VZCZCXYZ0004
RR RUEHWEB

DE RUEHEK #1206/01 3380251
ZNR UUUUU ZZH
R 030251Z DEC 08
FM AMEMBASSY BISHKEK
TO RUEHC/SECSTATE WASHDC 1567
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BISHKEK 001206 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR INL, SCT, AND EEB 
STATE FOR SCA/CEN 
JUSTICE FOR AFMLS, OIA, AND OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: KCRM EFIN KTFN SNAR PGOV KG
SUBJECT: KYRGYZSTAN: 2008-2009 INCSR, PART II, FINANCIAL CRIMES AND 
MONEY LAUNDERING 
 
Ref:  STATE 104800 
 
¶1. (U) No report was published for the Kyrgyz Republic in the 
2007-2008 International Narcotics Control Strategy Report, Part II, 
Financial Crimes and Money Laundering.  Embassy point of contact for 
this report is Pol-Econ Chief Robert Burgess, email: 
burgessrg@state.gov. 
 
¶2. (SBU) Follow is Embassy Bishkek's submission for the 2008-2009 
INCSR, Part II. 
 
Begin Text: 
 
The Kyrgyz Republic is not a regional financial center.  Although 
Kyrgyzstan adopted a new anti-money laundering statute in 2006, gaps 
still exist in enforcement and implementation.  The law enforcement 
authorities are completing necessary resource and structural 
modifications and are pursuing anti-money laundering and terrorist 
financing priorities.  However, due to the fact that the system is 
only beginning to function, there are no significant results of 
financial investigations, or criminal prosecutions.  The Kyrgyz 
banking system remains comparatively underdeveloped.  Like other 
countries in the region, the Kyrgyz Republic's alternative 
remittance systems are susceptible to money laundering activity or 
trade-based fraud. The main sources of criminal proceeds in 
Kyrgyzstan are crimes connected with narcotics trafficking, as 
Kyrgyzstan is a drug trafficking transit route from Afghanistan.  In 
addition, the smuggling of consumer goods, tax and tariff evasion, 
and official corruption continue as major sources of illegal 
proceeds within the Kyrgyz Republic.  The lack of political will, 
resource constraints, inefficient financial systems, and, of course, 
corruption, all serve to stifle efforts to effectively combat money 
laundering and terrorist financing. 
 
Money Laundering/Terrorist Financing primarily occurs through 
trade-based fraud and bulk cash carriers.  The banking system is 
also at risk for money laundering, as oversight of the banking 
sector is generally weak, and Kyrgyz law enforcement agencies lack 
the expertise and resources necessary to effectively monitor and 
investigate financial irregularities.  Kyrgyzstan is not considered 
an offshore financial center, nor does it have a free trade zone. 
 
In June 2006, the Kyrgyz Republic adopted a fairly comprehensive law 
on "Counteracting Terrorist Financing and Legalization (Money 
Laundering) of Proceeds from Crime".    The law defines predicate 
offenses as crimes under the Kyrgyz Criminal Code, and criminalizes 
income obtained as a result of a criminal action.  The statutory 
threshold amount that triggers mandatory reporting is US$25,000. 
The money laundering law also includes secrecy provisions that 
mandate civil and criminal liability for disclosure of client and 
ownership information, as well as for abuse of official position, 
which safeguards effective reporting.  It also requires mandatory 
reporting of suspicious transactions, in addition to a five-year 
record retention by all Kyrgyz financial institutions.  The law has 
been in effect since November 2006, but, to date, there have been no 
criminal convictions for money laundering or terrorist financing 
cases. 
 
The money laundering controls are applied equally to all banking and 
non-banking financial institutions, to include banks, credit 
institutions, stock brokerages, foreign exchange offices, casinos, 
and insurance companies.  The new law mandates that all such 
entities report threshold amount transactions as well as all 
suspicious transactions.  The two exceptions appear to be automobile 
dealers and developers of luxury condominiums and housing.  At this 
point, automobile dealers are not required to report any high dollar 
transactions. 
 
Chapter III of the money laundering law establishes a financial 
intelligence service, a state body authorized to collect and analyze 
financial intelligence.  The Kyrgyz Financial Intelligence Service 
collects and analyzes information related to financial transactions; 
develops and implements measures on improving systems of prevention, 
detection, and suppression of suspicious transactions; and submits 
instituted cases to law enforcement, the prosecutor's office, and to 
the court for investigation and prosecution.  The financial 
intelligence service is an administrative entity with no powers of 
criminal investigative or regulatory responsibilities. 
 
Implementation of the financial intelligence service has been slow. 
Resources are inadequate, and the unit does not yet have the 
expertise, knowledge, or resources to become a functioning and 
effective entity to combat money laundering and terrorist financing. 
 Criticism of the new law is focused in two areas.  First, experts 
 
claim the law does not actually criminalize money laundering, only 
the actions surrounding illegal proceeds of a crime.  Thus, the new 
law is not FATF (Financial Action Task Force) compliant.  Second, 
experts also claim the threshold amount is set too high, US$25,000, 
which is extraordinarily high compared to the income standards of 
the average Kyrgyz.  These deficiencies have been discussed in 
working group form, but have not been addressed in amendment form to 
date. 
 
Current laws, as well as pending legislation, do not address the 
issue of asset forfeiture.  In this respect, Kyrgyz law does not 
address avenues for seizing and forfeiting assets derived from 
criminal activity.  Existing criminal laws do provide for fines and 
levies against property, but do not address mechanisms to actually 
seize assets or property.  Kyrgyz law enforcement and other 
competent bodies including the Financial Intelligence Service are 
not adequately empowered to identify and find property subject to 
confiscation or property suspected of being the proceeds of a crime. 
 Money Laundering is mainly investigated by the Financial Police of 
Kyrgyzstan; however it may also be investigated by other law 
enforcement entities, such as the Ministry of the Internal Affairs 
(MVD) and the Prosecutor General's Office.  There is no provision 
under Kyrgyz law to allow for civil forfeiture. 
 
Regarding international cooperation, chapter IV of the new money 
laundering law does provide for an international exchange of 
information and legal assistance.  The law mandates that the new 
financial intelligence service, in compliance with international 
treaty obligations, collaborate with foreign counterparts in 
financial intelligence and terrorist financing matters. 
 
The Kyrgyz Republic, along with Russia, China, Belarus, Tajikistan, 
and Kazakhstan, formed the Eurasian Group (EAG) for Counteraction to 
the Legalization of Illegal Incomes and Terrorism Financing, a 
FATF-style regional body designed to coordinate technical assistance 
and analyze trends in money laundering techniques.  The EAG has 
conducted a mutual evaluation and provided a detailed assessment on 
anti-money laundering and combating terrorist financing in the 
Kyrgyz Republic. 
 
The Kyrgyz Republic acceded to the United Nations Vienna Convention 
in 1994, ratified the United Nations Palermo Convention in 2003, and 
acceded to the United Nations Convention on the Suppression of the 
Financing of Terrorism of 1999 in 2003.  The Kyrgyz Republic is a 
party to the 1988 United Nations Convention of Narcotics and 
Psychotropic Substances, the United Nations Convention against 
Transnational Organized Crime and the United Nations Convention 
against Corruption. 
 
The Government of the Kyrgyz Republic should continue to strengthen 
legislation as it relates to money laundering and financial crimes 
that support terrorist organizations, both within financial 
institutions and with those activities that circumvent financial 
institutions.  In addition, the Kyrgyz Republic should increase and 
enhance training in money laundering and terrorist financing 
investigative techniques. 
 
End text. 
 
LITZENBERGER