Most of the world’s largest economies have been on the U.S. State Department’s list of money laundering centers for years, but this year the world’s smallest country was added to this year’s annual International Narcotics Control Strategy Report. The first volume of the annual report assesses 115 international governments’ efforts to combat drug trafficking and meet international treaty obligations. The Money-Laundering and Financial Crimes volume focuses on 66 major money laundering countries and jurisdictions’ progress in anti-money laundering and counterterrorism funding over the past year.
The Vatican was added to the potential money laundering list for the first time last week, although the holy enclave was not rated as high risk, but in a middle category, “of concern.” The city-state’s Vatican Bank has been under investigation for possible money laundering since September 2010.
Each of the world’s largest economies in the so-called “Group of Eight” –France, Germany, Italy, Russia, China, the United States, United Kingdom, Japan and Canada were in the highest risk category because of their large economies and banking systems. It also includes small islands and countries that are often referred to as “offshore banking centers.”
Russia, despite making progress in combating financial crimes, has allowed Russian and Eurasian Criminal elements to use the country’s financial system and foreign legal entities to launder money. Porous borders and “chronic under-funding and lack of capacity of regulatory and law enforcement agencies” have left it vulnerable to money laundering, the report said.
Foreigners disproportionately use the Latvian banking system, leaving it vulnerable to money laundering. As of August 2011, non-residential deposits increased by 17 percent to comprise 41 percent of total bank deposits. The country made significant strides in 2011 in its anti-money laundering law, adopting beneficial ownership disclosure amendments requiring shareholders holding over 25 percent of shares to submit data identifying the natural person behind the shareholder.
Other amendments simplified customer due diligence, added payment services providers and electronic money institutions to the list of entities subject to the Law, and clarified the definition of “financial institutions,” says the report. Finally, the AML/CFT Law now extends to EU-owned entities and requires their compliance with the Latvian laws related to customer identification, due diligence, and record keeping.
Both the Russian and Latvian banking systems figured prominently in OCCRP’s recent investigations into money coursing through the international financial system through strings of shell companies whose true ownership is hidden.