Anti-money laundering and combating the financing of terrorism (AML/CFT) regimes in Central Asia are in their infancy. Several of the region’s countries still lack the basic legal and institutional tools to counter informal and illicit money flows. Countries that have adopted laws and created financial investigative units (FIUs) did so only in the past two years. The few convictions that have occurred suggest a selective implementation of legal regimes, possibly targeting the acting government’s political opponents. The full adoption and fair, efficient implementation of AML/CFT regulations will require time, frank peer evaluations and significant outside technical support and political encouragement.

BACKGROUND: The struggle against money laundering in Central Asia has barely begun. Cash-based economies like Central Asia’s pose major challenges to any AML/CFT regime, and the region’s underdeveloped banking sector and heavy reliance on informal fund transfer systems such as hawala or shema only compound that difficulty.

A lack of political will prior to 2001 meant that little was done to combat the phenomenon. The now fledgling AML/CFT regimes in Central Asia continue to fall considerably below the international standards established by the Financial Action Task Force (FATF).

The Eurasian Group (EAG), which is the regional equivalent of FATF, was inaugurated in 2004 and has recently begun conducting mutual evaluations of AML/CFT regulations. Government FIUs tasked with gathering, analyzing and disseminating information based on suspicious transaction reports were created in Kyrgyzstan in 2005, Uzbekistan in 2006 and Tajikistan in 2007. They are not yet in place in Kazakhstan and Turkmenistan.

Although some level of criminalization of money laundering has existed for some time in Uzbekistan, Kazakhstan, Kyrgyzstan and Tajikistan, many of the laws are inadequate or inconsistent. For example, whereas money laundering is partially criminalized in Kazakhstan, bank secrecy makes it a criminal liability to disclose suspicious data even to the relevant government authorities. Astana is reportedly working on a new AML/CFT law, but drafting the legislation has taken an unusually long time and the law is currently awaiting consideration in Parliament.

Kyrgyzstan adopted its first comprehensive AML/CFT law in November 2006. The country has made moves towards becoming a regional banking center, and although EAG’s mutual evaluation reported significant gaps in its banking institutions, including insufficient due diligence and record-keeping, Kyrgyzstan’s government was the first in Central Asia to create an FIU and submit to international scrutiny of its AML/CFT regime.

Despite its proximity to Afghanistan and its resulting function as a transit country for the narcotics trade, Tajikistan has no AML/CFT law. In early 2007, it nevertheless created an FIU and in June, the country underwent a World Bank assessment of its AML/CFT regime. EAG plans to consider the resulting evaluation report for adoption this month.

Although Turkmenistan has limited international banking transactions, it could be susceptible to money laundering due to its largely cash-based economy and the significant difference between the official and black-market exchange rates. The country has not joined EAG and the lack of any AML/CFT law on the books means that tracing and prosecuting financial crime is near impossible.

In Uzbekistan, the problem may be the reverse. Efforts to rein in shuttle trading and unrecorded transactions have often been heavy-handed and have sometimes driven the country’s robust black market further underground. There is also a continued risk of overzealous implementation of search and seizure laws as the Department of Investigation of Economic Crimes has a special fund that rewards officers with the proceeds of property they confiscate. In 2005, the Uzbek government began encouraging businesses to use cash registers and receipts, a move which has had some positive results in encouraging transparency in store-based transactions.

With both laws and FIUs either insufficient or recently established, it should come as no great surprise that few prosecutions and even fewer convictions have taken place on charges of money laundering in Central Asia. Most of the region’s governments have not yet begun concerted efforts to publish AML/CFT statistics, but press reports indicate that Uzbekistan has brought a total of 15 prosecutions, Kyrgyzstan three, Kazakhstan one and both Tajikistan and Turkmenistan none.

 

 

 

 

 

 

IMPLICATIONS: In Central Asia, as in the South Caucasus (See August 21 2007 issue of the Analyst http://www.cacianalyst.org/?q=node/4674), there seems to be a trend towards the selective implementation of AML/CFT and other financial crime regulations. On several occasions, opponents of the sitting government have faced charges of money laundering or other economic crimes at politically charged moments.

One of the first convictions on charges of money laundering in Uzbekistan was of opposition leader Sanjar Umarov. He was sentenced to 15 years prison in March 2006, less than a year after Umarov openly criticized the Uzbek government and rumors circulated that he might one day seek to succeed President Karimov. A number of human rights activists including Mutabar Tojiboeva and Nodira Hidoyatova have also been convicted of economic crimes in Uzbekistan.

In Kazakhstan, President Nazarbayev’s former son-in-law, Rakhat Aliyev, is facing similar charges. While serving as Kazakhstan’s ambassador to Austria, Aliyev fell out of political favor with Nazarbayev when he criticized changes to the Kazakh constitution. In May, Aliyev was charged with money laundering and the abduction of two bank officials. Although Kazakhstan sought Aliyev’s extradition from Austria, the request was denied based on concerns about the fairness of his trial.

Alieyev’s case echoes that of Kazakhstan’s former prime minister, Akezhan Kazhegeldin, who was convicted and sentenced in absentia to ten years imprisonment for embezzlement, bribery and tax evasion in 2001. Kazhegeldin’s critics maintain that he took financial advantage of the privatization process in the 1990s. Other observers have said that the charges against him were politically motivated by his attempts to run for office against President Nazarbayev. Referring to the Kazhegeldin case, a U.S. State Department examination concluded that the accusations, ”while possibly grounded in facts, appeared to be politically motivated.” Ironically, when the government of Kazakhstan requested Swiss officials look into Kazhegeldin’s foreign bank accounts, Geneva widened its investigation and wound up freezing an account believed to belong to incumbent high officials.

Although these prosecutions may be legally sound, it appears reasonable to ask whether Central Asia’s AML/CFT regimes are being selectively implemented. The high number of perceived and actual opposition figures facing trial in Central Asia, taken together with the fact that virtually no one else has been convicted of such crimes in the region, suggests that governments may be using AML/CFT laws as new tools for an old task.

CONCLUSIONS: Although international efforts against money laundering and the financing of terrorism in Central Asia are beginning to yield results, the region has a long way to go before AML/CFT laws are fully adopted and fairly implemented. The challenge posed by the region’s large informal sector is an understandable reason for slower results. There is therefore a need for political will to implement legislation based on the merits of a case.

The international community’s largely technical approach to the implementation of AML/CFT regimes has been rewarded by access to officials and results on paper, and if experiences in other parts of the former Soviet Union are any guidance, it will be reasonably easy to persuade the Central Asian countries to complete the adoption of more stringent AML/CFT regulations. Moving towards widespread and efficient implementation of these regulations, however, will be significantly more difficult. Although at least one government has learned the hard way that taking investigations international demands transparency abroad or at least better-covered tracks for any questionable financial practices, truly fair implementation of AMLCFT regimes will require not only continued technical assistance, but political sticks and carrots as well.

AUTHOR’S BIO: Michael Jonsson is a Researcher at the Institute for Security and Development Policy in Stockholm, Sweden; and a Lecturer in the Department of Political Science, Uppsala University; Christian Nils Larson is a Co-Editor-in-Chief at Caucaz.com.