Anti-money Laundering: Georgia should Step up Using Financial Intelligence
In a report published today, the Council of Europe’s anti-money laundering body MONEYVAL calls on the Georgian authorities to strengthen the practical application of their measures to combat money laundering and financing of terrorism. It calls for making more efforts to use financial intelligence to detect and investigate money laundering, as well as for strengthening the supervision and regulation focusing on the high-risk non-financial sectors, especially casinos.
The report assesses the effectiveness of Georgia’s system for countering money laundering and financing of terrorism system and its level of compliance with Recommendations issued in 2012 by the Financial Action Task Force (FATF).
Today’s report acknowledges that Georgia displays a fair understanding of many of its money laundering (ML) and terrorism financing (TF) risks. Shortcomings exist regarding identification, in-depth analysis and understanding of some threats, vulnerabilities and risks. Notably, the understanding of risks needs to be developed further in the following areas: use of cash in the economy; the real estate sector; trade-based money laundering and terrorism financing (including in free industrial zones of Georgia); the activities of legal persons; and the use of non-profit organizations (NPOs). The existing exemptions from the application of the FATF Recommendations by a number of sectors are either not supported by a risk assessment or are not in line with the results of the National Risk Assessment (NRA); besides, they do not occur in strictly limited and justified circumstances.
Generally, proactive dissemination of intelligence by the Financial Monitoring Service is an important source for initiating investigation of ML/TF. Nevertheless, in Georgia there are important limitations in place on the financial intelligence that can be obtained upon request from the Financial Monitoring Service by law enforcement authorities, when investigating ML, and associated predicate offences.
When a potential case of money laundering is detected, it is investigated effectively using a range of investigative techniques, principally by the AML Division of the General Prosecutor’s Office (GPO), the report notes. There have been some successful cases involving high-asset values and complex factors. However, potential ML cases are not sufficiently detected, and the overall number of investigations is modest compared to the level of predicate criminality in the country.
The cases that have been taken forward from the investigation to the prosecution stage target only in part the prevailing criminal trends and threats.
As there are no legal or structural impediments to taking forward prosecutions of money-laundering cases, Georgia has achieved convictions for all types of money laundering. However, there is low number of convictions involving complex ML cases and legal persons.
Fighting terrorism financing is well integrated into counter-terrorism strategies and investigations, and Georgia makes effective use of alternative penalising measures when it is not practicable to secure a TF conviction. Once detected, TF is generally investigated and prosecuted quite effectively using a range of investigative techniques. There have been two TF prosecutions, involving different types of TF activity resulting in multiple convictions.
Georgia has a new legislative framework for the implementation of the United Nations (UN) Security Council Resolutions on targeted financial sanctions with respect to terrorism financing and proliferation financing. Though delays in implementation of the UN targeted financial sanctions have been shortened, the situation is still not in line with the notion of ‘implementation without delay’, i.e. within a matter of hours. Despite having convicted persons for terrorism and terrorism financing, Georgia has not listed any terrorists or terrorist organizations within the assessment period.
The level of understanding of risks highlighted in the national risk assessment and/or outlined in the AML/CFT Law and guidance notes was generally good for financial institutions. Overall, the risk presented by the high level of cash circulation in Georgia is underestimated. Significant gaps were also observed in the application of customer due diligence measures by most designated non-financial businesses and professions and National Agency of Public Registry for the real estate sector.
The National Bank of Georgia and the Insurance State Supervision Service supervise most financial institutions and have a comprehensive understanding of sectoral and individual institution risks. They apply robust “fit and proper” entry checks for such institutions and carry out on-going scrutiny of licensing requirements. In practice, the Ministry of Finance does not undertake any AML/CFT supervision for casinos, even though this sector presents the highest ML/TF risks in the country, and there are technical deficiencies in licensing requirements for casinos which seriously undermine their effectiveness in preventing criminals or their associates from controlling or managing a casino. The application of “fit and proper” entry checks amongst other non-financial structures is mixed, and the level of AML/CFT supervision is insufficient and uneven. As a consequence, the low level of reporting of suspicious transactions remains a concern.
Setting up a legal person in Georgia is straightforward, and all information necessary for registration is publicly available. The authorities have not demonstrated effective identification and analysis of threats to and vulnerabilities of such legal persons in the ML/TF context, though it is universally understood that the use of “fictitious” limited liability companies in criminal schemes constitutes a significant money-laundering risk. The mechanisms available to obtain information on beneficial ownership of legal persons established in Georgia in practice cannot be relied upon in all cases to provide adequate, accurate and up-to-date information.
Georgia has a sound legal framework for international cooperation and has mechanisms in place to conduct it. Georgia demonstrated effective cooperation in providing and seeking information, using both formal and informal channels, with a wide range of foreign jurisdictions, the MONEYVAL report concludes.