AZERBAIJAN: SUBMISSION OF THE FINANCIAL CRIMES AND

UNCLAS SECTION 01 OF 02 BAKU 001783 SIPDIS SIPDIS DEPT FOR INL DEPT ALSO FOR EB/ESC/TFS JUSTICE FOR OIA AND AFMLS TREASURY FOR FINCEN E.O. 12958: N/A TAGS: KCRM EFIN PTER SNAR AJ SUBJECT: AZERBAIJAN: SUBMISSION OF THE FINANCIAL CRIMES AND MONEY LAUNDERING SECTION OF THE 2006-2007 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT (INCSR) REF: STATE 157000 This message contains the Money Laundering and Financial Crimes section of the 2006-2007 INSCR for Azerbaijan. Azerbaijan Azerbaijan is not considered a major center for international money laundering, given its small, underdeveloped banking sector. It is difficult, however, to determine the extent of money laundering activity, due to existing bank secrecy laws and the number of "pocket banks." The large number of cash transactions, the increasing wealth of the country from oil revenues, and the legacy of corruption and tax evasion, all increase the potential for large scale money laundering activities and compound the problem of quantifying these crimes. The Government of Azerbaijan (GOAJ) criminalized money laundering relating to narcotics trafficking in 2000. Additionally, Parliament has made amendments to its banking and currency laws to prevent some money laundering activities. In November 2001, Azerbaijan established a threshold sum of $50,000 for reporting to its Customs agency currency transfers from abroad. Funds transfers abroad by individuals in excess of $10,000 must have approval of the National Bank of Azerbaijan (NBA). In May 2003, the GOAJ established an inter-ministerial experts group responsible for drafting anti-money laundering and counterterrorist finance legislation. As of September 2005, the experts' group, led by the NBA, has finalized proposed anti-money laundering legislation that would include establishment of a financial intelligence unit (FIU) and would expand the predicate crimes for money laundering beyond narcotics trafficking. Although the draft law has not yet been presented to Parliament, in April 2006 an amendment to the Azerbaijani Criminal Code was adopted making the legalization of illegally obtained funds (money laundering) a crime. The new Article 193-1 is a bare bones provision that must be supported by passage of a comprehensive law. The GOAJ has expressed its commitment to adopting such a law, and it is expected that final revisions to the draft law will be made and that it will be presented to Parliament during the first half of 2007. The NBA issues licenses and supervises commercial banks, foreign exchange offices and money remitters. To further its regulatory role, it issues binding regulations for the banking sector; however, neither regulations nor guidance notes have been issued specifically addressing anti-money laundering measures. In August 2004, the NBA established an internal anti-money laundering working group to work with local commercial banks. In March 2004, the GOAJ enacted a comprehensive new Law on Banks that provides for improved "fit and proper" criteria for bank administrators and improved supervision of commercial banks. In November 2004, the NBA prohibited capital investments in banks operating in Azerbaijan by entities and individuals that are registered in any of the six countries on the FATF list of Non-Cooperative Countries and Territories. The new Law on Banks prohibits numbered accounts, although existing numbered accounts are allowed to continue until their terms expire. The NBA has issued "know your customer" directives to banks. The requirements include identification procedures and record-keeping. Similar rules do not apply to the insurance or securities sectors. There is no requirement to report suspicious transactions, although some banks voluntarily report such transactions to the NBA. In October 2004, the NBA instructed commercial banks to establish internal procedures to identify every operation and client throughout the transaction process. Also in 2004, the NBA issued new rules on corporate management for all commercial banks. The Ministry of Finance supervises insurance companies. The Insurance Department at the Ministry follows the anti-money laundering program coordinated by the NBA. The Ministry conducts annual audits of insurance companies; one of the objectives of the audit is to check for money laundering BAKU 00001783 002 OF 002 activity. The State Securities Committee, which regulates the securities market, has issued anti-money laundering directives. However, implementation is weak due to the large number of cash transactions and the reliance on the banks' due diligence for some pre-funded transactions. Article 214-1 of Azerbaijan's Criminal Code criminalizes the financing of terrorism, but the Code does not address terrorist fundraising. Another deficiency is that the law provides only for personal liability and does not include criminal liability for entities involved in terrorist financing. These deficiencies are addressed in the draft anti-money laundering/counter financing of terrorism law. Currently, the NBA distributes the lists of individuals and entities designated pursuant to U.S. Executive Order 13224 and pursuant to UNSCRs 1267 and 1390. As of 2003, the NBA had identified and frozen the assets of at least two designated entities. The GOAJ does not have in place a formalized regime to seize and confiscate assets. The NBA has the authority to freeze accounts, but freezing without delay cannot be done readily. Confiscation of assets is an optional action in prosecutions. Mutual legal assistance is limited to narcotics-related offenses. Azerbaijan is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. In November 2001, Azerbaijan ratified the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. In February 2004, Azerbaijan signed the UN Convention against Corruption. Azerbaijan has been a member of the Council of Europe's MONEYVAL since 2002, and in May 2003, Azerbaijan underwent a first round mutual evaluation by the MONEYVAL's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures. A second round MONEYVAL evaluation is expected to take place by the end of 2006. The Government of Azerbaijan (GOAJ) should enact anti-money laundering/counter financing of terrorism legislation that establishes a viable legal framework to detect and to prosecute these crimes, including mandatory reporting of suspicious transactions to a financial intelligence unit and the establishment of appropriate mechanisms to seize, freeze and confiscate assets without delay. Azerbaijan should amend current terrorist finance legislation to criminalize terrorist fundraising and establish criminal liability for legal entities. Additionally, Azerbaijan should provide awareness programs and training to its law enforcement and prosecutorial agencies, as well as to the banking sector. DERSE