The International Monetary Fund (IMF) conducted an assessment of Kazakhstan's compliance with the Financial Action Task Force's (FATF) recommendations and special recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT) in 2004, the results of which were published in two separate reports by the IMF, namely, the Financial System Stability Assessment (FSSA) Update and the Financial Sector Assessment Program (FSAP) Update in 2004. The 2004 FSSA Update noted that the Kazakh AML legal framework was not in line with international standards, terrorist financing had not been criminalized as a separate offense, and there was no functioning Financial Intelligence Unit (FIU). These findings were also confirmed by the U.S. Department of State in its 2005 report. According to a March 2006 report by the Office for Democratic Institution and Human Rights, some of these deficiencies have been addressed in a package of draft laws. However, the IMF assessment was conducted on the basis of the FATF's 2002 methodology, which was subsequently revised in 2004 and there is little information publicly available regarding Kazakhstan's compliance with the FATF recommendations per its 2004 methodology. As of June 2007, based on a report by the Eurasia Group, the draft AML/CFT laws had not been enacted and the FIU had not been established.

General Overview

The International Monetary Fund (IMF) conducted an assessment of Kazakhstan's compliance with the Financial Action Task Force's (FATF) forty-plus-nine recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT). However, this assessment was conducted on the basis of the FATF's 2002 methodology, which was subsequently revised in 2004. According to a 2004 report by the IMF titled "Republic of Kazakhstan: Financial System Stability Assessment -- Update including Reports on the Observance of Standards and Codes on the following topics: Banking Supervision and Anti-Money Laundering and Combating the Financing of Terrorism" (hereafter referred to as 2004 FSSA Update), "Kazakhstan ha[d] taken initiatives to prevent money laundering and financing of terrorism, but the legislative framework [did] not yet observe international standards" (p. 21). The report identified a number of deficiencies and noted that the Criminal Code recognizes money laundering as a financial crime, but its definition is not in line with international conventions and standards. Further, the report noted that terrorist financing had not been criminalized as a separate offense in the Criminal Code and there existed no functioning financial intelligence unit (FIU). A 2005 U.S. Department of State (DoS) report confirmed that the lack of regulations and the presence of corruption and narcotics-trafficking make Kazakhstan a "potential regional money laundering center."

AML/CFT legislation was being drafted at the time of a 2004 IMF report titled "Republic of Kazakhstan -- Financial Sector Assessment Program Update - Detailed Assessments and Updates of Financial Sector Standards and Codes" (hereafter referred to as 2004 FSAP Update). According to a March 2006 report by the Office for Democratic Institution and Human Rights (ODIHR), some of the deficiencies identified by the IMF were to be addressed in a package of draft laws such as: (1) laundering of proceeds in illicit ways and financing of terrorism; and (2) amendments to certain acts concerning counteracting legalization of proceeds obtained by illicit way and financing of terrorism. However, the report observed that "the legal framework established under the Package of Draft Laws does not contain all the elements necessary for ensuring it [sic] full compliance with the requirements and minimum standards laid down in international instruments" (p. 6). A sixth Eurasia Group Plenary meeting held in June 2007 confirmed that, as of mid-2007, no AML/CFT laws had been enacted or FIU established. However, the Kazakhstan delegation did provide the Plenary information on the measures being taken to promote the draft law in Parliament and on the creation of the FIU.

As noted in the 2005 U.S. DoS report, the Prosecutor General's Office is the lead agency for drafting the AML and CFT legislation. It is also responsible for the formation of the proposed FIU. According to the 2005 U.S. DoS report, the Office of the Prosecutor General was expected to ensure that provisions in the draft AML/CFT laws and the functions of the impending FIU meet international standards. The financial sector is regulated by the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (FSA). The FSA, as the consolidated regulator of the financial sector, is responsible for the enforcement, audit, and penalties for non-compliance by banks, insurance, and securities companies/professionals with AML/CFT obligations.

As noted by the 2005 U.S. DoS report, Kazakhstan is party to the 1988 United Nations (UN) Drug Convention and the 1999 UN International Convention for the Suppression of the Financing of Terrorism. The government of Kazakhstan has signed but not yet ratified the UN Convention against Transnational Organized Crime (Palermo Convention). Kazakhstan is a charted member of the Eurasian Group on Combating Money Laundering and Financing of Terrorism and is considering acceding to the Council of Europe's Convention on Laundering, Search, Seizure and Confiscation of Proceeds of Crime.

The Principles

1. Legal Systems and Related Institutional Measures

NC

In spite of the lack of recent information, there is evidence as seen in the 2004 FSSA Update that Kazakhstan does not have a well functioning legal system to combat money laundering and terrorist financing and also lacks the proper institutions to implement such measures. According to the IMF's 2004 FSSA Update, the "Criminal Code recognizes money laundering as a financial crime, but its legal definition does not yet meet recognized international standards" (p. 31). The report also noted that terrorist financing had not recognized as a separate offense. Instead, it is included within the definition of "terrorist activity" in the Law of the Republic of Kazakhstan of July 13, 1999 No. 416-1 on Combating Terrorism (as amended in 2002). Confiscation of assets used in money laundering and terrorist financing is not mandatory, and the IMF recommended making it so. Further, the report noted that, while funds maybe frozen, there were no effective administrative mechanisms for freezing funds or seizing property. At the time of the 2004 FSAP Update, an FIU was in the process of being developed. However, as of 2008, there is no publicly available information on the existence of any such agency. The IMF report noted that preliminary investigations on money laundering begin with the state bodies and are investigated by the Ministry of Interior's Agency for the Fight Against Economic and Corruption Crimes (AECC). Smuggling cases are investigated by the Agency of Customs Control. Cases related to acts of terrorism are investigated by the Committee of National Security. The 2005 U.S. DoS report adds that the establishment of the FSA as the regulator of the financial sector "demonstrates the government's intentions to ensure that the country's financial system is consistent with best international practices." A sixth Eurasia Group Plenary meeting held in June 2007 confirmed that, as of mid-2007, no AML/CFT laws had been enacted or FIU established.

2. Preventive Measures - Financial Institutions

II

Although the IMF conducted an assessment of Kazakhstan's compliance with the FATF's recommendations on AML/CFT, the assessment was based on the FATF's 2002 methodology. This methodology was updated in 2004. There is little information publicly available regarding Kazakhstan's compliance with the FATF recommendations under the new methodology. According to the IMF's 2004 FSSA Update, the National Bank of Kazakhstan (NBK) issued an order to all banks, insurance companies/brokers, and securities market participants to review new and existing accounts against the terrorist lists issued by the United Nations and the U.S. However, the IMF pointed out that this is not a mandatory requirement. This regulation lays out new documentary requirements for opening accounts and reviewing the customer's identity and business. NBK Regulation on Currency Control No. 343 of 2001 requires that documents subject to currency controls be maintained for a period of five years. There is no specific provision in Banking Law on monitoring of accounts or transactions to identify or report suspicious transactions. Article 24 of the NBK Regulation on Internal Controls requires banks to establish an Internal Control Unit. However, no legislative requirements concerning money laundering exist. The IMF recommended that an AML/CFT law should be enacted so as to implement procedures to identify and report suspicious transactions. The FSA, as the consolidated regulator of the financial sector is responsible for the enforcement, audit and penalties for non-compliance by banks and insurance and securities companies/professionals with AML/CFT obligations.

3. Preventive Measures - Designated non-Financial Business and Professions

II

There is insufficient information publicly available regarding Kazakhstan's compliance of the recommendations relating to this principle.

4. Legal Person and Arrangements & Non-Profit Organizations

II

There is insufficient information publicly available regarding Kazakhstan's compliance of the recommendations relating to this principle.

5. National and International Co-operation

II

The IMF conducted an assessment of Kazakhstan's compliance with the FATF's recommendations on AML/CFT. However, the assessment was based on the FATF's 2002 methodology, which was updated in 2004. There is little information publicly available regarding Kazakhstan's compliance with the FATF recommendations as per the new methodology. According to the 2004 IMF FSAP Update, the FSA coordinates its activities with other Kazakh and foreign governmental bodies. Also, the law empowers the FSA to obtain information from individuals and legal entities under its purview with respect to its supervisory functions. The FSA signed a memorandum of understanding (MoU) with Turkey to perform on site inspections of Kazakh bank subsidiaries in Turkey, and the FSA plans to sign more MoUs with other international supervisory bodies. Pursuant to Chapter 55 of the Criminal Procedures Code, non Kazakhstani nationals can be extradited. Kazakhstan is a party to bilateral extradition treaties with Uzbekistan, Kyrgyzstan, and China. Further, Kazakhstan is a member of Interpol. The 2004 FSAP Update recommended enactment of "appropriate laws and procedures to provide the widest possible range of mutual legal assistance in AML/CFT matters in a timely fashion" (p. 96).

As noted by the 2005 U.S. DoS report, Kazakhstan is party to the 1988 UN Drug Convention and the 1999 UN International Convention for the Suppression of the Financing of Terrorism. The government of Kazakhstan has signed but not yet ratified the UN Convention against Transnational Organized Crime (Palermo Convention). Kazakhstan is a charted member of the Eurasian Group on Combating Money Laundering and Financing of Terrorism and is considering acceding to the Council of Europe's Convention on Laundering, Search, Seizure, and Confiscation of Proceeds of Crime.