VZCZCXYZ0011
PP RUEHWEB

DE RUEHVI #3898/01 3501449
ZNR UUUUU ZZH
P 161449Z DEC 05
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 1838
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHUNV/USMISSION UNVIE VIENNA 0268
RUEABND/DEA HQS WASHINGTON DC
RUCNFB/FBI WASHDC
RHFJUSC/US CUSTOMS SERVICE WASHDC

UNCLAS VIENNA 003898 
 
SIPDIS 
 
STATE FOR INL AND EUR/AGS 
STATE ALSO FOR EB/ESC/TFS 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
TREASURY FOR OCC/EILEEN SIEGEL 
TREASURY FOR OASIA/ICB/VIMAL ATUKORALA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER KSEP SNAR AU
SUBJECT: 2005-2006 International Narcotics Control 
Strategy Report (INSCR) Part II:  Money Laundering and 
Financial Crimes - Austria 
 
REF:  STATE 210351 
 
¶1.  Following is the 2005-2006 International Narcotics 
Control Strategy Report (INSCR) Part II:  Money 
Laundering and Financial Crimes for Austria. 
 
Austria 
------- 
 
Austria is not an important financial center, offshore 
tax haven, or banking center, but Austrian banking groups 
control significant shares of the banking markets in 
Central, Eastern and Southeastern Europe.  Austria does 
not have a reputation as a major money laundering 
country.  However, like any highly developed financial 
marketplace, Austria's financial and non-financial 
institutions are vulnerable to money laundering.  The 
Austrian Interior Ministry's crime statistics show mixed 
developments regarding financial crime in Austria in 
2004, with a significant increase in fraud, money 
laundering and criminal organizations.  Authorities 
believe that the percentage of undetected organized crime 
is enormous, with much of it coming from the former 
Soviet Union, Poland, and the Balkans.  Money which 
organized crime launders primarily derives from fraud, 
particularly with capital assets investments, but also 
other serious crime, including narcotics-trafficking and 
trafficking in persons.  Contraband smuggling is 
apparently not a source of significant money laundering. 
Criminal proceeds laundered in Austria derive primarily 
from foreign criminal activity.  Foreign criminal groups 
control the money laundering proceeds.  There is a 
significant black market for smuggled cigarettes in 
Austria, but it does not seem to be funded by narcotic 
proceeds.  Free trade zones do not exist in Austria. 
Money laundering occurs within the Austrian banking 
system as well as in non-bank financial institutions and 
businesses.  Many of the former-Soviet crime groups are 
trying to launder money in Austria by investing in real 
estate, exploiting existing business contacts, and trying 
to establish new contacts in political and business 
circles.  Criminal groups seem increasingly to use money 
transmitters and informal money transfer systems to 
launder money.  The Internet and offshore companies also 
play an important role in such crime. 
 
Austria criminalized money laundering in 1993.  The law 
lists predicate crimes, including terrorist financing and 
many other serious financial crimes, including smuggling. 
Regulations are stricter for money laundering by criminal 
organizations and terrorist "groupings," in which case 
the law requires no proof that the money stems directly 
or indirectly from predicate offenses. 
 
Amendments to the Customs Procedures Act and the Tax 
Crimes Act, effective May 1, 2004, address the problem of 
cash couriers and international transportation of illegal- 
source currency and monetary instruments.  Austrian 
customs authorities do not automatically screen all 
persons entering Austria for cash or monetary 
instruments.  However, if asked, anyone carrying 15,000 
euros ($18,000 at the current exchange rate) or more must 
declare the funds and provide information on their source 
and use.  Spot checks for currency at border crossings 
will continue.  Customs has authority to seize suspect 
cash at the border.  In 2005, there was only one major 
case reported of bulk cash smuggling and the use of cash 
couriers to move the proceeds of crime and terrorist 
funding.  In implementing the new EU regulation on 
controls of cash entering or leaving the Community, the 
Government of Austria (GOA) in 2006 plans to amend the 
Customs Procedures Act and the Tax Crimes Act to 
introduce a declaration obligation for anyone carrying 
cash of 10,000 euros ($12,000) or more. 
 
Adoption of the Banking Act of 1994 creates customer 
identification, record keeping, and staff training 
obligations for the financial sector.  Entities subject 
 
 
to the Banking Act include banks, leasing and exchange 
businesses, safe custody services, and portfolio 
advisers.  The Insurance Act of 1997 includes similar 
regulations for insurance companies underwriting life 
policies, the Securities Supervision Act of 1996 for 
trade of securities, shares, money market instruments, 
options and other instruments admitted to listing on an 
Austrian stock exchange or on any regulated market in a 
member state.  The Banking Act requires identification of 
all customers when entering an ongoing business 
relationship, i.e., in all cases of opening a checking 
account, a passbook savings account, a securities deposit 
account, etc.  In addition, the Banking Act requires 
customer identification for all transactions of 15,000 
euros ($18,000) or more for customers without a permanent 
business relationship with the bank.  The law requires 
banks and other financial institutions to keep records on 
customers and account owners.  The law protects bankers 
and all other reporting individuals (auctioneers, real 
estate agents, lawyers, notaries; etc.) with respect to 
their cooperation with law enforcement agencies.  They 
are also not liable for damage claims resulting from 
delays in completing suspicious transactions.  There is 
no requirement for banks to report large currency 
transactions, unless they are suspicious.  The Austrian 
Financial Intelligence Unit (AFIU) is, however, providing 
information to banks to raise awareness of large cash 
transactions. 
 
Since October 2003, financial institutions have adopted 
tighter identification procedures, requiring all 
customers appearing in person to present an official 
photo ID.  These procedures also apply to trustees of 
accounts, who are now required to disclose the identity 
of the account beneficiary.  However, the procedures 
still allow customers to carry out non-face-to-face 
transactions, including Internet banking, on the basis of 
a secure electronic signature or a copy of a picture ID 
and a legal business declaration submitted by registered 
mail. 
 
The Banking Act includes a due diligence obligation, and 
the law holds individual bankers legally responsible if 
their institutions launder money.  In addition, banks 
have signed a voluntary agreement to prohibit active 
support of capital flight.  On November 26, 2001, the 
Federal Economic Chamber's Banking and Insurance 
Department, in cooperation with all banking and insurance 
associations, published an official "Declaration of the 
Austrian Banking and Insurance Industries to Prevent 
Financial Transactions in Connection with Terrorism." 
 
The 2003 Amendments to the Austrian Gambling Act, the 
Business Code, and the Austrian laws governing lawyers, 
notaries, and accounting professionals, introduce money 
laundering regulations regarding identification, record 
keeping, and reporting of suspicious transactions for 
dealers in high-value goods such as precious stones or 
metals, or works of art; auctioneers; real estate agents; 
casinos; lawyers; notaries; certified public accountants; 
and auditors.  Since April 1, 2002, the Austrian 
Financial Market Authority (FMA), an autonomous 
institution under public law with own legal personality, 
supervises and examines banks, exchange houses, 
stockbrokerages, insurance companies, securities 
transactions and pension funds and regularly examines 
their compliance with anti-money laundering/counter- 
terrorist financing regulations.  Divisions of the 
Austrian Ministry of Finance supervise casinos and cash 
couriers.  For non-financial institutions no effective 
compliance supervision is in place.  The respective 
chambers carry out perfunctory monitoring, if at all, of 
lawyers and notaries, and the Austrian Ministry of 
Economy and Labor is the competent authority for traders, 
accountants and dealers. 
 
Since 2002, the AFIU, the central repository of 
suspicious transaction reports, has been a section of the 
 
 
Austrian Interior Ministry's Bundeskriminalamt (Federal 
Criminal Intelligence Service).  The AFIU is an executive 
body and avails itself of police forces for criminal 
investigations.  Aside from the AFIU, all police forces, 
the Austrian Interior Ministry's Federal Agency for State 
Protection and Counter Terrorism (BVT), tax authorities, 
including customs, and investigating magistrates are 
responsible for investigating financial crimes, money 
laundering and terrorist financing.  The AFIU has access 
to bank records and databanks of government entities, 
including the commercial register, the real estate 
register, social security records, and the edict register 
on insolvencies, auctions, invalidations and probate 
proceedings.  It also exchanges information with other 
FIUs within the Egmont Group and will soon participate in 
the new EU computer network for the exchange of 
intelligence among FIUs, the FIU.NET.  During the first 
eleven months of 2005, the AFIU received 372 suspicious 
transaction reports from banks and 22 from other 
financial and non-financial institutions, and fielded 417 
(412 in 2004) requests for information from Interpol, 
Europol, the Egmont Group and other authorities. 
Moreover, banks temporarily held up transactions of Euro 
10.9 million ($13.1 million) under AFIU authority.  This 
represents a moderate increase from the 373 suspicious 
transactions (349 of them from banks) reported  in 2004, 
which led to five convictions for money laundering.  In 
2003, 288 suspicious transactions reports resulted in 
seven convictions for money laundering.  Criminals are 
often convicted for other crimes, however, with money 
laundering serving as additional grounds for conviction. 
 
Legislation implemented in 1996 allows for asset seizure 
and the forfeiture of illegal proceeds.  The banking 
sector generally cooperates with law enforcement efforts 
to trace funds and seize illicit assets.  The distinction 
between civil and criminal forfeiture in Austria is 
different from that in the U.S. legal system.  However, 
Austria has regulations in the Code of Criminal Procedure 
that are similar to civil forfeiture, such as forfeiture 
in an independent procedure.  In connection with money 
laundering, organized crime and terrorist financing, all 
assets (bank accounts, other financial assets, autos, 
real estate and other property, including legitimate 
businesses) are subject to seizure and forfeiture. 
Courts may freeze assets in the early stages of an 
investigation.  Under this procedure and with 
instructions from the AFIU, Austrian courts froze assets 
worth 98.3 million euros ($118 million) in the first 
eleven months of 2005.  This is significantly more than 
the 25.4 million euros ($30.5 million) in assets frozen 
by the courts in 2004, and the 2.2 million euros ($2.6 
million), which they froze in 2003. 
 
The amended Extradition and Judicial Assistance Law 
provides for expedited extradition, expanded judicial 
assistance, and acceptance of foreign investigative 
findings in the course of criminal investigations, as 
well as enforcement of foreign court decisions.  Austria 
has strict banking secrecy regulations, though bank 
secrecy will be lifted for cases of suspected money 
laundering.  Moreover, bank secrecy does not apply in 
cases in which banks and other financial institutions are 
required to report suspected money laundering.  Such 
cases are subject to instructions of the authorities 
(i.e., AFIU) with regard to processing such transactions. 
 
The 2002 Criminal Code Amendment, effective October 1, 
2002, introduces the following new criminal offense 
categories: terrorist "grouping," terrorist criminal 
activities, and financing of terrorism.  The Criminal 
Code defines "financing of terrorism" as a separate 
cQminal offense category, punishable in its own right. 
Terrorism financing is also included in the list of 
criminal offenses subject to domestic jurisdiction and 
punishment, regardless of the laws where the act 
occurred.  Furthermore, the money laundering offense is 
expanded to terrorist "groupings."  The law also gives 
 
 
the judicial system the authority to identify, freeze, 
and seize terrorist financial assets.  With regard to 
terrorist financing, forfeiture regulations cover funds 
collected or held available for terrorist financing, and 
permit freezing and forfeiture of all assets that are in 
Austria, regardless of the place of the crime and the 
whereabouts of the criminal. 
 
A new Law on Responsibility of Associations, effective 
January 1, 2006, will introduce criminal responsibility 
for all legal entities, general and limited commercial 
partnerships, registered partnerships and European 
Economic Interest Groupings.  The law covers all crimes 
listed in the Criminal Code, including corruption, money 
laundering and terrorist financing. 
 
Austrian authorities have circulated to all financial 
institutions the names of individuals and entities 
included on the UNSCR 1267 Sanctions Committee's 
consolidated list and those whom the United States or the 
EU have designated.  According to the Ministry of Justice 
and the AFIU, no accounts found in Austria ultimately 
showed any links to terrorist financing.  The AFIU 
immediately shares all reports on suspected terrorism 
financing with the BVT.  During the first eleven months 
of 2005, the AFIU and the BVT received 24 reports on 
suspected terrorism financing transaction reports, of 
which 15 were from banks, 7 from foreign and 2 from 
domestic authorities.  No assets were frozen.  The 
increase from the 14 suspicious transactions in 2004 is 
due to improved control mechanisms in banks and better 
international cooperation.  None of the 2004 reports 
resulted in a conviction, many cases being due to 
mistaken identity.  Authorities could not substantiate 
suspicions against two domestic non-profit organizations. 
 
Since January 1, 2004, money remittance businesses 
require a banking license from the Financial Market 
Authority (FMA) and are subject to supervision.  Informal 
remittance systems like hawala exist in Austria, but are 
subject to administrative fines for carrying out banking 
business without a license. 
 
The GOA has undertaken some initial efforts that may help 
thwart the misuse of charitable or non-profit entities as 
conduits for terrorist financing.  The law on 
associations (Vereinsgesetz, published in Federal Law 
Gazette No. I/66 of April 26, 2002) came into force on 
July 1, 2002, and covers charities and all other non- 
profit associations in Austria (including religious 
associations, sports clubs, etc.).  The law regulates the 
establishment of associations, bylaws, organization, 
management, association register, appointment of 
auditors, and detailed accounting requirements, in 
particular auditing in case the balance sheet exceeds 3 
million euros ($3.6 million) or annual donations exceed 1 
million euros ($1.2 million).  The Ministry of Interior's 
responsibility is limited to approving the establishment 
of associations, regardless of the purpose of the 
association, unless it violates legal regulations. 
 
Except for the auditing of large associations, there is 
no regular or routine checks made on associations 
established in Austria, just random checks.  Only in the 
case of complaints will the Interior Ministry initiate 
investigations and, in case of serious violations of 
laws, it may officially prohibit the association from 
operating.  The GOA has implemented the FATF's Special 
Recommendations on Terrorist Financing, except for 
certain aspects of the recommendation regarding non- 
profit organizations.  Adoption of the new EU regulation 
on wire transfers is imminent.  The European Commission 
hopes the regulation will enter into force on January 1, 
2007, at which time it will be immediately and directly 
applicable in Austria. 
 
Austria has not enacted legislation that provides for 
sharing forfeited narcotics-related assets with other 
 
 
governments.  However, the mutual legal assistance 
treaties (MLATs) can be used as an alternative vehicle to 
achieve equitable distribution of forfeited assets.  The 
U.S. Department of Justice and the Austrian Ministry of 
Justice continue to actively negotiate an agreement to 
share forfeited assets.  It is anticipated that this 
agreement will be ratified in 2006.  The agreement is now 
being vetted through the Austrian Foreign and Financial 
Ministries for approval.  Ratification of bilateral 
protocols to update the bilateral MLAT, which has been in 
force since August 1, 1998, and the bilateral extradition 
treaty, which has been in force since January 1, 2000, 
and bring them in line with the twin U.S.-EU agreements 
on extradition and mutual legal assistance, is under way. 
 
The GOA has been cooperative with U.S. law enforcement 
investigations.  The FMA and the New York State Banking 
Department are exchanging views about the legal scope of 
information exchange, including possibilities for on-site 
examinations in the host country.  Information exchange 
with member states is based on EU law (Article 30, 
Directive 2000/12/ EC, implemented in articles 77 and 77a 
of the Austrian Banking Act).  In addition, Austria may 
define this information exchange more precisely in 
bilateral agreements with other EU/EAA members or third 
countries, provided certain legal requirements relating 
to professional secrecy are met.  Until now, Austria has 
concluded such bilateral agreements with nine other EU 
members (France, Germany, Italy, Netherlands, United 
Kingdom, the Czech Republic, Hungary, Slovakia, and 
Slovenia) and two third countries (Croatia and Bulgaria). 
 
The International Monetary Fund's spring 2004 Financial 
System Stability Assessment (FSAP) states that Austria 
has made significant progress in the past few years in 
bringing its anti-money laundering and counterterrorism 
financing regime into compliance with international 
standards.  The FSAP notes that the overall legal and 
institutional framework currently in place is 
comprehensive and that Austria has achieved a good level 
of compliance with the FATF Recommendations.  The FMA has 
created an internal Task Force on Money Laundering, and 
in following up on suggestions for further improvements, 
started to publish on its homepage circulars with 
additional guidance for banks and other financial 
institutions on fighting money laundering and terrorist 
financing. 
 
Austria is a party to the 1988 UN Drug Convention and the 
Council of Europe Convention on Laundering, Search, 
Seizure, and Confiscation of the Proceeds from Crime. 
Austria ratified the UN Convention against Transnational 
Organized Crime on September 23, 2004, and the UN 
International Convention for the Suppression of the 
Financing of Terrorism on April 15, 2002.  Parliamentary 
procedures to ratify the UN Convention against Corruption 
are under way, so that the ratification instrument is 
likely to be deposited before the end of 2005.  Austria 
has endorsed fully the Basel Committee's "Core Principles 
for Effective Banking Supervision."  Austria is a member 
of the FATF.  The AFIU is a member of the Egmont Group. 
 
Austria has several important money laundering cases 
pending, all of which have international dimensions.  Two 
of these cases involve U.S. citizens:  Claude Duboc, a 
ongoing case that dates back to 1988 and involves $ 216 
million in Austria, and Frank Louis Palumbo, which dates 
back to 2000 and involves $ 43 million in Austria.  In 
another case, a Palestinian woman, Halimeh Almughrabi, is 
trying to withdraw funds from a frozen account, which 
allegedly belonged to Sabri Al Banna, a.k.a. Abu Nidal, 
the deceased Palestinian terrorist.  Almughrabi, who 
lives in Libya, is a signatory to the account, which 
contains 6.8 million euros ($ 8.2 million).  Austrian 
authorities have refused to grant her a visa to come to 
Austria. 
 
The Government of Austria has implemented a viable anti- 
 
 
 
money laundering and anti-terrorist financing regime. 
Austria is very cooperative with U.S. authorities in 
money laundering cases.  However, there is room for 
improvement.  There is a need for identification 
procedures for customers in "non-face to face" banking 
transactions.  The criminal code should be amended to 
penalize negligence in reporting money laundering and 
terrorist financing transactions.  The AFIU and law 
enforcement should be provided with sufficient resources 
to adequately perform their functions.  AFIU and other 
government personnel should be protected against damage 
claims because of delays in completing suspicious 
transactions.  Additionally, Austria should adequately 
regulate its charitable and non-profit entities to reduce 
their vulnerability to misuse by criminal and terrorist 
organizations and their supporters. 
 
In 2006, the GOA will start working on domestic 
implementation of the EU's third money laundering 
directive (Directive 2005/60/EC on The Prevention of the 
Use of the Financial System for the Purpose of Money 
Laundering and Terrorist Financing), which involves a 
number of legal changes, including of the Banking Act, 
Insurance Act, Gambling Act, Business Code, and several 
other laws.  During Austria's EU Presidency in the first 
half of 2006, the GOA in various EU committees and bodies 
will also work to implement guidelines for the third 
money laundering directive, proceed with implementing the 
FATF's special recommendation seven on wire-transfers, 
stage a workshop on a code of conduct for non-profit 
organizations and together with the USG, one on terrorist 
financing. 
 
MCCAW