## This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT)

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### Background and scope
- Prepared by the IMF assessment team; mission conducted from February 23-March 10, 2009 and assessment conducted using the 2004 Assessment Methodology.
- The Detailed Assessment Report (DAR) on which this document is based was adopted by the MONEYVAL plenary on September 22, 2009.
- The views expressed are those of the staff team and do not necessarily reflect the views of the Government of Armenia or the Executive Board of the IMF.

### Key findings
- Armenia replaced a first AML/CFT law (enacted in 2005) with a more comprehensive law passed in 2008; effective implementation—especially by DNFBPs—is needed.
- No systemic assessment of ML and TF threats and risks in Armenia has been conducted to support development and implementation of a robust AML/CFT regime.
- The financial system is small and bank-dominated: total assets of the banking sector accounted for approximately 91 percent of the assets in the financial system.
- Certain financial instruments, such as bearer securities, pose a money laundering risk.
- Armenia appears more vulnerable to the “integration” stage of ML because of:
  - a highly cash-based economy;
  - significant volume of remittances from abroad;
  - relevant level of proceed-generating crime;
  - lack of adequate AML/CFT mechanisms in sectors such as real estate.
- The risk of TF is extremely low.
- The Financial Intelligence Unit – the Financial Monitoring Center (FMC), established within the Central Bank of Armenia – is young, knowledgeable and active but understaffed to undertake new responsibilities assigned by the new AML/CFT law.
- The money laundering offence is criminalized broadly in line with the international standard, but technical deficiencies exist in the terrorism offense.
- Seizure and confiscation framework needs strengthening, particularly with respect to predicate offenses.
- Armenia should revisit its response to UNSCRs 1267 and 1373 as the current mechanism is inadequate.
- The Vienna, Palermo and SFT Conventions have been ratified and many, but not all, provisions have been implemented.
- AML/CFT preventive measures for financial institutions are comprehensive and relatively close to the FATF Recommendations, but implementation across sectors is evolving and non-banking sectors are weaker.
- Supervisory on-site inspections are largely focused on regulatory compliance.

### Legal systems and related institutional measures — overview
- ML criminal provisions are basically sound and address many FATF criteria.
- It has not been ascertained by court judgment that money laundering can be prosecuted as an autonomous stand alone offense in the absence of a conviction for the predicate offense.
- Legal persons are not subject to criminal liability under Armenian law.
- The number of ML criminal investigations, prosecutions and convictions is low compared with those for main proceeds-generating predicate offenses.
- Courts face challenges in the standard of proof to establish that assets originate from crime.
- TF criminal provisions are broadly in line with the TF Convention but should be amended to:
  - be applicable to all nine Conventions and Protocols Annexed to the TF Convention;
  - cover the notion of “funds” as defined in the Convention;
  - align with FATF Special Recommendation II by extending to situations where property or funds are provided without the intention or knowledge that they will be used to commit a specific act of terrorism.
- Confiscation provisions meet several but not all international standard criteria; confiscation is not available for all FATF designated predicate offenses.
- Financial secrecy provisions are fragmented, interpreted restrictively, and create uncertainties that limit law enforcement tracing and confiscation, especially prior to suspect identification or where information relates to persons other than a suspect.
- Confiscation and seizing provisions are not implemented effectively.
- Freezing mechanism for UNSCRs 1267 and 1373 is deficient; the AML/CFT law provides freezing only for a limited period after which domestic proceedings for a specific offense must be instigated, including for UNSCR 1267 designations.

### Preventive measures — Financial institutions
- The AML/CFT Law establishes principal preventive obligations broadly in line with FATF Recommendations; detailed requirements are implemented through Central Bank of Armenia (CBA) regulations.
- The CBA, through the FMC, issues guidance to financial institutions to improve implementation.
- Covered measures include: CDD (including for PEPs), record-keeping, correspondent banking, unusual/large/suspicious transaction reporting, internal controls, compliance management arrangements, and training.
- Deficiencies relative to FATF Recommendations include:
  - no prohibition for opening a business relationship through or using bearer bank records or other bearer securities;
  - lack of effective risk management procedures concerning conditions under which a customer may use the business relationship prior to CDD verification;
  - lack of CDD measures for existing customers based on materiality and risk;
  - no requirements with respect to third parties and introduced business;
  - deficient measures on compliance management arrangements and internal programs and controls.
- Implementation varies by sector: banking is slightly more advanced; securities, insurance, foreign exchange offices, and money remitters are less advanced.
- Risk-based provisions exist but require sector-specific guidelines and refinements to the simplified CDD regime.
- Clear obligation to report suspicions exists; suspicious transaction reports are very low and mainly from the banking sector.
- The CBA, through the Financial Supervision Department (FSD), is the sole supervisory authority for AML/CFT compliance and enforcement, with broad inspection and sanction powers; administrative sanctions including fines have been applied.
- The FSD has implemented a fairly comprehensive supervision system but needs to update supervisory tools (examination manual and procedures) to incorporate risk-based elements and the 2008 AML/CFT Law.

### Preventive measures — Designated Non-Financial Businesses and Professions (DNFBPs)
- All DNFBPs as per the FATF definition are encompassed in the AML/CFT Law as reporting entities.
- DNFBPs lack the additional regulations, rules or guidance available to financial institutions; the DNFBP legal regime is substantially deficient.
- No obligations exist for treatment of PEPs or other high risk customers/transactions for DNFBPs.
- No legal or regulatory measures prevent criminals or associates from holding beneficial or controlling interests, management functions, or operating a casino.
- Implementation by DNFBPs is inadequate; no DNFBP has filed a suspicious transaction report.
- Several DNFBPs (independent lawyers and law firms, dealers in precious metals/stones, independent accountants/accounting firms) are unlicensed and unsupervised for AML/CFT compliance.
- Licensing and monitoring regimes for remaining DNFBPs are not AML/CFT-focused; for advocates (attorneys) there is a complete absence of supervisory or monitoring framework.
- Limited resources and technical expertise exist for improving DNFBP AML/CFT compliance.
- Trust and company service providers (TCSP) sector is not established in Armenia, although TCSPs are subject to the AML/CFT law.
- Overall DNFBP understanding and practice of obligations is minimal.

### Legal persons, arrangements, and non-profit organizations
- Measures ensure information on beneficial ownership of legal entities is obtained and maintained; recent enforcement means effective implementation could not be determined.
- Armenian law does not recognize trusts or other legal arrangements; Armenia is not a signatory to the Hague Convention on Laws Applicable to Trusts and on their Recognition.
- Foreign and domestic NPOs must register with the Legal Persons State Register of the Republic of Armenia Ministry of Justice (State Register).
- NPOs take the form of charities, foundations or other social organizations; over 5,500 NPOs were registered with the State Registry at the time of the assessment.
- Authorities identified no vulnerabilities to abuse for TF purposes from a review of applicable laws, but it is recommended that authorities undertake outreach to, and a review of, the sector.

### National and international cooperation
- Significant improvements: establishment of the Interagency Standing Commission on Fight against Counterfeiting Currency, Plastic Cards, and Other Payment Instruments, against the Money Laundering, as well as Financing Terrorism in the Republic of Armenia (Interagency Commission) as the principal forum for cooperation and coordination.
- The Interagency Commission membership represents all relevant authorities; consultation with financial institutions and other supervised businesses is passive, with only the Association of Banks of Armenia formally represented.
- Mandate includes AML/CFT policy, oversight and evaluation of effectiveness, information sharing, and education programs.
- The Interagency Commission has not undertaken an analysis of ML/TF risk in Armenia to determine vulnerabilities, sectors at risk, or types of predicate offenses; such assessment should inform AML/CFT strategy.
- Formal MoUs exist between the Financial Monitoring Center and the National Security Service, the Police, State Revenue Service and the Prosecutor’s Office for cooperation on suspicious transaction information exchange, joint discussions, mutual assistance drafting rules/guides, maintaining case statistics and typologies, and joint training/education.
- Legal framework for mutual legal assistance (MLA) and extradition is sound and not subject to unreasonable conditions; in practice Armenia provides MLA only subject to dual criminality.
- Shortcomings in ML and TF provisions, provisional measures (seizing, freezing, tracing), confiscation and financial secrecy can affect provision of MLA.
- Both ML and TF are extraditable offenses under Armenian law.
- Armenia has not received or made any MLA or extradition requests relating to ML or FT.

### Other institutional issues and capacity
- Lack of comprehensive and meaningful statistics prevented a meaningful assessment of effectiveness of AML/CFT measures across sectors.
- Need for additional human resources, particularly for AML/CFT supervision and within the FMC.
- Need for specific AML/CFT training for law enforcement authorities, particularly the NSS.

### Ratings and key recommendations (selected, by topic)
- Criminalization of Money Laundering
  - Ratings: R.1 – LC; R.2 – LC
  - Recommendations:
    - Undertake appropriate initiatives (such as outreach or training, for example) to all authorities involved in investigating, prosecuting and adjudicating money laundering (ML) cases to:
      - (1) assess what barriers exists for prosecuting ML, for example whether and to what extent the level of proof applied to show that property stems from the commission of a specific predicate offence poses an obstacle to obtaining convictions for stand-alone money laundering; and
      - (2) to further raise the awareness on the statutory requirements of the ML provisions;
    - Amend the law to provide for criminal liability of corporate entities.
- Criminalization of Terrorist Financing
  - Rating: SR.II – PC
  - Recommendations:
    - Amend the definition of “terrorism” pursuant to Article 217 CC (1) to cover all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the TF Convention and (2) to include a reference to “international organizations”, as required by Article 2 of the TF Convention;
    - Amend Article 217.1. CC to cover situations in which the property or funds are provided or collected generally for use by an individual terrorist or a terrorist organization when there is no intention or knowledge that the funds or property will be used in the commission a specific act of terrorism.
- Confiscation, Freezing, and Seizing
  - Rating: R.3 – PC
  - Recommendations include amendments to Article 55(3) CC, measures to allow seizing of legitimate assets equivalent in value, and ensuring effective implementation of provisional measures in investigations.
- Freezing of Funds Used for TF
  - Rating: SR.III – NC
  - Recommendations:
    - Review Article 25 AML/CFT law to provide an indefinite freezing mechanism in line with UNSCR 1267, UNSCR 1373 and SRIII, applying to funds, financial assets and property of every kind; FMC to issue formal guidance to reporting entities on freezing obligations pursuant to UNSCR 1373 and Article 25 AML/CFT Law.
- The Financial Intelligence Unit (FMC)
  - Rating: R.26 – LC
  - Recommendations:
    - Increase the number of staff, particularly of the Analysis division;
    - Consider establishing a unit (or a sub-unit in the Analysis division) to deal specifically with the analysis of TRs;
    - Outreach to DNFBPs protected by professional secrecy (in particular lawyers, accountants and auditors) to clarify the ambit of application of Article 4, paragraph 3 of the AML law and, if needed, modify the text of the law.
- Law Enforcement, Prosecution and Other Competent Authorities
  - Ratings: R.27 – LC; R.28 – PC
  - Recommendations:
    - Amend the CPC to provide general power to compel production of documents and information in ML and TF cases, including from witnesses or persons other than injured/plaintiff/suspect/accused;
    - Harmonize financial secrecy provisions across laws to ensure adequate powers to access and compel production of information and transaction records.
- Cross Border Declaration or Disclosure
  - Rating: SR IX– PC
  - Recommendations:
    - Provide Customs authorities with power to stop or restrain currency where there is a suspicion of ML/TF;
    - Increase the level of sanctions;
    - Introduce freezing requirements envisaged by SRIII and the UNSCRs for physical cross-border transportation of currency or bearer negotiable instruments related to TF;
    - Analyze declaration information to develop AML/CFT intelligence.
- Preventive measures — Risk of ML/TF and CDD (Financial Institutions)
  - Ratings: R.5 – PC; R.6 – LC; R.7 – C; R.8 – LC
  - Recommendations include prohibition of bearer instruments, guidance on timeframes for CDD, training to ensure effective implementation, and enhanced monitoring for PEPs.
- Third Parties and Introduced Business
  - Rating: R.9 – NC
  - Recommendations:
    - Amend Minimal Requirements regulation to require immediate provision of CDD information from third parties, steps to ensure documentation availability, and verification that third parties are regulated and supervised; define “specialized intermediaries or persons empowered to represent third parties” consistent with FATF.
- Financial Institution Secrecy or Confidentiality
  - Rating: R.4 – PC
  - Recommendations:
    - Harmonize Article 10 LBS with Article 29 LOSA and Article 13 AML/CFT Law; ensure access by law enforcement is not conditioned on identification of a “suspect” or “criminally charged” person; amend LBS to allow FIs to share information where required by R.7, R.9 or SR.VII.
- Record Keeping and Wire Transfer Rules
  - Ratings: R.10 – LC; SR.VII – LC
  - Recommendation:
    - Provide requirements by law or regulations for establishing the threshold for customer identification when a wire transfer is involved to the equivalent of €/$ 1,000.
- Monitoring of Transactions and Relationships
  - Ratings: R.11 – LC; R.21 – LC
  - Recommendations include requiring examination of background and purpose for complex/unusual transactions, record retention for five years, and training for non-bank FIs.
- Suspicious Transaction Reports and Other Reporting
  - Ratings: R.13 – LC; R.14 – C; R.19 – C; R.25 – C; SR.IV – LC
  - Recommendation:
    - Provide additional training to reporting entities covering detection and reporting of suspicious transactions, typologies and trends (differentiated by type of activity, especially for DNFBPs).
- Internal Controls, Compliance, Audit and Foreign Branches
  - Ratings: R.15 – PC; R.22 – C
  - Recommendations include ensuring compliance officers have timely access to CDD and transaction records, formal staff screening procedures, and independent internal audit functions.
- Shell Banks
  - Rating: R.18 – LC
  - Recommendation:
    - Clarify definition of “shell bank” consistent with FATF.
- Supervisory and Oversight System
  - Ratings: R.17 – C; R.23 – LC; R.25 – LC; R.29 – LC
  - Recommendations:
    - Strengthen AML/CFT supervision by incorporating risk elements into examination procedures; ensure frequent inspections of banks, money remitters and securities/investment firms; update AML/CFT examination procedures for all sectors.
- Money Value Transfer Services
  - Rating: SR.VI – LC
  - Recommendation:
    - Follow up on the money remitter that appears to be informally operating in the financial system without CBA registration and approval.
- Preventive measures — DNFBPs CDD and Record-Keeping
  - Rating: R.12 – NC
  - Recommendations include removing CDD thresholds for certain DNFBPs, requiring purpose/intended nature information, guidance for ongoing due diligence and enhanced due diligence for higher risk customers, prohibiting reduced CDD where ML/TF suspicions exist, and establishing third party reliance frameworks for DNFBPs.
- Suspicious Transaction Reporting for DNFBPs
  - Rating: R.16 – PC
  - Recommendations:
    - Issue guidelines for dealers in precious stones/precious metals and relevant ST typologies; clarify TR vs ST obligations including no thresholds for STRs, ST for attempted transactions and those suspicious with respect to tax matters.
- Regulation, Supervision, Monitoring, and Sanctions for DNFBPs
  - Ratings: R.24 – NC; R.25 – PC
  - Recommendations:
    - Designate competent authorities or SROs for independent lawyers, independent accountants, dealers in precious metals/stones; implement supervisory regime for advocates (attorneys); introduce fitness and propriety requirements for casinos and prize game operators; issue DNFBP guidance and develop feedback processes on disclosures and trends.
- Other DNFBPs
  - Rating: R.20 – PC
  - Recommendations:
    - Undertake a risk assessment for other NFBPs; take measures to reduce the use of cash and encourage activity within the formal sector.
- Legal Persons and Arrangements — Beneficial Ownership
  - Legal Persons: Rating: R.33 – LC
    - Recommendation: Amend Article 157 Civil Code to eliminate any reference to bearer shares.
  - Legal Arrangements: Rating: R.34 – NA
    - Note: Not Applicable
- Nonprofit Organizations
  - Rating: SR.VIII – PC
  - Recommendation:
    - Establish outreach to NPOs regarding risks of TF abuse and available protective measures.
- National and International Cooperation
  - National cooperation: Rating: R.31 – LC
    - Recommendation: Undertake ongoing analysis of the risk of ML/TF to streamline AML/CFT strategy.
  - The Conventions and UN Special Resolutions: Ratings: R.35 – PC; SR.I – PC
    - Recommendations include putting in place confiscation measures for all offenses as defined in the Palermo Convention, seizing legitimate property intermingled with proceeds as per Vienna and Palermo Conventions, defining TF offense in line with SFT Convention, and addressing requirements under UNSCR 1267 and 1373.
  - Mutual Legal Assistance: Ratings: R.36 – PC; R.37 – LC; R.38 – PC; SR.V – PC
    - Recommendation: Clarify whether dual criminality is required for MLA and determine whether ML/TF deficiencies limit provision of assistance, particularly for proceedings against legal persons.
  - Extradition: Ratings: R.39 – C; R.37 – LC; SR.V – PC
    - Recommendation: Remedy deficiencies in TF offenses to ensure dual criminality does not limit extradition in TF cases.
  - Other Forms of Cooperation: Ratings: R.40 – LC; SR.V – PC
    - Recommendation: Clarify professional secrecy provisions that may hamper FMC access/compulsion of information.
- Other issues — Resources & Statistics
  - Ratings: R.30 – PC; R.32 – NC
  - Recommendations:
    - Identify and recruit additional resources for AML/CFT supervision for off-site surveillance and on-site inspections;
    - Consider additional resources for the FMC;
    - Provide AML/CFT specific training for officials of the NSS’s investigative department and the Custom’s inquest and investigation departments;
    - Maintain accurate statistics.

*Source: IMF staff assessment based on mission from February 23-March 10, 2009 and the Detailed Assessment Report adopted by MONEYVAL on September 22, 2009.*

### 1.      This Report on the Observance of Standards and Codes for the FATF 40

### 1.      This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT)

### Background and scope
- Prepared by the IMF assessment team; mission conducted from February 23-March 10, 2009 and assessment conducted using the 2004 Assessment Methodology.
- The Detailed Assessment Report (DAR) on which this document is based was adopted by the MONEYVAL plenary on September 22, 2009.
- The views expressed are those of the staff team and do not necessarily reflect the views of the Government of Armenia or the Executive Board of the IMF.

### Key findings
- Armenia replaced a first AML/CFT law (enacted in 2005) with a more comprehensive law passed in 2008; effective implementation—especially by DNFBPs—is needed.
- No systemic assessment of ML and TF threats and risks in Armenia has been conducted to support development and implementation of a robust AML/CFT regime.
- The financial system is small and bank-dominated: total assets of the banking sector accounted for approximately 91 percent of the assets in the financial system.
- Certain financial instruments, such as bearer securities, pose a money laundering risk.
- Armenia appears more vulnerable to the “integration” stage of ML because of:
  - a highly cash-based economy;
  - significant volume of remittances from abroad;
  - relevant level of proceed-generating crime;
  - lack of adequate AML/CFT mechanisms in sectors such as real estate.
- The risk of TF is extremely low.
- The Financial Intelligence Unit – the Financial Monitoring Center (FMC), established within the Central Bank of Armenia – is young, knowledgeable and active but understaffed to undertake new responsibilities assigned by the new AML/CFT law.
- The money laundering offence is criminalized broadly in line with the international standard, but technical deficiencies exist in the terrorism offense.
- Seizure and confiscation framework needs strengthening, particularly with respect to predicate offenses.
- Armenia should revisit its response to UNSCRs 1267 and 1373 as the current mechanism is inadequate.
- The Vienna, Palermo and SFT Conventions have been ratified and many, but not all, provisions have been implemented.
- AML/CFT preventive measures for financial institutions are comprehensive and relatively close to the FATF Recommendations, but implementation across sectors is evolving and non-banking sectors are weaker.
- Supervisory on-site inspections are largely focused on regulatory compliance.

### Legal systems and related institutional measures
- ML criminal provisions are basically sound and address many FATF criteria.
- It has not been ascertained by court judgment that money laundering can be prosecuted as an autonomous stand alone offense in the absence of a conviction for the predicate offense.
- Legal persons are not subject to criminal liability under Armenian law.
- The number of ML criminal investigations, prosecutions and convictions is low compared with those for main proceeds-generating predicate offenses.
- Courts face challenges in the standard of proof to establish that assets originate from crime.
- TF criminal provisions are broadly in line with the TF Convention but should be amended to:
  - be applicable to all nine Conventions and Protocols Annexed to the TF Convention;
  - cover the notion of “funds” as defined in the Convention;
  - align with FATF Special Recommendation II by extending to situations where property or funds are provided without the intention or knowledge that they will be used to commit a specific act of terrorism.
- Confiscation provisions meet several but not all international standard criteria; confiscation is not available for all FATF designated predicate offenses.
- Financial secrecy provisions are fragmented, interpreted restrictively, and create uncertainties that limit law enforcement tracing and confiscation, especially prior to suspect identification or where information relates to persons other than a suspect.
- Confiscation and seizing provisions are not implemented effectively.
- Freezing mechanism for UNSCRs 1267 and 1373 is deficient; the AML/CFT law provides freezing only for a limited period after which domestic proceedings for a specific offense must be instigated, including for UNSCR 1267 designations.

### Preventive measures — Financial institutions
- The AML/CFT Law establishes principal preventive obligations broadly in line with FATF Recommendations; detailed requirements are implemented through Central Bank of Armenia (CBA) regulations.
- The CBA, through the FMC, issues guidance to financial institutions to improve implementation.
- Covered measures include: CDD (including for PEPs), record-keeping, correspondent banking, unusual/large/suspicious transaction reporting, internal controls, compliance management arrangements, and training.
- Deficiencies relative to FATF Recommendations include:
  - no prohibition for opening a business relationship through or using bearer bank records or other bearer securities;
  - lack of effective risk management procedures concerning conditions under which a customer may use the business relationship prior to CDD verification;
  - lack of CDD measures for existing customers based on materiality and risk;
  - no requirements with respect to third parties and introduced business;
  - deficient measures on compliance management arrangements and internal programs and controls.
- Implementation varies by sector: banking is slightly more advanced; securities, insurance, foreign exchange offices, and money remitters are less advanced.
- Risk-based provisions exist but require sector-specific guidelines and refinements to the simplified CDD regime.
- Clear obligation to report suspicions exists; suspicious transaction reports are very low and mainly from the banking sector.
- The CBA, through the Financial Supervision Department (FSD), is the sole supervisory authority for AML/CFT compliance and enforcement, with broad inspection and sanction powers; administrative sanctions including fines have been applied.
- The FSD has implemented a fairly comprehensive supervision system but needs to update supervisory tools (examination manual and procedures) to incorporate risk-based elements and the 2008 AML/CFT Law.

### Preventive measures — Designated Non-Financial Businesses and Professions (DNFBPs)
- All DNFBPs as per the FATF definition are encompassed in the AML/CFT Law as reporting entities.
- DNFBPs lack the additional regulations, rules or guidance available to financial institutions; the DNFBP legal regime is substantially deficient.
- No obligations exist for treatment of PEPs or other high risk customers/transactions for DNFBPs.
- No legal or regulatory measures prevent criminals or associates from holding beneficial or controlling interests, management functions, or operating a casino.
- Implementation by DNFBPs is inadequate; no DNFBP has filed a suspicious transaction report.
- Several DNFBPs (independent lawyers and law firms, dealers in precious metals/stones, independent accountants/accounting firms) are unlicensed and unsupervised for AML/CFT compliance.
- Licensing and monitoring regimes for remaining DNFBPs are not AML/CFT-focused; for advocates (attorneys) there is a complete absence of supervisory or monitoring framework.
- Limited resources and technical expertise exist for improving DNFBP AML/CFT compliance.
- Trust and company service providers (TCSP) sector is not established in Armenia, although TCSPs are subject to the AML/CFT law.
- Overall DNFBP understanding and practice of obligations is minimal.

### Legal persons, arrangements, and non-profit organizations
- Measures ensure information on beneficial ownership of legal entities is obtained and maintained; recent enforcement means effective implementation could not be determined.
- Armenian law does not recognize trusts or other legal arrangements; Armenia is not a signatory to the Hague Convention on Laws Applicable to Trusts and on their Recognition.
- Foreign and domestic NPOs must register with the Legal Persons State Register of the Republic of Armenia Ministry of Justice (State Register).
- NPOs take the form of charities, foundations or other social organizations; over 5,500 NPOs were registered with the State Registry at the time of the assessment.
- Authorities identified no vulnerabilities to abuse for TF purposes from a review of applicable laws, but it is recommended that authorities undertake outreach to, and a review of, the sector.

### National and international cooperation
- Significant improvements: establishment of the Interagency Standing Commission on Fight against Counterfeiting Currency, Plastic Cards, and Other Payment Instruments, against the Money Laundering, as well as Financing Terrorism in the Republic of Armenia (Interagency Commission) as the principal forum for cooperation and coordination.
- The Interagency Commission membership represents all relevant authorities; consultation with financial institutions and other supervised businesses is passive, with only the Association of Banks of Armenia formally represented.
- Mandate includes AML/CFT policy, oversight and evaluation of effectiveness, information sharing, and education programs.
- The Interagency Commission has not undertaken an analysis of ML/TF risk in Armenia to determine vulnerabilities, sectors at risk, or types of predicate offenses; such assessment should inform AML/CFT strategy.
- Formal MoUs exist between the Financial Monitoring Center and the National Security Service, the Police, State Revenue Service and the Prosecutor’s Office for cooperation on suspicious transaction information exchange, joint discussions, mutual assistance drafting rules/guides, maintaining case statistics and typologies, and joint training/education.
- Legal framework for mutual legal assistance (MLA) and extradition is sound and not subject to unreasonable conditions; in practice Armenia provides MLA only subject to dual criminality.
- Shortcomings in ML and TF provisions, provisional measures (seizing, freezing, tracing), confiscation and financial secrecy can affect provision of MLA.
- Both ML and TF are extraditable offenses under Armenian law.
- Armenia has not received or made any MLA or extradition requests relating to ML or FT.

### Other issues
- Lack of comprehensive and meaningful statistics prevented a meaningful assessment of effectiveness of AML/CFT measures across sectors.
- Need for additional human resources, particularly for AML/CFT supervision and within the FMC.
- Need for specific AML/CFT training for law enforcement authorities, particularly the NSS.

### Summary table and key recommendations (as presented)
- The document contains a Summary Table of Observance and Key Recommendations for the FATF 40+9 Recommendations and Key Assessor Recommendations.

*Source: IMF staff assessment based on mission from February 23-March 10, 2009 and the Detailed Assessment Report adopted by MONEYVAL on September 22, 2009.*

### 1. Legal System and Related Institutional Measures

### 1. Legal System and Related Institutional Measures

### Criminalization of Money Laundering
- Ratings: R.1 – LC; R.2 – LC
- Recommendations:
  - Undertake appropriate initiatives (such as outreach or training, for example) to all authorities involved in investigating, prosecuting and adjudicating money laundering (ML) cases to:
    - (1) assess what barriers exists for prosecuting ML, for example whether and to what extent the level of proof applied to show that property stems from the commission of a specific predicate offence poses an obstacle to obtaining convictions for stand-alone money laundering; and
    - (2) to further raise the awareness on the statutory requirements of the ML provisions;
  - Amend the law to provide for criminal liability of corporate entities.

### Criminalization of Terrorist Financing
- Rating: SR.II – PC
- Recommendations:
  - Amend the definition of “terrorism” pursuant to Article 217 CC (1) to cover all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the TF Convention and (2) to include a reference to “international organizations”, as required by Article 2 of the TF Convention;
  - Amend Article 217.1. CC to cover situations in which the property or funds are provided or collected generally for use by an individual terrorist or a terrorist organization when there is no intention or knowledge that the funds or property will be used in the commission a specific act of terrorism.

### Confiscation, Freezing, and Seizing of Proceeds of Crime
- Rating: R.3 – PC
- Recommendations:
  - With respect to all predicate offenses not covered by Articles 55(3) CC, measures should be put in place to allow for the confiscation of proceeds from and instrumentalities used or intended to be used for the commission of the offenses as well as of legitimate assets equivalent in value to such property;
  - Article 55(3) CC should be amended to allow for the confiscation of property regardless of whether it is held or owned by the defendant or a third party;
  - Put in place measures to allow for the seizing of legitimate assets equivalent in value to proceeds from or instrumentalities used or intended for use in the commission of ML, TF or predicate offenses;
  - The law enforcement authorities should ensure that provisional measures with respect to property that may become subject to confiscation are implemented effectively in the context of inquests/investigations/pre-trials for ML and TF;
  - Armenian authorities should reconsider their approach to confiscation with a view to increasing the number of confiscation actions and to encourage a more frequent use of the confiscation provisions.

### Freezing of Funds Used for Terrorist Financing
- Rating: SR.III – NC
- Findings and recommendations:
  - Armenia should review the freezing mechanisms set forth in Article 25 AML/CFT law that are meant to implement obligations under UNSCR 1267, UNSCR 1373 and SRIII. In particular, Armenian law should provide for meeting the designation and freezing responsibilities set forth in the UN Resolution in all instances regardless of whether it is possible to instigate an investigation or prosecution of a terrorist offence. It should provide an indefinite freezing mechanism that is available regardless of the initiation or outcome of a domestic criminal proceeding and does not allow for any discretion in implementing a freeze in case of a match with the UN Security Council lists;
  - The freezing measures should apply not only to funds but also to any financial assets and property of every kind, as defined in the FATF standard and the Interpretative Note to Special Recommendation III;
  - The FMC should issue formal guidance to reporting entities and other persons or entities that may be holding targeted funds or other assets concerning their obligations in taking freezing actions pursuant to UNSCR 1373 and Article 25 AML/CFT Law.

### The Financial Intelligence Unit and Its Functions
- Rating: R.26 – LC
- Recommendations:
  - Increase the number of staff, particularly of the Analysis division;
  - Consider establishing a unit (or a sub-unit in the Analysis division) to deal specifically with the analysis of TRs;
  - Outreach to DNFBPs protected by professional secrecy (in particular lawyers, accountants and auditors) to clarify the ambit of application of Article 4, paragraph 3 of the AML law and, if needed, modify the text of the law to ensure that the reference to professional secrecy does not hamper ability of FMC to request additional information.

### Law Enforcement, Prosecution and Other Competent Authorities
- Ratings: R.27 – LC; R.28 – PC
- Recommendations:
  - The CPC should be amended to provide for a general power of the law enforcement authorities or the courts to compel the production of documents and information in ML and TF cases, including also in cases where the information is requested from a witness or a person other than the injured, or the plaintiff, suspect or accused;
  - Harmonize Articles 10 of the LBS with Article 29 of the LOSA and Articles 13.1 of the LBS with 13 of the AML/CFT Law so that they provide the same conditions with respect to access to information covered by financial secrecy and to ensure that law enforcement authorities have adequate powers to access and compel production of information, transaction records, account files and other documents or information that is covered by financial secrecy, especially in cases where a suspect has not yet been identified or where the information is sought with respect to persons other than the suspect.

### Cross Border Declaration or Disclosure
- Rating: SR IX– PC
- Recommendations:
  - Provide Customs authorities with the power to stop or restrain currency where there is a suspicion of money laundering or terrorist financing;
  - Increase the level of sanctions;
  - Introduce freezing requirements envisaged by SRIII and the UNSCRs in the case of persons who are carrying out a physical cross-border transportation of currency or bearer negotiable instrument that are related to TF;
  - Analyze the information collected under the declaration requirements to develop AML/CFT intelligence.

### Preventive Measures: Financial Institutions — Risk of ML/TF and CDD
- Ratings: R.5 – PC; R.6 – LC; R.7 – C; R.8 – LC
- Recommendations:
  - Prohibit bearer bank books and certificates of deposit or other bearer securities, by way of repealing/changing articles of the Civil Code and any other regulations that make available these instruments in bearer form or regulate them;
  - Provide additional guidance to financial institutions with respect to adequate timeframes for updating customer data to ensure consistent and effective implementation;
  - Provide additional guidance to specify a reasonable timeframe that financial institutions should follow when obtaining identification information and checking the veracity of such information in the course of establishing a business relationship;
  - Ensure financial institutions are implementing more effectively the obligations imposed by the AML/CFT and implementing regulations with respect to CDD measures, by way of training or other types of outreach;
  - Provide additional guidance/training to financial institutions in relation to the enhanced ongoing monitoring procedures required by law when establishing a business relationship with a PEP.

### Third Parties and Introduced Business
- Rating: R.9 – NC
- Recommendations:
  - Amend the regulation on Minimal Requirements to establish the obligations for financial institutions relying on intermediaries or third parties to:
    - immediately obtain from the third party the necessary information concerning certain elements of the CDD process (Criteria 5.3. to 5.6);
    - take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to CDD requirements will be made available from the third party upon request without delay;
    - satisfy themselves that the third party is regulated and supervised (in accordance with Recommendation 23, 24, and 29), and has measures in place to comply with, the CDD requirements set out in R.5 and R.10;
  - Define the notion of “specialized intermediaries or persons empowered to represent third parties” in a manner that is consistent with the FATF standard, in particular to limit the requirement to “third parties” that are FIs or DNFBPs only and not to “persons empowered to represent third parties”.

### Financial Institution Secrecy or Confidentiality
- Rating: R.4 – PC
- Recommendations:
  - Harmonize Article 10 of the LBS with Article 29 of the LOSA and Article 13 of the AML/CFT Law with Article 13.1. of the LBS so that they provide the same conditions with respect to access to information covered by financial secrecy;
  - Ensure that access by law enforcement authorities (particularly the NSS) to information covered by financial secrecy is not conditioned on the identification of a “suspect” or “criminally charged” person, as this condition undermines the proper performance of the NSS as the competent authority to investigate ML/TF and prevents access to such information in cases relating to legal persons or regarding any person other than the “suspect” or the “accused”;
  - Amend the LBS to allow financial institutions to share information covered by financial secrecy where it is required by R.7, R.9 or SR.VII.

### Record Keeping and Wire Transfer Rules
- Ratings: R.10 – LC; SR.VII – LC
- Recommendation:
  - Provide requirements by law or regulations for establishing the threshold for customer identification when a wire transfer is involved to the equivalent of €/$ 1,000. In this way, given the floating of the exchange rate, reporting entities can ensure that the threshold remains consistent with the standard.

### Monitoring of Transactions and Relationships
- Ratings: R.11 – LC; R.21 – LC
- Recommendations:
  - Establish a clear and direct requirement for financial institutions to examine as far as possible the background and purpose of complex, unusual large transactions and all unusual patters of transactions which have no apparent economic or visible lawful purpose as required by this recommendation;
  - Extend the requirement to keep the findings of the examination of complex and unusual large transactions also available to auditors for at least five years;
  - Provide additional training, particularly to non-bank financial institutions to ensure that attention is given to all transactions that fall into the unusual, large, and complex categories, regardless of any offshore and UN lists;
  - Establish a requirement for financial institutions to:
    - i) examine as far as possible the background and purpose of transactions with persons from or in countries which do not apply or insufficiently apply the FATF Recommendations;
    - ii) to document the findings; and
    - iii) to make the written findings available to assist competent authorities and auditors.

### Suspicious Transaction Reports and Other Reporting
- Ratings: R.13 – LC; R.14 – C; R.19 – C; R.25 – C; SR.IV – LC
- Recommendation:
  - Provide additional training to reporting entities to ensure that staff is knowledgeable about the obligations imposed by law. Training should specifically cover detection and reporting of suspicious transactions and should consider typologies and trends (differentiated along the types of activities, especially for DNFBPs).

### Internal Controls, Compliance, Audit and Foreign Branches
- Ratings: R.15 – PC; R.22 – C
- Recommendations:
  - Amend the regulations to introduce an explicit and direct provision highlighting the ability of the internal compliance unit/designated compliance officer to have access in a timely manner to all necessary CDD information, transactions records, and other relevant information;
  - Put in place formal procedures to screen all staff by financial institutions, particularly for staff in areas that are relevant to AML/CFT. These formal procedures should be aimed at ensuring high standards when hiring/recruiting employees;
  - Ensure financial institutions maintain an independent and adequately resourced internal audit function, particularly when audit is assigned/delegated to staff other that the internal auditor.

### Shell Banks
- Rating: R.18 – LC
- Recommendation:
  - Clarify the definition of “shell bank” in a way that is consistent with the FATF standard.

### Supervisory and Oversight System – Competent Authorities and SROs
- Ratings: R.17 – C; R.23 – LC; R.25 – LC; R.29 – LC
- Recommendations:
  - Strengthen AML/CFT supervision through the incorporation of risk elements to the overall supervisory cycle and in particular update the supervisory examination procedures to incorporate the risk-based approach to supervision and the requirements of the new (2008) AML/CFT Law;
  - Ensure that financial institutions, particularly, credit organizations, insurance, securities, foreign exchange offices and money remitters are adequately complying with the requirements to combat money laundering and terrorist financing;
  - Conduct frequent and ongoing AML/CFT inspections of banks organizations, money transfers services (money remitters) and securities/investment firms;
  - Update the AML/CFT examination procedures for all sectors.

### Money Value Transfer Services
- Rating: SR.VI – LC
- Recommendation:
  - Follow up on the money remitter that appears to be informally operating in the financial system without CBA registration and approval.

### Preventive Measures: Non-Financial Businesses and Professions — Customer Due Diligence and Record-Keeping
- Rating: R.12 – NC
- Recommendations:
  - Remove the threshold that limits CDD in relation to the acquisition or sales of stocks or shares - for attorneys, persons providing legal services, notaries, independent auditors and auditing firms, independent accountants and accounting firms;
  - Establish a direct requirement for DNFBPs to obtain information on the purpose and intended nature of the business relationship regardless of whether the transaction is considered high risk or not;
  - Develop guidance for DNFBPs to ensure that there is a consistent system for conducting ongoing due diligence taking into account the threats and vulnerabilities of the nature, scope and operation of the DNFBPs and establish the frequency for updating customer information;
  - Establish requirements and guidance in relation to conducting enhanced due diligence for higher risk customers, business relationships or transactions and the application of simplified/reduced CDD measures for low risk customers, including for non-resident customers;
  - Explicitly prohibit the application of reduced CDD measures when suspicions of ML/TF exist or in the event of high risk scenarios;
  - Provide through law, rules or other enforceable means measures with respect to CDD requirements for PEPs at the establishment of the business relationship and during the course of such relationship;
  - Establish a specific framework when DNFBPs may rely on third parties or intermediaries to perform CDD measures;
  - Undertake an analysis on the risks and impact of the disapplication of Article 21 (internal legal acts) and external audit of systems and controls for compliance with the AML/CFT Law (Article 23.2) for DNFBPs with less than 10 employees.

### Suspicious Transaction Reporting for DNFBPs
- Rating: R.16 – PC
- Recommendations:
  - Issuing guidelines on the manner of reporting for dealers in precious stones or precious metals and relevant typologies of STs for DNFBPs;
  - Instigating outreach by way of supervision, training or other means to ensure that a clear differentiation is in place between TR and ST reporting obligations including no thresholds for STR obligations, ST for attempted transactions and those suspicious with respect to tax matters.

### Regulation, Supervision, Monitoring, and Sanctions for DNFBPs
- Ratings: R.24 – NC; R.25 – PC
- Recommendations:
  - Designating competent authorities or SROs monitoring and ensuring compliance with the AML/CFT obligations for independent lawyers and firms providing legal services, independent accountants and accounting firms; dealers in precious metals; and dealers in precious stones for effective monitoring and compliance on a risk sensitive basis;
  - Implementing a supervisory regime for advocates (attorneys);
  - Introducing for casinos and operators of prize games fitness and propriety requirements for managers, owners, and beneficial owners including fit and proper checks for management, owners or beneficial owners. Further, implementing, by way of law, rules or regulations, requirements that would prevent criminals or their associates from holding or being beneficial owners of a significant or controlling interest, holding a management function in, or being an operator of a casino or operator of a prize game;
  - Issuing guidelines for DNFBPs to assist with the full implementation and compliance of the applicable obligation set forth in the AML/CFT Law;
  - Developing relevant feedback processes on number of disclosures and results, current techniques, methods and trends, or money laundering cases that have been sanitized relevant to DNFBPs.

### Other Designated Non-Financial Businesses and Professions
- Rating: R.20 – PC
- Recommendations:
  - Undertaking a risk assessment in order to determine if other NFBPs are at risk of being misused for ML or TF;
  - Take measures to reduce the use of cash and encourage more activity within the formal sector.

### Legal Persons and Arrangements — Beneficial Ownership and Control Information
- Legal Persons:
  - Rating: R.33 – LC
  - Recommendation: Amend Article 157 Civil Code to eliminate any reference to bearer shares.
- Legal Arrangements:
  - Rating: R.34 – NA
  - Note: Not Applicable

### Nonprofit Organizations
- Rating: SR.VIII – PC
- Recommendation:
  - Establishing outreach to NPOs in relation to the risks of TF abuse and available measures to protect against TF abuse.

### National and International Cooperation
- National cooperation and coordination:
  - Rating: R.31 – LC
  - Recommendation: Undertake ongoing analysis of the risk of ML/TF to streamline its AML/CFT strategy.
- The Conventions and UN Special Resolutions:
  - Ratings: R.35 – PC; SR.I – PC
  - Recommendations:
    - Put in place confiscation measures for all offenses as defined in the Palermo Convention;
    - Provide for the seizing of legitimate property intermingled with proceeds from or instrumentalities used or intended for use in the commission of crimes as defined in the Vienna and Palermo Conventions;
    - Define the TF offense in line with the definition of the offense in the SFT Convention;
    - Put in place adequate measures to fully address the requirements under UNSCR 1267 and 1373.
- Mutual Legal Assistance:
  - Ratings: R.36 – PC; R.37 – LC; R.38 – PC; SR.V – PC
  - Recommendation:
    - Clarify whether dual criminality is required for the provision of mutual legal assistance to determine whether the deficiencies identified with respect to the ML and TF offenses as outlined under Recommendations 1, 2 and Special Recommendation II may limit Armenia’s ability to provide assistance in certain situations, and in particular the ability to provide mutual legal assistance for proceedings against legal persons.
- Extradition:
  - Ratings: R.39 – C; R.37 – LC; SR.V – PC
  - Recommendation:
    - Remedy the deficiencies in the TF offenses to ensure that the dual criminality requirement does not limit Armenia’s ability to extradite persons in TF cases.
- Other Forms of Cooperation:
  - Ratings: R.40 – LC; SR.V – PC
  - Recommendation:
    - Clarify the provisions of professional secrecy, which may hamper FMC’s ability to have access/compel information.

### Other Issues — Resources & Statistics
- Ratings: R.30 – PC; R.32 – NC
- Recommendations:
  - Identify and recruit additional resources to provide for an adequate level of AML/CFT supervision for both off-site surveillance activities and on-site inspections;
  - Consider additional resources for the FMC;
  - Provide AML/CFT specific training for officials of the NSS’s investigative department and the Custom’s inquest and investigation departments;
  - Maintain accurate statistics.

*Source: _cr1008 - 1. Legal System and Related Institutional Measures*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1008.pdf_