Financial Action Task Force Groupe d'action financière

1 Financial Action Task Force Groupe d' Action financi re THIRD mutual evaluation report ON ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM united states OF AMERICA 23 JUNE 2006 2006 FATF/OECD All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission should be made to: FATF Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France Fax 33-1-44306137 or 1 TABLE OF CONTENTS Preface - information and methodology used for the 2 1. Section 3 General information on the country and its 3 General Situation of Money Laundering and Financing of Terrorism .. 6 Overview of the Financial Sector and DNFBP .. 8 Overview of commercial laws and mechanisms governing legal persons and Overview of strategy to prevent money laundering and terrorist 2 Legal System and Related Institutional 25 Criminalization of Money Laundering ( & 2).

2 25 Criminalization of Terrorist Financing ( ) ..38 Confiscation, freezing and seizing of proceeds of crime ( )..44 Freezing of funds used for terrorist financing ( ) ..51 The Financial Intelligence Unit and its functions ( ) ..60 Law enforcement, prosecution and other competent authorities the framework for the investigation and prosecution of offenses, and for confiscation and freezing ( & 28)..68 Cross Border Declaration or Disclosure ( ) ..72 3. Preventive Measures - Financial Institutions .. 83 Risk of money laundering or terrorist financing ..86 Customer due diligence, including enhanced or reduced measures ( to 8)..91 Third parties and introduced business ( ).. 122 Financial institution secrecy or confidentiality ( ).. 123 Record keeping and wire transfer rules ( & ) .. 126 Monitoring of transactions and relationships ( & 21) .. 136 Suspicious transaction and other reporting ( , 19, 25 & ).

3 141 Internal controls, compliance, audit and foreign branches ( & 22).. 153 Shell banks ( ) .. 164 Supervision and oversight ( , 23, 25 & 29) .. 164 Money or value transfer services ( ) .. 190 4. Preventive Measures Designated Non- Financial Businesses and Professions .. 198 Customer due diligence and record-keeping ( ) .. 201 Monitoring transactions and other issues ( ) .. 206 Regulation, supervision and monitoring (R. 17, 24 & 25) .. 211 Other non- Financial businesses and professions - Modern secure transaction techniques ( ).. 224 5. Legal Persons and Arrangements & Non-Profit Organizations .. 226 Legal Persons Access to beneficial ownership and control information ( ) .. 226 Legal Arrangements Access to beneficial ownership and control information ( ) .. 237 Non-profit organizations ( ) .. 240 6. National and International 250 National cooperation and coordination ( ).

4 250 The Conventions and UN Special Resolutions ( & ).. 258 mutual Legal Assistance ( & ) .. 259 Extradition ( , 37 & ).. 268 Other Forms of International Co-operation ( & ).. 272 7 Resources and Statistics .. 282 Resources of Competent Authorities ( ) .. 282 Statistics ( ) .. 294 Other relevant AML/CFT measures or 298 General framework for AML/CFT system (see also section ).. 298 Table 1: Ratings of Compliance with FATF Table 2: Recommended Action Plan to improve the AML/CFT 2 Preface - information and methodology used for the evaluation1 1. The evaluation of the anti-money laundering (AML)2 and combating the financing of terrorism (CFT) regime of the united states ( ) was based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was prepared using the AML/CFT Methodology The evaluation considered the laws, regulations and other materials supplied by the , and information obtained by the evaluation team during its two on-site visits to the from 7-18 November 2005 and 9-23 January 2006, and subsequently.

5 During the on-sites the evaluation team met with officials and representatives of relevant federal, state, and local government agencies and the private sector. A list of the agencies and organizations met is set out in Annex 2 to the mutual evaluation report . 2. This was a joint evaluation of the FATF and the Asia Pacific Group (APG). The evaluation was conducted by an assessment team which consisted of experts from the FATF and APG in criminal law, law enforcement and regulatory issues. The team was led by Mr. Alain Damais, Executive Secretary of the FATF, and Mr. Rick McDonell, Head of the APG Secretariat, and included: Mr. Dick Bos, Deputy Head of the Dutch FIU MOT (Netherlands) who participated as a law enforcement expert; Mr. Richard Chalmers, Adviser, International Strategy and Policy Co-ordination, Financial Services Authority ( united Kingdom) who participated as a Financial expert; Ms.

6 Koid Swee Lian, Director, Bank Negara Malaysia s (Central Bank of Malaysia), Financial Intelligence Unit (Malaysia) who participated as a Financial expert; Ms. Judith Pini, Senior Legal Adviser, Criminal Justice Division, Attorney-General s Department (Australia) who participated as a legal expert; Dr. Riccardo Sansonetti, Head of Section, Federal Finance Administration (Switzerland) who participated as a Financial expert; Ms. Valerie Schilling, Administrator, FATF Secretariat; and Mr. Boudewijn Verhelst, Deputy Attorney-General, Deputy Director of the Belgian FIU CTIF/CFI (Belgium) who participated as a legal expert. The assessment team reviewed the institutional framework, the relevant AML/CFT laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter money laundering (ML) and the financing of terrorism (FT) through Financial institutions and Designated Non- Financial Businesses and Professions (DNFBP), as well as examining the capacity, the implementation and the effectiveness of all these 3.

7 This report provides a summary of the AML/CFT measures in place in the as of the date of the second on-site visit, and up to 5 May 20065. It describes and analyzes those measures, and provides recommendations on how certain aspects of the system could be strengthened (see Table 2). It also sets out the s levels of compliance with the FATF 40+9 Recommendations (see Table 1).6 1 Generally, FATF reports are written in united Kingdom English; however, this report is written in united states ( ) English to avoid any confusion that may be caused by the spellings of agencies or citations from laws, regulations and other sources. 2 See Annex 1 for a complete list of abbreviations and acronyms. 3 As updated on 14 October 2005. 4 See Annex 2 for a detailed list of all bodies met during the on-site mission.

8 See Annex 3 for copies of the key laws, regulations and other measures. See Annex 4 for a list of all laws, regulations and other materials received and reviewed by the assessors. 5 The measures taken into account after the on-site visit were restricted to issues that the assessment team had been able to discuss with the authorities during the on-site visits, but which may have been published or come into effect at a later date. 6 Also see Table 1 for an explanation of the compliance ratings (C, LC, PC and NC). 3 mutual evaluation report 1. SECTION 1 General information on the country and its economy 1. The united states of America ( ) is comprised of 50 states and one district. The covers an area of million square kilometers, shares borders with Canada to the north and Mexico to the south, and is flanked by the Atlantic Ocean to the east and the Pacific Ocean to the west.

9 The holds fourteen territories, nine of which are uninhabited or have no indigenous inhabitants: American Samoa, Baker Island, Guam, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, Midway Islands, Navassa Island, Northern Mariana Islands, Palmyra Atoll, Puerto Rico, the Virgin Islands, and Wake The capital of the is Washington, District of Columbia (DC). As of 2005, the estimated population is 295,734,134 having a mean age of 36 and life expectancy averaging years. The official language is English and the literacy rate is 97% (as of 1999). The is a developed, industrial country with a free-market economy. The is the largest economy in the world with GDP valued in 2004 at USD trillion, broken up into the service ( ), industry ( ) and agricultural ( ) sectors. System of government 2. The is a constitution-based federal republic with executive, legislative, and judicial branches.

10 The executive branch comprises an elected President and Vice-President, and an appointed Cabinet. The federal legislative branch, known as Congress, consists of a House of Representatives (containing 435 members, with each state s number of representatives commensurate with its population) and the Senate (containing 100 members two per state). The judicial branch is made up of the Supreme Court, Federal Courts of Appeal, and Federal District Courts. There are also courts on the state level, including state-wide and local county-level courts. Legal system and hierarchy of laws 3. The federal court system is based on English common law. Each state has its own unique legal system, of which all but one (Louisiana) is based on common law. The Constitution (adopted in 1789) enumerates the broad areas where the federal government has legislative authority.