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Azerbaijan to Canada, Pakistan to Panama, U.S. names 80 'major' laundering regions in latest INCSR

Monday, April 8, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
April 8, 2019

Few corners of the real, virtual and criminal worlds are safe from the withering gaze of the U.S. State Department in its just-released 2019 International Narcotics Control Strategy Report (INCSR), with some 80 countries reviewed, graded and judged.

The annual mammoth tome this year covers more than 500 pages grading country-wide counter-financial crime efforts and tracking where drugs are produced, sold and where illicit financial flows are gushing, including jurisdictions making headlines today for key failures, including Afghanistan, Azerbaijan, Canada, China, Iran, Mexico, Pakistan, Panama, Russia and Venezuela, just to name a few.  

The report this year, published in late March, is broken down into two parts, one focusing on money laundering and anti-money laundering (AML) compliance and the other, narcotics production, trafficking and related financial networks. This year’s report notes the soaring scourge of the deadly opioid epidemic and domestic and international efforts to stop it.

Both highlight the increasing diversity of criminals more aggressively using virtual worlds to sell drugs and move funds and the stubborn global bastion, and investigative stumbling block, of a broad range of illicit actors hiding behind anonymous ownership structures in opacity-opposed offshore secrecy havens.

Historically, however, the most controversial part of the report, and required reading for global financial institutions, is the yearly naming and shaming of countries on the “major money laundering jurisdictions” list, this time around covering some 80 countries.

While that seems a weighty and extensive list – and indeed it is – a major departure this year is that rather than new names getting added to the ranking, replete with the attendant vitriol, blustering and sputtering of said regions, the State Department actually dropped nearly a dozen jurisdictions in the latest go around.

In the 2019 list, the U.S. dropped Egypt, Cambodia, Guinea Bissau, the Kyrgyz Republic, Lebanon, Portugal, South Africa, Switzerland, Turkmenistan and Uruguay – a detail that should be woven in and weighed by compliance professionals in their regional fincrime and compliance capacity risk rankings.

But, not surprisingly, many large and powerful countries have remained on the list, much to their chagrin.

The report details the efforts and failings of countries including Brazil, Canada, China, India, Iran, Italy, Mexico, the Netherlands, Pakistan, Russia, Spain, Turkey, United Arab Emirates and Venezuela.

As such, the list is a hotly-debated, nigh rancorous ranking in financial crime circles as it paints with a very broad brush, mentioning Afghanistan and Iran in the same breath as Canada, the Netherlands, the United States and United Kingdom – one group considered roiling and rogue regimes and another often touted as global AML leaders.

Here are some country snapshots:


·       Money laundering activities in Canada involve the proceeds of illegal drug trafficking, fraud, corruption, counterfeiting and piracy, and tobacco smuggling and trafficking, among others.

·       Foreign-generated proceeds of crime are laundered in Canada, and professional, third-party money laundering is a key concern. Transnational organized crime groups and professional money launderers are key threat actors.

·       AML regulation of attorneys was overturned by the Canadian Supreme Court in 2015 as an unconstitutional breach of attorney-client privilege. Trust and company service providers, with the exception of trust companies, also are not subject to preventative measures.


·       Venezuela’s proximity to drug producing countries and its status as a drug transit country, combined with weak AML supervision and enforcement, lack of political will under the Maduro government, limited bilateral cooperation, an unstable economy, and endemic corruption make Venezuela vulnerable to money laundering and financial crimes.

·       Money laundering is widespread in Venezuela, including through government currency exchanges, the petroleum industry, and minerals, and to a lesser extent, through commercial banks, gaming, real estate, agriculture, livestock, securities, and metals.

·       Virtually all U.S. dollars laundered through Venezuela’s formal financial system pass through the government’s currency commission, the central bank, or another government agency.

·       Trade-based schemes make it extremely difficult for financial institutions and law enforcement to differentiate between licit and illicit proceeds. Numerous allegations have been made that some government officials are complicit and even directly involved in such schemes.


·       Iran has a large underground economy, spurred by uneven taxation, widespread smuggling, sanctions evasion, currency exchange controls, and a large Iranian expatriate community. Pervasive corruption continues within Iran’s ruling and religious elite, government ministries, and government-controlled business enterprises.

·       Iran’s merchant community makes active use of MVTS, including hawaladars and moneylenders. Leveraging the worldwide hawala network, Iranians make money transfers globally.

·       Counter-valuation in hawala transactions is often accomplished via trade; thus TBML is a prevalent form of money laundering.

·       In 1984, the Department of State designated Iran as a State Sponsor of Terrorism. Iran continues to provide material support, including resources and guidance, to multiple terrorist organizations and other groups that undermine the stability of the Middle East and Central Asia.

·       As of year-end 2018, the Iranian parliament continues to consider several pieces of legislation intended to facilitate Iran’s adherence to the AML/CFT measures specified in the action plan, but the Iranian government remains internally divided about these measures.

·       In October 2018, the FATF renewed its public statement and extended its suspension of countermeasures to February 2019, urging Iran to complete its action plan.

AML compliance takes center stage

In the latest INCSR, the status of financial crime compliance programs around the world continue to take up quite a bit of ink.

The terms “anti-money laundering,” “AML” and “compliance” appear nearly 800 times, a slight drop from 2018, where these terms appeared more than 840 times.

In tandem, and similar to the Paris-based Financial Action Task Force (FATF), which sets global AML standards, the latest INCSR gave more attention to the effectiveness of country financial crime investigations and AML laws, including detailing if the country crushed any large, complex international cases or levied any significant, dissuasive fines for FI compliance failures.

Nary a mention of Nordic, Baltic scandals

Another interesting dimension, and ignoble irony, is that many of the Nordic and Baltic regions embroiled in a mushrooming money laundering scandal are not even on the 2019 major money laundering countries list, including Estonia, Sweden and Denmark.

The Estonian branch of Danske Bank is accused of laundering some $230 billion for questionable and illicit Russian entities and oligarchs, with Swedbank reportedly moving some $10 billion of that figure. As a result, Estonia kicked Danske out of the country and in recent weeks Swedbank ousted its CEO and saw its long-running chairman resign.

The INCSR did, however, name the Netherlands, stating that it had strong laws, technical compliance and information sharing, but that the “magnitude of money laundering…remains a concern,” with government estimates stating $18.2 billion is laundered annually in the Netherlands, with $10.4 billion coming from abroad.

The INCSR did note, though, that Dutch enforcement surged last year to record levels.

In September, the Dutch Prosecutor’s Office (OM) announced it had reached a settlement with Netherlands-based ING Bank for $888 million (€775 million).

The OM “accused ING of failing to prevent hundreds of millions of dollars of money laundering and violating the Dutch AML/CFT Act,” according to the INCSR. “The penalty is the largest AML enforcement action to date by authorities in Europe.” 

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