is one of the three governments whose priority has been raised to High for 1996, indicating US belief that immediate remedial action is necessary to counter money laundering practices. This assessment also takes into account deep concerns about the inadequacies of current law and uncertainties about the effectiveness of new laws which have been promised for enactment by June 1996.

The increased priority assigned to Turkey is rooted in part on concerns that money laundering there is not limited to drug proceeds but includes proceeds of other criminal activity. While there is no consensus as to whether actual volumes of transactions have increased, there is no question about the need for Turkey to demonstrate the political will to make these changes before the problem worsens. Turkey remains one of the few members of FATF which has not adopted legislation to meet international standards. Money laundering may not be the most critical problem confronting the Turkish government, but it deserves a higher political priority than it has received in the past.

Given the prominence of Turkish drug trafficking organizations in the European drug market, Turkey is also considered to be a high priority for money laundering because of the likelihood that some drug profits are returned to Turkey for investment in legitimate businesses.The Turkish parliament literally came within hours of passing legislation before its Christmas-time adjournment but Turkish officials assure that it will be reintroduced and could be passed by June. However, the text advises that implementation will be dependent upon subsequently enacted regulations.

The draft legislation is not perfect, but its adoption would be a major step towards meeting Turkey's obligations under the 1988 UN Convention. As currently drafted, the proposed law would criminalize money laundering involving the proceeds of all crimes, not just drug trafficking, and includes the proceeds of contraband smuggling as well as funding of terrorist organizations. Among the bill's important impacts, a new "financial crimes research and investigation administration" will have sole responsibility for controlling money laundering. The bill would strengthen existing asset seizure laws to bring them into line with the 1988 Convention.

Money laundering is not now prohibited or controlled. Turkey has taken other steps which are consistent with global money laundering countermeasures. The central bank requires banks to report every month transactions above three billion Turkish Lira (50,000 USD), together with customer identification. This information goes to the treasury and finance ministry. The banking law requires banks and financial institutions to maintain all documents -- originals if possible -- related to their operations. The Turkish commercial code requires all entities to keep their records for ten years.

Turkmenistan. (No Priority) Growing number of casinos and foreign-run luxury hotels has raised concern among some observers about Turkmenistan's vulnerability to becoming a haven for money-laundering activities associated with the narcotics trade. Turkmenistan is not a signatory to the 1988 U.N. convention, but its government is considering accession at this time.

Uganda. (No Priority) Kampala is experiencing a dramatic influx of Western currency, primarily from non-government organizations and donor nations. Ugandan authorities assume that some of the funds transferred into Uganda may also be from illicit sources, but, there is no indication of a large volume of illicit money, and authorities concede they lack the expertise to conduct effective investigations.

Ukraine. (Low) Capital flight presents a more serious problem in Ukraine than money laundering. Ukraine is not a financial center in its own right as the Ukrainian banking sector remains below Western standards. Some laundering is undertaken by Russian organized crime in Crimea, which is a haven for them and for Russian banks, but Ukranian criminal groups are assumed to transfer much of their profits to Europe. Legislation has been passed in 1995 that creates legal mechanisms to prevent capital flight and which provides for asset seizure and forfeiture of monies and property derived from illegal activities. Government authorities take the problem of capital flight and money laundering very seriously and have pushed parliament to pass laws to restrict such activities.

United Arab Emirates. (Medium High) The United Arab Emirates (UAE) is an important financial center in its own region. Although not on the same scale as East Asian banking centers, the UAE's open and accessible banking system makes it a regional financial center. Currently, the UAE does not have laws to restrict or prevent money laundering, nor does it have disclosure laws, so no information is available on the sources of assets held by UAE banks. Given the UAE's proximity to regional drug producing countries, however, it is likely that trafficking organizations use UAE banks to launder their narcotics proceeds.

UAE is not considered an important tax haven or offshore banking center. Money laundering is currently not illegal in the UAE. Both the banking system and the non-bank financial system (primarily the "Hawala" system used widely throughout South Asia) are open and flourishing. Currently no information is available on the extent to which UAE banks are used for laundering, or the organizations involved in money laundering. The UAE has been working on legislation to control money laundering for the past two years, and reportedly has draft legislation in place which it hopes to implement in 1996. The UAE does not have foreign currency controls and US dollars, like other foreign currencies, are freely exchanged. The UAE does not have laws allowing for asset forefeiture and seizure.

United Kingdom. (High) UK banks and other financial institutions share the vulnerability to money laundering experienced by the world's major banking centers. Narcotics proceeds are converted in the UK but also transit the country. The Channel Islands and the Isle of Man have offshore banking facilities that are also believed to attract drug funds, and have adopted money laundering countermeasures.

HMG has comprehensive legislation aimed at preventing money laundering. The government moves swiftly to plug loopholes. Between January 1987 and December 1994, there were 102 prosecutions for money laundering. USG agencies work closely with their British counterparts in dealing with the money laundering problem. US federal law enforcement supports the NCIS's Financial Intelligence Unit.

The Criminal Justice (international cooperation) Act of 1990 enhanced the ability of the authorities to deal with money laundering including the power to hold cash being imported to or exported from the UK for up to two years if a narcotics connection is suspected, with potential for civil forfeiture. 1993 amendments to the Drug Trafficking Offenses Act of 1986 require banks and other institutions to report suspicious transactions. Under the 1986 act, the reporting of suspicious transactions was voluntary - with the caveat that any bank official who failed to report a suspicious transaction could themselves be prosecuted for money laundering. The 1993 act also created new immunities from civil action for bank officials and others who disclose suspicions of money laundering to NCIS. The Act of 1993 incorporated money laundering for all types of criminal offenses. Previously money laundering had been limited to narcotics and terrorism.

Since April 1, 1994 UK banks have been required to maintain records of large currency transactions including the identity of customers engaging in such transactions and report the data regularly to a central authority. Such records are maintained for five years. Suspicious transactions are reported to NCIS. The money laundering regulations of 1993 also require financial institutions to establish procedures for preventing money laundering, (e.g. the establishment of internal reporting systems, the provision of training in the recognition and handling of transactions which appear to be related to money laundering.) HMG utilizes a "knowingly or suspectingly" standard. The UK has established systems for identifying, tracing, freezing, seizing and forfeiting narcotics-related assets, but HMG has only enacted laws for sharing seized narcotics assets with the USG. HMG continues to address the problem of international transportation of illegal-source currency and monetary instruments.

Uruguay. (Medium High) Uruguay is a significant financial center in the Southern Cone, with huge foreign deposits and money laundering is not illegal. USG and European law enforcement officials believe that narcotics traffickers launder money here, both in banks and exchange houses. However, while there have been several recent incidents in which Uruguayan banks were used to deposit illegal funds, the extent of the problem is not known and there is no solid evidence that money laundering is widespread.

It is also not clear what percentage of money laundering proceeds are owned by local organizations. There is some indication that terrorist groups (i.e. ETA, Shining Path/Sendero Luminoso, Tupac Amaru/MRTA) might be using Uruguay to launder money.

Although the government is adamant in its statements about curbing the practice, money laundering is not yet a crime in Uruguay. There are no controls on the amount of currency or gold entering or leaving the country. The GOU has not yet addressed the problem of international transportation of illegally-sourced currency and monetary instruments.

This may change, however, because Uruguay signed the Ministerial Communique on money laundering in Buenos Aires December 1995, agreeing to the establishment and implementation of regulations concerning the international transportation of money and instruments across national borders.

The GOU has been actively participating in SOA Ministerial meetings on money laundering, which culminated in the Buenos Aires Ministerial in December 1995. The Uruguayan Drug Czar was recently elected by acclamation to be the President of the O.A.S. Working Group on Strategies to Fight Narcotics Trafficking in the 21st Century. He is also Vice-President of the U.N. Commission on Narcotic Drugs (UNDCP). Uruguay takes its international role very seriously and not only intends to cooperate, but also to take the lead in the fight against the use and trafficking of illegal narcotics. The GOU has cooperated in good faith with the US on all narcotics-related investigations.

The USG-GOU Bilateral MLAT became effective in May 1994. The GOU ratified the U.N. Convention in September 1994 and deposited its instruments of ratification in March 1995. Money laundering is still not a criminal offense, although a money-laundering bill, to be presented to Parliament in early 1996, would make it so. Banks and exchange houses are required to record large currency transactions over 10,000 USD and to make their records available quickly to the Central Bank on request. All financial institutions are required to monitor transactions. The law provides for legal penalties if violations occur, but to date there has been little or no enforcement. Uruguayan law requires that each financial institution keep an accessible data base on all transactions exceeding 10,000 USD, and requires that those making such a transaction identify themselves. Banking officials are held liable if they commit acts which are considered criminal, or if they approve or overlook actions which entail violations of the law, including those which might involve money laundering.

Nevertheless, money laundering as such is not considered a crime, and the GOU has not adopted specific "due diligence" or "banker negligence" laws which would make individual bankers responsible if their institutions launder money, whether or not connected with other criminal activity. However, the Central Bank can revoke the licenses of banks and exchange houses involved in money laundering.

Central bankers have told USG representatives they would support a judicial request for information related to investigations involving money laundering. However, in 1994-1995 a solid investigation involving money exchange houses and banks in Montevideo was derailed due to the extraordinary amount of information which Uruguayan courts demanded prior to approving any request for financial/banking records. Courts in such cases require a level of information normally unavailable to the investigator, thus preventing effective access to banking records.

The GOU still does not have an established system for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets. This too will be addressed with the proposed money-laundering bill. No known "legal loopholes" exist to allow launderers to shield assets. While the GOU can legally seize laundered drug money from banks or businesses, to our knowledge the GOU has never applied the asset seizure law in a case involving a money-laundering related crime.

Strict bank secrecy laws which protect assets can be lifted by judicial decree to permit access to asset information, but it is rarely done. Although the law allows for criminal forfeiture, the GOU has never used the law against convicted narcotics traffickers. The courts, sensitive to any violation of rights, must first give such authorization. The GOU seized the assets of narcotraffickers in a recent operation in the province of Rivera, but it is still not clear whether the Government will be able to retain those assets.

Uruguay currently lacks any laws for sharing seized narcotics assets with other countries, although existing laws contain a legal basis for establishing potential agreements on sharing. In addition, Uruguay has expressed a willingness to negotiate such an agreement with other countries.