AZERBAIJAN PASSES MONEY LAUNDERING/TERRORIST FINANCING LAW

UNCLAS SECTION 01 OF 02 BAKU 000130

SIPDIS

DEPT FOR INL - JCAMPBELL
DEPT FOR EUR/ACE AND EUR/CARC
DOJ/OPDAT FOR ALEXANDRE/NEWCOMBE

E.O. 12958: N/A
TAGS: EFIN SNAR KJUS OTRA KCRM KCOR AJ
SUBJECT: AZERBAIJAN PASSES MONEY LAUNDERING/TERRORIST FINANCING LAW


1. SUMMARY: On February 10, 2009, the Azerbaijani Parliament
passed an Anti-Money Laundering (AML)/Counter-Terrorist Financing
(CTF) law during the law's third Parliamentary reading. The next
step in formalizing the law is for President Aliyev to sign it.
This is a step forward in Azerbaijan's effort to address Council of
Europe concerns regarding the GOAJ's lack of progress in meeting its
responsibilities in the fight against transnational crime and
terrorism. However, the penultimate draft of the law (second
reading) contained major deficiencies, with MONEYVAL rating 42 out
of 49 assessment categories as partially or non compliant. Working
with FATF experts, the GOAJ made last minute changes to the final
text which is still being reviewed by MONEYVAL. The Finance
Minister on February 13 asserted that FATF experts had approved the
third reading draft as being consistent with FATF standards before
it was passed. He said that when the President signs the law he will
concurrently issue a decree naming the implementing agency where the
FIU will be located. End Summary.


2. Azerbaijan has been under significant pressure from the Council
of Europe (COE) and MONEYVAL, as well as the USG, over its lack of
progress in finalizing and implementing anti-money laundering
legislation. Azerbaijan drew criticism from MONEYVAL as the only
MONEYVAL country that did not have a comprehensive Anti-Money
Laundering/Counter-Terrorist Financing (AML/CTF) law and a Financial
Intelligence Unit (FIU) in place. MONEYVAL was concerned that the
GOAJ had done nothing to implement its provisions since ratifying
the Terrorist Financing Convention. In June 2008, during
Parliament's first reading of the draft law, it was deemed deficient
in almost all major FATF standards. With assistance from the USG
and COE, the GOAJ amended the law slightly. In December 2008,
MONEYVAL issued a final demand that Azerbaijan pass a money
laundering law compliant with FATF standards. COE planned to ask
FATF to impose administrative warnings at the February 23-27, 2009
Plenary if Azerbaijan failed to follow through. The COE believes
that these administrative warnings could eventually lead to
sanctions, such as freezing assets in international bank accounts on
behalf of Azerbaijani commercial banks.


3. Because of the endemic corruption in all strata of the
Azerbaijani government, the existence and location of a financial
intelligence unit (FIU),which would be privy to sensitive
information, has been a source of great controversy within
Azerbaijan. There were strong objections by many bankers,
businessmen, and government officials to providing their financial
data to law enforcement, given widespread corruption. This attitude
runs contrary to the suspicious activity reporting and FIU
requirements of UN Security Council Resolution 1373 and FATF Special
9 Recommendations on Terrorist Financing.


4. In a significant change to the third reading draft, the GOAJ
inserted the mandatory "suspicious transaction" and "know your
customer" requirements, which monitoring agencies would need to
report to an FIU. Once constituted, the FIU would be responsible
for providing a list of directives and examples to all banks and
other financial institutions as to what constitutes a "suspicious"
transaction. The current law requires commercial banks to ensure
identification of all entities opening an account, all
representatives who are vested with the authority to open or use
that account, and any third person whose name is on the account
being opened.


5. Although many of the USDOJ and COE recommendations were not
adopted before the third reading, the partially revised and somewhat
improved ANL/CTF law was passed on February 10, 2009. The law
considers all crimes listed in the Criminal Procedure Code as
predicate crimes to the crime of money laundering. Specifically,
this includes corruption and terrorism offenses. Prior to this new
law the Criminal Procedure Code of Azerbaijan criminalized the act
of money laundering, although both this statute and corresponding
asset forfeiture provisions could still use some improvement,
especially in allowing for criminalization of "promoting" (versus
just "concealing") the underlying crime and allowing "in rem"
forfeiture.


6. The new law requires banks, NGOs, religious organizations,
insurance companies, and notaries, among others, to report all cash
transactions over an amount to be later determined by the FIU. A
major weakness in the law, however, is that it does not provide for
criminal penalties against monitoring agencies for failure to report
suspicious transactions, nor to report cash transactions over the
FIU specified limit.


BAKU 00000130 002 OF 002



7. As a result of the law, the FIU would have the power to freeze
any suspicious transactions and then refer the case to the
prosecutor's office. Upon court order, the suspicious transaction
could be frozen pending trial. Unfortunately, there are no
provisions in the law that subject FIU or prosecutorial employees to
criminal and/or civil penalties for improperly releasing
conf idential financial information. The law states that a "system
for protection" is to be created later.


8. This AML/CTF law was drafted by a Presidential Working Group,
including, inter alia, officials from the National Bank. Embassy's
DOJ OPDAT Resident Legal Advisor (RLA) provided continued support
and advice over this three year process. When the law was stalled
after the first reading, the RLA held an INL funded seminar for the
President's Working Group and Members of Parliament. During this
seminar, the RLA elaborated on areas of improvement, and drove home
the message that the draft law was deficient, needed to be improved,
and needed to be passed. The high-profile importance of this issue
was emphasized by including the press, NGOs, and other executive
branch officials. Follow-up was conducted through individual
meetings with the President's Working Group and Members of
Parliament.


9. Finance Minister Sharifov told the Ambassador on February 13
that the third reading draft of the law had been prepared in direct
consultation with FATF experts and that he is confident the law
meets FATF standards. He said that when the President signs the bill
into law, he will concurrently issue a decree which identifies the
implementing agency where the FIU will be located.


10. Comment: The passage of the new AML/CTF law, which has been
highly controversial, is a significant step. The final draft is a
significant improvement from the first reading draft. At the same
time, many provisions remain problematic, including listed
restrictions on the FIU, the requirement of judicial approval for
release of further financial information to a prosecutor, and the
mechanics of the suspicious transactions reporting system. Rapid
GOAJ action to fund and implement the FIU and the FIU's issuance of
adequate regulations covering suspicious transactions will likely be
necessary for the law to pass muster in MONEYVAL and/or FATF. The
National Bank and Parliament drafters who prepared the law and
worked for its passage are aware of this, but state that this law is
the best they could currently pass through Parliament. We believe
we should await MONEYVAL and FATF's assessments and then determine
next steps, including how we can best press for/support early
establishment of the FIU and rapid implementation of the law. End
Comment.

DERSE



1