ANTI-MONEY LAUNDERING IN KAZAKHSTAN -

UNCLAS SECTION 01 OF 02 ALMATY 001437

SIPDIS

STATE FOR INL (PRAHAR, MCCOWAN),EUR/ACE (MLONGI),SCA/CEN
(J. MUDGE)
TREASURY FOR EOTF/FC (ASHARMA),OTA (JANTONOVICH),FINCEN
(GHAFNER, DNEAU)
MOSCOW FOR HOLYTN
JUSTICE FOR AFMLS (S. HAYDEN)

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: SNAR ASEC KCOR KCRM PREL KZ

SUBJECT: ANTI-MONEY LAUNDERING IN KAZAKHSTAN -
PARLIAMENTARIANS TALK, THE PRESIDENT WILL DECIDE

REF: ALMATY 4353


1. (SBU) Summary: In conjunction with pending anti-money
laundering (AML) legislation, INL sponsored an AML study
tour for Kazakhstani parliamentarians to visit the financial
intelligence unit (FIU) in Copenhagen, Denmark. Prior to
the trip, the majority expressed doubt about the necessity
for the creation of an FIU here, and expressed concern about
the possible abuse of the powers the draft AML law provided
to the Procurator General. By the conclusion of the study
tour, however, the parliamentarians unanimously agreed on
the need for the establishment of an FIU in Kazakhstan, but
still maintained their doubts about the overall role of the
PGO in that effort. In the end, however, the decision will
likely be made by the President. End Summary.

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BACKGROUND
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2. (U) In cooperation with the Moscow-based advisor from the
U.S. Department of Treasury's Office of Technical Assistance
(OTA),INL arranged a March 29-31 study tour for Kazakhstani
parliamentarians to Denmark in order to observe the
operations of the Danish FIU. The tour included meetings
with representatives of various Danish entities including
the Public Prosecutor for Serious Economic Crime (i.e. the
Danish FIU),the Financial Supervisory Authority, the
Bankers' Association, the Danske Bank, and the Danish
Association of Entrepreneurs.


3. (U) The trip followed from a Fall 2005 PGO request that
INL organize a study tour for parliamentarians to a country
where an FIU operates under the auspices of the Procurator's
Office, as it was/is expected to do in Kazakhstan according
to the draft law on "Combating Legalization (Laundering) of
Illicit Proceeds and Financing of Terrorism," draft
legislation under consideration by the Mazhilis (lower house
of parliament.)


4. (U) The trip became possible on December 7 when the
Mazhilis postponed voting on the draft law until March 2006
due to outstanding questions concerning the draft from
various parliamentarians (reftel).

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MEMBERS HAVE DOUBTS ABOUT AML (AND PGO)
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5. (SBU) Prior to the trip, we heard directly that some
parliamentarians had unresolved concerns about the PGO-
drafted AML law which placed the future Financial
Intelligence Unit under the authority of the already
powerful PGO. In particular, parliamentarians were
concerned about PGO authority to monitor financial
transactions which would provide ready access to information
that the procurators would then use for bureaucratic
advantage, or worse, political influence and personal gain.
For its part, the Kazakhstani PGO had hoped that this trip
would alleviate these concerns by demonstrating how an FIU
successfully functions under the auspices of a PGO.

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BEST LAID PROCURATOR PLANS GO AWRY
--------------


6. (SBU) Despite the PGO's attempt to use the trip to
present Denmark to the parliamentarians as a model for
Kazakhstan to follow (PGO control over a financial
intelligence unit which would monitor financial
transactions) it appeared they had not done their homework.
In Copenhagen, upon hearing the explanation of the Danish
system, the parliamentarians quickly noted, to the point of

ALMATY 00001437 002 OF 002


applauding and cheering, that the authority of the FIU in
Denmark was substantially greater than that envisioned for
Kazakhstan, and that the Procurator had no role in
monitoring financial transactions. The Kazakhstani PGO
representatives accompanying the parliamentarians were
surprised to learn that in Denmark, an additional regulatory
institution independent of the PGO known as the Financial
Supervisory Authority (FSA) supervises compliance with the
AML legislation.


7. (SBU) The representative of the Danish FIU addressing the
delegation pointed out that the authority of the Danish FIU
(the Public Prosecutor for Serious Economic Crime) includes
the investigation and prosecution of economic crimes. He
continued on to say that it does not/not include the
supervision or direct oversight of compliance with the AML
legislation as would be the case should the FIU be created
under the PGO. (Note: According to a Presidential Decree
dated April 14 2005, the FIU is to be created under the
auspices of the PGO. How the Mazhilis will square this with
possible amendments to the draft AML law which limit the
power of the PGO is unclear. End Note.)

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PARLIMENTARIANS SEE AML - NOT THE PGO IN A NEW LIGHT
-------------- --------------


8. (SBU) Some of the participants revealed that visiting the
Danish FIU enabled them to decide that while financial
sector monitoring was necessary, vesting this authority in
the PGO was not desirable.


9. (SBU) They stated they will consider proposing a number
of amendments to the dominant oversight role for the PGO as
written in current draft law. Some of the delegates even
suggested that a future Kazakhstani FIU should not be under
the auspices of the PGO at all. Instead, they said that
such an institution would be better placed under the
jurisdiction of the Ministry of Finance or under the
authority of the National Bank.

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COMMENT
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10. (SBU) If the comments of the participants can be taken
at face value, the study tour to Denmark may have a
significant influence on the establishment of an FIU in
Kazakhstan. If this group of parliamentarians were
skeptical of the need to establish such an institution in
Kazakhstan before visiting Denmark, they now seem to be
convinced that an FIU should be created as part of a new AML
law. At the same time, the parliamentarians' experience in
Denmark may lead to significant changes in the draft AML
law, including the changes in the form that an FIU takes in
Kazakhstan


11. (SBU) However, comments by some parliamentarians during
the course of the trip reveal a degree of cynicism about the
entire process of complying with international agreements in
general, and the AML in particular. Some claimed the draft
AML law was merely an effort to satisfy international
opinion and would have no real role in financial sector
regulation in Kazakhstan. For the sake of interaction of
Kazakhstan's banking system with the worldwide financial
markets, and its self-stated desire to be a regional
financial hub, we can only hope that the former outweigh the
latter. Realistically though, we must acknowledge that the
ultimate decision will likely rest with President
Nazarbayev.

ORDWAY