BELARUS: 2009-2010 INCSR PART II: MONEY LAUNDERING AND

UNCLAS SECTION 01 OF 05 MINSK 000020

SIPDIS

DEPT FOR INL, EB/ESC/TFS, AND EUR/UMB
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN
EMBASSY KYIV FOR LEGATT (DSHEPARD)
EMBASSY PARIS FOR USSS (JHEYN)
CONGEN FRANKFUR FOR DHS/ICE (JMANYX)
EMBASSY WARSAW FOR DEA (RPALM)

E.O. 12958: N/A
TAGS: EFIN KCRM PTER SNAR BO
SUBJECT: BELARUS: 2009-2010 INCSR PART II: MONEY LAUNDERING AND
FINANCIAL CRIMES

REF: STATE 114962


1. Summary. Belarus is not a regional financial center. A
general lack of transparency throughout the financial sector
means that assessing the level of potential for money laundering
and other financial crimes is difficult. Corruption (including
embezzlement through abuse of office, taking bribes, and general
abuses of power) and illegal narcotics trafficking are primary
sources of illicit proceeds. Due to excessively high taxes,
underground markets, the dollarization (US$) and the eurozation
(Euro) of the economy, a significant volume of foreign-currency
cash transactions eludes the banking system. Shadow incomes
from offshore companies constitute a portion of foreign
investment. Smuggling is widespread. Corruption is a serious
problem in Belarus, which hinders law enforcement and impedes
much-needed reforms. Economic decision-making in Belarus is
highly concentrated within the top levels of government. Recent
decrees, although substantially liberating the country's
business climate, have nevertheless left all major economic
levers in the hands of the president and the GOB. End Summary.


2. Belarus is not considered an offshore financial center, and
offshore banks, shell companies, and trusts are not permitted.
As of November 1, 2009, 32 banks with 264 branches comprised the
banking sector. Of these, 25 were banks with foreign capital,
including 9 banks with 100 percent foreign capital. There are
currently eight offices of foreign banks, including those with
headquarters in Germany, Latvia, Lithuania, Russia and Ukraine,
and a representative office of the CIS Interstate Bank.
Nevertheless, the assets of Belarus' three largest state-owned
banks, Belarusbank, Belagroprombank, and Belinvestbank, account
for 65-70% of all assets of the country's banking sector. Banks
and branches have separate business units such as payment
processing centers, banking service centers, and foreign
exchange offices. In February 2006, the government abolished
the 1997 identification requirements for all foreign currency
exchange transactions at banks. Nonbank financial credit
institutions have gradually closed, due to money laundering
concerns and other factors.


3. Based on a 1996 Presidential Decree, Belarus has established
one free economic zone (FEZ) in each of Belarus' six regions.
The president creates FEZs upon the recommendation of the
Council of Ministers and can dissolve or extend the existence of
a FEZ at will. The Presidential Administration, the State
Control Committee (SCC),and regional authorities supervise the
activities of companies in the FEZs. According to the SCC,
applying organizations are fully vetted before they are allowed
to operate in an FEZ in an effort to prevent money laundering
and terrorism finance. Presidential Decree 66 has tightened FEZ
regulations on transaction reporting and security, including
mandatory installation of video surveillance systems. A 2005
National Bank resolution changed the status of banks in the
zones by removing special provisions. Banks in the zones are
currently subject to all regulations that apply to banks outside
the zones.


4. In 2009, citing official sources, the local media reported
several cases of attempts to smuggle undeclared cash across
borders. Belarus uses customs declaration forms at points of
entry and exit to fulfill cross-border currency reporting
requirements for both inbound and outbound currency. Upon entry
into or departure from the country, travelers must declare in
writing any sum over $3,000. Travelers departing Belarus with
sums exceeding $10,000 are required to secure permission from
the National Bank to carry that amount of currency. However,
the declaration system was not designed, nor is it used to
detect the physical cross-border movement of currency and bearer
negotiable instruments to prevent and interdict bulk cash
smuggling for money laundering and terrorist financing purposes.
Individuals may import or export securities certificates
denominated in foreign currencies and payment instruments in
foreign currencies without any limitations on the amount, and
without the need to declare them in writing to the customs
authorities. Customs authorities do not store information on
declarations that they consider suspicious and are unable to
apply sanctions against persons moving funds cross-border on the
basis of suspicion of money laundering or terrorist financing.
New Customs regulations were reportedly drafted but were not
adopted in 2009 to allow customs authorities to exert tighter

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control over individual import and export of payment instruments
in foreign currencies. However, neither the details nor the
time period for the adoption of new regulations were made public.


5. The Eurasian Group on Combating Money Laundering and
Financing of Terrorism (EAG),a Financial Action Task Force
(FATF)-style regional body, evaluated the anti-money laundering
and counterterrorist financing (AML/CTF) regime of Belarus in
July 2008. The EAG adopted the mutual evaluation report (MER) at
the December 2008 plenary meeting. The major deficiencies
outlined in the MER focused on certain issues, which Belarus'
National Bank and the GOB partially addressed in 2009. In an
effort to establish adequate customer due diligence (CDD)
requirements, the National Bank issued a resolution in June 2009
obliging all Belarusian banks to establish an electronic client
database and refer each client to a certain risk category.
Electronic cash accounts in fictitious names have been allowed
only for transactions under $1,105 per day. Another EAG concern
- a clear requirement to perform CDD on establishing business
relations with a customer in the banking, insurance and
securities sectors - was reportedly addressed in the bill,
which will amend the country's AML law. The bill had a
successful first reading in the parliament in 2009 and is
expected to be adopted in March 2010. The bill is not expected
to address the requirement for CDD for legal entities below the
($246,000) threshold. The National Bank resolution has
reportedly introduced an affirmative obligation to identify
beneficial ownership in the banking sector. Beneficial ownership
or ongoing monitoring requirements for other sectors and lack of
effective regulation and supervision for correspondent accounts
and designated nonfinancial businesses and professions (DNFBPs)
were reportedly fully addressed in the bill. Inadequate record
keeping requirements and inadequate wire transfer identifier
requirements were addressed in the NB's resolution. For steps
taken to correct shortcomings in the Belarusian cross-border
cash declaration regime see above.


6. By law, only licensed banks and the postal service can
conduct money transfers. The government does not acknowledge
alternative remittance systems and allows currency exchange only
through licensed currency exchange kiosks. The Department of
Humanitarian Assistance in the Presidential Administration
registers all charities. Presidential Decree 24, passed in 2003,
requires all organizations and individuals receiving charity
assistance, including assistance provided by foreign states,
international organizations and individuals, to open charity
accounts in a local bank.


7. Belarus' "Law on Measures to Prevent the Laundering of
Illegally Acquired Proceeds" (AML Law),adopted in 2000, amended
in 2005 and to be further amended in 2010, establishes the legal
and organizational framework to prevent money laundering and
terrorist financing. The AML/CTF law does not fully incorporate
the requirements of the Vienna and Palermo Conventions (e.g.,
acquisition, possession or use are not covered, nor are indirect
proceeds). Belarus criminalizes self-laundering, but restricts
the self-laundering offense to cases that involve using the
illicit proceeds to carry out entrepreneurial or other business
activities. Belarus also criminalizes the financing of
terrorism. Although Belarus has adopted an all crimes approach
to money laundering predicates, with some exceptions for tax
evasion crimes, it does not criminalize insider trading and
market manipulation, and therefore does not meet FATF
requirements for the minimum list of predicate offenses. A
money laundering conviction does not require conviction of the
predicate offense. Legal entities are not criminally liable and
there also is no administrative liability of legal entities for
money laundering. However, if a legal entity aids an organized
group or criminal organization or is created with funds of an
organized group or criminal group, it can be liquidated by the
Supreme Court of Belarus and its assets seized by the state.
The criminal code provides adequate sanctions for individuals
convicted of money laundering, including fines and incarceration
for two to four years. For repeated crimes, or for crimes
involving sums equal to or above $12,280 or for crimes committed
by an organized group the incarceration sentences are four to
ten years. The law defines "illegally acquired proceeds" as
currency, securities or other assets, including real and
intellectual property rights, obtained in violation of the law.

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8. All financial institutions are obligated to report suspicious
transactions regardless of value, and large value transactions,
for which the reporting threshold for individual financial
transactions is approximately $24,600 and for corporate
transactions is approximately $246,000. However, Belarusian
banks were exempt from the latter requirement by the
presidential edict 601 signed on November 4, 2008. The same
edict introduced a requirement for banks to identify one-time
clients with transactions equal or exceeding $12,280. In
Belarus, these reporting obligations attach to transfers that
are subject to special monitoring. Specifically, transactions
subject to special monitoring include: transactions whose
suspected purpose is money laundering or terrorist financing;
cases where the person performing the transaction is a known
terrorist or controlled by a known terrorist; cases in which the
person performing the transaction is from a state that does not
cooperate internationally to prevent money laundering and
terrorist financing. Transactions exceeding the currency
reporting threshold of $12,280 that involve cash, property,
securities, loans or remittances presuppose identification
requirements. Financial institutions conducting such transfers
are required to disclose to the FIU--the Department of Financial
Monitoring (DFM)--within one business day the identity of the
individuals and businesses ordering the transaction or the
person on whose behalf the transaction is being placed,
information about the beneficiary of a transaction, and account
information and document details used in the transaction. Bank
officials who violate the law face fines, and banks may have
their licenses suspended for up to one year. However, the AML
Law exempts most government transactions and those sanctioned by
the President from reporting requirements. The government has
used the AML Law as a pretext for preventing several
pro-democracy NGOs from receiving foreign assistance.


9. The AML Law authorizes the following government bodies to
monitor financial transactions for the purpose of preventing
money laundering: the State Control Committee (SCC); DFM; the
Securities Committee; the Ministry of Finance; the Ministry of
Justice; the Ministry of Communications and Information; the
Ministry of Sports and Tourism; the Committee on Land Resources;
the Ministry on Taxes and Duties (MTD); and other state bodies.
The MTD also provides oversight and has released binding
regulations on its subject institutions. Under the SCC, the
Department of Financial Investigations, in conjunction with the
Prosecutor General's Office, has the legal authority to
investigate suspicious financial transactions and examine the
internal rules and enforcement mechanisms of any financial
institution.


10. In January 2005, the President signed a decree on the
regulation of the gaming sector, imposing stricter tax
regulations on owners of gaming businesses. In addition, a
provision intended to combat money laundering requires those
participating in gaming activities to produce identification to
receive winnings. However, casinos do not need to address
AML/CTF issues before receiving operating licenses, and the
system for supervising and applying sanctions for noncompliance
with AML/CTF requirements is not effective. Belarus has
shortcomings similar to other DNFBPs: there is little effective
monitoring for compliance with AML/CTF measures for most of
these sectors, and accountants lack a supervisory agency--even a
self-regulating organization--so they completely lack
supervision and monitoring. Across sectors, there is no clear
customer identification requirement for DNFBPs at the
establishment of the business relationship, there are no
beneficial ownership identification requirements (except for
banks),and exceptions in the reporting requirements mean that
there may be times that DNFBPs do not perform client
identification measures even when they suspect the client of
involvement in money laundering or terrorist financing. These
sectors also lack the legal obligation (again except for banks)
to execute enhanced CDD measures for high-risk clients.
Likewise, Belarus has no requirements for these sectors to
obtain information from the customer regarding his or her source
of funds or the expected purpose of the business relationship.
The MER notes an overall lack of implementation across these
sectors, in particular, the absence of effectiveness in the
gaming sector, as well as with regard to dealers in precious

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metals and stones.


11. In 2003, Belarus established the DFM as its financial
intelligence unit (FIU). Although it is an autonomous unit
within the State Control Committee of Belarus with the rights of
a legal entity, it does not have an independent budget and
cannot independently hire staff. As the primary government
agency responsible for gathering, monitoring and disseminating
financial intelligence, the DFM analyzes financial information
for evidence of money laundering and forwards it to law
enforcement officials for prosecution. The DFM also has the
power to penalize those who violate money laundering laws and
suspend the financial operations of any company suspected of
money laundering or financing terrorism. The DFM cooperates
with counterparts in foreign states and with international
organizations to combat money laundering, and since 2007 it is a
member of the Egmont Group. The DFM also has the authority to
initiate its own investigations.


12. The DFM has noted that there is increased interest by law
enforcement in the FIU's work. Belarusian legislation provides
for broad seizure powers for law enforcement to identify and
trace assets. The Criminal Code provides for asset forfeiture
for all serious offenses, including money laundering. Seizure
of assets from third parties appears possible but is not
specifically codified. The seizure of funds or assets held in a
bank requires a court decision, a decree issued by a body of
inquiry or pre-trial investigation, or a decision by the tax
authorities.


13. Belarus has focused on targets beyond money laundering. In
June 2007 Parliament passed Criminal Code amendments to toughen
penalties for various offenses by officials, including larceny
through abuse of office, embezzlement, and legalization of
assets illegally obtained. In July 2007, President Lukashenka
issued an edict mandating the formation of specialized
departments within prosecutors' offices, police stations and the
KGB to fight against corruption and organized crime. Despite
recent legislation, corruption remains a serious obstacle to
enforcing laws dealing with financial crimes.


14. Belarus has made an effort to ensure cooperation and
coordination between state bodies through the Interdepartmental
Working Group established specifically to address AML/CTF
issues. This Working Group includes representatives of the
Prosecutor's office, the National Bank, MTD, State Security
Committee, Department of Financial Investigation, and the DFM.
The Director of the DFM serves as the head of this Group.


15. Terrorism is a crime in Belarus and the willful provision or
collection of funds in support of terrorism by nationals of
Belarus or persons in its territory constitutes participation in
terrorism by aiding and abetting. Article 290-1 of the Criminal
Code explicitly criminalizes terrorist financing. However, the
law does not criminalize indirect provision of money for
purposes of terrorist financing and does not criminalize
provision of funds for a terrorist organization or an individual
terrorist, if the funds are not intended for a specific act of
terrorism. The Criminal Code also does not criminalize the
financing of theft of nuclear materials for terrorist purposes.
Legal entities are not criminally liable for terrorist
financing, but organizations engaged in the financing of
terrorism may be liquidated by decision of the Supreme Court
upon indictment by the General Prosecutor. In December 2005,
the Parliament amended the Criminal Code to stiffen the penalty
for the financing of terrorism. The amendments explicitly
define terrorist activities and terrorism finance and carry an
eight to twelve year prison sentence for those found guilty of
sponsoring terrorism. In February 2006, the Interior Ministry
announced the establishment of a new counterterrorism department
within its Main Office against Organized Crime and Corruption.


16. Belarus does not have an adequate system in place to freeze
without delay terrorist assets. The AML/CTF (Article 5)
requires financial institutions and DNFBPs to suspend a
financial transaction if one of its participants is a person
suspected of being involved in terrorist activities or
controlled by terrorists. The National Bank provides banks with
the State Security Committee's lists of persons suspected of

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being involved in terrorist activities or controlled by persons
engaged in terrorism--including persons on the United Nations
Security Council Resolution (UNSCR) 1267 Sanctions Committee's
consolidated list--and has given banks and nonbank credit
institutions an instruction on the procedure for freezing funds.
DNFBPs do not receive the terrorism lists and have little
awareness of freezing requirements. In addition, the AML/CTF
law (Article 11) also authorizes the Financial Monitoring
Department to suspend a transaction for up to five days, after
which time it must decide either to report the information to
law enforcement, which can attach the funds, or resume the
transactions. In accordance with a resolution passed in March
2006, the Belarusian KGB compiled a list of 221 individuals
suspected of participation in terrorism, which the National Bank
distributed to all domestic banks. Belarus has no procedures in
place for reviewing requests to remove persons from the list or
for unfreezing the funds of persons to whom the freezing
mechanism was accidentally applied.


17. Belarus is a party to the 1988 UN Drug Convention, the UN
Convention for the Suppression of the Financing of Terrorism,
the UN Convention against Transnational Organized Crime, and the
UN Convention against Corruption. Belarus has signed bilateral
treaties on law enforcement cooperation with Afghanistan,
Bulgaria, India, Latvia, Lithuania, the People's Republic of
China, Poland, Romania, Syria, Turkey, the United Kingdom, and
Vietnam. In September 2006, Belarus signed an AML agreement
with the People's Bank of China. In 2009, Belarus' Department
of Financial Monitoring signed an AML agreement with their
Macedonia counterparts. The United States and Belarus do not
have a mutual legal assistance agreement in place. Belarus is a
member of the EAG. The DFM is a member of the Egmont Group.
Belarus is ranked number 139 (up from 151 a year ago) out of 180
territories listed in Transparency International's 2009
International Corruption Perception Index.


18. The Government of Belarus (GOB) has taken steps to construct
a legal and regulatory framework to fight money laundering and
terrorist financing. It should also focus on the implementation
of the law by law enforcement, increasing the investigation and
prosecution of money laundering and terrorist financing
offenses. This could be accomplished through training and
outreach by the FIU and other regulators. Belarus should
increase the transparency of its business, finance, and banking
sectors. Belarus' AML legislation should be further amended to
comport with international standards and to provide for more
transparency and accountability. The GOB should, for example,
extend the application of its current AML legislation to cover
the governmental transactions that are currently exempted under
the law, and ensure that the regulations and guidance provided
by the National Bank and other regulators are legally binding.
Similarly, the National Bank should be given the authority to
carry out its responsibilities, and not be subject to influence
by the Presidential Administration. The GOB should also bring
the nonfinancial sectors under the same AML/CTF requirements
that it imposes on the financial sector, and ensure resources
for supervision, monitoring and a sanctions regime for
noncompliance. The GOB should implement strict regulation on
its industries operating abroad and on those operating within
the FEZ areas. The GOB needs to reinstate the identification
requirement for foreign currency exchange transactions, and
reconsider the relationships it wishes to foster with state
sponsors of terrorism. Belarus should continue to hone its
guidance and enforcement of suspicious transaction reporting and
provide adequate staff, tools, training and financial resources
to its FIU so that it can operate effectively, especially with
the increased attention and reporting that the DFM has generated
of late. The GOB must work to further improve the coordination
between agencies responsible for enforcing AML measures. The
GOB also needs to take steps to ensure that the AML framework
operates more objectively and less as a political tool. The GOB
should take serious steps to combat corruption in commerce and
government.
SCANLAN