VZCZCXRO3773
RR RUEHDBU RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHKB #0128/01 0480505
ZNR UUUUU ZZH
R 170505Z FEB 09
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 0773
RUEHAK/AMEMBASSY ANKARA 3252
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC//OPDAT PRIORITY
RUEHVEN/USMISSION OSCE VIENNA AU
RUEHBS/USEU BRUSSELS
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 02 BAKU 000128 
 
SIPDIS 
 
DEPT FOR INL - JCAMPBELL 
DEPT FOR EUR/ACE AND EUR/CARC 
DOJ/OPDAT FOR ALEXANDRE/NEWCOMBE 
 
E.O. 12958: N/A 
TAGS: EFIN SNAR KJUS OTRA KCRM KCOR AJ
SUBJECT: AZERBAIJAN PASSES MONEY LAUNDERING/TERRORIST FINANCING LAW 
 
¶1.  SUMMARY:  On February 10, 2009, the Azerbaijani Parliament 
passed an Anti-Money Laundering (AML)/Counter-Terrorist Financing 
(CTF) law during the law's third Parliamentary reading.  The next 
step in formalizing the law is for President Aliyev to sign it. 
This is a step forward in Azerbaijan's effort to address Council of 
Europe concerns regarding the GOAJ's lack of progress in meeting 
its responsibilities in the fight against transnational crime and 
terrorism. However, the penultimate draft of the law (second 
reading) contained major deficiencies, with MONEYVAL rating  42 out 
of 49 assessment categories as partially or non compliant.  Working 
with FATF experts, the GOAJ made last minute changes to the final 
text which is  still being reviewed by MONEYVAL.  The Finance 
Minister on February 13 asserted that FATF experts had approved the 
third reading draft as being consistent with FATF standards before 
it was passed. He said that when the President signs the law he will 
concurrently issue a decree naming the implementing agency where the 
FIU will be located.   End Summary. 
 
¶2.  Azerbaijan has been under significant pressure from the Council 
of Europe (COE) and MONEYVAL, as well as the USG, over its lack of 
progress in finalizing and implementing anti-money laundering 
legislation. Azerbaijan drew criticism from MONEYVAL as the only 
MONEYVAL country that did not have a comprehensive Anti-Money 
Laundering/Counter-Terrorist Financing (AML/CTF) law and a Financial 
Intelligence Unit (FIU) in place.  MONEYVAL was concerned that the 
GOAJ had done nothing to implement its provisions since ratifying 
the Terrorist Financing Convention.  In June 2008, during 
Parliament's first reading of the draft law, it was deemed deficient 
in almost all major FATF standards.  With assistance from the USG 
and COE, the GOAJ amended the law slightly.  In December 2008, 
MONEYVAL issued a final demand that Azerbaijan pass a money 
laundering law compliant with FATF standards. COE planned to ask 
FATF to impose administrative warnings at the February 23-27, 2009 
Plenary if Azerbaijan failed to follow through.  The COE believes 
that these administrative warnings could eventually lead to 
sanctions, such as freezing assets in international bank accounts on 
behalf of Azerbaijani commercial banks. 
 
¶3.  Because of the endemic corruption in all strata of the 
Azerbaijani government, the existence and location of a financial 
intelligence unit (FIU), which would be privy to sensitive 
information, has been a source of great controversy within 
Azerbaijan.  There were strong objections by many bankers, 
businessmen, and government officials to providing their financial 
data to law enforcement,  given widespread corruption.  This 
attitude runs contrary to the suspicious activity reporting and FIU 
requirements of UN Security Council Resolution 1373 and FATF Special 
9 Recommendations on Terrorist Financing. 
 
¶4.  In a significant change to the third reading draft, the GOAJ 
inserted the mandatory "suspicious transaction" and "know your 
customer" requirements, which monitoring agencies would need to 
report to an FIU.  Once constituted, the FIU would be responsible 
for providing a list of directives and examples to all banks and 
other financial institutions as to what constitutes a "suspicious" 
transaction.  The current law requires commercial banks to ensure 
identification of all entities opening an account, all 
representatives who are vested with the authority to open or use 
that account, and any third person whose name is on the account 
being opened. 
 
¶5.  Although many of the USDOJ and COE recommendations were not 
adopted before the third reading, the partially revised and somewhat 
improved ANL/CTF law was passed on February 10, 2009.  The law 
considers all crimes listed in the Criminal Procedure Code as 
predicate crimes to the crime of money laundering.  Specifically, 
this includes corruption and terrorism offenses.  Prior to this new 
law the Criminal Procedure Code of Azerbaijan criminalized the act 
of money laundering, although both this statute and corresponding 
asset forfeiture provisions could still use some improvement, 
especially in allowing for criminalization of "promoting" (versus 
just "concealing") the underlying crime and allowing "in rem" 
forfeiture. 
 
¶6.  The new law requires banks, NGOs, religious organizations, 
insurance companies, and notaries, among others, to report all cash 
transactions over an amount to be later determined by the FIU.  A 
major weakness in the law, however, is that it does not provide for 
criminal penalties against monitoring agencies for failure to report 
suspicious transactions, nor to report cash transactions over the 
FIU specified limit. 
 
 
BAKU 00000128  002 OF 002 
 
 
¶7.  As a result of the law, the FIU would have the power to freeze 
any suspicious transactions and then refer the case to the 
prosecutor's office.  Upon court order, the suspicious transaction 
could be frozen pending trial.  Unfortunately, there are no 
provisions in the law that subject FIU or prosecutorial employees to 
criminal and/or civil penalties for improperly releasing 
conf idential financial information.  The law states that a "system 
for protection" is to be created later. 
 
¶8.  This AML/CTF law was drafted by a Presidential Working Group, 
including, inter alia, officials from the National Bank.  Embassy's 
DOJ OPDAT Resident Legal Advisor (RLA) provided continued support 
and advice over this three year process.  When the law was stalled 
after the first reading, the RLA held an INL funded seminar for the 
President's Working Group and Members of Parliament.  During this 
seminar, the RLA elaborated on areas of improvement, and drove home 
the message that the draft law was deficient, needed to be improved, 
and needed to be passed.  The high-profile importance of this issue 
was emphasized by including the press, NGOs, and other executive 
branch officials.  Follow-up was conducted through individual 
meetings with the President's Working Group and Members of 
Parliament. 
 
¶9.  Finance Minister Sharifov told the Ambassador on February 13 
that the third reading draft of the law had been prepared in direct 
consultation with FATF experts and that he is confident the law 
meets FATF standards. He said that when the President signs the bill 
into law, he will concurrently issue a decree which identifies the 
implementing agency where the FIU will be located. 
 
¶10.  Comment:  The passage of the new AML/CTF law, which has been 
highly controversial, is a significant step.  The final draft is a 
significant improvement from the first reading draft.  At the same 
time, many provisions remain problematic, including listed 
restrictions on the FIU, the requirement of judicial approval for 
release of further financial information to a prosecutor, and the 
mechanics of the suspicious transactions reporting system.  Rapid 
GOAJ action to fund and implement the FIU and the FIU's issuance of 
adequate regulations covering suspicious transactions will likely be 
necessary for the law to pass muster in MONEYVAL and/or FATF.  The 
National Bank and Parliament drafters who prepared the law and 
worked for its passage are aware of this, but state that this law is 
the best they could currently pass through Parliament.  We believe 
we should await MONEYVAL and FATF's assessments and then determine 
next steps, including how we can best press  for/support early 
establishment of the FIU and rapid implementation of the law. End 
Comment. 
 
DERSE 
 
 
 
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