ARMENIA
Summary

Sanctions

OSCE - Weapons

FAFT AML Deficient

No

Higher Risk Areas

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

Medium Risk Areas

 

Weakness in Government Legislation to combat Money Laundering

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Armenia is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Armenia was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, Armenia was deemed Compliant for 18 and Largely Compliant for 17 of the FATF 40 Recommendations.

Key Findings

Armenia has a broadly sound legal and institutional framework to combat money laundering (ML) and financing of terrorism (FT). Armenia’s level of technical compliance is generally high with respect to a large majority of FATF Recommendations.

Armenia is not an international or regional financial centre and is not believed to be at major risk of ML. The predicate offences which were identified by the 2014 national risk assessment (NRA) as posing the biggest threat are fraud (including cybercrime), tax evasion, theft and embezzlement. The findings of this assessment indicate that corruption and smuggling also constitute a ML threat. The real estate sector, the shadow economy and the use of cash all constitute significant ML vulnerabilities. Competent authorities have assessed and demonstrated an understanding of some, but not all, ML risks in Armenia.

The NRA concludes that the risk of FT is very low. Although Armenia shares a border with Iran, which is considered by the FATF to pose a higher risk of FT, the evaluation team found no concrete indications that the Armenian’s private sector and non-profit organisations (NPOs) are misused for FT purposes. There have never been any investigations, prosecutions and convictions for FT. There is an effective mechanism for the implementation of Targeted Financial Sanctions (TFS). No terrorist-related funds have been frozen under the relevant United Nations Security Council Resolutions (UNSCRs).

The financial intelligence unit (FIU) has access to a wide range of information sources and is very effective in generating intelligence for onward dissemination to LEAs. Law enforcement access to information is somewhat restricted by a combination of issues connected with the legislation dealing with law enforcement powers to obtain information held by financial institutions and law enforcement ability to successfully convert intelligence into evidence. Law enforcement authorities (LEAs) did not demonstrate that they make effective use of FIU notifications to develop evidence and trace criminal proceeds related to ML.

The number of ML investigations and prosecutions has increased in the period under review. However, it appears that LEAs target the comparatively easy self-laundering cases mainly involving domestic predicate offences. One ML conviction (described as autonomous) was secured, although the judiciary appears to have based its ruling on the admission that the predicate offence had been committed. Overall, law enforcement efforts to pursue ML are not fully commensurate with the ML risks faced by the country.

Seizure and confiscation of criminal proceeds, instrumentalities and property of equivalent value are not pursued as a policy objective. It is doubtful whether LEAs are in a position to effectively identify, trace and seize assets at the earliest stages of an investigation, since proactive parallel financial investigations for ML and predicate offences are not conducted on a regular basis.

The banking sector is the most important sector in terms of materiality. Banks understand the risks that apply to them according to the FATF Standards and the AML/CFT Law. However, they have not demonstrated that they have incorporated the risks identified in the NRA into their internal policies. The real estate sector, notaries and casinos pose a relatively higher risk compared to other DNFBPs. Their understanding of risk is limited.

The application of customer due diligence (CDD), record-keeping and reporting measures by financial institutions is adequate. Major improvements are needed by the DNFBP sector with respect to preventive measures.

The approach of the Central Bank of Armenia (CBA) to anti-money laundering/counter financing of terrorism (AML/CFT) supervision is to some extent based on risk. Developments in this area are on-going. Adequate procedures for the imposition of sanctions are in place. However, the level of fines could be improved. The supervision of the DNFBP sector was found to be in need of improvement relative to casinos and notaries, and inadequate relative to real estate agents, dealers in precious metals and stones, lawyers and accountants.

Most basic information on legal persons is publicly available through the State Register. All legal persons in Armenia are required to disclose the identity of their beneficial owners to the State Register upon registration and, inter alia, whenever there is a change in shareholding. Information on beneficial ownership of legal entities is also ensured through the application of CDD measures by banks.

While all the banks understand that they have to apply freezing of funds to proliferation financing and there is an innovative system in place in financial institutions to ensure that matches are detected, there is a concern that the legal framework based on the AML/CFT Law could be open to legal challenge. Coordination between the different competent authorities involved in this area needs to be further developed.

Risks and General Situation

The 2014 NRA identifies swindling, theft, tax evasion, contraband and squandering/ embezzlement as posing the highest ML threat. The General Prosecutor’s Office indicated that, from its perspective, the highest risk of ML arises from fraud (including cybercrime), falsifying plastic cards and theft through ICT, embezzlement, theft, smuggling and drug trafficking. This is more or less the view of the FIU and other law enforcement authorities. The evaluation team identified corruption as also posing a ML threat. The level of foreign proceeds introduced into the Armenian financial system could not be determined with certainty, since little information was made available to the evaluation team. However, STR information suggests that attempts to launder proceeds from cybercrime and other ICT-related crime committed outside Armenia are not uncommon. The FMC has procedures in place to monitor cross-border movement of funds with subsequent analysis and comparison with applicable foreign trade indicators. There are no indications that the risk of FT faced by Armenia is any way elevated.

The large majority of funds from and to Armenia flow through the banking sector. In terms of materiality, this sector constitutes the biggest ML vulnerability to the Armenian private sector generally and financial sector particularly. The real estate sector, which involves various DNFBPs, including real estate agents and notaries, is considered to pose a relatively higher risk of ML. Casinos are also vulnerable to ML due to shortcomings in supervision and weaknesses in the application of preventive measures, although the fact that they do not provide certificates of winning (i.e. documentary basis for facilitating the laundering of illicit proceeds) certainly mitigates the potential for their use in ML. The large presence of the shadow economy, the use of cash and financial exclusion create a favourable environment for the commission of economic crime, especially tax evasion and related ML that could possibly detract from law enforcement efforts in detecting crime.

 

US Department of State Money Laundering assessment (INCSR)

Armenia was deemed a “Monitored” Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

 

Perceived Risks:

Armenia is not an international or regional financial center and is not believed to be at major risk for money laundering or terrorist financing. The 2014 National Risk Assessment identified fraud (including cybercrime), tax evasion, theft, and embezzlement as the most pervasive money laundering threats. Corruption and smuggling are additional issues. The real estate sector, the shadow economy, and the widespread use of cash rather than bank transactions all constitute vulnerabilities. Armenia is not a major drug-producing country and domestic consumption of illegal drugs is modest.

Armenia’s banking sector holds approximately 90 percent of total assets of the financial system. In the non-financial sector, high-value transactions, such as real estate purchases, are believed to be risky. Casinos are legal and regulated by the Ministry of Finance.

The National Risk Assessment concludes that the risk of terrorist financing (TF) within Armenia is low. There are no concrete indications that Armenia’s private sector and non-profit organizations (NPOs) are misused for TF purposes.

 

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SANCTIONS

In February 1992, the Organisation for Security and Co-operation in Europe (OSCE) requested that all OSCE participating states should introduce an embargo on 'all deliveries of weapons and munitions to forces engaged in combat in the Nagorno-Karabakh area'. This embargo is still in force.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

33

World Governance Indicator – Control of Corruption

39

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

The Armenian government (GOA) officially welcomes foreign investment and the country has received respectable rankings on some global indices measuring business climate. Armenia's investment and trade policy is relatively open and foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). Armenia has a highly educated workforce and the high-tech and information technology (IT) sectors have attracted foreign investments – particularly from the U.S. The “Alliance” Free Economic Zone opened in 2013 in the capital, Yerevan, and is designed to attract IT, electronics, pharmaceutics and biotechnology, engineering, industrial design, and alternative energy businesses. 2014 also saw a major U.S. investment in Armenia’s energy generation sector. However, Armenia’s investment climate can be difficult and poses several serious challenges: a population of less than three million; relative geographic isolation due to closed borders with Turkey and Azerbaijan; per capita gross national income (GNI) of about USD 3,700; and high levels of corruption in both official and commercial spheres.

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees. The banking system in Armenia is sound and well-regulated, but Armenia's financial sector is not highly developed. Foreign individuals who do not hold special residence permits cannot own land, but may lease it; companies registered by foreigners in Armenia as Armenian businesses have the right to buy and own land. There are no restrictions on the rights of foreign nationals to acquire, establish or dispose of business interests in Armenia. The U.S. - Armenia Bilateral Investment Treaty (BIT) provides that if a dispute arises between an American investor and the Republic of Armenia, the investor may choose to submit the dispute for settlement by binding international arbitration. Although Armenian legislation complies with the Trade Related Aspects of Intellectual Properties (TRIPS) Agreement and offers protection of intellectual property rights (IPR), enforcement efforts need to be improved.

The Armenian regulatory system is not implemented transparently. Major sectors of Armenia's economy are controlled by well-connected businessmen who enjoy government-protected market dominance. Corruption remains a significant obstacle to U.S. investment in Armenia. Although the Government of Armenia introduced a number of reforms over the last few years, and the overall investment climate seems to be improving incrementally, corruption remains a problem in critical areas such as the judiciary, tax and customs operations, health, education, and law enforcement. Tax and customs processes, while having improved somewhat, still lack transparency and the use of reference prices instead of invoice prices during customs clearance, adds to costs, and leads to an uneven playing field. The court system lacks independence, making it an unreliable forum for resolution of disputes.

 

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FURTHER REPORTS

 

Group of States against Corruption (GRECO) publishes third round compliance report on
Armenia   -  Conclusions (December 2012)

As regards incriminations, GRECO commends Armenia for thorough efforts which have been carried out in order to comply, already at this stage, with nearly all recommendations. The Criminal Code was amended significantly in order to address most of the ambiguities highlighted in the Evaluation Report. GRECO also welcomes the new incrimination of trading in influence and the subsequent withdrawal of Armenia’s reservation on Article 12 of the Criminal Law Convention, as well as the comprehensive training programme that was implemented to clarify the manner in which some of the bribery offences were to be understood. GRECO calls upon the Armenian authorities to further amend the provisions on trading in influence and on the special defence of effective regret, in order to fully comply with its recommendations.

In so far as the transparency of political funding is concerned, Armenia has also undertaken significant reforms to address most of the concerns raised by the recommendations. A new Election Code was adopted, along with amendments to the law on political parties as well as to the Code of Administrative Offences. Transparency and reporting have been improved, both as regards political parties and election campaign financing. Measures have been taken regarding donations to avoid circumvention of the rules on campaign financing, spending limits have been adjusted to encourage political parties and candidates to give a more accurate account of their expenses and common formats have been introduced for reporting. Supervision was also reinforced to some extent, with the introduction of a compulsory audit for the bigger parties and the establishment of a permanent Oversight and Audit Service, next to the Central Electoral Commission and a reinforcement of their independence from political parties. Further action is however required to make supervision more effective. The arsenal of sanctions was also complemented, and the statute of limitation for administrative violations of political financing offences was extended, although, there again, further measures are needed in order to comply fully with the recommendation.

In the light of what has been stated in the above paragraphs, GRECO commends Armenia for the substantial reforms carried out with regard to both themes under evaluation and which show that, already at this stage, Armenia complies with more than four-fifths of the recommendations issued in the Third Round Evaluation Report. It encourages Armenia to pursue these reforms in order to implement the pending recommendations within the next 18 months. GRECO invites the Head of the delegation of Armenia to submit additional information regarding the implementation of recommendation vi (Theme I – Incriminations) and recommendations viii and xi (Theme II – Transparency of Party Funding) by 30 June 2014 at the latest.

Read Full Report (pdf file)

 

 

 

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