U.S. DEPARTMENT OF STATE
INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT MARCH 1996:
FINANCIAL CRIMES AND MONEY LAUNDERING

United States Department of State

Bureau for International Narcotics and Law Enforcement Affairs

INCSR 1996 COUNTRY CHAPTERS

Macau to Portugal

Macedonia. (No Priority) Although drugs are trafficked through Macedonia, the economy still operates on largely a cash basis and the banks have only begun to restructure, four years after independence from Yugoslavia. There is no indication of significant money laundering.

Madeira and the Azores. (Medium) The analysis of these two regions is separated from the mother state, Portugal, because they are autonomous and are not subject to all Portuguese laws. While Portugal is not considered a major financial center and is ranked a Low-Medium priority, Madeira and the Azores are ranked higher because of concern about offshore banking activity in both regions. Neither region imposes banking reporting requirements on its offshore banking sector.

Malaysia. (Medium) The only legislative protection against money laundering is an asset seizure law which makes drug-related money laundering a criminal offense. The asset seizure law is narrow in scope and has had only limited success in confiscating drug money, Senior government officers recognize the need for a stronger and broader anti- money laundering regime and have publicly called for implementation of measures to combat money laundering. Following the commonwealth heads of government meeting in Auckland this year, the deputy finance minister promised that Malaysia will make money laundering a serious crime and take action within the framework of its laws to combat the illegal activity. In this regard, the GOM is currently studying the draft model law for the prohibition of money laundering prepared by the commonwealth secretariat.

The GOM continues to be concerned about offshore banking center Labuan becoming a money laundering conduit. Although Malaysian laws provides the police full access to bank records, experts believe that a comprehensive anti-money laundering enforcement is necessary to prevent money laundering activities in Labuan.

Malta. (Low) While not currently significant as a money laundering sector, Malta could increase in importance as other governments in Europe and around the Mediterranean tighten their banking controls and enforce money laundering countermeasures.

Mauritius. (No Priority) A money laundering bill was introduced in July to Parliament but not acted upon. There is no legislation against money laundering in Mauritius, although as noted a bill to criminalize it was tabled but not acted upon in 1995. As yet, only seven banks have been approved for offshore banking including Barclays, Bank of Baroda, Hong Kong Shanghai, and Rothschilds. According to Mauritian authorities, these banks were selected because of their reputations and the internal controls they have against money laundering. The money laundering bill was designed to comply with model legislation drafted by the Financial Action Task Force. Until the bill passes, however, money laundering, except as it related to other offenses, is not a crime in Mauritius. Accordingly, there have not been arrests or seizures in connection with alleged money laundering. The offshore banking authority reports that it has stringent standards for approving offshore companies but does not have formal information-sharing agreements with authorities elsewhere. The country's role as a center for financial services and its booming tourism industry (and related high-cash turnover restaurants and casinos) make it potentially vulnerable to illicit money laundering activities.

Mexico. (High) As the increasingly effective measures taken by the United States to deter narcotraffickers placement of drug cash into our financial system have been felt, Mexico has become the money laundering haven of choice for initial placement of US drug cash into the world's financial system. Once placed into Mexico's financial system, these cash proceeds are being moved in a variety of forms, including wire transfers and drafts drawn on Mexican banks payable through United States correspondent accounts. By their own statements, Mexican officials have estimated that the amount of drug cash being repatriated to Mexican drug cartels in 1994 was some $30 billion, and the total amount moved into Mexico for eventual repatriation to Colombia is much higher.

Proximity to the United States, endemic corruption, and little or no regulation or enforcement of regulations pertaining to the deposit of US drug dollars into the Mexican financial infrastructure, coupled with the purging of the US financial system of the initial placement of drug cash, have combined to make Mexico the number one country of choice for the movement of drug cash generated by Western Hemisphere drug cartels. A comprehensive system of legal, financial and regulatory reforms must be passed and implemented or the situation will only grow worse, to the economic and political detriment of both countries.

Mexico's financial institutions are being used for large US dollar cash transactions which are derived from narcotics and non-narcotics proceeds Ill-gotten money is laundered in both the banking and non-banking financial systems. A number of investment firms and legitimate businesses have also been implicated in money laundering schemes. Mexican and international narcotrafficking organizations launder proceeds in Mexico from cocaine, opiate, and cannabis trafficking.

Mexico has done little to curb these practices which are enormously profitable for Mexico's banking community and the brokers and criminals who exploit that system.

Mexican officials have stated that an important factor in their inability to curb money laundering is that Mexico's supervision and enforcement systems are permeated by suborned officials. Their goal now is to broaden and define legal sanctions against money laundering. A few former senior Mexican government (GOM) officials are suspected of and being investigated for money laundering, including Mario Ruiz Massieu (US$ 20 million) and Raul Salinas Gotari (US$ 90 million). Raul Salinas Gotari, brother of ex-President Carlos Salinas, transferred some USD 80-90 million from a branch of Citibank in Mexico City through its headquarters in New York City to a Swiss bank account. Salinas has been indicted for conspiracy to murder. Investigations into possible money laundering by him continue.

Former Deputy Attorney General Mario Ruiz Massieu, currently under arrest in the United States is also under investigation in Mexico for money laundering. He has been found to have bank accounts in the United States totaling US$ 24 million, including $9 million in Texas, funds which are believed to be proceeds from money laundering and payoffs for protecting narcotraffickers. He has been indicted in Mexico for embezzlement, money laundering and unjust enrichment. Investigations into possible money laundering continue.

Mexico signed a Mutual Legal Assistance Treaty (MLAT) with the United States in 1987. Mexico also signed a financial information exchange treaty with the US Department of the Treasury in October 1994. The country has not yet adopted laws or regulations, however, to ensure the availability of adequate records of narcotics investigations to appropriate USG and narcotics investigations to appropriate USG and third nation personnel. Mexico is a signatory to the 1988 UN Convention, as well as the Summit of the Americas money laundering agreement. Mexico has shown interest in joining the Financial Action Task Force and has agreed at the December 1995 Summit of the Americas Money Laundering Ministerial in Argentina to participate in a money laundering task force. Mexico has also entered into other bilateral agreements to exchange money laundering information and share fiscal data such as tax records with Canada, France, Germany, Ecuador, Switzerland, Spain and Italy.

US and Mexican law enforcement agencies work closely together in the field of money laundering. During 1995, the GOM Secretariat of Treasury (Hacienda) assisted the USCS Office of Investigations in providing referral information on seven significant money laundering cases in Mexico. In addition, Hacienda provided USCS with information resulting in the initiation of five significant money laundering cases in the United States. During 1995, Hacienda's money laundering section completed eleven money laundering investigations in Mexico and referred them to the Attorney General (PGR) for prosecution. PGR also cooperated with DEA in several significant financial investigations during 1995. In 1995, IRS conducted 19 joint investigations with Hacienda which resulted in two major convictions in the US and the seizure of nearly USD one million from the Arrellano-Felix Organization. Fiscal regulations require banks and other financial institutions to know, record, and report the identity of customers engaging in suspicious currency transactions.

The same regulations require banks and financial institutions to maintain adequate time records necessary to reconstruct significant transactions through financial institutions. Fiscal regulations for non-financial firms are loose, however, and are only applied should the company be audited. Financial institutions dealing in international currency transactions, on the otherhand, are required to complete and maintain records for all such transactions.

Although Mexico requires financial institutions to report suspicious transactions, there are currently no penalties for failure to report. However, new mandatory penalties are written into the proposed legislation, which will also provide legal protection to financial officers who cooperate with law enforcement personnel. The transportation across Mexican borders of currency in amounts greater than USD 10,000 must be reported to GOM authorities.

The Ministry of Treasury's Money Laundering Directorate has cooperated with USCS and IRS in the investigation of financial crimes related to narcotics. Major investigations conducted during 1995 include the following:

The Government of Mexico provided critical information and assistance to USCS during Operation Choza Rica. The long term investigation culminated in the seizure of a US$ 30 million investment portfolio managed by American Express Bank international. As a result of its participation in the investigation, the USG presented the GOM with a check of more than US$ 6 million from the seized assets.

In the Mario Ruiz Massieu investigation, the USG was able with some GOM assistance to freeze and potentially forfeit US$ 9 million in Houston.

The GOM Secretariat of Treasury provided documentary evidence and testimony in US Federal Court which resulted in the conviction of the defendants and forfeiture of more than US$ 4.5 million in drug proceeds.

Humberto Garcia Abrego, brother of recently expelled Gulf Cartel head Juan Garcia Abrego, is currently serving a five year sentence in a Mexican federal prison after being charged with laundering drug proceeds. Numerous properties and businesses purchased by Humberto on behalf of the Gulf Cartel have been identified, and are in the process of being seized by the GOM. Juan Garcia Abrego was arrested and expelled from Mexico on January 15, 1996 and extradited to the US. He is currently being held without bond awaiting trial in Houston, Texas. Abrego, the first foreign narcotics trafficker to placed on the FBI's Most Wanted List, is being held in the Harris County Jail on a 1993 indictment on charges of cocaine trafficking, money laundering and racketeering. The Abrego organization is responsible for the trafficking of marijuana and cocaine loads worth millions of dollars into the US.

In addition to these cases, the GOM has seized large bulk shipments of cash dollars, indicating a new alternative to more traditional methods of moving funds during the laundering process, such as wire transfers.

In April 1995, USD 6 million in cash were discovered hidden inside a shipment of air conditioners.

On October 9, 1995 troops of the 13th military zone command seized a Cessna 210 aircraft near Tepic, Nayari. Inside, they found six suitcases containing US$ 12 million presumably the proceeds from drug sales of the Amado Carrillo Fuentes trafficking organization. The pilots were detained and turned over to PGR's federal judicial police in Tepic. The cash was turned in to the secretariat of national defense for eventual transfer to a general counternarcotics fund, in accordance with Mexican law.

Moldova. (No Priority) As a signatory to the 1988 UN Convention, Moldova remains committed to conducting significant counter narcotics efforts. Though not a major producer or active in money laundering operations, Moldova's status as a transshipment country grew over the last year.

Monaco. (Low) While not considered a major financial center, the Principality may be vulnerable to money laundering. Casinos, which worldwide have proven to be used in money laundering schemes, are a primary industry in Monaco, where money laundering is a crime and suspicious transactions must be reported. In June 1995, several high- level casino employees were arrested on corruption charges, as a result of an investigation ordered by Prince Ramen into money laundering charges. In July, an Israeli citizen was arrested when he attempted to deposit more than US$5 million in a Monegasque bank. The money was seized and DEA is working with Monaco police to establish a drug nexus.

Morocco. (Medium) The proceeds from narcotics exports from Morocco are easily repatriated. The government of Morocco makes no serious effort to trace drug or contraband money. There are in fact no laws against money laundering that would allow them to prosecute offenders effectively. Much of the revenue is invested in real estate, especially in Northern Morocco, where drug money is an important source of income and has supported a construction boom. However, as increasing numbers of office and apartment buildings sit unoccupied, drug traffickers are reportedly casting about for new investment opportunities.

Namibia. (No Priority) Namibia is not a money laundering center.

Nepal. (Low) Nepal is not a money laundering center.

Netherlands. (High) The Netherlands is a major international financial center and, as such, offers opportunities for laundering funds generated from a variety of illicit or fraudulent activities, including narcotics trafficking. Money laundering is done through the banking system, money exchange houses, casinos, credit card companies, and insurance and securities firms.

Money laundered in the Netherlands is typically owned by major drug cartels and organized crime, often related to the sale of heroin, cocaine or cannabis. The production and sale of cannabis products or designer drugs like MDMA (XTC or "ecstacy") is also giving rise to some money laundering. Some illicit currency transactions may well involve profits in dollars from illegal drug sales in Europe or elsewhere. There is no evidence yet of any US-earned drug proceeds being laundered in the Netherlands, but it cannot be ruled out that the Dutch financial system could be used for this purpose.

Proceeds from non-drug crimes are also allegedly laundered in Amsterdam and other Dutch financial centers. A considerable portion of the illicit money laundered in the Netherlands is believed to have been generated through activities involving fraud.

The Dutch government has taken steps inspired by FATF initiatives, including financial transaction reporting requirements, against money laundering through the banking system, money changing operations, casinos and other operations involving large amounts of money. The laws apply to all criminal activity, not just to drug-related money laundering. Financial exchange houses came under regulation in January 1995. Dutch financial institutions normally deal with very significant amounts of US currency deriving from legitimate business operations.

The United States enjoys close cooperation with the Netherlands in fighting international crime, including money laundering. The Dutch disclosure office (MOY) has close links with the FinCEN, and has submitted a draft cooperation agreement to FinCEN which is intended to increase that cooperation. The Dutch MOT is also involved in efforts to expand cooperation between disclosure offices, particularly in the EU. In 1995, the MOT took part in the Brussels and Paris meetings of the Egmont group, which seeks to intensify cooperation between money laundering disclosure offices in the EU and also worldwide. The Dutch have entered into bilateral agreements with all EU governments for the exchange of information on money laundering.

Adequate records can be made available officially to appropriate USG personnel through the mutual legal assistance treaty (MLAT) with the Netherlands and the rogatory commission. U.S authorities cooperate closely with the Dutch CRI (Dutch criminal intelligence service) and FIOD (internal revenue service investigation office).

The Netherlands has ratified the 1988 UN convention and the 1990 Council of Europe Convention on Asset Forfeiture and Confiscation, and is in compliance with FATF recommendations as well as EU policy directives on money laundering. The Netherlands is active in FATF which it chaired in 1994/95; the Caribbean FATF, where it is a major donor, and the UN Commission on Narcotic Drugs which it chaired in 1991. The Netherlands is a member of the major donors group of the UNDCP and an important contributor to EU counter-narcotics efforts.

Dutch authorities cooperate closely with US agencies on major money laundering cases, which has resulted in significant seizures of assets in both countries.

In 1995, in connection with its FATF-inspired anti-money laundering activities, the Dutch government put cambios (bureaux de change/money exchange offices) under the jurisdiction of Dutch banking legislation. Cambios can now only operate with a license from the Netherlands central bank. As a result, the number of cambios (which was considered too high for legitimate needs) has now decreased dramatically.

Dutch money laundering legislation targets transactions over 25,000 Dutch guilders or the foreign equivalent ($1 equals about 1.60 guilders). Since February 1, 1994, all financial institutions, including money exchanges credit card companies, insurance and securities institutions and casinos, must report transactions over 25,000 guilders or any transactions under that amount which appear suspicious.

Separate legislation, also in effect in 1994, mandates the checking of customer identity documents more frequently and for more types of transactions. Financial services can be provided only if the client's identity is established at the time or identity has been established previously. Identification is compulsory, when a single transaction or a series of transactions exceed 25,000 guilders. Identification may be also demanded if the transaction is considered unusual for some reason. A refusal to show identification or identification which makes the transaction appear unusual or suspicious is reported to the unusual transactions disclosure office.

Information about unusual transactions must be reported to the "unusual transactions disclosure office," the MOT, which is a special office operating independently from law enforcement and judicial authorities but under the jurisdiction of the ministry of justice. Information is passed on for further action to the CRI (Centrale Recherche Informatiedienst, the. Dutch national criminal intelligence service) only if the disclosure office believes that its own investigation has revealed a case of money laundering or another indictable offense.

Information provided by a financial institution cannot be used against it, and there are protections for the financial institution against civil lawsuits as a result of the disclosure.

The Justice Ministry recently reported on the activities of the money laundering disclosure office (MOT) from its inception in February 1994 to January 1995. During this period, the MOT received 22,961 reports of "unusual financial transactions," mostly from commercial banks. Of this total, about 11.5 percent (2,638 transactions involving almost three billion guilders) were considered "financially suspect" and were investigated by the financial police (1 dollar equaled about 1.57 guilders when the report was made).

Twenty-nine cases yielded enough information to institute legal proceedings, but 900 of the "unusual" transaction reports were used in ongoing investigations. Most of the "unusual financial transactions were made by Dutch, Belgian and German citizens, although there has also been an increase in such transactions by individuals from the former Soviet Union. In 1994, the Amsterdam police operation "Golden Calf" resulted in the closure of a money exchange house operated by Israeli citizens, the arrest of 25 people, and the seizure of 8 million guilders. Six people were eventually prosecuted and convicted.

The Dutch government does not have limitations on the amount of money which can be brought into or leave the country in bulk.

The changes in Dutch policies and laws related to money laundering have generally been accepted by legitimate financial institutions and businesses, which were initially opposed to them.

The GON enforces the drug-related asset seizure and forfeiture laws which came into effect in 1994. Preliminary 1994 figures show over 800 asset seizure cases were in various stages of investigation and prosecution. Dutch prosecutors estimate handling over 3000 cases a year for the next several years. Provisional 1994 figures show assets seized amounted to over 25 million guilders ($1 equals about 1.60 guilders).

New Zealand. (Low Priority) New Zealand is not an important international banking center nor is it considered to be a significant money laundering center. There is no information that New Zealand or any senior GNZ official, as a matter of government policy, encourages, facilitates or engages in money laundering activities.

Nicaragua. (No Priority) Nicaragua is not an important regional financial center, nor is it considered a significant money tax haven. What money is laundered appears to be narcotics related and could take place both in the banking and non- banking financial system. The government does not, as a matter of policy, engage in money laundering activities.

The government was an active participant in the Summit of the Americas Money Laundering Ministerial held in Argentina in December and signed the comprehensive ministerial communique that outlined a hemispheric action plan for combating money laundering.

New legislation, expected in mid-1996 will for the first time recognize money laundering (narcotics related or not) as a crime. The legislation would require banks and other financial institutions to report significant currency transactions. The government has yet to formally convene the banking commission established by the 1994 narcotics legislation which was to handle such matters. Asset forfeiture and seizure legislation: The 1994 legislation permits the seizure of any assets used in the commission of a narcotics related crime and establishes how the money from the sale of such assets shall be divided among the involved government ministries. To date, no goods have been seized under the new law.

Nigeria. (High) Nigeria is not an important international financial center, but occupies the most important niche in the West African money laundering situation, consistent with its high status as a drug transit country. Nigerians are becoming more prominent as money launderers in the United States. Heroin proceeds are often used to purchase luxury automobiles and other commodities in the United States, Europe and the Far East, which are then shipped to Nigeria and resold there or in neighboring countries. Proceeds from these sales are then deposited into banks in Nigeria or into accounts Nigerian traffickers hold abroad.

Nigeria announced a comprehensive national drug control strategy and passed a comprehensive money laundering decree providing for the seizure and forfeiture of drug-related assets such as the sixteen Lagos car dealerships seized by the National Drug Law Enforcement Authority (NDLEA). The first prosecution under the decree is being prepared, and NDLEA expects a conviction.

The Money Laundering Decree requires reporting of significant transactions to the Central Bank; regulates currency exchanges and gambling transactions; requires that records of significant or unusual transactions be shared with NDLEA, judicial and customs officials, and provides for forfeiture of assets by individual and corporate violators.

An Advanced Fee Fraud and Fraud Offenses decree was also promulgated -- a critical step given the involvement of Nigerians around the world in advanced fee fraud schemes. The decree not only outlaws such schemes, and establishes penalties, but also criminalizes the laundering of funds obtained through such schemes.

This latter decree also contains a prohibition on transporting illicit funds, including electronic transfers of such proceeds. However, thee are no laws governing the movement of hard currency into or out of Nigeria.

The operative question is whether Nigeria will fully implement and enforce these new decrees.

Norway. (Low) is not a major world financial hub, tax haven, or offshore banking center. Money laundering is a criminal offense in Norway and is adequately investigated by a special police unit on economic crime (ECOKRIM). A draft law requiring that large money transactions be reported to ECOKRIM has recently been introduced and is expected to be passed by Parliament December 1997. Laws on asset forfeiture and seizure are adequate and aggressively enforced, and drug- related money laundering is unusual.

Pakistan. (Medium-High) Pakistan continues to be a significant producer of opium and refiner of heroin, and also a transit route for Afghan opium, heroin and cannabis. Pakistan therefore continues to be a generator of illicit funds, which are laundered through the banking and non-bank financial systems. Gold smuggling is also pervasive, as are invoicing schemes and other financial crimes. Illicit funds are also derived from contraband smuggling, but the ordinance which criminalized money laundering focuses exclusively on the proceeds of drug trafficking.

There have been improvements in the financial sector. Banks are now required to report suspicious transactions on request and to retain records over time. However, banks are not required to record significant cash transactions nor is there provision for sharing of banking data with third parties. There are no controls on the amount of money which can be brought into or taken out of Pakistan. Reports indicate that large sums of money from uncertain sources poured into the country after the elimination of foreign exchange controls. There were no arrests or prosecutions for money laundering in 1995.

Even the minimal reporting requirements are not imposed on non-bank institutions -- an important omission given the purported vastness of the underground banking system (Hundi) and the increasing importance of exchange houses.

Throughout this decade, Pakistani governments have been implementing policies designed to attract money from the black market into the legitimate economy. These measures have included liberalizing foreign currency and gold import restrictions, as well as issuing bearer bond schemes which have been literally advertised as an effective means to launder or conceal illegal proceeds. No identification is required to open a foreign currency account, although it is required to open a rupee account. Pakistanis can freely receive or transfer foreign currency, often at a price above the official rate. To facilitate this movement into banking mainstreams, banks have not been required since 1991 to report or maintain records on large currency transactions. Banks are also being privatized.

Economic reformers in Pakistan contend that this liberalization has been a positive step in strengthening Pakistan's legal economy. For example, the level of foreign exchange reserves has risen, including millions of dollars in US currency, since removal of foreign exchange controls. US officials believe much of this money has been generated by illicit activities such as drug trafficking and tax evasion. There is less need for money launderers to use the hundi system if they have open access to the banking system.

The implementation of economic reform measures has boosted the involvement of currency exchange houses in money laundering schemes, providing services which formerly were reserved for financial institutions, particularly in rural commercial centers. In one such location known to be used by drug traffickers, some money exchange houses have refused to handle transactions involving less than US$ 1,000.

Panama. (High) A Presidential decree in March 1995 established a permanent Presidential money laundering commission to oversee GOP money laundering control efforts and formalized the national "drug czar" position. This commission is to ensure that all government agencies work cooperatively on money laundering control and that key private sector groups do their part. Anti-money laundering amendments, modifying Decree Law 41 of 1990, Panama's criminal statute against money-laundering, was passed in November. It contains significant improvements to strengthen anti-money-laundering efforts, including "know your client" provisions, protection for bank officials who provide information on suspicious transacting and accounts, and prescribed punishment for violations of the code.

Under the law, suspicious transactions are reported to the banking commission and, in turn, to the financial analysis unit (FAU) which has been established in the Office of the Presidency. If the FAU concludes that money laundering statutes have been violated, then the case is turned over to the Technical Judicial Police (PTJ) for criminal investigation and prosecution. The FAU will collect and analyze data on financial transactions in Panama in order to identify criminal activities. The FAU began start-up operations (setting up office, training, writing procedures, etc.) on July 3, 1995, but is not expected to become fully functional until the second quarter of 1996. The USG is supporting GOP efforts to form the FAU under the presidency and the PTJ's Financial Investigative Unit.

The new law is clearly a progressive step, but there are still concerns about other areas of vulnerability. For example, Panama continues to allow bearer-share corporations, and the rules regarding records of beneficial ownership of corporations.

Money laundering in Panama is quite diversified. In addition to cash transactions through banks and contraband smuggling, money launderers are investing drug and other dollars in legitimate businesses, particularly construction. The Colon Free Zone (CFZ) is a money laundering center in its own right. Pre-signed and pre-stamped blank invoices made out to fictitious companies are common, as are fraudulent invoices over/under representing goods shipped. Both methods are designed to cover money transfers.

In addition to cash deposits being placed into CFZ businesses, traffickers and smugglers are making large deposits of third-party checks drawn on us banks, where cash deposits have accumulated through the use of various structuring techniques. Many of these checks have been transported from Colombia to Panama, and are intended to give a legitimate "cover" to transactions. Also becoming quite popular are Mexican bank drafts, issued by banks in Mexico against their own dollar accounts in US banks, a reflection in part of the substantial movement of drug cash in bulk in Mexico.

In May 1995, Panama undertook its first major money laundering investigation in cooperation with the Canadian government. This money laundering investigation resulted in the arrests of four significant money launders and the closure of five businesses in the Colon Free Zone. In October 1995, the Swiss police visited Panama to coordinate with the drug prosecutor's office regarding two major money laundering investigations. The results are the sharing of documentation regarding major financial institutions that will assist both governments in prosecuting these money laundering cases.

Based on federal warrants issued in the United States, the PTJ detained two of Panama's principal money launderers, Israel Mordok, an Israeli citizen, and Alberto Laila, a naturalized Panamanian. Mordok was expelled to the United States in October by GOP immigration officials, where he plead guilty on money laundering charges. Due to his status as a Panamanian citizen, Laila was not expelled to the United States. Laila was arrested in the Colon Free Zone in October and initially held pending an extradition request, but was then released on US$500,000 bond on December 28. Based on additional information from the United States, Laila was re-arrested on February 16, 1996 on 11 counts of narcotics related money laundering, and will be prosecuted in a Panamanian court.

Progress on the Laila case is seen as a barometer of the effectiveness of the GOP in prosecuting Panamanian money launderers. Panamanian law provides for seizure of narcotics-generated proceeds, but forfeiture of assets rarely happens. United States customs shared with the GOP approximately $40,000 in forfeited assets.

Paraguay. (Medium High) The high volume of foreign exchange transactions reported by the Central Bank in 1994 (US$ 66 billion), coupled with the large number of banks, a lack of regulation, a marked increase in cash businesses, and an absence of anti-money laundering laws raise serious questions about Paraguay's involvement in money laundering. There is no hard data on how much money is laundered in Paraguay or how much of the total is comprised of proceeds from capital flight, or contraband and narcotics smuggling. What is known is that Paraguay has an economy rated at US$8 billion, with less than US$ 1 billion in exports, but, in 1994, returned more than US$ 4 billion in excess currency to the US, over 95 percent of that amount in US $100 bills, substantially larger returns than the combined return of Brazil and Argentina's much larger economies. The informal opinion is that most money laundering is linked to the re-export sector (estimated variously at US$ 4-14 billion largely in contraband), followed by capital flight from Argentina and Brazil, with narcotics-related funds coming last.

Paraguay is considered an important tax haven, as there is no personal income tax and offshore banking center. Money laundering is not illegal, and occurs in both the banking and non-bank financial systems. There is no hard information on who controls money laundering proceeds. While senior officials in the government condemn narcotics trafficking and laundering of drug proceeds, some officials are believed to encourage, facilitate and engage in money laundering activities based on re-export and capital flight proceeds. Notwithstanding the condemnation, the GOP has not taken effective steps to criminalize this activity or to identify drug-related proceeds.

In 1994 Paraguay shipped US$ 4.2 billion in excess US currency to the United States, and the central bank recorded in excess of US$ 35 billion in US currency exchanges. It is unclear, however, whether these transactions derived from illegal drug sales in the United States or their overall impact on the United States.

In 1994 Paraguay ratified a financial information exchange agreement with the United States. It has not adopted laws or regulations that ensure the availability of adequate records of narcotics investigations to appropriate USG personnel and those of other governments. Two draft bills currently under consideration by Congress address this shortfall. The USG has yet to ask Paraguay for cooperation on an important case, nor has Paraguay refused to cooperate with foreign governments on a narcotics case.

In 1995 the Central Bank issued regulations requiring banks and financial institutions to record transactions over US$ 10,000. These records are required to be kept for a period of five years. Paraguay permits, but does not require,financial institutions to report suspicious transactions. Bankers and others are not fully protected by law with respect to their cooperation with law enforcement entities. The USG has yet to request cooperation from the cop on financial crimes investigations under the financial information exchange agreement.

Paraguay has not addressed the problem of international transportation of illegal-source currency and monetary instruments. There are no controls on the amount of currency which can be brought into or out of the country.

Law 1340 of 1988 provides a basic system for forfeiting narcotics- related assets, but Paraguay has not enacted laws for sharing seized narcotics assets with other governments.Changes in current law are being contemplated to criminalize money laundering and update the existing national anti-drug statute. However, in their current forms, neither bill would provide for sharing seized assets. The chief obstacles to passage of such laws are an absence of GOP political will, opposition from powerful economic interests, and congressional inefficiencies. Under current law 1340, instruments of crime and intangible property derived from narcotrafficking, such as bank accounts, can be seized. Since money laundering is not a crime, legitimate businesses that launder drug money or other criminal proceeds are not subject to criminal sanctions. Also, it is an unresolved question whether a juridical person, such as a company, can be subject to criminal sanctions under Paraguayan jurisprudence. Since money laundering is not a crime, traffickers have not had an incentive to explore or test legal loopholes to help shield assets. Seized assets may only be forfeited once a suspect has been convicted. The law only provides for criminal forfeiture.

There has been no noticeable response to the GOP's modest efforts to seize or forfeit assets. There have been no GOP enforcement efforts to trace funds and seize bank accounts. Consequently there has been no banking community cooperation in such efforts. As a matter of policy, the banking community has sought to preserve bank secrecy. There have been no money laundering investigations or GOP cooperation with the USG on such investigations.

Peru. (Medium) is not a major global or regional financial center, tax haven or offshore banking center. It is not considered a significant money laundering center by US authorities or by foreign government officials. Money laundering related to narcotics proceeds occurs both in the banking system and the non-bank financial system of exchange dealers. Drug-related money laundering has hitherto largely represented funds repatriated by Peruvian cocaine trafficking organizations for cocaine raw material purchasing, other expenses of trafficking activities, including corruption, and personal consumption by traffickers. These funds included significant amounts of United States currency, usually derived from illegal cocaine sales in the United States by Colombian trafficking organizations, which then used that currency to purchase cocaine base from Peruvian trafficking organization suppliers. As Peru's economy continues to benefit from the most ambitious and successful stabilization program in the hemisphere, emerging market opportunities and investor confidence have encouraged increasing inflows of foreign capital. By no means do all such flows represent drug-related money laundering, investment of drug profits is becoming a more considerable factor than has previously been the case in

Peru. As a matter of government policy, neither the government of Peru nor any senior official thereof encourages, facilitates or engages in money laundering activities.

Peru became party to the Vienna Convention in 1992. It is not a member of the Financial Action Task Force. Other than the provisions of the convention pertinent to mutual legal assistance, and international instruments dealing with such customary practices as letters rogatory, Peru has no formal agreement with the United States on a general mechanism for exchanging records in connection with narcotics investigations and proceedings, and the United States has not requested negotiations with Peru on such an agreement. In 1992, Peru and the United States concluded an agreement for exchange of information on cash transactions ("Kerry Amendment"). The Superintendency of Banking and Insurance has published regulations to implement this agreement; the US has made no formal requests for information thereunder, and it is not known how well those regulations are implemented in practice. National police authorities responsible for narcotics investigation maintain good liaison relationships for informal exchange of information with dea on narcotics investigations, including money laundering cases. Peru has a formal agreement with the united kingdom for mutual assistance in narcotics enforcement, including asset sharing, and has provided information under that agreement. It has general agreements for counternarcotics cooperation with other countries, with some of whom it also exchanges drug investigative information. No specific information is available on the extent of such exchanges, nor how many countries may be involved.

Legislation adopted in 1992 made money laundering a criminal offense. Narcotics-related money laundering is an aggravated offense calling for additional penalty. Since conclusion of the Kerry Amendment agreement with the United States, banks and other formal financial institutions have been required under regulations adopted by the superintendency of banking to know and record the identity of customers engaging in significant, large US currency transactions, and to make this information available to the superintendency of banking if required to respond to requests for information from the US under the agreement. Since economic stabilization and restoration of links with the international financial system began in 1990, US currency has entered and departed Peru free of exchange controls, and circulates freely within Peru. Financial institutions are not required to report suspicious transactions as such, and there is no indication that they do so. Peru has no "due diligence" or "banker negligence" laws making individuals responsible if institutions launder money. Peruvian police have cooperated when requested by DEA and by other government law enforcement authorities (UK, Germany, Italy, Spain, Canada are known instances) in investigation of narcotics cases, including financial crimes. Peruvian police capabilities to investigate large-scale, international or sophisticated financial crimes are limited. There were a number of major asset seizures consequential upon arrests of major drug traffickers (see below), but no major successful investigations purely of financial crimes in 1995 in Peru. Some in the Peruvian banking community initially objected to the Kerry Amendment agreement with the US Such objection has generally disappeared; most of the legitimate financial community, in fora such as USG-sponsored workshops or meetings with legal or enforcement experts on money laundering, now at least verbally endorse the desirability of measures to keep the financial system from becoming involved in laundering criminal drug proceeds.

Under Peruvian criminal law, any property or assets used in the commission of a crime, or derived from the proceeds thereof, are subject to seizure and forfeiture. This applies to physical property, real and personal, and to financial property including bank accounts, but a direct connection must normally be demonstrated between the property or assets in question and the antecedent narcotics or other criminal offense. Except in the instance of a prosecution brought by tax authorities with respect to illicit enrichment by a person trafficking in narcotics, there is no provision for civil forfeiture. Under a separate law, land on which coca is grown that has not been registered for coca cultivation with the peruvian government (as none has been since the 1970's) is subject to seizure and forfeiture. Peru presently has no law for sharing seized narcotics assets with other governments; lack of such a law is one factor that continues to impede Peru's responding to a united states proposal to negotiate an asset sharing agreement made in early 1992. The Ministry of Foreign Affairs indicated that such legislation would be considered by the GOP, but no such legislation is known to have been considered in 1995. there are no significant disincentives to passing such a law; the main obstacle is the relative slowness of the Peruvian legislative system, and the lack of codification of laws relating to narcotics offenses which makes other legislation relating to that subject difficult to frame. Assets seized in connection with narcotics offenses are delivered to the Ministry of the Interior's Office for Drug Control (OFECOD).

That office is responsible for destruction of seized narcotics, custody of other assets pending completion of forfeiture proceedings, and distribution of forfeited assets to Peruvian government agencies for use in counternarcotics activities or other public purposes.

The criminal code, and associated decrees referring to narcotics offenses, has been used as the basis for seizure and forfeiture by the Peruvian government of vehicles, aircraft, buildings and other property, and financial holdings of persons identified as drug traffickers. There is, however, essentially no autonomous Peruvian institutional capability to identify, trace, freeze, seize and forfeit narcotics-related assets; such seizure and forfeiture customarily occurs when assets are encountered in direct connection with commission of a narcotics offense, or seizure arises from investigation or prosecution of an owner for such an offense by authorities in Peru or another country. Arrest of three brothers and numerous associates of the Lopez Paredes trafficking organization in January 1995 was followed by seizure and forfeiture of several ranches, several thousand head of cattle (delivered to an agricultural school), numerous other pieces of real estate, bank accounts and other property. When major trafficker Abelardo Cachique- Rivera was arrested in Colombia and delivered to Peru for prosecution in June, his interrogation disclosed many items of real property, bank accounts and other assets which were then seized. The law permitting seizure of land where unregistered coca cultivation takes place is seldom or never invoked, and would be of little practical effect if it were, since most coca is actually grown by squatters on other owners' property or public lands.

The Philippines. (Medium) The Philippines is not an important financial center, tax haven, or offshore banking center. A bill criminalizing money laundering has been introduced in the Philippine Senate. Philippine bank secrecy laws make the amount and source of laundered money almost impossible to estimate.

Poland. (Medium) Poland is not an important financial center and money laundering is primarily related to tax evasion and other economic crimes, but the money being laundered in Poland by local criminal organizations may include some proceeds from narcotics-related activities. Money laundering may occur in both the banking system and in exchange houses.

Current bank secrecy laws in Poland are very restrictive, normally allowing law enforcement or financial regulatory agencies access to customer accounts only if a crime has already been established and an indictment rendered. Within this context, the banking community does cooperate with enforcement efforts to trace funds, but interprets the laws strictly. Bank secrecy laws are to be amended to bring them into line with the needs of law enforcement and regulatory authorities in combatting financial crimes; the banking sector is neither opposing nor supporting the drafting of these amendments.

There is no evidence that Polish financial institutions engage in any transactions involving narcotics-derived US currency or otherwise significantly affecting the United States. There is no bilateral money- laundering agreement between Poland and the US, although Polish officials consider the eventual negotiation and signing of such an agreement to be vital.

There are no laws ensuring USG access to narcotics investigations records. However, US and Polish law enforcement agencies cooperate regularly and fully on narcotics investigations, with an open flow of information on the operational level.

Poland ratified the 1988 UN Convention in 1994. Poland is not a member of FATF. However, Poland's association agreement with the European Union requires it to come into compliance with FATF recommendations. Money laundering is a criminal offense under legislation passed in 1994. The law is not limited to drug-related money laundering only. Banks are required to know and record the identity of customers engaging in currency transactions over 20,000 pln (approx US$ 8,000 equivalent). They are required to report "suspicious" transactions, and are required to maintain these and all financial records for at least five years. Suspicious transactions are reported to the local prosecutor's office. However, discretion lies with the individual bank employee handling a transaction (sometimes simply a window cashier) as to whether the transaction is "suspicious" or not. Bankers are not protected by law with respect to their cooperation with law enforcement authorities. Under Polish banking regulations, individual bankers are "professionally" responsible if their institutions launder money, and subject to civil liability. The banking sector is reluctant to loosen bank secrecy laws. However, regulators believe that most banks recognize that effective money-laundering controls are in their own long-term interest.

Poland does not have specific laws dealing with the international transportation of illegal-source currency and monetary instruments. Such transactions are by nature limited by Polish foreign exchange control laws, which require that all foreign transfers of currency and monetary instruments be documented as to source and destination.

However, Polish authorities admit that such "legal" documentation can be easily arranged for a price regardless of the reality of the transaction. The foreign transfer of polish currency is prohibited. International transportation of foreign currency obtained from exchange houses is not permitted. However, there are no requirements for the recording of the identity of individuals changing money at exchange houses. Exchange houses are the only legal non-banking financial institutions in Poland.

The PNP conducted 11 investigations in 1995 under the new money- laundering law, which became effective December 31, 1994. Two of these cases have been passed on to prosecutors, together involving the laundering of at least 40 million pln (16 million usd). Eight money- laundering arrests were made, of which six suspects are incarcerated awaiting trial and two are out on bond.

Although it is insufficiently broad, the 1994 money-laundering law provides for the seizure and forfeit of crime-related assets. Seizure of assets in money-laundering cases was not permitted before 1995, and there is no legislation in force which specifically applies to narcotics-related money laundering.

There is no system in place specifically designed to identify, trace, seize, freeze or forfeit assets resulting from criminal activity, drug- related or otherwise. Law enforcement agencies and regulators are limited to existing inadequate financial crime laws in their efforts in this area. Poland has not enacted laws for sharing seized narcotics assets with other governments. Only financial instruments or other assets which can in some way be linked to an actual crime are subject to seizure or forfeiture. If proven to have been used in the commission of a crime, a legitimate business can be seized. If not so proven, the business or other asset may only be seized as settlement against a court-imposed fine. In particular, joint ownership or transfer of ownership to a family member or third party can make the attachment of assets difficult for Polish authorities.

The government does have the authority to forfeit seized assets. Both civil and criminal asset seizure are possible under Polish law, but they are mutually exclusive; once a court decides which of the criminal or civil codes applies to a given case, the other code cannot be invoked.

The Ministry of Justice and others are preparing draft legislation bringing Poland into compliance with the 1990 Strasbourg Convention on money-laundering and asset forfeiture, as specifically required by Poland's association agreement with the European Union.

At present the Polish government has neither adequate police powers nor resources to trace and seize asset effectively. Polish authorities seized 250,000 usd of cash and 10,000 usd worth of property and equipment related to money-laundering in 1995. disposition of these assets is still awaiting a ruling from the courts with jurisdiction in the cases.

Portugal. (Low Medium) The Portuguese Financial Unit has several ongoing money laundering investigations. The Portuguese anti-narcotics effort has been assisted by training provided by US agencies during the past year, as well as by strengthened money laundering and financial laws enacted in 1994. The 1908 Extradition Treaty between the US and Portugal is out of date. It does not cover such "modern" offenses as money laundering and financial crimes.