ЕАГ-VII / / FR (2011) 4

FIRST MUTUAL EVALUATION OF TURKMENISTAN

Second Follow-up Report
on the Implementation of Recommendations of the EAG Mutual Evaluation

I.INTRODUCTION

  1. The purpose of this document is to present to the EAG Plenary meeting the second follow-up report of Turkmenistan. Taking into consideration the fact that Turkmenistan is under the FATF ICRG review and is also subject to enhanced monitoring by the EAG this follow-on report covers just the FATF key and core Recommendations. According to the EAG mutual evaluation procedures, the all-inclusive review of improvement of Turkmenistan national AML/CFT system will be conducted at the 16th EAG Plenary meeting.
  2. The Mutual Evaluation Report and the first follow-up report were approved by the 14th EAG Plenary meeting in June 2011. In this regard, this follow-up report covers a time period from June till October 2011.

II. OVERVIEW OF THE PROGRESS MADE SINCE JUNE 2011

  1. This Section highlights the most significant steps that have been taken by Turkmenistan since June 2011. More detailed measures are set out in Annex 1.

Overall Context

  1. In the reporting period since June 2011 Turkmenistan has adopted new laws and regulations and also has amended the current legislation at it pertains to AML/CFT:
  • Law of Turkmenistan “On Amendments to the Criminal Code of Turkmenistan” dated August 15, 2011;
  • Law of Turkmenistan “On Amendments to the Law of Turkmenistan on Counteracting Legalization of Proceeds from Crime and Financing of Terrorism” dated August 15, 2011;
  • Law of Turkmenistan “On Amendments to the Law of Turkmenistan on Counteracting Legalization of Proceeds from Crime and Financing of Terrorism” dated October 11, 2011;
  • Law of Turkmenistan “On Amendments to the Law of Turkmenistan on Licensing of Certain Types of Activities” dated August 11, 2011.
  • Regulation on Arrangement for Internal Control for Combating Laundering of Criminal Proceeds and Financing of Terrorism approved by Order No.62 issued by the Minister of Finance of Turkmenistan on June 9, 2011;
  • Regulation on Dissemination and Use of Lists of Persons Known to be Involved in Terrorist Activities approved by Order No.92 issued by the Minister of Finance of Turkmenistan on August 15, 2011.
  1. These laws and regulations are generally aimed at further harmonizing the legislation of Turkmenistan and bringing it in line with both the basic AML/CFT Law and the international AML/CFT standards. Amendments that have been introduced into the said laws and regulations are aimed at ensuring further compliance by Turkmenistan with the criteria of R.1, 3, 5, 13, 23, 35, 40 and SR.I, II, III, IV, V and are reflected in more detail in Annex 3 of this document. The analysis below reflects the most significant actions undertaken by Turkmenistan.

Core Recommendations (R.1, 5, 13, СР.II)

Recommendation 1 (Criminalization of Money Laundering)

  1. The Law of Turkmenistan on Amendments to the Criminal Code Article 242 has amended Article 242 which now reads as follows:

“(1) Carrying out financial transactions and other deals with funds or other property (assets), knowingly obtained in illegal way, as well as the use of such funds or property (assets) for carrying out entrepreneurial (business) or other economic activities and also concealment or disguise of illegal origin of such funds or property (assets) for legitimizing their possession, use and disposal, or deriving profits or other benefits from such actions”

  1. Thus, the amendments introduced to Article 242 of the Criminal Code have brought the provisions of this Article fully in line with the requirements of the Vienna and Palermo Conventions related to acquisition, possession and use of property obtained in a criminal manner. The concept of “disguise” of criminal proceeds has also been introduced. Besides that, the provisions of Article 242 now cover indirect proceeds of a crime. Therefore, Article 242 of the Criminal Code is fully in line with the FATF Recommendation 1.
  2. Besides that, the Law of Turkmenistan “On Amendments to the Criminal Code of Turkmenistan” dated August 15, 2011 criminalized insider trading in the securities market (Article 245-1 of the Criminal Code) and securities market manipulation (Article 250-1 of the Criminal Code) as separate types of criminal offences.

Recommendation 5 (Customer Due Diligence)

  1. The Law of Turkmenistan “On Amendments to the Law of Turkmenistan on Counteracting Legalization of Proceeds from Crime and Financing of Terrorism” dated August 15, 2011 has introduced the “verification” concept and has obliged the reporting entities to verify information and documents provided by a customer.
  2. Pursuant to Order No.54 issued by the Minister of Finance of Turkmenistan on May 25, 2011 the threshold amount of occasional (one-off) transactions and deals subject to mandatory control is 57 thousand manats (equivalent of 20 thousand US dollars).

Recommendation 13 (ML-Related Suspicious Transaction Reports)

  1. Pursuant to the Regulation on Arrangement for Internal Control for Combating Laundering of Criminal Proceeds and Financing of Terrorism approved by Order No.62 issued by the Minister of Finance of Turkmenistan on June 9, 2011 the entities subject to financial monitoring are obliged to file with the designate authority reports on any attempted transactions.
  2. Criminalization by Turkmenistan of insider trading in the securities market (Article 245-1 of the Criminal Code) and securities market manipulation (Article 250-1 of the Criminal Code) has positive effect on the efficiency of implementation of the requirements set forth in Recommendation 13.

Special Recommendation II (Criminalization of Financing of Terrorism)

  1. One of the important changes in the legislation of Turkmenistan is the introduction of the amended Article 2711 that covers terrorist financing crimes in the Criminal Code.
  2. «The financing of terrorism, that is, collecting or giving monetary, logistical (material-technical) and other resources or providing financial services with the knowledge that they are intended to fund the preparation or commission of an act of terrorism, as well as acting or failing to act in support of activities whether it is connected or not connected with the commission of an terrorism act of a terrorist, terrorist group, terrorist organization or an organized group, an illegal armed group or criminal association set up to achieve these goal»
  1. With the introduction of this new definition the provisions of the Article that covers financing of terrorism are now extended to both terrorist organizations and individual terrorists, however, the definition itself requires further clarification. In particular,it is suggested to discuss whether this wording coversfinancing of an individual terrorist`sactivitywithout connection to a terrorist act.
  2. Besides that, Order No.92 issued by the Minister of Finance on August 15, 2001 approved the Regulation on Dissemination and Use of Lists of Persons Known to be Involved in Terrorist Activities. However, the definition specified in this Order differs from the definition provided in the Criminal Code and covers broader range of illegal activities.
  3. “Financing of terrorism – providing or collecting funds by any methods, directly or indirectly, with intension for such funds to be used, or knowingly that they will be used for committing terrorist acts, as well as collecting or providing any funds, financial assets or economic resources, or rendering financial or other related services, directly or indirectly, for the use in the interest of persons who commit or attempt to commit terrorist acts or support or take part in their commission, organizations directly or indirectly owned or controlled by such persons and also persons and organizations that act on behalf or at the instruction of such persons”
  4. Taking into account the deficiencies indicated in the Mutual Evaluation Report Turkmenistan has criminalized illegal capture of fixed platforms (Article 277-1) and also amended Articles 283-285 of the Criminal Code: “Illegal Handling of Radioactive or Nuclear Materials”, “Breach of Radioactive or Nuclear Material Handling Regulations” and “Theft or Extortion of Radioactive or Nuclear Materials” (Law on Amendments to the Criminal Code of Turkmenistan dated August 15, 2011).

Special Recommendation IV (FT-Related Suspicious Transaction Reports)

  1. Pursuant to the Regulation on Arrangement for Internal Control for Combating Laundering of Criminal Proceeds and Financing of Terrorism approved by Order No.62 issued by the Minister of Finance of Turkmenistan on June 9, 2011 the entities subject to financial monitoring are obliged to file with the designate authority reports on any attempted transactions.

Key Recommendations (R.23, 35, 36, 40, SR.I, III, V)

Recommendation 23 (Regulation, Supervision and Monitoring)

  1. The Law of Turkmenistan “On Amendments to the Law of Turkmenistan on Licensing of Certain Types of Activities” adopted on August 11, 2011 established the obligation of license applicants to submit the AML/CFT internal control rules to the licensing authorities/agencies.
  2. At the same time, Order No.62 issued by the Minister of Finance of Turkmenistan on June 9, 2011 approved the Regulation on Arrangement for Internal Control for Combating Laundering of Criminal Proceeds and Financing of Terrorism which established the obligation of entities operating in the banking, insurance and securities sectors to apply the Core Principles for the AML/CFT purpose.

Recommendation 26 (Financial Intelligence Unit)

  1. On September 2, 2011, the first report on the results Turkmenistan FIU activities was published on the official web site.
  1. Since the beginning of this year, in the process of financial investigations the FIU of Turkmenistan sent over 21 requests to the FIU in 8 countries, irrespective of whether or not it had appropriate agreements with them.
  1. The FIU of Turkmenistan has completed installation of the financial monitoring software.
  2. Steps undertaken by Turkmenistan under Recommendation 26 and specified in the first follow-up report as well as gradual extension of information sharing, including the signed information exchange agreements, demonstrate significant progress made by Turkmenistan in this area.

Recommendation 35 (Conventions)

  1. Turkmenistan has criminalized a number of offences by introducing significant amendments to the Criminal Code (Law “On Amendments to the Criminal Code of Turkmenistan” dated August 15, 2011). Some measures undertaken by Turkmenistan are described in analysis of compliance with SR.II (paragraph 18).

Recommendation 40 (Other Forms of Cooperation)

  1. The FIU of Turkmenistan signed the AML/CFT information exchange agreements with the FIU of Russiaand the Republic of Belarus. Agreements to be signed with the FIUs of China and the UK are finalized; while the agreements to be entered into with the FIUs of the KyrgyzRepublic and the Republic of Tajikistan are nearly finalized.
  1. At the same time, Turkmenistan has undertaken no efforts to develop the international cooperation in the supervision sphere. Thus, recognizing the significant progress made by Turkmenistan in this area, it is still necessary for Turkmenistan to further develop various forms of international cooperation, including cooperation between the supervisory authorities.

Special Recommendation I (Implementation of UN Instruments)

  1. Taking into account the deficiencies indicated in the Mutual Evaluation Report Turkmenistan has criminalized illegal capture of fixed platforms (Article 277-1) and also amended Articles 283-285 of the Criminal Code: “Illegal Handling of Radioactive or Nuclear Materials”, “Breach of Radioactive or Nuclear Material Handling Regulations” and “Theft or Extortion of Radioactive or Nuclear Materials” (Law on Amendments to the Criminal Code of Turkmenistan dated August 15, 2011).
  2. Order No.92 issued by the Minister of Finance of Turkmenistan on August 15, 2011 approved the Regulation on Dissemination and Use of Lists of Persons Known to be Involved in Terrorist Activities which established the procedure of dissemination and use by legal and natural persons of Turkmenistan of lists of persons and/or designated persons known to be involved in terrorism.

Special Recommendation III (Freezing and Confiscation of Terrorist Assets)

  1. The Law “On Amendments to the Law of Turkmenistan on Counteracting Legalization of Proceeds from Crime and Financing of Terrorism” dated August 15, 2011 established the civil procedural mechanism of freezing of terrorist assets. In particular, the provision for immediate and indefinite freezing of terrorist assets by all legal and natural persons was introduced. Besides that, the aforementioned amendments established the mechanism of handling by the designated authority (FIU) of foreign FIUs’ requests to freeze terrorist assets on the territory of Turkmenistan.
  2. Pursuant to the said Law the Minister of Finance of Turkmenistan approved the procedure of dissemination and use of lists of persons known to be involved in terrorist activities. Besides that, the Order regulates the procedure of handling the de-listing requests as well as the procedure of timely unfreezing of funds or other assets of de-listed persons.

Special Recommendation V (International Cooperation)

  1. Following the adoption of the Law “On Amendments to the Law of Turkmenistan on Counteracting Legalization of Proceeds from Crime and Financing of Terrorism” dated October 11, 2011 the legislation now includes the provisions that governs the issues pertaining to sharing of the confiscated property/assets with the foreign competent authorities that contributed to confiscation of such property/assets.

III. CONCLUSION

  1. Since June 2011, Turkmenistan has made major progress in relation to a large number of Recommendations through the adoption of new laws and regulations. In particular, it applies to R.1, 23, 40 and SR.I, II, III. Progress has also been made in relation to R.3, 5, 13, 26, 35 and SR.IV. At the same time, it is necessary discuss the wording of Article 2711 of the Criminal Code during the Plenary meeting concerning the connection of activities of an individual terrorist with a terrorist act.
  2. Taking the above into consideration and keeping in mind that Turkmenistan is under the FATF ICRG review, it seems appropriate to request Turkmenistan to provide the next follow-up report to the 16th EAG Plenary Meeting which will be held in June-July 2012.

EAG Secretariat

November 7, 2011

1

ЕАГ-VII / / Annex 1, FR (2011) 4

TURKMENISTAN

Second progress report template

(June - November 2011)

  1. Measures taken in relation to core recommendations (R. 1, 5, 10, 13, SR. II, IV)

Recommendations

/ Description of measures taken to improve the national AML/CFT system not considered within the framework of mutual evaluation (since February 2011) / Description of the measurestaken or plannedafter approval ofthe fourth progress report(from December2010 toJune 2011)
(To be filledby a Member StateEAG)
1. ML offence / On March 26, 2011, the Parliament of the country adopted the Law of Turkmenistan “On Introducing Amendments and Alterations into the Criminal Code of Turkmenistan” allowing to extend the disposition of article 242 of the Criminal Code of Turkmenistan and to cover activities in concealing unlawful origin of monetary assets and other property carried out so as to legalize possessing, using or disposing them. Article 242 of the Criminal Code after the words “as well as concealment of such actions” is amended by adding the words “as well as concealment of their unlawful source with view to legalize possessing, using and disposing them”. / 1. Parliament of the country on August 4, 2011 adopted the Law of Turkmenistan which took effect after the signingby the President on August 15, 2011"OnMaking Amendments and Addendato the CriminalCode of Turkmenistan", whereby the first partof Article 242 was adoptedin the new edition, namely:
"Making financialand other transactionswith monetary fundsor other propertyacquiredby illegalmeans,as well asthe use of suchfunds or propertyfor entrepreneurialorother economic activities,as well as concealingor disguisingthe unlawfulorigin offunds or propertyin order to makelegitimacy oftheir ownership, useand management, or making profitorother benefitof these actions. "
2.The abovelaw of TurkmenistanofAugust 15, 2011 the Criminal Code of Turkmenistan is alsosupplementedby the followingnew articles:
- Article245-1. "The manipulation of the securities market";
- Article250-1. "Insider trading in the securities market."
3.Statistics onAdministrative inquiryallowsto evaluatethe application of Article242 of the CriminalCode of Turkmenistan.In the periodfrom July toSeptember 2011 there were initiated 4 criminalcases under article242 of the CriminalCode of Turkmenistan. By resolution of the SupremeCourt of Turkmenistanfoursuspects inthesecriminal caseswere sentenced to 15years of imprisonment, andconfiscationof illicit proceeds andother propertytogetherwith the indirectrevenue amounted toUSD 5.7million dollars.
5. Customer due diligence / Amendments and alterations are made in the regulatory base concerning customer due diligence (CDD), in particular, the Regulation “On organization of internal control to combat legalization of proceeds gained unlawfully and financing of terrorism” is approved by the Order of the Minister of Finance of Turkmenistan dated May 25, 2011, and governs the following issues:
- carrying out CDD regarding individual transactions, notwithstanding the correlation of the transaction amount to the threshold amount;
- carrying out CDD regarding the attempts at conducting a transaction;
- taking such CDD measures as: identification of the beneficiary, verification;
- settling issues related to due diligence of the beneficiary, including the obligation of CDD in relation to the beneficiary;
- applying CDD to persons which are customers of a financial institution already and carrying out CDD on continuing basis;
- a unified framework to formalize the CDD results.
The Order and the Regulation are attached hereto. / 1. According to the order of the Minister of Finance of Turkmenistan as of May 25, 2011 № 54 the threshold amount for one-time operations and transactions subject to obligatory control is set at 57 thousand manats (equivalent to 20 thousand U.S. dollars)/ By Order of the Minister of Finance of Turkmenistan № 62 dated June 9, 2011 there was approved the Regulation "On the organization of internal control to counteract legalization of proceeds from crime and terrorist financing", which regulates the following:
- carrying out CDD regarding individual transactions, notwithstanding the correlation of the transaction amount to the threshold amount;;
- carrying out CDD regarding the attempts at conducting a transaction;
- taking such CDD measures as: identification of the beneficiary, verification;
- settling issues related to due diligence of the beneficiary, including the obligation of CDD in relation to the beneficiary;
- Legal implications of the impossibility of CDD (negative results) are provided not only with regard to the identification and availability of data on terrorist activities, but also to the circumstances relating to money laundering;
- applying CDD to persons which are customers of a financial institution already and carrying out CDD on continuing basis;
- a unified framework to formalize the CDD results.
2. On August 4, 2011Parliament of the countryadopted and on August 15, 2011President signed the Law of Turkmenistan "OnMaking Amendments andAddenda to theLaw of Turkmenistan "On counteracting the legalizationof proceeds from crimeand financing ofterrorism" according to which such concept asverification is introduced-verification ofthe validity and accuracyof information and documentsprovided by the client. Also, according to the changesin the law, in the responsibilities of persons presentingthe information there was added the procedureof verificationwith respect tothe information and documentsprovided by the client.
10. Record keeping / The Regulation “On organization of internal control to combat legalization of proceeds gained unlawfully and financing of terrorism” is approved by the Order of the Minister of Finance of Turkmenistan dated May 25, 2011, and governs the requirements to keeping the following (clause 22):