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East: Council Of Europe Investigates Money Laundering

The Council of Europe says that Eastern European countries hoping to join the EU must do more to fight money laundering. The council issued a report this week specifically evaluating anti-laundering laws and enforcement in Romania, Lithuania, Poland, Hungary, and Liechtenstein. RFE/RL's Ron Synovitz looks beneath the report's surface, and reports on the special place of Liechtenstein as a money-laundering center.

Prague, 30 May 2000 (RFE/RL) -- The Council of Europe says nations hoping to join the European Union must do more than merely adopt laws against money laundering. They also must vigorously enforce the laws.

The council issued a report this week (29 May) saying that Romania, Lithuania, Poland, and Hungary must bolster their efforts against money laundering in order to meet EU membership criteria.

The council names Liechtenstein as a key money-laundering center for organized international criminal groups. Liechtenstein's offshore businesses, the report says, and the nation's secrecy rules have made it a haven for criminal groups trying to hide the origin of illegal profits.

John Ringguth, a Council of Europe administrator who has led money-laundering investigations across Eastern and Central Europe, says the fight against the practice is a critical issue for states trying to join the European Union.

"It is no secret that these reports are read carefully in Brussels. The European Commission has been a co-sponsor of these evaluations. If a country wants to join the European Union, reaching the standards that are required on money laundering is an integral part of the process."

Ringguth said that search-and-seizure laws for laundering cases are part of the body of law that EU applicants must subscribe to in order to be accepted. He also said governments must go beyond merely creating new laws. Countries that fail to enforce the laws also damage their EU membership bids.

"Implementation is an issue that we look at extremely closely during the course of all these evaluations. Yes, if these countries simply have laws in place but they are not being implemented -- or indeed, for a variety of reasons, are incapable of being implemented -- these messages will be clearly stated in the reports."

The report praises the Romanian government for starting last year to create a legal framework to fight money laundering, but the council says serious problems remain with the legislation Romania has passed so far.

The council mentions Romania's laws discourage bank examiners from reporting suspicious transactions. It says that the standard of evidence needed to convict a suspect in a money-laundering case is too high.

The council's report describes Romania as an important link in a Balkan route for trafficking in weapons and illegal drugs. Illegal profits also come from smuggling aliens and from trafficking in radioactive materials, cigarettes, coffee, alcohol, and vehicles stolen in the West.

The Council of Europe says organized criminal groups in Romania are thought to be laundering profits from these activities primarily through the country's banking system.

But Romanian law requires bank examiners to have firm evidence before they may report possible money-laundering cases. The council notes such a requirement is too high and too vague. It says suspicion of laundering should be enough to launch an investigation.

The report also criticizes banking secrecy in Romania. It says the law requires bankers to keep banking information secret until late in any criminal investigation. The report recommends that banking secrecy laws should not apply in cases where suspicious transactions have occurred.

The report says that a Romanian law on the confiscation of property linked to laundering activities has yet to be tested, raising further concerns about implementation of Romania's anti-laundering laws.

The council report says money laundering threatens the development of Lithuania's financial system. It says that Lithuanian and Russian criminal groups are said to be using Lithuanian banks for international laundering activities.

Council experts warn that growth of money-laundering in Lithuania is likely to come through the real estate sector and other non-bank financial institutions.

The report says Lithuania's legislation is not yet up to the standards for European Union membership. Several key requirements have been met, but tax police appear to be overburdened as the sole enforcers of those laws.

Lithuania requires public notaries and financial institutions to identify customers in any transaction where laundering is suspected. But since the beginning of 1998, only 15 cases have been reported through those channels.

By comparison, there have been about 50,000 suspicious cases reported through tax police. And despite the large number of reports received by the tax authorities, only three cases have been investigated.

The Council of Europe has scheduled for next week debate on draft reports on the efforts to combat money laundering in Bulgaria, Macedonia, Croatia, and Estonia.

The reports also are expected to name those sectors that are most involved in money laundering. The debates will focus on how governments in those countries have reacted to the challenge of fighting laundering.

Ringguth, who headed the council teams that investigated Bulgaria and Macedonia, declined comment on specifics of those investigations before next week's debate.

"Efforts are being made by the Bulgarian authorities to meet international standards. There is a law in place. There is a financial intelligence unit."

Ringguth said that implementation of laws remains a critical issue for all of eastern Europe.