Wednesday, January 9, 2013

Georgia – Country’s financial intelligence unit (FIU) receives many suspicious transaction reports for money laundering but none for terrorist financing; masked gunmen who robbed Bank of Georgia branch in Tbilisi apprehended by police


On 8 January the International Monetary Fund published a 466-page status report on the fight against money laundering (ML) and the financing of terrorism (FT) in Georgia.  Reading between the lines, one discovers that the Georgian authorities are working hard to thwart terrorist attacks against Tbilisi carried out by groups in the disputed “breakaway” areas of Abkhazia and South Ossetia, but not so hard to thwart potential attacks against other locales (e.g., Chechnya, North Ossetia, Moscow) by groups possibly based within Georgia.  Of particular note is the revelation that despite there being known risks of financing of terrorism in Georgia, the country’s financial intelligence unit has never received a single suspicious transaction report related to terrorism financing.

Below are some excerpts from the report.  (Emphasis as per original.  Acronyms: STR = suspicious transaction report, FIU = financial intelligence unit, AML = anti-money laundering, CDD = customer due diligence, PEP = politically exposed person.)

EXECUTIVE SUMMARY

Preventive Measures–Financial Institutions

14. The requirement for reporting ML and FT suspicious transactions and other information is largely in line with the standard; however, its implementation should be improved. The number of STRs submitted to the FIU is relatively high. [...]  While there are known FT risks in Georgia, no FT-related STRs have ever been received by the FIU.

2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES

2.2. Criminalization of Terrorist Financing (SR.II)

2.2.1. Description and Analysis

Implementation and Statistics (R.32):
241. At the time of the assessment, Georgia has had one investigation for FT resulting in the prosecution of three individuals. The investigation related to conduct that occurred in the break-away zones and involved the provision of arms and US$4,000 in cash to support the commission of a terrorist act in Tbilisi. The case was pending at the time of the on-site visit. There have been no ML cases involving FT.

Effectiveness:
242. In discussions with the authorities it was indicated that the risk from domestic terrorists or terrorist organizations was perceived as low and, accordingly, FT was not a major area of concern in a domestic context.
243. However, the authorities stated that since 2009, numerous acts of terrorism were planned and organized from the breakaway-zones and carried out in Tbilisi. This view is also reflected in the Evaluations of Threats Faced by Georgia 2007–2009 issued through presidential decree, where it is stated that “limited control of state borders […] increases the probability of terrorism.” In Georgia’s 2006 report to the UN Security Council Committee established pursuant to Resolution 1267, it is stated that “The conflict zones on the territory of Georgia, in particular, the territories of the Autonomous Republic of Abkhazia and the Tskhinvali Region/South Ossetia, that are beyond the jurisdiction of Georgia, also pose a danger. The separatist regimes fail to control the situation in the above regions that have led to establishment of favorable conditions for activities of terrorist groups as well as for flourishing smuggling, trafficking, and other transnational organized crimes”. As noted above, the information has not been examined by the assessors.

3. PREVENTIVE MEASURES—FINANCIAL INSTITUTIONS

3.2. Customer Due Diligence, Including Enhanced or Reduced Measures (R.5 to 8)

Existing Anonymous-account Customers—CDD Requirements (c. 5.18):
614. The existence of anonymous accounts has been prohibited in Georgia since 2008, and Article 6.7-1 AML Law prohibits “ to open or maintain anonymous accounts.” Nonetheless, the law did not require FIs to perform CDD measures on any such accounts that existed prior to the passage of the 2008 and the new 2011 AML/CFT Law.

Implementation:
615. Even if new anonymous accounts have only been prohibited in 2008, financial institutions met by the assessors have indicated that this type of account was not commonly used in Georgia before that date.
616. In addition, the NBG has declared that no anonymous accounts were present in the banking sector and that neither on-site inspections nor the information presented by banks confirmed the existence of such accounts.

Effectiveness:
617. The December amendments to the AML Law have improved the legal framework for CDD measures, The widespread view that ML/FT risks are absent in the financial sector, together with the existing gap between the legal framework and FIs practices, makes the CDD regime generally ineffective at preventing major ML/FT risks, especially in relation to CDD applied to legal persons, legal arrangements, and the identification of the beneficial ownership.
618. This view of vulnerabilities related to implementation deficiencies contrasts with the widespread degree of confidence across the financial institutions that there are no (or very low levels of) risks of ML or FT, in spite of: i) existence of customers which are offshore companies and whose beneficial owners are not verified; ii) nonresident deposits currently growing fast; iii) the development of private banking activities including a clientele of foreign PEPs; iv) the existence of large Georgian-led criminal organizations abroad which are known for having transferred proceeds to Georgia in recent years; v) the stated existence of a terrorist threat in relation to Abkhazia and Tskhinvali Region/South Ossetia; and vi) domestic statistics demonstrating the existence of major proceeds generating crimes such as corruption, tax evasion, drug, and human trafficking.

Source:


In other news, on 8 January at 16:00 three masked gunmen robbed a branch of Bank of Georgia (სსსაქართველოს ბანკი”) located at 78 Nutsubidze Street in the northwest part of Tbilisi.  Shortly afterwards police arrested on Chavchavadze Avenue suspects who were believed to be the perpetrators of the robbery.


Bank of Georgia was ranked #1 among commercial banks in Georgia by total assets as of 30 September 2012, with total assets (მთლიანი აქტივები) of 5,177,594,727 GEL (2.43 bln EUR), or 36.8% of the total assets of Georgia’s 19 commercial banks.  At 30 September the bank’s total deposits from non-bank customers (მთლიანი არასაბანკო დეპოზიტების) were 2,613,970,819 GEL (1.23 bln EUR), or 34.9% of the total for the 19 commercial banks.  (1 EUR = 2.133 GEL as of 30 Sept. 2012,)

Sources:


Mark Pleas
Eastern Europe Banking & Deposits Consultant