FATF Status

Kyrgyzstan is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement:  27 June 2014

The FATF welcomes Kyrgyzstan’s significant progress in improving its AML/CFT regime and notes that Kyrgyzstan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in October 2011. Kyrgyzstan is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Kyrgyzstan will work with EAG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.

Compliance with FATF Recommendations

The latest Follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Kyrgyzstan was undertaken in 2023. According to that Evaluation, Kyrgyzstan was deemed Compliant for 4 and Largely Compliant for 36 of the FATF 40 Recommendations. It remains Highly effective for 0 and Substantially Effective for 0 of the Effectiveness  & Technical Compliance ratings.

US Department of State Money Laundering assessment (INCSR)

Kyrgyz Republic was last deemed a Jurisdiction of Primary Concern in the US Department of State 2018 International Narcotics Control Strategy Report (INCSR). The Overview from that report was as follows: -

While the Kyrgyz Republic is not a regional financial center, a large shadow economy, corruption, organized crime, and narcotics trafficking make the country vulnerable to financial crimes.  In 2019, known remittances from migrant workers comprised nearly 33 percent of its GDP, the majority from Russia.  A significant portion of remittances entered the Kyrgyz Republic through informal channels or was hand-carried to the Kyrgyz Republic from abroad.  The Kyrgyz Republic, however, is recognized as a stable economy for foreign banks and other financial institutions.

The Kyrgyz Republic is strengthening its efforts to combat money laundering and financial crimes, but continues to confront challenges in implementing new laws and regulations.  In the last two years, the Kyrgyz government passed a new AML law and new criminal legislation to match international standards.  Challenges in the implementation of international AML/CFT standards mean the country is making minimal progress in the fight against money laundering.

Overview

While the Kyrgyz Republic is not a regional financial center, a large shadow economy, corruption, organized crime, and narcotics trafficking make the country vulnerable to financial crimes.  In 2021, known remittances from migrant workers comprised roughly 31 percent of GDP.  A significant portion of remittances enters the Kyrgyz Republic through informal channels or is hand-carried from abroad.  The United States does not maintain correspondent bank accounts for Kyrgyz banks.  The Kyrgyz Republic continues to progress on improving compliance with anti-money laundering/combating the financing of terrorism (AML/CFT) international standards, but internal political challenges slow down the process.  

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           26

World Governance Indicator – Control of Corruption             10

Corruption is pervasive throughout all sectors in Kyrgyzstan; bribery is a common part of doing business. Apart from petty corruption, businesses are likely to experience favoritism and political interference. Recently, several reforms have been undertaken by the government, but a corrupt judiciary undermines their effectiveness. Kyrgyz anti-corruption efforts are growing but remain inadequate. Active and passive bribery are criminalized; however, enforcement of anti-corruption legislation overall is lacking. For further information - GAN Integrity Business Anti-Corruption Portal

The Kyrgyz Republic remains a frontier market oriented towards higher-risk investors, but the government under President Sadyr Japarov has expressed its desire to attract greater, more diversified foreign direct investment (FDI) and to develop the IT, creative, and green economy sectors to contribute to sustainable economic growth. In 2022 the de facto Prime Minister, Akylbek Japarov (not related to the President), traveled extensively to seek international investment partners, and government officials attended several trade and investment expositions in the region and beyond. While the official policies governing FDI are positive and by law there are no limits on foreign ownership or control, in practice foreign investors may be subject to greater scrutiny than domestic investors, and the country’s capacity to provide a sound enabling environment for investment still faces many challenges. The legal framework for foreign investment mostly corresponds to international standards, but enforcement of these laws and private and intellectual property rights is weak, and criminal investigations of commercial disputes is not uncommon. In addition, the Japarov administration is pursuing revisions to its labor and investment codes, and implemented a new tax in January 2022 that levies a VAT on digital services, including the sale of goods and services via the internet.

Mining has historically been the industry that attracted the most FDI to the Kyrgyz Republic. However, there has been a significant chill on this sector after the Kyrgyz government nationalized the Kumtor mine, the country’s most valuable asset that was co-owned and operated by Canadian company Centerra Gold, in 2021. This chill has persisted even after the signing of an agreement between Government of the Kyrgyz Republic and Centerra Gold Inc. on April 4, 2022, resolving the dispute over the ownership and management of the mine. In June 2022, the President signed amendments to the law “On Subsoil Exploitation” mandating a minimum of 30 percent state participation to register a license to use subsoil resources, an indication that all deposits in the country will be developed under Kyrgyz authority and without significant foreign investment. Tengiz Bolturuk, who was appointed by the Kyrgyz government to manage the Kumtor gold mine throughout its nationalization, was arrested in September 2022 for alleged corruption and misuse of funds during this period and is currently on house arrest awaiting trial; the “Heritage of the Great Nomads” holding company to which Kumtor had been transferred was subsequently dissolved and state-owned enterprise Kyrgyzaltyn now manages the mine.

Still, other industries are growing and have attracted both domestic and foreign investor interest, including textiles, agriculture, education, franchising, and IT. Green investment is another promising area for potential investors as the Kyrgyz government increases its commitment to fighting climate change and supporting sustainable development. In 2021, the Kyrgyz Republic joined the Global Methane Pledge and unveiled revised Nationally Determined Contributions (NDCs), which offer many opportunities for foreign firms seeking to invest in industries such as hydropower, energy efficiency, and methane abatement.

Challenges to an enabling investment climate include a weak judiciary, lack of incentives for foreign investors, and a banking system that has been historically tied to Russia’s financial system. The local currency, the Kyrgyz som, temporarily depreciated against the U.S. dollar alongside the ruble after the Russian invasion of Ukraine in February 2022, further fueling inflation (reaching as high as 19 percent in 2022, year on year). Following fiscal intervention by the Russian Central Bank to stabilize the ruble and Kyrgyz sales of gold reserves, the som recovered value, and ruble-denominated remittances from Kyrgyz migrant laborers in Russia, which comprise approximately 30 percent of GDP, defied analysts’ predictions to reach record levels in 2022. As the som has gradually depreciated and the conflict in Ukraine continued, concerns remain over inflation and unpredictable remittances flows.

Country Links

The State Financial Intelligence Service under the Government of the Kyrgyz Republic (FIS)

National Bank of the Kyrgyz Republic