06ASTANA591, KAZAKHSTAN: 2006-2007 INSCR, PART II, FINANCIAL CRIMES AND

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Reference ID Created Released Classification Origin
06ASTANA591 2006-11-17 06:56 2011-08-30 01:44 UNCLASSIFIED Embassy Astana

VZCZCXRO1882
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHTA #0591/01 3210656
ZNR UUUUU ZZH
R 170656Z NOV 06 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 7700
INFO RUCNCIS/CIS COLLECTIVE
RHMFISS/HQ USEUCOM VAIHINGEN GE//ECJ5//
RUEKDIA/DIA WASHINGTON DC//DHO-2//
RHMFISS/HQ USCENTCOM MACDILL AFB FL//CCJ5//
RUEKJCS/SECDEF WASHINGTON DC//USDP EURASIA//
RUEKJCS/SECDEF WASHINGTON DC//USDP-SOLIC-CN//
RUEATRS/DEPT OF TREASURY WASHDC//IET//
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEHAST/USOFFICE ALMATY
RUEHBJ/AMEMBASSY BEIJING 1287

UNCLAS SECTION 01 OF 04 ASTANA 000591 
 
SIPDIS 
 
STATE FOR INL/AAE (ALTON) AND INL/C (WILLIAMS); SCA/CEN FOR O'MARA; 
JUSTICE FOR AFMLS, OTA, AND OPDAT; TREASURY FOR FINCEN, EB/ESC/TFS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: SNAR EFIN PGOV KCRM KCOR KTFN KZ
SUBJECT: KAZAKHSTAN: 2006-2007 INSCR, PART II, FINANCIAL CRIMES AND 
MONEY LAUNDERING 
 
REF: STATE 157136 
 
ASTANA 00000591  001.2 OF 004 
 
 
1. In response to reftel instructions, the text of Part II of the 
2006-2007 International Narcotics Control Strategy Report (INSCR), 
Financial Crimes and Money Laundering for Kazakhstan follows. 
 
 
------- 
SUMMARY 
------- 
 
2. Kazakhstan, with its developed and modern banking system, has 
become a financial center in Central Asia.  Kazakhstan's economic 
success along with its geographic location, however, also make 
fighting organized crime, extremism, narcotics trafficking, and 
terrorist financing more challenging.  Despite the challenges, 
Kazakhstan is taking proactive measures to police financial crimes. 
The Government of Kazakhstan has developed a draft law on Anti-Money 
Laundering and is planning to establish a Financial Intelligence 
Unit.  In general, the GOK remains a willing partner in the fight 
against narcotics and terrorism.  End summary. 
 
----------------- 
GENERAL QUESTIONS 
----------------- 
 
------------------------- 
REGIONAL FINANCIAL CENTER 
------------------------- 
 
3. On June 5, 2006 the Parliament enacted and the President signed a 
law establishing a regional financial center in Almaty (RFCA), 
thereby achieving one of the strategic goals that President 
Nazarbayev established in November 2004.  The RFCA is to develop the 
Kazakhstani securities market, facilitate Kazakhstan's integration 
into international markets, attract investments into the local 
economy, and introduce Kazakhstani assets into the global securities 
market.  In addition, currently under discussion is the 
establishment of a specialized financial court within the RFCA to 
adjudicate disputes arising from activity in the market there. 
 
--------------------------- 
OFFSHORE FINANCIAL CENTERS 
--------------------------- 
 
4. Kazakhstan is not an offshore financial center. There are no 
offshore companies or banks in the country.  Existing legislation 
does not favor offshore banks and offshore financial centers.  There 
are foreign banks in the country, including Dutch, Turkish, and 
Russian-based financial institutions. 
 
----------------- 
FREE TRADE ZONES 
----------------- 
 
5. Based on the Free Trade Zone Agreement signed by the Heads of CIS 
countries in Moscow on April 15, 1994, Kazakhstan has signed 
separate Free Trade Zone agreements with Azerbaijan, Belarus, 
Georgia, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.  The main 
function of the Free Trade Zones is to create an easy flow of goods 
and services between CIS countries, to stabilize internal economies, 
and to balance mutual trade on mutually advantageous terms.  It is 
not known whether these free trade zones are being used in 
trade-based money laundering schemes or by those who finance 
terrorism. 
 
6.  According to a March 2006 Interfax-Kazakhstan news agency 
report, China opened the Maikapchagai-Zimunai cross border shopping 
area on the border with East-Kazakhstan oblast (EKO).  The EKO 
Department for Entrepreneurship and Industry announced that that the 
shopping center was officially opened on March 28 under the 
agreement signed between the administration of the Altay district of 
the Xinjiang Uygur Autonomous Region of China and the EKO akimat 
(administration) on January 26, 2006.  Kazakhstani citizens do not 
need a visa for a one-day visit to the shopping area.  Kazakhstani 
shoppers may carry goods under 50 kilos and less than $1,000 in 
value duty-free back to Kazakhstan.  At the same time, residents of 
Kazakhstan may bring goods to the Chinese border marketplace valued 
less than 50,000 tenge ($400) duty-free, or goods worth 80,000 tenge 
 
ASTANA 00000591  002.2 OF 004 
 
 
at a reduced customs rate.  If the value of goods is above 80,000 
tenge ($630) they are subject to all Chinese taxes and duties. 
 
--------------------------------------------- --- 
LAW AND REGULATIONS TO PREVENT MONEY LAUNDERING 
--------------------------------------------- --- 
 
7. Kazakhstan has ratified the 1988 UN Drug Convention, and in 
December 2000 the country signed the UN Convention against 
Transnational Crime.  On February 24, 2003, Kazakhstan ratified the 
UN International Convention for the Suppression of the Financing of 
Terrorism.  Kazakhstan is also a signatory to the Central Asian 
Agreement on the Joint Fight Agai
nst Terrorism, Political and 
Religious Extremism, Transnational Organized Crime and Illicit Drug 
Trafficking, signed in April 2000 by Kazakhstan, Kyrgyzstan, 
Tajikistan and Uzbekistan. 
 
8. Money laundering is criminalized in Kazakhstan by Article 193 of 
the Criminal Code of the Republic of Kazakhstan.  The definition of 
money laundering used in the act, however, is narrow and the 
sanctions against it relatively light (a maximum of three years 
imprisonment, increased to five for multiple offences).  A further 
limit to the effectiveness of the law is that bank records may not 
be examined until after a criminal case has been initiated. 
However, a draft of the Anti-Money Laundering and Countering 
Financing of Terrorism legislation (AML/CFT) states that all banks 
will be legally required to send information on all suspicious 
transactions to the Financial Intelligence Unit (FIU) for analysis. 
 
 
9. Kazakhstan is gradually making steps towards the adoption of the 
draft AML/CFT law and the establishment of an empowered FIU.  The 
adoption of the AML/CFT legislation was made a high priority by 
President Nazarbayev last year, and the Procurator General's Office 
took the lead on drafting the AML/CFT legislation and in 
establishing the proposed Financial Intelligence Unit (FIU).  The 
Procurator General's Office expects the legislation on AML/CFT, 
introduced in September 2005, to be passed sometime in 2007. 
 
10.  However, the Parliament postponed consideration of the draft 
law until completion of implementation of the Law "On Amnesty 
related to legalization of property" adopted July 5, 2006.  The 
delay is to give citizens the opportunity to legalize property from 
the "shadow economy."  According to news reports from October 27, 
the amnesty period has been extended until April 2007.  Under the 
terms of the amnesty legislation, citizens seeking to legalize 
property must pay a duty of 10% of its cost.  This rule does not 
apply to residential homeowners, whose property is legalized at no 
cost. 
 
11. The fact that the Procurator General's Office, the most powerful 
and influential law enforcement body in the country, coordinated the 
drafting of the AML/CFT legislation indicates that Kazakhstan has a 
vested interest in controlling money laundering.  The Procurator 
General's Office has taken on the responsibility within the GOK to 
ensure that the provisions of the AML/CFT law and the function of 
the FIU will meet international standards and become effective means 
of combating money laundering and related financial crimes. 
 
12. According to the draft AML/CFT law, a Kazakhstani FIU, entitled 
the "Committee on Financial Monitoring," will be established within 
and controlled by the Procurator General's Office.  The Procurator's 
Office received funding from the GOK budget for 60 employees who 
will work at the central FIU in Astana, and for another 30 employees 
who will work in the regions.  The FIU personnel will be chosen from 
existing procurators as well as from elsewhere in the government, 
including the Financial Police, the Ministry of Finance, and 
Customs.  A unified reporting system among various governmental 
agencies, including the Financial Police and the Ministry of 
Finance, will be established to funnel the information received from 
these agencies to the FIU.  Additionally, the Procurators's Office 
intends to supply Kazakhstani banks and the FIU with the names of 
individuals and organizations identified in terrorist watch lists. 
There is a plan to establish a separate restricted-access FIU 
building in Astana.  In the interim, however, the FIU will be 
located in the Procuracy building in Astana. 
 
----------------- 
FINANCIAL SECTOR 
 
ASTANA 00000591  003.2 OF 004 
 
 
----------------- 
 
13. The Presidential Decree of February 25, 2005 re-organized the 
Agency on Combating Economic Crimes and Corruption into a separate 
governmental agency reporting directly to the President. 
 
14. Presently, the Agency on Combating Economic Crimes and 
Corruption, the Procurator General's Office, and the Agency for the 
Regulation and Inspection of the Financial Market and Financial 
Organizations are authorized to supervise all aspects of financial 
institutions.  In the future, the supervision and examination of 
financial institutions for compliance with AML/CFT laws and 
regulations will be the responsibility of the Procurator General's 
Office. 
15. Currently, banks and other financial institutions are not 
required to know, record, or report the identity of customers 
engaged in significant transactions. It is hoped that the new 
AML/CFT law will remedy this problem by requiring all banks to send 
any information regarding suspicious transactions to the FIU. 
16. The Agency for the Regulation and Inspection of the Financial 
Market and Financial Organizations, in conjunction with a new 
regulation adopted on August 27, 2005 defines the requirements for 
maintaining adequate time records necessary to reconstruct 
significant transactions through financial institutions. 
Second-tier banks, for example, are required to keep records for 
five years on correspondence regarding the opening of currency 
accounts and investment activities, deals made through export and 
import operations, and documents related to payments made to foreign 
and international banks and organizations. 
17. Statutory requirements for limiting and monitoring the 
international transportation of currency and monetary instruments, 
as well as all cross-border currency reporting requirements, are 
governed by the Rules on Currency Transactions of April 20, 2001, 
and by the Rules on Declaring Foreign and National Currency by 
Individuals Entering and Leaving the Republic of Kazakhstan of May 
13, 2004. According to the Rules, a Kazakhstani resident is required 
to fill out a declaration form if he/she is planning to leave the 
country with more than $3,000 equivalent in foreign currency and 
must provide supporting documents verifying the source of funds if 
taking more than $10,000 out of the country.  Non-residents leaving 
Kazakhstan are also allowed a maximum of $3,000 without submitting a 
declaration form. The amount of national currency that may leave the 
country with Kazakhstani residents or non-residents is unlimited, 
and there are no reporting requirements.  There are no limitations 
or reporting requirements on the amounts of national or foreign 
currency being transported into the country by either residents or 
non-residents. 
-------------------- 
TERRORIST FINANCING 
-------------------- 
 
18. Kazakhstan acceded to the "International Convention on 
Suppressing the Financing of Terrorism" in October 2002.  Kazakhstan 
is also considering accession to the Strasbourg Convention on 
Laundering, Search, Seizure and Confiscation of the Proceeds from &#x000
A;Crime. 
 
--------------- 
CASH SMUGGLING 
--------------- 
 
19. Article 209 on Economic Contraband of the Criminal Code of the 
Republic of Kazakhstan stipulates that any illegal contraband 
(including currency) that crosses the borders of Kazakhstan under 
false pretext with falsified documentation may result in the 
confiscation of property, a fiscal penalty, arrest, and/or a jail 
sentence of up to three years.  The severity of the punishment is 
based on several factors including whether the action is a repeat 
offence or if it is connected to the activities of an organized 
crime group. 
 
----------------------------------------- 
ASSET FORFEITURE AND SEIZURE LEGISLATION 
----------------------------------------- 
 
20. Criminal and civil forfeitures are defined by the Criminal and 
Civil Codes of the Republic of Kazakhstan.  Article 31 of the Law on 
Combating Narcotics, Psychotropic Substances, and Precursors 
stipulates that narcotics or psychotropic substances and precursors 
 
ASTANA 00000591  004.2 OF 004 
 
 
as well as the means of producing illegal narcotic substances, 
including property and finances, are subject to seizure by the 
government. 
 
-------------------------- 
INTERNATIONAL COOPERATION 
-------------------------- 
 
21. In 2005, the U.S. Government assisted Kazakhstan's anti-money 
laundering and crime efforts in several ways through the Embassy 
office of the Bureau of International Narcotics and Law Enforcement 
(INL). 
 
22. In March 2005, INL funded a computer laboratory at the Financial 
Police Academy in Astana.  The Academy specializes in training 
future financial police and customs officers in the skills required 
to recognize and investigate money laundering schemes as well as to 
combat corruption and other economic crimes.  The computer 
laboratory is an important resource for future INL trainings as well 
as for the Academy itself.  Enhancement of the Financial Police 
Academy provides a long-term impact on the GOK's ability to 
effectively police its financial system and to control money 
laundering related to terrorism, narcotics trafficking, tax evasion, 
and corrupt activities by GOK officials. 
 
23. In September 2005, under the auspices of INL, personnel from the 
Federal Law Enforcement Training Agency (FLETC) trained the faculty 
of Kazakhstan's Financial Police Academy on investigative techniques 
related to financial crimes.  This training will enhance the ability 
of the Academy's faculty to teach such techniques to its students. 
 
 
24. In May and September 2005, INL, in cooperation with the 
Procurator General's Office, held a series of four seminars at the 
Procurator General's Offices in both Almaty and Astana on the draft 
AML/CFT legislation and the establishment of a Financial 
Intelligence Unit.  The goal of these seminars was to help the GOK 
develop the regulatory structure needed to enforce the provisions of 
the AML/CFT legislation, to prepare the GOK to enter various 
FATF-related organizations, to train second-tier banks to meet 
AML/CFT requirements, and to help the GOK establish an effective 
FIU.  The lead training agency was the Office of Technical 
Assistance of the United States Department of Treasury (OTA). 
 
25. Training and equipment was provided to the Statistics Division 
of the Procurator General's Office, which targets drug trafficking 
organizations operating in Kazakhstan.  In November 2005, computer 
equipment was distributed throughout Kazakhstan to 17 different 
branches within the Statistics Division.  This commodities handover 
was part of a larger project aimed at improving the collection of 
criminal statistics in Kazakhstan, especially those germane to the 
evaluation of INL projects related to the GOK's efforts to combat 
narcotics trafficking and anti-money laundering activities. 
 
26. The GOK is a willing partner in the fight against terrorism, and 
it is making major strides to identify potential money laundering 
activities connected to international terrorism and narcotics 
trafficking. If adopted and implemented, the draft AML/CFT 
legislation and the establishment of an FIU will help Kazakhstan 
become an active member in the Egmont Group and the Eurasian Group 
(EAG). 
 
 
ORDWAY

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