VZCZCXYZ0008
PP RUEHWEB

DE RUEHNT #1316/01 3221057
ZNR UUUUU ZZH
P 171057Z NOV 08
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC PRIORITY 0610
INFO RUEHAH/AMEMBASSY ASHGABAT 4494
RUEHTA/AMEMBASSY ASTANA 0711
RUEHEK/AMEMBASSY BISHKEK 5111
RUEHDBU/AMEMBASSY DUSHANBE 0990
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEABNE/DEA HQS WASHDC

UNCLAS TASHKENT 001316 
 
SIPDIS 
 
STATE FOR INL, SCT, EEB AND SCA/CEN 
JUSTICE FOR OIA, AFMLS, OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: KCRM EFIN KTFN SNAR UZ
SUBJECT: 2008 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT INCSR 
PART TWO, UZBEKISTAN 
 
REF: STATE 103813 
 
¶1. INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT VOLUME II REPORT 
ON MONEY LAUNDERING 
 
UZBEKISTAN 
 
Uzbekistan is not an important regional financial center and does 
not have a well-developed financial system. Legitimate business 
owners, ordinary citizens, and foreign residents generally attempt 
to avoid using the Uzbek banking system for transactions except when 
absolutely required, because of the onerous nature of the Government 
of Uzbekistan's (GOU) financial control system, the fear of GOU 
seizure of one's assets, and lack of trust in the banking system as 
a whole. As a result, Uzbek citizens have functioning bank accounts 
only if they are required to do so by law. They only deposit funds 
they are required to deposit and often resort to subterfuge to avoid 
depositing currency. The Central Bank of Uzbekistan (CBU) states 
that deposits from individuals have been increasing in recent years, 
but it is still seeking to increase consumer confidence in banks. 
 
Narcotics proceeds are controlled by local and regional 
drug-trafficking organizations and organized crime. Foreign and 
domestic proceeds from criminal activity in Uzbekistan are held 
either in cash, high-value transferable assets, such as gold, 
property, or automobiles, or in foreign bank accounts. 
 
There is a significant black market for smuggled goods in 
Uzbekistan. Since the GOU imposed a very restrictive trade and 
import regime in the summer of 2002, smuggling of consumer goods, 
already a considerable problem, increased dramatically. Many Uzbek 
citizens continue to make a living by illegally shuttle-trading 
goods from neighboring countries and regions, including China, 
Turkey, Iran, India, Korea, the Middle East, Europe, and the U.S. 
The black market for smuggled goods does not appear to be 
significantly funded by narcotics proceeds. It is likely, however, 
that drug dealers use the robust black market to clean their 
drug-related money. 
 
Reportedly, the unofficial, unmonitored cash-based market creates an 
opportunity for small-scale terrorist or drug-related laundering 
activity destined for internal operations. For the most part, the 
funds generated by smuggling and corruption are not directly 
laundered through the banking system but through seemingly 
legitimate businesses such as restaurants and high-end retail 
stores. There appears to be virtually no money laundering through 
formal financial institutions in Uzbekistan because of the extremely 
high degree of supervision and control over all bank accounts in the 
country exercised by the Central Bank, Ministry of Finance, General 
Prosecutor's Office (GPO), the National Security Service (NSS), and 
state-owned and controlled banks. Although Uzbek financial 
institutions are not known to engage in illegal transactions in U.S. 
currency, illegal unofficial exchange houses, where the majority of 
cash-only money laundering takes place, deal in Uzbek soum and U.S. 
dollars. Moreover, drug dealers and others can transport their 
criminal proceeds in cash across Uzbekistan's porous borders for 
deposit in the banking systems of other countries, such as 
Kazakhstan, Russia or the United Arab Emirates. 
 
 
LEGAL FOUNDATION 
 
Money laundering from the proceeds from drug-trafficking and other 
criminal activities is a criminal offense. Article 41 of the Law on 
Narcotic Drugs and Psychotropic Substances (1999) stipulates that 
any institution may be closed for performing a financial transaction 
for the purpose of legalizing (laundering) proceeds derived from 
illicit narcotics trafficking. GOU officials noted that there have 
been no related cases thus far in Uzbekistan. 
 
Penalties for money laundering are from ten to fifteen years 
imprisonment, under Article 243 of the Criminal Code. This article 
defines the act of money laundering to include as punishable acts 
the transfer; conversion; exchange; or concealment of origin, true 
nature, source, location, disposition, movement and rights with 
respect to the assets derived from criminal activity. Although the 
law has been in effect for more than five years, there is still 
insufficient information to fully assess the implementation and use 
of this legislation. Officials from the State Prosecutor's Office 
reported that Article 243 does not work well because different 
judges and attorneys can interpret it in different ways. 
 
 
The CBU, GPO, and the NSS closely monitor all domestic banking 
transactions to ensure that money laundering does not occur in the 
banking system. Banks are required to know, record, and report the 
identity of customers engaging in significant transactions, 
including the recording of large currency transactions at thresholds 
appropriate to Uzbekistan's economic situation. All transactions 
involving sums greater than U.S. $1,000 in salary expenses for legal 
entities and U.S. $500 in salaries for individuals must be tracked 
and reported to the authorities. The CBU unofficially requires 
commercial banks to report on private transfers to foreign banks 
exceeding U.S. $10,000. Depending on the type and amount of the 
transaction, banks are required to maintain records for time 
deposits for a minimum of five years, possibly not sufficient time 
to reconstruct significant transactions. The law protects reporting 
individuals with respect to their cooperation with law enforcement 
entities. However, reportedly, the GOU has not adopted "banker 
negligence" laws that make individual bankers responsible if their 
institutions launder money. 
 
A new law to combat money laundering and terrorist financing, passed 
in 2004, took effect in January 2006. However, in April 2007 the 
main provisions of the law were suspended by a Presidential decree 
until January 2013. This means there may not be an effective 
anti-money laundering law in Uzbekistan for the next five years. The 
provisions of the law required certain entities to report cash 
transactions above U.S. $40,000 (approximately), as well as 
suspicious transactions. GOU officials claimed that the anti-money 
laundering law burdened banks and investigators with reporting 
thousands of benign suspicious transactions that wasted resources on 
investigations. They reported 17,000 suspicious transactions in a 
six-month period before the law was suspended compared with 400 in 
the six months following the suspension of the law. In addition, 
this law also covered some nonbanking financial institutions, such 
as investment foundations, depositaries and other types of 
investment institutions; stock exchanges; insurers; organizations 
which render leasing and other financial services; organizations of 
postal service; pawnshops; lotteries; and notary offices. It did not 
include intermediaries such as lawyers, accountants, or 
broker/dealers. Casinos are illegal in Uzbekistan. 
 
FINANCIAL INVESTIGATION UNIT / INVESTIGATION 
 
An April 2006 Presidential decree established the Department on 
Combating Tax, Currency Crimes and Legalizations of Criminal 
Proceeds under the GPO. The Department, which the Government of 
Uzbekistan claims is the functional equivalent of a Financial 
Intelligence Unit (FIU), is charged with monitoring and preventing 
money laundering and terrorist financing. It analyzes information 
received from banks and financial institutions, creates and keeps 
electronic databases of financial crimes, and, when warranted, 
passes information to the CBU, tax and law enforcement authorities, 
or other parts of the GPO for investigation and prosecution of 
criminal activity. However, given the suspension of the main 
provisions of the anti-money laundering law in 2007, it is unclear 
whether there have been any substantial investigations or 
prosecutions. 
 
The Law on Banks and Bank Activity (1996), article 38, stipulates 
conditions under which banking information can be released to law 
enforcement, investigative and tax authorities, prosecutor's office 
and courts. Different conditions for disclosure apply to different 
types of clients-individuals and institutions. In September 2003, 
Uzbekistan enacted a bank secrecy law that prevents the disclosure 
of client and ownership information for domestic and offshore 
financial services companies to bank supervisors and law enforcement 
authorities. In all cases, private bank information can be disclosed 
to prosecution and investigation authorities, provided there is a 
criminal investigation underway. The information can be provided to 
the courts on the basis of a written request in relation to cases 
currently under consideration. Protected banking information also 
can be disclosed to tax authorities in cases involving the taxation 
of a bank's client. Additionally, under the 2006 Presidential decree 
and subsequent Cabinet of Ministers' resolution on the disclosure of 
information related to money laundering, it is mandatory for 
organizations involved in transactions with monetary funds and other 
property to report such transactions to the GPO's FIU. GOU officials 
noted that the secrecy law does not apply if a group is on a list of 
designated terrorist organizations. 
 
Existing controls on transportation of currency across borders 
 
would, in theory, facilitate detection of the international 
transportation of illegal source currency. When entering or exiting 
the country, foreigners and Uzbek citizens are required to report 
all currency they are carrying. Residents and nonresidents may bring 
the equivalent of U.S. $10,000 into the country tax-free, and 
amounts in excess of this limit are assessed a one-percent duty. 
Customs officers at Tashkent Airport vigorously enforce this limit 
and target foreign nationals for careful searches as they depart the 
country.  Those caught in possession of more currency than they 
declared upon entering Uzbekistan are assessed severe fines and may 
face criminal charges. Residents may export to the equivalent of 
U.S. $2,000. Residents wishing to take out higher amounts must 
obtain authorization to do so; amounts over U.S. $2,000 must be 
approved by an authorized commercial bank, and amounts over U.S. 
$5,000 must be approved by the CBU. International cash transfers to 
or from an individual person are limited to U.S. $5,000 per 
transaction; there is no monetary limit on international cash 
transfers made by legal entities, such as a corporation. However, 
direct wire transfers to or from other Central Asian countries are 
not permitted; a third country must be used. 
 
International businesses are permitted to have offices in Uzbekistan 
and are subject to the same regulations as domestic businesses, if 
not stricter. Offshore banks are not present in Uzbekistan and other 
forms of exempt or shell companies are not officially present. 
 
The Department of Investigation of Economic Crimes within the 
Ministry of Internal Affairs (MVD) conducts investigations of all 
types of economic offenses. A specialized structure within the NSS 
and the Department on Tax, Currency Crimes and Legalization of 
Criminal Proceeds is also authorized to conduct investigations of 
money laundering offenses. Unofficial information from numerous law 
enforcement officials indicates that there have been few, if any, 
prosecutions for money laundering under article 243 of the Criminal 
Code since its enactment in 2001. Officials from the Office of the 
State Prosecutor reported that there were 11 money 
laundering-related cases in 2006 and five in 2007. Of these 16 
recent cases, officials stated that three are still pending. The 
status or disposition of the other cases is unknown. As of October 
2008 we have not received any additional information about the 
status of these cases. Overall, the GOU appears to lack a sufficient 
number of experienced and knowledgeable agents to investigate money 
laundering. 
 
TERRORIST FINANCING 
 
Article 155 of Uzbekistan's Criminal Code and the law "On Fighting 
Terrorism" criminalize terrorist financing. The latter law names the 
NSS, the MVD, the Committee on the Protection of State Borders, the 
State Customs Committee, the Ministry of Defense, and the Ministry 
for Emergency Situations as responsible for implementing the 
counterterrorist legislation. The law names the NSS as the 
coordinator for government agencies fighting terrorism. The GOU has 
the authority to identify, freeze, and seize terrorist assets. 
Uzbekistan has circulated to its financial institutions the names of 
suspected terrorists and terrorist organizations listed on the UN 
1267 Sanctions Committee's consolidated list and the names of 
individuals and entities included on the UN 1267 consolidated list. 
In addition, the GOU has circulated the list of Specially Designated 
Global Terrorists designated by the United States pursuant to E.O. 
13224 to the CBU, which has, in turn, forwarded these lists to banks 
operating in Uzbekistan. According to the CBU and the Office of the 
State Prosecutor, no assets have been frozen. 
 
Other than a plan to step up enforcement of currency regulations, 
the GOU has taken no steps to regulate or deter alternative 
remittance systems such as hawala, black market exchanges, 
trade-based money laundering, or the misuse of gold, precious metals 
and gems. GOU officials noted that most overseas migrants work in 
more advanced countries such as Russia or Korea where remittances 
can be easily tracked through financial institutions. We are not 
aware of any legislative initiatives under consideration. Although 
officially there is complete currency convertibility, in reality 
convertibility requests can be significantly delayed or refused. 
This is particularly the case during the annual autumn cotton 
harvest, when cash supplies are needed internally to support the 
extensive mobilization of people and machinery to collect the crop. 
There are increasing complaints from foreign companies that it is 
taking well over six months to convert the profits from local sales 
into foreign currencies in order to transfer the money out of 
Uzbekistan. 
 
 
The GOU closely monitors the activities of charitable and nonprofit 
entities, such as NGOs, that can be used for the financing of 
terrorism. In February 2004, the Cabinet of Ministers issued Decree 
56 to allow the government to vet grants to local NGOs from foreign 
sources, ostensibly to fight money laundering and terrorist 
financing. Given the degree of supervision of charities and other 
nonprofits, and the level of threat Uzbekistan perceives from the 
Islamic Movement of Uzbekistan (IMU) and other extremist 
organizations, it is extremely unlikely that the NSS would knowingly 
allow any funds to be funneled to terrorists through 
Uzbekistan-based charitable organizations or NGOs. 
 
In February 2008 President Karimov issued a decree offering an 
amnesty on individual assets in order to bolster confidence in the 
country's financial sector and banks. Under the amnesty's 
provisions, money deposited by Uzbek citizens in banks is not 
subject to taxes, fines or investigations by fiscal authorities. 
Banks are banned from questioning the origin and source of assets 
and from releasing the information to law enforcement agencies. The 
amnesty began April 1, 2008 and is scheduled to expire on April 1, 
¶2009.  This decree, in conjunction with the 2007 decrees suspending 
key elements of the nascent money laundering law, prompted the 
Financial Action Task Force (FATF) to issue an advisory on 
Uzbekistan on February 20, 2008.  Uzbekistan featured prominently on 
the agenda of subsequent FATF plenary meetings in London in June 
2008 and in Rio de Janeiro in October 2008. Uzbek officials insist 
that the existing policies and procedures are compliant with the 
FATF "40 plus 9" recommendations and have offered to meet with the 
international community to discuss concerns in detail. 
 
Uzbekistan has established systems for identifying, tracing, 
freezing, seizing, and forfeiting proceeds of both narcotics-related 
and money laundering-related crimes. Current laws include the 
ability to seize items used in the commission of crimes such as 
conveyances used to transport narcotics, farm facilities (except 
land) where illicit crops are grown or which are used to support 
terrorist activity, legitimate businesses if related to criminal 
proceeds and bank accounts. The banking community, which is entirely 
state-controlled and with few exceptions, state-owned, cooperates 
with efforts to trace funds and seize bank accounts. Uzbek law does 
not allow for civil asset forfeiture, but the Criminal Procedure 
Code provides for "civil" proceedings within the criminal case to 
decide forfeiture issues. As a practical matter, these proceedings 
are conducted as part of the criminal case. We are aware of no new 
legislation or changes in current law under active consideration by 
the GOU regarding seizure or forfeiture of assets. The obstacles to 
enacting such laws are largely rooted in the widespread corruption 
that exists within the country. 
 
ASSET FORFEITURE 
 
In 2000, Uzbekistan set up a fund to direct confiscated assets to 
law enforcement activities. In accordance with the regulation, the 
assets derived from the sale of confiscated proceeds and instruments 
of drug-related offenses were transferred to this fund to support 
entities of the NSS, the MVD, the State Customs Committee, and the 
Border Guard Committee, all of which are directly involved in 
combating illicit drug trafficking. According to the GOU, a total of 
115 million soum (approximately U.S. $97,000) has been deposited 
into this fund since its inception. Roughly U.S. $80,000 has been 
turned over to Uzbek law enforcement agencies. In 2004, however, the 
Cabinet of Ministers issued an order to close the Special Fund as of 
November 1, 2004. Under the new procedure, each agency manages the 
assets it seizes. There is also a specialized fund within the MVD to 
reward those officers who directly participate in or contribute to 
law enforcement efforts leading to the confiscation of property. 
This fund has generated 20 percent of its assets from the sale of 
property confiscated from persons who have committed offenses such 
as the organization of criminal associations, bribery and 
racketeering. The GOU enthusiastically enforces existing 
drug-related asset seizure and forfeiture laws. The GOU has not been 
forthcoming with information regarding the total dollar value of 
assets seized from crimes. Reportedly, existing legislation does not 
permit sharing of seized narcotics assets with other governments. 
 
INTERNATIONAL COOPERATION 
 
The GOU realizes the importance of international cooperation in the 
fight against drugs and transnational organized crime and has made 
some efforts to integrate the country in the system of international 
 
cooperation. Uzbekistan has entered into agreements with Uzbek bank 
supervisors to facilitate the exchange of supervisory information 
including on-site examinations of banks and trust companies 
operating in the country. Uzbekistan has entered into bilateral 
agreements for cooperation or exchange of information on drug 
related issues with the United States, Germany, Italy, Latvia, 
Bulgaria, Poland, China, Iran, Pakistan, the Commonwealth of 
Independent States (CIS), and all the countries in Central Asia. It 
has multilateral agreements in the framework of the CIS, under the 
Shanghai Cooperation Organization, and under memoranda of 
understanding. An "Agreement on Narcotics Control and Law 
Enforcement Assistance" was signed with the United States on August 
14, 2001, with two supplemental agreements that came into force in 
¶2004. 
 
Uzbekistan does not have a Mutual Legal Assistance Treaty with the 
United States. However, Uzbekistan and the United States have 
reached informal agreement on mechanisms for exchanging adequate 
records in connection with investigations and proceedings relating 
to narcotics, terrorism, terrorist financing and other serious 
crimes. In the past, Uzbekistan has cooperated with appropriate law 
enforcement agencies of the USG and other governments investigating 
financial crimes and several important terrorist-related cases. 
Cooperation in these areas became increasingly problematic in an 
atmosphere of strained U.S.-Uzbekistan bilateral relations, but 
there was a gradual improvement in 2008. Uzbekistan joined the 
Eurasian Group on Combating Money Laundering and the Financing of 
Terrorism (EAG), a FATF-style regional body, at the group's December 
2005 plenary meeting. High-level officials from the Government of 
Uzbekistan attended the EAG's plenary meeting in Kyrgyzstan in July 
2008 to defend its existing anti-money laundering measures amidst 
growing international attention to Uzbekistan following the 
suspension of key elements of the law and the deposit amnesty 
decree. The EAG then conducted an evaluation of Uzbekistan in 
September 2008, which produced a mixed assessment on the 
effectiveness of Uzbekistan's anti-money laundering policies. 
 
The GOU is an active party to the relevant agreements concluded 
under the CIS, the Central Asian Economic Community (CAEC), the 
Economic Cooperation Organization (ECO), and the Shanghai 
Cooperation Organization. Uzbekistan 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. Uzbekistan adopted the UN Convention 
against Corruption on July 8, 2008. 
 
A lack of trained personnel, resources, and modern equipment 
continues to hinder Uzbekistan's efforts to fight money laundering 
and terrorist financing. Moreover, the April 2007 decree suspending 
the main provisions of the money laundering law until 2013 and the 
February 2008 Presidential decree providing an amnesty on deposits 
were seen in the international community as major setbacks. FATF 
issued a statement on October 16, 2008 calling for urgent action to 
address the vulnerability posed by Uzbekistan's deficient AML/CFT 
regime and called on its members to strengthen preventive measures 
to protect their financial sectors from this potential risk.  The 
statement also added that both FATF and the EAG are "prepared to 
engage directly in assisting Uzbekistan in developing a robust 
AML/CFT regime." The GOU should rescind this decree, reinstating the 
provisions of the law, while continuing to refine its pertinent 
legislation to bring it into conformity with international 
standards. Additional refinements should expand the cross-border 
currency reporting rules to cover the transfer of monetary 
instruments, and precious metals and gems. Access to financial 
institution records should be given to appropriate regulatory and 
law enforcement agencies so that they can properly conduct 
compliance examinations and investigations. While the establishment 
of an FIU was a positive step in 2006, much will depend, in the 
future, on the unit's ability to effectively cooperate with other 
GOU law enforcement and regulatory agencies in receiving and 
disseminating information on suspicious transactions. In the short 
term, FIU operations will depend on whether there is any incoming 
reporting activity at all, given the suspension of the law. 
 
NORLAND