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