FRANCE 2007 INCSR Report, Part II

UNCLAS PARIS 007329

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EUR/WE and EB/ESC/TFS
Justice for AFMLS, OIA, and OPDAT
Treasury for FinCEN

E.O. 12958: N/A
TAGS: EFIN KCRM KTFN FR
SUBJECT: FRANCE 2007 INCSR Report, Part II

REF: STATE 157084

SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET


1. (SBU) Below is the proposed 2006-2007 INCSR Report for France,
Part II, Financial crimes and money laundering.


2. (SBU) France

France remains an attractive venue for money laundering because of
its sizable economy, political stability, and sophisticated
financial system. Common methods of laundering money in France
include the use of bank deposits; foreign currency and gold bullion
transactions; corporate transactions; and purchases of real estate,
hotels, and works of art. However, France has put in place
comprehensive financial controls, and it is an active partner in
international efforts to control money laundering and the financing
of terrorism.

The Government of France (GOF) first criminalized money laundering
related to narcotics trafficking in 1987 (Article L-627 of the
Public Health Code). In 1988, the Customs Code was amended to
incorporate financial dealings with money launderers as a crime. In
1996 the criminalization of money laundering was expanded to cover
the proceeds of all crimes. In January 2004, the French Supreme
Court judged that joint prosecution of individuals was possible on
both money laundering charges and the underlying predicate offense.

Prior to this judgment, the money laundering charge and the
predicate offense were considered the same offense and could only be
prosecuted as one offense.

In 1990, the obligation for financial institutions to combat money
laundering came into effect with the adoption of the Monetary and
Financial Code (MFC),and France's ratification of the 1988 UN Drug
Convention. The 1996 amendment to the law also obligates insurance
brokers to report suspicious transactions. In 1998, the covered
parties were expanded to include non-financial professions (persons
who carry out, verify or give advice on transactions involving the
purchase, sale, conveyance or rental of real property). In 2001, the
list of professions subject to suspicious transaction reporting
requirements expanded to include legal representatives; casino
managers; and persons customarily dealing in or organizing the sale
of precious stones, precious materials, antiques, or works of art.
Following the 2001 amendments, the law covers banks, moneychangers,
public financial institutions, estate agents, insurance companies,
investment firms, mutual insurers, casinos, notaries, and
auctioneers and dealers in high-value goods. In 2004, the list was
expanded again to include chartered accountants; statutory auditors;
notaries; bailiffs; judicial trustees and liquidators; lawyers;
judicial auctioneers and movable auction houses; groups, clubs, and
companies organizing games of chance: lotteries, bets, sports and
horse-racing forecasts; institutions/unions of pensions management
and intermediaries entitled to handle securities. Article 324-1 of
the Penal Code provides that money laundering is punishable by five
years imprisonment and a fine of 375,000 euros. With aggravating
circumstances (Article 324-2: habitual or organized activity, or
Article 222-38: connection with narcotics trafficking),the
punishment increases to ten years imprisonment and a fine of 750,000
euros.

As a member of the European Union (EU),France is obligated to
implement all three EU money laundering directives, including the
revision of Directive 91/308/EEC on the prevention of the use of the
financial system for the purpose of money laundering (Directive
2001/97/EC),that was transposed into domestic French legislation in

2004. The EU adopted the Third Money Laundering Directive
(2005/60/EC) in late 2005, and must be implemented in France by
December 15, 2007.

Decree No. 2002-770 of May 3, 2002, addresses the functioning of
France's Liaison Committee against the Laundering of the Proceeds of
Crime. This committee is co-chaired by the French Financial
Intelligence Unit (FIU),TRACFIN (the unit for Treatment of
Intelligence and Action Against Clandestine Financial Circuits),and
the Justice Ministry. It comprises representatives from reporting
professions and institutions, regulators, and law enforcement
authorities; its purpose is to supply professions required to report
suspicious transactions with better information and to make
proposals in order to improve the anti-money laundering system.

The Banking Commission supervises financial institutions and
conducts regular audits of credit institutions, and the Insurance
and Provident Institutions Supervision Commission reviews insurance
brokers. The Financial Market Authority evolved from the merger of
the Securities Exchange Commission and the Financial Markets
Council, and monitors the reporting compliance of the stock exchange
and other non-bank financial institutions. The Central Bank (Banque
de France) oversees management of the required records to monitor
banking transactions, such as for means of payments (checks and ATM
cards),or extensions of credit. Bank regulators and law enforcement
also can access the system (FICOBA) managed by the French Tax
Administration for opening and closing of accounts, which covers
depository accounts, transferable securities, and other properties
including cash assets that are registered in France. These records
are important tools in the French arsenal for combating money
laundering and terrorism financing.
TRACFIN is responsible for analyzing suspicious transaction reports
(STRs) that are filed by French financial institutions and
non-financial professions. TRACFIN is a part of FINATER, a group
created within the French Ministry of the Economy, Finance, and
Industry in September 2001, in order to gather information to fight
terrorist financing. The French FIU may exchange information with
foreign counterparts that observe similar rules regarding
reciprocity and confidentiality of information. TRACFIN works
closely with the Ministry of Interior's Central Office for Major
Financial Crimes (OCRGDF),which is the main point of contact for
Interpol and Europol in France.

TRACFIN received 3,598 STRs in 2001, 6,896 STRs in 2002, 9,007 STRs
in 2003, 10,842 in 2004, and 11,553 in 2005. Approximately 82
percent of STRs are sent from the banking sector. A total of 226
cases were referred to the judicial authorities in 2001, which
resulted in 59 convictions of money laundering; 291 cases were
referred in 2002, which resulted in 57 criminal convictions, 308
cases were referred in 2003, which resulted in 63 convictions, and
347 cases were referred in 2004, resulting in 87 convictions.

Two other types of reports are required to be filed with the FIU. A
report must be filed with TRACFIN (no threshold limit),when the
identity of the principal or beneficiary remains doubtful despite
due diligence. In addition, a report must be filed in cases where
transactions are carried out on behalf of a third party natural
person or legal entity (including their subsidiaries or
establishments) by a financial entity acting in the form, or on
behalf, of a trust fund or any other asset management instrument,
when legal or beneficial owners are not known. The reporting
obligation can also be extended by decree to transactions carried
out by financial entities, on their own behalf or on behalf of third
parties, with natural or legal persons, including their subsidiaries
or establishments that are domiciled, registered, or established in
any country or territory included on the FATF list of
Non-Cooperative Countries or Territories (NCCT).

Since 1986, French counter terrorist legislation has provided for
the prosecution of those involved in the financing of terrorism
under the more severe offense of complicity in the act of terrorism.
However, in order to strengthen this provision, the Act of November
15, 2001, introduced several new characterizations of offenses,
specifically including the financing of terrorism. The offense of
financing terrorist activities (art. 421-2-2 of the Penal Code) is
defined according to the UN International Convention for the
Suppression of the Financing of Terrorism and is subject to ten
years' imprisonment and a fine of 225,000 euros. Since 2001,
TRACFIN has referred 92 cases of suspected terror financing to the
judicial authorities for prosecution.

An additional penalty of confiscation of the total assets of the
terrorist offender has also been implemented. Accounts and financial
assets can be frozen through both administrative and judicial
measures. In 2005, the GOF moved to strengthen France's
antiterrorism legal arsenal with a bill authorizing video
surveillance of public places, especially nuclear and industrial
sites, as well as airports and railway stations. The bill requires
telephone operators and Internet cafe owners to keep extensive
records, allows greater government access to e-communications, and
allows flight passenger lists and identification information to
become accessible to counterterrorism officials. It stiffens prison
sentences for directing a terrorist enterprise to 30 years, and
extends the possible period of detention without charge. The bill
permits increased surveillance of potential targets of terrorism. It
empowers the Minister of the Economy to freeze the funds, financial
instruments and economic resources belonging to individuals
committing or attempting to commit acts of terrorism, or to
companies directly or indirectly controlled by these individuals. By
granting explicit national authority to freeze assets, the bill
plugs up a potential loophole concerning the freezing of citizen
versus resident EU-member assets. It was adopted in January 2006,
and is expected to enter into force by presidential decree before
the end of 2006.

French authorities moved rapidly to freeze financial assets of
organizations associated with al-Qaida and the Taliban under UNSCR

1267. France takes actions against non-Taliban and
non-al-Qaida-related groups in the context of the EU-wide
"clearinghouse" procedure. Within the Group of Eight, which France
chaired in 2003, France has sought to support and expand efforts
targeting terrorist financing.

Bilaterally, France has worked to improve the capabilities of its
African partners in targeting terrorist financing, by offering
technical assistance. On the operational level, French law
enforcement cooperation targeting terrorist financing continues to
be good.

The United States and France have entered into a Mutual Legal
Assistance Treaty (MLAT),which came into force in 2001. Through
MLAT requests and by other means, the French have provided large
amounts of data to the United States in connection with terrorist
financing. TRACFIN is a member of the Egmont Group and is the Egmont
Committee Chair of the newly created Operational Working Group.
TRACFIN has information-sharing agreements with 27 FIUs, and opened
negotiations in 2004 for information-sharing agreements with
Argentina, Bulgaria, Chile, Germany, Japan, Jersey, Liechtenstein,
Mauritius, and Thailand.

France is a member of the FATF, and held the FATF Presidency for a
one-year term during 2004-05. It is also a Cooperating and
Supporting Nation to the Caribbean Financial Action Task Force, as
well as a Supporting Observer to the Financial Action Task Force of
South America Against Money Laundering (GAFISUD). France is a party
to the 1988 UN Drug Convention; the Council of Europe Convention on
Laundering, Search, Seizure, and Confiscation of the Proceeds from
Crime; the UN Convention against Transnational Organized Crime; and
the UN International Convention for the Suppression of the Financing
of Terrorism. In July 2005, France ratified the UN Convention
against Corruption.

The Government of France has established a comprehensive anti-money
laundering regime. France should continue its active participation
in international organizations to combat the domestic and global
threats of money laundering and terrorist financing.

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