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Uruguay among major money laundering countries, report says

The annual International Narcotics Control Strategy Report (INCSR) describes the ongoing challenge facing authorities worldwide

Posted: March 7, 2005
> URUGUAY SEGMENT OF THE REPORT  
> Money Laundering and Financial Crimes section of the INCSR  
 

The international community's success in curbing money laundering done through banking and other formal channels has forced criminal groups and terrorist organizations to seek alternative ways to acquire and move their funds, according to a new State Department report.

In the department's annual International Narcotics Control Strategy Report (INCSR), published March 4, the section on money laundering and financial crimes describes the ongoing challenge facing authorities worldwide as they try to stem the flow of money to and from criminal groups.

"The closer we looked at banks, the faster the money seemed to shift to non-traditional money movers" such as gem dealers, charities and attorneys or other intermediaries, the report said. As those entities were brought under stricter controls, "the money moved further underground" to informal remittance systems (known as "hawala"), cash couriers or trade- and commodity-based systems, according to the report.

The INCSR said this phenomenon has slowed the effort to identify and block terrorist assets worldwide. Of the $147 million in terrorist assets that have been blocked since the September 2001 attacks against the United States, only about $9 million were blocked in 2004, the report said.

The challenge is especially daunting for some of the key terrorist financing countries, which are "only now beginning to develop competent anti-money laundering institutions," the report said.

The United States is working closely with those and other countries to promote the adoption and enforcement of anti-money laundering and terrorist financing standards worldwide, the report said. This work includes close cooperation among the Group of Eight (G8) countries -- France, Germany, United Kingdom, Russia, Japan, Italy, Canada and the United States -- as well as within the multinational Financial Action Task Force (FATF), which is the global standard-setter for anti-money laundering efforts.

Also under consideration is the creation of an international network of trade transparency units (TTUs), which would focus on detecting anomalies in trade data -- such as deliberate over and under-invoicing -- that could indicate trade-based money laundering, the report said.

Major Money Laundering Countries

Every year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in 200 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions that involve proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.

The 2004 INCSR assigned priorities to jurisdictions using a classification system consisting of three differential categories titled Jurisdictions of Primary Concern, Jurisdictions of Concern, and Other Jurisdictions Monitored.

The "Jurisdictions of Primary Concern" are those jurisdictions that are identified pursuant to the INCSR reporting requirements as "major money laundering countries." A major money laundering country is defined by statute as one "whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics-trafficking." However, the complex nature of money laundering transactions today makes it difficult in many cases to distinguish the proceeds of narcotics trafficking from the proceeds of other serious crime. Moreover, financial institutions engaging in transactions involving significant amounts of proceeds of other serious crime are vulnerable to narcotics-related money laundering. The category "Jurisdiction of Primary Concern" recognizes this relationship by including all countries and other jurisdictions whose financial institutions engage in transactions involving significant amounts of proceeds from all serious crime. Thus, the focus of analysis in considering whether a country or jurisdiction should be included in this category is on the significance of the amount of proceeds laundered, not of the anti-money laundering measures taken. This is a different approach taken than that of the FATF Non-Cooperative Countries and Territories (NCCT) exercise, which focuses on a jurisdiction’s compliance with stated criteria regarding its legal and regulatory framework, international cooperation, and resource allocations.

Identification as a "major money laundering country" is based on whether the country or jurisdiction’s financial institutions engage in transactions involving significant amounts of proceeds from serious crime. It is not based on an assessment of the country or jurisdiction’s legal framework to combat money laundering; its role in the terrorist financing problem; or the degree of its cooperation in the international fight against money laundering, including terrorist financing. These factors, however, are included among the vulnerability factors when deciding whether to place a country in the "concern" or "other" column.

The countries identified as "Jurisdictions of Primary Concern" are:

Antigua and Barbuda, Australia, Austria, Bahamas, Belize, Bosnia and Herzegovina, Brazil, Burma, Cambodia, Canada, Cayman Islands, China, Colombia, Costa Rica, Cyprus, Dominican Republic, France, Germany, Greece, Guernsey, Haiti, Hong King, Hungary, India, Indonesia, Isle of Man, Israel, Italy, Japan, Jersey, Latvia, Lebanon, Liechtenstein, Luxembourg, Macao, Mexico, Netherlands, Nigeria, Pakistan, Panama, Paraguay, Philippines, Russia, Singapore, Spain, Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, USA, Uruguay, Venezuela.


URUGUAY SEGMENT OF THE MONEY LAUNDERING SECTION OF THE INCSR

In the past, Uruguay’s strict bank secrecy laws, liberal currency exchange and capital mobility regulations, and overall economic stability made it a regional financial center vulnerable to money laundering. However, its extent and exact nature have always been relatively unknown. In 2002, banking scandals and mismanagement, along with massive withdrawals of Argentine deposits, led to a near collapse of the Uruguayan banking system, significantly weakening Uruguay’s role as a regional financial center. This crisis likely diminished the attractiveness of Uruguayan financial institutions for money launderers in the medium term.

Uruguay has been a member of the Financial Action Task Force for South America (GAFISUD) since the organization was created in December 2000. In 2003, Uruguayan President Batlle’s Deputy Chief of Staff served as the Task Force’ s President, and in December, 2004, Alejandro Montesdeoca Broquetas, Uruguay’s delegate to GAFISUD was selected to serve as the organization’s new Executive Director Secretariat. GAFISUD’s mutual evaluation in 2003 noted that Uruguay’s anti-money laundering regime met international standards. GAFISUD also recognized Uruguay’s efforts to train public and private sector players in money laundering-related issues.

While Uruguay’s past role as a financial center put it at risk of becoming a money laundering center, the 2003 report of the OAS’ Inter-American Drug Abuse Control Commission (CICAD) noted that there had been no arrests or prosecutions for money laundering in the previous three years. There were no arrests or prosecutions in 2004.

Over the last five years, the GOU has instituted several legislative and regulatory reforms in its anti-money laundering regime. In May 2001, Law 17,343 extended the predicate offenses for money laundering beyond narcotics- trafficking and corruption to include: terrorism; smuggling (value over $20,000); illegal trafficking in weapons, explosives and ammunition; trafficking in human organs, tissues and medications; trafficking in human beings; extortion; kidnapping; bribery; trafficking in nuclear and toxic substances; and illegal trafficking in animals or antiques. The courts have the power to seize and confiscate property, products or financial instruments linked to money laundering activities. Legally, money laundering is considered a crime separate from underlying crimes such as narcotics-trafficking, administrative corruption, terrorism and smuggling, which are formally listed in the statutes.

In December 2003, the Uruguayan Chamber of Deputies approved a bill designed to limit bank secrecy and confidentiality. The bill is intended to increase credit transparency by eliminating bank secrecy for information pertaining to personal loans, financial credits, mortgages, or similar obligations. As of the end of 2004, however, the bill was still pending in commission in the Senate and had not been approved into law.

In its 2003 mutual evaluation report, GAFISUD made several suggestions to expand the scope of Uruguayan money laundering legislation as it relates to gambling, real estate, certain professions (primarily in the legal and financial services sectors), and the smuggling of cash and securities. GAFISUD also suggested that the Government of Uruguay (GOU) improve its investigative and administrative capabilities.

In September 2004, the Uruguayan Congress approved Law 17,835, which significantly strengthened the GOU’s money laundering regime. The law incorporated all of GAFISUD’s recommendations that had to be legislated, while other recommendations were met over the past two years through administrative regulations. The 2004 law expands the realm of entities subject to the filing of suspicious activities reports (SARs) and makes reporting of such activities a legal obligation. It specifically confers to the Central Bank’s Financial Information and Analysis Unit (UIAF) the role of receiving and analyzing SARs, and the authority to request additional related information. The law also includes specific provisions related to the financing of terrorism and to the freezing of assets linked to terrorist organizations, as well as to undercover operations and controlled deliveries.

Central Bank regulations require all banks, currency exchange houses, stockbrokers and insurance companies to implement anti-money laundering policies, such as thoroughly identifying customers, recording transactions over $10,000 in internal databases, and reporting suspicious transactions to the UIAF. The 2004 law now makes this a legal obligation, extended to all financial intermediaries, as well as casinos, art dealers, real estate and fiduciary companies. Additionally, the law extends the reporting requirement to all persons coming in or out of Uruguay with over $10,000 in cash or monetary instruments. Regulations for the 2004 law are being issued by the Central Bank for all entities it supervises, and by the Executive for all other reporting entities, such as casinos, real estate companies and art dealers.

Three government bodies are involved in combating money laundering. The President’s Deputy Chief of Staff heads the National Drug Council, which is the senior authority directing anti-money laundering policy. The Center for Training on Money Laundering serves as a forum for discussion and policy advice based on public and private sector input. Created in 2000, the UIAF acts as a financial intelligence unit receiving, analyzing, and remitting suspicious transaction reports to judicial authorities. Central Bank Circular 1722, which created the UIAF, provides for responding to requests for international cooperation. In November 2004, Resolution 2002-2072 of the Central Bank Board of Directors raised the UIAF to the level of a directorate reporting directly to the Board.

The Ministry of Finance and Economics, the Ministry of the Interior (via the police force), and the Ministry of Defense (via the Naval Prefecture) also participate in anti-money laundering efforts. The financial private sector, most of which is foreign owned, has developed self-regulatory measures against money laundering such as the Codes of Conduct approved by the Association of Banks and the Chamber of Financial Entities (1997), the Association of Exchange Houses (2001), and the Securities Market (2002).

Despite the power of the courts to confiscate property linked to money laundering, real estate ownership is not publicly registered in the name of the titleholder, which complicates efforts to track money laundering in this sector, especially in the partially foreign-owned tourist industry. The UIAF can have access to the name of titleholders at any time, however, and so can other government agencies through a judicial order. The GOU is planning to establish a computerized system that will facilitate the UIAF’s access to titleholders’ names.

Offshore banks are subject to the same laws and regulations as local banks, with the GOU requiring them to be licensed through a formal process that includes a background investigation. There are six offshore banks and 21 representatives of foreign banks. There are no records of the number of Uruguayan offshore firms or shell companies. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank.

Safeguarding the financial sector from money laundering is a priority for the GOU, and Uruguay remains active in international anti-money laundering efforts. It is a party to the 1988 UN Drug Convention, and participates in GAFISUD and the OAS Inter-American Drug Abuse Control Commission (CICAD) Experts Group to Control Money Laundering. The USG and the GOU are parties to extradition and mutual legal assistance treaties that entered into force in 1984 and 1994, respectively. Uruguay has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. In 2003 Uruguay ratified the UN International Convention for the Suppression of the Financing of Terrorism. The GOU is taking steps to comply with the Financial Action Task Force (FATF) Special Recommendations on Terrorist Financing. Some of these recommendations, such as the criminalization of terrorism financing and provisions for the freezing of terrorist assets, were met by the 2004 money laundering law.

Effective implementation and enforcement of its anti-money laundering legislation should be a priority for the Government of Uruguay and should enact legislation that requires the identification and registration of the titleholders of real estate- a sector that is particularly vulnerable to money laundering. Uruguay should ratify the UN Convention against Transnational Organized Crime.

 

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