VZCZCXRO9915
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #1783/01 3420831
ZNR UUUUU ZZH
R 080831Z DEC 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 1909
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1888
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BAKU 001783 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR INL 
DEPT ALSO FOR EB/ESC/TFS 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: KCRM EFIN PTER SNAR AJ
SUBJECT: AZERBAIJAN: SUBMISSION OF THE FINANCIAL CRIMES AND 
MONEY LAUNDERING SECTION OF THE 2006-2007 INTERNATIONAL 
NARCOTICS CONTROL STRATEGY REPORT (INCSR) 
 
REF: STATE 157000 
 
This message contains the Money Laundering and Financial 
Crimes section of the 2006-2007 INSCR for Azerbaijan. 
 
Azerbaijan 
 
Azerbaijan is not considered a major center for international 
money laundering, given its small, underdeveloped banking 
sector.  It is difficult, however, to determine the extent of 
money laundering activity, due to existing bank secrecy laws 
and the number of "pocket banks."  The large number of cash 
transactions, the increasing wealth of the country from oil 
revenues, and the legacy of corruption and tax evasion, all 
increase the potential for large scale money laundering 
activities and compound the problem of quantifying these 
crimes. 
 
The Government of Azerbaijan (GOAJ) criminalized money 
laundering relating to narcotics trafficking in 2000. 
Additionally, Parliament has made amendments to its banking 
and currency laws to prevent some money laundering 
activities.  In November 2001, Azerbaijan established a 
threshold sum of $50,000 for reporting to its Customs agency 
currency transfers from abroad. Funds transfers abroad by 
individuals in excess of $10,000 must have approval of the 
National Bank of Azerbaijan (NBA). 
 
In May 2003, the GOAJ established an inter-ministerial 
experts group responsible for drafting anti-money laundering 
and counterterrorist finance legislation.  As of September 
2005, the experts' group, led by the NBA, has finalized 
proposed anti-money laundering legislation that would include 
establishment of a financial intelligence unit (FIU) and 
would expand the predicate crimes for money laundering beyond 
narcotics trafficking.  Although the draft law has not yet 
been presented to Parliament, in April 2006 an amendment to 
the Azerbaijani Criminal Code was adopted making the 
legalization of illegally obtained funds (money laundering) a 
crime.  The new Article 193-1 is a bare bones provision that 
must be supported by passage of a comprehensive law. The GOAJ 
has expressed its commitment to adopting such a law, and it 
is expected that final revisions to the draft law will be 
made and that it will be presented to Parliament during the 
first half of 2007. 
 
The NBA issues licenses and supervises commercial banks, 
foreign exchange offices and money remitters. To further its 
regulatory role, it issues binding regulations for the 
banking sector; however, neither regulations nor guidance 
notes have been issued specifically addressing anti-money 
laundering measures. In August 2004, the NBA established an 
internal anti-money laundering working group to work with 
local commercial banks. 
 
In March 2004, the GOAJ enacted a comprehensive new Law on 
Banks that provides for improved "fit and proper" criteria 
for bank administrators and improved supervision of 
commercial banks. In November 2004, the NBA prohibited 
capital investments in banks operating in Azerbaijan by 
entities and individuals that are registered in any of the 
six countries on the FATF list of Non-Cooperative Countries 
and Territories. 
 
The new Law on Banks prohibits numbered accounts, although 
existing numbered accounts are allowed to continue until 
their terms expire. The NBA has issued "know your customer" 
directives to banks. The requirements include identification 
procedures and record-keeping. Similar rules do not apply to 
the insurance or securities sectors. There is no requirement 
to report suspicious transactions, although some banks 
voluntarily report such transactions to the NBA. In October 
2004, the NBA instructed commercial banks to establish 
internal procedures to identify every operation and client 
throughout the transaction process. Also in 2004, the NBA 
issued new rules on corporate management for all commercial 
banks. 
 
The Ministry of Finance supervises insurance companies.  The 
Insurance Department at the Ministry follows the anti-money 
laundering program coordinated by the NBA.  The Ministry 
conducts annual audits of insurance companies; one of the 
objectives of the audit is to check for money laundering 
 
BAKU 00001783  002 OF 002 
 
 
activity.  The State Securities Committee, which regulates 
the securities market, has issued anti-money laundering 
directives.  However, implementation is weak due to the large 
number of cash transactions and the reliance on the banks' 
due diligence for some pre-funded transactions. 
 
Article 214-1 of Azerbaijan's Criminal Code criminalizes the 
financing of terrorism, but the Code does not address 
terrorist fundraising. Another deficiency is that the law 
provides only for personal liability and does not include 
criminal liability for entities involved in terrorist 
financing. These deficiencies are addressed in the draft 
anti-money laundering/counter financing of terrorism law. 
Currently, the NBA distributes the lists of individuals and 
entities designated pursuant to U.S. Executive Order 13224 
and pursuant to UNSCRs 1267 and 1390.  As of 2003, the NBA 
had identified and frozen the assets of at least two 
designated entities. 
 
The GOAJ does not have in place a formalized regime to seize 
and confiscate assets.  The NBA has the authority to freeze 
accounts, but freezing without delay cannot be done readily. 
Confiscation of assets is an optional action in prosecutions. 
Mutual legal assistance is limited to narcotics-related 
offenses. 
 
Azerbaijan is a party to the 1988 UN Drug Convention, the UN 
International Convention for the Suppression of the Financing 
of Terrorism and the UN Convention against Transnational 
Organized Crime. In November 2001, Azerbaijan ratified the 
Council of Europe Convention on Laundering, Search, Seizure 
and Confiscation of the Proceeds from Crime. In February 
2004, Azerbaijan signed the UN Convention against Corruption. 
Azerbaijan has been a member of the Council of Europe's 
MONEYVAL since 2002, and in May 2003, Azerbaijan underwent a 
first round mutual evaluation by the MONEYVAL's Select 
Committee of Experts on the Evaluation of Anti-Money 
Laundering Measures.  A second round MONEYVAL evaluation is 
expected to take place by the end of 2006. 
 
The Government of Azerbaijan (GOAJ) should enact anti-money 
laundering/counter financing of terrorism legislation that 
establishes a viable legal framework to detect and to 
prosecute these crimes, including mandatory reporting of 
suspicious transactions to a financial intelligence unit and 
the establishment of appropriate mechanisms to seize, freeze 
and confiscate assets without delay.  Azerbaijan should amend 
current terrorist finance legislation to criminalize 
terrorist fundraising and establish criminal liability for 
legal entities.  Additionally, Azerbaijan should provide 
awareness programs and training to its law enforcement and 
prosecutorial agencies, as well as to the banking sector. 
DERSE