/ Mutual Evaluation Report
Anti-Money Laundering and
Combating the Financing of Terrorism
JUNE 2010 / REPUBLIC OF UZBEKISTAN
Uzbekistan is a member of the Eurasian Group on combating money laundering and financing of terrorism (EAG). This evaluation was conducted by the EAG and was then discussed and adopted by the EAG Plenary in June 2010.
© 2010 EAG. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Requests for permission to further disseminate, reproduce or translate all or part of this publication should be obtained from EAG ().
2010
© EAG
103
TABLE OF CONTENTS
PREFACE - INFORMATION AND METHODOLOGY USED TO EVALUATE THE REPUBLIC OF UZBEKISTAN 6
EXECUTIVE SUMMARY 7
1. Background 7
2. Legal System and Institutional Measures 8
3. Preventive Measures – Financial Institutions 9
4. Preventive measures - designated non-financial businesses and professions 12
5. Legal Entities and Forms and non-commercial institutions 12
6. National and International Cooperation 13
MUTUAL EVALUATION REPORT 15
1. GENERAL ISSUES 15
1.1. General information about Uzbekistan 15
1.2. The general situation with the money laundering and financing of terrorism 18
1.3. Summary of the Financial Sector and DNFBPs 19
1.5. Brief summary of the strategy of countering the money laundering and financing of terrorism 26
2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES 34
2.1 Criminalization of Money Laundering (R.1 & 2) 34
2.2 Criminalization of Financing of Terrorism (SR.II) 41
2.3 Confiscation, freezing or seizing of proceeds of crime (R.3) 45
2.4. Freezing of Funds used for Financing of Terrorism (SR.III) 49
2.5. The Financial Intelligence Unit and its functions (R.26, 30 and 32). 52
2.6. Law enforcement, prosecution and other competent authorities – the framework for investigation and prosecution of offences as well as for confiscation and freezing (R.27, 28, 30 and 32) 56
2.7. Cross-border Declaration and Disclosure (SR.IX) 59
3. PREVENTIVE MEASURES –FINANCIAL INSTITUTIONS 65
3.1. Risk of money laundering and terrorist financing 65
3.2 Customer Due Diligence, including enhanced and reduced measures (R.5 - 8) 65
3.3. Third parties and intermediaries (R.9) 95
3.4 Financial Institution Secrecy or Confidentiality (R.4) 96
3.5. Record Keeping and Wire Transfer Rules (R.10 and SR.VII) 98
3.6 Monitoring of Transactions and Relationships (R.11 &21) 101
3.7. Suspicious Transactions Reports and Other Reporting (R.13-14, 19, 25 & SR.IV) 108
3.8. Internal Control, Compliance, Audit and Foreign Branches (R.15 & 22) 120
3.9. Shell Banks (R.18) 124
3.10. The Supervisory and Oversight System – Competent Authorities and SROs. Role, Functions, Duties and Powers (Including Sanctions) (R.23, 29, 17 & 25) 125
3.11 Money or Value Transfer Services (SR.VI) 139
4. PREVENTIVE MEASURES – DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS 140
4.1. Customer Due Diligence and Record-Keeping (R.12) 140
4.2. Suspicious Transaction Reporting (R.16) 144
4.3. Regulation, Supervision and Monitoring (R.24-25) 147
4.4. Other Non-Financial Businesses and Professions. Modern Secure Transaction Techniques (R.20) 150
5. LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANIZATIONS 151
5.1 Legal Persons - Access to Beneficial Ownership and Control Information (R.33) 151
5.2. Legal Arrangements - Access to Beneficial Ownership and Control Information (R.34) 153
5.3 Non-Profit Organizations (SR.VIII) 154
6. NATIONAL AND INTERNATIONAL COOPERATION 159
6.1 National Cooperation and Coordination (R.31) 159
6.2 The Conventions and UN Special Resolutions (R.35 and SR.I) 159
6.3 Mutual Legal Assistance (R.36-38, SR.V) 162
6.4. Extradition (R.37, 39 and SR.V) 166
6.5. Other Forms of International Cooperation (R.40 and SR.V) 170
7. OTHER ISSUES 173
7.1. Resources and Statistics (R.30 and 32) 173
7.2 Other Relevant AML/CFT Measures or Issues 173
7.3. General Framework of the AML/CFT System (see also Section 1.1) 173
TABLES 174
Table 1. Ratings of Compliance with FATF Recommendations 174
Table 2: Recommended Action Plan to Improve the AML/CFT System 184
Table 3. Authorities’ Response to the Evaluation (if necessary) 194
ANNEXES 195
Annex 1. List of Abbreviations 195
Annex 2. Details of all Bodies Met on the On-Site Mission 197
Annex 3. Key Laws, Regulations and other Documents 199
Annex 4. List of Key Law, Regulations and Other materials Provided to Evaluation Team 215
Annex 5 220
Annex 6 223
Annex 7 224
Annex 8 226
PREFACE - INFORMATION AND METHODOLOGY USED TO EVALUATE THE REPUBLIC OF UZBEKISTAN
1. The evaluation of the regime for anti-money laundering (AML)[1] and combating the financing of terrorism (CFT) of the Republic of Uzbekistan (Uzbekistan) is based on the Forty Recommendations of 2003 and Nine Special Recommendations for Financing of Terrorism of 2001 issued by the Financial Action Task Force (FATF) and prepared using the AML/CFT Methodology of 2004[2] recognized by the EAG. The evaluation was based on laws, regulations and other materials and data received by the evaluating team during its November 8-14, 2009 off-site mission to Uzbekistan and thereafter. During its off-site mission, the evaluating team met with officials and representatives of all relevant government authorities of Uzbekistan and the private sector. The list of agencies meetings were held with are given in Annex 1 attached hereto.
2. The evaluation was conducted by a group of evaluators made up of the EAG's law, finance and law-enforcement experts. The evaluating team consisted of the following experts: Mr. A. Abdramanov, Chief Expert of the Department of Legal Services and International Relations at the Committee for Financial Monitoring of the Republic of Kazakhstan, (law-enforcement expert); Mr. I. Alexeev, Deputy Head of the Department of International Relations at the Federal Financial Monitoring Service of the Russian Federation (law-enforcement expert); Ms. T. Artamonova, Head of the Coordination Department for Cooperation with Authorized Bodies and International Organizations at the Russian Central Bank (financial expert); Mr. M. Mavlonov, Head of the Department of Banking Supervision and Licensing at the National Bank of Tajikistan (financial expert); Mr. O. Mayarovich, Chief Specialist of the Principal Expert and Legal Department at the State Control Committee of Belarus (legal expert); Mr. Ch. Kenenbaev, Chief Inspector of the Legal Support and Supervision Department at the State Financial Intelligence Service of the Kyrgyz Republic (legal expert), as well as Mr. I. Nebyvaev and Mr. S. Teterukov from the EAG Secretariat. The experts reviewed the institutional structure, existing laws on AML / CFT, instructions, guidelines and other requirements along with regulatory and other systems used for combating money laundering (ML) and financing of terrorism (FT) through financial institutions, designated non-financial businesses and professions (DNFBP) and studied the implementation and effectiveness of these systems.
3. This report presents a summary of existing in Uzbekistan at the time of the off-site mission AML / CFT measures, or immediately thereafter. It describes and analyzes these measures and makes recommendations on how certain aspects of the system could be strengthened (see Table 2). It also reveals levels of conformity of Uzbekistan to the FATF 40+9 Recommendations (see Table 1).
EXECUTIVE SUMMARY
1. Background
1. This report represents a summary of existing measures for combating money laundering (AML) and the financing of terrorism (CFT) in Uzbekistan as of November 2009 (i.e. during the off-site mission and immediately thereafter). It describes and analyzes these measures and makes recommendations on how certain aspects of the system could be strengthened (see Table 2). It also reveals the levels of conformity of Uzbekistan to the FATF 40 +9 Recommendations (see attached Rating Table of Compliance with the FATF Recommendations).
2. The foundation of Uzbekistan's AML / CFT system was laid in 2001, when both ML and FT were criminalized. Law of the Republic of Uzbekistan No. 660-II "On Combating Money Laundering and Terrorist Financing" (AML/CFT Law) came into force on January 1, 2006. The original version of the AML / CFT Law required all financial institutions not only to report on all transactions meeting the specified by the law criteria or those valued at more than the amount equaling 4000 times of the size of the minimum wage, but also to suspend such transactions for a period of two business days. Such transactions could only be executed after a specified period in the absence of special instructions to the contrary. This system created a number of difficulties for the country's economy, leading to the suspension of the part of the AML/CFT Law related to reporting suspicious transactions on April 27, 2007, along with termination of the authority of the Financial Intelligence Unit (FIU). In April 2009, the Law was reinstated in a new version, with the necessary subordinate acts restoring the powers of the FIU adopted in September 2009. Despite the suspension of a number of legislative provisions, the AML / CFT system continued to function in 2007 – 2008 largely due to the efforts of the country's law-enforcement agencies. At this stage, the oversight and law-enforcement agencies are undergoing the necessary resource and structural reforms and stepping up the work on AML / CFT, both when it comes to finalizing the legal framework, conducting inspections and implementing enforcement measures. Despite the fact that the fundamentals of the AML / CFT system were established in 2006, some provisions of the legislation enacted in 2009 are being introduced for the first time, making it impossible to judge on their effectiveness (especially in regard to the powers of oversight agencies). There are certain concerns about the existence of gaps in the system of preventive measures (customer due diligence, data storage, internal controls, etc.) which are applied to financial institutions and designated non-financial businesses and professions (DNFBP).
3. The main sources of criminal proceeds in Uzbekistan are linked to drug-related offenses, given that Uzbekistan is used as a transit country for shipment of drugs from Afghanistan, along with offences related to fraud and abuse of public office. Uzbekistan faces an acute threat of terrorism from “Islamic Movement of Uzbekistan”, “Hizb ut-Tahrir” and related to them organizations.
4. Uzbekistan is a sovereign, unitary, secular and democratic republic with a presidential form of government. Uzbekistan's GDP is approximately equal to 36.8 trillion Som (2008). The country's banking system, made up of 30 banks, is the most developed part of the financial sector, which is also the home to 100 credit unions, 31 micro credit organizations, 185 professional participants of the securities market, 30 insurance companies (including 2 life insurance companies) and 3 insurance brokers. The money and valuables remittance services are only available through banks and the postal service of Uzbekiston Pochtasi JSC. The DNFBP are represented by lottery companies and other gaming activities associated with risk, precious metal/stone merchants, real-estate intermediaries, public notaries, lawyers or their associations and audit companies.
2. Legal System and Institutional Measures
5. Uzbekistan criminalized ML as "Legalization of Proceeds from Crime" in Art. 243 of the Criminal Code of Uzbekistan. According to this Law, legalization of assets (monitory and others) obtained by criminal means through transfer, conversion or exchange, as well as concealment of its nature, source, location, disposition, transfer, ownership and other rights and title constitutes a criminal offence. At the same time, the definition of the ML offence does not include, in particular, acquisition, possession or use of assets obtained by criminal means, as required by the Vienna and the Palermo Conventions. All offences provided for in the Criminal Code can be regarded as predicate for laundering. However, the Criminal Code of Uzbekistan does not cover all categories of predicate offences listed in the 40 FATF Recommendations. In particular, it does not cover such offences as insider trading and market manipulation. The money laundering offence may be applied to persons who committed a predicate offence (self-laundering). Under the Uzbek Law, criminal liability applies only to natural persons, with no explicit provisions ensuring ML liability for legal entities. Penalties for natural persons are largely well-proportioned (5 to 10 years of imprisonment), with 47 guilty verdicts affecting 200 individuals passed during the 2006 – 2009 period. Given a relatively high number of ML-related convictions and a positive trend in this field, as well as the fact that convictions continued at the time when the framework legislation in the sphere of AML / CFT was suspended, it appears that the system, in this part at least, functions effectively, particularly so when predicated offences are represented by tax-related crimes.
6. Financing of terrorism is criminalized in Art. 155 "Terrorism" of the Criminal Code of Uzbekistan. Under this law, any activity that has the purpose of ensuring the existence, operation and financing of a terrorist organization, preparation and commission of terrorist acts, direct or indirect provision and collection of any funds, resources or provision of other services to terrorist organizations or persons assisting or participating in terrorist activities constitutes a criminal offence. Criminal liability applies only to natural persons, with penalties being largely proportionate (eight years to life imprisonment). There were 80 convictions affecting 432 persons in the 2006 – 2009 period. Given that the offences of terrorism and FT are combined into a single article, there is no separation of dispositions in art. 155, namely: terrorism or FT. However the Uzbek officials reported that 2 out of 15 persons charged under Art.155 in 2008 were persons prosecuted for FT; 29 persons out of 105, in 2009. In this connection, it is assumed that Article 155 of the Criminal Code of Uzbekistan is applied effectively enough with regard to FT. The Law on Combating Terrorism, which was passed in 2000, provides liability in the form of liquidation for organizations recognized as terrorist.
7. Confiscation of property for ML-related offences in Uzbekistan are covered in Art. 203, 211, 284 and 285 of the Criminal Procedure Code of Uzbekistan. In view of the fact that one out of the necessary twenty types of predicate offences is not criminalized, confiscation in respect of this offence is not possible. Law enforcement and other competent authorities have sufficient powers to identify and search for property subject to forfeiture, or in the even of suspicions that such property constitutes the proceeds from crime. However, the legal basis for these powers is poorly regulated.
8. The AML/CFT Law contains provisions allowing for freezing (up to 5 working days) of transactions conducted by persons suspected of being involved in terrorist activities. At the same time, the existing legal mechanisms do not provide for any effective procedures for freezing terrorist assets or ways for implementing such procedures as required by the requirements of UN Security Council resolutions 1267 and 1373. The necessary mechanisms for analyzing and using the data received from foreign states and pertaining to the subjects of freezing, along with procedures for review of requests for de-listing of individuals are absent.