VZCZCXRO2890
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTA #2447/01 3451426
ZNR UUUUU ZZH
R 101426Z DEC 08 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 4080
INFO RUCNCIS/CIS COLLECTIVE 0910
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0312
RUEHKO/AMEMBASSY TOKYO 1017
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0477
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/JOINT STAFF WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHAST/USOFFICE ALMATY 0968

UNCLAS SECTION 01 OF 06 ASTANA 002447 
 
STATE FOR INL/AAE, INL/C, SCA/CEN, EB/ESC/TFS; JUSTICE FOR AFMLS, 
OTA, AND OPDAT; TREASURY FOR OTA AND FINCEN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN KCRM KCOR SNAR KZ
SUBJECT:  KAZAKHSTAN:  2008-2009 INCSR, PART II, FINANCIAL CRIMES 
AND MONEY LAUNDERING 
 
REF: STATE 138130 
 
ASTANA 00002447  001.2 OF 006 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) In response to reftel, the text of Part II of the 
2008-2009 International Narcotics Control Strategy Report (INCSR), 
Financial Crimes and Money Laundering for Kazakhstan follows.  The 
INCSR currently covers only the first nine months of 2008. 
 
¶3.  (SBU) SUMMARY:  Kazakhstan, with its developed and modern 
banking system, has become a financial center of Central Asia.  Just 
as Kazakhstan's economic success and its geographic location provide 
an atmosphere for the development of trade and a banking system, it 
also presents challenges in the fight against organized crime, 
extremism, narco-business, and terrorist financing.  In response, 
Kazakhstan is taking proactive measures against financial crimes, 
including drafting anti-money laundering legislation and 
establishing a Financial Intelligence Unit.  Kazakhstan is now 
focused on enacting the long-delayed anti-money laundering 
legislation.  In general, Kazakhstan remains a willing partner in 
the fight against narcotics and terrorism.  END SUMMARY. 
 
GENERAL QUESTIONS 
 
REGIONAL FINANCIAL CENTER 
 
¶4.  (SBU) On June 5, 2006, the President signed the law establishing 
a Regional Financial Center in Almaty (RFCA).  The RFCA is empowered 
to develop the Kazakhstani securities market, facilitate 
Kazakhstan's integration into international markets, attract 
investment, and introduce Kazakhstani securities into the global 
market. 
 
¶5.  (SBU) The RFCA is developing benefits for its members, including 
corporate income tax relief, free business registration, and visa 
support for non-residents of Kazakhstan.  Members of RFCA must be 
officially registered companies holding a brokers' or dealers' 
license and having an office in Almaty. 
 
¶6.  (SBU) The Kazakhstan Stock Exchange (KASE) created a strategy 
for stock market development in July 2007 in cooperation with the 
Agency on Regulation and Supervision of Financial Market and 
Financial Organizations.  According to this strategy, the RFCA and 
KASE would merge and provide RFCA privileges to all members of KASE; 
however, there is not yet a legal basis to create this union. 
 
¶7.  (SBU) RFCA's capitalization has grown by 60% over the last year, 
and as of January 1, 2008, is $68.6 billion. According to the 
official statistics of the Agency on Combating Financial Crime and 
Corruption (the financial police), there were no criminal cases of 
money laundering related to RFCA activities. 
 
¶8.  (SBU) During the first nine months of 2008, 285 criminal cases 
of fraudulent businesses were initiated, which is a 26% increase 
over the same period last year.  Additionally, 115 cases of economic 
contraband (an 18.6% increase) and 743 cases of misappropriation of 
property and embezzlement (a 40% increase) were initiated. 
 
¶9.  (SBU) The Agency on Combating Economic Crimes and Corruption 
reported a 5.5% increase in cases this year for a total of 8,690. 
The number of serious and grave crimes increased to 1,547 cases. 
Serious crimes (with possible sentences of less than 12 years) 
increased to 1,547 cases and grave crimes (with possible sentences 
of more than 12 years) increased from 6 to 8 cases. 
 
¶10.  (SBU) Corruption cases increased by 12.8% (from 1,102 to 
1,243). However, there was a 12.74% decrease, down to 411 cases, in 
the number of cases that appeared before the courts.  This year 
there was also an increase in the rank of those tried.  During the 
time period covered by this report, cases were initiated against 27 
akims (i.e., mayors and governors), 24 officers of the Ministry of 
Interior, 13 officials from the Committee on Judicial 
 
ASTANA 00002447  002.2 OF 006 
 
 
Administration, 10 officials from the Ministry of Justice, 10 tax 
officials, and 10 judges.  The Head of Committee of Control over 
State Purchases, the Head of Customs in Hargos (Chinese-Kazakhstani 
border), and the Deputy Head of the Almaty Tax Committee were 
involved in corruption schemes during 2008. The government estimates 
that $1.6 billion was lost to corruption (an increase from $400 
million last year). Corrupt officials reimbursed the government 
$1.05 billion compared to $25 million last year. 
 
OFFSHORE FINANCIAL CENTERS 
 
¶11.  (SBU) Kazakhstan is not an offshore financial center.  There 
are no offshore companies or banks in the country.  Existing 
legislation does not favor offshore banks or offshore financial 
centers, but Kazakhstan actively interacts with offshore zones. 
From January to June 2008, Kazakhstani investment in the Virgin 
Islands was $512.8 million, accounting for 8.3% of total outgoing 
foreign investments.  According to media reports, these investments 
are the results of transfer pricing schemes used in the mineral 
sector of Kazakhstan. 
 
FREE TRADE ZONES 
 
¶12.  (SBU) Following the signing of the Free Trade Zone Agreement by 
CIS countries in Moscow in April 1994, Kazakhstan signed bilateral 
Free Trade Zone agreements with Azerbaijan, Belarus, Georgia, 
Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.  The main function 
of the Free Trade Zones is to ease the flow of goods and services 
between CIS countries, to stabilize internal economies, and to allow 
for trade on mutually advantageous terms. 
 
¶13.  (SBU) In 2000, Belarus, Kazakhstan, Kyrgyzstan, Russia, and 
Tajikistan signed an agreement to establish the Eurasian Economic 
Union (EvrazES).  Uzbekistan joined EvrazES in 2006 and dropped out 
in 2008.  Armenia, Moldova, and Ukraine have observer status. 
EvrazES was created to facilitate regional economic integration and 
establish a customs union.  There is no evidence yet of this free 
trade agreement being used to further money laundering or 
terrorism-financing. 
 
¶14.  (SBU) In 2006, China opened the Maikapchagai-Zimunai 
cross-border shopping area on the border with the East Kazakhstan 
Oblast (EKO).  The EKO Department for Entrepreneurship and Industry 
announced that that the shopping center was officially opened on 
March 28, 2006 under an agreement signed by the EKO and the Altay 
District of the Xinjiang Uygur Autonomous Region of China on January 
26, 2006.  Kazakhstani citizens can visit the shopping area for one 
day without a visa and may bring back goods with a total value of up 
$1,000 duty-free and weighing less than 50 kilos.  Kazakhstani 
merchants may import goods valued at less than 50,000 tenge 
(approximately $400) to the marketplace duty-free or 80,000 tenge 
(approximately $650) at a reduced customs-rate.  If the value of 
goods is more than 80,000 tenge, they are subject to all Chinese 
taxes and duties. 
 
¶15.  (SBU) In July 2007, according to a 2005 agreement, China 
started construction of the Khorgos International Trade Center on 
the Kazakhstani border.  This center was established to promote 
trade, economic, and investment cooperation.  Citizens of both 
countries have visa-free access to the center for up to 30 days. 
The simplified customs and border procedures are expected to improve 
the economies on both sides of the border.  In May 2007, the Almaty 
Oblast Police Department signed a protocol with the Xinjiang Uygur 
Autonomous Region of China providing for cooperation to combat 
illegal migration, drug trafficking, and terrorism, as well as 
allowing for the exchange of information. 
 
LAW AND REGULATIONS TO PREVENT MONEY LAUNDERING 
AND FINANCING TERRORISM 
 
¶16.  (SBU) Kazakhstan previously ratified the 1988 UN Drug 
Convention, the UN Convention Against Transnational Crime, and the 
 
ASTANA 00002447  003.2 OF 006 
 
 
UN International Convention for the Suppression of the Financing of 
Terrorism.  Kazakhstan is also a signatory to the Central Asian 
Agreement on the Joint Fight Against Terrorism, Political and 
Religious Extremism, Transnational Organized Crime and Illicit Drug 
Trafficking, which was signed in April 2000 by Kazakhstan, 
Kyrgyzstan, Tajikistan, and Uzbekistan. In 2008, Kazakhstan ratified 
the UN Conventions Against Corruption in May and the UN Convention 
Against Transnational Organized Crimes in July. 
 
¶17.  (SBU) The newly-created Committee on Financial Monitoring 
(Kazakhstan's financial intelligence unit (FIU)) is developing a 
draft to ratify the CIS agreement on anti-legalization of illegal 
incomes and terrorist financing signed in Dushanbe in October 2007. 
Kazakhstan continues its work to join the Convention on Laundering, 
Search, Seizure, and Confiscation of the Proceeds from Crime signed 
in Strasbourg on November 8, 1990.  Kazakhstan must first receive 
approval from all EU members to join the Convention. 
 
¶18.  (SBU) Money laundering is a crime in Kazakhstan under Article 
193 of the Criminal Code.  The definition of money laundering, 
however, is narrow and the sentencing structure is relatively light 
(a maximum of three years imprisonment, which can be increased to 
five years for multiple offenses).  A further limit to the 
effectiveness of the law is that bank records may not be examined 
until after a criminal case has been initiated.  The draft 
Anti-Money Laundering and Countering Financing of Terrorism 
legislation (AML/CFT) would require banks and other financial 
organizations to report suspicious transactions to the Committee on 
Financial Monitoring for analysis. 
 
¶19.  (SBU) During the first nine months of 2008, 51 cases of money 
laundering were in process. Twenty-one of these cases were initiated 
in 2008 versus the 54 cases initiated in 2007.  Of the 2008 
caseload, 22 cases were forwarded to the courts (a decrease from 41 
cases last year) and there were 23 convictions in 2008, compared 
with eight in 2007.  The "Mama Rosa" case, which involved 
prostitution, a corrupt police official, and money laundering, was 
widely reported in the media.  Mama Rosa (Ms. Kodonidi) was 
sentenced to six years in prison for laundering money earned by 
prostitutes and for creating an organized crime group.  In addition 
to the prison term, the court ordered $3 million to be confiscated. 
Kodonidi appealed and a local panel of judges overturned the 
confiscation of the property.  Due to the obvious lack of basis for 
the decision, prosecutors filed an appeal of the decision and the 
original court's decision was upheld. 
 
¶20.  (SBU) Kazakhstan is in the final stages of adopting an AML/CFT 
law and establishing an FIU.  In his initiative against corruption, 
President Nazarbayev made the adoption of AML/CFT legislation a high 
priority.  Initially, the Procurator General's Office took the lead 
on drafting the legislation; the Ministry of Finance later took over 
this role. The law is currently in the lower chamber of Parliament 
and is expected to move to the Senate (upper chamber) in December 
¶2008.  If the law is passed in early 2009, it will go into effect 
later that year. 
 
¶21.  (SBU) The Committee on Financial Monitoring (FIU) was 
established within the Ministry of Finance.  The Chairman of the 
Committee was appointed on October 1, 2008.  Because the FIU is not 
yet fully staffed, it could lose some of the $1.7 million included 
in its 2008 budget.  The Committee is initially expected to be 
staffed by 90 people - 60 in Astana and 30 in Almaty.  The staffing 
pattern will grow and change with the development of the Committee. 
 
¶22.  (SBU) In 2006, Parliament postponed consideration of the draft 
legislation until the completion of the property legalization 
amnesty.  Under the terms of the amnesty legislation, citizens 
seeking to legalize property were required to pay a fee in the 
amount of 10% of the property's value.  This rule did not apply to 
residential homeowners, whose property was legalized at no cost. 
The legalization process was concluded on August 1, 2007. 
 
 
ASTANA 00002447  004.2 OF 006 
 
 
¶23.  (SBU) According to Ministry of Finance estimates, $590 million 
in taxes owed was not received during the first half of 2008.  Of 
that amount, $390 million is believed to have been laundered. 
According to media reports, the majority of the losses are due to 
the April 2007 law on gambling, which allows gambling only in the 
cities of Shuchinsk and Kapshagai and is believed to have forced 
casinos in other cities underground.  Under the law, all casinos are 
regulated by the Committee on Industry and Tourism.  Some video 
gambling establishments have argued that they are exempt from the 
law, which allows gambling with no monetary prizes.  The 
establishments normally provide telephone cards as prizes and an 
individual outside of the establishment exchanges the cards for 
cash.  The situation is further complicated by the President's 
February 2008 moratorium on the inspection of small and medium 
businesses. 
 
FINANCIAL SECTOR 
 
¶24.  (SBU) A Presidential Decree of February 25, 2005 re-organized 
the Agency on Combating Economic Crimes and Corruption into a 
separate governmental agency reporting directly to the President. 
Currently, the Agency on Combating Economic Crimes and Corruption, 
the Prosecutor General's Office, and the Agency for the Regulation 
and Inspection of the Financial Market and Financial Organizations 
are authorized to supervise all aspects of financial institutions. 
In the future, the supervision and examination of financial 
institutions for compliance with AML/CFT laws and regulations will 
be the responsibility of the Committee on Financial Monitoring. 
¶25.  (SBU) According to the 2005 Law on Currency Regulation and 
Currency Control, banks and other financial institutions are 
required to verify and record the identity of customers engaged in 
currency transactions.  Banks should refuse to conduct a transaction 
if legally-required documents are not provided.  If violations 
occur, the National Bank can suspend an institution's license.  In 
September 2008, the Agency on Regulation and Supervision of 
Financial Market and Financial Organizations (AFN) issued three 
written warnings for violations of banking legislation.  As of 
October 1, 2008, seven banks were in the process of compulsory 
liquidation for violation of banking legislation.  In total there 
are 36 active banks in Kazakhstan with total assets of $105.04 
billion.  The Agency on Combating Financial Crime and Corruption 
reports that during the first nine months of 2008 there were 123 
cases against banks (a 22% increase from last year).  Of those 
cases, 64 were for the illegal receipt of credit and its improper 
use (56 cases last year), 51 cases of illegal use of funds (28 cases 
last year), five cases of illegal bank activity (two cases last 
year), and three cases of knowingly submitting false information 
about banking operations (15 cases last year). 
¶26.  (SBU) The 2005 law also requires that the passport information 
of a non-resident be filed in accordance with National Bank rules if 
a non-resident enters into a contract for an amount exceeding 
$10,000. 
¶27.  (SBU) The AFN, according to a 2005 regulation, requires the 
maintenance of adequate records to reconstruct significant 
transactions at financial institutions.  Commercial banks, for 
example, are required to keep records for five years on the opening 
of currency accounts and investment activities, deals made through 
export and import operations, and payments made to foreign and 
international banks and organizations. 
¶28.  (SBU) Statutory requirements for limiting and monitoring the 
international transportation of currency and monetary instruments, 
as well as all cross-border currency reporting requirements, are 
governed by the April 2001 Rules on Currency Transactions and the 
May 2004 Rules on Declaring Foreign and National Currency by 
Individuals Entering and Leaving the Republic of Kazakhstan.  A 
Kazakhstani resident is required to fill out a declaration form if 
he or she is leaving the country with more than $3,000 equivalent in 
foreign currency and must provide supporting documents verifying the 
source of funds if taking more than $10,000 out of the country. 
Non-residents are also allowed a maximum of $3,000 without 
submitting a declaration form. The amount of national currency that 
may be taken out of the country by residents or non-residents is 
 
ASTANA 00002447  005.2 OF 006 
 
 
unlimited and there are no reporting requirements.  There are no 
limitations or reporting requirements on the amount of national or 
foreign currency being transported into the country by either 
residents or non-residents. 
¶29.  (SBU) The AFN requires all banks to develop risk management and 
internal control systems in their compliance departments.  The AFN 
is also drafting decree that will apply to banking and insurance 
organizations, professional participants of the stock market, 
pension funds, and joint-stock investment funds, setting stricter 
rules for doing business in 45 off-shore zones. 
¶30.  (SBU) Kazakhstan provides for the protection of individuals who 
are participating in the criminal process, such as witnesses, 
suspects, accused individuals, and members of their families and 
close relatives, during the investigation of the criminal case. 
Special departments in law enforcement agencies are responsible for 
the safety of witnesses and victims. 
TERRORIST FINANCING 
 
¶31.  (SBU) Kazakhstan plays an active role in the region in 
combating terrorism.  Kazakhstan is implementing United Nations 
Security Council Resolution 1373 and all related resolutions on 
combating terrorism.  According to the Committee of National 
Security (KNB), the activities of 14 terrorist organizations, 
including Al Qaeda and the Taliban, are prohibited in Kazakhstan. 
The Central Asian branch of the Zhamaat Mojakhed organization is 
also prohibited in Kazakhstan and was included in the consolidated 
list of terrorist organizations by the UN Security Council. 
¶32.  (SBU) Financing of extremism and terrorist activity is 
criminalized by Article 233-3 of the Criminal Code.  The penalty for 
terrorism financing is up to five years of imprisonment for the 
first offense and eight years for repeat offenses.  The 
Antiterrorism Center of the KNB is responsible for combating all 
forms of terrorism. 
¶33.  (SBU) During 2007-2008, the KNB, in cooperation with 
Kyrgyzstan, Uzbekistan, and Tajikistan, arrested the leader and 
financial director of the Khizb-ut-Tahir organization in Kazakhstan. 
 Regional leaders of the organization in Astana, Almaty, Pavlodar, 
Karaganda, Kentau, and Ekibastuz called on members to voluntarily 
leave the organization. 
CASH SMUGGLING 
 
¶34.  (SBU) Article 209 of the Criminal Code stipulates that the 
trafficking of contraband (including currency) through the borders 
of Kazakhstan with falsified documentation may result in the 
confiscation of the property, financial penalties, and/or 
imprisonment of up to three years.  The severity of the punishment 
is based on several factors, including whether the action is a 
repeat offense or if it is connected to the activities of an 
organized crime group. 
 
ASSET FORFEITURE AND SEIZURE LEGISLATION 
 
¶35.  (SBU) Criminal and civil forfeitures are defined by the 
Criminal and Civil Codes.  Article 31 of the Law on Combating 
Narcotics, Psychotropic Substances, and Precursors stipulates that 
narcotics or psychotropic substances and precursors, as well as the 
means of producing illegal narcotic substances, including property 
and finances, are subject to seizure by the government. 
 
INTERNATIONAL COOPERATION 
 
¶36.  (SBU) Kazakhstan is an active member of the Eurasian Group 
(EAG) on money laundering established in October 2004.  Russia, 
Belarus, Uzbekistan, Kyrgyzstan, Tajikistan, and China are also 
members.  In October 2007, Kazakhstan hosted an EAG working group 
meeting on typologies of money laundering and held consultations 
with the private sector on anti-money laundering efforts. 
 
¶37.  (SBU) The United States continues to assist Kazakhstan's 
anti-money laundering and crime efforts through the Embassy's Office 
of International Narcotics and Law Enforcement (INL). 
 
 
ASTANA 00002447  006.2 OF 006 
 
 
¶38.  (SBU) In March 2005, INL funded a computer laboratory at the 
Financial Police Academy in Astana.  The Academy specializes in 
training financial police and customs officers in the skills 
required to recognize and investigate money laundering as well as 
combating corruption and other economic crimes.  The computer 
laboratory is an important resource for future INL training programs 
as well as for the Academy itself.  Enhancement of the Financial 
Police Academy provides a long-term impact on Kazakhstan's ability 
to effectively police its financial system and to control money 
laundering related to terrorism, narcotics trafficking, tax evasion, 
and corrupt activities by government officials. 
 
¶39.  (SBU) In May and September 2005, INL, in cooperation with the 
Prosecutor General's Office (PGO), held a series of four seminars at 
PGO offices in both Almaty and Astana on the draft AML/CFT 
legislation and the establishment of an FIU.  The goal of these 
seminars was to help Kazakhstan develop the regulatory structure 
needed to enforce the provisions of the legislation, to prepare 
Kazakhstan to enter various organizations related to the Financial 
Action Task Force on Money Laundering (FATF), to train commercial 
banks to meet AML/CFT requirements, and to help Kazakhstan establish 
an effective FIU.  The lead training agency was the U.S. Department 
of Treasury's Office of Technical Assistance (OTA). 
 
¶40.  (SBU) In November 2007, under the auspices of INL, personnel 
from OTA trained financial police officers and representatives of 
the PGO in financial crime detection techniques.  This course was in 
addition to four earlier courses in investigative techniques.  This 
training program will enhance the ability of law enforcement 
officers in combating financial crimes. 
 
¶41.  (SBU) INL provided equipment and trained the Statistics 
Division of the PGO, which targets drug trafficking organizations 
operating in Kazakhstan.  Equipment was provided as part of a larger 
project aimed at improving the collection of criminal statistics in 
Kazakhstan, especially those related to Kazakhstan's efforts to 
combat narcotics trafficking and anti-money laundering activities. 
 
 
¶42.  (SBU) In November 2008, INL provided for the participation of 
two experts from the newly-created FIU in a training program on the 
analysis of financial techniques arranged by OTA in Bishkek, 
Kyrgyzstan. The Kazakhstani experts learned basic techniques to 
analyze suspicious transaction reports and made contact with members 
of the FIUs of Kyrgyzstan and Russia.  INL will continue to work 
with the FIU and is in close contact with its director regarding 
training opportunities, technical assistance, and study tours in the 
United States. 
 
¶43.  (SBU) Kazakhstan is a willing partner in the fight against 
terrorism and it is making major strides to identify potential money 
laundering activities connected to international terrorism and 
narcotics trafficking. When adopted and implemented, the draft 
AML/CFT legislation and its FIU will help Kazakhstan become an 
active member in the Egmont Group. 
 
HOAGLAND