VZCZCXYZ0002
OO RUEHWEB

DE RUEHEK #1338/01 3640825
ZNR UUUUU ZZH
O 300825Z DEC 09
FM AMEMBASSY BISHKEK
TO SECSTATE WASHDC IMMEDIATE 2920

UNCLAS BISHKEK 001338 
 
SIPDIS 
 
STATE FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL KG
SUBJECT: KYRGYZSTAN: 2009-2010 INTERNATIONAL NARCOTICS 
CONTROL STRATEGY REPORT (INCSR), PART II, FINANCIAL CRIMES 
AND MONEY LAUNDERING 
 
REF: STATE 117247 
 
¶1.  Following is Embassy Bishkek's submission for the 
2009-2010 International Narcotics Control Strategy Report 
(INCSR), Part II, Financial Crimes and Money Laundering. 
 
¶2. Begin Text: 
 
Kyrgyz Republic 
 
The Kyrgyz Republic is not a regional financial center.  The 
Kyrgyz Republic adopted a new anti-money laundering statute 
in 2006 and has made significant amendments to fill gaps that 
existed in the previous law on enforcement and 
implementation.  Key issues that remain to be resolved are 
including auto dealers and real estate developers in the list 
of entities required to report large dollar transactions. 
The law enforcement authorities continue to work on necessary 
resource and structural modifications and are pursuing 
anti-money laundering and terrorist financing priorities. 
However, due to the fact that the system is still in its 
nascent stage, there are no significant results of financial 
investigations, or criminal prosecutions.  Since 2006, there 
have been nine cases referred to the Financial Police by the 
Financial Intelligence Unit.  Of those, two were investigated 
and none prosecuted to date. 
 
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. Narcotics trafficking, 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, inter-agency 
cooperation, 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. 
 The Kyrgyz Republic is not considered an offshore financial 
center, nor does it have a free trade zone. 
 
In 2009, the legislature passed amendments to the 2006 law on 
"Counteracting Terrorist Financing and Legalization of 
Proceeds from Crime (Money Laundering)."  The law still 
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 remains $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 five-year record retention by all Kyrgyz 
financial institutions. 
 
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 law 
mandates that all such entities report threshold amount 
transactions as well as all suspicious transactions.  Recent 
amendments have expanded the list to include: notaries, tax 
consultants/auditors, realtors, the state's property agency, 
trustees, jewelry stores and dealers. 
 
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 cases to law enforcement, the prosecutor's office, 
and the court for investigation and prosecution.  The 
Financial Intelligence Service is an administrative entity 
with no powers of criminal investigation or regulatory 
responsibilities.  While the Financial Intelligence Service 
continuously offers training, law enforcement agencies 
generally choose not to attend. The banks, however, avail 
themselves of training opportunities. 
 
 
Resources continue to be inadequate, but the Financial 
Intelligence Service is improving its expertise and 
knowledge, especially in cooperation with the European Asian 
Group, the region's Financial Action Task Force (FATF) 
watchdog organization. One of the two key criticisms of the 
2006 anti-money laundering law was addressed in the recent 
amendments: money laundering is now criminalized, making the 
anti-money laundering law FATF compliant.  However, the 
reporting threshold amount of $25,000 remains at what experts 
say is extraordinarily high. 
 
The newly promulgated amendments address the issue of asset 
forfeiture. While the proceeds of crime and/or laundered 
funds can be seized and placed in a state fund, clearer 
procedural regulations need to be implemented.  In addition, 
procedures for seizing and forfeiting assets derived from 
criminal activity also need to be clarified.  Existing 
criminal laws do provide for fines and levies against 
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 the Kyrgyz Republic; 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.  The concept of examining financial 
documents or seizing them while executing a search warrant 
remains a novel idea for prosecutors who know little about 
employing financial investigation techniques to improve their 
investigations of predicate crimes.  There is no provision 
under Kyrgyz law to allow for civil forfeiture. 
 
Regarding international cooperation, Chapter IV of the money 
laundering law does provide for an international exchange of 
information and legal assistance.  The law mandates that the 
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. 
MEMMOTT