07ASTANA3178, KAZAKHSTAN: 2007-2008 INCSR, PART II, FINANCIAL CRIMES AND

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Reference ID Created Released Classification Origin
07ASTANA3178 2007-11-23 08:36 2011-08-30 01:44 UNCLASSIFIED Embassy Astana

VZCZCXRO3651
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHTA #3178/01 3270836
ZNR UUUUU ZZH
R 230836Z NOV 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 1238
INFO RUCNCIS/CIS COLLECTIVE 0312
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEHBJ/AMEMBASSY BEIJING 0021

UNCLAS SECTION 01 OF 05 ASTANA 003178 
 
SIPDIS 
 
STATE FOR INL/AAE (BUHLER), INL/C, SCA/CEN (O'MARA), EB/ESC/TFS; 
JUSTICE FOR AFMLS, OTA, AND OPDAT; TREASURY FOR OTA AND FINCEN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: SNAR EFIN PGOV KCRM KCOR KZ
 
SUBJECT: KAZAKHSTAN: 2007-2008 INCSR, PART II, FINANCIAL CRIMES AND 
MONEY LAUNDERING 
 
REF: A. STATE 138130 
 B. ASTANA 2323 
 
1. In response to reftel A, the text of Part II of the 2007-2008 
International Narcotics Control Strategy Report (INCSR), 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 and its geographic location present challenges in the fight 
against organized crime, extremism, narcotics trafficking, and 
terrorist financing.  In response, Kazakhstan is taking proactive 
measures against financial crimes.  The GOK has drafted anti-money 
laundering legislation and is planning to establish a Financial 
Intelligence Unit.  The property legalization process officially 
finished on August 1, 2007 and the GOK can now focus on enacting the 
long-delayed legislation.  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). 
The RFCA is empowered to develop the Kazakhstani securities market, 
facilitate Kazakhstan's integration into international markets, 
attract investment, and introduce Kazakhstani securities into the 
global market. 
 
4. The RFCA is developing benefits for its members, including total 
or partial relief from corporate income tax, free business 
registration, and visa support for non-residents of Kazakhstan. 
Members of RFCA can be only officially registered companies holding 
a license for brokers' and dealers' activities and having an office 
in the city of Almaty. 
 
5. The volume of trade at the RFCA for the period from July 2006 to 
July 2007 was USD 43 million.  According to the official statistics 
of the Agency on Combating Financial Crime and Corruption (financial 
police) there were no criminal cases of money laundering related to 
RFCA activity.  Kazakhstan has become the regional business center 
of Central Asia because of its rapidly developing economy, developed 
banking and financial system, and rich oil and gas resources. 
 
6. During the first 9 months of 2007, there were 225 criminal cases 
initiated under the fraudulent business article of the Criminal 
Code, and 54 cases of fraudulent legalization of assets in the total 
amount of USD 31.7 million. 
 
7. The number of economic crimes for the first nine months of 2007 
(6895 cases) is less in comparison with the same period last year 
(7056).  During the period, there were 56 cases of fraudulent use or 
application for credit; 254 cases of fraud; and 139 cases of 
counterfeiting currency and/or securities. 
 
--------------------------- 
OFFSHORE FINANCIAL CENTERS 
--------------------------- 
 
8. 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 representative offices of 26 foreign banks in the country, 
including Dutch, Turkish, Chinese, German and Russian financial 
institutions. 
 
----------------- 
FREE TRADE ZONES 
----------------- 
 
9. Following the signing of the Free Trade Zone Agreement by the 
Heads of the CIS countries in Moscow on April 15, 1994, Kazakhstan 
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 
 
ASTANA 00003178  002 OF 005 
 
 
and services between CIS countries, to stabilize internal economies, 
and to allow for trade on mutually advantageous terms. 
 
10. In 2000, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan 
signed an agreement to establish the Eurasian Economic Union 
(EvrazES).  Uzbekistan joined EvrazES in 2006.  Armenia, Moldova and 
Ukraine have observer status.  EvrazES was created to facilitate 
regional economic integration and establish a customs union.  It is 
not yet clear whether these free trade arrangements are being used 
to further trade-based money laundering schemes or 
terrorism-financing. 
 
11. According to a March 2006 Interfax-Kazakhstan news agency 
report, China opened
the Maikapchagai-Zimunai cross border shopping 
area on the border with the East Kazakhstan oblast (EKO).  The EKO 
Department for Entrepreneurship and Industry announced that that the 
shopping center was officially opened on March 28 under an agreement 
signed between the administrations of the EKO and the Altay district 
of the Xinjiang Uygur Autonomous Region of China on January 26, 
2006.  Kazakhstani citizens can visit the shopping area for one day 
without a visa and may bring back a total of 50 kilos and less than 
USD 1,000 duty-free.  Kazakhstani merchants may import goods valued 
less than 50,000 tenge (USD 400) to the marketplace duty-free, or 
goods worth 80,000 tenge (USD 630) at a reduced customs rate.  If 
the value of goods is more than 80,000 tenge (USD 630) they are 
subject to all Chinese taxes and duties. 
 
12. In July 2007, China started construction of the Khorgos 
International Trade Center on the Kazakhstan-China border per a 2005 
agreement with Kazakhstan.  This center was established to promote 
trade, economic, and investment cooperation.  Citizens of both 
countries have visa free access to the territory of the center for 
up to 30 days.  The simplified customs and border procedures are 
expected to improve the economies on both sides of the border.  In 
May 2007, the Almaty Oblast Police Department signed a protocol with 
the Xinjiang Uygur Autonomous Region of China providing for 
cooperation to combat illegal migration, drug trafficking, and 
terrorism and allowing for the exchange of information.  This 
agreement establishes procedures to observe passport controls and 
other laws in Khorgos.  According to media reports, there has been a 
recent increase in cash smuggling from Kazakhstan to China by 
Chinese citizens at this border crossing point. 
 
--------------------------------------------- --- 
LAW AND REGULATIONS TO PREVENT MONEY LAUNDERING 
AND FINANCING TERRORISM 
--------------------------------------------- --- 
 
13. 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 Against Terrorism, Political and 
Religious Extremism, Transnational Organized Crime and Illicit Drug 
Trafficking (which was signed in April 2000 by Kazakhstan, 
Kyrgyzstan, Tajikistan, and Uzbekistan). 
 
14. The Agency on Combating Economic Crime and Corruption has 
developed draft legislation to ratify the UN Convention against 
Corruption.  It is expected to be passed before the end of the year. 
 The GOK is also working to join the Convention on Laundering, 
Search, Seizure and Confiscation of the Proceeds from Crime signed 
in Strasbourg, November 8, 1990.  Kazakhstan must receive approval 
from all EU members to join the Convention. 
 
15. 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 offenses).  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, the draft of the Anti-Money Laundering and Countering 
Financing of Terrorism legislation (AML/CFT) would require banks and 
other financial organizations to send information on all suspicious 
transactions to the Financial Intelligence Unit (FIU) for analysis. 
 
 
16. Kazakhstan is in the last stages of adopting an AML/CFT law and 
establishing an FIU.  The adoption of AML/CFT legislation was made a 
high priority by President Nazarbayev in his initiative against 
corruption, and the Procurator General's Office took the lead on 
drafting the AML/CFT legislation.  The Procurator General's Office 
 
ASTANA 00003178  003 OF 005 
 
 
expects the legislation on AML/CFT, introduced in September 2005, to 
be passed sometime by the end of 2007 or beginning of 2008. 
 
17. Parliament had postponed consideration of  draft AML/CFT 
legislation   until completion of the implementation of  property 
legalization amnesty in 2006.  Under the terms of the amnesty 
legislation, citizens seeking to legalize property were required to 
pay a fee in the amount of 10% of the property's value.  This rule 
did not apply to residential homeowners, whose property was 
legalized at no cost.  The legalization process was concluded on 
August 1, 2007 (reftel B). 
 
18. The fact that the Procurator General's Office (PGO), the most 
powerful and influential law enforcement body in the country, 
coordinated the drafting of AML/CFT legislation indicates that 
Kazakhstan has a vested interest in preventing money laundering. 
The PGO 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. 
 
19. The initial plan was to establish the FIU as a Committee under 
the PGO, which developed and introduced the draft of the 
Presidential Decree with the detailed structure of the FIU to Prime 
Minister's Office.  According to the most recent information from 
the PGO, the FIU (to be called the Committee on Financial 
Monitoring) is expected to be established within the Ministry of 
Finance.  The draft 2008 state budget  includes USD 1.7 million for 
establishment of the proposed FIU.  Details of the FIU structure and 
the number of employees are still under discussion. 
 
----------------- 
FINANCIAL SECTOR 
----------------- 
 
20. A 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. 
 
21. Currently, the Agency on Combating Economic Crimes and 
Corruption, the PGO, 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 PGO. 
22. Currently, banks and other financial institutions are not 
required to know, record, or report the identity of customers 
engaged in significant transactions. The new AML/CFT law is expected 
to remedy this problem by requiring all banks to send information 
regarding suspicious transactions to the FIU. 
23. 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, requires the maintenance of 
adequate records to reconstruct significant transactions at 
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. 
 
24. 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 USD 3,000 equivalent in foreign currency and 
must provide supporting documents verifying the source of funds if 
taking more than USD 10,000 out of the country.  Non-residents 
leaving Kazakhstan are also allowed a maximum of USD 3,000 without 
submitting a declaration form. The amount of national currency that 
may be taken out of the country by 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. 
25. According to the Criminal Procedural Code and the Law of the 
Republic of Kazakhstan about public protection of individuals 
participating in the criminal process during the investigation of 
the criminal case, witnesses, suspects and, accused individuals, and 
members of their families and close relatives are under safety 
 
ASTANA 00003178  004 OF 005 
 
 
measures.  Special departments in law enforcement agencies are 
responsible for the safety of witnesses and victims. 
-------------------- 
TERRORIST FINANCING 
-------------------- 
 
26. Kazakhstan plays an active role in the region in combating 
terrorism.  Kazakhstan is implementing United Nations Security 
Council Resolution 1373 and all the related resolutions on combating 
terrorism.  According to the Committee of National Security (KNB), 
the activities of 14 terrorist organizations, including Al Qaeda and 
the Taliban, are prohibited in Kazakhstan.  The Zhamaat Mojakhed 
Central Asia organization is also prohibited in Kazakhstan and was 
included into the consolidated list of terrorist organizations by 
the UN Security Council. 
 
27. Financing of extremism and terrorist activity is criminalized by 
Article 233-3 of the criminal Code of Kazakhstan.  The penalty for 
terrorism financing is up to five years of imprisonment for the 
first offense, and eight years for repeat offences.  The 
Antiterrorist Center of the KNB is responsible for combating all 
forms of terrorism. 
 
--------------- 
CASH SMUGGLING 
--------------- 
 
28. Article 209 of the Criminal Code stipulates that any illegal 
contraband (including currency) that crosses the borders of 
Kazakhstan with falsified documentation may result in the 
confiscation of the 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 offense or if it is connected to the activities of an 
organized crime group. 
 
----------------------------------------- 
ASSET FORFEITURE AND SEIZURE LEGISLATION 
----------------------------------------- 
 
29. 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 
as well as the means of producing illegal narcotic substances, 
including property and finances, are subject to seizure by the 
government. 
 
-------------------------- 
INTERNATIONAL COOPERATION 
-------------------------- 
 
30. Kazakhstan is an active member of the Eurasian Group (EAG) on 
money laundering established on October 6, 2004.  Other members are 
Russia, Belarus, Uzbekistan, Kyrgyzstan, Tajikistan, and China.  In 
October 2007, the GOK hosted an EAG working group meeting on 
typologies of money laundering and held consultations with the 
private sector on anti-money laundering efforts. 
 
31. In 2006-2007, the USG continued to assist Kazakhstan's 
anti-money laundering and crime efforts in several ways through the 
Embassy's Office of International Narcotics and Law Enforcement 
(INL). 
 
32. 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. 
 
33. In May and September 2005, INL, in cooperation with the PGO, 
held a series of four seminars at PGO offices in both Almaty and 
Astana on the draft AML/CFT legislation and the establishment of an 
FIU.  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 organizations 
related to the Financial Action Task Force on Money Laundering 
(FATF), to train second-tier banks to meet AML/CFT requirements, and 
 
ASTANA 00003178  005 OF 005 
 
 
to help the GOK establish an effective FIU.  The lead training 
agency was the U.S. Department of Treasury's Office of Technical 
Assistance (OTA). 
 
34. In November 2007, under the auspices of INL, personnel from OTA 
trained financial police officers and representatives of the PGO in 
financial crime detection techniques.  This course was in addition 
to four earlier courses in investigative techniques.  This training 
will enhance the ability of law enforcement officers in combating 
financial crimes. 
 
35. INL continued to provide an
d arrange training and equipment to 
the Statistics Division of the PGO, which targets drug trafficking 
organizations operating in Kazakhstan.  This equipment was provided 
as part of a larger project aimed at improving the collection of 
criminal statistics in Kazakhstan, especially those related to the 
GOK's efforts to combat narcotics trafficking and anti-money 
laundering activities. 
 
36. 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. 
 
ORDWAY

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