UNCLAS REYKJAVIK 000291


STATE FOR INL, EUR/RPM AND EUR/NB
DEA FOR OFFICE OF DIVERSION CONTROL
TREASURY FOR FINCEN
JUSTICE FOR AFMLS, OIA, AND NDDS
COPENHAGEN FOR DEA

E.O. 12958: N/A
TAGS: SNAR KTFN EFIN KCRM IC
SUBJECT: ICELAND: 2009 INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT (INCSR) PART 2: MONEY LAUNDERING

REFS: A)STATE 104800
B)REYKJAVIK 259


1. Post provides the following submission for Part 2 of the INCSR
report. Part 1 (Narcotics) was transmitted Ref B.


2. Begin text of submission:

Iceland

Money laundering is not considered a major problem in Iceland,
though international observers have questioned the effectiveness of
the anti-money laundering regime in the country. The Icelandic Penal
Code criminalizes money laundering regardless of the predicate
offense, although the code specifies that sentences in cases
involving multiple crimes be determined based on the worst crime.
Therefore, if a case involves both drug offenses and money
laundering, the sentence will be based on the laws that concern the
drug case. In cases that concern money laundering activities only,
the maximum sentence is ten years' imprisonment.

Iceland based its money laundering law on the Financial Action Task
Force's (FATF's) Forty Recommendations. In June 2006, the parliament
passed the Act on Measures to Counteract Money Laundering and the
Financing of Terrorist Acts (MCML-FTA). This legislation replaces
the 1993 Act on Measures to Counteract Money Laundering (MCML) and
subsequent amendments. The legislation covers a broad range of
financial institutions, but is more specific than the previous
legislation, and imposes obligations on legal entities to report any
suspicious activities to the authorities. The legislation extends
requirements against money laundering and financing of terrorism to
the full range of designated non-financial businesses and
professions. The MCML-FTA covers a broader scope of designated
non-financial business and professions in items, including
attorneys, auditors, real estate dealers, and other service
providers and dealers in accordance with FATF recommendations.

The MCML-FTA also applies due diligence laws to the legal entities
that fall under the reporting requirement. There are provisions in
the law that allow for a fine for failure to comply.

The regulation for the MCML-FTA requires that any suspicion that a
transaction can be traced to money laundering or terrorist financing

shall be reported to the Economic Crime Division of the National
Commissioner of Police, specifically to the Financial Intelligence
Unit (FIU). The law requires those legal entities that fall under
the reporting requirement to pay special attention to
non-cooperative countries and territories (NCCTs) that do not follow
international recommendations on money laundering. The Financial
Supervisory Authority (FME), the main supervisor of the Icelandic
financial sector, is to publish announcements and instructions if
special caution is needed in dealing with any such country or
territory.

The MCML requires banks and other financial institutions, upon
opening an account or depositing assets of a new customer, to have
the customer prove his or her identity by presenting personal
identification documents. The legal entities that fall under the
reporting requirement shall verify customers' reliability: when
they make individual transactions amounting to 15,000 euros (ISK
2.25 million) or more; at the beginning of a permanent business
relationship; when making currency exchange amounting to 1,000 euros
(ISK 150,000) or more, whether the transaction takes place in one or
more related transactions; when there is suspicion of money
laundering or the financing of terrorist acts, without regard to
exceptions or limitations of any kind; or when there is doubt that
information about a customer is correct or reliable enough.

An individual party may not leave the country with more than the
equivalent of 15,000 euros in cash, unless it is accounted for at
the customs authorities. As Iceland is now facing a severe financial
crisis, the parliament granted the Central Bank the authority to
issue rules on foreign exchange in order to support the exchange
value of the ISK. On December 1, the Central Bank used its authority
to issue such rules. Among other things, the rules dictate that
Icelandic banks cannot sell more than 500,000 ISK in foreign
currency to any individual party per calendar month. These rules are
meant to be temporary measures.

Financial institutions record the name of every customer who seeks
to buy or sell foreign currency. All records necessary to
reconstruct significant transactions are maintained for at least
seven years. Employees of financial institutions are protected from
civil or criminal liability for reporting suspicious transactions.

In July 2007, the FATF released its first evaluation of the
Icelandic money laundering and terrorist financing regime since the
passage of the new legislation. The report expressed concerns
regarding the effectiveness of the enforcement system. It noted
that penalties for money laundering seem disproportionately low and
as a result not dissuasive. In addition, there has been a decline in
the number of money laundering prosecutions and convictions in
recent years, despite a rise in the number of Suspicious Transaction
Reports (STR), a steep increase in the number of drug crimes, and an
extraordinary expansion of the financial sector.

On terrorist financing, the report noted that the law defines
terrorist financing in broad terms but fails to fully cover the
financing of acts listed in the Terrorist Financing Convention. The
effectiveness of provisional and confiscation measures is
satisfactory, but further improvement would make them even more
effective. The report recommends that Iceland adopt a comprehensive
mechanism to freeze assets in the context of UN Security Council
Resolution S/RES/1373. Furthermore, the FATF report suggests that
Icelandic authorities increase sanctions for directors and managers
of financial institutions found to be in violation of the law.

As noted, suspicious transaction reports (STRs) have consistently
risen in Iceland in recent years, but Icelandic authorities continue
to ascribe this to better training and awareness of the issue. The
FIU has an officer assigned to cover suspicious transactions and has
expanded the training provided to financial institutions to include
those working at financial intermediaries such as lawyers and
accountants. The FIU received 241 STRs in 2003, 301 STRs in 2004,
283 STRs in 2005, 323 STRs in 2006, and 496 STRs in 2007.

The first successful prosecution under the money laundering law
occurred in 2000. There have been nine cases prosecuted since then,
with convictions resulting in each case. There were no money
laundering prosecutions in 2008.

Iceland's FIU is the primary government agency responsible for asset
seizures and is authorized under the criminal code to freeze or
seize funds based on reasonable suspicion of criminal activity.
There are no significant obstacles to asset seizure in practice. The
FME and the FIU make every effort to enforce existing drug-related
asset seizure and forfeiture laws. In recent years, asset seizure
has become quite common in embezzlement crimes, while only a small
fraction of total asset seizures has related to money laundering.
Under the Icelandic Penal Code, any assets confiscated on the basis
of money laundering investigations must be delivered to the
Icelandic State Treasury. There have been no instances of the U.S.
or any other government requesting seized assets from Iceland.
Foreign transfer or sharing of seized assets is not covered by
existing legislation.

Icelandic law specifically criminalizes terrorism and terrorist
acts, and requires the reporting of suspected terrorist-linked
assets and transactions involving possible terrorist operations or
organizations. A March 2003 amendment to the Law on Official
Surveillance on Financial Operations strengthened Iceland's ability
to adhere to international money laundering and asset freezing
initiatives and agreements. In accordance with international
obligations or resolutions to which Iceland is a party, the FME
shall publish announcements on individuals or legal entities
(companies) whose names appear on the UNSCR 1267 Sanction
Committee's consolidated list or on European Union clearinghouse
list and whose assets or transactions Icelandic financial
institutions are specifically obliged to report to authorities and
freeze. Prior to the amendment, the government had to publish the
names of terrorist individuals and organizations in the National
Gazette in order to make them subject to asset freezing. The
government formally enacted financial freeze orders against
individuals and entities on the UNSCR 1267 Sanction Committee's
consolidated list. Government of Iceland officials have said they
will consider applying their terrorist asset freeze strictures
against U.S.-only designated entities (i.e., names not on UN or EU
lists) on a case-by-case basis. To date, Iceland has discovered no
terrorist-related assets or financial transactions.

When dealing with other European Economic Area (EEA) member
countries, the FME can disclose confidential information to other
governments, provided that this sharing is beneficial for conducting
investigations of suspicious money laundering activities, and that
EU Data Protection guidelines are followed. Concerning requests for
information from countries outside of the EEA, the FME may, on a
case-by-case basis, disclose to supervisory authorities information
under the same conditions of confidentiality. To date there have
been no requests from either EEA or non-EEA countries for an
exchange of information concerning suspected acts of money
laundering.

There is currently no agreement (nor discussions toward one) between
Iceland and the United States to exchange information concerning
financial investigation, and no Mutual Legal Assistance Treaty
(MLAT). The National Commissioner of Police has acted on tips from
foreign law enforcement agencies in the investigation of money
laundering activities, and the process of international cooperation
with the law enforcement authorities of other countries appears to
work smoothly.

Iceland 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 (ratified May 2008); and the UN International
Convention for the Suppression of the Financing of Terrorism.
Iceland is party to several multilateral conventions on terrorism
and rules of territorial jurisdiction, including the 1977 European
Convention on the Suppression of Terrorism. Iceland is a member of
the FATF, and its financial intelligence unit is a member of the
Egmont Group.

The Government of Iceland should continue to enhance its anti-money
laundering/counterterrorist financing regime through the enforcement
of existing laws, review and implementation of FATF recommendations
for effective use of that legislation and reinforcement of relevant
institutions' understanding of the regime.

End text of submission.

VAN VOORST