VZCZCXRO3375
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHNT #2194/01 3450814
ZNR UUUUU ZZH
R 110813Z DEC 09
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 1630
INFO ALL SOUTH AND CENTRAL ASIA COLLECTIVE
EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 06 TASHKENT 002194 
 
SIPDIS 
STATE FOR INL, SCT, EEB, AND SCA/CEN 
JUSTICE FOR AFMLS, OIA, AND OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN SNAR UZ
SUBJECT: UZBEKISTAN 2009 INCSR REPORT - PART II: FINANCIAL CRIMES AND 
MONEY LAUNDERING 
 
OVERVIEW 
 
 
 
¶1. Uzbekistan is not an important regional financial center and 
does not have a well-developed financial system. Corruption, 
narcotics trafficking and smuggling generate the majority of 
illicit proceeds. Local and regional drug-trafficking and other 
organized crime organizations control narcotics proceeds and 
proceeds from other criminal activities, such as smuggling of cash, 
high-value transferable assets (e.g., gold), property, or 
automobiles. Uzbekistan is home to a significant black market for 
smuggled goods. Since the Government of Uzbekistan (GOU) imposed a 
very restrictive trade and import regime in the summer of 2002, 
smuggling of consumer goods, already a considerable problem, 
increased dramatically. In April 2009, the GOU passed legislation 
to reestablish an anti-money laundering regime that had been 
suspended by Presidential decree until 2013, for which Uzbekistan 
drew heavy criticism from the Financial Action Task Force (FATF) 
and international community. The new legislation represents a step 
forward in Uzbekistan's commitment to combat financial crimes but 
it is too early to assess implementation or impact. 
 
 
 
¶2. 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, but, as 
noted above, drug dealers use the robust black market to launder 
drug-related money. 
 
 
 
¶3. Legitimate business owners, ordinary citizens, and foreign 
residents generally attempt to avoid using the Uzbek banking system 
for transactions because of the onerous nature of the GOU's 
financial control system, fear of GOU seizure of assets, and lack 
of trust in the banking system as a whole. 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. 
 
 
 
¶4. The CBU, General Prosecutor's Office (GPO), and the National 
Security Service (NSS) closely monitor all domestic banking 
transactions for tax and currency control purposes. In particular, 
banks are required to know, record, and report the identity of 
customers engaging in significant transactions, including the 
recording of large currency transactions based on a multiple of the 
minimum wage.  The CBU unofficially requires commercial banks to 
report on private transfers to foreign banks exceeding U.S. 
$10,000. 
 
 
 
¶5. 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. 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 FRAMEWORK 
 
 
 
¶6. Money laundering from the proceeds of 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 
 
TASHKENT 00002194  002 OF 006 
 
 
derived from illicit narcotics trafficking. The law protects 
reporting individuals with respect to their cooperation with law 
enforcement entities. The GOU has not adopted "banker negligence" 
laws holding individual bankers responsible if their institutions 
launder money. 
 
 
 
¶7. 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, banks 
can disclose private information to prosecution and investigation 
authorities if a criminal investigation is underway. They can 
provide information to the courts on the basis of a written request 
in relation to cases currently under consideration. Tax authorities 
can also obtain protected banking information in cases involving 
the taxation of a bank's client. GOU officials note that the 
secrecy law does not apply if a group is on a list of designated 
terrorist organizations. 
 
 
 
¶8. 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. 
 
 
 
¶9. 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 under the GPO are also authorized to conduct 
investigations of money laundering offenses. The Department of Tax, 
Currency Crimes and Legalization of Criminal Proceeds is the 
functional equivalent of a Financial Intelligence Unit (FIU). 
Officials from the GPO reported that there were 103 money 
laundering-related cases from January 2006 through November 2009, 
which resulted in 38 convictions. 
 
 
 
¶10. In 2004, Uzbekistan enacted a basic AML/CTF regime that 
contained a range of AML/CTF provisions, including customer due 
diligence (CDD), record keeping, and reporting. While the AML/CTF 
law went into effect on 1 January 2006, important parts of the law 
were suspended until 1 January 2013 pursuant to several 
presidential decrees and an additional law in 2007.  These actions 
drew heavy criticism from the international community and led the 
FATF ICRG to review the AML/CTF situation in Uzbekistan. 
 
 
 
¶11. In April 2009, the GOU responded to international concerns by 
re-enacting many of the 2004 AML/CFT provisions.  The new 
legislation falls short of international standards in some areas 
but does represent a step forward from the ill-fated earlier law. 
In particular, provisions on CDD are improved, and the law extends 
the list of entities explicitly subject to anti-money laundering to 
include non-banking institutions, such as jewelers and real estate 
brokers.  These April changes have had a cascading effect, as 
portions of sixteen other laws had to be amended to bring them into 
compliance with the new legislation. Parliament adopted the first 
of several follow-on amendments to the AML law in September 2009, 
which took effect in November 2009.  These regulations include the 
elimination of bearer bonds and bearer deposit savings books. 
Representatives from the GPO state that they expect to submit 
additional recommendations to Parliament in the first quarter of 
2010 to further refine the AML rules and eliminate legislative 
contradictions. 
 
 
 
¶12. The new AML regulations reportedly have had a significant 
impact on suspicious transaction reporting. Previously, Uzbek bank 
 
TASHKENT 00002194  003 OF 006 
 
 
generally reported all transactions exceeding the minimum "alert" 
threshold.  According to the GPO, this led to over-reporting and 
stretched resources too thin.  The new regulations provide banks 
with more concrete guidelines for assessing suspicious activity, 
theoretically leading to greater efficiency in the investigation of 
potential money laundering.  The GPO notes that previously, the FIU 
received, on average, 1,500 suspicious activity reports per month. 
Since the new legislation went into effect in November 2009, this 
number is only 187.  One of these transactions has led to criminal 
charges. 
 
 
 
¶13. In its October 2009 statement, the Financial Action Task Force 
(FATF), an international inter-governmental body that promotes 
policies to combat money laundering and terrorist financing, 
welcomed the recent steps that Uzbekistan has taken to establish 
the new AML/CFT framework and urged Uzbekistan to continue its 
progress towards implementing effective AML/CFT measures. The FATF 
noted that it will continue to monitor the progress being made in 
Uzbekistan and will reconsider in February 2010 the measures that 
are currently in place to protect jurisdictions' financial sectors 
from AML/CFT risks emanating from Uzbekistan. 
 
 
 
¶14. 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 
authorities assess a one-percent duty on amounts in excess of this 
limit. 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 up 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, Uzbekistan does not permit direct wire transfers to or 
from other Central Asian countries; a third country must be used. 
 
 
 
OFFSHORE FINANCIAL TRANSACTIONS 
 
 
 
¶15. Uzbekistan is not an offshore financial center. Uzbekistan 
permits offices of international business companies, which are 
subject to the same regulations as domestic businesses, but 
prohibits offshore banks. Other forms of exempt or shell companies 
are not officially present.  Casinos are illegal in Uzbekistan. 
 
 
 
FREE TRADE ZONES 
 
 
 
¶16. Uzbekistan has established the Free Industrial Economic Zone 
(FIEZ) in Navoi, a province located in the central part of 
Uzbekistan. Development of the zone is still in its early stages. 
There is no indication that the Navoi free trade zone is used in 
trade-based money laundering schemes or by financiers of terrorism. 
 
 
 
 
TERRORIST FINANCING 
 
 
 
¶17. 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 
 
TASHKENT 00002194  004 OF 006 
 
 
implementing the counterterrorist legislation, and designates 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. 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. 
 
 
 
¶18. Other than a plan to step up enforcement of currency 
regulations, the GOU has taken no steps to regulate alternative 
remittance systems such as hawala, or deter 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 
financial institutions track remittances. Although officially there 
is complete currency convertibility, in reality, authorities can 
significantly delay or outright refuse the conversion, and do so 
during such times as the annual autumn cotton harvest, when cash 
supplies are needed internally to support the extensive 
mobilization of people and machinery to collect the crop. Foreign 
companies complain that they must wait over six months to convert 
the profits from local sales into foreign currencies in order to 
transfer the money out of Uzbekistan. 
 
 
 
¶19. The GOU closely monitors the activities of charitable and 
nonprofit entities, such as NGOs, that terrorism financiers could 
exploit. 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 high level of supervision of charities and 
other nonprofits, and the perceived threat from the Islamic 
Movement of Uzbekistan (IMU) and other extremist organizations, it 
is unlikely that the NSS would knowingly allow any funds to be 
funneled to terrorists through Uzbekistan-based charitable 
organizations or NGOs. 
 
 
 
¶20. 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 a criminal case to decide forfeiture issues.  As 
a practical matter, authorities conduct these proceedings as part 
of the criminal case. The obstacles to enacting such laws are 
largely rooted in the widespread corruption that exists within the 
country. 
 
 
 
¶21. In 2000, Uzbekistan established a special fund to direct 
confiscated assets to law enforcement activities. In 2004, the 
Cabinet of Ministers closed the Special Fund. 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 is 
believed to enforce existing drug-related asset seizure and 
forfeiture laws enthusiastically, although there is no information 
regarding the total dollar value of crime related assets. 
Reportedly, existing legislation does not permit sharing of seized 
narcotics assets with other governments. 
 
TASHKENT 00002194  005 OF 006 
 
 
INTERNATIONAL COOPERATION 
 
 
 
¶22. 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 into the system of 
international cooperation. 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 under the framework of the CIS and the 
Shanghai Cooperation Organization, and under memoranda of 
understanding. 
 
 
 
¶23. Uzbekistan signed an "Agreement on Narcotics Control and Law 
Enforcement Assistance" 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 significant improvement in 2009. In a major step towards 
more effective bilateral cooperation, the GOU accredited a 
"Counternarcotics Affairs Office" (CAO) staffed by the U.S. Drug 
Enforcement Administration (DEA).  The CAO will focus its efforts 
on strengthening Uzbek institutions and building the operational 
and investigative capacity of Uzbek law enforcement agencies. 
 
 
 
¶24. Uzbekistan has been a member of the Eurasian Group on Combating 
Money Laundering and the Financing of Terrorism (EAG), a FATF-style 
regional body, since 2005.  In November 2009, EAG experts conducted 
an in-county evaluation in Uzbekistan. The evaluation report will 
be discussed at the 12th EAG Plenary in June 2010, and EAG will 
submit its finding to the FAFT at its February 2010 meeting. 
Representatives from the GPO state that the EAG's findings were 
generally positive. 
 
 
 
¶25. 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 Convention for the Suppression of the Financing 
of Terrorism, the UN Convention against Transnational Organized 
Crime, and the UN Convention against Corruption. 
 
 
 
¶26. The GOU has accepted international technical assistance for 
drafting bylaws as well as general implementation guidance to 
restore its AML regime and bring it into further into compliance 
with FAFT recommendations.  A joint World Bank/UNODC/IMF Workshop 
on an effective AML/CFT framework and mutual evaluation was 
organized from 27 to 28 October 2009 in Tashkent. The IMF also 
organized a second one-day workshop on October 29 in Tashkent 
specifically for Uzbek banks. On 5 October 2009, the Russian 
Federation and Uzbekistan signed an agreement on technical 
assistance cooperation for AML/CFT in Moscow.  Under the agreement, 
Russia will provide the Uzbek FIU with technical and advisory 
assistance for harmonizing the new, national AML/CFT with existing 
law, enhancing the effectiveness of the FIU activities and creating 
an IT-system for collecting, storing, and processing data. 
 
 
 
¶27. A lack of trained personnel, resources, and modern equipment 
continues to hinder Uzbekistan's efforts to fight money laundering 
and terrorist financing. The GOU has made progress by re-enacting 
AML/CFT legislation that provides a framework for the Uzbek FIU to 
function effectively and is generally compliant with FAFT 
recommendations.  Assuming additional restoration of Uzbekistan's 
 
TASHKENT 00002194  006 OF 006 
 
 
AML/CTF regime through further bylaws, much will depend on the 
FIU's ability to become fully operational and to cooperate 
effectively with other GOU law enforcement and regulatory agencies 
in receiving and disseminating information on suspicious 
transactions. 
BUTCHER