2005-2006 INTERNATIONAL NARCOTICS CONTROL

UNCLAS SECTION 01 OF 03 PARIS 000096

SIPDIS

STATE FOR INL, EB, EUR/WE and EB/ESC/TFS
JUSTICE FOR OIA and AFMLS
TREASURY FOR FINCEN

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

REF: 05 State 210324


1. The following text is our contribution to the INCSR, per
reftel:

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. A 2002 Parliamentary Report states that,
increasingly, Russian and Italian organized crime networks
are using the French Riviera to launder assets (or invest
previously laundered assets) by buying up real estate, "a
welcoming ground for foreign capital of criminal origin."
The report estimates that between seven and 60 billion euros
of dirty money have already been channeled through the
Riviera.

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. As a member of the European Union (EU),France
is subject to EU money laundering directives, including the
revised 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 enacted into domestic
French legislation in 2004. The GOF has enacted legislation
consistent with the Financial Action Task Force (FATF) Forty
Recommendations.

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, and 10,842 in 2004. Approximately 83
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.

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). As of the end of 2005,
FATF listed Nigeria and Myanmar.

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. 41-2-2 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
228,600 euros. The Act also includes money laundering as an
offense in connection with terrorist activity (article 421-1-
6 Penal Code),punishable by ten years' imprisonment and a
fine of 62,000 euros. In March 2004, the GOF passed a law
that extends the scope of STR to terrorist financing.

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 anti-terrorism 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 caf owners to keep extensive records, allows
greater government access to e-communications, and allows
flight passenger lists and identification information to
become accessible to counter-terrorism 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 passed by both chambers of Parliament in
December 2005 and only requires review by the Constitutional
Council before publication and entry into force.

French authorities moved rapidly to freeze financial assets
of organizations associated with al-Qaida and the Taliban.
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, in Australia,
Italy, the United States, Belgium, Monaco, Spain, the United
Kingdom, Mexico, the Czech Republic, Portugal, Finland,
Luxembourg, Cyprus, Brazil, Colombia, Greece, Guernsey,
Panama, Argentina, Andorra, Switzerland, Russia, Lebanon,
Ukraine, Guatemala, Korea, and Canada. It opened
negotiations for information-sharing agreements in 2004 with
Argentina, Bulgaria, Chile, Germany, Japan, Jersey,
Liechtenstein, Maurice Islands, and Thailand.

France is a member of the FATF, and assumed the FATF
Presidency for a one-year term beginning in July 2004. 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.

HOFMANN