UZBEKS TAKE TEETH OUT OF MONEY LAUNDERING LAW

C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 001922

SIPDIS

SIPDIS

DEPT FOR INL ANDREW BUHLER, TREASURY FOR DAVID TEITELBAUM,
MOSCOW FOR TREASURY KEVIN WHELAN

E.O. 12958: DECL: 11/05/2017
TAGS: PREL KCRM ECON UZ
SUBJECT: UZBEKS TAKE TEETH OUT OF MONEY LAUNDERING LAW

Classified By: Poloff Tim Buckley for reasons 1.4 (B, D)


1. (C) Summary. A Department of Treasury official was part
of a Eurasia Group delegation which met in Tashkent with
Government of Uzbekistan (GOU) counterparts from the Office
of the State Prosecutor (Procuracy) to discuss anti-money
laundering efforts. The official purpose of the event was to
conduct a needs assessment for technical assistance, but the
delegation wanted to convey that the GOU is in violation of
United Nations (UN) Resolution 1216, which requires
anti-money laundering standards, after a recent Presidential
decree suspending the important provisions of the law until

2013. The Uzbek representatives stuck to highly scripted
remarks throughout the three-day conference and expressed no
intention of changing the policy despite the long-term risk
of sanctions from the UN or the Group of Eight's Financial
Action Task Force. This may be a strategy to give
influential parties time to secure personal assets. Russia
may pressure Uzbekistan on this issue when the Eurasia Group
conducts an official assessment in 2008. End summary.

Noncompliance with UN Resolution 1216
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2. (C) A delegation from the Eurasia Group (EAG),which is
part of the Group of Eight's Financial Action Task Force
(FATF),conducted meetings with Uzbek representatives of the
Procuracy from October 29 - November 1. The stated purpose
of the trip was to conduct a needs assessment for technical
assistance, but in actuality the delegation wanted to warn
the GOU that it is in noncompliance with UN Resolution 1216,
which mandates the adoption of anti-money laundering
standards. The Uzbek representatives tried to distract the
delegation from the agenda with frequent midday vodka toasts
and stuck to highly scripted remarks that avoided
explanations for the suspension. The Eurasia Group will
conduct an official assessment of Uzbekistan in 2008.

"Worse than having no law at all"
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3. (C) An anti-money laundering law went into force in
Uzbekistan in 2006, however in April 2007 President Karimov
signed an order suspending the main provisions of the law "On
Combating Legalization of Proceeds from Criminal Activity and
Terrorist Financing" until January 1, 2013, leaving only
descriptive elements intact. The Treasury official (strictly
protect),who was the only American member of the delegation,
noted that this essentially bans an effective anti-money
laundering statute in Uzbekistan for a period of six years.
He added that Kazakhstan and Tajikistan, which presently have
no related laws, are in a better position to combat money
laundering because they at least have no official hindrances
to establishing and implementing new legislation. The
Treasury official noted that the Uzbek law is also unusual in
that it contains a provision that banks, rather than the
Financial Intelligence Unit (FIU),have the authority to
freeze transactions. This could have frightened some
investors and burdened banks, but suspending the law does not
address this peculiarity.

Unfazed by Risk of Sanctions
--------------


4. (C) The Treasury official reported that Uzbekistan could
face sanctions for noncompliance with UN 1216, however
officials from the Procuracy did not seem concerned. The
delegation also went to the Oliy Majlis (Parliament) to meet
with several lawmakers who reiterated the excuse that Uzbek
banks "need time to create capital", which necessitated the
suspension of the key provisions of the law. (Note: None of
the experts from the Eurasia Group delegation, including the
Treasury official, was able to determine what the concept of
"creating capital" actually means in this context. End
note). The Parliamentarians were also ambivalent about the
possibility of future sanctions from the Group of Eight's
FATF or the UN.

FIU Receives Modern Equipment -- but for what?
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TASHKENT 00001922 002 OF 002




5. (C) The visiting delegation toured the brand new
facilities of the Uzbek FIU, which operates under the
auspices of the Procurator. GOU officials made special note
of more than USD 1 million in sophisticated new computer
equipment but said they still need assistance upgrading the
networking capabilities. However, given the suspension of
the key elements of the anti-money laundering law until 2013,
it is unclear what the FIU will be focusing on in the coming
years. By the time the suspensions on the law are lifted,
the equipment is likely to be functionally obsolete. The
Treasury official recommended that no additional computer
equipment be provided to the FIU through USG financial
assistance programs; however he said key FIU officials,
bankers, and analysts could benefit from training programs.

Comment
--------------


6. (C) President Karimov's decision to suspend the key
provisions of the anti-money laundering law shortly after it
came into force suggests that some influential GOU officials
may have a vested interest in delaying the implementaion of
any effective legislation until they can secure their
personal assets. It is also not surprising that the GOU
brushed off the possibility of sanctions, and it is unlikely
that the UN or the FATF will raise the issue of Uzbekistan's
delinquency in the near future. However, the Treasury
official believes that the 2008 Eurasia Group assessment may
trigger FATF action, especially since Russia has very
effective anti-money laundering regulations and may exert
pressure on Uzbekistan to avoid any embarrassment.

NORLAND