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### Viewing cable 08REYKJAVIK291, ICELAND: 2009 INTERNATIONAL NARCOTICS CONTROL STRATEGY

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08REYKJAVIK291 | 2008-12-10 16:54 | 2011-01-13 05:37 | UNCLASSIFIED | Embassy Reykjavik

`

    P 101654Z DEC 08
    FM AMEMBASSY REYKJAVIK
    TO SECSTATE WASHDC PRIORITY 3919
    INFO DEPT OF TREASURY WASHINGTON DC
    DEPT OF JUSTICE WASHDC
    DEA WASHDC
    AMEMBASSY COPENHAGEN

` `

    UNCLAS REYKJAVIK 000291

    STATE FOR INL, EUR/RPM AND EUR/NB
    DEA FOR OFFICE OF DIVERSION CONTROL
    TREASURY FOR FINCEN
    JUSTICE FOR AFMLS, OIA, AND NDDS
    COPENHAGEN FOR DEA

    E.O. 12958: N/A
    TAGS: SNAR KTFN EFIN KCRM IC
    SUBJECT:  ICELAND: 2009 INTERNATIONAL NARCOTICS CONTROL STRATEGY
    REPORT (INCSR) PART 2: MONEY LAUNDERING

    REFS: A)STATE 104800
      B)REYKJAVIK 259

    ¶1.  Post provides the following submission for Part 2 of the INCSR
    report.  Part 1 (Narcotics) was transmitted Ref B.

    ¶2.  Begin text of submission:

    Iceland

    Money laundering is not considered a major problem in Iceland,
    though international observers have questioned the effectiveness of
    the anti-money laundering regime in the country. The Icelandic Penal
    Code criminalizes money laundering regardless of the predicate
    offense, although the code specifies that sentences in cases
    involving multiple crimes be determined based on the worst crime.
    Therefore, if a case involves both drug offenses and money
    laundering, the sentence will be based on the laws that concern the
    drug case. In cases that concern money laundering activities only,
    the maximum sentence is ten years' imprisonment.

    Iceland based its money laundering law on the Financial Action Task
    Force's (FATF's) Forty Recommendations. In June 2006, the parliament
    passed the Act on Measures to Counteract Money Laundering and the
    Financing of Terrorist Acts (MCML-FTA). This legislation replaces
    the 1993 Act on Measures to Counteract Money Laundering (MCML) and
    subsequent amendments. The legislation covers a broad range of
    financial institutions, but is more specific than the previous
    legislation, and imposes obligations on legal entities to report any
    suspicious activities to the authorities. The legislation extends
    requirements against money laundering and financing of terrorism to
    the full range of designated non-financial businesses and
    professions. The MCML-FTA covers a broader scope of designated
    non-financial business and professions in items, including
    attorneys, auditors, real estate dealers, and other service
    providers and dealers in accordance with FATF recommendations.

    The MCML-FTA also applies due diligence laws to the legal entities
    that fall under the reporting requirement. There are provisions in
    the law that allow for a fine for failure to comply.

    The regulation for the MCML-FTA requires that any suspicion that a
    transaction can be traced to money laundering or terrorist financing
    shall be reported to the Economic Crime Division of the National
    Commissioner of Police, specifically to the Financial Intelligence
    Unit (FIU).  The law requires those legal entities that fall under
    the reporting requirement to pay special attention to
    non-cooperative countries and territories (NCCTs) that do not follow
    international recommendations on money laundering. The Financial
    Supervisory Authority (FME), the main supervisor of the Icelandic
    financial sector, is to publish announcements and instructions if
    special caution is needed in dealing with any such country or
    territory.

    The MCML requires banks and other financial institutions, upon
    opening an account or depositing assets of a new customer, to have
    the customer prove his or her identity by presenting personal
    identification documents. The legal entities that fall under the
    reporting requirement shall verify customers' reliability:  when
    they make individual transactions amounting to 15,000 euros (ISK
    2.25 million) or more; at the beginning of a permanent business
    relationship; when making currency exchange amounting to 1,000 euros
    (ISK 150,000) or more, whether the transaction takes place in one or
    more related transactions; when there is suspicion of money
    laundering or the financing of terrorist acts, without regard to
    exceptions or limitations of any kind; or when there is doubt that
    information about a customer is correct or reliable enough.

    An individual party may not leave the country with more than the
    equivalent of 15,000 euros in cash, unless it is accounted for at
    the customs authorities. As Iceland is now facing a severe financial
    crisis, the parliament granted the Central Bank the authority to
    issue rules on foreign exchange in order to support the exchange
    value of the ISK. On December 1, the Central Bank used its authority
    to issue such rules. Among other things, the rules dictate that
    Icelandic banks cannot sell more than 500,000 ISK in foreign
    currency to any individual party per calendar month. These rules are
    meant to be temporary measures.

    Financial institutions record the name of every customer who seeks
    to buy or sell foreign currency. All records necessary to
    reconstruct significant transactions are maintained for at least
    seven years. Employees of financial institutions are protected from
    civil or criminal liability for reporting suspicious transactions.

    In July 2007, the FATF released its first evaluation of the
    Icelandic money laundering and terrorist financing regime since the
    passage of the new legislation.  The report expressed concerns
    regarding the effectiveness of the enforcement system.  It noted
    that penalties for money laundering seem disproportionately low and
    as a result not dissuasive. In addition, there has been a decline in
    the number of money laundering prosecutions and convictions in
    recent years, despite a rise in the number of Suspicious Transaction
    Reports (STR), a steep increase in the number of drug crimes, and an
    extraordinary expansion of the financial sector.

    On terrorist financing, the report noted that the law defines
    terrorist financing in broad terms but fails to fully cover the
    financing of acts listed in the Terrorist Financing Convention. The
    effectiveness of provisional and confiscation measures is
    satisfactory, but further improvement would make them even more
    effective. The report recommends that Iceland adopt a comprehensive
    mechanism to freeze assets in the context of UN Security Council
    Resolution S/RES/1373. Furthermore, the FATF report suggests that
    Icelandic authorities increase sanctions for directors and managers
    of financial institutions found to be in violation of the law.

    As noted, suspicious transaction reports (STRs) have consistently
    risen in Iceland in recent years, but Icelandic authorities continue
    to ascribe this to better training and awareness of the issue. The
    FIU has an officer assigned to cover suspicious transactions and has
    expanded the training provided to financial institutions to include
    those working at financial intermediaries such as lawyers and
    accountants. The FIU received 241 STRs in 2003, 301 STRs in 2004,
    283 STRs in 2005, 323 STRs in 2006, and 496 STRs in 2007.

    The first successful prosecution under the money laundering law
    occurred in 2000. There have been nine cases prosecuted since then,
    with convictions resulting in each case.  There were no money
    laundering prosecutions in 2008.

    Iceland's FIU is the primary government agency responsible for asset
    seizures and is authorized under the criminal code to freeze or
    seize funds based on reasonable suspicion of criminal activity.
    There are no significant obstacles to asset seizure in practice. The
    FME and the FIU make every effort to enforce existing drug-related
    asset seizure and forfeiture laws. In recent years, asset seizure
    has become quite common in embezzlement crimes, while only a small
    fraction of total asset seizures has related to money laundering.
    Under the Icelandic Penal Code, any assets confiscated on the basis
    of money laundering investigations must be delivered to the
    Icelandic State Treasury. There have been no instances of the U.S.
    or any other government requesting seized assets from Iceland.
    Foreign transfer or sharing of seized assets is not covered by
    existing legislation.

    Icelandic law specifically criminalizes terrorism and terrorist
    acts, and requires the reporting of suspected terrorist-linked
    assets and transactions involving possible terrorist operations or
    organizations. A March 2003 amendment to the Law on Official
    Surveillance on Financial Operations strengthened Iceland's ability
    to adhere to international money laundering and asset freezing
    initiatives and agreements. In accordance with international
    obligations or resolutions to which Iceland is a party, the FME
    shall publish announcements on individuals or legal entities
    (companies) whose names appear on the UNSCR 1267 Sanction
    Committee's consolidated list or on European Union clearinghouse
    list and whose assets or transactions Icelandic financial
    institutions are specifically obliged to report to authorities and
    freeze. Prior to the amendment, the government had to publish the
    names of terrorist individuals and organizations in the National
    Gazette in order to make them subject to asset freezing. The
    government formally enacted financial freeze orders against
    individuals and entities on the UNSCR 1267 Sanction Committee's
    consolidated list. Government of Iceland officials have said they
    will consider applying their terrorist asset freeze strictures
    against U.S.-only designated entities (i.e., names not on UN or EU
    lists) on a case-by-case basis. To date, Iceland has discovered no
    terrorist-related assets or financial transactions.

    When dealing with other European Economic Area (EEA) member
    countries, the FME can disclose confidential information to other
    governments, provided that this sharing is beneficial for conducting
    investigations of suspicious money laundering activities, and that
    EU Data Protection guidelines are followed. Concerning requests for
    information from countries outside of the EEA, the FME may, on a
    case-by-case basis, disclose to supervisory authorities information
    under the same conditions of confidentiality. To date there have
    been no requests from either EEA or non-EEA countries for an
    exchange of information concerning suspected acts of money
    laundering.

    There is currently no agreement (nor discussions toward one) between
    Iceland and the United States to exchange information concerning
    financial investigation, and no Mutual Legal Assistance Treaty
    (MLAT). The National Commissioner of Police has acted on tips from
    foreign law enforcement agencies in the investigation of money
    laundering activities, and the process of international cooperation
    with the law enforcement authorities of other countries appears to
    work smoothly.

    Iceland is a party to the 1988 UN Drug Convention; the Council of
    Europe Convention on Laundering, Search, Seizure, and Confiscation
    of the Proceeds from Crime; the UN Convention against Transnational
    Organized Crime (ratified May 2008); and the UN International
    Convention for the Suppression of the Financing of Terrorism.
    Iceland is party to several multilateral conventions on terrorism
    and rules of territorial jurisdiction, including the 1977 European
    Convention on the Suppression of Terrorism. Iceland is a member of
    the FATF, and its financial intelligence unit is a member of the
    Egmont Group.

    The Government of Iceland should continue to enhance its anti-money
    laundering/counterterrorist financing regime through the enforcement
    of existing laws, review and implementation of FATF recommendations
    for effective use of that legislation and reinforcement of relevant
    institutions' understanding of the regime.

    End text of submission.

    VAN VOORST

`