First Mutual Evaluation of the Kyrgyz Republic

FIRST MUTUAL EVALUATION OF THE KYRGYZ REPUBLIC

The Sixth Follow-up Report on the Implementation of the EAG

Mutual Evaluation Recommendations

I. INTRODUCTION

1.  The purpose of this document is to present to the EAG Plenary Meeting the sixth follow-up report of the Kyrgyz Republic, which describes the measures taken by the Kyrgyz Republic to remedy the deficiencies identified in the course of mutual evaluation. The EAG Plenary Meeting heard the first, second, third, fourth and fifth follow-up reports of the Kyrgyz Republic in December 2007, July 2008, December 2008, December 2009 and December 2010, respectively.

2.  Given that the Kyrgyz Republic is placed under monitoring by the RATF International Cooperation Review Group (ICRG) since October 2011, the 15th EAG Plenary requested Kyrgyzstan to present its unscheduled follow-up report to the 16th Plenary Meeting of the EAG.

3.  The mission of the EAG experts visited Bishkek city on 4-5 April 2012 for providing technical assistance to the Republic of Kyrgyzstan. The representatives of Armenia, the Russian Federation, Uzbekistan and the EAG Secretariat took part in the mission. The experts held consultations with representatives of the State Financial Intelligence Service (SFIS), the Government Office, the Parliament (Zhogorku Kenesh), the National Bank, the Ministry of Finance, the Ministry of Justice, the Ministry of Foreign Affairs, the General Prosecutor’s Office, the Ministry of Internal Affairs, the State Drug Control Service, the National Security Committee, the Supreme Court and some other public authorities of the Kyrgyz Republic and with the representatives of the private sector.

4.  In respect of the FATF Core and Key Recommendations the Kyrgyz Republic was rated partially compliant (PC) on Recommendation 1 (ML offence), Recommendation 5 (Customer Due Diligence), Recommendation 13 (Suspicious Transaction Reporting), Recommendation 23 (Regulation, Supervision and Monitoring), Recommendation 35 (Conventions), Special Recommendation V (International Cooperation) and was rated non-compliant (NC) on Recommendation 3 (Confiscation and Provisional Measures), Special Recommendation I (Implementation of UN Instruments), Special Recommendation II (Criminalization of Terrorist Financing), Special Recommendation III (Freezing and Confiscation of Terrorist Assets). The Kyrgyz Republic was rated partially compliance and non-compliant on 33 Recommendations specified below.

5.  The sixth follow-up report covers the time period from December 2010 till April 2012. The regulations adopted by the Kyrgyz Republic during the aforementioned period of time are aimed at harmonizing the national legislation of the country and bringing it in line with the requirements of the basic AML/CFT Law and with the international AML/CFT standards.

II. OVERVIEW OF THE PROGRESS MADE BY THE KYRGYZ REPUBLIC SINCE DECEMBER 2010

6.  This section highlights the most significant measures undertaken by the Kyrgyz Republic since December 2010 to remedy the deficiencies identified in the course of mutual evaluation. These measures are presented in more detail in Annex 2.

Overall Context

7.  In the reporting period, since December 2010, the Kyrgyz Republic has adopted the following AML/CFT-related regulations:

Regulations Adopted by the Government of the Kyrgyz Republic:

1)  Regulation on Management of Investment Assets (adopted by Resolution No.251 of the Government of the Kyrgyz Republic dated May 27, 2011);

2)  Regulation on Information Disclosure in the Securities Market (adopted by Resolution No.253 of the Government of the Kyrgyz Republic dated May 27, 2011);

3)  Regulation on Maintaining Register of Securities Holders in the Kyrgyz Republic (adopted by Resolution No.536 of the Government of the Kyrgyz Republic dated September 7, 2011);

4)  Rules of Carrying Out Transactions with Securities in the Kyrgyz Republic (adopted by Resolution No.647 of the Government of the Kyrgyz Republic dated October 17, 2011);

5)  Order No.528-r of the Government of the Kyrgyz Republic dated November 11, 2011 (on endorsement of the Agreement between the State Financial Intelligence Service under the Government of the Kyrgyz Republic and the Ministry of Finance of Turkmenistan on AML/CFT Cooperation);

6)  Order No.529-r of the Government of the Kyrgyz Republic dated November 11, 2011 (on endorsement of the Agreement between the State Financial Intelligence Service under the Government of the Kyrgyz Republic and the Department for Combating Fiscal and Foreign Currency Crimes and Money Laundering under the General Prosecutor’s Office of the Republic of Uzbekistan on AML/CFT Cooperation);

7)  Regulation on Provisional Administration for Managing Insurance (Reinsurance) Companies (adopted by Resolution No.712 of the Government of the Kyrgyz Republic dated November 11, 2011);

8)  Resolution No.12 of the Government of the Kyrgyz Republic dated January 12, 2012 on Public Authorities under the Government of the Kyrgyz Republic and Other Organizations Controlled by the Government of the Kyrgyz Republic, which establishes that the State Financial Intelligence Service (SFIS) under the Government of the Kyrgyz Republic operates under the Government of the Kyrgyz Republic and is the independent government authority of the Kyrgyz Republic;

9)  Resolution No.54 of the Government of the Kyrgyz Republic dated January 25, 2012 on the Draft Law of the Kyrgyz Republic on the Budget of the Kyrgyz Republic for 2012 and Budget Forecast for 2013-2014, in which the SFIS budget is doubled;

10) Resolution No.88 of the Government of the Kyrgyz Republic dated February 10, 2012, according to which the number of the government employees of the SFIS is 28 persons and the number of the support personnel is 20 persons;

11) Resolution No.105 of the Government of the Kyrgyz Republic dated February 17, 2012 on Assessing Effectiveness of Operation of the Government and Local Authorities of the Kyrgyz Republic, which establishes the lists of key performance indicators for assessing the effectiveness of the SFIS operation;

12) Order No.54-r of the Government of the Kyrgyz Republic dated February 20, 2012 (on Establishment of the Working Group for Implementing Measures under the Action Plan Adopted by the FATF Plenary Meeting on October 28, 2011);

13) Regulation on the Department for Precious Metals under the Ministry of Finance of the Kyrgyz Republic (adopted by Resolution No.114 of the Government of the Kyrgyz Republic dated February 20, 2012);

14) Resolution No.130 of the Government of the Kyrgyz Republic dated February 20, 2012 on the State Financial Intelligence Service under the Government of the Kyrgyz Republic, which adopted the Regulation on the SFIS and its management structure;

15) Order No.59-r of the Government of the Kyrgyz Republic dated February 24, 2012 (on endorsement of the draft Agreement between the State Drug Control Service under the Government of the Kyrgyz Republic and the Ministry of Public Security of the People’s Republic of China on Cooperation in Combating Drug Trafficking and Abuse of Narcotic Drugs, Psychotropic Substances and Precursors);

16) Resolution No.164 of the Government of the Kyrgyz Republic dated March 5, 2012 on the Draft Law of the Kyrgyz Republic on Ratification of the Agreement on the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) signed in Moscow on June 16, 2011;

17) Resolution No.226 of the Government of the Kyrgyz Republic dated April 4, 2012 on Resource Allocation Agreement between the SFIS and the Ministry of Finance of the Kyrgyz Republic for enhancing the effectiveness of the government management, ensuring stable operation of the professional staff and reducing turnover of the personnel employed by the SFIS.

Regulations Adopted by the National Bank of the Kyrgyz Republic:

18) Regulation on Minimum Requirements for Arrangement of AML/CFT Internal Controls by Commercial Banks (adopted by Resolution No.96/2 of the Board of the National Bank of the Kyrgyz Republic dated December 29, 2010);

19) Resolution No.40/7 of the Board of the National Bank of the Kyrgyz Republic dated July 27, 2011 on Modifications and Amendments to Resolution No.5/7 of the Board of the National Bank of the Kyrgyz Republic dated March 2, 2006 on Adoption of the Regulation on Licensing of Banking Activities;

20) Resolution No.40/8 of the Board of the National Bank of the Kyrgyz Republic dated July 27, 2011 on Modifications and Amendments to Resolution No.2/2 of the Board of the National Bank of the Kyrgyz Republic dated February 4, 2004 on Adoption of the Instruction on On-site Inspections;

21) Regulation on Licensing of Foreign Currency Cash Exchange Transactions (adopted by Resolution No.40/4 of the Board of the National Bank of the Kyrgyz Republic dated July 27, 2011);

22) Regulation on Securities Operations Carried Out by Banks (adopted by Resolution No.96/2 of the Board of the National Bank of the Kyrgyz Republic dated September 14, 2011);

23) Resolution No.55/9 of the Board of the National Bank of the Kyrgyz Republic dated September 29, 2011 on Modifications and Amendments to Certain Regulations of the National Bank of the Kyrgyz Republic;

24) Regulation on Transactions Carried Out by Microfinance Organizations and Credit Unions Operating under the Islamic Banking and Financing Principles (adopted by Resolution No.60/80 of the Board of the National Bank of the Kyrgyz Republic dated October 26, 2011);

25) Regulation on Corporate Management in Banks of the Kyrgyz Republic Operating under the Islamic Banking and Financing Principles (adopted by Resolution No.67/9 of the Board of the National Bank of the Kyrgyz Republic dated November 30, 2011).

Core Recommendations (R.5)

Recommendation 5 (Customer Due Diligence)

1.  Resolutions of the Government of the Kyrgyz Republic No.647 of 17.10.2011, No.251 of 27.05.2011 and No.536 of 07.09.2011 oblige the professional securities market players (when carrying out transactions with securities and investment assets and when managing investment assets of their customers) and the independent register-keepers/registrars (when maintaining the registers of securities holders) to:

- Identify customers, beneficial owners and verify the credentials of their representatives before or during the course of establishing business relationships and conducting occasional (one-off) transactions above the designated threshold;

- Verify reliability of the identification information provided by a customer using reliable independent information sources (documents, data, publicly available registers);

- Verify information on the purpose and intended nature of the business relationship of a customer for detecting transactions subject to mandatory control and also for confirming or disconfirming suspicions on involvement of a customer in the FT or ML activities.

Thus, the undertaken measures cover the issues pertaining to the CDD measures implemented by the professional securities market players and the registrars.

2.  Pursuant to Resolution No.96/2 of the Board of the National Bank of the Kyrgyz Republic dated December 29, 2010 banks shall pay adequate attention and perform proper monitoring of customers that “are most exposed to risk of being misused for financing of terrorism (extremism) and laundering of criminal proceeds”.

3. Order No.18/P issued by the SFIS on March 1, 2012 establishes the List of countries and territories that do not or insufficiently apply the FATF Recommendations. All natural persons and legal entities who/that are registered, located or reside in the designated country (territory) and all subsidiaries, branches and representative offices of the companies that are registered in such countries (territories) are considered the high-risk customers and special attention is paid to all their business relationships and transactions (deals).

4. Resolutions of the Government of the Kyrgyz Republic No.647 of 17.10.2011, No.251 of 27.05.2011 and No.536 of 07.09.2011 oblige the professional securities market players (when carrying out transactions with securities and investment assets and when managing investment assets of their customers) and the independent register-keepers/registrars (when maintaining the registers of securities holders) to refuse to establish or terminate business relationship with a customer if they are unable to successfully complete identification of customers and beneficial owners, verify data and verify information of the purpose and the intended nature of business relationship of a customer.

Key Recommendations (R.23, SR.IV)

Recommendation 23

1.  For enhancement of supervision and monitoring of activities/operations of the reporting entities the SFIS signed the new cooperation and information exchange agreements with the following supervisory authorities:

- The National Bank of the Kyrgyz Republic;

- The Financial Market Supervisory and Regulatory Service under the Government of the Kyrgyz Republic;

- The Department for Precious Metals under the Ministry of Finance of the Kyrgyz Republic;

- The State Communication Agency under the Government of the Kyrgyz Republic.

2.  The Regulation on Licensing of Exchange Transactions adopted by Resolution No.40/4 of the Board of the National Bank dated July 27, 2011 provides that the National Bank shall refuse to issue licenses:

- If an applicant or members of an applicant (in case of legal entities) are registered in the off-shore zones or (applies to legal entities) and have the affiliated entities registered in the off-shore zones or individual members residing in the off-shore zones, which list is compiled by the National Bank;

- If an applicant or members of an applicant (in case of legal entities) are registered or reside in the countries that do not or insufficiently apply the FATF Recommendations and do not take part in the international AML/CFT cooperation (non-cooperative countries). The list of such countries is compiled by the State Financial Intelligence Service of the Kyrgyz Republic.

Special Recommendation V

1.  Orders of the Government of Kyrgyzstan No.528-r of November 11, 2011 and No.529-r of November 11, 2011 endorsed the Agreement on cooperation between the FIU of the Kyrgyz Republic and the FIU of Turkmenistan and between the FIU of the Kyrgyz Republic and the FIU of the Republic of Uzbekistan. Order No.59-r dated February 24, 2012 endorsed the draft Agreement between the State Drug Control Service under the Government of the Kyrgyz Republic and the Ministry of Public Security of the People’s Republic of China.