US DEPARTMENT OF STATE
BUREAU OF INTERNATIONAL NARCOTICS MATTERS

INTERNATIONAL NARCOTICS CONTROL STRAGEGY REPORT
APRIL 1994




FINANCIAL CRIMES AND MONEY LAUNDERING

1994 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT

INTERNATIONAL MONEY LAUNDERING


OVERVIEW

Intelligence findings from North and South America, Eastern and Western Europe, South and East Asia, Africa and the Middle East confirm that another significant shift has occurred in money laundering trends and methods, requiring changes in policy and strategy for 1994.

The critical aspects are the volume of non-drug related money laundering; increased investment of illegal proceeds in legitimate business, including the financial industry; and the targeting of financial systems in countries/territories (some with little or no domestic involvement in drug trading or other serious proceeds-generating crimes) to launder drug and other proceeds generated by crimes committed in other jurisdictions.

In 1988, when the United Nations Convention was signed, and in 1989 when the Financial Action Task Force was created, the movement and conversion of proceeds from drug trafficking was the priority and virtually absolute consideration, and the primary concentration was on the laundering of cash at banks.

By the end of 1993, however, USG analysts estimated that non-drug proceeds may account for a third or even as much as one-half of total illicit proceeds converted in or transiting through US financial institutions.  Analysts from various enforcement and intelligence agencies believe that a significant amount of the money being laundered today is derived from a long list of other criminal offenses, including gambling, smuggling, pornography, loan sharking, fraud, etc. (not counting tax evasion).  Drug money is still laundered in the United States for transfer overseas and/or to hold in domestic accounts or invest in US businesses, but large quantities of drug proceeds move out of the United States in bulk.

Similarly, European bankers, finance ministries and enforcement agencies report an apparent increase in non-drug money laundering and seem agreed that drug-related money laundering constitutes no more than three-fourths of illegal proceeds transferring through or being converted by West European financial institutions (exclusive of tax considerations), and may be at that level or slightly lower in Eastern Europe where large sums of crime syndicate funds are being invested.  Drug money laundering may be no higher, and could be an even lower percentage of total illegal money laundering in other parts of the world, notably Southwest, Southeast and East Asia.

As more governments criminalize non-drug money laundering, there should be a heightened recognition that a significant portion of the what were once presumed to be legitimate proceeds are actually the proceeds of non-drug crime.  The increase in non-drug money laundering reported by European bankers and others is probably an indication of their awareness that there is a universe of non-drug crime whose perpetrators also exploit financial mechanisms which are essential to the legitimate financial sector.  As  increased attention is focused on the universe of money laundering, these estimates of non-drug money laundering will probably increase.  It may well be that non-drug money laundering has always been a significant factor in their economies, even more so than drug money laundering in some instances, but that it has not been recognized until recently.  These estimates call into renewed question the problem that a great many governments have adopted anti-money laundering legislation that is exclusively drug-related.

The ratios, mathematically imprecise at best, function according to the volume of non-drug-related crime, such as gambling and smuggling.  The analytic challenge is to generate statistics on the proceeds of non-drug crime, while continuing to refine the much larger volume of data on drug crimes.  The operational challenge is to give more emphasis to detecting and investigating operations at the layering and integration stages; the predominant emphasis today is on the placement stage for drug-related proceeds, especially cash.

The indicated expansion of non-drug money laundering could derive from one or more sources:  there has been an increase in non-drug related crime, expanding proceeds from those sectors; and/or, criminals engaged in these pursuits are now exploiting the same kinds of money laundering schemes, directly or more likely through the same professionals who handle drug money; and/or professional money launderers are blending funds from various criminal activities in direct transactions and/or through front companies.  The likelihood is that all three factors pertain.

Discussion

The world of money laundering is obviously evolving through a series of phases or cycles.  Five years ago, the focus was on laundering of cash proceeds from drug sales, with a preference for conversion at a teller's window.  As the volume of proceeds increased the need for additional outlets, and the increased pressure from law enforcement dictated that money be moved more frequently and less obviously, drug traffickers resorted to wire transfers and widespread use of front companies and shell corporations, with a continued preference for ultimately using banks in major financial center countries.

During the past two years, analysts saw an increasing use of non-bank financial institutions, especially exchange houses, check cashing services, credit unions, and instruments like postal money orders, cashiers checks, and certificates of deposit (particularly in "bearer" form), with transactions occurring in an ever longer list of countries and territories. Equally significant, traffickers were employing professional money managers.

There was a point in time at which major concentrations of drug proceeds could be identified in either producer, transit or major consumer countries.  In part, these concentrations reflected drug distribution patterns.

Europe, like much of Asia and other sectors, has always had a horizontally-integrated drug economy, in which middlemen and transporters from Asia, Africa and South America sold the finished product to criminal groups who retained the eventual proceeds.  Drug proceeds were commingled with funds from other criminal activities, disguising their origin and frustrating laws which required proof of a drug offense as a predicate crime.  While such patterns were especially true of the European heroin, cannabis and hashish trade, the horizontal pattern has also prevailed in cocaine trading.  The US market is a hybrid, with Asian and European heroin distribution generally following the horizontal pattern; however, the US cocaine market, like the US markets for Mexican heroin and Jamaican and Latin American cannabis, has been vertically integrated, in which South American and other gangs often control distribution right down to the street, and engage in transfers to return the proceeds to Colombia and other points of origin.

Today, there are numerous locales in which drug and other crime money is laundered or transferred, almost without relation to the presence or absence of domestic drug trading.  Increasingly, these financial systems are targeted because their governments have not yet adopted the kinds of controls on which more and more financial center governments are relying.  Today's market features a variety of monetary instruments, including cash, from an ever larger international market, often penetrating the major international banks from their overseas branches, again with emphasis upon those jurisdictions which have not adopted effective anti-money laundering standards.  

The dispersion to all global sectors which is a hallmark of today's money laundering can be said to reflect directly the increased effectiveness of enforcement measures--but it also reflects the schemes of money managers to circumvent the new measures governments are adding to banking and criminal laws in traditional financial centers.

The dispersion probably reflects as well the use of criminal organizations and their professional money launderers, including the Italian Camorra and Sicilian Mafia, and also some specialized operators in Europe, Asia and elsewhere, including bankers, lawyers and accountants.  These professionals once acted as brokers, charging a commission for handling cash and other transactions; today, they increasingly buy the entire proceeds at a discount and control its disposition, reaping profits beyond the discount by investing in legal businesses.

The professional money launderer is more likely to invest the proceeds in a legitimate business, preferably one with a high volume of financial transactions (travel agencies, check cashing services, exchange houses) and, ideally, with a long standing banking relationship.  The professionals are also more likely to use sophisticated monetary instruments such as certificates of deposit, debentures, mortgages, securities such as stocks and bonds, et cetera.  They also seek non-monetary investments, such as construction companies and their suppliers.  Restaurants, hotels, and recreation facilities are increasingly popular investments.  These professionals also use a vast array of scams, such as recent cases involving prime bank guarantees.

A special worry is the control of banks by criminal groups or by elements in the pay of or sympathetic to criminals.  A number of the 2,000 banks in Russia are believed to be "mafiya" controlled.  Some banks in Eastern Europe are also believed to be influenced or controlled by criminal elements.  Control aside, many banks in Eastern Europe do not differentiate between legitimate and illegitimate funds.  Too often, their governments lack the legal mechanisms and enforcement competency to deal with sophisticated money laundering schemes.

A sophisticated feature of today's market is the financial services company, e.g., a development company or investment firm, which "processes" substantial sums of money without benefit of any kind of license or regulation as a financial institution.  The proliferation of such "banks without licenses" is a special concern.  In Eastern Europe, such companies are bringing in vast sums of money of unknown origin and investing it in various enterprises, or loaning it at very profitable rates.  A device, which has been used in the United States, is for a company to open a single account, but permit a dozen or more companies and individuals to use the account, for a fee; these companies are providing a banking service but avoiding licensing and auditing requirements.

Finally, there is deepening concern about the need for new approaches to the problem, more appropriate to an international financial system that has no geographic horizons, operates around the clock in every time zone, and maintains one of the faster paces on the electronic highway.

In ways perhaps unappreciated until recently, the money laundering world is a microcosm of the larger financial world.  There is constant pressure at banks large and small to conclude transactions rapidly, so as not to disrupt time-sensitive deals or fall victim to changing exchange rates.  When profits are otherwise slim, some banks, perhaps many, will ask fewer questions when taking greater risks but perhaps charging higher rates.

The pressures of the market place compel governments the world over to invest in securing economic intelligence, not just about trade, but on financial markets and institutions.

The anti-money laundering community has to avail itself of that same kind of financial intelligence, not limited to information about ongoing investigations and other enforcement activities.  To keep pace, the anti-money laundering community must have constantly updated intelligence on money laundering methods and typologies.  But the anti-money laundering community also has to understand the world of finance from its perspective.  The global market operates 24 hours a day, and has no horizons.

Given the volatility of exchange rates, competitive global bidding, and other phenomena which mandate the speedy conclusion of transactions and settlements, the financial world will rely ever more heavily on electronic services.  The neat challenge is to ensure the availability of the information enforcement agencies need to protect the financial system without undue disruption to that system.

Today's anti-money laundering policy maker must have a commanding knowledge of financial markets and how money moves through them, for legitimate purposes, which can disguise the illegitimate.  To cite just one example, bond markets are proliferating, with offerings designed by some governments to persuade investors to put money into mainstream activities, ostensibly to enhance development but also to identify those funds for later taxation.  Those same offerings, as was proven in the case of Pakistan, may offer a means of encouraging people away from underground banking systems, but, structured with guarantees of anonymity, such offering are tailor-made for exploitation.  Or, for another example, money managers are creating or buying investment firms, which are often not subject to the same reporting requirements as banks, but which can be effective conduits for criminal proceeds while circumventing many foreign exchange and reporting requirements.

Another example illustrates the increasing dependence of the anti-money laundering community on changes in laws, policies and procedures by the financial community, in ways which have not commonly been thought to be of concern to those authorities.  In Russia, it has been cheaper to buy a bank than to buy a luxury auto; until the Central Bank recently raised capital requirements, US$100,000 would buy a bank license and Russia has licensed more than 2,000 banks, some of dubious and perhaps criminal ownership, since the demise of the Soviet Union.  If it is true that the incentive to launder money and traffic in drugs will not diminish until there is economic stability, and if it is equally true that there cannot be economic stability in Russia until the banking system is stabilized, which many Russian bankers believe is dependent upon a change in capital requirements, it is also true that no significant steps can be taken against money laundering until the Bank of Russia has real regulatory control over the system.

A CHALLENGE NOT MET

Our knowledge of money laundering trends and methods has improved substantially in the last five years, through improved cooperation among financial center countries and information obtained from seized records of money launderers.  But some questions have not been well-framed, and are only infrequently asked.

The larger question is: what happened to all the money?  Spending on luxuries and elegant living reached saturation levels for many major criminal organizations a long time ago, and even the newer entrepreneurs quickly reach that plateau.  Large sums are held in reserve, in cash or readily convertible instruments, but these sums, like the amounts found on deposit, while impressive, do not reflect the billions of consumer dollars spent on drugs around the globe during the last decade.

There are troubling parallel questions when one makes the assumption that a portion of these funds, perhaps a significant portion, has been invested, not just in cash-intensive businesses like travel agencies, exchange houses, import and export firms, and the like, which are increasingly venues for moving and commingling drug money, but in long-term financial paper, office buildings and apartment houses, and, lately, the construction industry, the textile industry, the communications industry, and the banking industry itself, among others. 
 What is the true extent of the economic and political influence wielded by drug trafficking and other criminal organizations, as a result of acquiring and investing drug proceeds and the additional gains from other businesses?  To what extent has criminal ownership of legitimate businesses distorted the market place, undermining legitimate businesses through non-competitive pricing, or arbitrarily creating surpluses and/or shortages of key commodities?

Many politicians, government officials, bankers, lawyers, accountants and brokers are known to be on traffickers' payrolls.  There is particular concern about those agents of influence who can guide the selection of judges, or ensure the passage of laws that lack real enforcement powers, or otherwise ensure, from behind-the-scene, that the system serves the needs of the criminal element.  In several countries, we must also be concerned about those persons whose decisions can influence the economic and political stability of entire nations.

Consider just one scenario revealed through seizure of traffickers' records.  Drug money passed through one Central American country to a bank in the United States, but was returned to an Asian bank branch in that Central American country, which issued a letter of credit to buy construction equipment in the United States.  When the construction equipment was off-loaded at a South American port, two objectives had been reached: the traffickers had laundered several million dollars and, thanks to their lower unit cost, were in a position to become a major factor in the local construction industry by outbidding legal competitors.

Pick any commodity -- and it may be traded with leverage on the same lower unit cost principle.  Traffickers' costs per dollar can be as low as 18 cents (US) or about 20 percent, and seldom would exceed 65 percent, even at the end of the chain.  Thus, they operate with profit margins of at least 35 percent, compared to most businesses whose profit margins would be 4-10 percent of receipts.

In too many countries, the governments have concentrated on identifying cash deposits at the teller's window, and have failed to mount a total program against money laundering that takes into account all of the traditional and non-traditional resources used today to convert illicit proceeds.  Traffickers are all too familiar with traditional customer identification procedures used by banks, so they have adopted new strategies.

Cash is increasingly shipped in bulk, but, at tellers' windows, it is converted in ever-smaller quantities.  While transactions of several millions of dollars were not that unusual three years ago, today's transactions are commonly conducted at levels below recording thresholds.

Equally significant, professional money managers increasingly resort to exchange houses, check cashing services and other non-bank financial institutions to place their cash.  Because of the increasing risk posed by improved reporting and detection, traffickers also accumulate ever larger bundles of cash, and ship cash in bulk to other countries, where they can store the currency or utilize similar non-bank financial institutions as entry points.
 Our greatest challenge, however, is identifying and denying access to the vast array of alternative systems used to move drug proceeds.  Cash and other monetary instruments, such as stocks, life insurance policies, letters of credit, bank checks of all kinds, and wire transfers are moved through layers of shell corporations and front companies.  Increasingly, these professionals will buy existing companies with established banking practices, adding a layer of legitimacy to their operations.

An Asian trafficker operated more than 300 bank accounts in Hong Kong, the United States, and elsewhere in Asia.  A number of these accounts were acquired when he purchased an established import/export firm, licensed in Africa, through a New York bank operating in Hong Kong.  Because the shares were not publicly traded, there was no requirement to register the shares as sold, and, as long as he used the same account signatories, usually nominees, none of the banks needed to be told of the change in ownership.  One of the major cases broken in Britain similarly involved a well-established import and export firm with bank accounts throughout Europe.

In both instances, these banks thought they knew their customers.  While that Basle Committee principle needs constant reinforcement, it is also obvious that we need not only to look at the laws of incorporation (for weaknesses and uniformity) as well as securities registries, but banks need to monitor fluctuations in activity for established accounts as well.

In addition to buying into established companies, or creating shell corporations in out-of-the-way venues, and buying and trading commodities, purchasing equipment, and the like, the more sophisticated money manager puts the traffickers' proceeds into financial paper.  Traffickers are known to have bought long-term debt paper, often at fractions of redemption value, because they will need funds in the future, and they could take advantage of offerings to accept repatriated dollars and other funds without questions on sources if the purchasers would help reduce official debt.

Another effect of the economic power of these investments is that, like the drug business itself, these cartel businesses in Asia, Europe, South America, the United States or wherever, provide jobs and otherwise generate economic activity--usually in hard currencies.

In such situations, economic power can translate into political clout.  Politicians normally willing to jail any gangster are unwilling to deny incomes to their people--and that reluctance can equate with non-action, or into legislation that is not implemented, et cetera.  Perhaps the first and most immediate effect of such economic power is corrupt law enforcement, or at least lax or minimal enforcement.

The question is:  Do we have the array of weapons needed to ensure our arsenal is capable of meeting the complete challenge?

While the number of governments which have signed but not yet ratified the 1988 Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances grows smaller (27), that group still includes governments which are significant from a money laundering perspective.
 
But perhaps the larger concern is how effectively the 95 governments which have ratified the Convention are actually implementing its provisions.  Much broader global adherence to the Convention, FATF recommendations, EU Policy Directive, OAS model regulations and other policy guidance is absolutely needed.

We surely do not have enough intelligence--and not just about drug trafficking or even drug money laundering--but about the vast enterprise of money movement--licit and illicit and all the gray shades in between.

If we cannot penetrate attorney-client privilege, or effectively regulate bearer share and shell corporation usage so that beneficial owners as well as officers are known, we can apply a due diligence convention to lawyers, accountants, bankers and other trustees, and incorporators--to ensure that they know their true customers and declare that knowledge when they enable these corporations to enter banking systems or conduct financial operations.  Investigations which determine that shell companies have been used to launder money could also result in charges against trustees and incorporators.

We must effect greater asset seizures, not just of bank accounts, but also corporate assets and even corporate entities.  We must drive up the money launderer's cost of doing business--which is certainly a major purpose of all our money laundering countermeasures, no matter how stated.  We must be ready to impose appropriate sanctions against banking institutions, as well as bankers.  Too many banks repeatedly surface in investigation after investigation, many unwittingly.  Investigators need the intelligence to distinguish between those banks which are complicit and those which need stronger safeguards--and to act on the difference.

The developed nations have the technical and enforcement capability and, in most instances, the political will to revise strategies to meet new challenges.  The 26 FATF government members, the 12 EU nations, the EFTA countries, and the majority of the 95 states party to the 1988 UN Convention are adopting (if not yet fully implementing) legislation that will ultimately improve individual and collective capabilities.  By 1993, every EU nation was obliged to mandate the reporting of suspicious transactions, and criminalize money laundering.  (Several governments missed the January 1, 1993, target date but legislative changes are underway throughout the EU.)  Between 1992 and 1995, all FATF members must be evaluated on performance in implementing FATF recommendations, a certain reckoning that has already promoted change.

However, the pace of change is a cause of some concern.  Moreover, most newly developing nations and even some developed nations lack the training, skills, technical sophistication and sometimes the political will to cope with these more complex challenges.  If new intelligence has emerged as a crucial developmental priority for 1994, so has the ability and capacity to use it effectively.

Rodriguez Gacha laundered an estimated $130 million, using 82 company and other accounts in 16 countries, including the US, BVI, Panama, Colombia, Luxembourg, Hong Kong, UK (London, Channel Islands, Isle of Man), Switzerland, Austria and Germany.
 
More recently, the raids conducted by the Colombian National Police reveal that a single money manager had bank accounts in 40 countries--only 15 of them Members of FATF.

Ours is truly a global playing field.  It will take the best efforts of all our governments and agencies to provide the training and technical assistance needed.

CONCERNS

--  The slow pace at which too many governments in developed as well as under-developed and developing countries and territories are adopting and enforcing the laws needed to enforce the 1988 UN Convention.

--  The limitations too many governments are placing on money laundering countermeasures, particularly the requirement that the offense of money laundering must be predicated upon conviction for a drug trafficking offense.

--  The need for governments and their financial systems to recognize the methods, typologies and volume of non-drug related money laundering.

--  The rapid expansion of electronic transmissions to transfer funds through series of banks worldwide--in seconds.

--  The high vulnerability of many financial systems whose need for capital or capital replenishment could undermine prudent banking practices and safeguards.

--  The concentration of economic power by Colombian and other cocaine traffickers in this Hemisphere, and by criminal organizations in Europe and Asia, which could be translated into political influence in the months and years to come.

--  The use of more sophisticated money laundering techniques which seem designed at least in part to take advantage of more liberal economic regimes in several countries, while simultaneously avoiding the pits and traps of national and international countermeasures.

--  The use of professional money laundering specialists who sell their high-quality services, contacts, experience and knowledge of money movements, supported by the latest electronic technology, to any trafficker or other criminal willing to pay their lucrative fees.

--  The increasing use of non-bank financial systems, unevenly regulated in the United States and most other parts of the world, especially as the placement stage for cash; these include a wide variety of exchange houses (the casas de cambio of Latin America, as well as remittance systems like the "chop" houses of the Orient, and the "hundi" and "hawala" systems of Europe, South Asia and the Middle East).
 
--  The non-bank systems also include insurers, mortgagors, brokers, casinos, importers/exporters and other trading companies, gold and precious metal dealers, check cashing services, express delivery services and other money movers of varying degrees of sophistication and capability.

--  As our global network widens in response to traffickers' wide-ranging schemes, there is a conspicuous gap between the number of institutions and accounts these intensified investigations have identified with money laundering and the authority of many governments to freeze, seize and forfeit drug and money laundering proceeds.

--  The need to prescribe corporate as well as individual sanctions, including actions against financial institutions which repeatedly fail to take prudent measures to prevent their institutions from being used to launder money.

--  The need for continuous fine-tuning of bilateral and multilateral strategies, which define responsibilities and objectives on a country-by-country basis, and set specific goals for cooperating with the varying money laundering and money transit countries.

--  The unchecked flow of funds into second and even third-tier financial systems, including countries which had not been of prior concern to anti-money laundering efforts.

--  The continued exploitation of US financial systems, at levels probably not approached by any other country.

--  The reluctance of governments to expand predicate offenses for money laundering beyond narcotics.

--  Many countries outlaw money laundering and allow the forfeiture of assets but remain obliged to inform the account holders that the government is investigating them and may take action against their accounts--giving traffickers time to move assets and leave town.

--  The continued reluctance of some bankers and governments to adopt anti-money laundering regulations, despite the obvious weakness of many voluntary control systems and despite reports from government after government that the adoption of such controls had not caused declines in deposits or resulted in threats from traffickers.

--  Many US and West European banks are tough on money launderers, but too many of their branch offices and subsidiaries in Latin America and elsewhere continue to figure prominently in Colombian cartel and other money laundering.  These banks, as well as regulators and enforcement officials in the countries in which they operate, could do more to ensure that money laundering countermeasures are practiced abroad as well as at home.

--  Many governments superimpose money laundering controls on systems which still employ loose incorporation standards and permit bearer share ownership, which can minimize the effect of these controls.
 
--  There are concerns which can only be answered over time--such as whether the Schengen accord, which eliminates internal border controls for nine of the EU countries, results in greater smuggling of arms, drugs, money, immigrants, et cetera.

MONEY LAUNDERERS' SHOPPING LIST

Given that 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 look for is a good, simple guide.

--  Countries maintaining rigid bank secrecy that cannot be penetrated for authorized law enforcement investigations.
--  Minimal or no identification requirements to conduct financial transactions, and/or widespread use of anonymous accounts, and/or protected use of nominee accounts.
--  Lack of effective monitoring of currency movements.
--  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.
--  Use of monetary instruments payable to bearers.
--  Failure to criminalize money laundering.
--  Well-established non-bank financial systems, especially where regulation and monitoring are lax.
--  No recording requirements for large cash transactions.
--  No requirement for reporting suspicious transactions.
--  Limited asset seizure or confiscation capability.
--  Limited or weak bank regulatory controls, especially in countries where the monetary and/or bank supervisory authority is understaffed, underskilled or uncommitted.
--  Limited narcotics and money laundering enforcement and investigative capabilities.
--  Well established offshore or tax-haven banking systems, especially countries where such banks and accounts can be readily established with minimal background investigations.
--  Countries with free trade zones where there is little government presence or other oversight authority.
--  Well-established access to international bullion trading centers in New York, Istanbul, Zurich, Dubai and Bombay.
--  Extensive foreign banking operations, especially where there is significant wire transfer activity and/or multiple branches of the foreign banks.
--  Patterns of official corruption and/or a laissez faire attitude toward the business and banking communities.
--  Countries with a high volume of interbank transfers of currency and monetary instruments.
--  Countries where the dollar is readily acceptable, especially countries where banks and other financial institutions allow dollar deposits.
--  Countries where banks allow nominee or numbered accounts, or do not require disclosure of the beneficial owner of an account or the true beneficiary of a transaction.
--  Countries where there is a significant trade in or export of gems, particularly diamonds.

METHODS AND TYPOLOGIES

FATF reports, drawing on cash seizures and investigations in the United States, Europe and elsewhere, reveal that cash movement and money laundering in other countries generally follow the same patterns as in the United States and, like US drug proceeds, are increasingly "internationalized" and equally sophisticated.

For example, lira generated by narcotics sales on Italian streets by one organization were bundled into large bags, shipped as freight to Switzerland for deposit into a Swiss bank, and, with the complicity of a bank manager, transferred to the accounts of a Colombian-owned "casa de cambio" at a bank in Los Angeles.

An Australian group purchased commercial properties with illicit proceeds and used a variety of loan-back schemes and transactions through offshore companies and tax havens to disguise the return of the money to the traffickers.

Luxembourg authorities investigated a case in which drug proceeds were smuggled out of the United States, deposited in accounts in Panama, and then wire transferred to accounts in various EU countries opened by a Luxembourg financial consultant.  The funds were ultimately washed through the accounts of various shell companies in EU countries and invested in Colombia.

An increasing number of schemes involve gold and diamonds, with transactions occurring in countries which previously had not been factors in international money laundering.

Drug traffickers have learned many techniques from professional money managers; indeed, many professional money managers (PMMs) now number drug cartels among their many clients, and make available to them the same mechanisms used by other clients to smuggle gold, or to hide profits and shelter proceeds from the tax collector, et cetera.  The UK investigated a case in which gold smuggling proceeds were smuggled as cash to Luxembourg and deposited into a company account, and transferred across the globe to be used in the purchases of property in France and Thailand in the name of a Guernsey shell company.

A random reading of cases reveals that these PMM's use banks, exchange houses, finance companies, travel agencies, securities dealers, casinos, real estate agencies, fruit shops, import/export firms, jewelry stores, and an uncountable array of shell companies to launder money, which alternates as cash, cashiers checks, bearer bonds and other monetary instruments, stocks, bullion, insurance policies, and even real property, disguised by wire transfers, invoicing schemes, loans, pari-mutuel winnings, trustee records, stock transfers, investments, and purchase of goods and services.
 
FATF delegates report the detection of increased laundering of proceeds from non-narcotic crimes, such as arms smuggling and "white collar" crime.

USG investigators report that some bank accounts involved in Operation Green Ice and Operation Cabbage Farm were used by a number of different drug trafficking syndicates.  USG agents cite indications of the existence of global money laundering "holding companies," available to any number of criminal organizations to launder drug and non-drug proceeds.

The Federal Reserve has called attention to sub-accounts established by foreigners who are operating multiple businesses through a single account; hundreds of individuals may have access to the account in a US bank nominally held by a foreign bank in its name, thus giving them access to the US banking sector.

Drawing on records seized through Colombian National Police raids and their own investigations, USG agents say that Cali cartels, which once handled all money operations internally, now employ financial controllers.  In another changed feature, the controllers now seek bids from money brokers, who may process money for more than one drug trafficking organization.  Cartels will now pay as much as 17 to 20 percent rates to have their money laundered.  One after-effect of the massive document seizures is that these controllers now minimize paper records, preferring to use computer discs and increasingly sophisticated communications devices, often linked to computers.

In a variation on this procedure, some money brokers are buying cash in bulk, at a discount rate of 23 percent.  The drug trader or other criminal gets his proceeds back from the point-of-sale countries without having the burden of making the moves himself.  The broker may lay off some of the proceeds at a different discount rate, or launder the entire batch, through investments or further transfers and conversions.

While bulk deliveries of cash are still common, and banks remain a preferred medium, money managers are using an ever-expanding array of non-bank financial institutions as a medium for penetrating the banking community.  In addition to check cashing services, check sellers, and money transmitters, they also use credit unions, currency exchange houses, savings and loan associations, commodities and securities and insurance brokers, real estate and investment brokers.  But they also use antique dealers, auction houses, car (or boat or plane) dealers, coin dealers, gold dealers, liquor outlets and bars, pizza parlors, postal services, convenience stores, pharmacies, hotels, restaurants, scrap metal dealers, cleaning and shoe repair shops, supermarkets, trucking companies, vending machine companies, gas stations, waste material firms, and even folk art dealerships--either to conduct transactions, or, in many instances, by buying these kinds of cash intensive firms and using them as front companies.

The public perception of a check cashing service may be of the "mom and pop" variety store, but case after case shows that these check cashers can move substantial sums.
 
The IRS arrested two men in Tampa attempting to launder $16 million in stolen Canadian government checks through a check cashing service.  A Los Angeles cocaine ring owned the check cashing services through which it laundered $4 million per month in "crack" proceeds.  A Boston group laundered $3 million in gambling and loan shark earnings.  Check cashers avoid US reporting requirements by issuing cashier's checks, money orders and traveler's checks, in amounts less than $10,000, in exchange for lump sums of cash.  Check cashers also use drug money to cash legitimate checks, thus avoiding the need to record bank deposits and withdrawals.

The Commercial Crime Bureau of the International Chamber of Commerce recently warned banks and small businesses about the increasingly fraudulent use of standby letters of credit, which are legitimate financial instruments.  This misuse has also drawn the scrutiny of the Federal Reserve.  The ICC report indicates that a growing number of banks and other investors are falling victim to individuals purporting to be dealers of standby letters or traders in so-called "prime bank guarantees, prime bank notes and zero coupons."  The swindlers persuade clients that standby letters can be bought at a discount, traded in the international market and sold for a profit.  The Salvation Army reportedly lost more than $10 million when money it invested in standby letters was misappropriated to bank accounts in Luxembourg, Panama and Argentina.  Reports also indicate that the Republic of Nauru and the Bank of Croatia lost millions of dollars in similar schemes.

Credit card fraud was a major topic of conversation at the FATF money laundering seminar in the Bahamas in 1993.  FINCEN reports that counterfeit and stolen credit card fraud is continuing at an alarming rate, with annual losses estimated at $900 million.  West African criminals have stolen bulk shipments of cards at airports, giving them and similar groups entire sets of legitimate cards.  There is also a growing business in reprocessing codes on the magnetic strips of stolen cards.  Some groups also manufacture counterfeit credit cards.  One group in Macau sent its counterfeit cards through the United States, destined for the Bahamas.

TAX HAVENS & OFFSHORE BANKING FACILITIES

There is no question that money laundering occurs through a number of so-called "tax haven" jurisdictions, and that offshore banking facilities are utilized to launder drug and other criminal proceeds in various locales.  However, the terms are frequently misinterpreted to give the impression that all or much of the financial activity which occurs in these jurisdictions or through these facilities is at least suspect, if not perhaps illegal.  Such assumptions are incorrect.

A "tax haven" is defined by Butterworth's Tax Havens Encyclopedia as a jurisdiction (a) where there are no relevant taxes; or (b) where taxes are levied only on internal taxable events but not at all or at low rates on profits from foreign sources; or (c) where special tax privileges are granted to certain types of taxable persons or events.
 
Depending on the presence of these and other factors, the Encyclopedia ranks jurisdictions as either "principal" or "marginal" tax havens.

The Encyclopedia lists the "principal" tax havens as Aruba, Bahamas, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Costa Rica, Cyprus, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Liberia, Liechtenstein, Luxembourg, Nauru, Netherlands, Netherlands Antilles, Nevis, Panama, Switzerland, Turks and Caicos, and Vanuatu.  The "marginal" havens are Andorra, Ireland, Israel, Malta, and Monaco.

Offshore banking, a term which originally applied to banks in the Caribbean, i.e., off-the-shores of the United States, has by extension come to apply to banks in all tax haven jurisdictions.  Many of the world's major banks, Butterworth's notes, have banking and trust company operations in tax havens, providing a wide range of financial services to residents and non-residents, not limited to the companies and individuals in their home countries.

The concern is not that these governments and banking systems offer tax privileges.  The concern, which varies from locale to locale--and applies also to a large number of countries which are not known as tax havens--are the other special considerations a tax haven may offer.

Foremost among these is strict bank secrecy, which can take many forms.  Disclosure of banking information (account owners, beneficiaries, addresses, balance and transaction data) is a criminal offense in many tax havens (and not a few non-tax havens), and, while several of the tax havens listed above have criminalized money laundering and/or taken steps to ensure that a banker's duty of secrecy is relieved in order to permit a criminal investigation to go forward, that is not yet a universal feature.

Tax havens also have varying rules on disclosure of the true ownership of accounts.  Some cast a veil of secrecy over beneficial owners by allowing shares to be held by nominees or trustees, often through bearer shares.  A tax haven may only require that changes in officers be reported, some not even that much data.  Requirements with regard to company audits vary considerably.  Some tax havens waive their foreign exchange controls for non-residents.

Some tax havens also offer "free zones" where imports may be landed under certain conditions without paying customs duties.  The problem with free zones is that other customs rules are also relaxed, including inspection of non-dutiable cargoes.  Some large "zones" also have financial institutions which are seemingly exempt from rules that apply to banks in traditional commercial sectors.

Finally, but not least, there is the matter of licensing.  Requirements vary widely for creating offshore banks and companies, and many are held through nominee shareholders or even trustees, like lawyers.  The issue of who owns an offshore facility and who has access to its use is not readily resolved in many jurisdictions.
 
Fortunately, an effort is being made to ensure that offshore banking jurisdictions comply with the 1988 UN Convention and FATF recommendations.  The Offshore Group of Banking Supervisors has adopted the recommendations, and recently conducted a survey among its members on their money laundering countermeasures, which must now be legislated in order to maintain membership in the Group.  The members include Aruba, Bahamas, Bahrain, Barbados, Bermuda, Cayman Islands, Cyprus, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Lebanon, Malta, Mauritius, Netherlands Antilles, Singapore and Vanuatu.  Panama had been a member but the GOP did not respond to the survey; nor, in the opinion of the Group, has it taken the necessary statutory actions to comply with membership.

GOLD - THE ETERNAL MEDIUM

Whether it is traded in gold bars, or Austrian coronas, Mexican centenarios or South African krugerrand, or simply as jewelry, gold has always been man's most prized medium of exchange, and in times of uncertainty about currency stability, his preferred medium.  Perhaps it's always been a factor in the drug trade, but our eye was on the teller window.  The Magharian affair illustrated the billion dollar potential for the gold connection, and there is no denying that today the heroin trafficker and the gold smuggler are in league.

The exchange of gold jewelry for drug dollars (the jewelry is later sold in Colombia) has been a factor in the Colon Free Trade Zone laundering schemes for nearly a decade.  Gold is a factor in deals in Asia, Europe, Africa, the Middle East, and in this Hemisphere--in Colombia, Brazil, Bolivia, Peru, Paraguay, Mexico and Panama among Latin countries as well as in Aruba.  Operation Polar Cap showed that gold exports from South America to the United States were used to cover money laundering.

Indeed, the gold/drug trade is a growth industry.  Gold smuggling in India, believed to be tied to the narcotics industry, has driven prices as high as 50 percent over the international rate.  Traffickers are actively working the gold markets in the United States (New York), Switzerland, UAE (Dubai), Turkey, and Hong Kong.

Even the bogus trade is growing.  One operation shut down by USG authorities in Polar Cap laundered more than $6 billion over two years, disguised as payments for Bolivian gold--for which the official export volume is less than $80 million a year.  Although Ecuadorian mine production has steadily declined in recent years, the number of people who list gold mining as their livelihood continues to rise.

There are no sure-fire methods to deny traffickers access to gold markets, especially the real ones, because gold, like currency, is a legal medium, open to everyone with the price.  Thus, most of the controls envisioned are patterned after currency controls like know-your-customer, transaction declarations at the border as well as at bank windows, and the like, with a special requirement that all export payments for gold be linked to specific sales.

Not surprisingly, this market, like the diamond trade, has caught the attention of the Italian Mafia, who are increasingly brokers for a significant portion of the world's illicit money.
 
In January 1994, Italian police arrested eight people who were accused of running a worldwide money laundering ring that shipped a ton of gold a month from Italy to Latin America.  The group used banks in the United States and Europe, and gold firms in Italy, Panama and Colombia.  The gold was purchased with drug money from the United States, which was transferred through banks in Mexico, Spain and Switzerland as well as the United States.  Panamanian companies shipped the gold onward to Colombia.  The operation, which may have been conducted over several years, was so large that it may have slightly depressed the price of gold in South America and Italy during 1993.  Those arrested included Gustavo Upequi del Gado, described as the Cali cartel's top recycling expert.

WHAT WE NEED TO DO

Considerable attention has focused on establishing international standards, on obtaining cooperative agreements concerning exchanges of information, establishing linkages for cooperative investigations, and on overcoming political resistance in various key countries to ensure such cooperation.

In an electronic world in which the banking system operates through chain-linked computers 24 hours a day, there must be increased emphasis upon thorough vetting of personal, company and financial institution accounts at the bank of origin, wherever in the world it is located.  There is no substitute for a thoroughly applied know-your-customer policy.

Governments need laws which: establish corporate criminal liability for bank and non-bank financial institutions; apply to all manner of financial transactions not limited to cash at the teller's window; draw from a long list of predicate offenses not limited to drug trafficking; criminalize investments in legitimate industry if the proceeds were derived from illegal acts; and enable the sharing of financial and corporate ownership information with law enforcement agencies and judicial authorities.

But governments also need strategies, end-games which project change and progress along the same continuum as the changes in both financial system procedures and the methods criminals develop to exploit them--strategies which focus on specific governments and specific financial systems.

The actions needed to keep pace with the dynamics of money laundering in a high-tech world may be summarized as follows:

1.  Constant Monitoring of Money Laundering Patterns, Trends, Typologies.  More sophisticated techniques, involving both bank and non-bank financial institutions, in a wider array of traditional and non-traditional financial center countries, have complicated identification, tracing and investigation.  Information exchanges have been improving, but critical gaps in know-how must be closed in tandem with improved cooperation.
 
2.  Analysis of Money Management Practices.  We need improved information from more countries on what factors influence traffickers and/or money managers to use particular systems in specific countries, to keep reserves in cash vs. other monetary instruments, to invest rather than "park."  Interviews of arrested money managers are producing detailed profiles of money management schemes.  The best data so far applies to the cocaine trade, but we need to develop the same level of knowledge about heroin and marijuana syndicates.

3.  Analysis of Non-Drug Related Money Laundering and Other Financial Crimes.  Traffickers seldom invent new methods or practices but utilize techniques perfected by corporations and individuals to shelter proceeds from taxation or to avoid strict currency controls.  Money is also laundered by terrorists, arms dealers, other criminals.  We need to identify the parallels between drug money laundering and financial crimes of every description--and achieve an equal capability to investigate and prosecute such crimes.  A number of governments are willing to impose new restrictions on drug-related financial crimes, but hesitate to apply such strictures to other forms of financial crime.

4.  Equating Economic Power with Political Clout.  The increasing concentrations of wealth among criminal groups in several parts of the world is a concern, not only because of possible impacts on investments and real estate values as well as legitimate commerce, and, on a other plane, government integrity, but also because these organizations have immense campaign coffers available to them and to candidates who overtly or covertly do their bidding.  We need to assess the national security and political implications of these shifts and accumulations of wealth--for all financial centers where such wealth is being concentrated.

5.  Eliminating Systemic Weaknesses.  At one level, we need banks to maintain the same kinds of records on clients which are also financial institutions, as they do for other customers, and to report suspicious transactions by such clients.  At another level, we need to take action when the same financial institutions are named repeatedly in investigation after investigation--including but not limited to revocation of licenses, changes in ownership and management, levying of fines, and prosecution.

6.  Assessing The Trafficker as Entrepreneur.  We need to explore the extent to which criminal organizations, by regions, are penetrating legitimate financial and other businesses, using their vast resources to gain control and to impact economic, financial and business decisions.

7.  Analyzing Money Laundering as a Function of Economics.  We need to ask a whole series of questions about impacts.  To what extent do depressed economies weaken financial system enforcement?  When do bankers and other financial managers become more willing to take money from any source with fewer questions asked?  Can we set up a scale of predictability using economic factors that will help identify weaknesses and points of vulnerability in the global network?
 
8.  Regulating Exchange Houses and Remittance Systems.  There is ample evidence that the various "hundi, hawalla, and chop" remittance systems, so essential to economic life in the Middle East, South and East Asia, are being used by drug traffickers, just like the "cambios" of Latin America, and non-bank institutions of all kinds in the Western financial community.  They serve vital functions for key sectors of many economies; how can they be regulated without destroying the very informality that makes them effective and desirable?

9.  Concentrating Efforts for Maximum Effectiveness.  Enforcement operations have proven we can stagger the cartels.  For a time, money was hard to move, operations were disjointed, organizational structures wobbled.  But these organizations are resilient and recovered quickly, and now employ professional managers.  The obvious question is how much money do we have to take out of the system, for how long a period of time, to destabilize an entire organization for a sustained period--after which it becomes inoperative?  What parallel pressures should be applied when money is on hold and the cartels are sorting out whom to trust with their proceeds?  Given some unknown level of volume, at what point do monetary seizures really hurt?  How hard do we have to hit them to score a knockout?  Is a knockout possible?

10.  Pursuing A Continuously Evolving Strategy.  For much of the 1980s, concerned governments operated under a strategy which involved a handful of key countries whose cooperation was essential and/or which were drug money laundering centers.

But the traffickers have changed tactics and moved to new locales, and now they are part of a larger criminal order which considers the world its playground.  Banks are but one portal; they use securities brokers, insurance companies, a galaxy of import and export companies--in fact, every means the worlds of business and finance have to offer, all linked by wireless and facsimile transmissions, are used by traffickers and the managers of their illicit proceeds.

At the policy and regulatory levels, organizations like the UN, FATF, EU, CoE, OECD, CFATF and OAS help ensure that the burden of responsibility for change is shared.  But the need is for quick, flexible action by a maximum number of governments.  Bilateral and multilateral outreach efforts must be intensified to involve that second and even third tier of vulnerable financial systems--in a concentrated effort to counter money laundering from all serious crime.

In sum, we must have a continually evolving strategy which embraces all countries of significant interest, and carries with it the resolve and resources necessary to implement and enforce it.  Governments must be as flexible, responsive and resourceful as the criminal organizations.


BILATERAL ACTIVITIES

TREATIES AND AGREEMENTS

Mutual legal assistance treaties (MLATs) are in force with 11 governments including:  Switzerland, Turkey, Italy, the Netherlands, Canada, Mexico, the Bahamas, Argentina, the United Kingdom with respect to its Caribbean dependent territories (the Cayman Islands, Anguilla, British Virgin Islands, the Turks and Caicos Islands and Montserrat), Spain and Thailand.  MLATs have been signed but not brought into force with nine other governments:  Uruguay, Jamaica, Belgium, Colombia, United Kingdom, Korea, Panama, Morocco and Nigeria.  Similar treaties are in various stages of negotiation elsewhere.

Treasury has completed Financial Information Exchange Agreements with Colombia, Ecuador, Peru, Panama (as part of the MLAT which has not been ratified by the US Senate), Paraguay (which awaits approval by the Paraguayan Senate) and Venezuela.

US Customs has mutual assistance agreements with Argentina, Australia, Austria, Belarus, Belgium, Canada, Cyprus, Czechoslovakia, Finland, France, Germany, Greece, Hungary, Italy, Korea, Mexico, Norway, Poland, Russia, Spain, Sweden, United Kingdom and Yugoslavia.  Customs has negotiated agreements with other countries that are not yet in force:  Denmark and Honduras.

TRAINING AND TECHNICAL ASSISTANCE

Several sections of Justice's Criminal Division conduct training and provide assistance.  In addition to supporting initiatives by FATF and OAS, the Money Laundering Section met with officials from the following countries to discuss money laundering initiatives: Panama, Brazil, Nicaragua, Venezuela, Ecuador, Italy, Belgium, Australia, United Kingdom, Ireland, Indonesia, Portugal, Paraguay, the Czech Republic, Italy, the Netherlands and Denmark.  

Treasury's Office of Financial Enforcement provided training and/or briefings for foreign officials, including sessions in Washington for officials from Guatemala, Nicaragua, Belize, Panama, Hong Kong, Australia (Austrac), Ecuador, Paraguay, Argentina, and the UN Drug Control Program.  Treasury also provided training  or briefing sessions in Belize, the Czech Republic, Slovakia, Poland, and Hungary, as well as at the Federal Law Enforcement Training Center.

The Drug Enforcement Administration and US Customs provide training in the conduct of financial investigations and related subjects to a broad list of countries under a program funded and managed by the Department of State's Bureau of International Narcotics Matters, in addition to their own directly-funded training programs.

DEA provided training in asset forfeiture in 1993 through four regional seminars, which attracted an estimated 98 foreign officials from 49 countries.  The week-long seminars were held in Guatemala, Malaysia, Romania and the Netherlands Antilles.  Also in 1993, DEA coordinated 58 international trips which were either fully or partially related to financial crime, and provided training in Washington to 36 foreign delegations.
 
Customs offers seven different types of programs: Executive Observation Programs in the US; mid-management seminars in the US; training for trainers; in-country enforcement training; contraband enforcement team training; short-term assistance projects tailored to individual country needs; and seminars.  Customs provided money laundering training for law enforcement, banking officials and regulators in 1993 in Jamaica, Costa Rica, Germany, Aruba, Belize, Ecuador, Panama, Turkey, Hungary, Poland and Romania.  In addition, over 30 foreign government officials received training on money laundering control and enforcement techniques at Customs headquarters.

The Federal Reserve has provided specialists for each of FATF's seminars in addition to conducting its own training programs for regulators.

ENFORCEMENT 

OPERATION DRACHMA, prosecuted in Connecticut with the assistance of the Department of Justice (Money Laundering Section) and US Attorneys offices, resulted in the indictment of 13 individuals who had laundered $22.5 million.  The principal defendant, Szion Jacob Abenhaim of Cali, Colombia, worked with associates in Israel, and orchestrated cash pickups of cocaine proceeds on New York City streets.  Unwittingly, the group hired an FBI undercover agent to launder funds through designated accounts around the world.  In many instances, these designated accounts were held by purportedly legitimate Colombian businesses which wanted to hold assets in US currency.  These businesses agreed to repay Abenheim's organization in Colombian pesos through bank accounts in Colombia, in exchange for deposits in US dollars.

OPERATION CHOZA-RICA is a long-term undercover money laundering operation that began in 1990.  Undercover Customs agents posed as currency facilitators for narcotics and arms traffickers to US bankers and Mexican "casa de cambio" owners   More than $40 million in currency and financial instruments has been seized to date.  In March 1992, violators from three different banks and 10 Mexican nationals associated with the cambio activity were arrested.  As a result of these arrests and consequent search warrants, agents traced accounts in California and Texas to a New York bank where $35 million was seized.  Also in March, a 25-count indictment for various money laundering, bank fraud and conspiracy charges was unsealed, resulting in the arrests of high level officials from Texas banks, as well as owners and operators of cambios in Monterrey, California.

This investigation continues to produce results.  In August 1993, a US District Court denied a motion to abate the indictment of a principal defendant, whose family attempted to have $33 million of frozen assets returned to them in Mexico, on grounds the defendant was deceased.  US Customs has evidence to show that the defendant faked his death in Mexico to avoid prosecution.

The KEN MIZUNO investigation in Las Vegas involves the fraudulent sale of more than 52,000 golf memberships in Japan and the subsequent transfer and laundering of $242 million in the United States.  The USG has seized or attached $108 million in property that Mizuno and his associates purchased with the proceeds.  Ken International, Mizuno's company, has pleaded guilty to four charges.
 
ASSET SHARING

Pursuant to the provisions of the 1988 US law, the Departments of Justice, State and Treasury have aggressively sought to encourage foreign governments to cooperate in joint investigations of drug trafficking and money laundering, offering the inducement of sharing in forfeited assets.  A parallel goal has been to encourage the spending of these assets to improve narcotics law enforcement.  Further, the long term goal has been to encourage governments to improve asset forfeiture laws and procedures, and undertake independent investigations.

From 1989 through October 1993, the international asset sharing program administered by Justice has resulted in the forfeiture in the United States of $87,098,527, of which $27,347,258 was shared with foreign governments which cooperated in the investigations.

Recipients of shared assets include: Canada, Switzerland, United Kingdom, British Virgin Islands, Cayman Islands, Colombia, Venezuela, Paraguay, Guatemala, Costa Rica, Argentina, Egypt, and the Bahamas.  Switzerland has shared in five forfeitures, receiving about US$16 million, or more than half the total distributed.  Additional sharings are in the process of being approved.  Still other transfers were made by US Customs during the period, including $226,506 in seized assets with Canada (three awards) and Trinidad and Tobago, as well as earlier awards of $2 million to France and $3 million to the United Kingdom.


MULTILATERAL ACTIVITIES

THE FINANCIAL ACTION TASK FORCE

The Financial Action Task Force was created by the Economic Summit in 1989 and now includes 26 governments: United States, France, Germany, UK, Canada, Japan, Belgium, Netherlands, Luxembourg, Italy, Sweden, Denmark, Norway, Finland, Iceland, Ireland, Spain, Portugal, Greece, Austria, Switzerland, Turkey, New Zealand, Australia, Hong Kong, Singapore, the European Union (represented by the Commission of the European Communities) and the Gulf Cooperation Council.

The FATF Secretariat is housed in the Organization for Economic Cooperation and Development.  FATF consults with the UN Drug Control Program, Council of Europe, World Bank, European Bank for Reconstruction and Development, International Monetary Fund, Interpol, Customs Cooperation Council, and the Organization of American States.

FATF operates through a six-member steering committee.  It includes the President (United Kingdom), the past President (Australia), the next President (Netherlands), and the chairmen of three working groups: Legal Issues (Italy), Financial Cooperation (France) and External Relations (United States).  Treasury's Assistant Secretary for Enforcement heads the US delegation; State (INM) chairs the external relations group.
 
The FATF program has three principal components.  In May 1990, FATF adopted 40 recommendations on money laundering countermeasures, which among other purposes are intended to build upon the provisions of the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.  In one of the most unique actions taken by an international organization, members agreed in April 1991 that each of the 26 governments would be evaluated by experts from among the membership on comparative progress in implementing these recommendations.  This action underscored the political commitment of FATF members and heightened FATF's credibility in the world's financial and enforcement communities.

The Working Groups on Legal Issues (I) and on Financial Cooperation (II) meet regularly to consider trends and methods used to launder money; where appropriate, they recommend changes or new interpretations of the 40 measures.  These Working Groups also engage in discussions, internally and with outside experts, on such major issues as regulating wire transfers, standards for non-bank financial institutions, asset forfeiture and asset sharing, and the use of shell corporations and related entities to facilitate money laundering.

The Legal Affairs and Financial Working Groups monitor the implementation by Member countries and conduct the evaluations of Members based on experts examinations.  The two Groups also combine to monitor Members' actions relating to funds transfers through national payment systems.  FATF Members have been requested to ensure that accurate originator and beneficiary information is contained on funds transfer forms so that such information is available at all stages of the transfer.

The Legal Group has drafted an Interpretive Note concerning the use of shell corporations to hide or obscure the identity of the true beneficial owners of transactions, and is also considering how non-bank financial institutions may be regulated.  Interpretive Notes serve to deepen the FATF recommendations.  Another Note was developed by the Legal Group concerning the use of controlled deliveries.

The objective of the External Relations Working Group (III) is to engage all financial centers and other governments significant from a money laundering perspective in the FATF consensus.  Through its external relations program, FATF urges other countries to endorse and implement these recommendations, and to agree to be evaluated on their progress.  FATF attempts to provide, directly or in association with the UN, the EU and other organizations, a sufficient level of training and technical assistance to meet those objectives.

FATF conducted six seminars during 1993, some involving 40 or more experts from as many as 10 nations.  The seminars offered a total policy perspective, involving regulators as well as bankers, finance and justice ministries, enforcement agencies and prosecutors.  Each seminar was designed to explain the policy approach to the specific problems of a given region, and to provide guidance on implementation and evaluation.
 
The first seminar in Hungary in February attracted delegates from throughout Eastern Europe, and was followed by another seminar in Poland in March.  Nearly two dozen countries met with FATF experts at a symposium in Singapore in April for East and South Asian governments.  A fourth seminar was held in Riyadh in October for the six states of the Gulf Cooperation Council.  A fifth seminar was held in October in the Bahamas for Caribbean region bankers and regulators.  A sixth seminar was held in Moscow for Russian bankers and government agencies in November.

FATF also employed high level visits of its senior officers to several countries, including the People's Republic of China and Israel.  Similar high-level missions will be conducted in 1994, including Mexico, Thailand, Malaysia, Taiwan and Morocco.

Five FATF Members (US, UK, France, Netherlands and Canada) continued to support and finance the Caribbean Financial Action Task Force, which established a Secretariat in Port-of-Spain following the selection of Trinidad and Tobago as president.  A major task is to implement 59 recommendations (the FATF 40 plus 19 indigenous to the region) which ministers from Caribbean Basin governments endorsed at a plenary meeting in Kingston, in November 1992.  The resolutions include a commitment to evaluate their progress at one and three year intervals.  A Steering Group was selected which includes the Bahamas, Panama, Grenada, Netherlands Antilles, Cayman Islands and Trinidad; this group met in November to approve a strategy for 1994-95.

Other participating governments include Antigua and Barbuda, Aruba, Brazil, British Virgin Islands, Canada, Colombia, Dominican Republic, France, Jamaica, Mexico, Netherlands, St. Vincent and the Grenadines, Turks and Caicos, United Kingdom, United States and Venezuela.

The FATF donors agreed in 1993 to fund a CFATF Secretariat, which began operating in the latter part of the year from offices in Port-of-Spain.  First year emphasis will be upon evaluating progress among these governments.  FATF is considering the formation of other regional groups.

FATF also supports the OAS in its efforts to foster adoption and implementation of its model laws, which are based on the 1988 UN Convention.  The OAS anti-money laundering model laws also incorporate FATF recommendations.  FATF and OAS plan to collaborate on seminars in Latin America during 1994.

FATF plans a further approach to East and South Asia, to follow up on the work done at the 1993 symposium in Singapore.  The goal, as elsewhere, is to secure endorsement and implementation of the recommendations, and to measure progress.  The 1993 seminar included Pakistan, India, Bangladesh, Nepal, Sri Lanka, Myanmar, Thailand, Laos, Malaysia, Indonesia, Brunei, Korea, People's Republic of China, Taiwan and the Philippines, as well as FATF Members Singapore, Hong Kong, Japan, New Zealand, Australia, UK and United States.

The expectation for 1994 is that FATF will continue to give priority to its external relation efforts in Eastern Europe, the Caribbean, and East Asia, but initiatives will also be undertaken in South America, South Asia and Africa.  A Working Group III strategy based upon these priorities for 1994 but projected to 1999 was approved by FATF in January, 1994.

This strategy supports a "futures paper" adopted by FATF in January, 1994, which broadens the group's mandate to include money laundering from all serious crime, i.e., not limited to the laundering of drug proceeds.

1988 UN CONVENTION

Ninety-nine states have now become parties to the 1988 UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, an increase from the 72 states reported in the 1993 INCSR.  This is an excellent showing five years after the initial signing ceremony in Vienna.

These states became parties to the Convention in 1993: Burundi, Colombia, Guyana, Fiji, Antigua/Barbuda, Malaysia, El Salvador, Romania, Zambia, Slovakia, Argentina, Dominica, Croatia, Zimbabwe, Germany, Bosnia/Herzogovenia, Netherlands, Armenia, Dominican Republic, Azerbaijan, Brunei, Mauritania, Sudan and the former Yugoslav Republic of Macedonia.

Three states have moved towards compliance as recently as this year.  Panama became a party to the Convention on January 13, 1994, and Finland and Latvia deposited their instruments of accession in February 1994.

The following governments had become parties to the Convention in prior years:  Afghanistan, Australia, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Bhutan, Bolivia, Brazil, Bulgaria, Burkina Faso, Cameroon, Canada, Chile, China, Costa Rica, Cote d'Ivoire, Cyprus, Czechoslovakia, Denmark, Ecuador, Egypt, France, Ghana, Greece, Grenada, Guatemala, Guinea, Honduras, India, Iran, Italy, Japan, Jordan, Kenya, Luxembourg, Madagascar, Mexico, Monaco, Morocco, Myanmar, Nepal, Nicaragua, Niger, Nigeria, Oman, Pakistan, Paraguay, Peru, Portugal, Qatar, Russian Federation, Saudi Arabia, Senegal, Seychelles, Slovenia, Spain, Sri Lanka, Suriname, Sweden, Syria, Togo, Tunisia, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Venezuela and Yugoslavia.  The European Community confirmed Article 12.

The twenty-six governments which are signatories to the Convention but not yet moved to become a party include several important financial center countries, among others:  Algeria, Austria, Belgium, Cuba, Gabon, Holy See, Hungary, Indonesia, Ireland, Jamaica, Kuwait, Maldives, Mauritius, New Zealand, Norway, Philippines, Poland, Sierra Leone, Switzerland, Tanzania, Trinidad and Tobago, Turkey, Uruguay, Yemen and Zaire.
 
As of February 1, 1994, thirty-nine governments had neither signed the Convention nor become a party; 22 of the governments on this list, which contains fewer key financial centers than the list above, are in Africa, which has received comparatively less attention from money launderers and/or groups attempting to counter it:  Albania, Angola, Belize, Benin, Botswana, Cape Verde, Central African Republic, Chad, Comoro Islands, Congo, Cook Islands, Djibouti, Equitorial Guinea, Ethiopia, The Gambia, Guinea-Bissau, Haiti, Iceland, Iraq, Kampuchea, Kiribati, North Korea, South Korea, Laos, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Malawi, Mali, Malta, Mongolia, Mozambique, Namibia, Papua New Guinea, Rwanda, St. Kitts and Nevis and St. Lucia.

OAS LEGAL EXPERTS GROUP

During 1991-92, a 13-nation group of experts prepared model legislation on narcotics-related money laundering and asset forfeiture for the Inter-American Drug Abuse Control Commission (CICAD) of the Organization of American States (OAS).  The drafting process was completed in early 1992 and the model statutes were adopted by CICAD on March 10, 1992.  On May 22, 1992, the OAS unanimously approved the model legislation and recommended that it be enacted by the 34 OAS member states.

The model statutes consist of 19 articles, which focus on three areas of regulatory and enforcement activity.  The first three articles provide definitions and set forth a model statute to criminalize money laundering.  The second group of articles sets forth model statutes for the seizure and forfeiture of assets.  The third set provides a framework for regulations involving financial institutions and currency transaction recording/reporting.

During the past 14 months, OAS/CICAD has sponsored three in a series of four regional conferences to discuss the model regulations.  The conferences present a "hands-on" approach to assist participants to see the practical realities of the model legislation and are designed to encourage them to draft and implement corresponding legislation in their countries.

The first conference was held in December 1992 in Chile, for governments in the Southern Cone.  The second conference was held in Panama in June 1993, for governments from Central America and the northernmost countries of South America.  A third conference was held in Martinique in January 1994, for governments of the Caribbean Basin.  The final conference is tentatively scheduled for May 1994 in Mexico.

REPORTING COMPLIANCE

The accompanying charts are provided to comply with the International Narcotics Control Act of 1992, P.L. 102-583, which established reporting requirements for FY 1993 and 1994, including a requirement that the INCSR identify the major money laundering countries, and provide specific information for each such country.
 
There is no uniformly reliable way of estimating the volume of currency or monetary instruments flowing through a given financial system, and therefore no mathematical definition of "major money laundering country."  However, there is enough information about the majority of nations and territories to identify them as high, medium or low rank in terms of their comparative significance on the world stage.

From such rankings, an inference can be made that a given nation or territory is a major concern to the USG if it is considered of high or medium-to-high significance and thus of high or medium-to-high priority for bilateral and multilateral intervention.  The designations for each nation or territory are shown as (H), (M) or (L) or (NP) for no priority.  Those which are (M-H) or (H) are shown in the compliance table.

Admittedly, intelligence on money in transit and under conversion through bank and non-bank financial systems results in Switzerland, which has adopted and enforces very strong laws, and Britain, which is a mainstay in international enforcement efforts, appearing on the same list with governments which have, comparatively speaking, done little or nothing to stop the significant flow of drug proceeds and other illegal funds through their financial systems.

The chapter therefore provides data tables and other information which show the relative degree of compliance with such critical criteria as criminalizing money laundering, or requiring the reporting of unusual or suspicious transactions.

Said another way, the higher priority grouping is that list of governments from which effective action is needed if the international community is to make any headway in the collective effort to stem and prevent the laundering and/or transit of the proceeds of serious crime.

A number of governments were ranked High priority because it is believed that, if new or improved laws were more effectively applied, it would make a difference in the money laundering world.  For example, the passage of new laws in Switzerland prompted movements of money away to other locales.  That is, its reduced utility to traffickers and/or money launderers would have an impact.

These rankings can change.  India was a Medium priority in 1992; it was considered a potential money laundering country on the basis of the flow of money related to India's role in the Southwest Asian heroin trade.  Now, the flow of money and gold related to India's own drug trade compels a higher priority.  When the Bahamas was assigned a Medium priority in 1993, there was an expectation that the Commonwealth would take action to ensure full statutory compliance with the Convention and also address the shell corporation problem, but it has done neither.  Colombia has now ratified the Convention, as has Panama, but Colombia took key exceptions--and neither has undertaken the kind of enforcement effort consistent with the goals and objectives of the Convention.  Thus, both retain their High priority rankings.

A Medium priority county designation can indicate a country in transition, where the threat is real but hasn't fully materialized, or simply a country where a significant but not market-shaping volume of money laundering is believed to occur, or one which gives moderate but important assistance to anti-money laundering enforcement efforts.

A Low priority country is one in which there is only a moderate amount of money laundering, and one in which we do not expect the situation to worsen in the immediate future.  By definition, we would not expend major resources in such a country.

No Priority means that we either are not aware of any money laundering, or that it is too insignificant to be a factor in the international drug money market.

These rankings, like the material in the country summaries, were developed in a series of meetings involving State, Justice, Treasury, Federal Reserve, Comptroller of the Currency, Central Intelligence Agency, and included the Drug Enforcement Administration, Customs, Federal Bureau of Investigation, Financial Crimes Enforcement Network, Internal Revenue Service, and the Office of National Drug Control Policy.

The table below responds to Section 489(a)(7) of the Foreign Assistance Act of 1961, as amended.  For these purposes, it is assumed below that each of the high or medium-to-high priority nations or territories can be considered major; that a significant but unknown amount of US and other drug-related currency flows through their financial systems, in an amount or manner of importance to the United States; and, that the USG either has agreements in force which permit needed exchanges of data and other information or that there is sufficient compatibility of laws to permit such sharing as needed.  It should be noted that the USG has pursued agreements in only a small number of instances.

An important change from the 1993 to 1994 INCSR is that, in addition to showing whether a government has become a party to the 1988 UN Convention, the table this year indicates whether that government is fully meeting the goals and objectives of the Convention.  In 1993, that finding was expressed in the country summaries; now it is in both the table and the summaries.  A finding that a government has not become a party to the Convention, or not adopted legislation to criminalize money laundering, or to require banks to maintain records, has not permitted reporting of suspicious transactions, or established systems to forfeit assets, or cooperated on investigations--or has not made a good faith effort to implement the legislation it has adopted--is grounds for a finding that a government is not fully meeting the goals and objectives of the Convention.

That given, the concentration below is on demonstrating whether a government has become a party to (UN 88) and is meeting the goals (Goals) of the 1988 UN Convention, shown as UN88 in the table, and, in response to Subsection (7)(C), whether a government has:

(i) criminalized narcotics money laundering;
 
(ii) required banks and other financial institutions to know and record the identity of customers engaging in significant transactions, including the recording of large currency transactions at threshholds appropriate to that country's economic situation;

(iii) required banks and other financial institutions 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 authorities in narcotics-related money laundering cases;

(iv) required or allowed financial institutions to report suspicious transactions;

(v) established systems for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets;

(vi) enacted laws for the sharing of seized narcotics assets with other governments;

(vii) cooperated, when requested, with appropriate law enforcement agencies of other governments investigating financial crimes related to narcotics; and

(viii) addressed the problem of international transportation of illegal source currency and monetary instruments.
 

Actions by High and Medium-to-High Priority Governments

Government       Ci  Cii  Ciii  Civ  Cv  Cvi  Cvii  Cviii  UN88  Goals

Aruba            Y   Y      Y     N   N   N    Y       N   **    N
Bahamas          N   V      V     V   Y   N    Y       N   Y     N
Brazil           N   Y      Y     N   Y   N    Y       ?   Y     N
Burma            N   N      N     N   N   N    N       N   Y     N
Canada           Y   N      Y     V   Y   N    Y       N   Y     Y
Cayman Islds     Y   Y      Y     Y   Y   N    Y       Y   **    Y
Colombia         N   Y      Y     Y   Y   Y    Y       N   Y     N
Ecuador          Y   Y      Y     N   Y   N*   Y       N   Y     N
Germany          Y   Y      Y     Y   Y   N    Y       Y   Y     Y
Hong Kong        Y   N      Y     Y   Y   N    Y       N   **    N
India            Y   Y      Y     ?   Y   N    Y       Y   Y     N
Italy            Y   Y      Y     Y   Y   N    Y       Y   Y     Y
Ivory Coast      Y   Y      Y     Y   Y   N    Y       Y   Y     N
Japan            Y   Y      Y     Y   Y   N    Y       N   Y     Y
Liechtenstein    Y   ?      Y     ?   Y   N    Y       ?   N     N
Luxembourg       Y   Y      Y     Y   Y   N    Y       N   Y     Y
Mexico           Y   N      N     N   Y   N    Y       Y   Y     N
Netherlands      Y   Y      Y     Y   Y   N    Y       N   Y     Y
Nigeria          Y   Y      Y     N   N   N    Y       N   Y     N
Pakistan         N   N      N     N   N   N    Y       N   Y     N
Panama           Y   Y      Y     N   Y   N    Y       N   Y     N
Paraguay         N   Y      Y     N   ?   N    Y       N   Y     N
Russia           N   N      N     N   N   N    Y       N   Y     N
Singapore        Y   Y      Y     Y   Y   N    Y       ?   N     N
Spain            Y   Y      Y     Y   Y   N    Y       ?   Y     Y
Switzerland      Y   Y      Y     Y   Y   N    Y       N   N    (1)
Thailand         N   N      N     N   Y   N    Y       N   N     N
Turkey           N   N      N     N   N   N    Y       N   N     N
UAE              N   ?      N     ?   ?   N    Y       ?   Y     N
UK               Y   N      Y     Y   Y   N    Y       Y   Y     Y
US               Y   Y      Y     Y   Y   Y    Y       Y   Y     Y
Uruguay          N   Y      Y     N   N   N    Y       N   N     N
Venezuela        Y   Y      Y     Y   Y   N    Y       N   Y     N

Legend:     Y = Yes      N = No      V = Voluntary

* US-Ecuador asset sharing agreement will be signed soon.
** UN Convention does Not apply
(1) Switzerland has Not ratified but substantially meets the
    goals and objectives of the 1988 UN Convention.



[Money Laundering Chart - high/low]



COUNTRY SUMMARIES

MONEY LAUNDERING CHAPTER

Note: The United States recognizes that some governments included in the reports below are dependencies of sovereign governments, or, like Aruba and the Netherlands Antilles, and the French overseas departements, and Madeira and the Azores, are parts of governments.  In several instances, these dependencies etc. have separate identifications as financial systems, e.g., as members of the Offshore Group of Banking Supervisors or the Caribbean Financial Action Task Force.  They are treated individually here for those reasons.  US dependencies, such as the Virgin Islands and Puerto Rico, are similarly treated.  Comparative priorities are shown for each government.

WESTERN HEMISPHERE

North America

Canada.  (High) Canada has emerged as a major money laundering center; its authorities estimate that US$10-12 billion in drug-related proceeds passes through Canada's banking and non-bank financial institutions annually; the proceeds are generated by the sale of drugs domestically and sales of drugs abroad, including US sales.  Colombian cocaine cartels carry on organized money laundering schemes; typically, Canadian dollars are converted into US dollars, then sent by wire to bank accounts in the United States or Panama.  The hundreds of currency exchange houses on the US border, which are not required to report suspicious transactions, are often used to convert and transfer drug proceeds.  The currency exchanges help traffickers around the problem of retaining Canadian currency by wiring US dollars to US banks for collection.  There is evidence ethnic Chinese traffickers in Seattle are using the "hundi" underground banking system in Canada to convert heroin proceeds into US dollars.  A Middle Eastern organization is known to have laundered drug money through Canada.  Drug profits have been laundered through import and export businesses, as well as front companies and shell corporations.

Although Canada criminalized money laundering in 1989, few prosecutions have resulted.  The seizure total of $21.5 million in 1992 is small compared to the estimated volume of money laundering traffic.  New regulations were adopted in 1993 to implement a 1991 law which requires financial institutions to maintain records for five years on transactions of more than C$10,000.  Reporting of suspicious transactions is voluntary, but the Canadian Bankers Association, whose members oppose mandatory controls, says that 100 suspicious transaction reports are filed with the government each month.

Although assets may be seized and forfeited without related arrests and prosecution for drug offenses, this does not happen in practice.  Forfeited assets are placed in the general fund, and Canada passed legislation in 1993 that would distribute such assets among federal, provincial, municipal and perhaps foreign authorities.  However, Canada has not promulgated regulations to implement the 1993 legislation, and Canada is unable to share assets domestically with the United States.

United States.  (High) The Annunzio-Wylie Anti-Money Laundering Act (H.R. 5334) enabled the United States to comply fully with FATF recommendations.  The law gives Treasury regulatory authority to require suspicious transactions reporting, which regulatory agencies have required from banks since 1984, by all financial institutions subject to the Bank Secrecy Act, including securities brokers, casas de cambio and other non-bank financial institutions.  The Act also authorizes regulations to require depository institutions to identify and report the names of non-bank financial institution account holders.  The Act broke new ground by permitting revocation of license for a depository institution convicted of currency or money laundering violations.

Mexico.  (High) Money laundering is extensive, and US enforcement officers rank Mexico behind only the United States, Panama and possibly Venezuela in the Western Hemisphere as money laundering centers.  Although Mexico has increased sanctions against money laundering through revisions to its tax code, the Mexican financial system remains vulnerable to drug and non-drug related money laundering.  Foreign and domestic currency movements are unmonitored; any amount of deposited currency can be transferred by wire, between domestic banks or between foreign and domestic institutions. There are no mandatory reporting requirements relating to cash deposited in banks or wire transfers.

Much of the money laundering occurs in "casas de cambio" or exchange houses which proliferate along Mexico's lengthy, porous border with the United States.  These "casas" can only exchange one form of currency for another; another role in money laundering is to create a layer of anonymity between the owner of the currency and the financial institution where the "casa" has an account; that account can be used to wire transfer funds.  A great deal of currency is also returned from the United States through Mexico, enroute to South America.  Traffickers are reverting to bulk shipments of drug currency; having been "stung" by enforcement officials through Operation Green Ice, they are more fearful of being detected through improved US bank reporting requirements.  Large quantities of cash are secreted in tractor trailers or cars, often carrying legitimate merchandise, which are driven across the Southwest border (some bulk shipments are by air).  Inside Mexico, the cash is placed into the financial system, or wire transferred, or moved further in bulk to South America.

Illegal proceeds are also invested in legitimate enterprises and the money laundering which occurs can involve loans, letters of credit, offshore banking transactions and other schemes.

Sensitive to these vulnerabilities, Mexico has taken a number of regulatory and enforcement actions, but further action is needed to comply fully with the goals and objectives of the 1988 UN Convention.  In June 1993, President Salinas created the National Institute for the Fight against Drugs, which has overall responsibility for counternarcotics activities and targets drug trafficking, money laundering and arms smuggling.  Hacienda officials travelled to Washington for a day of policy discussions with Treasury, State and Justice.  There are plans for a visit to Mexico by an FATF delegation; Mexico has applied for membership in the Organization for Economic Cooperation and Development, which should be approved by May or June 1994.
 
Mexico published new regulations in July 1993 which require persons entering the country to declare currency and checks in their possession in excess of 30,000 pesos (roughly US$10,000).  The government has also proposed changes in its 1990 tax code to permit prosecution of money laundering as an independent offense related to drug trafficking.  Although the revisions are drawn from the model legislation approved by the Inter-American Drug Abuse Control Commission (CICAD), money laundering would remain a tax rather than a criminal offense.  A similar approach is being taken with respect to asset forfeiture; the PGR has agreed to inform the Hacienda of property seizures so that a determination can be made whether or not any tax laws were violated.

Money laundering enforcement actions were stepped up in 1993, resulting in increased seizures of drug assets, and the arrest of two major money launderers, Rafael and Eduardo Munoz-Talavera.  Their case confirmed that drug money is not only laundered in Mexico, but invested.  The brothers owned restaurants, bars, meat shops, farms and homes worth an estimated US$23 million in Juarez alone.  Colombian and Mexican drug traffickers, who are reportedly seeking to legitimize as much of their wealth as possible, also own cement companies, assembly plants, motels, biotechnology firms, aviation companies and other enterprises in Mexico.

SOUTH AMERICA

Argentina.  (Medium) Narcotics-related money laundering is increasing, both from domestic sales of drugs and from drug sales abroad, but Argentine lawmakers have not so far provided the kinds of countermeasures expected from an increasingly important money laundering center, although changes are being considered.  Colombian, Italian, Bolivian and Argentine traffickers are laundering drug money through banks, businesses, hotels and casinos; traffickers are also investing in office buildings, shopping malls, hotels and condominiums.

The volume of drug dollars processed through Argentina is believed to have increased as a result of the Central Bank's decision in January 1993 to allow Argentinians to hold US dollar accounts and write dollar denominated checks; without question, these steps have increased the flow and availability of US dollars, which were already dominant in the monetary system.  The Joint Control Commission is studying money laundering methods and will propose measures to detect money laundering and prosecute offenders.  At present, money laundering is an offense only when explicitly linked to narcotics activity.  Banks are encouraged to report suspicious transactions, but these reports are made on an infrequent and irregular basis and bankers, who are required by law to protect the identify of depositors unless presented with a court order, say there is little or no protection for bankers who voluntarily cooperate without a court order.  The two banking associations recommend keeping records for five years but there are no legal requirements to do so.  The lack of a law protecting informants with regard to illegal banking activities also prevents adequate criminal investigations.  Argentina is considering CICAD model laws but there is substantial opposition to reform within the banking and business communities.  There are no controls on the import/export of cash.  The MLAT with the United States went into force in February, 1993.
 
Bolivia. (Medium) Bolivia is not an important financial or money laundering center, and known money laundering activity occurs within exchange houses, and is drug related.  Bolivia is being downgraded from a Medium-High to Medium Priority ranking among money laundering countries, given the absence of evidence which would confirm major exploitation of the banking system.  But serious questions remain.  Bank deposits in foreign currency are permitted.  Over 87 percent of all deposits are in US dollars, in part due to the lack of Bolivian confidence in its currency, following the hyper-inflation of the mid-1980's.

The widespread use of US dollars means that the proceeds of drug trafficking can be easily hidden.  Moreover, Bolivia has made no serious effort to meet the goals and objectives of the 1988 UN Convention.  Money laundering is not a criminal offense, and there are no controls on the amounts of money which can be moved into or out of Bolivia.  Bank secrecy laws prohibit the sharing of information to facilitate investigations.  There is concern that traffickers could exploit this situation, with Bolivia becoming an alternative to Colombia and Peru for money laundering.  The lack of stringent banking regulations reflects the strong opposition of banks to changes in bank secrecy laws.

Brazil.  (Medium-High) Drug traffickers are reportedly exploiting Brazil's lack of effective anti-money laundering controls and are investing US dollars in businesses, hotels/motels and condominiums.  The dollars, generally moved to Brazil in bulk quantities and probably representing proceeds of large shipments by Colombian, Bolivian and Brazilian traffickers, are also laundered, with exchange houses as well as travel agencies, the underground lottery, the gold market and front companies being preferred mediums.

Laundering of any illegally-gained assets is a criminal offense.  Brazilians are limited to taking US$4,000 per trip out of the country, and banks are required to report currency transactions of US$10,000 or more.  Brazil also has asset forfeiture and seizure laws.  However, bank secrecy laws make it difficult for enforcement officers to identify and trace assets through the banking system, and inhibit cooperation with officials from other countries.

While a new scandal involving the laundering of public funds has again focused attention on banks and bank regulation, exchange houses and other non-bank institutions are not included and remain unregulated.  There have been no arrests or prosecutions for money laundering. In sum, Brazil has ratified but not yet met the goals and objectives of the 1988 UN Convention.

Chile.  (Medium) Government officials acknowledge that drug money flows through Chilean banks and also through investments in the booming construction and fishing industries.  Numerous "casas de cambio" are known to launder drug money from Peru, Colombia and Bolivia.  The presence in Chile of money laundering specialists who represent the worldwide interests of the Medellin and Cali cartels, other Colombian and Peruvian groups, and European arms and heroin organizations suggests that Chile is becoming a more important money laundering location.  There are no anti-money laundering laws to offset the stringently enforced bank secrecy statutes.  A bill has been in Congress since 1992 which, if enacted, would allow the Central Bank or State Defense Council to investigate money laundering crimes.
 
Colombia.  (High) Colombia continues to be one of the primary money laundering concerns in the Western Hemisphere.  While the Colombian Government ratified the 1988 UN Convention in 1993, the last of the Andean governments to do so, it took important reservations, notably to the money laundering measures, asset forfeiture and confiscation provisions and extradition clauses.  Colombia has not met the Convention's goals and objectives.

In September 1993, the Central Bank introduced amendments to the foreign exchange code which would expedite transactions while imposing stringent controls on speculative or illegal capital.  While Resolution 21 requires the reporting of suspicious transactions and recording of transactions in foreign currencies, the Superintendent of Exchange, citing a lack of enforcement resources, has suspended the requirements for exchange houses to identify individuals conducting currency exchanges of US$7,000 or more.  A code of conduct for banks, drawn on recommendations from the EU, Basle Committee and others, and including a "know your customer" policy, has been adopted, with untested results.

Money laundering per se is not a crime (although illegal enrichment is).  The government can confiscate the assets of drug traffickers, but only after a criminal conviction for drug trafficking or another crime.  However, this law has many loopholes and its enforcement has been blunted by corruption.  All 52 of the accounts blocked as a result of the late 1991 raids were subsequently released.  Other assets besides bank accounts, which were seized from Rodriguez Gacha and Pablo Escobar were also returned.  This is due to the lack of and/or weak laws which would give the government the authority to confiscate and forfeit assets associated with narcotics trafficking.

To circumvent enforcement regulations, as well as the 15-20 percent tariff imposed on US dollars entering Colombia, traffickers use Venezuelan banks, where dollars are converted into bolivares or other non-US currency, then transferred to Colombia or wired elsewhere.  The drug trade is believed to be a factor in the continuing purchase of Colombian banks by Venezuelans.  Millions of dollars of US postal money orders have been purchased by traffickers to move drug proceeds back to Colombia, where they are exchanged for pesos at casas de cambio and then deposited in banks.

Moreover, substantial inflows of foreign capital continue to enter the Colombian economy under the stimuli of a liberalized exchange regime and high interest rates, and this flow of foreign exchange is believed to include drug proceeds.  While experts believe the cartels continue to invest abroad large amounts of the proceeds from cocaine, heroin and cannabis sales, US dollars are also returned in bulk to the cartels.

Ecuador.  (Medium-High) The banking community believes that hundreds of millions of dollars in cocaine proceeds are laundered yearly through their system; the Solicitor General estimates the cumulative volume at more than US$1 billion.  Ecuador's emergence as an important money laundering center owes much to its strict bank secrecy laws, but especially to its offshore banking system.  In late 1993, the Government moved to exercise some control over these offshore banks.  Money laundering also occurs in domestic banking and non-bank institutions.  Ecuador has ratified but is not yet meeting the goals and objectives of the 1988 UN Convention.
 
Ecuador has signed an agreement with the United States to share information on currency transactions involving more than US$10,000, but some financial institutions do not comply with the requirement for retaining records, and the Superintendency of Banks cannot easily share data on domestic transactions with police because of bank secrecy laws.  Still, several banks have cooperated with GOE and USG agencies on investigations, notably the Reyes Torres case, and the Superintendent signed an agreement in January 1994 on police access to bank data.  Assets can be forfeited only if there is a conviction for drug trafficking; there have been no trafficking convictions so no property has been forfeited.  Some Reyes Torres assets have been frozen but the courts have not yet adjudicated the case.

Guyana. (No Priority) Police suspect money laundering occurs but they have no hard evidence, and the volume is not significant.

Paraguay.  (Medium-High) Although officials have expressed their intent to curtail money laundering, liberal banking and foreign investment laws, as well as the lack of anti-money laundering laws, a comparatively large financial sector, limited law enforcement capabilities, and, not least, the contraband-influenced economy, give Paraguay the potential to become an even more significant money laundering center.  Paraguay has ratified but does not fully meet the goals and objectives of the 1988 UN Convention.  However, the Congress has drafted legislation to criminalize money laundering and strengthen related laws which will be considered in the session starting March 1994.

Drug money laundering is believed to be increasing.  The well-established contraband sector of the economy, which involves more than $400 million in goods smuggled each year, is believed to conceal a large portion of the drug proceeds flowing through the banking system.  Casas de cambio, which are not effectively regulated due to manpower shortages, are heavily used in the exchange of US dollars, and are known to have been involved in worldwide transactions of drug proceeds.  There are no restrictions on the import/export of currency, but banks are required to report transactions of US$10,000 or more, information which can be shared pursuant to an agreement with the United States.

Peru.  (Medium) Although drug-related money laundering occurs in both banks and non-bank financial institutions, especially exchange houses, Peru is not considered a significant money laundering center.  Laundered money includes funds paid to Peruvian cocaine trafficking organizations by Colombian traffickers who use US dollars (from drug sales in the United States) to buy the raw coca materials from Peruvian suppliers.  US currency enters and leaves Peru free of exchange controls.  Peru signed an information exchange agreement with the United States in 1992; to implement that agreement, banks and formal financial institutions are required to report the identity of customers conducting significant transactions in US currency.  But banks are not required to report suspicious transactions.  Peru can seize drug-related proceeds and other assets but must prove a direct connection between the funds and an antecedent offense like drug trafficking.
 
Suriname.  (Low) Tight banking restrictions and a practically non-convertible currency make Suriname an unattractive place to launder money, despite its lack of preventive legislation.

Uruguay.  (Medium-High)  Uruguay is an important financial center in the Southern Cone.  USG, European and Southern Cone enforcement agencies believe narcotics traffickers launder money in Uruguay, although the scope is undetermined.  Legislation which will criminalize money laundering, passed by the Senate, is awaiting approval by the chamber of deputies.  The 1988 Vienna Convention has been ratified by the lower House but awaits Senate (upper House) action.

The authority to investigate money laundering is predicated on a drug offense.  The Chamber of Deputies recently passed a bill calling for registration of gold exports.  However, the bill exempts "internationally recognized banks and exchange houses."  The exchange houses are not effectively regulated by the Central Bank.  New legislation is based on CICAD model laws.  While the current law provides for criminal forfeiture, the law has never been applied against drug traffickers, nor has the GOU seized any funds in banks or businesses.  Uruguay has ratified the MLAT with the Unite States which, when in force, should ease the exchange of evidence in money laundering cases.  

Venezuela.  (High) Venezuela, which has become a significant money laundering center, adopted a law in September 1993 criminalizing drug money laundering.  While the law has limited scope, it does require the reporting of suspicious transactions and is one of the few statutes in this Hemisphere which imposes a due diligence principle on bankers.  Venezuela invoked the new law when its National Guard raided a series of exchange houses and businesses in Tachira and arrested more than 100 persons.  The Central Bank requires banks and exchange houses to record transactions involving more than $10,000 in US currency, but the requirement is not rigidly enforced, e.g, among exchange houses in the Maracaibo region.  Brokerage houses are not considered to be financial institutions, and therefore have not been required to report.  The Central Bank plans to create a data base that will improve its ability to detect money transfers related to drug trafficking.  There are no asset forfeiture laws, and Venezuela would benefit from implementing a system for freezing, seizing and forfeiting narcotic-related and other criminal assets.  Venezuela has ratified but has not met the goals and objectives of the 1988 UN Convention.

Money laundering generally involves the exchange of US dollars for Colombian pesos or Venezuelan bolivares; the proceeds are primarily owned by Colombians while Venezuelans, who have been buying Colombian banks and are benefitting from Colombia's 15-30 percent tariff on US dollars entering that country, own the money laundering networks.  Most money laundering occurs through banks, exchange houses, casinos, the stock market or real estate investments, and involves the proceeds of cocaine trafficking.  Drug funds deposited into banks can be converted into US dollar checks and distributed to individuals and companies in Colombia or Panama.  Substantial sums of money are believed to flow through real or dummy financial corporations in Tachira and Zulia states.
 
CENTRAL AMERICA

Belize  (Medium) Money laundering is now considered a potential threat to Belize, which has no laws regulating the movement of currency and allows unrestricted use of bearer-negotiable instruments.  Belize, which has not criminalized money laundering, has significantly increased exports of US dollars to correspondent banks.  The government has sought USG assistance.

Costa Rica.  (Medium) Money laundering appeared to increase in 1993; several USG investigations involve front companies in Costa Rica which are linked to Colombian traffickers, and indicate that Costa Rica is being used not only as a transhipment point for drugs but also for bulk shipments of cash.  In February 1994, the GOCR arrested the operator of an exchange house, with alleged ties to Colombian, Central American and US money laundering groups.  The USG believes that the exchange house laundered between US$400,000 and $750,000 daily.  Colombians have been investing in real estate and hotels in Costa Rica, which is a tax haven.  There are also indications that Italian organized crime families have established front companies in Costa Rica.  Four Colombian drug money launderers were caught in Operation Green Ice, but Costa Rica has not yet extradited these offenders, pending resolution of appeals.  The Costa Rican Constitutional Court has ruled that the US/Costa Rican extradition treaty is "inapplicable," and the GOCR is currently processing USG extradition requests under a domestic Costa Rican extradition law.

El Salvador.  (No Priority) There is no indication of any significant money laundering activity.

Guatemala.  (Medium) USG officials share the Central Bank's concern that money laundering may have increased along with trafficking in cocaine; the lack of conclusive evidence on money laundering may reflect an intelligence gap.  Other indicators abound, including high real estate prices and a construction boom, beyond the norms associated with market conditions.  Moreover, there is evidence that bulk shipments of US currency to Colombia are routed through Guatemala.  At the same time, Guatemalan drug traffickers are known to use Florida banks to launder money, as well as domestic front companies, apparently acting in behalf of Colombian groups.  Guatemala has a well-developed financial system and a network of informal financial institutions, both operating under minimal controls.  While a financial sector reform program has been initiated to improve prudential bank supervision, it is unlikely to deter money laundering.  The government is issuing bearer bonds at very favorable interest rates; bearer bonds have been exploited by money launderers in a number of jurisdictions.  Money laundering is not a crime, nor are there controls on currency movements, but banks are required to report transactions of more than US$5,000.  There has been no enforcement of a new forfeiture law which limits government seizures to those assets directly involved in narcotics offenses (instrumentalities).  Bank secrecy is constitutionally mandated and extremely difficult to pierce.
 
Honduras.  (Low) Some foreign investment in the service sector of the economy may be drug-financed, particularly the growing tourism industry of the bay islands.  A money laundering law is pending before the Congress.  Honduras has an asset seizure law, but it has only been used to confiscate some vehicles.

Nicaragua.  (No Priority) Laundering of drug proceeds probably occurs in bank and non-bank systems but is not significant.

Panama.  (High) Panama deposited its instrument of ratification, with respect to the 1988 UN Convention, on January 13, 1994, and has proposed implementing legislation that would complement its 1986 law.  However, Panama is not fully meeting the goals and objectives of the Convention with respect to money laundering countermeasures; nor has Panama, which is one of the world's major tax havens and offshore banking centers, adopted the kinds of banking and financial regulations which the Financial Action Task Force, the Organization of American States and the Offshore Group of Banking Supervisors (OGBS) believe are essential to prudential supervision of the financial systems.

Although Panama has proposed a more effective system of statutory controls, many of the transactions in drug proceeds which US enforcement agencies have traced to Europe, Asia, the United States and the Caribbean continue to have Panama as a common link.  Panama continues to rank second in this Hemisphere only to the United States as a money laundering concern to USG agencies.  The sophisticated banking structure which makes Panama an important and successful financial center, coupled with loose money laundering laws and ineffective enforcement, continue to contribute to Panama's vulnerability to money laundering and make it a venue of choice for drug traffickers, especially the Colombian cocaine cartels, and other money launderers.  The attraction is heightened by:  a dollar-based economy; lax and/or poorly enforced regulations on banking, offshore banking, and customs; loose standards for incorporation and anonymity for owners of shell corporations; corporate ownership through bearer shares; and unlimited flows of currency and monetary instruments into and out of Panama.  In sum, Panama offers the kind of sophisticated banking that is essential to the professionally managed schemes used today by drug cartels and other criminals.

Drug money is converted within the financial system and through the Colon Free Zone, and also transits Panama.  The United States stopped issuing 50 and 100 dollar notes to Panama in 1986, yet the return of currency in these denominations is very high.  The system's vulnerability was well demonstrated in 1993 when the New York account of the Panama branch of Hong Kong Shanghai Bank was frozen, as the result of an investigation involving US postal money orders.  Until that case broke, Panama accounted for much of the worldwide total of misused money orders.  Subsequently, banks in Panama have virtually stopped accepting US money orders, a confirmation that conclusive enforcement actions can have results in Panama.  The continued use of the Free Zone to launder money, some of which may be drug-related, was confirmed again by the discovery of fictitious import/export companies using false invoicing schemes, one of the most popular methods globally to launder proceeds from various crimes.  There is also concern that traffickers are investing in the construction industry.  
 
Like Panama's banking regulations, its judicial processes, customs and enforcement procedures, as well as internal bank policies, are also not consistent with international standards.  The compliance tables in this chapter compare Panama and a number of other governments on such basic criteria as:  the criminalization of money laundering; requiring that banks keep adequate records for mandated periods of time, sufficient to ensure effective investigations; requiring that banks keep records of significant transactions; requiring that banks record and report suspicious transactions; establishing systems for identifying, tracing, freezing, seizing and forfeiting narcotics related and other assets; enacting laws for the sharing of seized assets with other governments; cooperating with appropriate law enforcement agencies of other governments; and addressing the problem of international transportation of illegal source currency and monetary instruments.

While Panama has been an inactive member in recent years, it has been warned by OGBS that it cannot be a member in good standing unless it adopts statutory countermeasures; after an exchange of correspondence with Panama, the OGBS Secretariat has recommended to its members that Panama's membership be withdrawn.

Adopting legislation or regulations to these effects is but one test; as FATF has demonstrated through its mutual examinations, the parallel test, to which other governments are also being held accountable in this year's INCSR, is whether the government is actually implementing these and related measures, and thus meeting the goals and objectives of the 1988 UN Convention.  For example, money laundering is a crime, but the record of GOP-led investigations pales in comparison to known levels of activity.

The only successful prosecution under the 1986 law, which criminalized money laundering but provides that the defendant must know that the funds were drug proceeds, occurred in 1993.  The conviction resulted from a Panamanian investigation, but was based primarily on evidence provided by USG agencies (the conviction occurred in absentia and involved a defendant who had confessed in the United States).

While the banking association has issued new guidelines for "know your client" procedures and banks must record significant currency transactions, there remains a need for more effective money laundering controls and improved enforcement.  There is no requirement upon banks to report suspicious transactions.  The government, however, took action March 9, 1994, to redress another serious problem, by requiring that all persons entering Panama must now declare whether they are carrying more than US$10,000 in cash or negotiable instruments.  The regulation is too new to test its effectiveness, which will, hopefully be at a higher level than the limited controls applied to and through banks.

Secrecy laws on business ownership permit traffickers to set up corporations with anonymous boards of directors and to hold ownership through bearer shares.  Panama needs to improve its capability to analyze financial crimes, and would benefit from the appointment of special prosecutors to investigate these crimes, as has been proposed in draft bills pending in the Assembly.
 
The long distance between concept and result in Panama is well illustrated by its ineffective implementation of its asset forfeiture laws.  While Panama cooperated in the blocking of numerous bank accounts in recent years, none of these accounts has been forfeited.  A number of these accounts, including some holding funds for slain Medellin leader Rodriguez Gacha, were released by the former Attorney General, who was subsequently convicted for abuse of authority.

THE CARIBBEAN

Anguilla.  (No Priority) Money laundering, never extensive, appears to have diminished substantially as a result of Anguilla having shut down all but one of its offshore banks -- which is under investigation for alleged financial crime activity.

Antigua and Barbuda.  (Low-Medium) USG officials believe Antigua has the potential to become a prime money laundering location.  There has been a significant expansion of offshore banking, with 18 licensees now operating.  Some banks which were shut down in Montserrat after discovery of money laundering activity have since moved to Antigua.  The Government acceded to the 1988 UN Convention in 1993, and passed a series of laws to implement it.  The USG has asked for designation under the new mutual assistance law, which would enhance USG ability to obtain confidential bank records and freeze drug proceeds; Antigua has not responded to the request.  The Proceeds of Crime Act covers all money laundering cases with unlawful activity at their core.

Aruba.  (Medium-High) Aruba has increased in importance as a money laundering center in the Caribbean, and its ranking is upgraded from Medium to Medium-High, but with the recognition that Aruba has stepped up its efforts to acquire the legal and regulatory capability to deal with the problem.  Aruba, which is an offshore banking center, is preparing legislation to comply with the 1988 UN Convention, and has criminalized narcotics and non-narcotics money laundering.  Banks have agreed to record the identities of persons engaged in cash transactions of more than US$10,000, including final beneficiaries, but the requirement only applies to non-clients.  Proposed legislation would require banks to report unusual transactions.

The key is the degree of effective enforcement and bank regulation, both of which Aruba is improving.  Until legislation is effectively enforced, Aruba cannot be said to be meeting the Convention's goals and objectives.  In November 1993, the US Federal Reserve dispatched a team of specialists to Oranjestad to provide training for Central Bank employees.  Aruba has agreed to become part of a Kingdom of the Netherlands examination by the Financial Action Task Force in 1994.  In 1993 Aruba cooperated with a USG money laundering investigation which resulted in the seizure of $65,000, which was awarded to Aruba, one of several instances of such cooperation.

Suspected drug trafficker Randolph Habibe was indicted in December, but other Aruban families with connections to banks in Venezuela and to cocaine cartels in Colombia are strongly suspected of involvement in drug trafficking and money laundering.
 
Drug money continues to come to Aruba through a variety of methods.  A large number of Venezuelans are reported to carry cash to Aruba, and Bahamian traffickers are known to move their proceeds through Aruba.  The island has long been a sanctuary for Italian organized crime money laundering agents, money which is believed to include proceeds from worldwide drug sales.  In February 1993, slot machines shipped from the United States to Aruba were found to contain millions of dollars in secret compartments.  In addition to bulk shipments of cash, there is evidence of "layering" through shell companies (the further movement of money within the financial and business systems to disguise its origin).  Drafts drawn on a bank in the Netherlands were used to fund money to a well-documented Panamanian-based drug organization, which was disclosed through a US-Dutch investigation of such shell companies.  There is also concern that drug money is "integrated" into the Aruban economy through real estate purchases.

The Bahamas.  (Medium-High) USG and Bahamian officials disagree on the vulnerability of the country's banking system to money laundering, and on the further steps needed to meet fully the goals and objectives of the 1988 UN Convention.  The GCOB believes more sophisticated forms of money laundering may be occurring, but not on a significant scale, and contend that existing controls are largely adequate to deal with the threat.  USG officials believe that money laundering is occurring but is going undetected because it is not being investigated.  USG officials are concerned that money launderers can take advantage of existing, largely voluntary requirements and minimal regulations to set up their sophisticated money laundering operations.

Moreover, USG officials believe that additional statutory actions are needed to comply fully with the international consensus on prudent banking measures, and the recommendations of the Basle Committee, the Financial Action Task Force, the Caribbean FATF, and the Offshore Group of Banking Supervisors, to which the Bahamas subscribes.  Both governments agree that cash money laundering through Bahamian banks has diminished.

The GCOB has made clear its reluctance to take legislative or regulatory action that would adversely affect its status as a "tax haven" and/or its offshore banking sector.  Banking is the second most important sector of the economy and the second largest source of foreign exchange after tourism.  

The most fundamental requirement of compliance with the 1988 UN Convention is the criminalization of money laundering, which is not a crime in The Bahamas.  The Attorney General's Office says that money laundering cases can be prosecuted, but no cases have been brought before the courts.

The GCOB does not require financial institutions to report suspicious transactions, relying instead on voluntary efforts by the banks to do so.  The government believes voluntary codes of conduct, combined with possible (but rarely applied) sanctions for violations are a sufficient deterrent to suspicious transactions.
 
However, bankers are concerned about violating the country's strict bank secrecy laws, and have reported only a handful of suspicious transactions in recent years, none of which resulted in a prosecution.  Recordkeeping requirements, which are a mainstay of FATF, and other recommendations on measures to comply with the Convention are also voluntary, and are neither uniformly maintained nor applied to all customers.  However, most financial institutions appear to be determined to avoid drug money and observe a "know your customer" rule with respect to cash transactions by non-account holders.

No such rules apply, however, to shell corporations, which can be used to conceal movements of drug proceeds while providing anonymity to the true beneficial owners of the companies.  Other sectors of the financial community, particularly casinos, insurors, and wire transfer services remain vulnerable to money laundering.  The law provides for the confiscation of assets, but is brought into play only upon conviction, which could allow defendants to hide assets.  The Financial Action Task Force conducted a seminar, primarily for Bahamian bankers, in October, which featured experts from the UK, Switzerland and the United States, who offered a variety of examples of how various financial centers were employing "prudential supervision" concepts without suffering losses of business.

The Bahamas, which attended but declined to be a sponsor of the seminar, has not indicated subsequently that it is prepared to adopt any of these measures, although banking officials had high praise for the seminar and GCOB officials assured FATF that it would work closely with the Caribbean FATF.  USG and FATF officials believe that the examples set by the Bahamas, Cayman Islands and Panama will heavily influence decisions by others in the region.

Barbados.  (Low) The government actively encourages the development of offshore financial services, which have expanded considerably in recent years.  There is no indication of money laundering through the domestic or offshore sectors, and money laundering is illegal.  Moreover, there are strict controls on the amount of money which can be converted into foreign currency or taken out of the country, and banks are expected to