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
Vanuatu to Zimbabwe

Venezuela. (High) Venezuela is a major drug money laundering center due to its proximity to Colombia as well as to the size and sophistication of its financial markets. However, Venezuela is not considered a tax- haven or as an off-shore banking center. Rather, Venezuela generally exports capital in the form of capital flight to the US and other tax havens. Most money laundering occurs through exchange houses, commercial banks, casinos, fraudulently invoiced foreign trade, contraband, and real estate transactions. Money laundering in Venezuela is closely linked to cocaine trafficking by Colombian organizations. While the narcotics proceeds are primarily owned by Colombian or other third-country nationals, the money laundering networks are generally run by Venezuelans. Laundering transactions usually involve the exchange of US dollars in cash or in monetary instruments such as postal money orders for Colombian pesos or Venezuelan bolivares.

Venezuelan government exchange controls were imposed in 1994 to staunch the outflow of flight capital occurring during the financial crisis. While not intended, these policies tended to stimulate the growth of a large illegal parallel exchange market, which created new opportunities for money launderers to exploit. Since July 1995, the government has permitted a legal parallel exchange market to exist through the trading of Brady Bonds on the Caracas Stock Exchange.

The enactment of the 1993 Organic Drug Law was a major step forward in compliance with the 1988 UN Convention and other international agreements. The law explicitly criminalized money laundering associated with narcotics trafficking. The law applies to all financial institutions as well as non-financial businesses such as real estate brokers. Article 37 of the 1993 Organic Law defines money laundering as a crime with two formulations consistent with the terms of the UN Convention.

Money laundering is defined as (a) "hiding or concealing the origin, nature, location, movement or destination of capital or income, either liquid or fixed, with knowledge of their origin as products of the illicit traffic in drugs, narcotics and toxic substances", and (b) "transfer or conversion of assets, capital or other rights, with knowledge that they are products of illicit activities". The law imposes sanctions of 15 to 25 years imprisonment for money laundering crimes. In addition, the law establishes asset seizure/forfeiture procedures. Other important aspects of the law include:

• Banks and other financial institutions are required to self-initiate reporting of suspicious transactions to the technical judicial police.

• A "Due Diligence" principle is imposed on directors and officers of financial institutions.

• The use of anonymous accounts or fictitious names is prohibited. Complete identification of account holders is required.

• Financial institutions are required to maintain records for five years of all account transactions and to make them available to law enforcement investigators.

• Financial institutions are required not to divulge to account holders when they are under investigation.

• The Superintendency of Banks is required to monitor financial institutions to ensure that they develop adequate internal control policies and to conduct audits to ensure compliance.

• Officers and employees of financial institutions who report suspicious transactions are not subject to civil liability if sued by account holders.

• The Central Bank of Venezuela is required to design and develop a database on all foreign currency transactions and to provide information on such transactions to the PTJ or other law enforcement agencies.

• The Ministry of Justice and the Office of Notaries are required to maintain computerized databases on real estate transactions and to maintain special vigilance over any cash transactions.

• The Ministry of Finance is required to exercise control over trade in precious metals, stones, and jewelry as well as monitor invoicing of export/import transactions and commercial loans that are not considered normal business operations.

Despite the provisions of the 1993 Organic Law, in practice few banks or other financial institutions have complied fully with these requirements. The Venezuelan financial crisis which erupted in 1994 has diverted government attention and resources away from enforcing controls on money laundering. Government takeovers of failing banks makes the government increasingly directly responsible for monitoring suspicious transactions. (The Venezuelan Government now controls about 30 percent of the commercial banking system).

The financial crisis also led to the negotiation and signing of a mutual legal assistance agreement between the United States and Venezuela, to facilitate the exchange of information about illegal banking practices, which may ultimately benefit cooperative anti-money laundering efforts.

Venezuela and the US signed a "Kerry Amendment" Agreement in November 1990 for the exchange of information on cash transactions in excess of USD 10,000. The agreement was put into effect by Central Bank Resolution No. 90-12-05. However, the agreement applies only to transactions in foreign currencies, including the US dollar, but does not cover cash transactions in Venezuelan bolivares.

Venezuelan police agencies have initiated investigations and enforcement actions against several major money laundering organizations under the 1993 Organic Drug Law, but these cases have been frustrated by the courts. In October 1993, the Venezuelan National Guard successfully dismantled the "Sinforoso Caballero" money laundering organization which operated on the Colombian border with links to the Cali Cartel. Subsequent investigations revealed that a multinational financial group acted as the international connection for this money laundering organization. Indictments were issued by a Caracas criminal court judge against 34 individuals. However, due to pressure on the judicial system by the defendants, jurisdiction in the case was changed to the state of Tachira, where most of the defendants resided. In may 1994, the Tachira judge dismissed the arrest warrants against all defendants in the case. While the Venezuelan Supreme Court later overturned this decision in December 1994, no action was taken during 1995 to reopen the case.

In 1995, The Venezuelan Congress began consideration of two key pieces of legislation which will have important implications for controlling money laundering. The first is the Casinos Law, which will impose cash transaction reporting requirements on casinos as well as tighten up law enforcement oversight of gambling activities. The second is the Organized Crime Bill, which will introduce conspiracy provisions into Venezuelan criminal law.

Vietnam. (Low) Vietnam currently offers few attractions to drug money launderers, but that situation could change as foreign banks open branches. Vietnamese are known to engage in heroin trafficking and Australian officials report incidents of Vietnamese nationals smuggling gold between Australia and Vietnam, which they believe is related to heroin trafficking. It is believed that payment for some heroin shipments to Australia has been made by wire transfers from Australia to the United States. In 1995, the government began consideration of drug trafficking controls; US officials urged the Vietnamese to consider incorporation of FATF's 40 money laundering countermeasures.

Yemen. (No Priority) There are no statistics indicating there is money laundering in Yemen.

Yugoslavia (Serbia & Montenegro). (Low) Laundering of drug money has been reported anecdotally, but persuasive evidence is lacking. There are no specific laws prohibiting money laundering. If the practice occurs, it is probably on a limited scale. Belgrade is neither an important financial center, tax haven nor offshore banking center. Belgrade's financial system is primitive compared with other Western European capitals.

Given the insolvency of local banks and their complete inability to effect rapid electronic transfers, banks here would be an unlikely vehicle for laundering large sums of money. Furthermore, with the scandals that have rocked the banking system over the past several years, including the freezing of more than USD four billion in hard currency savings deposits, there are factors that would discourage anyone (drug traffickers included) from depositing large sums into local banks. Banking authorities here point to Cyprus and Switzerland as more likely candidates for money laundering by Yugoslavian nationals.

Belgrade, however, does harbor organized criminal elements, who are known to be active in drug trafficking. During the period of U.N. sanctions, organized crime was heavily involved in the smuggling of prohibited strategic materials -- principally oil and oil products. With the suspension of U.N. sanctions in late November 1995, and the legalization of imports of oil and fuel, organized crime is likely to seek more profitable alternatives, including both drugs and arms.

Zambia. (Low) The Bank of Zambia (BOZ) and the Drug Enforcement Commission (DEC) are increasingly concerned that money laundering is rampant in the banking industry. They have proposed tightening banking standards through legislative action. The government publicly denounces drug trafficking and supports the ongoing efforts of the autonomous DEC. The DEC has used strengthened narcotics laws this year to confiscate the property of traffickers. The head of the DEC collaborates with his counterparts in the sub-region to improve regional anti-trafficking efforts. Zambia ratified the 1988 UN Convention in 1993. The DEC has increasingly used its legal authority to confiscate property of suspected drug traffickers and money launderers. The courts have not, however, always sustained these confiscations.

The DEC and the Ministry of Legal Affairs cooperate with their counterparts in the Southern African Development Council (SADC). The DEC has received training from British anti-narcotics teams and works closely with their British counterparts . Germany, South Africa, and the US have also provided limited assistance to the DEC. Zambia's anti- narcotics master plan was developed in cooperation with the United Nations drug control program.. The Zambian Anti-Corruption Commission (ACC) investigates allegations of corruption, some of which has touched even the ministers of the government. Such allegations, never fully proven to the satisfaction of President Chiluba, led to the resignation of then Foreign Minister Vernon Mwaanga in January 1994. Mwaanga remains an important officer in the ruling MMD Party. This year, corruption allegations have focused on embezzling state funds and not on narcotics related corruption. It is alleged that drug traffickers are taking advantage of the weak enforcement of banking laws and launder drug money in a number of banks and foreign exchange houses.

No legal proceedings have yet been directed against the allegedly corrupt financial institutions or the government officials who have financial interests in those banks or foreign exchange houses.

Zimbabwe. (No Priority) Zimbabwe's currency regulations continue to make it less than ideal place for money laundering. An asset forfeiture act was passed in 1990 but remains underutilized as both the judiciary and law enforcement seem to lack an understanding of its application.