BHUTAN
Summary

Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

Not on EU White list equivalent jurisdictions

Failed States Index (Political Issues)(Average Score)

Medium Risk Areas

 

Compliance with FATF 40 + 9 Recommendations

Weakness in Government Legislation to combat Money Laundering (info not available)

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

World Governance Indicators (Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

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

 

Compliance with FATF Recommendations

The first Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Bhutan was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, Bhutan was deemed Compliant for 7 and Largely Compliant for 7 of the FATF 40 Recommendations.

Key Findings

Bhutan’s top proceeds generating crimes are corruption and bribery; illicit trafficking of stolen artefacts and other stolen goods; fraud; smuggling, and illicit trafficking in narcotics and pharmaceutical substances.

Bhutan’s TF risk is self-financing in its porous border areas arising from external threats: Indian Insurgent Groups located in the North Eastern Region of India and Radical Groups, which are the remnants of anti-national groups formed in Bhutan in the 1990s and are now located outside of Bhutan. Radical Groups are suspected of conducting sporadic, small scale terrorism activities, including the use of small improvised explosive devices in the past with the last reported incident in 2012. There are no reported or identified instances of Al Qaeda, Taliban or Islamic State in Iraq and the Levant (ISIL) related activities in Bhutan.

Bhutan has achieved a low level of effectiveness for Immediate Outcomes, 1, 3, 4, 5, 6, 7, 8, 10 and 11. For Immediate Outcomes 2 and 9 Bhutan has achieved a moderate level of effectiveness.

For technical compliance, Bhutan is rated compliant or largely compliant with total of 14 Recommendations, mostly preventive measures.

Bhutan’s understanding of its ML/TF risks is incomplete and not broad-based, although developing as part of its first NRA which is due to be finalised by late 2016. Key authorities have a reasonable understanding of Bhutan’s ML risks but this is not evident elsewhere, including reporting entities. For TF, key authorities demonstrated a sound understanding of Bhutan’s terrorist threats and an understanding of the TF risks. However, this is not the case among all competent authorities and reporting entities.

In the absence of a comprehensive assessment of risks, there is no comprehensive, national strategy, informed by risks, to combat ML/TF in Bhutan. While Bhutan does not have a documented TF strategy, authorities appear to be implementing a sound strategy to mitigate terrorist threats and TF.

Use of financial intelligence by law enforcement is at a developmental stage and financial intelligence has not been used to initiate ML or TF investigations. There is a lack of expertise and resources for financial intelligence analysis, financial crime investigation and prosecution.

Bhutan has only conducted two ML investigations to date, both were corruption related and undertaken by the Anti-Corruption Commission. One ML investigation led to two ML convictions in 2008. The second investigation, in the period under review, did not lead to a ML prosecution because section 76 of the Anti-corruption Act precludes the prosecution of both the predicate offence and associated ML offence.

The proceeds of crime are not effectively confiscated. Confiscation is essentially limited to direct proceeds of corruption, instrumentalities and contraband, and proceeds are only confiscated upon conviction via restitution orders. In addition, it is unclear if the funds from all restitution orders are being realised.

While authorities have focused their actions more at stopping these Radical Groups and Indian Insurgent Groups from entering Bhutan through cross-border international cooperation with India, Bhutan has conducted investigations into the self-financing and material support aspects of the last Radical Groups related incidents in 2012. Bhutan has investigative deficiencies and deficiencies in its TF offence; however, in the team’s view, these deficiencies do not fundamentally impact on Bhutan’s effectiveness for IO.9 because of the risk and context of Bhutan’s TF risk/threat. In the early 2000s Bhutan did prosecute/convict individual of terrorism under section 329 of Penal Code, which includes a limited provision relating to the financing and planning of terrorist acts.

The legal and institutional framework for targeted financial sanctions for TF is not developed. The revised AML/CFT Regulations introduced in November 2015 only cover, to a very limited degree, UNSCR 1267 freezing of funds for reporting entities. Banks are the only reporting entities conducting any form of implementation, which is limited to non-systematic manual checking of the Consolidated List for Bhutanese names.

There has been very limited implementation of targeted financial sanctions related to proliferation financing. The AML/CFT Regulations only include a freezing of funds obligation for the purpose of UNSCR 1737 on reporting entities, and even then, the latter have not implemented those obligations.

Bhutan has established a sound basis for implementing preventive measures with the promulgation of the revised AML/CFT Regulations in November 2015. However, implementation by supervisors and reporting entities is at a rudimentary level. There has been no supervision of AML/CFT requirements and implementation is essentially limited to the banking sector; there is very limited implementation in non-bank financial institutions and no implementation in the DNFBP sector.

Bhutan has executed one outgoing MLA corruption with Thailand. Bhutan has a law enforcement and intelligence cooperation mechanism with India which is actively used to provide and seek constructive and timely information and assistance on security and border management related issues. This mechanism has been used for mutual legal assistance involving the use of coercive police powers in order to disrupt/prevent: (i) the movement of Indian Insurgent Groups and Radical Groups into Bhutan’s porous areas, and (ii) the illicit trafficking of pharmaceutical substances and other border related predicate crimes.

There are only 368 companies registered in Bhutan. Access to basic information on legal persons is available on a timely basis; however, access to beneficial ownership information on companies is constrained by a lack of collection of such information. The Registrar of Companies has undertaken measures to reduce the risk of potential abuse by subjecting all changes in share ownership and directorship to a vetting and approval process, and preventing bearer shares as required under the Companies Act. There is no legislative or regulatory framework for the creation and establishment of legal arrangements in Bhutan

 

Risks and General Situation

The following summary of the assessments team’s understanding of Bhutan’s ML/TF risks is based on working documents of Bhutan’s first, although incomplete, national risk assessment (NRA), open source material and information gathered from discussions with competent authorities and the private sector.

Money Laundering

The assessment team considers the following five categories of predicate offences are Bhutan’s top domestic proceeds generating crimes: corruption and bribery; illicit trafficking of stolen artefacts and other stolen goods; fraud; smuggling, and illicit trafficking in narcotics and pharmaceutical substances. Except for corruption and bribery, these predicate crimes are associated with Bhutan’s border vulnerabilities with India.

Bhutan and the assessment team consider corruption and bribery as Bhutan’s primary ML risk. While global and regional indices on corruption and bribery do not rank Bhutan as a highrisk jurisdiction, corruption affords the greatest potential for generating proceeds and has the most adverse societal impact. Bhutanese authorities have implemented numerous measures to combat corruption. However, there have only ever been two corruption related ML prosecutions outside the period under review. And, since the enactment of the Anti-Corruption Act (ACA) in 2011, section 76 precludes the prosecution of an offender for both corruption and associated ML.

While the number of prosecutions for the predicate crimes has increased over the past five years, these predicate crimes do not seem to be engineered by organised crime groups and the proceeds generated are generally laundered in Bhutan, and used to purchase consumer items or assets such as immovable property using both cash and the banking system.

Due to Bhutan’s small economy and isolated financial sector, it is not an end destination or transit point for foreign proceeds. Bhutan has significant controls on foreign investment in Bhutan and cross-border capital movements. Beyond a very small real estate market, it does not offer “products” that would be attractive for laundering foreign proceeds.

Bhutan’s ML vulnerabilities include gaps in legal frameworks, lack of resources and capability, particularly financial investigation and supervision of FIs and DNFBPs.

Terrorism Financing

Bhutan’s TF risk is self-financing in its porous border areas arising from external threats:

- Indian Insurgent Groups (IIGs), such as the National Democratic Front of Bodoland, that operate in the North Eastern Region of India and move into Bhutan’s porous border areas to evade Indian authorities.

- Radical Groups (RGs), now located s located outside of Bhutan, are the remnants of anti- national groups formed in Bhutan in the 1990s. They are suspected of conducting sporadic, small scale terrorism activities, including the use of small improvised explosive devices with the last reported incident in 2012.

There is no evidence or intelligence that these two groups are receiving support from within Bhutan or using Bhutan’s banking system.

 

There are no reported or identified instances of Al Qaeda, Taliban or Islamic State in Iraq and the Levant (ISIL) related activities in Bhutan.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

65

World Governance Indicator – Control of Corruption

81

 

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INVESTMENT CLIMATE

Bhutan's economy, small and less developed, is based largely on agriculture and forestry, which provide the main livelihood for more than half of the population. Because rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult and expensive, industrial production is primarily of the cottage industry type. The economy is closely aligned with India's through strong trade and monetary links and is dependent on India for financial assistance and migrant laborers for development projects, especially for road construction. Multilateral development organizations administer most educational, social, and environment programs, and take into account the government's desire to protect the country's environment and cultural traditions. For example, the government, in its cautious expansion of the tourist sector, encourages visits by upscale, environmentally conscientious tourists. Complicated controls and uncertain policies in areas such as industrial licensing, trade, labor, and finance continue to hamper foreign investment. Bhutan’s largest export - hydropower to India - is creating employment and will probably sustain growth in the coming years. Only 5% of Bhutan’s 30,000 megawatt hydropower potential is currently tapped. The large amount of equipment needed to import materials to build hydropower plants has expanded Bhutan's trade and current account deficits. Bhutan’s GDP has rebounded strongly since the global recession began in 2008. Bhutan hopes to play a larger role in regional economic integration as a member of the South Asia Association for Regional Cooperation and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.

 

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