2005-2006 International Narcotics Control

UNCLAS VIENNA 003898 SIPDIS STATE FOR INL AND EUR/AGS STATE ALSO FOR EB/ESC/TFS JUSTICE FOR OIA AND AFMLS TREASURY FOR FINCEN TREASURY FOR OCC/EILEEN SIEGEL TREASURY FOR OASIA/ICB/VIMAL ATUKORALA SIPDIS E.O. 12958: N/A TAGS: EFIN KCRM KTFN PTER KSEP SNAR AU SUBJECT: 2005-2006 International Narcotics Control Strategy Report (INSCR) Part II: Money Laundering and Financial Crimes - Austria REF: STATE 210351 ¶1. Following is the 2005-2006 International Narcotics Control Strategy Report (INSCR) Part II: Money Laundering and Financial Crimes for Austria. Austria -------------- Austria is not an important financial center, offshore tax haven, or banking center, but Austrian banking groups control significant shares of the banking markets in Central, Eastern and Southeastern Europe. Austria does not have a reputation as a major money laundering country. However, like any highly developed financial marketplace, Austria's financial and non-financial institutions are vulnerable to money laundering. The Austrian Interior Ministry's crime statistics show mixed developments regarding financial crime in Austria in 2004, with a significant increase in fraud, money laundering and criminal organizations. Authorities believe that the percentage of undetected organized crime is enormous, with much of it coming from the former Soviet Union, Poland, and the Balkans. Money which organized crime launders primarily derives from fraud, particularly with capital assets investments, but also other serious crime, including narcotics-trafficking and trafficking in persons. Contraband smuggling is apparently not a source of significant money laundering. Criminal proceeds laundered in Austria derive primarily from foreign criminal activity. Foreign criminal groups control the money laundering proceeds. There is a significant black market for smuggled cigarettes in Austria, but it does not seem to be funded by narcotic proceeds. Free trade zones do not exist in Austria. Money laundering occurs within the Austrian banking system as well as in non-bank financial institutions and businesses. Many of the former-Soviet crime groups are trying to launder money in Austria by investing in real estate, exploiting existing business contacts, and trying to establish new contacts in political and business circles. Criminal groups seem increasingly to use money transmitters and informal money transfer systems to launder money. The Internet and offshore companies also play an important role in such crime. Austria criminalized money laundering in 1993. The law lists predicate crimes, including terrorist financing and many other serious financial crimes, including smuggling. Regulations are stricter for money laundering by criminal organizations and terrorist "groupings," in which case the law requires no proof that the money stems directly or indirectly from predicate offenses. Amendments to the Customs Procedures Act and the Tax Crimes Act, effective May 1, 2004, address the problem of cash couriers and international transportation of illegal- source currency and monetary instruments. Austrian customs authorities do not automatically screen all persons entering Austria for cash or monetary instruments. However, if asked, anyone carrying 15,000 euros ($18,000 at the current exchange rate) or more must declare the funds and provide information on their source and use. Spot checks for currency at border crossings will continue. Customs has authority to seize suspect cash at the border. In 2005, there was only one major case reported of bulk cash smuggling and the use of cash couriers to move the proceeds of crime and terrorist funding. In implementing the new EU regulation on controls of cash entering or leaving the Community, the Government of Austria (GOA) in 2006 plans to amend the Customs Procedures Act and the Tax Crimes Act to introduce a declaration obligation for anyone carrying cash of 10,000 euros ($12,000) or more. Adoption of the Banking Act of 1994 creates customer identification, record keeping, and staff training obligations for the financial sector. Entities subject to the Banking Act include banks, leasing and exchange businesses, safe custody services, and portfolio advisers. The Insurance Act of 1997 includes similar regulations for insurance companies underwriting life policies, the Securities Supervision Act of 1996 for trade of securities, shares, money market instruments, options and other instruments admitted to listing on an Austrian stock exchange or on any regulated market in a member state. The Banking Act requires identification of all customers when entering an ongoing business relationship, i.e., in all cases of opening a checking account, a passbook savings account, a securities deposit account, etc. In addition, the Banking Act requires customer identification for all transactions of 15,000 euros ($18,000) or more for customers without a permanent business relationship with the bank. The law requires banks and other financial institutions to keep records on customers and account owners. The law protects bankers and all other reporting individuals (auctioneers, real estate agents, lawyers, notaries; etc.) with respect to their cooperation with law enforcement agencies. They are also not liable for damage claims resulting from delays in completing suspicious transactions. There is no requirement for banks to report large currency transactions, unless they are suspicious. The Austrian Financial Intelligence Unit (AFIU) is, however, providing information to banks to raise awareness of large cash transactions. Since October 2003, financial institutions have adopted tighter identification procedures, requiring all customers appearing in person to present an official photo ID. These procedures also apply to trustees of accounts, who are now required to disclose the identity of the account beneficiary. However, the procedures still allow customers to carry out non-face-to-face transactions, including Internet banking, on the basis of a secure electronic signature or a copy of a picture ID and a legal business declaration submitted by registered mail. The Banking Act includes a due diligence obligation, and the law holds individual bankers legally responsible if their institutions launder money. In addition, banks have signed a voluntary agreement to prohibit active support of capital flight. On November 26, 2001, the Federal Economic Chamber's Banking and Insurance Department, in cooperation with all banking and insurance associations, published an official "Declaration of the Austrian Banking and Insurance Industries to Prevent Financial Transactions in Connection with Terrorism." The 2003 Amendments to the Austrian Gambling Act, the Business Code, and the Austrian laws governing lawyers, notaries, and accounting professionals, introduce money laundering regulations regarding identification, record keeping, and reporting of suspicious transactions for dealers in high-value goods such as precious stones or metals, or works of art; auctioneers; real estate agents; casinos; lawyers; notaries; certified public accountants; and auditors. Since April 1, 2002, the Austrian Financial Market Authority (FMA),an autonomous institution under public law with own legal personality, supervises and examines banks, exchange houses, stockbrokerages, insurance companies, securities transactions and pension funds and regularly examines their compliance with anti-money laundering/counter- terrorist financing regulations. Divisions of the Austrian Ministry of Finance supervise casinos and cash couriers. For non-financial institutions no effective compliance supervision is in place. The respective chambers carry out perfunctory monitoring, if at all, of lawyers and notaries, and the Austrian Ministry of Economy and Labor is the competent authority for traders, accountants and dealers. Since 2002, the AFIU, the central repository of suspicious transaction reports, has been a section of the Austrian Interior Ministry's Bundeskriminalamt (Federal Criminal Intelligence Service). The AFIU is an executive body and avails itself of police forces for criminal investigations. Aside from the AFIU, all police forces, the Austrian Interior Ministry's Federal Agency for State Protection and Counter Terrorism (BVT),tax authorities, including customs, and investigating magistrates are responsible for investigating financial crimes, money laundering and terrorist financing. The AFIU has access to bank records and databanks of government entities, including the commercial register, the real estate register, social security records, and the edict register on insolvencies, auctions, invalidations and probate proceedings. It also exchanges information with other FIUs within the Egmont Group and will soon participate in the new EU computer network for the exchange of intelligence among FIUs, the FIU.NET. During the first eleven months of 2005, the AFIU received 372 suspicious transaction reports from banks and 22 from other financial and non-financial institutions, and fielded 417 (412 in 2004) requests for information from Interpol, Europol, the Egmont Group and other authorities. Moreover, banks temporarily held up transactions of Euro 10.9 million ($13.1 million) under AFIU authority. This represents a moderate increase from the 373 suspicious transactions (349 of them from banks) reported in 2004, which led to five convictions for money laundering. In 2003, 288 suspicious transactions reports resulted in seven convictions for money laundering. Criminals are often convicted for other crimes, however, with money laundering serving as additional grounds for conviction. Legislation implemented in 1996 allows for asset seizure and the forfeiture of illegal proceeds. The banking sector generally cooperates with law enforcement efforts to trace funds and seize illicit assets. The distinction between civil and criminal forfeiture in Austria is different from that in the U.S. legal system. However, Austria has regulations in the Code of Criminal Procedure that are similar to civil forfeiture, such as forfeiture in an independent procedure. In connection with money laundering, organized crime and terrorist financing, all assets (bank accounts, other financial assets, autos, real estate and other property, including legitimate businesses) are subject to seizure and forfeiture. Courts may freeze assets in the early stages of an investigation. Under this procedure and with instructions from the AFIU, Austrian courts froze assets worth 98.3 million euros ($118 million) in the first eleven months of 2005. This is significantly more than the 25.4 million euros ($30.5 million) in assets frozen by the courts in 2004, and the 2.2 million euros ($2.6 million),which they froze in 2003. The amended Extradition and Judicial Assistance Law provides for expedited extradition, expanded judicial assistance, and acceptance of foreign investigative findings in the course of criminal investigations, as well as enforcement of foreign court decisions. Austria has strict banking secrecy regulations, though bank secrecy will be lifted for cases of suspected money laundering. Moreover, bank secrecy does not apply in cases in which banks and other financial institutions are required to report suspected money laundering. Such cases are subject to instructions of the authorities (i.e., AFIU) with regard to processing such transactions. The 2002 Criminal Code Amendment, effective October 1, 2002, introduces the following new criminal offense categories: terrorist "grouping," terrorist criminal activities, and financing of terrorism. The Criminal Code defines "financing of terrorism" as a separate cQminal offense category, punishable in its own right. Terrorism financing is also included in the list of criminal offenses subject to domestic jurisdiction and punishment, regardless of the laws where the act occurred. Furthermore, the money laundering offense is expanded to terrorist "groupings." The law also gives the judicial system the authority to identify, freeze, and seize terrorist financial assets. With regard to terrorist financing, forfeiture regulations cover funds collected or held available for terrorist financing, and permit freezing and forfeiture of all assets that are in Austria, regardless of the place of the crime and the whereabouts of the criminal. A new Law on Responsibility of Associations, effective January 1, 2006, will introduce criminal responsibility for all legal entities, general and limited commercial partnerships, registered partnerships and European Economic Interest Groupings. The law covers all crimes listed in the Criminal Code, including corruption, money laundering and terrorist financing. Austrian authorities have circulated to all financial institutions the names of individuals and entities included on the UNSCR 1267 Sanctions Committee's consolidated list and those whom the United States or the EU have designated. According to the Ministry of Justice and the AFIU, no accounts found in Austria ultimately showed any links to terrorist financing. The AFIU immediately shares all reports on suspected terrorism financing with the BVT. During the first eleven months of 2005, the AFIU and the BVT received 24 reports on suspected terrorism financing transaction reports, of which 15 were from banks, 7 from foreign and 2 from domestic authorities. No assets were frozen. The increase from the 14 suspicious transactions in 2004 is due to improved control mechanisms in banks and better international cooperation. None of the 2004 reports resulted in a conviction, many cases being due to mistaken identity. Authorities could not substantiate suspicions against two domestic non-profit organizations. Since January 1, 2004, money remittance businesses require a banking license from the Financial Market Authority (FMA) and are subject to supervision. Informal remittance systems like hawala exist in Austria, but are subject to administrative fines for carrying out banking business without a license. The GOA has undertaken some initial efforts that may help thwart the misuse of charitable or non-profit entities as conduits for terrorist financing. The law on associations (Vereinsgesetz, published in Federal Law Gazette No. I/66 of April 26, 2002) came into force on July 1, 2002, and covers charities and all other non- profit associations in Austria (including religious associations, sports clubs, etc.). The law regulates the establishment of associations, bylaws, organization, management, association register, appointment of auditors, and detailed accounting requirements, in particular auditing in case the balance sheet exceeds 3 million euros ($3.6 million) or annual donations exceed 1 million euros ($1.2 million). The Ministry of Interior's responsibility is limited to approving the establishment of associations, regardless of the purpose of the association, unless it violates legal regulations. Except for the auditing of large associations, there is no regular or routine checks made on associations established in Austria, just random checks. Only in the case of complaints will the Interior Ministry initiate investigations and, in case of serious violations of laws, it may officially prohibit the association from operating. The GOA has implemented the FATF's Special Recommendations on Terrorist Financing, except for certain aspects of the recommendation regarding non- profit organizations. Adoption of the new EU regulation on wire transfers is imminent. The European Commission hopes the regulation will enter into force on January 1, 2007, at which time it will be immediately and directly applicable in Austria. Austria has not enacted legislation that provides for sharing forfeited narcotics-related assets with other governments. However, the mutual legal assistance treaties (MLATs) can be used as an alternative vehicle to achieve equitable distribution of forfeited assets. The U.S. Department of Justice and the Austrian Ministry of Justice continue to actively negotiate an agreement to share forfeited assets. It is anticipated that this agreement will be ratified in 2006. The agreement is now being vetted through the Austrian Foreign and Financial Ministries for approval. Ratification of bilateral protocols to update the bilateral MLAT, which has been in force since August 1, 1998, and the bilateral extradition treaty, which has been in force since January 1, 2000, and bring them in line with the twin U.S.-EU agreements on extradition and mutual legal assistance, is under way. The GOA has been cooperative with U.S. law enforcement investigations. The FMA and the New York State Banking Department are exchanging views about the legal scope of information exchange, including possibilities for on-site examinations in the host country. Information exchange with member states is based on EU law (Article 30, Directive 2000/12/ EC, implemented in articles 77 and 77a of the Austrian Banking Act). In addition, Austria may define this information exchange more precisely in bilateral agreements with other EU/EAA members or third countries, provided certain legal requirements relating to professional secrecy are met. Until now, Austria has concluded such bilateral agreements with nine other EU members (France, Germany, Italy, Netherlands, United Kingdom, the Czech Republic, Hungary, Slovakia, and Slovenia) and two third countries (Croatia and Bulgaria). The International Monetary Fund's spring 2004 Financial System Stability Assessment (FSAP) states that Austria has made significant progress in the past few years in bringing its anti-money laundering and counterterrorism financing regime into compliance with international standards. The FSAP notes that the overall legal and institutional framework currently in place is comprehensive and that Austria has achieved a good level of compliance with the FATF Recommendations. The FMA has created an internal Task Force on Money Laundering, and in following up on suggestions for further improvements, started to publish on its homepage circulars with additional guidance for banks and other financial institutions on fighting money laundering and terrorist financing. Austria is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Austria ratified the UN Convention against Transnational Organized Crime on September 23, 2004, and the UN International Convention for the Suppression of the Financing of Terrorism on April 15, 2002. Parliamentary procedures to ratify the UN Convention against Corruption are under way, so that the ratification instrument is likely to be deposited before the end of 2005. Austria has endorsed fully the Basel Committee's "Core Principles for Effective Banking Supervision." Austria is a member of the FATF. The AFIU is a member of the Egmont Group. Austria has several important money laundering cases pending, all of which have international dimensions. Two of these cases involve U.S. citizens: Claude Duboc, a ongoing case that dates back to 1988 and involves $ 216 million in Austria, and Frank Louis Palumbo, which dates back to 2000 and involves $ 43 million in Austria. In another case, a Palestinian woman, Halimeh Almughrabi, is trying to withdraw funds from a frozen account, which allegedly belonged to Sabri Al Banna, a.k.a. Abu Nidal, the deceased Palestinian terrorist. Almughrabi, who lives in Libya, is a signatory to the account, which contains 6.8 million euros ($ 8.2 million). Austrian authorities have refused to grant her a visa to come to Austria. The Government of Austria has implemented a viable anti- money laundering and anti-terrorist financing regime. Austria is very cooperative with U.S. authorities in money laundering cases. However, there is room for improvement. There is a need for identification procedures for customers in "non-face to face" banking transactions. The criminal code should be amended to penalize negligence in reporting money laundering and terrorist financing transactions. The AFIU and law enforcement should be provided with sufficient resources to adequately perform their functions. AFIU and other government personnel should be protected against damage claims because of delays in completing suspicious transactions. Additionally, Austria should adequately regulate its charitable and non-profit entities to reduce their vulnerability to misuse by criminal and terrorist organizations and their supporters. In 2006, the GOA will start working on domestic implementation of the EU's third money laundering directive (Directive 2005/60/EC on The Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing),which involves a number of legal changes, including of the Banking Act, Insurance Act, Gambling Act, Business Code, and several other laws. During Austria's EU Presidency in the first half of 2006, the GOA in various EU committees and bodies will also work to implement guidelines for the third money laundering directive, proceed with implementing the FATF's special recommendation seven on wire-transfers, stage a workshop on a code of conduct for non-profit organizations and together with the USG, one on terrorist financing. MCCAW