LIKE A BOLT FROM THE BLUE

At the end of 2008, Azerbaijan's banking sector, which is trying to stay afloat amid the world financial crisis, witnessed an unexpected and, to put it mildly, undeserved assessment of its work. The Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MOVEYVAL) urged financial organizations to pay special attention to operations with people and financial organizations from Azerbaijan. To be honest, after the publication of this statement, we expected at least some reaction from the Azerbaijani side. In principle, this warning is no joke, and for the banking community such recommendations may have serious consequences in foreign borrowings. But in Azerbaijan MONEYVAL's statement was almost totally ignored. Perhaps, either it went unnoticed amid the fuss about the global crisis, or local credit organizations are quite confident that nothing bad will happen because they have long secured a positive assessment and support from international financial institutions. Let's try to find out.

Step VI

So, the document "Public statement on Azerbaijan under Step VI of its Compliance Enhancing Procedures on 12 December 2008" says: "Since 2006, MONEYVAL has been concerned about shortcomings in Azerbaijan's counteraction of money laundering and financing of terrorism. At its 28th plenary session which was held in Strasbourg on 8-12 December, MONEYVAL pointed out that on 31 October 2008, a draft law on countering money laundering and financing of terrorism was adopted in its second reading. This draft law considerably fails to meet key international standards."

On this basis, MONEYVAL called on Azerbaijan to reconsider this draft law taking account of the aforesaid standards until the end of the legislative process and immediately adopt complex legislation that meets the necessary requirements. MONEYVAL also called on the member states and other countries to inform their financial organizations of the need to pay special attention to operations with people and financial organizations residing or operating in Azerbaijan by securing a proper check of the client in order to eliminate the risk of money laundering and financing of terrorism.

To be honest, this conclusion was slightly unexpected because during the short period of Azerbaijan's cooperation with MONEYVAL, the country received a positive assessment of its steps aimed at combating money laundering. The first round of MONEYVAL's assessment of Azerbaijan was held in May 2003. On its basis, the republic was attributed to the category of countries that mostly meet the standards of the Financial Action Task Force (FATF) of the Organization for Economic Cooperation and Development (OECD). The republic joined Council of Europe resolutions to combat money laundering and financing of terrorism and is already using the recommendations of international organizations. Specifically, it has adopted a law that bans the opening of anonymous accounts and the release of anonymous securities. The fight against money laundering is also one of the components of the state programme to combat corruption in Azerbaijan.

As for the law on countering money laundering and financing of terrorism, the local authors of the law said that while preparing the law, they studied the experience of other countries and international principles. It identifies requirements to the body that carries out financial supervision and obligations to set up a financial intelligence body, to collect information on financing of terrorism and to render assistance to relevant bodies in order to fight this crime. Moreover, the World Bank, the International Monetary Fund, the US Department of Justice and the UN Anti-Drug Agency were reported to have made positive remarks on this draft law. So what is the matter?

The matter is that according to European experts, the countries that do not have a controlling mechanism have a high risk of money laundering and financing of terrorism rather than those which have this mechanism, because this reduces chances of getting high revenues. They believe that in order to secure full compliance with international standards, it is necessary to reconsider certain parts of this draft law. Specifically, this applies to accountability for suspicious operations, accountability for interstate money turnover, as well as financing and business commitments in order to strengthen laws on accountability. They think it very important to create mechanisms of cooperation with organizations combating money laundering, of confiscation and of work with customs bodies through which money flows in cash, and to organize international cooperation.

The draft law introduces a system of monitoring deals and operations that exceed the sum of 20,000 manats. Credit organizations, insurance and re-insurance organizations, professional participants in the securities market, leasing services by credit organizations, money transfers through post offices and other organizations, pawn shops, investment funds, deals with precious metals and stones and their purchase, non-government and religious organizations, organizers of lotteries, estate agents who buy and sell real estate, as well as lawyers, auditors, property deals, clients' assets, securities and property, and clients' bank and depot accounts can be monitored as well. A special state body will be set up to conduct the monitoring.

But a member of the parliamentary commission on economic policy, Vahid Ahmadov, thinks that the introduction of the 20,000-manat limit will result in the revenues of more than 90 per cent of legal and physical persons being monitored, which will inflict serious damage on the Azerbaijani economy. This limit is exceeded in the process of buying a car or a plot of land in Azerbaijan, and this is why the member of parliament thinks it inexpedient to introduce such a limit. "I think that for physical persons, the limit should be increased to 50 manats and for legal persons to 100,000 manats," Ahmadov said. Moreover, officials should also fall under financial monitoring, which should be reflected in the law."

No problem

Meanwhile, Azerbaijani experts are sure that MONEYVAL's statement will not cause any problems for Azerbaijani banks. An expert in this sphere said that the country has enough domestic resources to meet the demand of banks. It has been repeatedly said that the total amount of the foreign debt of Azerbaijani banks does not exceed 2 billion manats, while the currency reserves of the National Bank alone already exceed 6 billion manats. "We have a stable economy and a clear balance of payments - this is a sufficient guarantee for financial organizations that wish to deal with our banks," our interviewee said.

European circles expressed their dissatisfaction with the lack of transparency in the baking sector of Azerbaijan and with the fact that the banks are more focused on financing construction work, consumer credits and trade operations, which causes risks. Maybe it was possible to agree with this before. But today the situation is completely different. This can be proved by the willingness of such international institutions as the European Bank for Reconstruction and Development and the International Finance Corporation to participate in the capital of private banks in Azerbaijan. This does not provide any grounds to suspect Azerbaijani banks of money laundering, not to mention financing of terrorism.

Today Azerbaijani banks are working mainly with international financial institutions which have a wonderful idea of the real situation. They constantly monitor the situation, and even the most carping financial organizations continue to cooperate with Azerbaijani banks despite the global financial crisis. "As far as cooperation with private foreign banks is concerned, its level is minimal," the expert said.

In the banks themselves, there is no fuss about MONEYVAL's statement either. Moreover, most banks, according to our poll, do not even know about the essence of the warning. "Several years ago, our bank received Wolfsberg Principles: general directions on countering money laundering in the private banking sector. We examined the document intently and decided that the International Bank had been working on the basis of these principles even if they were unaware of them," the press secretary of the country's major financial institution, the International Bank of Azerbaijan, Rauf Agayev, told R+.

It must be noted that the drawing up of the Wolfsberg Principles was initiated by 11 leading banks of the world, and on 30 October 2000, they signed general directives on countering money laundering in the private banking sector. The policy of any bank, according to the Wolfsberg Principles, should be based on a rule according to which the bank can establish relations only with clients the legal origin of whose sources of income and financing can be reasonably confirmed. At the same time, the Wolfsberg Principles suggest that specific mechanisms of countering the laundering of money obtained in a criminal way can be defined by the bank itself.

"All banking money transfers are carried out through international payment systems which have established quite stringent rules of monitoring. Even if we wanted, we would not be able to ignore these conditions. Inside the country, any transferred sum is taxable. I don't think that conditions should become even more stringent as this will put off the population, while our efforts are aimed at attracting people to the banking sector," Agayev said.