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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
MONEY LAUNDERING COMPARATIVE CHARTS
Each year the US has the task for assigning priorities to 201 nations
and territories, using six differential categories ranging from High
Priority to No Priority. The 1996 INCSR listing is attached.
INCSR rankings draw upon a number of factors which indicate (1) this is
the money laundering situation in this nation/territory, ie, drugs,
contraband, etc., (2) why we regard this situation as transcending local
impact and having international ramifications; (3) impact on US
interests; (4) whether the government taken appropriate legislative
actions and, the breadth of those laws; (5) whether the laws are being
effectively implemented; and (6) where US interests are involved, the
degree of cooperation between the government and USG agencies. There
are about two dozen subfactors which are considered. These factors are
explained below.
A government can have comprehensive laws on its books and conduct
aggressive enforcement efforts, but still be a high priority if the
volume of money laundering continues to be substantial and continued
vigilance by this government is essential to the effectiveness of the
overall international effort.
When the severity of the money laundering problem places a government in
the top three categories, and other deficiencies exist, the rankings
indicate that these governments should take immediate action and will
receive near-term priority attention from the USG. As one goes down
through the rankings, remedial actions have less immediacy or less
impact upon the US.
Ranking a government High Priority or Medium-High reflects a USG belief
that near-term remedial action by that government is needed to deal with
the problems cited in the individual summaries which follow the charts.
SELECTION CRITERIA
As any financial system can be penetrated, every country and territory
has the potential of becoming a money laundering center. There is no
precise measure of vulnerability for any financial system, but a check
list of what drug money managers reportedly look for provides a basic
guide.
- Failure to criminalize money laundering from all serious crime or
limiting the offense to narrow predicates, such as conviction of a drug
trafficking offense, thus abetting efforts to commingle funds.
- Rigid bank secrecy that cannot be penetrated for authorized law
enforcement investigations.
- Minimal or no identification requirements to conduct financial
transactions, or widespread or protected use of anonymous, nominee,
numbered or trustee accounts.
- No required disclosure of the beneficial owner of an account or the
true beneficiary of a transaction.
Lack of effective monitoring of currency movements.
- No recording requirements for large cash transactions.
- No mandatory requirement for reporting suspicious transactions, or
a pattern of inconsistent reporting under a voluntary system, or a lack
of uniform guidelines from which to identify suspicious transactions.
- Use of monetary instruments payable to bearers.
- Well-established non-bank financial systems, especially where
regulation and monitoring are lax.
- Patterns of evasion of exchange controls by nominally legitimate
businesses.
- Ease of incorporation, especially where ownership can be held
through nominees or bearer shares, or where off-the-shelf corporations
can be acquired.
- Limited or weak bank regulatory controls, especially in countries
where the monetary or bank supervisory authority is understaffed,
underskilled or uncommitted.
- Well established offshore or tax-haven banking systems, especially
countries where such banks and accounts can be readily established with
minimal background investigations.
- Extensive foreign banking operations, especially where there is
significant wire transfer activity or multiple branches of the foreign
banks, or limited audit authority over foreign-owned banks or
institutions.
- Limited asset seizure or confiscation capability.
- Limited narcotics and money laundering enforcement and
investigative capabilities.
- Countries with free trade zones where there is little government
presence or other oversight authority.
- Patterns of official corruption or a laissez-faire attitude toward
the business and banking communities.
- Countries where the dollar is readily acceptable, especially
countries where banks and other financial institutions allow dollar
deposits.
- Well-established access to international bullion trading centers in
New York, Istanbul, Zurich, Dubai and Bombay.
- Countries where there is a significant trade in or export of gems,
particularly diamonds.
ECONOMIC FACTORS
The strength, vitality and freedom of economies can serve as indicators
of the relative vulnerability of a financial system to penetration by
money launderers.
The 1996 data base introduces the element of relative black market
activity, ranking virtually all sovereign governments on a scale of 1-5,
with percentage of GDP as the defining factor.
Analysts assessing vulnerability can also use the existence of parallel
economies as a measure, i.e, whether the parallel economy is seen as a
major or minor factor in a given money laundering situation or is not
significant.
There have been no empirical studies of this element, but, confirmed
information on money laundering practices indicates that the parallel
economy is a major factor in money laundering in a number of areas,
including: Burma, Dominican Republic, Poland, Colombia, Hong Kong,
Mexico, Nigeria, Panama, Russia, Thailand, Venezuela, Pakistan, India
and the United States (the fungible economy which operates on both sides
of the border with Mexico). Parallel economies are considered a minor
factor in the money laundering situations in: Bolivia, Chile, China,
Ecuador, Greece, Guatemala, Hungary, Korea, Kuwait, Lebanon, Macau,
Taiwan, Italy, Netherlands, Turkey, United Kingdom, Argentina, Brazil,
Costa Rica, Cyprus, Japan, Paraguay, Uruguay, Cote D'Ivoire, and St.
Vincent & Grenadine. Parallel economies were not considered a
significant money laundering factor in the other governments in the
High, Medium-High, Medium and Low-Medium categories. There were not
sufficient data to draw conclusions about the governments in the Low and
No Priority categories.
CHANGES IN RANKINGS FOR 1996
1. Upgrades
| Russia | Medium-High to High |
| Turkey | Medium-High to High |
| Antigua | Medium to Medium-High |
| Austria | Medium to Medium-High |
| Cyprus | Medium to Medium-High |
| Israel | Medium to Medium-High |
| Cambodia | Low to Low-Medium |
| Czech Republic | Low to Medium |
| South Africa | Low to Low-Medium |
| Seychelles | No Priority to Low |
| Slovakia | No Priority to Medium |
| Netherlands Antilles | Medium-High to High |
| Dominican Republic | Low-Medium to Medium |
2. Downgrades
| Australia | Medium to Low-Medium |
| Nepal | Low-Medium to Low |
| Sri Lanka | Low-Medium to Low |
Expansion of the INCSR Data Base
From 1986 through 1995, the money laundering chapter data table listed
comparative data on 10 elements for the 17 High Priority and 16 Medium-
High Priority governments.
To give a fuller understanding of where governments stand in relation to
each other on the broad range of elements which define legislative
activity and identify other characteristics which can have relationship
to money laundering activity, the 1996 INCSR data tables incorporate 25
elements for more than 190 governments.
Money Laundering Chart:
[Editor's Note: The above chart is an EXCEL file; see charts and graphs
directory]
GLOSSARY OF TERMS
1. Criminalized Drug Money Laundering
The government has enacted laws criminalizing the offense of money
laundering related to drug trafficking.
2. Record Large Transactions
By law or regulation, banks are required to maintain records of large
transactions in currency or other monetary instruments. An effective
know-your-customer policy is considered a prerequisite in this category.
3. Maintain Records Over Time
By law or regulation, banks are required to keep records, especially of
large or unusual transactions, for a specified period of time, eg, five
years. An effective know-your-customer policy is considered a
prerequisite in this category.
4. Report Suspicious Transactions
By law or regulation, banks are required (or permitted) to record and
report suspicious or unusual transactions to designated authorities. An
effective know-your-customer policy is considered a prerequisite in this
category.
5. System of Identifying and Forfeiting Assets
The government has enacted laws authorizing the tracing, freezing,
seizure and forfeiture of assets identified as relating to or being
generated by money laundering activities.
6. Asset Sharing
By law, regulation or bilateral agreement, the government permits
sharing of seized assets with third party governments which assisted in
the conduct of the underlying investigation.
7. Cooperates with Domestic Law Enforcement
By law or regulation, banks are required to cooperate with authorized
law enforcement investigations into money laundering or the predicate
offense, including production of bank records, or otherwise lifting the
veil of bank secrecy.
8. Cooperates with International Law Enforcement
By law or regulation, banks are permitted/required to cooperate with
authorized investigations involving or initiated by third party
governments, including sharing of records or other financial data.
9. International Transportation of Currency
By law or regulation, the government, in cooperation with banks,
controls or monitors the flow of currency and monetary instruments
crossing its borders. Of critical weight here are the presence or
absence of wire transfer regulations and use of reports completed by
each person transitting the country and reports of monetary instrument
transmitters.
10. Mutual Legal Assistance
By law or through treaty, the government is agreed to provide and
receive mutual legal assistance, including the sharing of records and
data.
11. Non-Drug Money Laundering
The government has extended anti-money laundering statutes and
regulations to include non-drug-related money laundering.
12. Non-Bank Financial Institutions
By law or regulation, the government requires non-bank financial
institutions to meet the same customer identification standards and
adhere to the same reporting requirements that it imposes on banks.
13. Disclosure Protection
By law, the government provides a "safe harbor" defense to banks or
other financial institutions and their employees who provide otherwise
confidential banking data to authorities in pursuit of authorized
investigations.
14. Offshore Banking
By law or regulation, the government authorizes the licensing of
offshore banking facilities.
15. 1988 UN Convention
The government has formally ratified the 1988 United Nations Convention
Against Illicit Trafficking in Narcotic and Psychotropic Substances.
16. Compliance
The government is meeting the goals of the 1988 UN Convention, in terms
of the effective application of implementing legislation.
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