Article 3 of Spain’s law No. 19/1993 on the prevention of money laundering imposes obligations on financial entities and other persons involved in the transfer of capital (including charitable organizations), stipulating that they must refrain from any transaction in which the issuer or recipient of funds might be a person linked to activities involving armed groups or terrorist organizations. Article 575 of the Penal Code, determining the sanctions for crimes against property, defines “crimes of terrorism” to include attempts to steal property with the goal of obtaining funds to aid terrorist groups. Article 301 features regulations against money laundering and elevates sanctions for crimes against property in those cases when they are deemed crimes of terrorism.
In a court case, the initiation of criminal proceedings entails the precautionary seizure of all money or other assets used to commit the terror act, following Articles 13, 326, 334 and 589 of the Criminal Prosecution Act. Law No. 40/1979 on Exchange Controls and Law No. 41/1999 on Payment Systems provide for the freezing of funds and assets in third-party countries with respect to persons involved in terrorist acts.
Since September 11, 2001, the draft legislation on Prevention and Blockade of the Financing of Terrorism allows the government to block financial accounts and operations when it considers that this might prevent terrorist activities. Whereas before only judges could block accounts meant for terrorist acts as a preventative or repressive measure, the government now also has that power, though Administration decisions remain under the Audiencia National’s judicial control and the maximum term of blockade is six months.
As for incitement, Article 9 of the New Party Act, Organic Law 6/2002 of June 27, 2002 stipulates that a political party will be declared illegal if it systematically harms fundamental rights and freedoms by promoting, justifying or exonerating attacks against the right to life and the integrity of the individual, if it foments, facilitates or legitimizes violence, or complements and supports the actions of terrorist organizations.”
In March 2003, Spanish national police in Valencia arrested four Spaniards and one Pakistani accused of belonging to a financial network involved in laundering money bound for al-Qaeda operatives. The Spanish Ministry of Interior also linked these suspects to a terrorist attack that took place in April 2002 in Yerba, Tunisia, in which 19 people were killed. On 12 March 2003, a Spanish judge ordered two of these suspects remanded to prison pending further investigation of the case, while the other three were released. According to Spanish authorities, the March 2004 Madrid bombing was funded by drug trafficking (52). In 2003, Spain chaired with the United States the Financial Action Task Force (FATF) Terrorism Finance Working Group. It is also pressing to become a standing member of the G-8’s Counterterrorism Action Group on the basis of its high level of technical counterterrorism assistance to third countries.
Although Spain had been actively pursuing al-Qaeda cells and arresting members of that and related organizations, no substantial amounts of money were frozen.
Russia has extensive federal legislation targeting acts of terrorism and other extremist activities, and providing countermeasures against terrorist behavior (53). Russia’s Money Laundering Act (MLA) of 1 February 2002 imposes disclosure obligations on banks and other non-banking financial institutions, and introduces a mandatory suspicious transaction reporting regime. Government Decree No. 211 of 2 April 2002 establishes the Financial Monitoring Committee, and Government Decree No. 245 of 17 April 2002 specifies reporting procedures for designated financial institutions.
The MLA requires banks and other financial institutions to check the identity of each participant in a transaction and each beneficial owner of the funds involved, and to report any suspicious transaction to the Financial Monitoring Committee, which reviews such reports and refers them to the appropriate law enforcement body if it finds sufficient evidence for money laundering. The MLA also empowers the authorized bodies to monitor, freeze or seize financial resources when ordered within the framework of mutual international judicial assistance.
In November 2002 the MLA was revised and converted in the Financing Terrorism Act (FTA). This improvement created new banking prohibitions, facilitating the monitoring of accounts and the freezing of administrative accounts of “certified” terrorist organizations. The requirement to report now also includes any financial operation to or from a country that is non-cooperative in combating terror financing, or when one of the parties is a holder of an account in a bank registered in such a country. Article 6.2 of the FTA also introduces a special control regime for financial operations by any person or organization certified to be involved in extremist activity, and of any legal entity which is directly or indirectly owned or controlled by such a person or organization. Articles 115 and 116 of the Penal Code allow seizure of funds when criminal proceedings have been opened.
Articles 174 and 174.1 of the Criminal Code stipulate anywhere from a 4-year sentence with fine to a ten-year sentence with confiscation for money laundering. A 2002 amendment to the Criminal Code makes terror financing a separate criminal offense under Article 205.1, punishable with four to eight years of imprisonment (fifteen years in case of a repeat offence or offence using an official position). Article 205.1 CC and Article 1 of the Extremism Bill broadly define financing as providing funds and other financial support for the commission of a terrorist act or a terrorist organization, irrespective of intention.
Since banking and financial institutions are not properly regulated in Russia, it was probably not too difficult for Chechen leader Shamil Basayev to get the 8,000 euros he claims to have spent organizing the Beslan school massacre of August 2004 (54). Russian authorities have said that the massacre was financed in part by a Saudi charity and planned by Saudi nationals who joined the Chechen revolt a decade ago (55).
The abovementioned UN Convention and resolutions likewise apply in the Latin-American context, but area-specific organizations such as the Organization of American States (OAS) also bring their own antiterrorism provisions to the table. Founded in 1948, the OAS includes all 35 independent countries of the Americas, with Cuba alone denied participation since 1962. OAS features a specialized committee against terrorism, called the Comite Interamericano contra el terrorismo (CICTE), which was created following two conferences, Lima in 1996 and Mar del Plata in 1998.
CICTE “has taken a lead in developing concrete strategies for confronting the threat of terrorism. In its annual meetings, it has recommended that countries enact a range of measures to strengthen border security, tighten customs controls, and improve the quality of identification and travel documents. Other recommendations included financial controls to prevent money laundering and the financing of terrorist activities.”
Partially in response to the September 11 attacks, OAS created The Inter-American Convention against Terrorism. The treaty, produced after the September 11 attacks, “seeks to prevent the financing of terrorist activities, strengthen border controls and increase cooperation among law enforcement authorities in different countries, among other measures. It calls terrorism “a serious threat to democratic values and to international peace and security.” It entered into force on July 10, 2003, and has been ratified by eight countries: Antigua and Barbuda, Canada, El Salvador, Mexico, Nicaragua, Panama, Peru and Venezuela.
Article 4 of the Treaty outlines measures intended to prevent, combat, and eradicate the financing of terrorism. Section 1 calls on state parties to institute a legal and regulatory regime to prevent, combat, and eradicate the financing of terrorism which includes “a comprehensive domestic regulatory and supervisory regime for banks, other financial institutions, and other entities deemed particularly susceptible to being used for the financing of terrorist activities,” which shall emphasize requirements for customer identification, record-keeping, and the reporting of suspicious or unusual transactions. The regime must also include “measures to detect and monitor movements across borders of cash, bearer negotiable instruments, and other appropriate movements of value,” subject to safeguards that do not impede the movement of legitimate capital. Finally, there is a provision for “measures to ensure that the competent authorities…have the ability to cooperate and exchange information at the national and international levels within the conditions prescribed under its domestic law. To that end, each state party shall establish and maintain a financial intelligence unit to serve as a national center for the collection, analysis, and dissemination of pertinent money laundering and terrorist financing information” and inform the OAS Secretary General of these designated units. Section 2 of Article 4 mandates that state parties follow the recommendations “developed by specialized international and regional entities, in particular the Financial Action Task Force and, as appropriate, the Inter-American Drug Abuse Control Commission, the Caribbean Financial Action Task Force, and the South American Financial Action Task Force.”
Article 5 covers the seizure and confiscation of terrorist assets. It mandates that each state party take necessary measures to identify, freeze or confiscate for the purposes of possible forfeiture “any funds or other assets constituting the proceeds of, used to facilitate, or used or intended to finance, the commission of any” terrorist offenses, both within and outside the jurisdiction of the state party. Article 6 calls on each state party to ensure that its domestic money laundering legislation also includes those offenses established in the Convention.
Meanwhile, the IMF and World Bank collaborated to introduce Financial Sector Assessment Programs (FSAP) intended to facilitate efforts to promote the soundness of financial systems in member countries. As part of the report, FSAP assess the country’s framework to combat money laundering and terrorism. Available reports for countries investigated can be found at http://www.imf.org/external/np/fsap/fsap.asp. The IMF and the World Bank prepare Reports on the Observance of Standards and Codes (ROSCs), which summarize the extent to which countries observe certain internationally recognized standards and codes, and are published at the request of the member country. These may be found at http://www.imf.org/external/np/rosc/rosc.asp.
Back in 1990, the OECD’s Financial Action Task Force (FATF) on Money Laundering established 40 proposals against money laundering (56). These were revised in 1996 and in 2003. After September 11, FATF amplified its 40 recommendations with eight specific recommendations against terrorist financing. These commit member states to 1) take immediate steps to ratify and implement the relevant United Nations instruments; 2) criminalize the financing of terrorism, terrorist acts and terrorist organizations; 3) freeze and confiscate terrorist assets; 4) report suspicious transactions linked to terrorism; 5) provide the widest possible range of assistance to other countries’ law enforcement and regulatory authorities for terrorist financing investigations; 6) impose anti-money laundering requirements on alternative remittance systems; 7) strengthen customer identification measures in international and domestic wire transfers; and 8) ensure that entities, in particular non-profit organizations, cannot be misused to finance terrorism. Of the Latin American states, however, only Argentina, Brazil, and Mexico belong to FATF, and until recently Guatemala was actually listed as a non-cooperative country.
The following section covers anti- terror financing laws Argentina, Chile, Colombia, Mexico, Panama, Paraguay, Peru, and Uruguay. These Latin American countries have been dealing with terrorism for years, and most already have counter-terrorism legislation in their Penal Code. In addition, several countries have statues to prevent and stop money laundering activities. Finally, only a few of the countries investigated have laws that deal specifically with the financing of terrorist activities. Nevertheless, it should be noted that all countries investigated are part of the international efforts to stop terrorism and the financing of terrorist activities.
Tri-Border Region: Argentina, Brazil, Paraguay
The area where the 3 countries meet has been described as the regional center for the funding of Hizballah and Hamas. This lawless area is also used for arms trafficking, money laundering, and smuggling. There have also been unconfirmed reports of an Al-Qaeda presence in the area (57). To address the problem, the three countries and the US recently established “Grupo 3+1,” which serves as a regional framework for discussion and problem solving. On December 3, 2003, the delegations of Argentina, Brazil, Paraguay and the United States met in the city of Asuncion in the framework of the 3+1 Group on Tri-Border Area Security to discuss and analyze preventive actions against terrorism. The discussions covered terrorist training, the strengthening of financial institutions, money-laundering legislation, the financing of terrorism, drug and arms trafficking, border controls, as well as cooperation on the exchange of information and law enforcement on this matter (58).
Argentina does not have legislation to deal specifically with the crime of financing of terrorism, and its regulations regarding support of terrorism and criminal association insufficiently cover the area of terrorist financing (59). According to the State Department’s “Patterns of Global Terrorism, 2003” report, Argentina lacks new anti-terrorism legislation despite its oft-stated commitment to the fight against terrorism (60).
Argentina’s Article 210b covers crimes by unlawful association, mandating a prison term of 5-20 years to individuals that take part in, cooperate, or help to form and maintain an illicit group that endangers the National Constitution. It is essentially an anti-conspiracy law which goes into effect if at least two of the following conditions are met: a) the group is composed of ten or more members; b) it is organized in a military manner; c) it is composed of cells; d) it has military weapons or powerful offensive explosives; e) it operates in more than one political jurisdiction; f) it is composed by one or more military or security officials; g) it has connections with similar domestic or foreign organizations; or h) it receives aid or direction from public officials. Its anti-money laundering legislation includes Drug Law no. 23.737 (1989) and its Bill on Money Laundering, Law 25.246 (2000), which creates the Financial Information Unit (FIU).
Argentina has yet to bring to justice former President Carlos Menem and his associates for facilitating Hizbollah’s activities and bombings of the Buenos Aires Jewish Center and the Jewish Embassy in 1992 and 1994, respectively.
Brazil is a member of the Financial Action Task Force and has extensive legislation criminalizing terrorist offences (61). The main legal texts regarding terrorism are the Penal Code, The Code of Criminal Procedure, the National Security Act, the Heinous Crimes Act, the Act for the Oversight of the Export of Services and Items for Military Use, Dual-Use and Use in the Nuclear, Chemical or Biological Fields, the Money Laundering Act, and the Act establishing the Brazilian Intelligence System (SISBIN).
Law No. 9.613 of March 3, 1998 first defined and criminalized money laundering, laid out the principal preventative measures and established the Financial Intelligence Unit (62). This unit, known as the Financial Activities Control Council (COAF), oversees financial and non-financial entities that fall outside of the jurisdiction of the major supervisory authorities (63).
Brazilian law prohibits money-laundering, or converting the proceeds of a crime into licit assets, and punishes it with three to ten years in prison, along with confiscation of the funds involve (64). Knowingly using the proceeds of crime in a group set up to commit terrorism is punishable by 30 years in prison. Supporting a terrorist organization or committing criminal acts to fund such a group also constitutes the crime of financing terrorism. In Brazil, narcotics trafficking is considered to be the single largest generator of criminal proceeds, followed by firearms, contraband and illegal gambling. An individual found guilty of money laundering automatically surrenders any assets generated by the predicate offence to the government; this includes proceeds obtained from or for terrorist groups as well as the funds of individual terrorists.
The secrecy provisions of Brazilian banking law once posed a significant obstacle to the system’s effectiveness, as they prevented the COAF from accessing some portions of reports or from providing them to a foreign jurisdiction. However, the government passed a complimentary act for the lifting of bank secrecy rules in the course of criminal investigations, especially ones having to do with terrorism. The Code of Criminal Procedure and international agreements govern instances in which seizure of assets requires two countries to recognize the crime. Brazil participates in the MERCOSUR working group on terrorism. It is party to the Convention for the Suppression of the Financing of Terrorism and the United Nations Security Council resolution 1373 (2001). However, despite its sound foundation, the relatively-new Brazilian anti-money laundering system has not yet resulted in any successful prosecutions or convictions, and if Brazil’s past implementation of laws is any guide, it is unlikely that any headway in fighting terror financing is to be made.
Paraguay recognizes that it lacks effective counter-terrorism legislation, and acknowledges the possible laundering of funds used towards terrorist causes. It has asked other governments for assistance as the shortcomings of its own national legal system leave it incapable of prosecuting suspected terrorists (65). Despite these shortcomings and a low rating on Transparency International’s Corruption Perceptions Index 2003, it has sent to trial Hezbollah fundraisers. Two of these — Sobhi Fayad and Ali Nizar Dahroug — were sentenced, albeit under laws that covered crimes of tax evasion rather than terrorist financing (66). Fund collector Assad Ahmad Barakat, who was accused of terrorist financing by the US Department of Treasury, was likewise extradited from Brazil to Paraguay in 2003 for tax evasion (67).
Uruguay is party to eight of the 12 international conventions and protocols relating to terrorism. “Although Uruguay does not have the financial or military resources to play a direct role in the war on terrorism, it provides troops to international peacekeeping missions in Africa and the Middle East. In 2002, Uruguayan law-enforcement authorities assisted with international investigations to monitor the movements and activities of suspected terrorists, and the Parliament is currently drafting new terrorism laws that will further facilitate domestic and international counterterrorism efforts. The Uruguayan Government readily cooperates with US Government requests to investigate individuals or financial transactions linked to terrorism.”
Cooperation has not been flawless, however. Egypt has asked Uruguay to extradite suspected al-Gama’a al-Islamiyya (Islamic Group) terrorist al-Said Hassan Mokhles, wanted in connection with the 1997 attack on tourists in Luxor, Egypt. He has been held in Uruguay since early 1999 on charges of document fraud, but Uruguay and Egypt have been unable to agree on the terms for extradition, in part because Egypt has not guaranteed in writing that Mokhles will not be subject to the death penalty” (68).
While Colombia has no specific laws regarding terrorism financing, some of the laws in the area of money laundering are applicable (69). New measures in the Colombia Penal Code raised the rank of a crime of willfully providing funds for terrorist acts or to engage in terrorist activities. Although Colombian legislation contains no specific procedure for ‘freezing’ funds or financial assets of persons or entities suspected of supporting terrorist activities, any assets linked to criminal activities, including terrorism, are subject to confiscation by order of the Prosecutor-General in the context of a criminal procedure, as provided in article 67 of the new Code of Criminal Procedure (70).
Article 343 of the Penal Code defines terrorism and establishes a penalty of 10-15 years plus fine. Article 345 stipulates a penalty of 6-12 years for those who administer money or goods related to terrorist activities (71). Furthermore, the Penal Code’s chapter on money laundering mandates the reporting of any suspicious transaction. Accordingly, “any employee or director of a financial institution or savings and loan cooperative who, with a view to concealing or disguising the illicit origin of the money, fails to comply with the control mechanisms established by the legal system with respect to cash transactions, shall be liable to a term of imprisonment.” Both Decree No. 663 of the Financial Institutions Statute and Act No. 190 of the Anti-Corruption Statute require the reporting of irregularities. Moreover, Article 53 of the Organic Statute of the Financial System (EOSF) expressly prohibits the operation of informal banks in Colombian territory. The Superintendent of Banks is likewise charged with ensuring that no one undertakes informal or irregular banking activity in Colombia, and is empowered to conduct inspection visits to suspect locations as well as to adopt necessary preventive measures.
The Financial Analysis Unit of the Ministry of Finance concludes agreements with financial tracking bodies in other countries to exchange information used in carrying out initial checks, with particular reference to recent international measures to combat Colombian terrorist groups (72).
There are no specific laws covering the financing of terror activities in Chile, although terrorist acts are defined in the Penal Code and their prosecution is provided for (73). In 2003, Chile approved a Financial Intelligence Unit “with the goal of preventing the use of the financial system and economic sectors for criminal acts as named by the law” but subsequent rulings of the Constitutional Court eliminated the FIU’s sanctioning powers, limited its discretion in requesting date on suspicious transaction records and denied its access to information protected by bank secrecy, thus hindering investigations and the disclosure of potential offences. Likewise, securities firms, insurance companies and foreign exchange retail operators also fall short in monitoring compliance.
Also noteworthy is Iquique, a port city and free trade zone in Chile, which the Bush Administration has designated as a terrorist hot spot. There have been ties between Iquique, Hizbollah and the Tri-border region, and investigators are focusing on individuals of Pakistani origin running businesses in Iquique that could have links with Islamic groups operating on the Pakistani-Afghan border.
The financing of terrorism is not characterized as an individual offence under Mexico penal law, but various penal characterizations and provisions may be applied in order to prosecute and punish specific types of conduct considered to constitute the financing of terrorist acts (74). Mexico’s geographic situation and extensive financial sector means that drug smuggling, financial crime, organized crime and trafficking in arms and human beings all contribute to the accumulation of illegal assets. The anti-money laundering law of 1990 was reinforced by the government in 1997, and progressive improvements have eliminated remaining loopholes, defined requirements and generally added to the system’s effectiveness. The Mexican Bankers Association has put in place a comprehensive training program, and the National Banking and Securities Commission (CNBV) has created examiners manuals that cover money laundering, in addition to the CNBC’s annual on-site supervision of institutional money-laundering controls and policies.
Article 400b of the Penal Code broadly covers money laundering offences and gives a court the discretion to reverse burden of proof regarding the origin of the property given sufficient proof by the prosecution. Few convictions have been attained under this law, however, and many cases remain stuck in court or under investigation. Mexico is about to complete the procedures to become a party to the International Convention for the Suppression of the Financing of Terrorism. It is also studying the legislative reforms that will be required in order to make the financing of terrorism an autonomous offence. Mexico is also working actively with global initiatives, especially with the Financial Action Task Force on Money-Laundering (FATF), of which it is a full member, to implement international policies against the financing of terrorist organizations.
Mexico has already met or exceeded most of the FATF minimum requirements for preventive measures in the financial sector. The key operational bodies in the anti-money laundering system are the Attached General Directorate for Transaction Investigations (DGAIO) of the Secretariat of Finance and Public Credit and the money laundering unit of the General Attorney’s Office (PGR). These well-resourced units have been very active in introducing and promoting money laundering legislation, and serve a central coordination and cooperation function. However, bank secrecy laws impede the direct and timely transmission of reports to the DGAIO and of criminal investigation requests to financial institutions. The elimination of burdensome intermediary steps would result in reports being transmitted more quickly.
To date, there have been no reports on the freezing of terrorist assets in Mexico.
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