POLAND 2005-2006 INTERNATIONAL NARCOTICS CONTROL

UNCLAS SECTION 01 OF 04 WARSAW 004067

SIPDIS

STATE FOR EUR/NCE DKOSTELANCIK AND MSESSUMS,
STATE FOR EUR/ERA, EB/ESC/TFS
STATE FOR INL
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN
DEA FOR OILS AND OFFICE OF DIVERSION CONTROL

E.O. 12958: N/A
TAGS: SNAR KTFN PL
SUBJECT: POLAND 2005-2006 INTERNATIONAL NARCOTICS CONTROL
STRATEGY REPORT (INCSR) PART II - FINANCIAL CRIMES AND MONEY
LAUNDERING

REF: SECSTATE 210351


1. Poland's geographic location places it directly along one
of the main routes between the former Soviet Union republics
and Western Europe used by narcotics-traffickers and
organized crime groups. According to Polish government
estimates, narcotics-trafficking, organized crime activity,
auto theft, smuggling, extortion, counterfeiting, burglary,
and other crimes generate criminal proceeds in the range of
$2-3 billion yearly. The Government of Poland (GOP)
estimates the unregistered or gray economy, used primarily
for tax evasion, may be as high as 15 percent of Poland's
$280240 billion GDP; it believes the black economy is only
one percent of GDP. Poland's entry into the European Union
(EU) in May 2004 increased its ability to control its
eastern borders, thereby allowing Poland to become more
effective in its efforts to combat all types of crime,
including narcotics-trafficking and organized crime.

2. Poland's banks serve as transit points for the transfer
of criminal proceeds. As of December 2004, 55 commercial
banks were licensed for operation in Poland, as were
slightly less than 590 "cooperative banks" that serve the
rural and agricultural community. The GOP considers the
nation's banks, insurance companies, and brokerage houses to
be important venues of money laundering. Polish casinos may
likewise be sites for money laundering activity. According
to the GOP, fuel smuggling, during which local companies and
organized crime groups seek to avoid excise taxes by forging
gasoline delivery documents, is a major source of proceeds
to be laundered. It is also believed that some money
laundering in Poland derives from Russia and/or other
countries of the former Soviet Union.

3. The Criminal Code criminalizes money laundering. Article
299 of the Criminal Code addresses self-laundering and
criminalizes tipping off. In June 2001, the parliament
passed amendments that broadened the definition of money
laundering to encompass all serious crimes ("Act on
Counteracting Introduction into Financial Circulation of
Property Values Derived from Illegal or Undisclosed
Sources," known as the "Act of 16 November"). In March 2003,
Parliament further amended the law to broaden the definition
of money laundering to include assets originating from
illegal or undisclosed sources.

4. The National Security Strategy of Poland has labeled the
anti-money laundering effort as a top priority. The GOP has
worked diligently to bring its laws into full conformity
with EU obligations. On November 16, 2000, a law went into
effect that improves Poland's ability to combat money
laundering (entitled "the November 2000 Act on Counteracting
Introduction into Financial Circulation of Property Values
Derived from Illegal or Undisclosed Sources"). The GOP has
updated this law several times to bring it into conformity
with EU standards and to improve its operational
effectiveness. This law increases penalties for money
laundering and contains safe harbor provisions that exempt
financial institution employees from normal restrictions on
the disclosure of confidential banking information. The law
also provides for the creation of a Financial Intelligence
Unit (FIU),the General Inspectorate of Financial
Information (GIIF),housed within the Ministry of Finance,
to collect and analyze large and suspicious transactions.

5. A major weakness of Poland's initial money laundering
regime was that it did not cover many non-bank financial
institutions that had traditionally been used for money
laundering. To remedy this situation, between 2002 and 2004,
the Parliament passed several amendments to the 2000 money
laundering law. The amendments expand the scope of
institutions subject to identity verification, record
keeping, and suspicious transaction reporting requirements.
Financial institutions subject to the reporting requirements
prior to March 2004 amendments included banks, the National
Depository for Securities, post offices, auction houses,
antique shops, brokerages, casinos, insurance companies,
investment and pension funds, leasing firms, private
currency exchange offices, real estate agencies, and
notaries public. The March 2004 amendments to the money
laundering law widen the scope of covered institutions to
include lawyers, legal counselors, auditors, and charities,
as well as the National Bank of Poland in its functions of
selling numismatic items, purchasing gold, and exchanging
damaged banknotes. It also requires casinos to report the
purchase of chips worth 1,000 euros or more. The law's
extension to the legal profession was not without
controversy. Lawyers strongly opposed the new amendments,
claiming that the law violates client/attorney
confidentiality privileges.

SIPDIS

6. In 2002, Parliament adopted measures to bring the
nation's anti-money laundering legislation into compliance
with EU standards regarding the reporting threshold, and
also amended Poland's customs law to require the reporting
of any cross-border movement of more than 10,000 euros in
currency or financial instruments. In addition to requiring
that the GIIF be notified of all financial deals exceeding
15,000 euros, covered institutions are also required to file
reports of suspicious transactions, regardless of the size
of the transaction. Polish law also requires financial
institutions to put internal anti-money laundering
procedures into effect-a process that is overseen by the
GIIF.

7. The GIIF began operations on January 1, 2001. In its
first year of existence, the GIIF received over 350
suspicious transaction reports (STRs). In 2002, the GIIF
received 670 STRs, from which prosecutors prepared 70 cases.
In 2003, the GIIF received 965 STRs, resulting in the
development of 152 cases by the Prosecutor's Office, and in
2004, there were 1397 STRs and 148 cases respectively.
Between January and October 2005, the GIIF received 1,425
STRs, resulting in the creation of 169 cases. Banks filed
eighty percent of the STRs submitted in 2004 and 90 percent
of STRs in 2005. At a minimum, all reports submitted by the
GIIF to the Prosecutor's Office have resulted in the
instigation of initial investigative proceedings. Although
Tthere were only 24four convictions under the money
laundering law in 2004 (this figure is twice the number from
2003),and is number that is expected to further increase
further in 2005. Mmany of the investigations begun by the
GIIF have resulted in convictions for other non-financial
offenses. As of October 2005, the GIIF received 26.1 million
reports on transactions exceeding the threshold level. The
GIIF receives on average 1.8 million reports per month.

8. The vast majority of required notifications to the GIIF
are sent through a newly developed electronic reporting
system, which is Europe's most technically sophisticated and
collects more complete information than the previously
required report regarding the transaction in question (e.g.,
how payment was made-cash or credit, where and when). Only a
small percentage of notifications are now submitted by
paper, mainly from small institutions, which lack the IT
capacity to use the electronic system. Although the new
system is an important advance for Poland's anti-money
laundering program, the processing and analyzing of the
large number of reports that are sent to the GIIF iswill
prove to be a challenge for the understaffed FIU. To help
improve the FIU's efficiency in handling the large volume of
reports filed by obliged institutions, the GIIF plans to
installed new analytical software that will permits advanced
and detailed analysis of financial information.

9. The GIIF also does on-site training and compliance
monitoring investigations. In 20054, the GIIF carried out
195 (15 in 2004) compliance investigations as compared to 15
in 2004, and received several hundred follow-up reports from
institutions responsible for routinely supervising covered
institutions. In January 2004, the GIIF introduced a new
electronic learning course designed to familiarize obliged
institutions with Poland's anti-money laundering
regulations. In March 2005, an updated version of the course
has been was installed on the Ministry of Finance website.

10. The Polish Code of Criminal Procedure, Article 237,
allows for certain Special Investigative Measures. However,
money laundering investigations are not specifically
covered, although the organized crime provisions might apply
in some cases. Two main police units deal with the detection
and prevention of money laundering: the General
Investigative Bureau and the Unit for Combating Financial
Crime. Overall, both police units cooperate well with the
GIIF. The Internal Security Agency (ABW) may also
investigate the most serious money laundering cases.

11. A recognized need exists for an improved level of
coordination and information exchange between the GIIF and
law enforcement entities, especially with regard to the
suspicious transaction information that the GIIF forwards to
the National Prosecutor's Office. To alleviate this problem
the GIIF and the National Prosecutor's Office signed a
"cooperation agreement" in 2004. The agreement calls for the
creation of a computer-based system that would facilitate
information exchange between the two institutions. Work on
the development of this new system is currently underway.

12. The GIIF is authorized to put a suspicious transaction
on hold for 48 hours. The Public Prosecutor then has the
right to suspend the transaction for an additional three
months, pending a court decision. In 2004, Article 45 of the
criminal code was amended to further improve the
government's ability to seize assets. On the basis of the
amended article, an alleged perpetrator must prove that his
assets have a legal source; otherwise, the assets are
presumed to be related to the crime and as such can be
seized. Both the Ministry of Justice and the GIIF desire to
see more aggressive asset forfeiture regulations. However,
because the former communist regime employed harsh asset
forfeiture techniques against political opponents, lingering
political sensitivities make it difficult to approve
stringent asset seizure laws. In 20042003, the GIIF
suspended 520 transactions worth 9 million euros and blocked
9 accounts worth 5.2 million euros. During the first
teneleven months of 20054, the GIIF suspended 5 transactions
worth 650,000 euros and blocked 3112 accounts, worth 2.1
million euros. the total value of which amiounts to 9
million euros.

13. The GOP recently created an office of counterterrorist
operations within the National Police. The office
coordinates and supervises regional counterterrorism units
and trains local police in counterterrorism measures. Poland
has also created a terrorist "watch list" of entities
suspected of involvement in terrorist financing. The list
contains data based on information derived from similar
lists published by the UN, the EU, and the United States
Treasury Department. All covered institutions are required
to verify that their customers are not included on the watch
list. In the event that a covered institution discovers a
possible terrorist link, the GIIF has the right to suspend
suspicious transactions and accounts. Despite these efforts,
Poland has not yet criminalized terrorist financing, arguing
that all possible terrorist activities are already illegal
and serve as predicate offenses for money laundering and
terrorist financing investigations. The Ministry of Justice
has completed draft amendments to the criminal code that
would criminalize terrorist financing as well as elements of
all terrorism-related activity. The amendments have been
presented to the Minister of Justice, but have not yet been
approved by Parliament.

14. Poland is a party to the 1988 UN Drug Convention, the
UN International Convention for the Suppression of the
Financing of Terrorism, the European Convention on
Extradition and its Protocols, the European Convention on
Mutual Legal Assistance in Criminal Matters, and the Council
of Europe Convention on Laundering, Search, Seizure, and
Confiscation of the Proceeds from Crime. In November 2001,
Poland ratified the UN Convention against Transnational
Organized Crime, which was in fact a Polish initiative.

15. As a member of the Council of Europe, Poland
participates in the Council of Europe's Select Committee of
Experts on the Evaluation of Anti-Money Laundering Measures
(MONEYVAL) and has undergone first and second round mutual
evaluations by that group. The GIIF is an active participant
in the Egmont Group and in FIU.NET, the EU-sponsored
information exchange network for FIUs. Poland continues to
behas expressed an interested in joining the Financial
Action Task Force (FATF).

16. A Mutual Legal Assistance Treaty between the United
States and Poland came into force in 1999. In addition,
Poland has signed bilateral mutual legal assistance treaties
with Sweden, Finland, Ukraine, Lithuania, Latvia, Estonia,
Germany, Greece, and Hungary. Polish law requires the GIIF
to have memoranda of understanding (MOUs) with other
international competent authorities before it can
participate in information exchanges. The GIIF has been
diligent in executing MOUs with its counterparts in other
countries, signing a total of 270 MOUs between 2002 and

20043. The GIIF-FinCEN MOU was signed in fall 2003. An
additional sixeven memoranda on exchange of financial
information with Guernsey, Chile, Croatia, Indonesia,
Macedonia, and Switzerland Andorra, Cyprus, Monaco, Germany,
Portugal, Thailand, and Ukraine were signed in 20054.
Because Poland is an EU member state, the exchange of
information between the GIIF and the FIUs of other member
states is regulated by the EU Council Decision of October
17, 2000. All information exchanged between the GIIF and its
counterparts in other EU states takes place via FIU.NET. For
the first teneleven months of 20054, 5840 requests regarding
171124 entities were received by the GIIF from foreign
authorities. During the same time period, the GIIF made
147104 requests regarding 270227 entities to foreign
authorities.

17. Over the past several years, the Government of Poland
has worked diligently to implement a comprehensive anti-
money laundering regime that meets international standards.
Further improvements could be made by promoting additional
training at the private sector level and by working to
improve communication and coordination between the General
Inspectorate of Financial Information and relevant law
enforcement agencies. The Code of Criminal Procedure should
also be amended to allow the use of Special Investigative
Measures in money laundering investigations. This would help
to attain a better record of prosecutions and convictions.
Poland should also pass specific counterterrorist financing
legislation.



HILLAS