ROMANIA: 2004-2005 INTERNATIONAL NARCOTICS CONTROL

UNCLAS SECTION 01 OF 04 BUCHAREST 000032

SIPDIS

DEPT FOR INL
DEPT FOR EUR/NCE - WSILKWORTH
TREASURY FOR FINCEN
JUSTICE FOR OIA, AFMLS, NDDS

E.O. 12958: N/A
TAGS: KTFN SNAR KSEP ECON RO
SUBJECT: ROMANIA: 2004-2005 INTERNATIONAL NARCOTICS CONTROL
STRAGEGY REPORT (INCSR),SECTION II, FINANCIAL CRIMES AND
MONEY LAUNDERING

REF: STATE 254401

This report provides Embassy Bucharest's input for the
International Narcotics Control Strategy Report, Part II,
Financial Crimes and Money Laundering.


I. Summary
--------------
Romania's geographic location makes it a natural transit
country for trafficking in narcotics, arms, stolen vehicles,
and persons and, therefore, vulnerable to financial crimes.
Romania's National Bank estimates the dollar amount of
financial crimes to be between $1 - 1.5 billion per year.
Tax evasion/VAT fraud constitutes about 45% ($500 - $600
million per year) of this total. Fraud in the financial-
banking sector, fraudulent bankruptcy and smuggling are
other principal financial crimes. Romania also has one of
the highest occurrences of online credit card fraud in the
world. As in several other countries in Eastern Europe,
corruption and the presence of organized crime activity
facilitate financial crimes. Legislation and regulation
designed to combat financial crime are of recent enactment
and are fairly comprehensive. Nevertheless, implementation
lags, while reporting and investigations are not as timely
or as effective as desired.

II. Status of the Country
--------------
Money laundering results primarily from domestic criminal
activity carried out by international crime syndicates,
which often launder money through limited liability
companies set up for this purpose. The U.S. dollar is the
preferred currency. Endemic corruption in Romania and its
neighboring countries abets money laundering. The proceeds
from the smuggling of cigarettes, alcohol, coffee, and other
dutiable commodities are also laundered in Romania. From
Romania, most of the laundered funds go to off shore
financial "shelters" in locations such as the Virgin
Islands, Cayman Islands and Cyprus.

III. Actions Against Money Laundering
--------------
Romania criminalized money laundering with the adoption of
Law No. 21/99 "On the Prevention and Punishment of Money
Laundering" in January 1999. The law requires customer
identification, record keeping, reporting transactions of a
suspicious or unusual nature and reporting of all
transactions over 10,000 euros. The National Office for the
Prevention and Control of Money Laundering (NOPCML),a
financial intelligence unit (FIU) was established under the
law, which mandated internal anti-money laundering
procedures and training for all domestic financial
institutions. Entities subject to money laundering controls
include banks, non-bank financial institutions, attorneys,
accountants, and notaries, although in practice, these
controls have not been as rigorous as those imposed on
banks.

The National Bank of Romania introduced Norm No. 3, "Know
Your Customer," in February 2002. The "Know-Your-Customer"
norm was amended in December 2003 to strengthen information
disclosure for external wire transfers and correspondent
banking, in keeping with new international standards. Banks
must include information about the originator's name,
address and account in the wire transfer and to request the
same information in case of incoming wires. Banks are
further required to take proper due diligence before
entering into international correspondent relations and are
prohibited from opening correspondent accounts with shell
banks.

In December 2002, Law no. 656/2002 on the Prevention and
Sanctioning of Money Laundering went into effect, changing
the list of predicate offenses to the "all-crimes" approach
and requiring that every cash operation and every external
wire transfer involving a sum exceeding 10,000 euros be
reported to the NOPCML and monitored. In addition, the new
law expands the number and types of entities required to
report to the NOPCML. Some of these new entities include
art dealers, travel agents, privatization agents, postal
officials, money transferors, and real estate agents.
Training for these entities is necessary to ensure
compliance with reporting, record keeping, recognition of
suspicious transactions and development of internal
controls.

The new law also provides for both suspicious transaction
reports (STRs) and currency transaction reports (CTR),with
the CTR amounts conforming to European Union (EU) standards.
The know your customer identification requirements have been
honed so that identification of the client becomes necessary
upon both the beginning of a relationship and upon single or
multiple transactions meeting or approaching a 10,000 euro
standard.

The NOPCML receives and evaluates STRs as well as CTRs. The
law also provides for feedback to be given, upon request, to
NOPCML from the General Prosecutor's Office, and for NOPCML
to participate in inspections and controls in conjunction
with supervisory authorities. In 2003, the number of STR's
increased to 882 and 1,241 reports were filed during the
first three quarters of 2004. Out of the 1,241 suspicious
transaction reports received by the NOPCML, 1,134 were filed
by reporting entities and 107 by the supervision
institutions. However, efforts to prosecute these cases
have been hampered by delays in reporting suspicious
transactions, by a lack of resources in some regions, and by
insufficient training in conducting complex historical
financial investigations. The Law on the Prevention and
Sanctioning of Money Laundering increased the powers of
NOPCML, but it did not provide for an increase in
administrative capacity.

NOPCML has begun a process of international cooperation to
exchange information with other FIUs. In November 2004, the
Department of Justice's Office of Overseas Prosecutorial
Assistance and Training sponsored an assessment of the
NOPCML by U.S. FINCEN and a future technical assistance
project between the two FIUs is planned for 2005. NOPCML
also has been working closely with Italy to improve its
efficiency and effectiveness through an EU PHARE project.

A US Treasury OTA advisor is assisting the National Bank of
Romania in strengthening anti-money laundering (AML) and
anti-terrorist financing through the introduction of
improved bank examination procedures. To insure that
compliance is consistent across financial sectors, the
advisor in cooperation with the World Bank has also assisted
in strengthening AML compliance in the securities sector,
including the drafting of new AML regulations for the
National Securities Commission. Plans are underway to
replicate the project in the insurance industry.

Romanian law has some, but limited, provisions for asset
forfeiture in the Law on Combating Corruption, No. 78/2000,
and the Law on Combating Tax Evasion, No. 87/1994. The
Directorate of Economic and Financial Crimes of the national
police also has a mandate to pursue money laundering.
Despite hundreds of money laundering cases investigated
since 2001, the interface with the justice system remains
ineffective.

On November 24, 2204, the GOR approved a draft amendment to
the Anti-money laundering law, which is expected to be
passed in 2005. The new law provides for a uniform approach
to combating and the prevention of money laundering and
terrorist financing. The purpose of the law is to achieve
the standard contained in European Union Directive
2001/97/EC. The draft law provides that money laundering
and terrorist financing will be regulated under the same law
to ensure consistent and effective measures against these
crimes.

The draft recommends the inclusion of additional categories
of individuals and institutions with reporting obligations
to the NOPCML. These obligations include not only reports
on specific suspicious transactions, but also generalized
intelligence involving financial patterns and typologies.
Among investigative innovations, the new law will provide
for better seizure proceedings, the employment of undercover
investigators and the surveillance of financial accounts and
communications.

The GOR announced a national anti-corruption plan in early
2003 and passed a law against organized crime, codifying the
provisions of the UN Convention in January 2003, as well as
a new anti-corruption law in April 2003. In the thirteen
months since the September 2002 founding of the Anti-
Corruption Prosecutor's Office (PNA),over 2200 cases of
corruption have been investigated. Unfortunately,
prosecutors have focused on low to mid-level officials and
examples of the most egregious financial crimes have so far
escaped serious attention. A new Criminal Procedure Code
was passed and became effective on July 1, 2003. The new
Code contains provisions for authorizing wiretapping,
intercepting, and recording telephone calls for up to 30
days, in certain circumstances. These circumstances, as
provided for within the new Code, include terrorism acts and
money laundering.

IV. Actions to Combat Terrorist Financing
--------------
Romania's political leadership has consistently and
unequivocally condemned acts of terrorism. After the events
of September 11, 2001, Romania passed a number of
legislative measures designed to sanction acts contributing
to terrorism. Emergency Ordinance 141, passed in October
2001, legislates that the taking of measures, or the
production or acquisition of means or instruments with an
intention to commit terrorist acts, are offenses of the same
level as terrorist acts. These offenses are punishable with
imprisonment ranging from five to 20 years.

The Romanian Government and the National Bank of Romania
(BNR) in particular have been fully cooperative in seeking
to identify and freeze terrorist assets. Emergency
Ordinance 159/2001 established guidelines to prevent the use
of the financial and banking system for the purpose of
financing terrorist acts. The BNR, which oversees all
banking operations in the country, issued Norm No. 5 in
support of Emergency Ordinance 159. Emergency Ordinance 153
was passed to strengthen the government's ability to carry
out the obligations under UNSCR 1373/2001, including the
identification, freezing and seizure of terrorist funds or
assets. The BNR receives lists of individuals and terrorist
organizations from the U.S. Embassy Bucharest, UN Sanctions
Committee, and the EU and circulates these to banks and
financial institutions. The new law on terrorism (Law no.
535/2004) provides that the assets used or provided to
terrorist entities will be forfeited, together with finances
resulting from terrorist activity. To date, in regard to
terrorist financing, no arrests, seizures, or prosecutions
have been carried out.

In April 2002, the GOR's Supreme Defense Council of the
Country (CSAT) adopted a National Security Strategy, which
included a General Protocol on the Organization and
Functioning of the National System on Preventing and
Combating of Terrorist Acts. This system, effective July
2002 and coordinated through the Intelligence Service,
brings together and coordinates a multitude of agencies,
including 14 ministries, the General Prosecutor Office, the
National Bank, and the National Office for the Prevention
and Control of Money Laundering. The GOR has also set up an
interministerial committee to investigate the potential use
of the Romanian financial system by terrorist organizations.

In November 2004, the Parliament adopted Law 535/2004 on
preventing and combating terrorism, which abrogated some of
the previous government ordinances and took over most of
their provisions. The law includes a chapter on combating
the financing of terrorism by prohibiting financial and
banking transactions with persons included on international
terrorist lists and requiring authorization for transactions
conducted with entities suspected of terrorist activities in
Romania.

The GOR recognizes the link between organized crime and
terrorism. Bucharest is the site of the Southeast European
Cooperation Initiative, a regional center that provides law
enforcement training and intelligence sharing on criminal
activities, including terrorism, for several Balkan
governments.

Romania participates in a number of regional initiatives to
combat terrorism. Romania has worked within SEEGROUP (a
working body of the NATO Initiative for Southeast Europe) to
coordinate anti-terrorist measures undertaken by the states
of Southeastern Europe. The Romanian and Bulgarian Interior
Ministers signed an intergovernmental agreement in July 2002
to cooperate in the fight against organized crime, drug
smuggling and terrorism.


V. Other International Agreements
--------------
The EU's Europe Agreement with Romania provides for
cooperation in the fight against drug abuse and money
laundering. Romania is a member of the Council of Europe
(COE) and participates in the Council of Europe's Select
Committee of Experts on the Evaluation of Anti-Money
Laundering Measures (MONEYVAL). A mutual evaluation in
April 1999 by that Committee uncovered a number of areas of
concern, including the high evidence standard required for
reporting suspicious transactions, a potential conflict with
the bank secrecy legislation, and the lack of provisions for
cases in which the reporting provisions are intentionally
ignored. Romania has been working to address these
concerns, bringing in legal experts from the EU to consult.
In late 2003, Romania also underwent a Financial Sector
Assessment Program (FSAP) by the World Bank as part of that
organization's pilot program.

The Mutual Legal Assistance Treaty signed in 2001 between
the United States and Romania entered into force in October

2001. Romania has participated in regional and global anti-
crime efforts. Romania is a party to the 1988 UN Drug
Convention, the Agreement on Cooperation to Prevent and
Combat Transborder Crime, and the UN Convention against
Transnational Organized Crime. With Law No. 263/2002,
passed in 2002, Romania ratified the Council of Europe
Convention on Laundering, Search, Seizure, and Confiscation
of the Proceeds from Crime. During 2002, Romania also
ratified the Council of Europe's Criminal Law Convention on
Corruption, and in December signed the UN Convention Against
Corruption. Romania ratified the UN International
Convention for the Suppression of the Financing of Terrorism
in January 2003.

VI. Country Vulnerabilities
--------------
Romania should continue addressing the concerns of the
Council of Europe evaluators by making further improvements
in its anti-money laundering regime, and by continuing its
progress on money laundering investigations and
prosecutions. The GOR needs to adopt procedures for the
timely freezing, seizure and forfeiture of criminal or
terrorist related assets. Finally, the GOR must initiate
reporting requirements for the cross-border movement of
currency and monetary instruments.

To assist the GOR, in November 2004, the Department of
Justice's Office of Overseas Prosecutorial Assistance and
Training sponsored an assessment of NOPCML by U.S. FINCEN
and a future technical assistance project between the two
financial intelligence units is planned for 2005.

Crouch