## Georgian AML/CFT Mutual Evaluation (content unit: _cr1304)

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### Overview — progress, scope, methodology
- Assessment based on the FATF Forty Recommendations 2003 and Nine Special Recommendations on Terrorist Financing 2001 using the AML/CFT assessment Methodology 2004 (as updated).
- Mission on-site: November 28–December 13, 2011; assessment considers materials supplied by authorities and verifiable information subsequently provided.
- Report: describes measures in place in Georgia at time of mission, analyzes compliance with FATF 40+9 (see Table 1), provides recommendations (see Table 2); presented to and endorsed by MONEYVAL (July 2012).

### Key contextual statistics and economic backdrop
- Population: almost 4.44 million as of January 2010.
- Land area: 69,700 square kilometers.
- Black Sea coastline: 310 kilometers.
- Territories not under central control: close to 20 percent of total land mass.
- Currency exchange rate (October 2011): 1 US$=GEL 1.69.
- Around US$13 million confiscated since 2005 in ML context.
- NBG supervised around 1,700 financial institutions; onsite AML/CFT inspection staff: five.
- Accountants subject to AML/CFT requirements since January 2012.
- Several legal changes enacted between December 2011 and early February 2012.

### Assessment summary — progress since 2007 and main vulnerabilities
- Legal and institutional improvements (2008–Feb 2012): criminalization updates for ML and FT; expanded preventive measures; inclusion of leasing, accountants, auditors (Dec 20, 2011 amendments effective Jan 1, 2012).
- Significant operational progress: more ML investigations and convictions since 2010; expanded provisional/confiscation measures; improved international cooperation.
- Main remaining weaknesses and vulnerabilities:
  - Technical deficiencies, inconsistent implementation, limited resources undermining FIU (FMS) and AML/CFT supervision.
  - Transparency gaps for legal persons and beneficial ownership (NAPR data incomplete; bearer shares exist).
  - High-risk phenomena: customers owned by offshore companies with unknown beneficial owners; rapid increase in nonresident deposits; private banking with foreign PEP clientele; rapid growth of casino business and non-face-to-face transactions; large Georgian-led criminal organizations abroad; domestic predicate crimes (corruption, tax evasion, drug trafficking).
  - Cross-border currency controls: reporting threshold GEL 30,000; Customs lack powers to stop/ restrain cash unless smuggling; only a small percentage of movements declared.

### Legal framework — ML, FT, mens rea, liability, sanctions, confiscation
- ML criminalization:
  - Core provisions: CCG Articles 186, 194, 194-1.
  - Article 194: “legalization of illicit income” tied to purpose to conceal illegal/undocumented origin; Article 186 covers acquisition/possession/use without specific purpose requirement; Article 194-1 covers use/acquisition/possession of property received through ML.
  - Beneficial coverage: all categories of FATF-designated predicate offenses are covered; tax evasion included as predicate (Article 218).
  - Statutory sanctions (select):
    - Article 194 (basic): fine or imprisonment of three to six years.
    - Article 194(2) (grave): six to nine years.
    - Article 194(3) (especially grave): nine to twelve years.
    - Articles 186 (1) and 194-1 (1): fine or up to two years’ imprisonment; aggravated up to five years; especially aggravated four to seven years.
  - Application concerns:
    - Frequent use of plea agreements (2010: 12 ML plea agreements; 2011: 91 defendants convicted via plea) undermines deterrence; courts generally apply sanctions at lower end of ranges.
    - R.1 — LC (effectiveness not sufficiently applied to major proceeds-generating crimes).
    - R.2 — LC (mens rea and corporate liability present, but effectiveness limited).
- FT criminalization:
  - CCG Article 331/1 criminalizes collection/provision of funds knowing they will or may be used by a terrorist/organization or for listed offenses; statutory sanctions:
    - Basic: imprisonment for 10 to 14 years.
    - Aggravated: 14 to 17 years; where committed by terrorist organization or grave consequences: 17 to 20 years or life.
  - Shortcomings identified:
    - Article 323 requirement that an act “infringes upon public safety etc.” unduly narrows terrorism offense (amended March 15, 2012 to remove requirement and criminalize additional Convention offenses).
    - Definitions of “terrorist” and “terrorist organization” narrower than FATF standard.
    - SR.II rating: PC at time of assessment.
- Confiscation and provisional measures:
  - Article 52 CCG: mandatory confiscation of proceeds/instrumentalities; Article 151–158 CPC provisional measures; civil forfeiture Articles 356/1–356/7 CPC.
  - Implementation statistics (selected):
    - Office of the Chief Prosecutor stats since 2005: provisional measures applied in 29 ML cases, resulting in confiscation in 23 cases.
    - Year data (partial): 2005 frozen 572.000 (1 case) / confiscated 572.000 (1 case); 2008 frozen 8.751.609 (2 cases); 2011 frozen 2.789.468 + 13 real estate objects (7 cases); confiscated 2.417.638 (11 cases).
  - Assessment concerns:
    - Courts often issue confiscation only when property located; recommendation to apply confiscation measures more broadly (e.g., equivalent value confiscation, registration to enforce in future).
    - R.3 — LC (confiscation framework not fully effective; limited access to privileged information such as lawyers’ records).

### FMS (FIU) — structure, access, analysis, outputs, resourcing
- Establishment and mandate:
  - FMS established under NBG; operational since January 1, 2004. Head appointed by President with NBG Council agreement; operational independence affirmed.
  - Core functions: receive/analyze/disseminate STRs and CTRs; power to obtain information from monitoring entities and state bodies (Article 10.4.a–e).
- Reporting volumes (as of end-2011 consolidated numbers):
  - FMS local database: 52,997 STRs; 382,335 CTRs (including customs declarations).
  - Annual STRs (selected): 2007 4,668; 2008 7,366; 2010 6,404; 2011 13,867 (source tables show variations).
  - Annual CTRs (selected): 2007 60,048; 2010 113,682; total CTRs 382,335.
- Analysis capacity and limitations:
  - Analytical staff: four analysts (23 staff total staffed against 31 positions); analysts manually review all STRs/CTRs; no sophisticated analytical software integrated with government databases (custom-developed, not integrated).
  - Typical report drafting time: one to two weeks; analysis limited to tactical matching; strategic/operational analysis not yet developed.
  - Treatment issues: CTRs treated similar to STRs; widespread defensive/automatic reporting driven by fixed indicators and watch-zone reporting; overall quality of STRs poor; no FT-related STRs received despite FT risks.
- Dissemination and outcomes:
  - Opened cases since 2004: annual opened cases 2004 47, 2011 56; total opened 345; disseminations total 90/345 (26%); disseminated STRs/CTRs were small fraction of total reports received (approx 16.2% of received reports disseminated by metric in source).
  - Between 2005–2011 ML cases: FMS-originated referrals drove many ML investigations; majority of ML investigations triggered by FMS STRs; since 2010 LEA-initiated ML investigations increased.
- Resourcing and governance:
  - Budgets (selected): 2007 GEL 1,632,770.00 (USD 952,886); 2011 GEL 2,125,500.00 (USD 1,198,410 at rate 1.7736).
  - 2011 Lari budget breakdown: Salaries 803,760; Bonuses 334,900; Office/travel 686,840; IT equipment and software 300,000; Total expenditures GEL 1,825,500 (from total budget GEL 2,215,500 as listed).
  - Staffing trend: positions reduced from 40 (2006) to 31 plan with 23 occupied at time of mission; number of analysts decreased from five to four.
- Key recommendations for FMS:
  - Expand reporting coverage to include real estate agents, lawyers, TCSPs, electronic money institutions.
  - Publish periodic annual reports with typologies and trends; provide clearer reporting guidance/forms and feedback to reporting entities.
  - Strengthen analytical capability: automated filtering, database integration, visualization tools, increase number of analysts, enhanced operational/strategic analysis.
  - Ensure access to law enforcement information (investigation/prosecution/trial records) and use open sources systematically.

### Law enforcement, prosecution, and investigative capacity
- Prosecution and LEA structure:
  - Chief Prosecutor’s Office (CPO) coordinates prosecutions; AML Division created 2003; AML Unit within CPO and operative support by MIA SOD; Investigation Service (MOF) undertakes financial investigations.
  - Total prosecutors: 332; investigators in Prosecution Service: 46; AML Division staffing small (five staff: three investigators, two prosecutors).
- Use of special techniques and operational tools:
  - CPC amended October 28, 2011 (new Article 124.1) to facilitate special investigative techniques: interception, visual monitoring, phone/comms taping, internet monitoring, controlled delivery—examples provided (e.g., interception: 20 cases–120 persons).
  - Permanent and temporary specialized groups used (AML Division, Anti-Corruption Department, IS of MOF, SOD).
- Casework and statistics:
  - ML investigations/prosecutions/convictions (2005–2011 summary): investigations 133; prosecutions 81; convictions 102 (para. 206); yearly summary shows increases: 2010 investigations 22/prosecutions 17/convictions 16; 2011 investigations 58/prosecutions 45/convictions 75 (paras. 206–207).
  - ML convictions by year (select): courts convicted 2 persons in 2007; 5 in 2008; 1 in 2009; 19 in 2010; 123 persons in 2011 (source sections).
- Effectiveness concerns and recommendations:
  - R.27 — LC; R.28 — LC (LEAs lack power to access information held by lawyers when conducting financial activities; limited use of financial analysis in predicate investigations; low number of FT investigations).
  - Recommendations:
    - Provide LEAs power to compel production of documents from lawyers when lawyers conduct financial activities for clients.
    - Systematize LEA use of financial analysis; make ML/FT proactive standalone investigations standard when investigating profit-generating crime.
    - More ML/FT training for investigators and prosecutors; enhance inter-agency coordination and information-sharing tools.

### Preventive measures — financial institutions (coverage, CDD, STRs, supervision)
- Coverage — gaps:
  - AML/CFT Law and FMS Decrees cover main categories; December 2011 amendments added leasing, accountants/auditors; electronic money institutions, factoring, credit card services, certain pay-box/e-money/payment points not fully covered.
  - Numbered accounts: not prohibited; some private banking practices use numbered accounts.
  - Thresholds (deficiency): identification threshold GEL 3,000 for business relations; wire-transfer threshold GEL 1,500 for payment network transfers.
- CDD and beneficial ownership:
  - Legal basis for CDD expanded Dec 20, 2011; beneficial owner defined as natural person(s) owning 25 percent or more or otherwise exercising control (Article 2.q; amendments effective Jan 1, 2012).
  - Implementation weaknesses: FIs often obtain incorporation documents but do not verify beneficial owners; inability to access reliable NAPR beneficial ownership data for entities registered pre-2010; foreign entities, offshore structures, and nominee arrangements not effectively verified.
  - Ongoing due diligence and risk-based approach introduced by amendments but implementation limited at time of mission.
- STRs and CTRs:
  - STR legal framework: no threshold; CTRs for cross-border cash declaration GEL 30,000 (approx US$18,300).
  - Reporting practice: banks file majority of STRs (95 percent of sector STRs); STR quality poor; high volumes driven by fixed indicators and defensive reporting; no FT-related STRs received.
  - CTR volumes: high — CTR totals 342,551 (one table lists 382,335 CTRs); reporting burdens on FMS analysts.
- Supervision (NBG):
  - NBG supervises banks, microfinance, credit unions, insurance, securities market participants, money remitters, currency exchange bureaus.
  - Resource constraint: NBG had five onsite AML inspectors for ~1,677 institutions; long supervisory cycles (currency exchange bureaus and money remitters cycles long).
  - Sanctions: NBG imposes pecuniary fines; pecuniary sanctions updated Feb 2012 to include internal control failures and extend sanctions to directors/management; some fines nominal (e.g., currency exchange bureaus GEL 50–200).
  - R.15 — PC (internal controls, training, independent audit gaps for nonbank sectors); R.23 — PC (supervisory coverage and resources); R.10 — LC (record-keeping and wire transfer implementation shortcomings); SR.VII — PC (originator information transfer not fully guaranteed).

### DNFBPs — scope, implementation, supervision, and risks
- DNFBP categories covered: notaries, casinos, dealers in precious metals and stones (DPMS), accountants (as of Jan 2012). Gaps: lawyers, real estate agents, TCSPs (no AML obligations at time).
- Notaries:
  - Implemented most CDD; Ministry of Justice supervises notaries; high inspection coverage in 2010–2011 (210 notary bureaus inspected); disciplinary sanctions applied (2009: 172 sanctions; 2010: 25; 2011: 64). Notary reporting improved after sanctions.
  - Beneficial ownership identification limited (20% threshold only if documents allow).
- Casinos:
  - Rapid expansion (land casinos from 2 in 2007 to 15 by end-2011; 8 internet casinos; 150 gaming halls); poor AML/CFT implementation; slot-machine monitoring limitations; no STRs from casinos despite risks.
  - Licensing focused on documentation filing; Revenue Service lacks clear AML inspection and sanction powers for AML obligations.
- DPMS:
  - AML CDD thresholds: cash transactions over GEL 30,000; Ministry of Finance designated as supervisor but no supervisory activity conducted.
- Accountants:
  - Included Jan 1, 2012; Decree No. 12 prescribes triggering activities requiring CDD (e.g., buying/selling real estate; managing client money; company formation); implementation not yet assessed.
- Overall DNFBP assessment:
  - R.12 — NC; R.16 — PC; R.24 — NC; R.25 — NC.
  - Deficiencies: lawyers/real estate/TCSPs excluded; weak supervision for casinos, DPMS, accountants; limited guidance and feedback from FMS; poor STR reporting and confusion between CTR/STR/unusual/watch-zone reporting.
  - Recommendations: extend AML obligations to lawyers, real estate, TCSPs; issue FMS decrees for DPMS; strengthen supervision/sanctions for casinos and accountants; provide sectoral guidance and feedback; prohibit or regulate bearer instruments and anonymous/numbered accounts.

### Legal persons, arrangements, NAPR and beneficial ownership (R.33, R.34)
- Company registration:
  - Since Jan 1, 2010 NAPR is central registry; migration from old registries incomplete at mission (about 40% migrated at time); significant legacy data gaps for pre-2010 entities.
  - Entity counts as of Jan 4, 2012: LLCs 106,658 (active 103,441); Joint Liability Companies 2,773 (active 2,668); Joint Stock Companies 2,620 (active 2,054); Individual Enterprises 361,034 (active 356,235).
- Beneficial ownership shortcomings:
  - No systematic requirement to obtain/update ultimate beneficial owner for many entity types; bearer shares remain possible (no comprehensive prohibition or conversion requirement).
  - R.33 — PC (insufficient transparency and accuracy of beneficial ownership data; bearer shares not adequately regulated; registry migration and update issues).
- Trusts/arrangements:
  - Georgian law treats trusts/fiduciary operations (contract of mandate) differently; Recommendation 34 assessed NA due to legal nature; nevertheless recommendation to ensure clarity and access to information on legal arrangements where applicable.

### Nonprofit organizations (SR.VIII)
- Sector profile:
  - Registered NPOs: 15,045 local; 129 branches of foreign NPOs; 72 charities with Revenue Service charitable status.
  - Large charities’ turnovers reported (selected): “Kartu” Income/Expenses 2010 GEL 134,499,001.00; Association ATU Income 2010 GEL 92,375,937.00.
- Shortcomings:
  - No formal sector review or risk assessment; no formal supervision of NPOs for AML/CFT; NAPR provides publicly-available data for NPOs registered since 2010 only (pre-2010 data unreliable/not migrated).
  - Reliance on foreign donors; lack of accountability mechanisms; misuse cases cited (charities used to import and sell goods).
  - SR.VIII — PC (deficient measures and lack of oversight, outreach, domestic coordination, and point of contact for international requests).
- Recommendations:
  - Conduct NPO sector risk assessment; enhance supervision/monitoring and outreach; require clearer reporting and transactional transparency; migrate pre-2010 registry data; establish point of contact for international queries.

### Cross-border cooperation, MLA, extradition, and international exchange (R.36–40, SR.V)
- MLA and extradition framework:
  - MLA Law (2010) provides broad MLA powers; dual criminality required only for coercive measures/search/seize and for extradition; dual criminality interpreted based on conduct.
  - Statistics (2007–mid-2011): 1,102 MLA requests received; 918 executed; 17 rejected; average response time 2–3 months. MLA requests for ML: 8 (7 executed); no FT MLA requests received.
  - Extradition requests (2007–June 2011): total 90; executed 52; refused 23; pending 7; average time 5–6 months; no ML extradition requests received.
- Practical cooperation and gaps:
  - Strong multilateral/bilateral cooperation mechanisms (Egmont membership since June 2004; MOUs by FMS with 30 FIUs; NBG MOUs with supervisors; police/LEA agreements via GUAM, BSEC, Interpol).
  - Concerns:
    - Lack of clear legal basis to compel production of information from lawyers in international requests (impacts R.36 and R.38).
    - FMS has not engaged in spontaneous disclosures; decline in FMS outgoing requests noted (2007: 27 requests; 2010: 3; 2011: 2).
    - Diplomatic/political challenge: lack of diplomatic relations with Russia limits cooperation.
- Recommendations:
  - Clarify scope of legal privilege for compelled production to enable LEAs to access lawyers’ records when involved in financial activities.
  - Strengthen proactive international cooperation (FMS and NBG to use MOUs, pursue MOUs with offshore jurisdictions, increase spontaneous information exchange).
  - Consider asset forfeiture fund and mechanisms for sharing confiscated assets.

### Cross-border cash controls and SR.IX
- Legal regime:
  - Declaration threshold: GEL 30,000 (approx US$18,300) for import/export of cash and bearer negotiable instruments; CTRs submitted by Revenue Service to FMS.
- Shortcomings and operational gaps:
  - Customs lack authority to stop/restrain cash for ML/FT suspicion unless smuggling; no power to request origin/intended use details from carrier on suspicion.
  - Retention requirements: personal declaration retained six years (Article 6 of Revenue Service Regulation) but not extended reliably to all bearer negotiable instruments or bearer identification data.
  - Low reporting counts vs expected flows given cash-based economy and diaspora.
  - SR.IX — NC (lack of powers to stop/restrain, define bearer negotiable instruments, apply adequate sanctions and retention scope).
- Recommendations:
  - Amend legislation to include cargo/mail shipments, define bearer negotiable instruments, empower customs to request origin/intended use, temporary restraint powers, and train Customs in FATF SR.IX best practices.

### Market and sectoral statistics (selected, preserved exactly)
- GDP composition 2011: Agriculture 9.3%; Industry 23.5%; Services 67.1%.
- Nominal GDP (million Lari): 2008 19,075; 2009 17,986; 2010 20,743; 2011* 24,229.
- Real GDP growth, y-o-y, %: 2008 2.3; 2009 -3.8; 2010 6.3; 2011* 7.0.
- Banking sector (end-Sep 2011):
  - No. of licensed/registered Commercial Banks: 19; Size of Financial Line in GEL 11,975,675,466; Overseas branches/subsidiaries 2.
  - Money Remittance Services: No. 49 (end-Sep 2011 listed earlier as 58 in other tables).
  - Currency Exchange Bureaus: No. 1,506; Size in GEL 935,511,534.
- Banking assets/GDP: 2007 42%; 2008 46%; 2009 48%; 2010 51%.
- Banks: 17 foreign controlled out of 19; foreign-controlled banks constitute 98.60 percent of total banking assets; 99.69 percent of equity externally owned.
- Card market growth: payment cards increased from 965,032 (Jan 2007) to 3,459,418 (July 2011); ATMs 1,488; POS 8,062; volume growth 2010 vs 2007: volume +123 percent; value +97 percent.

### Cross-cutting implementation and effectiveness conclusions
- Legal framework largely comprehensive and improved by Dec 2011 amendments; major effectiveness shortfalls stem from:
  - Weak implementation and poor quality of STRs (defensive reporting, confusing forms).
  - Limited FIU analytical capacity and human resources (analysts reduced; manual processes).
  - Supervisory resource constraints (NBG had five AML onsite inspectors for ~1,677 institutions).
  - Exclusions of key DNFBPs (lawyers, real estate, TCSPs) and electronic money institutions from reporting/montioring obligations at time of mission.
  - Difficulty verifying beneficial ownership (NAPR migration/incomplete data; bearer shares).
  - LEA constraints: limited access to privileged information (lawyers), insufficient proactive financial investigations in predicate crime cases, sparse FT cases.
- Overall FATF-style ratings summarized within the source: numerous Recommendations rated LC/PC/NC as detailed in the report (examples: R.1 LC; R.2 LC; R.3 LC; R.5 PC; R.6 LC; R.7 PC; R.8 PC; R.9 PC; R.10 LC; R.11 PC; R.12 NC; R.13 LC; R.14 LC; R.15 PC; R.16 PC; R.17 LC; R.20 LC; R.21 PC; R.22 C; R.23 PC; R.25 LC; R.26 PC; R.29 LC; R.30 PC; R.31 PC; R.32 LC; R.33 PC; R.34 NA; R.35 LC; SR.II PC; SR.III PC; SR.IV LC; SR.V PC; SR.VI — measures for MVT operators: supervisory resourcing issues noted; SR.VII PC; SR.VIII PC; SR.IX NC).

### Prioritized corrective actions (select consolidated recommendations)
- Governance and coordination:
  - Establish a central AML/CFT coordinating council (Minister of Justice–chaired committee instituted by amendment; ensure it operates effectively).
  - Regularly review AML/CFT effectiveness using consolidated statistics and trend analysis.
- FIU functionality:
  - Increase FMS analysts; procure integrated analytical/visualization software; integrate databases; refine reporting forms and issue sectoral guidance; extend reporting coverage (e-money, real estate, lawyers, TCSPs).
- Supervisory strengthening:
  - Resource NBG supervisory functions (on-site and off-site AML teams); implement systematic off-site monitoring and risk-based supervisory plans; increase inspection frequency for high-risk sectors (exchange bureaus, remitters).
  - Ensure sanctions are proportionate and dissuasive; apply new pecuniary sanctions and managerial sanctions introduced Feb 2012.
- Legal and operational reforms:
  - Clarify and narrow legal privileges that impede obtaining information where lawyers conduct financial activities; ensure legal basis for compelled production in international/cooperative contexts.
  - Fully align FT offense with FATF SR.II and international conventions; ensure no undue narrowing remains; remove barriers to MLA/extradition where dual criminality required.
  - Strengthen cross-border cash/BP controls: broaden SR.IX implementation to cargo/mail, define bearer negotiable instruments, grant restraint powers to customs/patrol police.
- DNFBP coverage and supervision:
  - Extend AML/CFT obligations and supervision to lawyers, real estate agents, TCSPs; issue FMS decrees for DPMS; empower designated supervisors (Ministry of Finance, Georgian Federation of Professional Accountants and Auditors) with inspection and sanction powers and resources.
  - Provide DNFBP sector guidance, typologies, and feedback channels; mandate STR protections including civil and criminal liability safeguards and prohibitions on tipping-off covering temporary/long-term staff.
- Asset recovery and MLA:
  - Apply confiscation more broadly (equivalent-value confiscation, judgments registration for future enforcement); consider asset forfeiture fund mechanics; enhance MLA responsiveness and proactive use of MOUs with offshore jurisdictions.
- Capacity building:
  - Provide targeted training and increase investigators/analysts across FMS, LEAs and supervisors; develop operational and strategic typologies; improve utilization of Egmont and international cooperation channels.

*Source: Excerpted IMF/MONEYVAL mutual evaluation material contained in content unit _cr1304.*

### Preface 8

### Preface 8

### Scope and Methodology
- Assessment based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF).
- Prepared using the AML/CFT assessment Methodology 2004, as updated from time to time.
- Assessment considers materials supplied by the authorities, information obtained on site during the mission from November 28 to December 13, 2011, and other verifiable information subsequently provided by the authorities.
- The assessment examines measures to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs), and evaluates capacity, implementation, and effectiveness.

### Assessment Team and On‑Site Activity
- Assessment conducted by a team of assessors composed of staff of the International Monetary Fund (IMF) and one expert acting under the supervision of the IMF.
- Members of the evaluation team:
  - Emmanuel Mathias, Senior Financial Sector Expert (team leader)
  - Kristel Poh, Senior Financial Sector Expert
  - Chady El-Khoury, Counsel
  - Marilyne Landry, Financial Sector Expert
  - Rocío Ortiz-Escario, Financial Sector Expert (all LEG)
  - Gabriele Dunker (LEG expert)
- During the mission, the assessors met with officials and representatives of most relevant government agencies and the private sector; a list of the bodies met is set out in Annex 1 to the detailed assessment report.

### Report Content and Outcomes
- The report provides a summary of the AML/CFT measures in place in Georgia at the time of the mission or shortly thereafter.
- It:
  - Describes and analyzes those measures.
  - Sets out Georgia’s levels of compliance with the FATF 40+9 Recommendations (see Table 1).
  - Provides recommendations on how certain aspects of the system could be strengthened (see Table 2).
- The report was presented to MONEYVAL and endorsed by this organization during its meeting of July 2012.

### Ancillary Information
- A comprehensive table of contents and lists of annexes, tables, and acronyms are included in the source document (e.g., Annex 1: Authorities’ Response to the Assessment; Annex 2: Details of All Bodies Met During the On‑Site Visit; Annex 3: List of All Laws, Regulations, and Other Material Received; Annex 4: Copies of Key Laws, Regulations, and Other Measures).
- Acronyms used in the report include, among others: AML/CFT Law; AML/CFT; BO; CDD; DNFBP; FATF; FIU; FMS; ML; MOF; MOI; MOJ; NBG; NPO; STR; UNSCR.

### Acknowledgements
- The assessors express their gratitude to the Georgian authorities for their cooperation throughout the assessment mission.

*Source: _cr1304 - Preface 8*

### 1.      The Georgian AML/CFT regime has significantly improved since the last assessment in

### The Georgian AML/CFT regime has significantly improved since the last assessment in 2007

### Overview of progress since 2007
- Amendments to the legal framework enacted between 2008 and February 2012 improved technical compliance with the FATF recommendations, notably criminalization of ML and FT and preventive measures for financial institutions.
- Significant progress since 2007 in:
  - Effective use of the ML criminal provisions.
  - Provisional and confiscation measures.
  - International cooperation.

### Main remaining weaknesses and identified vulnerabilities
- Key weaknesses due to technical deficiencies, poor implementation, and limited resources:
  - Undermined effectiveness of the financial intelligence unit (FIU) and AML/CFT supervision.
  - Major loopholes in transparency of legal entities, domestic cooperation, measures to prevent terrorism financing, and preventive measures for DNFBPs.
- Significant ML/FT vulnerabilities and threats:
  - Customers that are, or are owned by, offshore companies where beneficial owners are unknown or not verified.
  - Rapid and ongoing increase of nonresident deposits.
  - Development of private banking activities, including clientele of foreign politically-exposed persons (PEPs).
  - Rapid growth of the casino business and rising number of non-face–to-face transactions.
  - Existence of large Georgian-led criminal organizations abroad exposing the risk of proceeds of crime being transferred back to Georgia.
  - Domestic statistics showing major proceeds-generating crimes such as corruption, tax evasion, and drug trafficking.

### Legal framework: ML, FT, and confiscation
- ML:
  - ML is criminalized through three separate provisions in the Criminal Code that comply with technical aspects and material elements of the Vienna and Palermo Conventions.
  - All categories of predicate offenses listed in the international standard are covered.
  - ML offenses extend to any type of property representing proceeds of crime; ancillary acts are criminalized.
  - Implementation concerns:
    - ML provisions do not appear effectively applied to combat the most prevalent proceeds-generating crimes or transnational organized crime.
    - Modest number of legal persons investigated or prosecuted for ML, despite authorities indicating widespread use of companies in ML schemes.
    - Statutory sanctions are proportionate, but liberal and frequent use of plea agreements (including in the majority of aggravated ML cases) undermines deterrence.
- FT:
  - FT is criminalized broadly in line with the FATF standard, but shortcomings remain:
    - Requirement that an act “infringe upon public safety etc.” unduly narrows terrorism offense scope.
    - Definition of “terrorist acts” does not fully cover certain international conventions (Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation; International Convention for the Suppression of Terrorist Bombings).
    - Definitions of “terrorist” and “terrorist organization” should be expanded to extend to all “terrorist acts” as defined under the FATF standard.
    - At the time of the on-site mission, prosecutions of three persons for terrorism financing were ongoing; there had been no convictions for terrorism financing.
- Confiscation:
  - Provisional and conviction-based confiscation measures available for all predicate offenses and ML/FT offenses; applicable to proceeds and instrumentalities of crime.
  - Confiscation is a mandatory sanction and may be applied against property equivalent in value to the proceeds of crime.
  - Around US$13 million has been confiscated since 2005 in the context of ML offenses.
  - Concerns:
    - Legal provisions could be applied more effectively to confiscate proceeds of other types of crimes.
    - Authorities tend to apply confiscation measures only where property is actually available for confiscation at the time of conviction.

### FIU, law enforcement authorities, and operational capacities
- FIU weaknesses:
  - Some sectors are not legally obliged to report suspicious transactions (real estate agents, lawyers, trust and company service providers (TCSPs), and electronic money institutions), limiting FIU ability to request additional information.
  - Quality of analysis of suspicious transaction reports (STRs) is poor due to lack of analytical tools, weak quality of reporting, and limited use of powers to access law enforcement information and information from nonbank institutions.
  - Increased workload handled without corresponding increase in budget; significant decrease in human resources.
- Law enforcement authorities (LEAs):
  - Framework broadly in place; implementation needs improvement.
  - Since the 2010 Decision of the Minister of Justice recommending initiating ML investigations when LEAs suspect illegal proceeds, the number of ML investigations increased and LEAs began using available investigative techniques more effectively.
  - Gaps remain:
    - LEAs lack power to access information held by lawyers when they conduct financial activities on behalf of clients.
    - Need to increase reliance on financial analysis and investigation techniques, especially in stand-alone ML cases, to trace origin of illegal funds, detect patterns, identify ultimate beneficial owners, and share information across LEAs.
- Cross-border currency controls:
  - Measures to detect physical cross-border transportation of currency and bearer negotiable instruments are not comprehensive nor effective.
  - Customs and competent authorities lack power to stop and investigate movement of cash and bearer negotiable instruments unless conduct is deemed smuggling.
  - Only a small percentage of inbound and outbound movements of currency and bearer negotiable instruments are actually declared.

### Preventive measures — financial institutions
- Coverage and scope:
  - Recent updates make the scope relatively comprehensive, but gaps remain: factoring and credit card services (currently offered only by banks), electronic money, and investment funds not fully covered.
  - Some MVT operators not subject to regulation/supervision: electronic money institutions, casino accounts used to move value within Georgia, and self-service terminals accepting cash and providing transfer facilities (Pay-boxes).
- Customer due diligence (CDD) and record-keeping:
  - Most CDD and record-keeping provisions required under the international standard are in place, but implementation and effectiveness are limited.
  - Legal framework deficiencies include lack of prohibition on numbered accounts, existence of a minimum monetary threshold for standard CDD, inconsistencies in risk-sensitive measures, and timing issues for undertaking CDD.
  - Implementation shortcomings: identification and verification of beneficial owners, documentation of purpose and nature of account business, ongoing CDD, and application of risk-sensitive measures.
  - Major legal shortcomings regarding reliance on third parties and introduced business, and monitoring of wire transfers.
- STR reporting:
  - Requirement for reporting ML and FT suspicious transactions largely in line with the standard, but implementation needs improvement.
  - Number of STRs submitted to the FIU is relatively high; most filed by banks. Electronic money institutions are not required to report; other sectors (leasing, insurance) are not filing STRs.
  - High STR count driven by systems of fixed indicators triggering automatic reports and defensive reporting.
  - Overall quality of STRs is poor; reporting entities confused about distinction between transaction monitoring and reporting due to lack of guidance.
  - No FT-related STRs have ever been received by the FIU despite known FT risks in Georgia.
- Internal controls and supervision:
  - Internal control and compliance provisions need strengthening, particularly for money remittance operators and currency exchange bureaus:
    - No requirement to ensure AML compliance officer and relevant staff have timely access to customer information.
    - No obligation to screen employees or provide adequate AML/CFT training.
    - No requirement for nonbank financial institutions to have an adequately resourced and independent audit function.
  - Internal control requirements pertaining to CFT were added for all financial institutions after the mission and were not assessed.
  - National Bank of Georgia (NBG):
    - Introduced many improvements since the onsite visit but has limited resources for AML/CFT supervision.
    - NBG supervises around 1,700 financial institutions but had only a staff of five for onsite AML/CFT inspection.
    - Electronic money institutions not yet subject to AML/CFT supervision.
    - Supervisory cycle has been quite long for some institutions (currency exchange bureaus and money remittance operators).
    - Lack of systematic off-site monitoring and on-site supervisory planning.
    - Pecuniary sanctions under sectorial regulations are low for several categories of violations (such as CDD requirements) to be considered dissuasive and effective.
    - Improvements introduced are too recent to be assessed.
- Market entry and fit-and-proper:
  - Significant reforms to the market entry framework were introduced recently (after the on-site mission); implementation not reviewed.
  - At the time of the onsite visit, there were no fit-or-proper tests for owners and administrators for a number of financial institution categories.

### Preventive measures — DNFBPs
- Coverage and implementation:
  - Preventive measures for DNFBPs are substantially similar to those for financial institutions, but implementation is at early stages.
  - Preventive measures apply to notaries, casinos, dealers in precious metals and stones, and more recently accountants.
  - Notaries have implemented most CDD requirements though identifying beneficial owners is challenging; reporting levels for notaries are relatively low and internal control implementation is weak.
  - Casinos show little to no compliance beyond customer identification; no STRs reported by casinos despite rapid industry growth.
  - Obligations for dealers in precious metals and stones have not been implemented.
  - Accountants only subject to AML/CFT requirements since January 2012.
  - Absence of requirements for lawyers, real estate, and TCSPs exacerbates risks.
- Supervision:
  - Except for notaries, DNFBPs are not supervised.
  - Several supervisory authorities designated as AML/CFT supervisors, but apart from Ministry of Justice activities for notaries, no AML/CFT examinations have been conducted.

### Legal persons, arrangements, and nonprofit organizations (NPOs)
- Legal persons and beneficial ownership:
  - Inability to ensure adequate and accurate information on beneficial ownership of legal entities is a serious weakness given risk of criminals integrating proceeds generated abroad in Georgia or using Georgian entities to invest abroad.
  - Establishment of the National Agency of Public Registry (NAPR) enhanced access to information on legal persons; however, at time of mission most data in existing registries had not been migrated nor updated.
  - Bearer shares exist under Georgian law; except for listed companies, there are no appropriate measures to ensure bearer shares are not misused for money laundering.
- NPOs:
  - Measures relating to NPOs are deficient and do not adequately address Georgia-specific risks.
  - No formal review of the sector and no formal supervision of the sector.
  - NAPR provides publicly-available information on NPOs registered since 2010; data prior to 2010 is deemed unreliable.
  - Lack of outreach to the NPO sector.
  - Domestic coordination mechanisms related to NPOs are weak and there is no appropriate point of contact or procedures to respond to international requests related to NPOs.

### National and international cooperation
- Coordination:
  - Georgia does not have a central coordinating body/committee to steer and coordinate development and implementation of ML/TF policies and activities.
  - No mechanism for cooperation between supervisory agencies of FIs and DNFBPs (notably NBG, Ministry of Justice, and Ministry of Finance).
- Mutual legal assistance (MLA) and extradition:
  - MLA framework is solid and allows provision of a wide range of assistance in criminal investigations and prosecutions; does not seem subject to unduly restrictive or unreasonable requirements.
  - Some grounds for refusal of MLA are drafted generally, but low number of rejected requests suggests narrow interpretation in practice.
  - Both ML and FT are extraditable offenses.
  - Shortcomings in FT offense definition may limit Georgia’s ability to provide MLA or extradite in certain cases where dual criminality is required.
  - Georgia's lack of diplomatic relations with Russia constitutes a practical challenge to provide and receive international cooperation in ML and FT cases.
- Operational cooperation:
  - International cooperation mechanisms in place for FIU, LEAs, and supervisors.
  - Information exchanged with foreign FIUs is comprehensive, though timeliness could be improved; FIU would benefit from more proactive use of international collaboration channels.
  - NBG is responsive to foreign supervisors but could make additional use of cooperation mechanisms to ascertain fit-and-proper criteria.
  - LEAs exchange information via Interpol and bilateral/multilateral agreements, but lack a clear legal basis to compel production of information held by lawyers based on international requests.

### Selected contextual and general statistics
- Population: almost 4.44 million as of January 2010.
- Land area: 69,700 square kilometers (including Abkhazia and the Tskhinvali Region/South Ossetia).
- Black Sea coastline: 310 kilometers.
- Territories not under central control represent close to 20 percent of total land mass.
- Currency exchange rate (as of October 2011): 1 US$=GEL 1.69.
- Around US$13 million confiscated since 2005 in the context of ML offenses.
- National Bank of Georgia supervised around 1,700 financial institutions with a staff of five for onsite AML/CFT inspection.
- Accountants subject to AML/CFT requirements since January 2012.
- A number of changes to the legal framework were enacted between December 2011 and early February 2012 during an eight-week period following the mission.

*Source: Excerpt from the supplied IMF assessment content.*

### 29.      This report describes the legal framework applicable in Georgia and its implementation. Due

### This report describes the legal framework applicable in Georgia and its implementation

### Scope and limitations
- Assessment focuses on areas under the central authorities’ control due to lack of effective control over Abkhazia and the Tskhinvali Region/South Ossetia.
- Authorities’ conclusions acknowledged regarding specific ML risks (smuggling, drug and arms trafficking) and FT risks emanating from these regions.
- Where mitigation measures have not been taken, the assessment team made recommendations for authorities’ consideration, but such omissions were not taken into account in assessing technical compliance.

### Recent history, system of government, and political situation
- Independent Republic of Georgia established May 26, 1918; independent 1918–1921.
- Became part of the Soviet Union in 1922; Supreme Council declared independence April 9, 1991.
- Post-coup civil war until 1993.
- New constitution approved August 1995; latest amendment changed system from presidential to parliamentary, making the executive accountable to parliament; President’s role changed to guarantor of continuity and national independence.
- Constitutional Court met first in late 1996.
- Rose Revolution deposed the President in 2003; government made progress fighting endemic corruption in first three years but continued difficulties with breakaway regions contributed to 2008 conflict.
- As of the report: only Russia, Venezuela, Nicaragua, Nauru, and Tuvalu have recognized Abkhazia and the Tskhinvali Region/South Ossetia; Vanuatu recognizes only Abkhazia.

### Georgian economy
- GDP growth: sustained more than 10 percent in 2006–07; slowed in 2008 after conflict with Russia; turned negative in 2009; rebounded in 2010.
- Main economic activities: cultivation of grapes, citrus fruits, hazelnuts; mining of manganese and copper; small industrial sector producing alcoholic and nonalcoholic beverages, metals, machinery, aircraft, chemicals.
- Areas of recent improvement: construction, banking services, mining.
- Energy: imports nearly all natural gas and oil products; sizeable and growing hydropower capacity.
- Infrastructure projects: Baku-T’bilisi-Ceyhan oil pipeline; Baku-T’bilisi-Erzerum gas pipeline; Kars-Akhalkalaki Railroad (strategy to capitalize on strategic location as transit point).

- GDP composition by sector (2011):
  - Agriculture 9.3%
  - Industry 23.5%
  - Services 67.1%

- Selected economic indicators provided by the Georgian authorities:
  - Nominal GDP, in million Lari: 2008 19,075; 2009 17,986; 2010 20,743; 2011* 24,229
  - Real GDP growth, y-o-y, %: 2008 2.3; 2009 -3.8; 2010 6.3; 2011* 7.0
  - GDP per capita, US$: 2008 2,937; 2009 2,455; 2010 2,629; 2011* 3,215
  - Unemployment rate (in percent): 2008 16.5; 2009 16.9; 2010 16.3; 2011* --
  - Inflation rate, y-o-y (end of period): 2008 5.5; 2009 3.0; 2010 11.2; 2011* 2.0

### Foreign trade and payments
- Value of foreign trade in goods and services represented approximately 90 percent of GDP in 2010.
- Trade balance characterized by a structural deficit driven by high prices for imported energy and commodities and import of capital goods.
- Georgia functions as a regional hub for trade; some imports (e.g., automobiles) re-exported to neighboring countries.
- Growing tourism, transport services (including pipeline transit fees), and logistics sectors have become significant export revenue generators, enabling Georgia to become a net services exporter.

- Exports/imports in 2011:
  - Exports: $2.189 billion
    - Exports - partners: Turkey 10.4%, Azerbaijan 19.5%, Armenia 10.2%, Kazakhstan 7.2%
    - Commodities: Vehicles, ferro-alloys, fertilizers, nuts, scrap metal, gold, copper
    - Additional partners listed: USA 6.6%, Canada 5.2%, Ukraine 6.5%
  - Imports: $7.058 billion
    - Import - partners: Turkey 18%, Ukraine 10%, Azerbaijan 8.7%, Russia 5.5%, Germany 6.8%, China 7.4%, Bulgaria 3.6%
    - Commodities: Fuels, vehicles, machinery and parts, grain and other foods, pharmaceuticals

### Remittances
- Net remittance inflows increased significantly between 2003 and 2008; 2007 net remittance inflows represented 7.4 percent of GDP versus 2.1 percent in 2003.
- Growth of remittance inflows interrupted in 2009; by end-2010 net remittances increased again but did not reach pre-crisis level.
- Channels of remitting remittances to Georgia, 2007 (World Bank):
  - Friends travelling home 36.1%
  - Money transfer operators (Western Union, etc.) 21.2%
  - Bank Transfer 17.5%
  - Through individuals and contacts 11.3%
  - Post Office 10.4%
  - Informal transfer offices 1.9%
  - Migrant when travelling home 0.6%
  - Transfer check 0.5%
  - Debit card 0.5%

### Structural elements for an effective AML/CFT system

Transparency and governance
- GRECO expressed concerns about laws governing political party funding; main weakness: lack of effective monitoring undermining effectiveness in practice (2011 Third Evaluation Report on the Transparency of party funding).
- Authorities consider they have addressed GRECO’s recommendations regarding transparency of party funding.
- Government launched a unified electronic system of state procurement and an online asset declaration system for public officials.
- Introduced a one-stop-shop window for entrepreneurs and companies and unified services of different state agencies.

Culture of AML/CFT compliance
- Proper culture of AML/CFT compliance still under development.
- Main financial institutions demonstrate clear understanding of criminal risk; other institutions and most DNFBPs do not.
- Limited coverage in legal framework and limited role of industry trade groups and SROs contribute to weak awareness.
- Limited understanding in private sector of laundering risks from white collar criminals (high-level corruption, tax crimes, professional money launderers).

Measures to prevent and combat corruption
- Organized crime, corruption and bribery by public officials, trading in influence, abuse of power, and tax evasion identified as main sources of illegal income in prior reports (MONEYVAL, GRECO).
- Government measures: criminalizing corruption and trading in influence; creation of anti-corruption department of the Prosecution service; approval of national anti-corruption strategy and action plan.
- Parliament ratified the 2003 UN Convention against Corruption on October 10, 2008 under Resolution 337-H.
- GRECO May 2011 report on criminalization of corruption: Georgian Criminal Code of Georgia (CCG) provisions on corruption nearly fully in line with Criminal Law Convention on Corruption (ETS 173) and Additional Protocol (ETS 191).
- GRECO called for unambiguous coverage of bribery of foreign arbitrators and ensuring third-party benefit situations covered in provisions on private sector bribery and active trading in influence; recommended reviewing special defense of ‘effective regret’.
- Authorities indicated anti-corruption legislation reformed in November 2011 to align with international standards, including bribery in favor of a third person and bribery through an intermediary.

Court system efficiency
- Early judiciary reforms post-Rose Revolution aimed to guarantee right to a fair trial and combat corruption among judges; salaries increased to reduce bribery risk.
- Georgia devotes more than 60 percent of the justice budget to operation of Courts, with salaries the main component; by comparison average European State allocates less than €10 per inhabitant to court and prosecution services versus average €47.1 per capita.
- Concerns reported by interlocutors about perceived lack of judicial independence and right to fair trial; allegations of high-level corruption and perception of impunity for high-level officials.
- 2010 OECD monitoring report questioned criminal conviction rate averaging around 96%; cited deputy Public Defender’s 2009 statement that prosecutor’s office had become “the executive punitive tool which implements the Government’s political decisions and, for its part, completely governs the courts.”
- Law of Georgia on the “Rules of Communication with Judges of Common Courts of Georgia” adopted July 11, 2007 to regulate ex parte communication and guarantee de facto independence and impartiality of judiciary.
- Amendments increased fines for violation of rules of communication: twofold for public servant, threefold for state-political officials.
- 2010 Criminal Code amendments criminalized illegal interference in judiciary work by state-political officials.
- Public trust in courts reported as rising: 2005 25%, 2008 55%, 2009 60%, 2010 63%, 2011 about 70% (studies by UNDP, ABA, USAID in partnership with IPM; EBRD Life in transition Survey II 2011 also shows rising confidence).

Ethical and professional requirements for police officers, prosecutors, judges, etc.
- Judges not permitted to join political parties or be involved in political activities; allowed teaching and academic activities but no other paid work.
- Admission to judiciary requires competitive process, higher legal education, at least five years relevant work experience, 14 months training at the High School of Justice.
- New mandatory judicial ethics rules adopted in 2007.
- In 2008, of 1,256 complaints filed, 35 cases brought against judges; 12 judges found to have violated ethics requirements; three judges dismissed.
- Concerns reported about oral examination process being influenced by subjective criteria; instances of promotion of new judges with no judicial experience over more senior candidates.
- Police members must undergo training, cannot work for another government agency or private sector, can be dismissed for gross violation of discipline and corruption; hiring based on professional criteria, open competition, and special training.
- Prosecutor’s Office must be politically neutral; members cannot join political parties or engage in political or commercial activities; prosecutors and investigators require certain professional requirements, six-month internship, and an examination for appointment.

Ethical and professional requirements for accountants, auditors, lawyers, etc.
- Accountants, auditors and lawyers can be disciplined or disbarred by the Ethics Committee of the Bar Associations for breaches of the Law or the Code of Ethics.
- The Georgian Federation of Professional Accountants and Auditors does not impose any requirements.

*Source: _cr1304 - 29.*

### 57.      The assessors have identified a number of major vulnerabilities and threats which contribute

### _cr1304 - 57.      The assessors have identified a number of major vulnerabilities and threats which contribute

### Major vulnerabilities and threats contributing to ML and FT risk
- i) a relatively large number of customers that are, or are owned by, offshore companies for which the identity of their beneficial owners are not verified;
- ii) a rapid and ongoing increase of nonresident deposits;
- iii) the development of private banking activities including a clientele of foreign politically-exposed persons (PEPs);
- iv) the rapid growth of casino business and of non-face-to-face transactions;
- v) the existence of large Georgian-led criminal organizations abroad which exposes the risk of proceeds of crime being transferred back to Georgia;
- vi) domestic statistics demonstrating the existence of major proceeds generating crimes such as corruption, tax evasion, and drug trafficking.

### Scope of coverage in report
- The first four vulnerabilities (offshore beneficial ownership, nonresident deposits, private banking including foreign PEPs, casino and non-face-to-face transaction growth) are addressed in other sections of the report as they directly relate to the AML/CFT framework.
- The last three threats (Georgian criminal organizations abroad; domestic proceeds-generating crimes; unspecified third) are detailed in this section.

### National assessment of threat to Georgia’s security
- Georgia’s Threat Assessment Document (TAD) for 2010–2013 was approved on September 2, 2010 (Presidential Order No. 707).
- Part III of the TAD (Transnational Threats) identifies:
  - threats posed by non-state actors, including international terrorist organizations and transnational criminal entities;
  - “the lawlessness in the occupied territories represents another significant transnational security challenge”;
  - “The illegal transit of components of weapons of mass destruction, illegal trade in weapons and narcotics, production and distribution of counterfeit currency, and human trafficking” are identified by the authorities as originating from these territories and posing grave risks.
- The assessors note this information has not been examined by the assessors.

### Predicate offenses identified as major sources of illegal proceeds
- Identified offenses: tax evasion, falsification of documents, fraud, embezzlement and misappropriation, corruption, abuse of power, illegal entrepreneurship, customs fraud, environmental crimes, and theft.
- At the time of the MONEYVAL third round report, smuggling, drug trafficking, and abuse of power by public servants were also identified by the assessors.
- Detailed statistics on predicate offenses are provided in Section 2 (Recommendation 1) of the source.

### Corruption
- Since 2003, the authorities have stepped up the fight against corruption.
- The table in the source indicates a rapid increase in the number of criminal investigations and prosecutions initiated and persons convicted over the period 2008–2010.
- 2010 Global Corruption Barometer: only 3 percent of Georgians surveyed had to pay a bribe in the past 12 months.
- EBRD Life in Transition Survey: Georgia is ranked second for satisfaction with public service delivery.
- Transparency International 2011 Corruption Perceptions Index: Georgia ranked 64th out of 182 jurisdictions (66th in 2009 and 68th in 2010).
- Authorities’ statistics confirm that corruption at different levels remains a relevant proceeds-generating crime in Georgia.

### Organized crime
- Organized crime history predates the Bolshevik revolution; structure described as “thieves in law” based on clan ties and networks.
- Law against “organized crime and racketeering” adopted in December 2005; membership in a criminal organization and acknowledgment of being a “thief-in-law” criminalized (Article 2231 of the CCG).
- Authorities consider that organized crime is not an issue anymore domestically and that criminals still active have left the country; crime levels recorded in Georgia are now relatively low compared with the average in European countries.
- Georgian criminal groups remain active in a number of European countries including Russia, Spain, Austria, Italy, Switzerland, Germany, Belgium, and France.
- Crimes associated with Georgian mafia network: Money laundering, drug trafficking, weapon possession, and extortion.
- Criminal groups maintain close ties, including financial ties, to family, homeland, and clan associations.
- Assessors were informed some criminal organizations had attempted to influence Georgian political life in recent years.
- Existence of Georgian criminal groups abroad creates a risk that proceeds of their crimes are laundered in Georgia.

### Drugs
- UNODC’s 2011 World Drug Report: limited cultivation of cannabis and opium poppy in Georgia, mostly for domestic consumption with a lower opiate prevalence than the world average.
- Georgia appears to be used as a transshipment point for opiates to Western Europe and Russia and one of the land routes for heroin coming from Pakistan and Afghanistan.
- Exact drug trafficking routes and sources are difficult to determine due to lack of seizures and investigations.
- Central authorities do not control Abkhazia and the Tskhinvali Region/South Ossetia; they believe significant drug trafficking is occurring there.
- Seizures of opiates and other drugs are very limited, making reliable estimates of total drug flows difficult.
- 2010 SCAD overview report: concerns about the accuracy of statistics; for injectable drugs, the most frequently encountered are smuggled Subutex and heroin.
- UNODC notes an increase in the use of amphetamine-type stimulants in recent years; ecstasy consumption has increased though still lower than other countries in the region.

### Trafficking in human beings
- UNODC Global Report on Trafficking in Persons identifies Georgia as a country where trafficking is taking place.
- Georgia showed a moderate increase in prosecutions and convictions of human trafficking cases during 2000–2005 followed by a decrease after 2006.
- GRETA report (February 2012) notes:
  - Georgia is primarily a country of origin for trafficked persons; 83 out of 88 victims identified in 2008–2010 were Georgian nationals.
  - Georgia is used to a lesser extent as a transit country toward Turkey and Western Europe.
  - Majority of victims identified by Georgian authorities are women subjected to sexual exploitation.
  - Main destination countries for Georgian victims: Turkey, the United Arab Emirates, Egypt, and Greece.
  - Official data show low numbers of victims of national trafficking and low numbers of children identified as victims.
  - GRETA notes progress: adoption of a specific anti-trafficking law, establishment of an interagency coordination council against trafficking in human beings, creation of a State Fund for protection and assistance of victims of trafficking, and increased budgetary allocation for victim support.

### Tax crimes
- IMF staff report for Georgia’s 2011 Article IV consultation: tax system in Georgia is quite efficient.
- Tax collection has been a main priority of the government.
- Tax authorities indicated concerns related to the use of offshore companies by some taxpayers and difficulties in obtaining relevant information through international cooperation.

### Money laundering (ML) techniques and trends
- Authorities identified common ML techniques:
  - use of fictitious and offshore companies;
  - fictitious directors and representatives;
  - false contracts and documents to conceal and disguise illicit origins of proceeds and transfer them through Georgian banks inside and outside the country;
  - intermingling of proceeds of crime with proceeds of legal businesses;
  - providing responsible AML bodies with false information regarding trade in goods and having businesses abroad to justify movement of illicit money into and out of the country.
- Prosecutions and convictions for money laundering have increased in recent years.
- Georgian courts convicted:
  - 2 persons in 2007;
  - 5 persons in 2008;
  - 1 person in 2009;
  - 19 persons in 2010;
  - 123 persons in 2011.
- Table of ML-related indicators (as presented):
  - 2007: ML investigation cases 9; ML prosecutions persons 2; ML convictions persons 2; ML convictions cases 1; Proceeds frozen in EUR 1.949.000; Proceeds seized in EUR -- ; Proceeds confiscated in EUR --.
  - 2008: ML investigation cases 9; ML prosecutions persons 4; ML convictions persons 5; ML convictions cases 4; Proceeds frozen in EUR 8.751.609; Proceeds seized in EUR 543.486; Proceeds confiscated in EUR 2.023.248.
  - 2009: ML investigation cases 9; ML prosecutions persons 6; ML convictions persons 1; ML convictions cases 1; Proceeds frozen in EUR 1.738.200; Proceeds seized in EUR --- ; Proceeds confiscated in EUR (not provided).
  - 2010: ML investigation cases 22; ML prosecutions persons 29; ML convictions persons 19; ML convictions cases 16; Proceeds frozen in EUR 108.726; Proceeds seized in EUR 101.565; Proceeds confiscated in EUR 700.000.
  - 2011: ML investigation cases (not specified in table header for 2011 row); ML prosecutions persons 58; ML convictions persons 143; ML convictions cases 123; Proceeds frozen in EUR 75; Proceeds seized in EUR 2.789.469 plus 13 units of real state; Proceeds confiscated in EUR 228.007 2 417 638 (as presented in source).

### Terrorism
- TAD assesses that existence of conflict zones in neighboring countries increases possibility of spillover into Georgia and may cause:
  - humanitarian crisis with large refugee flows;
  - increased danger that informal armed formations may enter the country along with refugees;
  - increase in contraband and other types of transnational organized criminal activities;
  - deterioration of the regional security environment threatening transportation and energy projects in the Caucasus.
- Groups related to smuggling of nuclear material are mentioned in the TAD as possible terrorist threats.
- Possible links to terrorist organizations from the Tskhinvali Region/South Ossetia and Abkhazia are mentioned.

### Financing of Terrorism (FT)
- In September 2011 one FT investigation was launched by the Department of Constitutional Security of the Ministry of Internal Affairs of Georgia.
- Three persons were indicted for FT.
- Only a few FT cases have been investigated in Georgia; consequently no trend analyses or reports on techniques and methods of FT have been issued.
- Authorities consider a significant source of FT risk is related to the situation in the Tskhinvali Region/South Ossetia and Abkhazia.

### Overview of the financial sector (as of end-September 2011 and 2010 data)
- As of end-September 2011, there were 1,677 local and foreign financial institutions in Georgia.
- For the year 2010:
  - financial services accounted for 2.6 percent of Georgia’s GDP;
  - financial services accounted for 1.2 percent of total employment in the economy.
- Banking sector total assets constituted 50 percent of the country’s GDP at the end of 2010.
- Summary of licensed/registered institutions as of end Sep. 2011 (as presented):
  - Commercial Banks: No. of Licensed/Registered Institutions 19; Size of Financial Line (by assets, premium, turnover) in GEL 11,975,675,466; Overseas branches/subsidiaries 2.
  - Microfinance Organizations: No. 59; Size in GEL 399,907,519; Overseas branches/subsidiaries Nil.
  - Credit Unions: No. 18; Size in GEL 3,630,492; Overseas branches/subsidiaries Nil.
  - Insurance Companies: No. 15; Total premiums of 265,821,012; Overseas branches/subsidiaries Nil.
  - Non-State Pension Scheme Founders: No. 7; Total contributions of 1,517,520; Total pension reserves of 9,287,295; 7 registered pension schemes are founded by insurers; Overseas branches/subsidiaries Nil.
  - Insurance Brokers: No. 6; Size Not available; Overseas branches/subsidiaries Nil.
  - Securities Brokers: No. 11; Size Not available; Overseas branches/subsidiaries 1.
  - Securities Registrars: No. 6; Size Not available; Overseas branches/subsidiaries Nil.
  - Stock Exchange: No. 1; Size Not available; Overseas branches/subsidiaries Nil.
  - Central Depository: No. 1; Size Not available; Overseas branches/subsidiaries Nil.
  - Money Remittance Services: No. 49; Size Not available; Overseas branches/subsidiaries Nil.
  - Currency Exchange Bureaus: No. 1,506; Size in GEL 935,511,534; Overseas branches/subsidiaries Nil.
  - Leasing: No. Not available; Size Not available; Overseas branches/subsidiaries Not available.
- The categories above are subject to the preventive measures of the AML/CFT Law, except for the Stock Exchange and the Central Depository on the basis that securities transactions are channeled through securities brokers and registrars which are required to comply with the AML/CFT law and related regulations/decrees.
- Leasing companies became subject to the AML Law in January 2012.
- Review did not identify any stand alone factoring companies and only very few credit service companies in Georgia.

### Banking sector specifics
- Georgia has a total of 19 commercial banks with assets of GEL 11,976, 675 million.
- In addition, there are 59 microfinance organizations and 18 credit unions with assets of GEL 399,907,519 and GEL 3,630,492, respectively.
- Banking system total assets constituted almost 50 percent of GDP as of end-2010.
- Of 19 licensed commercial banks operating in Georgia:
  - 17 are foreign controlled;
  - 2 are branches of foreign banks.
- Foreign-controlled banks and branches constitute 98.60 percent of total banking assets.
- 99.69 percent of equity in the banking system is externally owned.
- Georgia’s two largest banks have significant foreign ownership.
- The National Bank of Georgia (NBG) is listed on the London Stock Exchange and TBC Bank is owned by various international financial institutions.
- Banking sector growth:
  - Average growth rate of bank loans in the last five years was 32 percent.
  - In 2009, the volume of loans declined 13 percent due to the global financial crisis and Georgia’s political situation with Russia.
  - Growth rate of bank loans reached 22 percent in the year (text ends mid-sentence in source).

*Source: _cr1304 - 57.      The assessors have identified a number of major vulnerabilities and threats which contribute*

### 2011. In general, since 2007 the banking sector has seen an increase in activities as reflected in the

### _cr1304 - 2011. In general, since 2007 the banking sector has seen an increase in activities as reflected in the

### Banking sector—size and structure (2007–2010)
- Number of Banks: 2007 20; 2008 20; 2009 19; 2010 19
- Of which foreign controlled: 2007 14; 2008 17; 2009 15; 2010 16
- Branches: 2007 124; 2008 124; 2009 120; 2010 119
- Service centers: 2007 416; 2008 559; 2009 513; 2010 522
- Assets/GDP: 2007 42%; 2008 46%; 2009 48%; 2010 51%

### Banking supervision (NBG initiatives)
- Transition towards risk-based supervision initiated to increase efficiency of macro‑prudential measures.
- Reallocated supervisory resources according to risk profile and systemic importance.
- Identified banking risks and improved the micro-prudential risk assessment framework.
- Adopted special regulations and established a structural unit to monitor protection of consumers’ rights in the financial market and to analyze and disseminate relevant statistical data.

### Capital market — structure and GSE statistics
- Licensed participants: 1 stock exchange, 1 central securities depository, 11 securities companies, and 6 registrars.
- Georgian Stock Exchange (GSE) established in 1999; governed by a supervisory board with 12 members.
- GSE trading volume has been declining; totaled GEL 5.1 million (US$) [note: unit presented in source].
- As of February 1, 2011: 138 companies traded on the GSE; total market capitalization US$1.1 billion; average daily turnover US$9,949.

GSE Market Statistics (selected)
- Number of Trades at GSE: 2006 5,538; 2007 6,908; 2008 2,321; 2009 1,304; 2010 2,372
- Trading Volume at GSE (GEL millions): 2006 61.7; 2007 38.4; 2008 10.6; 2009 3.1; 2010 5.1
- Trading Volume Year-on-Year change (%): 2006 (1.0); 2007 (37.8); 2008 (72.5); 2009 (70.6); 2010 64.6
- GSE Total Market Capitalization (GEL millions): 2006 1,145; 2007 2,332; 2008 546; 2009 1,236; 2010 1,879
- GSE Total Market Cap Year-on-Year Change (%): 2006 80.1; 2007 103.6; 2008 (76.6); 2009 126.4; 2010 52.1
- GSE Total Market Cap/GDP (%): 2006 8.3; 2007 13.7; 2008 2.9; 2009 6.9; 2010 9.2
- Stocks Traded on the GSE: 2006 905; 2007 782; 2008 645; 2009 453; 2010 [not listed]
- Trading Volume on the OTC Market (GEL millions): 2006 113.4; 2007 126.8; 2008 246.0; 2009 95.3; 2010 96.1
- OTC Year-on-Year change (%): 2006 —; 2007 11.8; 2008 94.0; 2009 (61.3); 2010 0.8

### Insurance market (2007–2010 and 2010 outcomes)
- Number of insurance companies as of December 31, 2010: 16 (including two registered in 2010).
- Companies performing both life and non-life: 12; companies only non-life: 4.
- Number of policies issued in 2010: 2.6 million.
- Notable increase in number of policies issued to individuals: 361,000,000 [as presented in source].
- Gross insurance premium received in 2010: GEL 372.5 million.
- Market share of five largest insurers: 2009 83.6 percent; 2010 77.9 percent.
- Health insurance share of gross premiums: 66.3 percent.
- Written premiums by year (Million GEL): 2010 372.5; 2009 372.4; 2008 278.7; 2007 118.8
- Net earned premiums in 2010: GEL 297.5 million.
- Net incurred claims in 2010: GEL 179.8 million.
- Total assets held by insurance companies as of December 31, 2010: GEL 448.4 million (growth by GEL 116.9 million).
- Total insurers’ balance sheet liabilities at end-2010: GEL 355.1 million (increase over 2009 by GEL 78.8 million).
- Total capital of insurance companies at end-2010: GEL 93.3 million (increased by 69.1 percent compared to 2009).
- Equity capital increased by GEL 5.1 million due to establishment of two new companies and extra capitalization.

### Non-resident customers and cross-border deposits
- Nonresident deposits increased by 0.9 percent of GDP from mid-2008 to end-2010.
- NBG 2011 Annual Report: share of non-resident deposits in deposit base increased from 10.2% of the total by December 2010 to 11.8% by December 2011.
- Number of nonresident customers in securities market: 304.
- Share of nonresident clients in the insurance market: 0.612 percent.

Insurance market — gross premiums (1/01/10–30/09/11) – Direct Insurance Business (GEL)
- Life: Total 21,499,618; Share of Nonresident clients 5,974; % Share of Nonresident clients 0.028%
- Non-Life: Total 603,101,342; Share of Nonresident clients 3,815,526; % Share of Nonresident client 0.633%
- Total: Total 624,600,960; Share of Nonresident client 3,821,500; % Share of Nonresident client 0.612%

### Designated Non-Financial Businesses and Professions (DNFBP) — scope and counts
- AML/CFT legislative framework extends to: casinos, gambling and commercial games, notaries, dealers in precious metals and stones; recent amendments extend obligations to accountants and auditors.
- No AML/CFT obligations for lawyers or real estate agents (as of the source).
- DNFBP counts and supervisors:
  - Casinos: 15 land casinos (8 of which operate internet casinos) — Supervisor: Ministry of Finance
  - Gambling Establishments: 150 — Supervisor: Ministry of Finance
  - Notaries: 210 — Supervisor: Ministry of Justice
  - Accountants/Auditors: 5,000 — Supervisor: Georgian Federation of Professional Accountants and Auditors
  - Lawyers: 3,500 — No AML/CFT obligations
  - Dealers in Precious Metals and Stones: 100 — Supervisor: Ministry of Finance
  - Real Estate Agents: 100-150 — No AML/CFT obligations
  - Trust Company and Service Providers: Unknown — No AML/CFT obligations

### DNFBP sector notes and risks
- Casinos: rapid expansion since 2007; now 15 land casinos (compared to 2 in 2007) and 8 internet casinos (compared to none); 150 gaming halls with slot machines; licensing by the Revenue Service; internet casinos must be operated by a licensed land casino.
- Real estate agents: sector considered among fastest growing; construction and real estate stood at 21 percent of Foreign Direct Investment in 2008; prices increased more than four times since 2003 (per Georgian National Investment Agency); market slowed after 2008 conflict but showed slight resurgence in late 2011; real estate agents not regulated; estimated number 100–150.
- Notaries: 210 in Georgia; perform public duties regulated by Law of Georgia on Notaries; involved in certifying deals, certifying identity, taking money/securities/valuables on deposit, submitting checks for cashing, certifying checks; AML/CFT supervisory and registering authority: Ministry of Justice.
- Dealers in Precious Metals and Stones: within AML Law scope; sector awareness and compliance low; Ministry of Finance designated as AML/CFT supervisor but no supervisory activities undertaken; FMS considers medium ML risk; mining volume relatively small.
- Accountants: AML obligations extended by amendments; 5,000 reflects membership of Georgian Federation of Professional Accountants and Auditors (unaffiliated accountants exist); activities include buying and selling real estate; managing client money, securities, or other assets; management of bank/savings/securities accounts; organization of contributions for company creation/operation; creation/operation/management of legal persons or arrangements and buying and selling of business entities; member organization of International Federation of Accountants (the Georgian Federation of Professional Accountants) identified as AML/CFT supervisor.
- Lawyers: regulated by Law on Advocates; Georgian Bar Association membership compulsory with 3,500 members as of 2011; up to 30 percent offer corporate law services; presence of unregistered lawyers providing company formation services; lawyers engage in activities outlined by the standard; currently no AML/CFT obligations — identified as an area of heightened risk given role in creation of legal persons and transactions on behalf of clients.
- Trust and company service providers: no evidence of trusts in operation; company formation services undertaken by notaries, accountants, and lawyers; concerns about services provided by unlicensed lawyers and unlicensed accountants.

### Commercial laws and legal persons (registration data as of January 4, 2012)
- Georgian Law on Entrepreneurs establishes six forms of entrepreneurial entities (Article 2): Individual enterprises; Joint Liability Companies; Limited Partnership; Limited Liability Companies; Joint Stock Companies; Cooperatives. (Branch of foreign entities included for statistics.)
- Entities registered with the Revenue Service (counts and active counts):
  - Limited Liability Companies (LLCs): 106,658; Active: 103,441 — Article 44
  - Joint Liability Companies (JLCs): 2,773; Active: 2,668 — Article 20
  - Joint Stock Companies: 2,620; Active: 2,054 — Article 51
    - Minimum authorized capital equivalent to 10,000 US dollars national currency; nominal value of one stock equivalent to one Us dollar national currency or an amount divisible by it.
  - Limited Partnership: 158; Active: 152 — Article 34
  - Cooperatives: 2,898; Active: 2,680
  - Branch of foreign entity: 652; Active: 524
  - Individual Enterprise: 361,034; Active: 356,235

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1304.pdf*

### 116.       The most frequently registered entity has been the LLC, with the exception of approximately

### 116.       The most frequently registered entity has been the LLC, with the exception of approximately

### Registration system for legal entities
- Since 2010, Georgian legal entities (commercial and noncommercial) are subject to registration by the National Agency of Public Registry (NAPR).
- Prior to 2010, companies were registered either by the Revenue Service of the Ministry of Finance or at the Registry of Entrepreneurs.
- The NAPR is trying to merge the two databases into a single database that is accessible online.
- Approximately 1,200 state-owned enterprises were privatized and converted into JLCs between 2004 and 2007.

### Non-Profit Organizations (NPOs): structure and financials
- Total local and foreign presence:
  - 15,045 local NPOs
  - 129 branches of foreign NPOs
  - 72 NPOs have obtained charitable status with the Revenue Service
- Ten charitable organizations with the highest turnover (selected entries as provided):
  - International Charity Foundation “Kartu”
    - Purpose: To assist civil society foundation and development; to assist scientific research; to assist vulnerable population
    - Income for 2010 (GEL): 134,499,001.00
    - Expenses for 2010 (GEL): 134,499,001.00
  - Association ATU
    - Purpose: To assist vulnerable population, rehabilitation of cultural, educational, health care institutions
    - Income for 2010 (GEL): 92,375,937.00
    - Expenses for 2010 (GEL): 92,287,421.00
  - Caritas Georgia–Charity Fund
    - Purpose: To provide charitable and development activities according to the principles of Christianity; to provide material, medical, social, rehabilitation, educational assistance to people
    - Income for 2010 (GEL): 6,226,943.00
    - Expenses for 2010 (GEL): 6,264,365.00
  - Historical Monuments Protection and Rescue Foundation
    - Purpose: Protection, rehabilitation and restoration of Georgian historical monuments in Georgia and in foreign countries
    - Income for 2010 (GEL): 4,336,544.00
    - Expenses for 2010 (GEL): 4,206,545.00
  - Children Village Association “SOS” of Georgia
    - Purpose: Implementation of family care model for orphans and homeless children
    - Income for 2010 (GEL): 4,295,539.00
    - Expenses for 2010 (GEL): 4,295,539.00
  - OXFAM GB IN GEORGIA
    - Purpose: To provide assistance to people with poverty and the extremely poor
    - Income for 2010 (GEL): 3,038,925.00
    - Expenses for 2010 (GEL): 3,038,925.00
  - Fund Qveli
    - Purpose: Care of cultural heritage, support of religion, health care, social insurance, sport, science, culture and public activities
    - Income for 2010 (GEL): 2,786,725.00
    - Expenses for 2010 (GEL): 3,145,434.00
  - Charity Foundation of Georgian Jewish “Khesedi Eliahu”
    - Purpose: To provide social protection and care to vulnerable people and seniors
    - Income for 2010 (GEL): 2,765,270.00
    - Expenses for 2010 (GEL): 2,703,432.00

### Risks and oversight of the NPO sector
- Funding profile and accountability concerns:
  - TI Georgia’s 2011 NIS indicates Georgian NPOs “rely almost entirely on foreign donors, lacking financial support from government, local businesses or a membership base.”
  - Funding was principally foreign-based, through international organization and foreign government aid programs; there was not yet a culture of charitable giving in Georgia.
  - TI report: “the mechanisms for ensuring accountability of CSOs and their transparent operation are weak and integrity mechanisms (such as sector-wide code of conduct) are virtually non-existent.”
- Identified misuse risks:
  - Some organizations purporting to be charities use their status to import goods that are then sold at market value rather than used for charitable purposes.
  - Case studies (2006 study by George Mason University) found charities created “with the purpose of laundering money and evading taxes,” including signed grant agreements to distribute food that was instead sold at market price.
  - Authorities indicated an ongoing case where an NPO is suspected of bringing goods into Georgia, selling them at market value, and pocketing the proceeds.
  - Austrian police arrested a Georgian criminal group whose proceeds were forwarded to an NPO organizing protests against the government.
- Contributing factor: absence of monitoring of charities facilitated fraud.

### Strategy to prevent money laundering and terrorist financing (AML/CFT)
- Coordination mechanisms:
  - At the time of the on-site visit, no AML/CFT coordination committee had been set up in Georgia.
  - After the on-site visit, the AML Law was amended on November 25, 2011 and entered into force on December 8, 2011, establishing a committee chaired by the Minister of Justice; legal basis in Article 13 of the AML Law.
- AML/CFT priorities identified by authorities:
  - Further improvement of the legislative framework and harmonization with international norms (improvement of legislation regulating AML/CFT measures, know-your-customer (KYC) measures);
  - Preparation of further implementing norms and regulations pursuant to AML/CFT legislation;
  - Further evaluation of the AML/CFT risk levels in various parts of the financial sector and DNFBPs;
  - Strengthening cooperation between the FMS, financial and nonfinancial institutions, international financial institutions such as the IMF, World Bank, the IFC, and the EBRD and law enforcement agencies;
  - Improvement of tools and mechanism of suspicious transaction reporting;
  - Further improvement of the system of application of sanctions against money laundering and FT;
  - Raising qualification requirements and standards of the employees of different organizations and units involved in the AML/CFT process (e.g., FIU, supervisory bodies, monitoring entities, the special unit of the Prosecutor’s Office of Georgia handling money laundering cases, judges).
- Supervision and review:
  - Compliance by monitoring entities and effectiveness of the Georgian AML/CFT system is examined by supervisory bodies during on-site visits.
  - Office of the Chief Prosecutor of the Ministry of Justice of Georgia reviews effectiveness, including money laundering methods, trends and techniques, every six months and at the end of each year.
  - AML Unit and other investigative bodies prepare detailed statistical information on investigations, prosecutions, convictions, search, seizure, confiscation, etc.
  - Resulting information on trends, techniques, and methods is shared via training seminars; two training seminars were organized in February and March 2011.
  - On January 4, 2011, one additional investigator of especially important cases was appointed in the AML Unit of the Office of the Chief Prosecutor of Georgia.
- Legislative changes:
  - A package of significant amendments to AML/CFT Law and related legislation was enacted in November and December 2011.

### Institutional framework for combating ML/TF (roles and responsibilities)
- Ministry of Finance
  - Responsible for intelligence gathering, preliminary investigation, research targeted at economic crime prevention; detection, study and analysis of tax and customs violations; development and application of tools to combat tax and customs crime.
  - Competent bodies: Georgia Revenue Service and the Investigation Service.
- Georgia Revenue Service
  - Responsible for administration of tax and customs control; execution of clearance procedures and clearance controls; issuing, amending, and revoking licenses; detection and response to tax and customs violations.
- Investigation Service (Ministry of Finance)
  - Carries out preliminary investigation of financial crimes and other measures to fight economic crime; entitled to investigate money laundering.
- Ministry of Justice
  - Responsible for drafting legislation and international legal assistance; registration of non-commercial entities; supervisory body for notaries and the Public Registry.
- Chief Prosecutor’s Office (CPO)
  - Prosecution Service became part of the Ministry of Justice on October 27, 2008; responsible for criminal prosecution and procedural guidance over investigations.
  - GPO’s AML Unit created at the end of 2003, commenced work beginning of 2004; primarily responsible for investigation and prosecution of money laundering cases.
  - Operative-technical assistance provided by the Special Operative Department (SOD) of the Ministry of Internal Affairs.
  - Anti-Corruption Department investigates and prosecutes corruption-related crimes committed by public officials and associated money laundering.
- Ministry of Internal Affairs
  - Responsible for fighting crimes in general; created a special Counter-Terrorist Center.
  - Special Operative Department (SOD) fights organized crime and trafficking; since 2004 provides operative support to the AML Unit and conducts operative-searching activities.
- Ministry of Foreign Affairs
  - Receives designations under UNSCR 1267 and forwards them to the Intergovernmental Commission, the Financial Monitoring Service (FMS), and the Ministry of Internal Affairs; involved in extradition framework; responsible for law relating to legal persons and arrangements.
- Financial Monitoring Service (FMS)
  - FMS is Georgia’s FIU, administrative type FIU established at the National Bank of Georgia; receives, collects, analyzes, and transmits information in accordance with the AML/CFT Law.
  - FMS became operational on January 1, 2004 on the basis of the AML/CFT Law (adopted June 6, 2003) and Presidential ordinance No. 354 of July 16, 2003 regarding “Approving the Regulation of the Financial Monitoring Service of Georgia–Legal Entity of Public Law”.
- Customs Border Protection Department (CBPD)
  - Responsible for customs and border protection and identification of traffickers of cash smuggling.
  - There are 18 border check point (BCP) posts in Georgia.
- National Bank of Georgia (NBG)
  - Independent state organ; central bank and supervisor of financial institutions.
  - Anti-money laundering unit in NBG is a separate division subordinated directly to the vice-governor in charge of supervisory matters.
  - NBG responsible for licensing and registration of financial institutions; all financial institutions applying for a license or registration at NBG have the duty to register with the FMS, subject to sanctions in case of failure to register.

### Designated non-financial businesses and professions (DNFBPs) and sector supervision
- Casinos
  - According to the AML/CFT Law (Article 4), supervision policy over casinos is carried out by the Ministry of Finance of Georgia.
  - The Law of Georgia on “Gambling and Commercial Games” provides basis for organizing lotteries, gambling, and commercial games and defines the authority exercising control over the gambling businesses.
  - Audit Department of the Revenue Service is responsible for tax control, including gambling machines; Prevention Department controls compliance with permit conditions by permit holders.
  - Audits revealed frequent statutory failures in the gambling sector (e.g., incomes not reported fully; incorrect identification information on winners; accounts provided in violation of existing rules and other violations); indirect method of defining tax liability has been applied depending on nature and severity.

### Progress since the last mutual evaluation
- Legislative and criminal law changes since 2008:
  - Sanctions under Article 194 of the Criminal Code of Georgia (CCG) were increased and the value threshold removed.
  - New Article 194-1 of the CCG introduced to criminalize the acquisition, possession, use, or realization of laundered proceeds.
  - Tax evasion became a predicate offense under all ML provisions.
  - All-crimes approach under Article 194 of the CCG was changed to allow for broader application to “any undocumented or illegal property.”
  - Criminal liability for legal persons was introduced, including for ML.
  - Latest set of amendments to ML provisions came into force in November 2011 and related mostly to terminology and technical details.
- Reporting entities and CDD enhancements:
  - In 2011 and following amendment of the AML/CFT Law, leasing companies, accountants, and auditors were included under the list of reporting entities.
  - Minister of Justice recommendations (January 2010) raised awareness about Article 194 and required departments investigating predicate crimes to carry out ML investigations; led to LEAs launching ML investigations in parallel with predicate investigations and increased ML investigations in 2010 and 2011.
  - With the new AML/CFT Law (as amended on December 20, 2011) and subsequent updated regulations, scope of CDD requirements extended.
  - CDD for legal persons reinforced including a more complete definition of beneficial ownership, PEPs, and client.
  - New provisions included on legal arrangements, ongoing CDD, timing of verification, record keeping, third parties, correspondent relationships, non-face-to-face transactions, and wire transfers.
  - Implementation by financial sector institutions remains a challenge despite improved legal framework.
- Reporting and supervision updates:
  - List of watch zone countries updated and adopted by NBG Decree of August 24, 2011.
  - FMS Decrees, as amended in August 2011, extended AML Law requirements to microfinance organizations and money remitters.
  - Definition of suspicion improved under the amended Law of 2011.
  - Article 9.2 of the AML/CFT Law of December 2011 requires submitting the report on the same day.
  - FMS issued Guidance for Commercial Banks on Essential Indicators for Detection of Suspicious or Unusual Transactions on January 27, 2010; similar guidelines issued to insurance companies.
- DNFBP-specific regulatory changes:
  - Amendments expanded preventive measures including ongoing due diligence of business relationships; policies and procedures to mitigate non-face-to-face transaction risks; monitoring risks associated with new technologies; enhanced due diligence of high-risk customers, business relationships and transactions; and ceasing business relationships if beneficial owner cannot be identified and verified.
  - New requirements came into force on January 1, 2012.
  - Amended decrees for DNFBPs:
    - Decree No. 93 for Notaries (amended January 31, 2012)
    - Decree No. 94 for Casinos (amended February 6, 2012)
    - New decree for Accountants (Decree No. 12) issued January 31, 2012
  - These decrees came into force upon promulgation.

* _cr1304 - 116.       The most frequently registered entity has been the LLC, with the exception of approximately_*

### 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES

### 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES

### Laws and Regulations — Overview
- Focus: Criminalization of Money Laundering (R.1 and R.2); Description and Analysis of Recommendations 1 and 2 (both rated PC in the third mutual evaluation).
- Legal instruments discussed: Criminal Code of Georgia (CCG) Articles 186, 194, and 194-1; Civil Code Articles 147–152; CCG Article 4; CCG Chapter VI (Articles 18, 19, 23–25); other CCG provisions cited as predicate offenses.
- International instruments ratified by Georgia: Vienna Convention (ratified January 8, 1998) and Palermo Convention (ratified September 5, 2006).

### Legal Framework — Structure and interaction of ML provisions
- Core criminalization:
  - Article 186 CCG: offense of “use, acquisition, possession or realization of property obtained by criminal means.”
  - Article 194 CCG: offense of “legalization of illicit income” defined as “giving a legal form (use, acquisition, possession, conversion, transfer or other action) to the illegal and/or undocumented property ... for purposes of concealing its illegal and/or undocumented origin and/or helping any person to evade the legal consequences, as well as concealing or disguising its true nature, originating source, location, allotment, circulation, ownership and/or other related property right.”
  - Article 194-1 CCG: offense of “use, acquisition, possession or realization of property received through illicit income legalization.”
- Aggravated offenses:
  - Paras. (2) and (3) of Articles 186, 194, and 194-1 set out aggravated offenses including commission by a group or organized group, repetitive conduct, or involving income in large or especially large quantity.
- Hierarchy and application:
  - Authorities: Article 194 treated as the main laundering offense; majority of ML cases tried under Article 194 (2) and (3).
  - Article 186 scope expanded pre-assessment to include all types of “property” so “acquisition, possession, or use” can be criminalized without Article 194’s specific purpose requirement.
  - Article 194-1 intended to cover acquisition/possession/use of property laundered (not general proceeds); Article 194-1 has never been applied in practice.

### Criminalization of ML — Physical and material elements (c.1.1)
- Coverage of elements:
  - Conversion or transfer, concealment or disguise of nature/source/location/disposition/ownership, and acquisition/possession/use of criminal proceeds are explicitly covered by Articles 186, 194, and 194-1.
- Purpose requirement:
  - Article 194: acts must be for the purpose of concealing illegal/undocumented origin or helping evade legal consequences.
  - Article 186: contains no specific purpose requirement, and thus meets Vienna/Palermo requirement to criminalize acquisition/possession/use regardless of purpose.
- Practical note: Article 194 applies to “any illegal conduct (including noncriminal)” and to “undocumented property,” enabling application without proving underlying criminal conduct.

### The Laundered Property (c.1.2)
- Definitions and scope:
  - Article 194 applies to any “illicit income” defined as “illegal and/or undocumented property.”
  - Legally binding note to Article 194 defines “illegal property” as “any property, also the income derived from that property, stocks (shares) that are gained by the offender, his/her family members, close relatives or the persons affiliated with him/her through the infringement of the law requirements.”
  - “Undocumented property” defined as property for which offender or affiliates are unable to present a document certifying legal acquisition, or property obtained by monetary funds received from realization of illegal property.
  - Note: the law applies a reversed burden of proof for undocumented property.
- Interaction with Civil Code:
  - Authorities state “property” in CCG Articles 186/194/194-1 is defined per Civil Code Article 147 to include “all items (objects) and immaterial property, which can be owned, used and disposed by natural persons and legal entities and purchased without limitation, if it is not prohibited by the law and does not contradict with moral norms.”
  - Civil Code Articles 148–152 define movable/immovable objects and “immaterial property.”
  - Assessors' concern: Civil Code wording could be interpreted to exclude illicit property; authorities and courts confirm criminal practice applies the first part of the definition and treats “property” as including illicit property in ML context (case example: Conviction of December 22, 2011 Giorgi Tabitdze and Merab Kurdgelashvili).
- Indirect proceeds:
  - Indirect proceeds explicitly covered via note to Article 194 referencing “income derived from” illicit property.
  - Authorities and Chief Prosecutor Recommendation (February 2012) interpret Article 194-1 to apply to “property received through the exchange of the property obtained by criminal means” (example: picture obtained in exchange for a stolen picture), while Article 186 applies to income derived from property obtained by crime (examples: interest on bank account, increase in market value).
- Summary: ML provisions apply to assets of every kind — corporeal/incorporeal, movable/immovable, tangible/intangible, and legal documents/instruments evidencing title or interest.

### Proving property is proceeds of crime (c.1.2.1)
- No requirement to convict for predicate offense:
  - Statutory ML provisions do not require a conviction for the underlying predicate offense to prove property is proceeds of crime.
  - For Article 194: prosecution may establish property is illegal or undocumented (including noncriminal conduct) or that there is no evidence of legitimate source; conviction for predicate not necessary.
  - For Articles 186 and 194-1: prosecution must establish beyond reasonable doubt that a specific predicate offense was committed for application; conviction for the predicate offense itself is not required, and courts have sentenced ML autonomously (examples: Conviction of June 28, 2011 against Gocha Zeinklishvili; Conviction of January 21, 2011 against Davit Mukhigulashvili and Levan Khidesheli; Conviction of October 18, 2011 against Giorgi Antadze and Omar Edilashvili).

### Scope of the predicate offenses (c.1.3)
- Article 194: most far-reaching — applies to any “illegal and/or undocumented property”; can be based on illegal conduct including administrative or civil violations (not limited to criminal offenses).
- Articles 186 and 194-1: require proof beyond reasonable doubt that property stems from a criminal offense.
- Georgia criminalized at least one offense under each FATF-designated predicate category; specific mappings provided (selected examples preserved exactly):
  - Participation in an organized criminal group and racketeering — Articles 223, 224, 224/1, 226, 252 of the CCG.
  - Terrorism, including FT — Articles 323 – 331/1 of the CCG.
  - Trafficking in human beings and migrant smuggling — Articles 143/1, 143/2 and 143/3, and 344/1 of the CCG.
  - Sexual exploitation, including sexual exploitation of children — Articles 137 – 141 of the CCG.
  - Illicit trafficking in narcotic drugs and psychotropic substances — Articles 260 – 273 of the CCG.
  - Illicit arms trafficking — Article 236 of the CCG.
  - Illicit trafficking in stolen and other goods — Article 186, 197/1, 200 of the CCG.
  - Corruption and bribery — Articles 203, 221, 338, 339, 340 of the CCG.
  - Fraud — Articles 180, 182, 219 of the CCG.
  - Counterfeiting Currency — Article 212 of the CCG.
  - Counterfeiting and piracy of products — Articles 189, 189/1, 196, 197 of the CCG.
  - Environmental crime — Articles 229/1 and 287 – 306 of the CCG.
  - Murder, grievous bodily injury — Articles 108 – 126 and 144/1 of the CCG.
  - Kidnapping, illegal restraining and hostage-taking — Articles 143, 144, 147, 149 of the CCG.
  - Robbery or theft — Articles 177 and 178 of the CCG.
  - Smuggling — Articles 214 of the CCG.
  - Extortion — Article 181 of the CCG.
  - Forgery — Articles 210 and 362 of the CCG.
  - Piracy — Article 228 of the CCG.
  - Insider trading and market manipulation — Article 202 of the CCG.
- Extended scope:
  - ML provisions apply to all offenses, including tax evasion under Article 218 of the CCG — exceeding FATF minimum on this point.

### Threshold approach for predicate offenses (c.1.4)
- Georgia effectively adopts an all-crimes approach:
  - Articles 186 and 194-1 apply broadly to property from criminal offense(s).
  - Article 194 applies to property stemming from any illegal conduct, criminal or noncriminal.

### Extraterritorially committed predicate offenses (c.1.5)
- Territorial and extraterritorial application:
  - Articles 186, 194, and 194-1 do not explicitly refer to conduct abroad.
  - Authorities interpret ML provisions as applicable where property stems from activities abroad; Article 194’s undocumented property standard makes location of conduct irrelevant.
  - For Articles 186 and 194-1, Article 4 of the CCG (person who “commences, continues, ceases or ends” a crime in Georgia is subject to Georgian criminal law) supports jurisdiction when part of laundering activity occurred on Georgian territory, regardless of where underlying criminal conduct occurred; dual criminality not required.
  - Courts have confirmed this interpretation (examples: Conviction of January 21, 2011 against Davit Mukhigulashvili and Levan Khidesheli; Conviction of October 18, 2011 against Giorgi Antadze and Omar Edilashvili).

### Laundering one’s own illicit funds (c.1.6)
- Self-laundering:
  - ML provisions do not distinguish laundering one’s own proceeds from laundering another’s proceeds; provisions apply in both cases.
  - Georgian courts have criminalized self-laundering in multiple cases (examples: Conviction of June 8, 2010 against Davit Gabunia, Itakli Khurtsidze, Giorgi Gabunia and Aleksandre Lordeli; Conviction of July 4, 2011 against Mamuka Gogitidze, Givi Verulidze and Besik Nikatsadze; Conviction of August 19, 2010 against Vakhtang Goguadze, Mamuka Gogitidze, Givi Verulidze, Besik Nikatsadze, DaviT Gabunia, Itakli Khurtsidze and Vakhtang Goguadze).

### Ancillary offenses (c.1.7)
- General applicability:
  - Ancillary offenses provided in general CCG provisions are applicable to ML.
- Specific ancillary provisions:
  - Chapter VI of the CCG: “incomplete crimes.”
  - Article 18: “preparation of crime” — applies to grave/particularly grave offenses and expressly enumerated offenses including Article 186 (1) and (2) and Article 194-1 (1) and (2); Article 194 and aggravated offenses under 194-1(3) and Article 186(3) also fall under Article 18 due to categorization as “grave” or “particularly grave” crimes.
  - Article 19: “attempt to commit a crime” — criminalizes attempt for any intentional crime.
  - Article 23: “criminal complicity” — intentional joint participation of two or more persons; requires an overt act or attempt.
  - Articles 24 and 25: extend liability to organizers, instigators, or accessories; accessory liability defined to apply to anyone who “gives support” to the commission of a crime.
- Outcome: Provision of appropriate ancillary offenses to ML, including attempt, aiding and abetting, facilitating, counseling, and association to commit ML (as criminal complicity or under Article 18 where overt act not required).

### Additional element — acts overseas that would not be an offense overseas but would be a predicate if domestic (c.1.8)
- Treatment:
  - Georgian ML provisions apply to acts committed abroad that would have constituted criminal conduct had they occurred in Georgia, irrespective of whether conduct is criminalized in the foreign jurisdiction (see criterion 5 discussion).

*Source: _cr1304 - 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES*

### 189.      The ML provisions apply to any person who intentionally commits any of the acts under

### _cr1304 - 189. The ML provisions apply to any person who intentionally commits any of the acts under

### Scope and mens rea of ML provisions
- The ML provisions apply to any person who intentionally commits any of the acts under Articles 194, 186, or 194-1 of the CCG with the knowledge that the property involved was “obtained by criminal means” (Article 186), “received through illicit income legalization” (Article 194-1) or is “illegal or undocumented property.” (para. 189)
- For Article 194 of the CCG, the prosecutor must establish that the perpetrator knew that the property in question was undocumented; it is not required to show that the perpetrator knew the property had illegal or criminal sources. (para. 190)
- For Article 186 of the CCG, it must be established that the person had general knowledge of the underlying criminal source of the property, without proving the exact offense from which the proceeds were generated. (para. 190)
- Under Article 194-1 of the CCG, the person must know that the property was obtained through ML activities. (para. 191)
- Conclusion: all provisions are in line with the minimum standard required under FATF Recommendation 2. (para. 192)

### The mental element of the ML offense (c. 2.2)
- There is no specific legal provision on this point; authorities stated that under Georgian criminal procedures, the intentional element of any criminal offense, including ML, may be inferred from objective factual circumstances. (para. 193)
- The principle of free evaluation of the evidence by the judiciary is a long-standing practice in Georgia and has been confirmed by case law provided by the authorities. (para. 193)

### Liability of legal persons (c. 2.3 and c. 2.4)
- Georgian law recognizes criminal liability of legal persons since 2006. Article 107/1 and 107/2 of the CCG expressly stipulate that the ML provisions are applicable to legal persons. (para. 194)
- In November 2011 two legal persons were convicted for laundering proceeds of tax evasion; in both cases the directors and the companies were indicted. Assets of the directors were frozen, but not those of the legal persons. (para. 194)
- Article 107/1 (8) of the CCG provides that criminal liability of a legal person does not exempt it from the duty to redress damages caused or from other measures prescribed by law; authorities stated this allows imposition of administrative and other sanctions in addition and parallel to criminal sanctions. (para. 195)

### Sanctions for ML (c. 2.5)
- Basic ML sanctions vary by provision:
  - Article 194 of the CCG: a fine or imprisonment of a term of three to six years. (para. 196)
  - Articles 186 (1) and 194-1 (1) of the CCG: a fine, or socially useful work for 180 to 200 hours, or correctional work for up to one year, or imprisonment for a term of up to two years. (para. 196)
- Aggravated circumstances (repeated offense, group based on prior agreement, or property in excess of GEL 30,000):
  - Article 194 (2): prison sentence of six to nine years. (para. 197)
  - Articles 186 (2) and 194-1 (2): a fine or imprisonment for two to five years. (para. 197)
- Especially aggravated circumstances (organized group, abuse of official power, or property in excess of GEL 50,000):
  - Article 194 (3): imprisonment for nine to twelve years. (para. 198)
  - Articles 186 (3) and 194-1 (3): imprisonment of four to seven years. (para. 198)
  - For legal persons convicted of an ML offense: liquidation of the person or deprivation of the right to pursue a business, and a fine. (para. 198)
- Sanctions for ML compared to other economic crimes:
  - Fraud: a fine, or socially useful work for 170 to 200 hours, or correctional work for up to two years, or imprisonment for a term of two to four years. (para. 199)
  - Embezzlement: a fine or imprisonment for a term of up to three years. (para. 199)
  - Extortion: a fine or imprisonment for a term of two to four years. (para. 199)
  - Corruption: imprisonment for up to two years. (para. 199)
- Regional comparisons (Armenia, Azerbaijan, Georgia):
  - Basic ML: Armenia — Imprisonment of up to 4 year; Azerbaijan — Fine or imprisonment of up to five years; Georgia — A fine or imprisonment for three to six years. (para. 200)
  - Grave ML Offense: Armenia — Imprisonment for four to eight years; Azerbaijan — Imprisonment for four to eight years; Georgia — Imprisonment for six to nine years. (para. 200)
  - Especially grave ML Offense: Armenia — Imprisonment for six to twelve years; Azerbaijan — Imprisonment for seven to twelve years; Georgia — Imprisonment for nine to twelve years. (para. 200)

### Application of sanctions and plea agreements
- Courts generally apply sanctions on the lower end of the statutory ranges; aggravated offenses under Article 194 (2) and (3) are rarely punished with the full available sanction. (para. 201)
- Authorities stated frequent use of plea agreements explains lower sanctions: prosecution commonly enters plea agreements in exchange for information and applies for less severe sanctions. (para. 201)
- 2010: 12 persons convicted of ML entered into a plea agreement. (para. 201)
- 2011: 91 defendants were convicted and sentenced on the basis of a plea agreement. (para. 201)
- Plea agreements are generally offered in two situations: relation to minor offenses, or in grave offenses when the defendant participated but did not control or orchestrate the ML scheme. Other considerations: criminal record and reimbursement of damages to the state budget. (para. 201)
- Assessors’ view: while plea agreements can be useful against organized and serious crime, they should be applied selectively, particularly for aggravated offenses; frequent use appears to undermine effectiveness of stricter statutory sanctions. (paras. 205–205 concluding)

### Examples of sanctions imposed (case table highlights)
- Selected case outcomes (imprisonment and portion attributable to ML):
  - Article 194 (2) and (3): 17 years, of which 11 for ML. (para. 202)
  - Article 194 (2) and (3): 4 years, of which 3 years for ML. (para. 202)
  - Article 194 (2) and (3): 5 years, of which 1 year for ML. (para. 202)
  - Article 194 (3): 5 years, of which 3 years for ML. (para. 202)
  - Article 194 (1): 4 years, of which 1 year for ML. (para. 202)
  - Article 194 (2): 3 years, of which 1 year and 6 months for ML. (para. 202)

- Additional ML-alone convictions and sanctions by year:
  - 2007: Article 194 (2) and (3) — 3 years (suspended) and a fine of €435. (para. 203)
  - 2010: Article 194 (1) — 5 years (suspended) and community labor of 200 hours. (para. 203)
  - 2011: Articles 194 (2) and (3) — 9 years and a fine of €88.055; Article 194 (1) — 6 years; multiple suspended sentences with fines (various amounts listed). (para. 203)

- Sanctions for legal persons: the two legal persons convicted for ML in November 2011 were sanctioned by liquidation of the legal entities. (para. 204)

### Implementation and statistics (R.32)
- Between 2005 and 2011:
  - 133 cases were investigated for ML. (para. 206)
  - 81 resulted in a prosecution. (para. 206)
  - 102 resulted in a conviction. (para. 206)
  - 54 cases related to autonomous ML. (para. 206)
- The number of convictions may exceed prosecutions because a prosecution can be split into multiple cases at trial level. (para. 206)
- Majority of ML investigations since 2007 were triggered by an STR; since 2010 referrals from other law enforcement authorities to the prosecutor’s office increased significantly. (para. 207)
- A conviction based on Article 186 of the CCG was obtained in 291 cases; none of the convictions were based on Articles 194-1 of the CCG. (para. 207)
- Yearly investigations / prosecutions / convictions (summary table):
  - 2005: Investigations 16; Prosecutions 6 (17 persons); Convictions 2 (10 persons). (para. 207)
  - 2006: Investigations 10; Prosecutions 4 (4 persons); Convictions 3 (5 persons). (para. 207)
  - 2007: Investigations 9; Prosecutions 2 (2 persons); Convictions 1 (2 persons). (para. 207)
  - 2008: Investigations 9; Prosecutions 3 (4 persons); Convictions 4 (5 persons). (para. 207)
  - 2009: Investigations 9; Prosecutions 4 (6 persons); Convictions 1 (1 person). (para. 207)
  - 2010: Investigations 22; Prosecutions 17 (29 persons); Convictions 16 (19 persons). (para. 207)
  - 2011: Investigations 58; Prosecutions 45 (143 persons); Convictions 75 (123 persons). (para. 207)
- General crime statistics (selected predicates) for 2010 and 2011 (investigations / prosecutions / convictions as provided):
  - Illicit trafficking in narcotic drugs and psychotropic substances:
    - 2010: Investigations 2645; Prosecutions 2566; Convictions 2524. (para. 208)
    - 2011: Investigations 1676; Prosecutions 1679; Convictions 1678. (para. 208)
  - Illicit arms trafficking:
    - 2010: Investigations 1559; Prosecutions 890; Convictions 1036. (para. 208)
    - 2011: Investigations 1306; Prosecutions 777; Convictions 906. (para. 208)
  - Fraud:
    - 2010: Investigations 2150; Prosecutions 1701; Convictions 1532. (para. 208)
    - 2011: Investigations 1873; Prosecutions 1193; Convictions 1388. (para. 208)
  - Robbery or theft:
    - 2010: Investigations 13413; Prosecutions 4694; Convictions 4301. (para. 208)
    - 2011: Investigations 10768; Prosecutions 3813; Convictions 3997. (para. 208)
- Authorities’ observations:
  - Convictions were secured in all cases filed with the court; number of investigations and prosecutions terminated was rather low. (para. 209)
  - Ratio of investigations initiated vs. convictions improved significantly since 2005 due to increased political will, legislative amendments, and extensive training of law enforcement and judiciary. (para. 209)
  - Ministry of Justice guidelines issued in January 2010 urged prosecutors and investigators to focus on financial aspects of proceeds-generating crimes and contributed to improvements. (para. 209)
- Main predicate offenses in ML cases (2007–2011):
  - Falsification of official and contractual documents: convictions related to 47 persons. (para. 210)
  - Smuggling offenses: convictions related to 14 persons. (para. 210)
  - Corruption and bribery: convictions related to 6 persons. (para. 210)
  - Theft, illegal logging, illegal entrepreneurial activity: convictions related to 5 persons in each category. (para. 210)
  - No ML convictions were obtained in the context of illicit trafficking in narcotic drugs and psychotropic substances, participation in an organized criminal group or racketeering, or illicit trafficking in human beings or arms. (para. 210)
- Overall assessment: Georgia has a strong and comprehensive legal framework to prosecute and sanction ML; since the January 2010 Ministry of Justice guidelines, investigations, prosecutions, and convictions increased and a good number of cases have been investigated and prosecuted. (para. 211)

*Source: IMF assessment text (paras. 189–211) contained in the provided content unit.*

### 212.      Despite the positive developments in strengthening and implementing Georgia’s legal

### _cr1304 - 212.      Despite the positive developments in strengthening and implementing Georgia’s legal

### Assessors' concerns on application of ML provisions
- The assessors question whether the ML provisions are applied effectively in the context of the most significant proceeds generating crimes. Four main areas of concern are identified.
- Findings on specific predicate categories:
  - Drug-related crimes:
    - In 2010 and 2011 more than 4,000 persons were convicted in relation to drug-related crimes, of which more than 150 were convicted for cross-border trafficking of drugs.
    - The authorities explained that 95 percent of cases under this category relate to possession for private use; however, the assessors note illegal circulation of drugs was the second most frequently registered predicate crime in Georgia both in 2009 and 2010 and find it not credible that no proceeds were generated through illicit trafficking of drugs in Georgia.
  - Organized crime (“thieves-in-law” and similar):
    - 127 persons were convicted of participation in an illegal armed formation or membership of the “thieves-in-law” organization.
    - 70 persons were convicted in 2010 and 2011 of membership of the “thieves-in-law” organization.
    - No ML convictions were obtained in relation to such crimes; it is unclear why no ML charges have been filed in relation to organized crime since 2007.
    - International operations and indictments cited: in the fall of 2011, 23 Georgian nationals were indicted in France for participation in an organized group; in 2010, Austria, Spain, Italy, and Germany carried out operation “Java” resulting in the arrest of close to 100 alleged members of the “thieves-in-law” organization, including high-ranking members.
    - Conclusion: ML provisions are not sufficiently utilized to address risks from domestic and transnational organized crime.
  - Human trafficking:
    - Georgia had convictions for human trafficking in relation to 39 persons in 2009, resulting in an average sentence of 21 years imprisonment.
    - Ten investigations were initiated in 2010, some ongoing; the high sentences suggest convictions related to serious trafficking operations.
  - “Laundering of undocumented property” and falsification:
    - Many ML cases involved laundering of undocumented property or falsification of documents; schemes involved channeling money through books and accounts of domestic and offshore legal entities, falsified accounting books, invoices, expense reports, commercial license documents, tax declarations, or other documents.
    - Between 2007 and 2011 convictions in relation to more than 40 persons follow the described scheme (assessors’ calculation based on convictions for ML or ML and forgery of documents but no other offenses).
    - The majority of convictions for grave and especially grave ML Article 194 (2) and (3) of the CCG were obtained on the basis of a plea agreement.
    - Assessors recommend investigating the background of such cases to establish the actual source of the property, identify countries from/to which proceeds are transferred, and apply ML provisions to persons controlling or orchestrating such schemes. Where persons are abroad, evidence should be provided to competent foreign authorities.
    - Low number of convictions of legal persons suggests ML provisions are not yet applied effectively in relation to legal persons.
  - Role of Financial Monitoring Service (FMS) and law enforcement focus:
    - Most ML cases have been initiated by the FMS through the provision of CTRs and STRs; only few ML cases were detected in the context of investigations for predicate offenses.
    - This raises questions about the extent to which law enforcement focuses on the financial aspects of predicate crime.
  - Risk of abuse given judiciary independence concerns:
    - In light of concerns on the lack of independence of the Georgian judiciary and law enforcement authorities (Section 1 and Recommendation 30), the application of Article 194 of the CCG to any illegal or undocumented property as opposed to only criminal proceeds bears the risk of abuse and may undermine overall AML/CFT effectiveness.

### Recommendations and comments (Assessors)
- Utilize the option to enter into a plea agreement in a more selective manner, in particular in the context of aggravated offenses, and ensure that in all other cases, the sanctions regime for ML is applied in a dissuasive and effective manner.
- Review the approach taken in applying the ML provisions to ensure that the strong legal framework in place is used to combat predicate crime effectively both in a domestic and transnational context.
  - A proactive approach should be put on investigating and prosecuting persons that orchestrate and control ML schemes through Georgia.
  - Law enforcement authorities should address financial flows in their investigations for predicate offenses to detect any potential ML activities.

### Compliance and effectiveness ratings (R.1 and R.2)
- R.1 — LC
  - Effectiveness: The ML provisions are not applied in a sufficiently effective manner, both in relation to domestic and transnational predicate crimes.
- R.2 — LC
  - Due to the frequent use of plea agreements, the sanctions regime for ML is not applied in a sufficiently dissuasive and effective manner.
  - Effectiveness: The ML provisions are not applied effectively to legal persons.

### Criminalization of Terrorist Financing (SR.II) — overview
- Legal framework:
  - Chapter XXXVIII of the CCG sets out terrorism offenses, including autonomous financing of terrorism (“FT”) under Article 331/1.
  - Aggravated FT offenses: Article 331/1 (2) (by an organization or repeatedly) and Article 331/1 (3) (by a terrorist organization or involving grave consequences).
  - The FT offense was introduced in July 2006 and amended twice, notably to make it applicable to financing of individual terrorists.
- Casework:
  - At the time of the on-site mission, Georgia had investigated one case of FT, resulting in the prosecution of three individuals; the case was pending and related to activities in the break-away zones.
- International instruments:
  - Georgia ratified the International Convention for the Suppression of the Financing of Terrorism (“FT Convention”) on September 27, 2002 and all nine Conventions and Protocols listed in its Annex.
- Elements of the FT offense (Article 331/1 CCG):
  - Criminalizes the “collection or provision of funds or other property, knowing that it will fully or partially be used or is possible to be used by a terrorist or terrorist organisation or/and for the commission of one of the offenses envisaged by Articles 144, 227, 227/1, 227/2, 230, 231, 231/1, 231/2, 323-330 and 330/2 of the present Code, regardless whether any of the offense referred to in these articles has been committed.”
  - Material elements (“collection or provision, directly or indirectly, of funds and other property”) and the intent requirement are covered.
  - “Property” is interpreted per Article 152 of the Civil Code to extend to assets of every kind, tangible or intangible, moveable or immovable, and legal documents or instruments in any form.
- Coverage of convention and generic offenses:
  - Article 331/1 applies when funds/property are intended for commission of crimes listed in Articles 144, 227, 227/1, 227/2, 230, 231, 231/1, 231/2, 323-330, and 330/2.
  - Article 323 (general terrorism) covers acts involving “explosion, arson, the use of arms or other act that pose a danger of human death or of significant damage to property or of other grave consequences and also infringes upon public safety, strategic, political and economic state interests committed with the aim to create fear among population or exert pressure on internal or foreign authorities or international organization.”
  - The requirement under Article 323 that an act “infringes upon public safety, strategic, political or economic state interests” is not reflected in the FT Convention’s generic offense; authorities state in practice courts would consider Article 323 acts to “infringe upon public safety,” but FT offense had never been applied by a court at the time, leaving uncertainty.
  - Some gaps remain in coverage of convention offenses; it is unclear how offenses under the Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation are covered. Offenses under the International Convention for the Suppression of Terrorist Bombing are covered only if committed with terrorist intent.
  - Note: The requirement that an act must “infringe upon public safety” was removed by legal amendment on March 15, 2012; offenses under two Conventions were criminalized in Georgia on March 15, 2012 and Article 331/1 was amended to include these new offenses.
- Financing of terrorists and terrorist organizations:
  - Article 331/1 applies where funds/property are provided knowing they will or may be used by a terrorist or terrorist organization; it does not require funds to be tied to a specific terrorist act and covers provision for legitimate use (e.g., basic living expenses).
  - Definitions:
    - “Terrorist” defined in the Law of Georgia on Combating Terrorism (Terrorism Law) as “a person who participates in terrorist activity” with “terrorist activity” defined via Chapter XXXVII (Articles 323-331/1) of the CCG.
      - Assessors find the term “terrorist” is considerably limited compared to the FATF standard because Articles 323–331/1 do not fully cover both the generic and convention offenses.
    - “Terrorist organization” (Article 1 (g) of the Terrorism Law) defined as “an organization (regardless of its form), established for realization of terrorist activity (an act of terrorism). An organization can be deemed as a terrorist organization if at least one of its structural subdivisions or at least one of its members carried out terrorist activity (an act of terrorism) with the authorization of the leadership of this organization.”
      - This definition is slightly narrower than the FATF standard because it requires a structural organization; prosecution could still charge financing of an individual terrorist where funds are provided to two or more persons operating without structural organization.
- Attempt and ancillary liability:
  - Chapter VI of the CCG (Articles 18, 19 and 23–25) on preparation, attempt and accomplice liability applies to the FT offense.
- Predicate offense for ML:
  - The Georgian ML provisions apply to all criminal conduct; the FT offense under Article 331/1 is a predicate offense for ML.

*Italic line: IMF staff assessment excerpt from the referenced chapter.*

### 232.      Article 331/1 of the CCG does not address extraterritorial jurisdiction. However, the

### Article 331/1 of the CCG — Extraterritoriality, FT Offense, Sanctions, and Confiscation

### Extraterritorial Jurisdiction and Application of Article 331/1
- Article 331/1 of the CCG does not explicitly address extraterritorial jurisdiction.
- Authorities' position:
  - The offense could be applied regardless of whether the financed act or organization is located in Georgia.
  - They reference Article 4 of the CCG: a person who “commences, continues, ceases or ends” a crime in Georgia shall be subject to criminal liability under the Georgian law, supporting application where financing activity is carried out in Georgia but the financed act/individual/organization is located abroad.
- Assessors' concern:
  - Reference under Article 323 of the CCG to specific provisions could be interpreted to mean only conduct prosecutable as an offense in Georgia would qualify under Article 323.
- Authorities' clarification:
  - Article 331/1 could be applied where conduct committed abroad would have constituted a terrorist act, had it occurred in Georgia.
  - Courts have applied similar logic in other contexts (e.g., Article 18 related to preparation of a crime) where courts applied Article 18 to offenses carried out abroad.
- Conclusion:
  - Georgian law can be considered to be in line with the FATF standard on extraterritorial application on this point, though there is an absence of FT case law to empirically confirm this.

### Mental Element of the TF Offense (applying c. 2.2 in R.2)
- Article 331/1 applies to any person who carries out required conduct “knowing in advance that [the funds or property] will or may fully or partially be used” to support terrorism.
- The knowledge element may be inferred from objective factual circumstances as discussed under criterion 2.2.

### Liability of Legal Persons (applying c. 2.3 & c. 2.4 in R.2)
- Georgian law recognizes criminal liability of legal persons.
- Article 107/2 of the CCG lists offenses for which criminal liability may be imposed for legal persons and includes all terrorism offenses and FT.
- In practice, FT provisions have never been applied to a legal person.
- Article 107/1 (8) of the CCG: making a legal person subject to criminal liability for FT does not preclude parallel criminal, civil, or administrative sanctions.

### Sanctions for FT (applying c. 2.5 in R.2)
- Basic FT offense under Article 331/1:
  - Imprisonment for a term of 10 to 14 years.
- Aggravated circumstances:
  - Imprisonment for a term of 14 to 17 years (if the offense is committed by an organization or repeatedly).
  - Imprisonment for a term of 17 to 20 years or life (if committed by a terrorist organization or resulting in grave consequences).
- Sanctions for legal persons: a fine, liquidation, and deprivation of the right to pursue any further activity.
- Comparative statutory sanctions presented verbatim:
  - Armenia — Basic FT: Imprisonment of three to seven years; Aggravated FT Offense: Imprisonment for eight to twelve years.
  - Azerbaijan — Basic FT: Imprisonment for ten to twelve years; Aggravated FT Offense: Imprisonment for ten to twelve years.
  - Georgia — Basic FT: Imprisonment for ten to fourteen years; Aggravated FT Offense: Imprisonment for fourteen to seventeen years; or seventeen to twenty years or life.
- Assessment:
  - Sanctions for FT are comparable only to those available for the most serious crimes under Georgian law (aggravated murder, torture, terrorism, trafficking in human beings).
  - Statutory sanctions can be considered proportionate, but absence of case law leaves open whether judiciary will apply them in an effective and dissuasive manner.

### Implementation and FT Statistics (R.32)
- At time of assessment:
  - Georgia had one investigation for FT resulting in prosecution of three individuals.
  - Investigation related to conduct in break-away zones; involved provision of arms and US$4,000 in cash to support commission of a terrorist act in Tbilisi.
  - The case was pending at the time of the on-site visit.
- No ML cases involving FT reported.
- Perceived risk and threat assessments:
  - Authorities indicated domestic terrorist risk perceived as low; FT not a major domestic concern.
  - Authorities stated since 2009 numerous acts of terrorism were planned and organized from breakaway-zones and carried out in Tbilisi.
  - Evaluations of Threats Faced by Georgia 2007–2009 (presidential decree) statement: “limited control of state borders [...] increases the probability of terrorism.”
  - Georgia’s 2006 report to UN Security Council Committee (pursuant to Resolution 1267): conflict zones (Autonomous Republic of Abkhazia and the Tskhinvali Region/South Ossetia) beyond jurisdiction of Georgia pose danger; separatist regimes fail to control situation leading to favorable conditions for activities of terrorist groups as well as smuggling, trafficking, and other transnational organized crimes.
  - Note: assessors did not examine that information.

### Recommendations and Comments (2.2.2)
- Amend Article 323 to remove the requirement that an act “infringes upon public safety, etc.”
- Criminalize all offenses defined in the Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation and include them within the scope of Article 331/1.
- Ensure that offenses under the International Convention for the Suppression of Terrorist Bombings fall within the scope of Article 331/1 also in cases where no terroristic intent can be proven.
- Define the terms “terrorist” and “terrorist organization” in line with the FATF standard by covering within the scope of “terrorist activity” all terrorist acts as defined under the FATF standard.

### Compliance with Special Recommendation II (2.2.3)
- SR.II rating: PC
- Factors underlying rating:
  - The requirement for an act to “infringe upon public safety, etc.” to qualify as a terrorist act unduly narrows the scope of the terrorism offense.
  - Scope of “terrorist acts” is too narrow. Not all offenses defined in the Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation are criminalized under Georgian law and thus not within scope of Article 331/1.
  - Financing of offenses under the International Convention for the Suppression of Terrorist Bombings is covered only where it can be established such acts are carried out with terrorist intent.
  - Definitions of “terrorist” and “terrorist organization” are too narrow; do not extend to all “terrorist acts” as defined under the FATF standard.

### Confiscation, Freezing and Seizing of Proceeds of Crime — Legal Framework (R.3)
- Article 52 of the CCG: provides for forfeiture of proceeds and instrumentalities of crime in context of a criminal conviction; confiscation is mandatory.
- Provisional measures: Articles 151–158 of the Criminal Procedure Code (CPC).
- Civil forfeiture: Articles 356/1–356/7 of the Civil Procedure Code for certain offenses.

### Confiscation of Property related to ML, TF, or Predicate Offenses (c. 3.1)
- Article 52 provisions:
  - Article 52 (1): “forfeiture without compensation in favor of the state of the object and/or instrumentalities of the crime, item intended for the commission of crime and/or property acquired through criminal means.”
  - Article 52 (2): pertains to instrumentalities used or intended to be used and objects of any intentional criminal offense; confiscation prescribed whenever “necessary for state and public interest, to protect the rights and freedoms of certain persons or to avoid the commission of a new crime.”
    - Authorities: requirement must be established before court; in practice, court would automatically consider confiscation of instrumentalities and objects of crime to be in state’s and public’s interest.
    - Case law: Article 52 (2) applied in autonomous ML cases to confiscate objects of the offense.
  - Article 52 (3): confiscation of proceeds of crime — “property acquired through criminal means as well as any proceeds derived from such property or the property of equivalent value” may be confiscated if prosecution proves property obtained through criminal means.
- Article 52 applies to any intentional crime, including ML, FT, and all FATF-designated predicate offenses.

### Confiscation of Property Derived from Proceeds (c. 3.1.1)
- Para. (3) of Article 52 applies to direct and indirect proceeds (property derived from direct proceeds).
- Confiscation of instrumentalities/objects held by third parties:
  - Article 52 (2) includes “item[s] owned by or in lawful possession of the accused or convicted.”
  - Article 52 (3) lacks explicit reference to third-party ownership, but authorities maintain confiscation of proceeds held or owned by a third party is possible due to reference to “property of the convicted person acquired by criminal means.”
  - Authorities argue provision does not differentiate between property owned/held by defendant vs. third party; requires proving property was at some point acquired by the defendant through criminal means.
  - Article 52 (3) allows for equivalent value confiscation.
  - Case law examples:
    - Conviction of June 8, 2010: court confiscated two apartments registered in names of third parties.
    - Conviction of January 21, 2011: court confiscated funds held in bank accounts of a legal person.
- Term “property” defined in the Civil Code (as indicated under Recommendation 1).

### Provisional Measures to Prevent Dealing in Property Subject to Confiscation (c. 3.2)
- Article 152 CPC: arrest of property defined as “the prohibition of the disposal of this property, and in case of necessity, also its use by person who has ownership or possession over this property.”
- Article 151 CPC: arrest of property may be ordered to secure confiscation if suspicion that property will be hidden, spent, or constitutes proceeds of crime.
  - May apply to any type of property that may become subject to confiscation, including instrumentalities, objects, direct/indirect proceeds.
  - Article 151 allows for arrest of property equivalent in value to proceeds if proceeds cannot be located.
- Arrest measure may be applied to any property of the defendant, person financially liable for defendant’s action, and/or his associates.
  - Authorities: reference to “associates” should be interpreted to allow freezing of property owned or held by third parties.
  - Article 152 CPC supports freezing property held by any person who owns or possesses it.
- Article 154 CPC: as general rule requires a court order to freeze property under Article 151; prosecutor may issue ruling to arrest property in urgent circumstances.

### Ex Parte Application for Provisional Measures (c. 3.3)
- Article 154 CPC: judge shall decide on a motion to arrest property within 48 hours without conducting an oral hearing or notifying the party concerned prior to issuing the notice.
- Judge has discretion to review the motion with participation of the party which filed the motion (the prosecution).

### Identification and Tracing of Property Subject to Confiscation (c. 3.4)
- Law enforcement authorities have a wide range of mechanisms to identify and trace assets subject to confiscation.
- Limitation: information and documents covered by legal privilege may not be accessed by investigative authorities, potentially a severe obstacle in tracing proceeds of crime.

### Protection of Bona Fide Third Parties (c. 3.5)
- Bona fide third parties affected by freezing under Article 151 CPC may apply to the court to have their property unfrozen using CPC provisions.
- Applicant must establish, on civil law standard, that the property subject to arrest does not constitute proceeds or objects of crime, or instrumentalities used/intended to be used in commission of crime.
- For property already confiscated, applicant may file a tort claim where return is no longer possible.
- Civil court decision regarding third party’s property takes precedence over and will modify criminal court’s order with respect to the property.

### Power to Void Actions (c. 3.6)
- No express provision in CPC allowing court or prosecutor to prevent or void actions (contractual or otherwise) where person involved knew or should have known actions would prejudice recovery of property subject to confiscation.
- Article 56 Civil Code: transaction made only for the sake of appearances, without intention to create legal consequences corresponding to its terms, or to conceal another transaction, is considered void.

### Additional Elements (Rec. 3) — Civil Forfeiture and Reverse Burden (c. 3.7)
- Articles 356/1–356/6 of the CPC: provide for civil forfeiture of any property held by a person convicted for racketeering, trafficking in drugs or human beings, or membership in thieves-of-law organization.
  - Provisions allow confiscation of any illicit or undocumented property held by a family member or associate of the convicted person.
  - A reversed burden of proof is applied in civil forfeiture proceedings.
- Appeal rights:
  - Final decision on confiscation made by Court with participation of all parties.
  - First instance Court decision subject to appeal to Court of Appeal and later to Supreme Court of Georgia.

### Implementation and Statistics (R.32) — Provisional Measures and Confiscations
- Office of the Chief Prosecutor of Georgia statistics since 2005:
  - Provisional measures applied in 29 ML cases, resulting in confiscation in 23 cases.
  - Approximately €20.5 million (+ real estate value not assessed) frozen versus approximately €9.9 million eventually confiscated.
  - In all cases, the confiscation order was fully satisfied in execution.
  - Property included real estate, bank accounts, and cars.
- Year-by-year partial proceeds data provided verbatim:
  - 2005: 572.000 (1 case) frozen; 572.000 (1 case) confiscated.
  - 2006: 4.548.000 (2 cases) frozen; 3.214.000 (1 case) confiscated.
  - 2007: 1.949.000 (2 cases) frozen; 1.015.213 seized.
  - 2008: 8.751.609 (2 cases) frozen; 543.486 (2 cases) seized; 2.023.248 (2 cases) confiscated.
  - 2009: 1.738.200 (5 cases) frozen; no seized/confiscated listed.
  - 2010: 108.726 (2 cases) frozen; 101.565 (3 cases) seized; 700.000 (6 cases) confiscated.
  - 2011: 2.789.468 + 13 real estate objects, the value of which was not determined (7 cases) frozen; 228.077 (3 cases) seized; 2.417.638 (11 cases) confiscated.
- Confiscations in relation to predicate offenses (2010–2011) summarized:
  - Most significant amounts confiscated in context of drug offenses: approximately €1.7 million.
  - Fraud: approximately €280,000.
  - Illegal entrepreneurial activity: approximately €70,000.
  - Membership of the criminal world: approximately €30,000.
  - Instrumentalities also confiscated across crime categories.
  - No statistics provided on amounts frozen or seized for predicate-offense table entries.

*Source: _cr1304 - 232. Article 331/1 of the CCG does not address extraterritorial jurisdiction. However, the*

### 264.      Georgia has in place strong criminal provisions allowing for the arrest and confiscation of all

### _cr1304 - 264.      Georgia has in place strong criminal provisions allowing for the arrest and confiscation of all

### Confiscation framework — overview and results
- Georgia has criminal provisions allowing for the arrest and confiscation of all types of instrumentalities and proceeds of crime, supplemented by civil forfeiture provisions.
- The confiscation framework produced results: over €9.9 million were confiscated in the context of ML offenses alone.
- Recommendation summary (from source):
  - Review the scope of legal privilege to ensure that LEAs powers to trace proceeds and instrumentalities of crime is not negatively affected.
  - Make more frequent use of the confiscation framework by applying the confiscation provisions in all cases, not only those where property can be located.

### Arrest provisions and practical application
- Authorities indicate provisional measures are applied in a liberal manner; courts apply a rather low standard of proof to establish suspicion that property will be dissipated or is proceeds of crime.
- Statistical support for this view: significant sums have been arrested but only a smaller percentage has eventually been confiscated.
- Authorities’ explanation: in many cases all property of the suspect is frozen but only certain amounts can later be proven beyond reasonable doubt to constitute proceeds or instrumentalities of crime.

### Effectiveness concerns and case statistics (2010–2011)
- Comparison of investigations, prosecutions, convictions for predicate offenses with assets seized raises questions about effective application of confiscation provisions.
- Specific figures:
  - Between 2010 and 2011, close to 3,000 convictions for fraud offenses resulted in the confiscation of about €280,000 and a number of real estate objects.
  - About 2,000 convictions for arms-related offenses resulted in the confiscation of €1,200 and instrumentalities.
- Observations:
  - Large numbers of convictions for trafficking in stolen or other goods, corruption and bribery, forgery, and robbery or theft resulted in barely any property and no funds being confiscated in the context of such offenses.
  - A renewed focus on applying ML provisions to the most significant proceeds-generating crimes would likely yield more frequent use of confiscation provisions and be an effective tool against drug, arms, and human trafficking.

### Practice on issuing confiscation orders and assessors’ recommendation
- Since 2007, confiscation orders were issued in only 23 out of 55 ML cases, despite the mandatory nature of Article 52 of the CCG.
- Authorities’ practice:
  - Courts are advised to issue confiscation orders only where property can actually be located.
  - If proceeds’ location is unknown and the defendant does not own other property in Georgia, prosecutors may not apply for confiscation.
  - In ML schemes involving Georgian legal entities with local nominee directors/shareholders, the convicted Georgian straw person often does not own property in Georgia; accordingly, no or only small confiscations occur.
- Assessors’ strong urging:
  - Review current practice and consider applying confiscation measures not only where property is available but in all cases.
  - Even if the convict does not hold property in Georgia, the conviction can be registered with Georgian courts and confiscation of any future property equivalent in value to proceeds be warranted.
- Additional point:
  - Domestic confiscation orders may be enforced abroad based on an exequatur decision by a foreign court.
  - Increased efforts to obtain convictions of both local straw men and the persons controlling schemes, coupled with more liberal application of confiscation provisions, may aid in combating transnational organized crime and preventing proceeds from being channeled back into Georgia.

### Compliance and rating summary (Recommendation 3)
- Rating: R.3 — LC
- Underlying factors:
  - Lack of clear legal basis for compelled production of financial records from lawyers.
- Effectiveness:
  - The confiscation framework does not seem to be implemented in a fully effective manner.

### Freezing of funds used for terrorist financing (Special Recommendation III) — legal framework
- Georgia established a framework to implement UNSCR 1267 and successor resolutions and UNSCR 1373 in 2006 and 2008, respectively, and amended it in December 2011.
- Earlier instruments (now repealed) included:
  - Decree of the Head of the FMS of Georgia of October 31, 2006 Number 116 (for UNSCR 1267).
  - Decree of the President of Georgia of January 17, 2008, No. 18 (for UNSCR 1373).
  - Articles 5.7, 9.2 and 10.4.f of the AML Law (required monitoring entities to report and temporarily freeze transactions involving persons designated under UNSCR 1267 or 1373 and provided the FMS power to apply to the court for extension of the freeze).
- In practice under the earlier regime, no asset or property was ever located or frozen in Georgia under this process; three cases saw monitoring entities report transactions but the persons involved were not UN-listed.
- December 2011 changes:
  - Repealed previous provisions and replaced them with Articles 13/1 and 13/2 of the AML Law.
  - Created a Governmental Commission (“the Commission”) to issue the list of persons/entities under UNSCR 1373 and apply to the court for freezing orders for property of persons designated under UNSCR 1267 or listed by the Commission under UNSCR 1373.
  - Decree No. 487 of the Government of Georgia adopted on December 21, 2011 sets composition, structure, powers, rules of the Commission.
  - New chapter VII added to the Administrative Procedure Code to regulate administrative freezing orders.
  - Commission Secretariat: Public International Law Department of the Ministry of Justice.
  - Commission first met on January 31, 2012 and decided to file an application for a freezing order; the court issued the requested order on February 13, 2012.
  - The February 13, 2012 freezing order was issued before any property had been located and was therefore applicable to any person that may be holding or administering targeted funds.
- Effectiveness: Given the very recent enactment of the new provisions, effectiveness cannot be established for this assessment.

### Freezing assets under UNSCR 1267 (c. III.1) — key legal points and issues
- Article 21/31 of the Administrative Procedure Code requires the Commission’s motion to be “grounded” and provide “information about the person” designated by the UN; the term “person” includes individuals, legal entities, and organizations.
- Article 21/22 requires the court to issue a freezing order if it determines the person in the motion is the UN-designated person; decision must be issued within 15 days after filing and without prior notice to the person concerned.
- Article 21/32: freezing order may be maintained permanently unless cancelled.
- Article 21/34: court may cancel a freezing order only if:
  - the person was removed from the UN resolution or sanctions abolished; or
  - the person does not correspond to the person referred to in the UN Resolutions; or
  - due to certain circumstances freezing the property of the person shall be inexpedient.
- Issues identified:
  - Requiring the Commission’s application to be “grounded” suggests courts may review merits, but UNSCR 1267 obliges freezing in all cases without domestic discretion to review merits.
  - Article 21/31’s requirement to provide information about the person poses a practical problem because designation evidence is often classified and not publicly available; authorities asserted Article 21/31 would not apply for UNSCR 1267 designations, but the assessors note the language does not reflect such an exemption and court interpretation remains to be seen.
  - The 15-day period to issue a freezing order does not meet the standard requirement to take freezing measures in a “timely” manner (i.e., within a matter of hours of a UN designation). Example timeline after inaugural meeting: 10 days for Commission to file and another three days for court to issue order.
  - Allowing cancellation of freezing orders on grounds of being “inexpedient” is problematic because UNSCR 1267 and successor resolutions do not permit domestic discretion to alter or lift specific freezing measures; authorities indicated this would be interpreted in line with UNSCR 1452 (access for basic living expenses/humanitarian needs), and the Commission issued guidance to this effect, but the legal provision remains more permissive than UNSCR 1452 procedures and an amendment is advisable.

### Freezing assets under UNSCR 1373 (c. III.2)
- Article 4 of the Decree designates the Commission as responsible authority for persons determined terrorists under UNSCR 1373; authority covers natural and legal persons.
- Commission may consider information from domestic or foreign competent authorities and decide based on reasonable grounds to suspect a link with terrorism or support for terrorism; a pending investigation or prosecution is not required.
- Once included in the Commission’s list, the same measures as for UNSCR 1267 apply: Commission may file motion for freezing with the court; court must issue decision ex parte and within 15 days of submission.
- Timing concerns flagged for UNSCR 1373 are the same as for UNSCR 1267.

### Freezing actions initiated by other countries (c. III.3)
- The Commission has an express mandate (Articles 4 and 7 of the Decree) to establish the list of persons subject to UNSCR 1373 measures and may initiate list changes upon request of domestic or foreign entities.
- Provisions to implement UNSCR 1373 domestically are also available for actions initiated under freezing mechanisms of other jurisdictions.

### Extension to funds/assets controlled by designated persons (c. III.4)
- Articles 4 and 7 apply to property “related to persons” designated by UN or listed by the Commission; term “related to” is not defined.
- Administrative Procedure Code defines “property” (Articles 21–30) broadly to include all items and immaterial property, revenue from property, or property purchased by that revenue, and to apply to jointly owned property.
- Neither Decree nor Administrative Procedure Code explicitly reference property controlled as opposed to possessed/used/disposed of by a designated person.
- Practice: Commission requested court freezing orders related to any property “possessed or controlled” by UN-designated persons on February 10, 2012; on February 13, 2012 courts gave suit. Provisions thus have been applied to cover property controlled by designated persons consistent with FATF standard.

### Communication to financial sector and guidance (c. III.5–III.6)
- Freezing orders are sent to the National Enforcement Bureau (NBE), which circulates them to all monitoring entities through relevant supervisory authorities, and to the debtor registry (a publicly available electronic database checked for registrations such as vehicle, firearm, property, claims, or rights).
- All freezing orders are publicly available on the official website of the Tbilisi City Court; designations under UNSCR 1373 will be posted on the Commission’s homepage.
- The Commission issued guidance on listing and delisting procedures on its website; guidance notes address general process but do not instruct monitoring entities on specific steps to implement freezing orders or measures if property/funds of a person named in an order are detected.

### De-listing requests and unfreezing (c. III.7)
- Decisions by the Commission to designate under UNSCR 1373 or apply for freezing can be appealed to the Commission.
- Pursuant to Articles 4 (d) and 7 of the Decree:
  - Applications filed with the Commission for delisting from the UN list and/or unfreezing shall be forwarded by the Commission to competent UN bodies within reasonable time and the appellant informed of this decision.
  - For persons listed under UNSCR 1373, the Commission may decide on the appeal and, if granted, remove the person from its list and/or apply to the court for unfreezing of that person’s property.
- Court-issued freezing orders can be appealed to the court; an appeal must be filed within 48 hours after serving of the order to the party concerned and an appellate court decision must be made within 15 days from filing. The appellate court decision is final.

*Source: Excerpt from the IMF mutual evaluation content unit provided in the supplied PDF content.*

### 295.      After expiration of the 15 days, a motion to unfreeze property may be filed with the courts

### _cr1304 - 295.      After expiration of the 15 days, a motion to unfreeze property may be filed with the courts

### Unfreezing procedures and judicial review
- After expiration of the 15 days, a motion to unfreeze property may be filed with the courts only by the Commission pursuant to Article 21/33 of the Administrative Procedure Code; such measures do not seem to be available directly to affected parties.
- In the context of UNSCR 1267, the court’s discretion when reviewing a freezing mechanism (based on an application by the Commission) is limited to:
  - whether the relevant person is still designated by the UN;
  - whether the person subject to the order is the same as the person on the UN list; and
  - whether the freezing measure is not “inexpedient.”
- The power to cancel a freezing order on the basis that it is “inexpedient” is problematic because UNSCR 1267 and its successor resolutions do not provide countries with discretion to alter or lift a specific freezing measure in relation to a designated person, group, or entity.

### Unfreezing procedures for inadvertently affected persons; access to frozen funds
- The Commission may petition the court for lifting the measure under Article 21/34 of the Administrative Procedure Code on the basis that the person is not the same as the person listed by the Commission or designated by the UN.
- Alternatively, a person inadvertently affected may file an appeal directly with the courts under Article 21/33 of the Administrative Procedure Code.
- The law does not set out a mechanism enabling designated or listed persons to access funds for necessary or extraordinary expenses.
  - Article 21/34 grants the court power to unfreeze property if it was established that the measure was “inexpedient,” but this motion may only be filed by the Commission and not by a party affected by the freezing measure.
- The Commission has issued guidance on the processes for filing an application to get access to frozen funds for humanitarian purposes and provides for a notification/approval mechanism to the UN before funds can be accessed; the guidance was not available in English, so its alignment with UNSCR 1452 requirements is unclear.

### Freezing in criminal contexts and protection of third parties
- Freezing measures are also available in a criminal context:
  - Criminal freezing measures are temporary, apply only to proceeds and instrumentalities of crime, and require that the person holding or owning the frozen funds is subject to a criminal investigation or prosecution in Georgia.
- Article 21/32 of the Administrative Procedures Code requires the court to take into account the rights of bona fide third parties when examining a motion by the Commission to freeze property.
  - Once a freezing order has been issued, bona fide third parties may apply for the order to be reviewed under Articles 21/33 of the Administrative Procedure Code.

### Enforcement, monitoring, and sanctions
- Article 4.e of the Decree mandates the Commission to monitor enforcement of the court’s freezing orders, including by monitoring entities.
  - During its inaugural meeting the Commission delegated monitoring tasks to the NBE and requested the NBE inform supervisory authorities of any court orders, with a request to forward the order to monitoring entities.
  - The NBE would also be responsible for adding designated persons to a national list of debtors.
  - It was not established that supervisory authorities, in on-site and off-site audits, check whether monitoring entities comply with administrative freezing orders.
- The CCG of Georgia provides sanctions under Article 381 for failure to comply with a court decision or to interfere with its execution; imprisonment term may be up to two years. The provision has never been applied in this context.

### Implementation and statistics
- There is no express legal obligation for FIs to check client databases against freezing orders; authorities stated monitoring entities would do so as a matter of practice and that most FIs would use software such as World Check.
- At the time of assessment:
  - No assets had been frozen in Georgia pursuant to UNSCR 1267 or 1373.
  - Three suspicious transactions reports had been filed prior to implementation of the new system: one by a currency exchange business and two by banks. In all three cases, the persons reported were not the same as the listed designated person and therefore no freezing measure was taken.
  - No Georgian citizens have ever been listed pursuant to UNSCR 1267 by a competent UN Sanctions Committee.
  - Authorities reported they had not been requested to give effect to a foreign freezing measure.

### Effectiveness — identified shortcomings
- Key legal and procedural shortcomings that could severely impact effectiveness:
  - Article 21/31 of the Administrative Procedure Code could be interpreted by courts to allow review on the merits in cases of UNSCR 1267 designations; the court’s power to lift a freezing order based on measures being “inexpedient” conflicts with UNSCR 1267 and successors.
  - The requirement to “freeze without delay” under UNSCR 1267 should be interpreted to mean within a matter of hours from UN designation. The current process can take days or weeks:
    - The Commission can be convened and an application filed quickly, but once filed the court has 15 days to issue a decision; this 15-day period may prevent freezing “without delay” and could severely hinder effectiveness.

### Recommendations and comments (authoritative wording preserved)
- Amend Article 21/31 of the Administrative Procedures Code in order to clarify that an application for a freezing order must be considered “grounded” by the courts whenever a person is designated by the UN Sanctions Committed under UNSCR 1267.
- Ensure that freezing measures under UNSCR 1267 and 1373 are applied “without delay” including where such measures are requested by a foreign authority, and consider whether the 15-day period granted under Article 21/32 of the Administrative Procedures Code to issue a freezing order is too permissive. “Without delay” should be interpreted to mean within a matter of hours from the designation of the person.
- Remove the court’s power to review a freezing order in relation to UN-designated persons, groups, or entities.
- Ensure that there are adequate processes in place to grant access to frozen funds for necessary or extraordinary expenses in line with the requirements under UNSCR 1452.
- Issue more detailed guidance to monitoring entities on how to implement their obligations under freezing orders.
- Ensure that monitoring entity’s compliance with the obligations under freezing orders is appropriately monitored.

### Compliance with Special Recommendation III — summary factors and implementation notes
- SR.III rating: PC
- Summary of factors underlying rating:
  - The language of Article 21/31 of the Administrative Procedure Code allows for the courts to review the merits of each case in the context of designations under UNSCR 1267.
  - Freezing measures under UNSCR 1267 and 1373 may not be applied “without delay.”
  - Court’s power to lift a freezing order is not admissible under UNSCR 1267.
  - Unclear whether there are adequate processes in place to grant access to frozen funds for necessary or extraordinary expenses in line with the requirements under UNSCR 1452.
- Implementation observations:
  - Guidance to monitoring entities is not sufficiently detailed.
  - There is no monitoring of monitoring entities’ compliance with freezing orders.
  - The new mechanism has been introduced only very recently and its effectiveness therefore cannot be established.

### The Financial Monitoring Service (FMS) / Financial Intelligence Unit — establishment and functions
- Legal framework and establishment:
  - The Financial Monitoring Service (FMS)—the Financial Intelligence Unit of Georgia—was established pursuant to Article 10 of the 2003 AML Law.
  - Status further defined under Article 53 to 55 of the Organic Law of Georgia on the “National Bank of Georgia” adopted on September 24, 2009.
  - Presidential Ordinance of 23 August 2007 was amended on November 26, 2009 on “Approving the Regulation of Financial Monitoring Service of Georgia—Legal Entity of Public Law” effective December 1, 2009 (FMS Presidential Ordinance of 2009).
  - The FMS became operational in 2004. Article 10 of the AML Law and Article 53.6 of the NBG organic Law establish the FMS as an independent authority accountable to the President of Georgia. The Head of the FMS is appointed by the President in agreement with the Council of the NBG for a term of four years (Article 4.1 of the FMS Presidential Ordinance and Article 54.1 of the NBG organic Law).
- Core functions and powers:
  - Serves as the national center for receiving, analyzing, and disseminating suspicious transaction reports (STRs), cash transaction reports (CTRs), and other relevant information concerning ML and terrorist financing activities.
  - Receives suspicious transactions, automatic reports about natural and legal persons from watch zones (42 countries). Due to lack of understanding, unusual, attempted and threshold reporting are in most cases filed and counted as CTRs.
  - Monitoring entities are obliged to submit relevant information to the FMS (Article 9.1 of the AML Law). Monitoring entities include most reporting entities defined in FATF standards and public agencies like NAPR and customs; amendments of December 2011 added leasing companies, accountants, and auditors but did not add electronic money institutions, companies, real estate agencies, lawyers, and trust and company service providers (TCS).
  - Article 10.4.e gives the FMS power to obtain any information from all monitoring entities and state or local self-governance bodies or institutions, as well as any individual or legal entity.
  - After analysis, the FMS may disseminate information and materials in duplicate to the Prosecutor’s Office (PO) and the Ministry of Internal Affairs (MIA) for investigation or action when there are grounds to suspect ML or FT (Article 10.5.b).
  - Article 10.4.c empowers the FMS to issue normative acts (Decrees) to monitoring entities on conditions and procedures for receiving, systemizing, processing, and forwarding relevant information and identification of the person; Article 10.4.c was amended in December 2011 to enable the FMS to adopt normative acts for implementation of the AML/CFT Law.
- Guidance, reporting forms, and reporting practice:
  - FMS issued decrees on detailed CDD, record keeping and reporting requirements for banks (2004), exchange bureaus (2004), credit unions (2004), insurance companies (2004), notaries (2004), NAPR (2010), casinos and gambling, lottery games (2004), securities (2008), brokerage firms (2008), microfinance companies (2008), and money remittance (2009). These decrees were amended several times including in 2011.
  - Additional indicators issued to banks (January 2010), insurance companies (May 2010), and notaries and NAPR (October 2011).
  - STR and CTR forms developed by the FMS are confusing: titles are not cohesive with content and boxes and include fields for suspicious, threshold, attempted, suspicious/watch zones and countries, and declarations from customs and NAPR.
  - Reporting weaknesses identified:
    - Difficulty distinguishing between (i) suspicious transactions (including attempted suspicious transactions and automatic reporting from watch zones/UNSCRs) and (ii) threshold reporting due to complexity of guidance and confusing forms; this leads to automatic reporting rather than suspicion-based reporting.
  - Decrees and rules published on the FMS website (http://www.fms.gov.ge/?lang=geo). FMS organizes meetings and provides support to reporting entities; at registration FMS provides a CD containing decree, indicators, manual, and other relevant information. Updated decrees published in the official gazette (www.matsne.gov.ge).
  - The FMS started receiving STRs and CTRs electronically through the FMS website and migrating data to a new database; under the old system reports were received by encrypted email and sometimes manually.
- Access to information and databases
  - The FMS has power to request information and has concluded MOUs with supervisory bodies and law enforcement agencies: NBG (May 2007), MIA (June 2008), MOJ including the Prosecutor’s Office (January 2009), MOF (January 2009), and Revenue Service including customs (February 2011). MOUs determine information exchange and require strict confidentiality.
  - The FMS has direct access to administrative and law enforcement databases; analysts use these for preliminary analysis by matching collected information to STRs and CTRs.
  - As of end of 2011, FMS local database contained:
    - 52997 STRs
    - 382335 CTRs including customs declarations
  - Other direct-access information sources include:
    - Ministry of Internal Affairs: Police Database (national ID cards including photo, passports of Georgians, vehicle registration, border-crossing of individuals); Criminal Records databases (information on convictions, detained individuals, persons on probationary treatment, firearms registration, missing individuals and vehicles). No information on investigation and prosecutions or trials in process in this database; information on conviction is obtained upon request after two days.
    - Revenue Service–Ministry of Finance: Tax Database (financial information on declared tax, revenues and activities of legal persons including import/export by companies).
    - National Public Registry: Commercial database (license number, charter, expiration date, address and shareholders and managers of legal persons); Real Estate database (title information, estimated value, date of registration, address, type, and mortgages); Civil Registry Database (ID information).
    - Private Company (paid subscription): Credit database (credit records on natural and legal persons including amount of loans, date of issuance, ID data, status of loan).
    - Bureau of data on public officials financial disclosures: Database of disclosures (property, annual income, spending of public officials and family members).
    - Open sources: Internet and foreign open databases (use not formalized), World-Check (searchable database containing UN, OFAC, and U.S. lists).
    - Egmont Secure Web (ESW): allows exchange of information with foreign counterparts.

*Source: _cr1304 - 295.      After expiration of the 15 days, a motion to unfreeze property may be filed with the courts*

### 323.      Overall, FMS has direct and indirect access to a large number of financial, administrative,

### _cr1304 - 323.

### Access to information and analysis practices
- FMS has direct and indirect access to a large number of financial, administrative, and law enforcement databases that allows it to undertake the analysis of STRs and CTRs.
- The commercial database held at NAPR does not hold updated accurate information about the beneficial owners of companies established before January 1, 2010.
- FMS does not have access to some law enforcement information like the investigation and prosecution or trial in process records.
- Open sources are used frequently but not in a systematic way; the process has not been formalized or included in an internal procedure (e.g., access to foreign open commercial or real estate databases).

### Analytical capacity, methods, and limitations
- FMS does not have software to assess the risk of individual reports or a system for automated alerts to match new information with the old one.
- Four analysts work for the FMS since its establishment and manually review all received STRs and CTRs.
- Criteria used by analysts to open cases: amount of the transaction, risk of the originating country, age of the persons involved in the suspicious transaction, and frequency of transactions.
- STRs and CTRs are treated and analyzed in the same manner.
- When a report raises red flags, a case is opened and data from accessible databases is collected to conduct tactical analysis.
- Analysts did not develop local trends and typologies or objective criteria to open a case; they rely on knowledge and experience.
- Analysts use custom-developed software for their analysis, which is not integrated with governmental databases to which the FMS has access.
- Preliminary tactical analysis: limited to matching information in STRs to FMS internal database and other accessible databases; analysts do not perform operational analysis to produce activity patterns, new targets, relationships among subjects and accomplices, investigative leads, or criminal profiles.
- Typical report drafting time: one or two weeks; includes a diagram developed with primitive visualization software.
- FMS does not have sophisticated technology or tools available to analysts; internal evaluation methods for intelligence products are still manual.
- FMS does not conduct operational or strategic analysis at this stage to develop the knowledge base for future activities.

### Case openings and basic annual counts (ML cases opened since 2004)
- 2004: 47
- 2005: 28
- 2006: 38
- 2007: 57
- 2008: 50
- 2009: 43
- 2010: 26
- 2011: 56
- Eight cases related to FT were opened after positive hits with the UNSCRs.

### Additional information requests and handling
- Article 10.4.a of the AML/CFT Law allows the FMS to request additional information from all monitoring entities and extends to those who did not send the report.
- Reports received by FMS are indexed, processed, and entered into the database. Validation process: takes a day or two to be finalized; FMS returns to reporting entities to require completion when fields are omitted.
- FMS requests, in most opened cases, additional information from banks. Information is provided within two days of the request, as indicated in the decrees.
- Sanctions were imposed by the NBG on banks that were late in providing the requested information.
- The requests are physically delivered to all the compliance officers of banks operating in Georgia.
- Banks submit information electronically and include opening documents and statements of accounts, including transfers and safes.
- FMS has requested additional information from banks on several occasions; such requests were never made to non-bank financial institutions and DNFBPs even though reported persons conducted activities with these institutions.
- Lawyers are not reporting entities under the AML/CFT law and there is an explicit prohibition for sharing information under the law on advocacy; assessment team’s view: such information could not be obtained.
- FMS cannot request information from entities that are not obliged to report (i.e., real estate agencies, TCSPs).

### Dissemination practice, recipients, and content
- FMS is authorized to disseminate financial information when there are grounds to suspect ML or FT.
- Dissemination recipients:
  - CPO (Chief Prosecutor’s Office)
  - Counter Terrorism Center (CTC) at the MIA in case of FT suspicion
  - Special Operative Department (SOD) at the MIA in case of suspicion related to ML
- Law constraint: FMS is not allowed to disseminate information in response to a request for information received from another agency; FMS staff indicated such requests were never received.
- FMS opened and disseminated cases to LEAs based on information gathered from the media.
- Disseminated cases include: information about the suspicious persons, indicators on the suspicion, diagram about the transactions, and sometimes indication about the suspicion related to the predicate crime.
- Typical case finalization time: between one week and two weeks, sometimes more depending on complexity; analysts often continue collection and analysis after dissemination.
- In a limited number of cases, analysts were able to confirm suspicion about the predicate crime; mostly related to tax evasion and falsification of documents committed by a group of persons and involves legal persons formed in offshore countries.
- At the time of the on-site mission in December 2011, there were around twenty pending cases opened after July 2011.
- Six FT cases were disseminated after false hits from banks with the UNSCRs 1267 and following resolutions; LEAs were able to verify the true identity and closed the cases.

### Detailed dissemination, opened cases, and reports involved (annual table converted)
- Number of additional requests to banks vs. Opened Cases:
  - 2004: 37 additional requests; 47 opened cases
  - 2005: 27 additional requests; 28 opened cases
  - 2006: 44 additional requests; 38 opened cases
  - 2007: 45 additional requests; 57 opened cases
  - 2008: 18 additional requests; 50 opened cases
  - 2009: 12 additional requests; 40 opened cases
  - 2010: 38 additional requests; 26 opened cases
  - 2011: 58 additional requests; 56 opened cases
- Opened cases, Disseminations, CTRs involved, STRs involved (annual):
  - 2004: Opened cases 47; Dissemination ML 5; Dissemination FT 0; CTRs involved 3950; STRs involved 152
  - 2005: Opened cases 28; Dissemination ML 12; Dissemination FT 0; CTRs involved 9145; STRs involved 398
  - 2006: Opened cases 38; Dissemination ML 14; Dissemination FT 0; CTRs involved 8237; STRs involved 402
  - 2007: Opened cases 57; Dissemination ML 17; Dissemination FT 0; CTRs involved 8639; STRs involved 682
  - 2008: Opened cases 50; Dissemination ML 7; Dissemination FT 3; CTRs involved 8506; STRs involved 664
  - 2009: Opened cases 43; Dissemination ML 5; Dissemination FT 3; CTRs involved 7463; STRs involved 580
  - 2010: Opened cases 26; Dissemination ML 9; Dissemination FT 0; CTRs involved 6041; STRs involved 416
  - 2011: Opened cases 56; Dissemination ML 13; Dissemination FT 2; CTRs involved 13668; STRs involved 973
  - Total: Opened cases 345; Dissemination ML 82; Dissemination FT 8; CTRs involved 65649; STRs involved 4267

### Ratios and aggregated statistics
- Dissemination vs. opened cases: 90/345 — 26% of opened cases are disseminated
- Number of reports involved vs. Disseminated cases:
  - (58836 CTRs + 3800 STRs) / 79 = 793
  - In average, every disseminated case includes 793 STRs and CTRs
- Number of STRs involved vs. Disseminated cases:
  - 3800/79 = 48
  - In average, every disseminated case includes 48 STRs
- Number of CTRs involved vs. Disseminated cases:
  - 58836/79 = 745
  - In average, every disseminated case includes 745 CTRs
- Number of reports disseminated vs. Number of reports received:
  - (58836 CTRs + 3800 STRs) / (342551 CTRs + 43804 STRs) = 16.2%
  - 16,2% of the received STRs and CTRs were disseminated
- Number of STRs disseminated vs. Number of STRs received:
  - 3800 STRs / 43804 STRs = 8.6%
  - 8.6% of received STRs were disseminated
- Number of CTRs disseminated vs. Number of CTRs received:
  - 58836 CTRs / 342551 CTRs = 17.1%
  - 17.1% of received CTRs were disseminated

### Identified causes for low dissemination rates
- Poor quality of reports and confusion between suspicious, unusual, watch zone reporting and threshold-reporting.
- Lack of tools and software available for data matching.
- Defensive reporting by reporting entities.
- Weak analysis in general and low number of staff.
- Issue noted with regard to the trigger of civil responsibility for decisions taken in the case of not grounded suspicions could also explain the low number of disseminations.

### Operational independence, establishment, and organizational structure
- FMS granted operational independence and is not subordinated to any agency in performing its activities; accountable and submits annual reports on its activities to the President of Georgia.
- Established in June 2003 by Article 10 of AML Law.
- Article 53 to 55 of the 2009 NBG organic law emphasized the independence of the FMS and included details about its core functions, management and designation of its head.
- Presidential Ordinance No. 859 of 2009 underlines its role and independence.
- FMS is a legal entity of public law and has legal personality.
- Organizational structure and functions of the departments (2009) and the internal regulation were determined by its head (June 2011).
- Internal regulation determines processes and procedures that govern the behavior of staff.

- Structural departments of the Service:
  - Data Collecting and Processing Department: director, five staff, and has one vacant position.
  - Analytical Department: director and three analysts and has three vacant positions.
  - Department of Methodology, International Relations and Legal Affairs: head of department and two staff. One position is vacant.
  - Administrative Department: director, two staff, and three security guards from the MOI. It has two vacant positions.
  - IT Department: director and two staff and has one vacant position.

### Appointment of the Head of FMS and disclosure
- Head of the FMS is appointed by the President of Georgia based on the recommendation of the NBG Council for a term of four years and could be dismissed by the President; such decision could be challenged before the courts of general jurisdiction.
- Grounds for dismissal under Article 54 of the NBG organic law: (i) based on his request; (ii) committal of considerable misdemeanor at work; (iii) failure to discharge his/her duties due to health or due to incapacity or limited capacity as found by the court; (iv) termination of Georgian citizenship; and (v) upon entry into effect of a sentence of conviction of a crime.
- The head of the FMS has to declare his assets and that of his family annually at the bureau of data on public official’s financial disclosure that is accessible online by the public.

*Content derived from _cr1304 - 323.*

### 349.      Staff are recruited by the head of the FMS. The background check of the staff with LEAs is

### _cr1304 - 349.      Staff are recruited by the head of the FMS. The background check of the staff with LEAs is

### Recruitment, duties, and restrictions
- Staff are recruited by the head of the FMS.
- Background checks with LEAs are conducted when staff are recruited or based on a request from the head of the FMS.
- Staff should declare their tax that is available to the FMS.
- Pursuant to Article 64 of the law on public servants, staff are not authorized to:
  - (i) occupy other positions or conduct other remunerated activity in other state or self-governmental institution; and
  - (ii) be member of a representative or a legislative body of any level, if it is not provided otherwise under the legislation.
- According to Articles 55.2 and 55.3 of the Organic Law of Georgia on the NBG:
  - Recruitment of staff and amount of official wages of employees of the Monitoring Service should be approved by the President of Georgia upon submission of the Head of Service.
  - Amount of remuneration of employees is commensurate with the level of remuneration of the Georgian banking system.
  - Amount of remuneration of part-time employees is set on the basis of the contract.
  - The Head of the Service, based on recommendations from department heads, can offer bonuses to staff of up to eight additional monthly salaries.

### Funding and budget allocation
- Legal and institutional framework:
  - Article 10.7 of the AML/CFT Law: management, structure, representation, accountability, and control of the FMS are determined by Presidential Decree.
  - Article 55.4 of the NBG Organic Law: NBG should ensure the FMS with necessary budget, buildings, facilities, funds, and other property.
  - Article 55.5 of the NBG Organic Law: FMS budget is approved annually by the Council of the NBG based on the suggestion of the head of the FMS.
  - The Council cannot reduce the budget of the FMS; it should be at least equal to the previous year. Reduction compared to the previous year could only be made based on prior consent of the head of the FMS.
  - If the Council of the National Bank does not approve the budget, the Service shall be financed in the amount approved for the previous year.
- Historical budgets (as listed):
  - 2007 — Budget in GEL: 1 632 770.00; Rate of exchange: 1.7135; Budget in USD: 952 886
  - 2008 — Budget in GEL: 2 334 894.00; Rate of exchange: 1.5916; Budget in USD: 1 467 011
  - 2009 — Budget in GEL: 1 900 000.00; Rate of exchange: 1.6680; Budget in USD: 1 139 089
  - 2010 — Budget in GEL: 2 125 500.00; Rate of exchange: 1.6929; Budget in USD: 1 255 538
  - 2011 — Budget in GEL: 2 125 500.00; Rate of exchange: 1.7736; Budget in USD: 1 198 410
- Detailed 2011 Lari budget breakdown (as of December 2011):
  - Salaries: 803,760
  - Bonuses: 334,900
  - Office and travel expenses: 686,840
  - IT equipment and software: 300,000
  - Total expenditures: GEL 1,825,500 from a total budget of GEL 2,215,500
- Observations:
  - Annual inflation rate in Georgia has been around 10 percent on average over the period; a more substantial budget increase would have been expected given increased workload.
  - The head of the FMS approves expenditures and authorizes travels.
  - The Audit department of the NBG conducts annual control on FMS expenditures.
  - The President of Georgia receives an annual report about FMS activities; authorities state this oversight is informational and does not include issuing recommendations or instructions. No evidence of undue influence from the President in FMS functioning.

### Protection of information held by the FIU
- Legal provisions:
  - Article 12.3 of the AML Law: “the FMS, the supervisory and LEAs, their management and employees, shall ensure protection of the information obtained pursuant to this Law that includes personal, banking, commercial or professional secrets, and disclose such information in accordance with the applicable Georgian legislation.”
  - Article 12.5 of the AML Law: “The material damage inflicted to individuals and legal entities as a result of violation of the obligation to observe confidentiality of information by the officials and employees of the Financial Monitoring Service of Georgia, monitoring entities, supervisory and law-enforcement bodies in cases set under this Law, and related to the protection of confidentiality of information obtained in accord with the set Law, shall be compensated by the damaging entity—correspondingly by the Financial Monitoring Service of Georgia, monitoring entity, supervisory body or law enforcement body at the amount set under the court decision.”
  - Article 12 of the FMS internal regulation: staff must ensure confidentiality; liability determined under effective legislation.
  - Article 202.1 of the CCG of Georgia criminalizes breach of confidentiality.
- Operational safeguards:
  - New reporting system: messages are encrypted and can only be accessed by the collection and analysis departments.
  - Server room is always locked; only authorized personnel allowed.
  - Two independent and completely isolated Local Area Networks (LANs) within the FMS:
    - One LAN connected to the Internet to receive encrypted STRs and CTRs.
    - Authorized IT personnel transfer received STRs/CTRs to a flash drive, delete from external network, integrate into internal network where STRs/CTRs are decrypted and processed.
    - Internal network has no external connections.
  - Log history records all queries made by analysts.
  - Access restricted to certain FMS staff as designated by the head of the FMS.
  - Electronic IDs for building access and codes for rooms.
  - FMS premises shared with NBG employees who are not allowed to enter collection and analysis departments.
  - FMS premises located on separate floors guarded by four security agents, have security alarm, secured doors limiting access to FIU staff only; surveillance cameras in place.
- Risk noted:
  - FMS budget might be jeopardized if monitoring entities were entitled to financial damages in case of breach of confidentiality caused by the FMS.

### Publication of reports, Egmont membership, and information exchange
- Publication:
  - The FMS has not yet released trends analysis and/or typologies developed from its activities.
  - FMS manages its own website.
  - Annual reports are submitted to the President of Georgia on May 1st of every year and are available upon request.
  - The first annual report was published in January 2012; it contains information about the activity of the service and some statistics.
- Egmont Group:
  - The FMS was accepted as an Egmont Group member in June 2004.
- MOUs and information exchange:
  - Article 13.2 AML/CFT Law: FMS authorized to conclude MOUs concerning ML and FT information with counterparts. MOUs and exchange mechanism align with Egmont Statement of Purpose and Principles for Information Exchange between FIUs for Money Laundering Cases.
  - Article 13.3 AML/CFT Law: allows exchange of ML and FT information with authorized agencies of other countries and international organizations.
  - Authorities state FMS takes Egmont principles into account, responds within determined timelines and in confidentiality. In a few instances responses to foreign requests took several weeks beyond Egmont deadlines.
  - FMS can exchange information with foreign FIUs without signing an MOU; such requests were never made nor received in practice.

### Adequacy of resources — FIU (R. 30)
- Staffing:
  - Presidential Ordinance: FMS has a staff plan with 31 positions.
  - At present, the FMS is staffed with 23 employees including four analysts and two contractual agents.
  - Footnote: There were five analysts before the on-site mission. One left for the private sector.
  - Employees have previous experience with the NBG, the banking system, and various governmental institutions.
  - Authorities consider the number of staff sufficient to perform FMS functions; no near-term plans to recruit more staff to fill vacant positions — future decisions depend on workload.
  - Low turnover of personnel reported.
- Systems and future needs:
  - FMS plans to purchase new analysis and visualization software during the coming year to strengthen tactical and operational analysis.
  - This development is expected to increase capacity for assessing risks, linking transactions and persons, and may lead to opening a higher number of cases that could necessitate more human resources.
- Recruitment and eligibility conditions:
  - Article 15 specifies conditions to become a public servant:
    - (i) relevant knowledge and experience;
    - (ii) reached the age of 21;
    - (iii) knows the state language of Georgia;
    - (iv) is a capable citizen.
  - Upon entry and annually thereafter, servants present a declaration of income and property of themselves and family members to the relevant service of the Ministry of Finance of Georgia. “Property includes bank deposits, securities, dividends, and movable and immovable property, which belongs and co-belongs to the above mentioned persons.”
  - According to authorities, FMS employees submit the required information to the Revenue Service annually.
  - Articles 17 and 18 determine categories disqualified from Civil Service (including convicted persons with unexpired conviction, persons under preliminary investigation or arrested, declared incapable by court, deprived by court of right to occupy certain position, not satisfying health requirements, or candidates for citizenship of another country except exceptions covered by law or international treaty).
  - The Head of the Civil Service can request a medical certificate where provided under Georgian legislation.

### Training
- Staff training from international organizations and foreign counterparts (listed trainings and dates as provided):
  - June 16-20, 2008 – The Training Workshop on Typologies of Anti–Money Laundering and Countering the Financing of Terrorism – IMF
  - November 17-21, 2008 – Bulk Cash Smuggling Training and Workshop – U.S. Department of Justice
  - June, 2009 – IMF and International institute of Higher Studies in Criminal Sciences (Siracusa, Italy) – “Workshop on Typologies of Money Laundering and Financing of Terrorism and Risk Assessment”
  - September 21–24, 2009 – ML Course – French Embassy
  - MONEYVAL 8th Meeting Typologies – Limassol CY November 10–12, 2009, MONEYVAL/ Typologies project on internet gambling
  - November 10–12, 2009 – 8th Experts’ Meeting on Money Laundering and Terrorist Financing Typologies – MONEYVAL
  - November 30–December 3, 2009 – Financial Analysis Techniques Course – U.S. Treasury
  - January 25–February 5, 2010 – Financial Investigative Techniques Course – U.S. Treasury
  - March, 2010 – Cooperation between FIUs and LEAs in AML and recovering illicit assets – IMF and Basel Institute of Governance
  - October 25-29, 2010 – AML/CFT Workshop on Information Technology for FIUs – IMF
  - December 6–9, 2010 – Tactical Analysis Course; “Train the Trainer Course” – World Bank and the Egmont Group
  - March 4–7, 2011 – Advanced Financial Analysis Techniques Course – U.S. Treasury
  - October 31–November 2, 2011 – 10th Experts’ Meeting on Money Laundering and Terrorist Financing Typologies – MONEYVAL

### Statistics (R.32) — STRs and CTRs
- STRs by reporting entity and year (as provided):
  - Total STRs by year:
    - 2007: 4668
    - 2008: 7366
    - 2009: 3
    - 2010: 6404
    - 2011: 13867
    - Total: 20894 (note: table shows cumulative total STRs: 52997 in a later consolidated line)
  - By entity highlights (selected):
    - Commercial banks: entries include 4591, 7340, 3, 6277, 3, 13212, 19708, 51039 (table formatting shows bank-dominated reporting)
    - Micro Finance total: 1145
    - Broker companies total: 426
    - Notaries total: 64
    - Currency exchange total: 20
    - Insurance companies total: 2
    - Securities’ Registrar total: 41
    - Total STRs (table bottom): 4668, 7366, 3, 6404, 3, 13867, 20894, 52997
- Observations on STRs:
  - Vast majority of STRs are received from banks.
  - Only six reports related to FT were filed; these were false matches with the list of terrorist issued under UNSCR 1267.
  - Declarations related to natural and legal persons from watch zone countries are often reported by banks automatically as suspicious transactions or CTRs.
- CTRs by reporting entity and year (as provided):
  - Total CTRs by year:
    - 2007: 60048
    - 2008: 55150
    - 2009: 51282
    - 2010: 113682
    - 2011: 102202
    - Total CTRs: 382335
  - By entity highlights (selected totals shown):
    - Commercial banks total: 237313
    - Notaries total: 38953
    - NAPR total: 70876
    - Micro Finance total: 11437
    - Currency exchange total: 18213
    - Insurance companies total: 1124
    - Broker companies total: 1459
    - Securities’ Registrar total: 1250
    - Customs total: 1311
    - Lotteries & games total: 60
    - Casino total: 36
    - Non bank depository inst. total: 38
    - Money remittance total: 265
- Cases disseminated vs investigations (table values):
  - 2004 — Cases disseminated by the FMS: 5
  - 2005 — Cases disseminated by the FMS: 12; Investigations: 16
  - 2006 — Cases disseminated by the FMS: 14; Investigations: 10
  - 2007 — Cases disseminated by the FMS: 17; Investigations: 9
  - 2008 — Cases disseminated by the FMS: 10; Investigations: 9
  - 2009 — Cases disseminated by the FMS: 8; Investigations: 9
  - 2010 — Cases disseminated by the FMS: 9; Investigations: 22
  - 2011 — Cases disseminated by the FMS: 15; Investigations: 40

### Implementation gaps and analysis of effectiveness
- Reporting coverage and guidance:
  - Accountants were included as monitoring entities in the amended AML/CFT Law of 2010, but the FMS has not received STRs from this sector.
  - Other independent legal professions, TCSPs, and real estate agents are not considered monitoring entities and thus are not reporting.
  - FMS usually obtains additional information directly from banks and has never requested information from other nonbank financial institutions and DNFBPs.
  - FMS has issued decrees and recommendations on reporting, but reporting entities need additional guidance and clear reporting forms distinguishing unusual transactions, suspicious transactions, watch zone related persons, and threshold reporting.
  - FMS did not provide guidelines to assist reporting entities in detecting and reporting FT suspicious transactions.
- Effectiveness assessment:
  - FMS became operational in 2004, received STRs and CTRs, disseminated several reports to LEAs, became an Egmont member, and exchanged information with foreign FIUs.
  - The majority of reports disseminated by the FMS to the CPO have generated successful investigations and led to convictions in several instances.
  - The level of dissemination to the CPO compared to reports received is very low.
  - Nonbank depository institutions never reported suspicious transactions.
  - Bureaux de change, leasing companies, and insurance companies have reported very few STRs.
  - 95 percent of STRs are filed by banks.

*Excerpt from IMF staff report section contained in the source PDF.*

### 381.      The FMS does not have access to some law enforcement information like the investigation,

### _cr1304 - 381.      The FMS does not have access to some law enforcement information like the investigation,

### Access to information and intelligence
- The FMS does not have access to some law enforcement information like the investigation, prosecution, and trial records held by the MOJ, and intelligence information.
- Open sources should also be used more frequently.
- LEAs are not entitled to request information from the FMS unless such information is related to the entities which are the subject matter of an investigation initiated upon receipt of the STR.
- Most reports disseminated by the FMS have elements of an international character whereby the predicate offense occurs abroad in watch zones and the proceeds of crime are laundered in Georgia.

### Analysis processes, tools, and focus
- Once incoming reports are registered in the FMS database, the Analytical Department “filters” the reports based on a set of red flags including, inter alia, size of transaction, location and citizenship of customer, and involvement of “offshore” centers.
- The “filtered” reports are manually matched against existing entries in the FMS database that consists of an MS Excel format that includes the list of public officials, those registered as employees of currency exchange offices, and persons and entities reported in previous cases.
- The analysts use custom-developed software for their analysis, which is not integrated with the governmental databases to which the FMS has access.
- The current software does not feature data or relationship visualization nor does it allow organizing the collected data in a structured manner.
- The main focus of analysis is on incoming flows of proceeds of crimes committed outside of Georgia targeted at watch zones and jurisdictions. There is less experience with regard to domestic ML since opening the case is subject to the analysts’ appreciation.
- The main predicate offenses were seen in the areas of tax evasion and offshore companies.
- Few requests for information related to these cases were sent to foreign FIUs; therefore, the FMS is not using the ESW effectively.

### Reporting volume, quality, and dissemination
- Despite the high number of reports (both CTRs and STRs) received from monitoring entities and the relatively improved quality of such reports over the years, only a low number of reports are actually disseminated.
- Although it is noted that the vast majority of the disseminated reports by the FMS to the CPO has generated successful investigations that have led to convictions in several instances.
- Despite the FMS’s perceived increase in the quality of the reports and the rising number of reports received from the monitoring entities, only a few cases have been disseminated to LEAs.
- The low number of disseminated reports could be explained by the reductions on the FMS’s staff and the absence of analytical tools, or due to the possible civil responsibility triggered by the lack of suspicious grounds.
- The quality of reporting of suspicious transactions is poor and CTRs are sent to the FMS in an inconsistent manner.
- Monitoring entities are confused about the different requirements of reporting. Some bank manuals were not clear to determine the different types of reports that should be submitted to the FMS.
- Both the authorities’ and the private sector’s understanding of money laundering and terrorist financing risk is weak.
- The recently-adopted framework is not effective at requiring financial institutions to give special attention to unusual transactions and those from countries which do not or insufficiently apply the FATF recommendations.
- FIs are filing such transactions as STRs treated manually by the analysts that create an extra burden and distraction from focusing on analysis of STRs.
- The FMS was not proactive enough in requesting information from foreign counterparts. It has disseminated a low number of reports related to tax evasion and fraud crimes or serious crimes in general.

### Capacity, staffing, and publication
- The FMS currently has 31 positions (down from 40 in 2006—over 20 percent), of which only 23 staff (including 2 temporary employees) are currently occupied.
- The number of analysts currently operating within the FMS (four) is particularly low to deal with the increasing flow of information.
- The total number of reports submitted to the FMS has further increased in the last years.
- FMS published one annual report about its activities that also contains some statistics in January 2012.
- It did not publish periodically annual reports, typologies, and trends of money laundering and terrorist financing and comprehensive statistics since it became operational in 2003.
- No periodic review of the AML/CFT system’s effectiveness has been conducted to date.
- In-depth training on operational and strategic analysis is still needed for analysts.

### Key statistics and operational figures
- FMS positions: 31 (down from 40 in 2006—over 20 percent)
- Staff currently occupied: 23 (including 2 temporary employees)
- Number of analysts operating: four
- FMS annual report published: January 2012
- FMS operational since: 2003

### Recommendations and operational improvements (authorities and FMS)
- Authorities are recommended to:
  - Amend the AML/CFT Law to require the real estate agents, lawyers, TCSPs, and electronic money institutions to report suspicious transactions that will enhance the receipt function of the FMS and allow it to request additional information from these sectors.
- The FMS is recommended to:
  - Publish periodic annual reports with comprehensive statistics, typologies, and trends of money laundering and terrorist financing as well as information regarding its activities.
  - Provide reporting entities with comprehensive guidance on the manner of reporting including clear reporting forms.
  - Ensure that FMS asks nonbank financial institutions and DNFBPs for additional information when the information is correlated to another received information.
  - Ensure that FMS have access to other law enforcement information like the investigation, prosecution, and trial records held by the MOJ. Open sources should also be used frequently.
  - Ensure that FMS strengthens the quality of its STRs and other information analysis, in particular, by undertaking more in-depth operational and strategic analysis that could lead to improving the quality and quantity of disseminated reports. This could be achieved by, among other things:
    - introducing an automated filtering system in order to allow pre-screening of information flow and generation of red flags and treating STRs differently from other received information;
    - integrating the FMS database with the databases the FMS can access to allow matching information and identifying patterns;
    - introducing analytical software to visualize complex schemes; and
    - increasing the number of analysts.
  - Ensure that FMS provides additional specialized and practical in-depth training to its employees. This training should cover, for example, predicate offenses to money laundering, operational and strategic analysis and investigation techniques and familiarization with money laundering and terrorist financing typologies, and risks and vulnerabilities.
- Recommendation 30:
  - Ensure that FMS provides additional specialized and practical in-depth training to its employees. This training should cover, for example, predicate offenses to money laundering, operational and strategic analysis and investigation techniques and familiarization with money laundering and terrorist financing typologies, and risks and vulnerabilities.

### Compliance assessment with Recommendation 26
- Rating: R.26 PC
- Summary of factors relevant to s.2.5 underlying overall rating:
  - Only one annual report is available online (published in January 2012), and it does not include ML/FT typologies and trends.
- Implementation issues:
  - Lack of guidance on the manner of reporting including with respect to reporting forms which are complicated and confusing to reporting entities.
  - No requests for additional/follow-up information have been addressed to nonbank financial institutions and DNFBPs.
- Effectiveness issues:
  - Lack of effectiveness in the receipt of STRs regarding potential terrorist financing and ML/FT STRs from several sectors (i.e., bureaux de change).
  - Effectiveness has not been established regarding some new reporting entities (e.g., leasing companies and accountants).
  - Lack of use of the FMS powers to access some law enforcement information (i.e., investigation, prosecution, and trial records).
  - Poor quality of analysis of STRs and other information mostly due to lack of analytical tools and weak quality of reporting.
  - Low level of dissemination to PO and MIA (between 5 to 15 cases a year).
  - Increase in the workload without a corresponding increase in the budget. The limited financial resources and decrease in human resources (around 40 percent since 2007) combined with increased level of reporting affect the effectiveness of the core functions of the FMS, mainly the analysis and dissemination of reports.

*Source: IMF country report content provided.*

### 413.      The CPC was amended in October 28, 2011 and a new Article 124.1 was introduced to allow

### The CPC was amended in October 28, 2011 and a new Article 124.1 was introduced to allow

### Special investigative techniques (Additional Element—Use of Special Investigative Techniques for ML/FT Techniques (c. 27.4))
- The special investigative techniques are routinely used in operational activities (following a court order) or when conducting investigations in ML/FT offenses and associated crimes.
- Authorities provided statistics on usage in ML and FT investigations:
  - interception: 20 cases–120 persons
  - visual monitoring: 2 cases–8 persons
  - phone and communications taping: 3 cases–20 persons
  - monitoring internet: 2 cases–8 persons
  - controlled delivery: 1 case–12 persons

### Specialized investigation groups and multinational cooperative investigations (Additional Element—Specialized Investigation Groups and Conducting Multinational Cooperative Investigations (c. 27.5))
- Permanent and temporary groups specialized in investigating proceeds of crime are widely used by:
  - the AML Division and Anti-Corruption Department of the Office of CPO
  - the Investigative Service (IS) of the MOF
  - other relevant investigative bodies of Georgia, if necessary
- Composition and focus of groups:
  - AML Division investigators work with special agents of SOD and financial experts from the Investigative Service and Audit Departments of the MOF.
  - Groups focus on investigation, seizure, and freezing of the proceeds of crime.
  - This practice is well established and used often by LEAs.
- Multinational cooperative investigations:
  - No explicit legal provisions exist allowing cooperative investigations with foreign counterparts; LEAs have never used such mechanism before.
  - Authorities report cooperative investigations were used in practice several times despite absence of explicit provisions.
  - If special measures are required, the Ministry of Justice is authorized to conclude an ad hoc agreement with foreign counterparts under Article 2 of the MLA Law.

### Review of ML and TF trends by law enforcement authorities (Additional Elements—Review of ML and TF Trends by Law Enforcement Authorities (c. 27.6))
- The CPO prepares ML methods, techniques, and trends reports and shares them internally among investigators.
- Two training sessions presented main findings in February and March of 2011 at the Training Center of the MOJ.
- These studies were prepared based on experience gathered from all ML concerned agencies.
- Limitations:
  - These were the first such ML trend studies and were not shared with the FMS and other concerned agencies.
  - FMS and other concerned authorities did not develop similar analyses from their experience.
  - No similar analyses were developed for FT cases.

### Ability to compel production of and searches for documents and information (c. 28.1)
- Compel production:
  - Article 17 of the Law of Georgia on Activities of Commercial Banks: banking information, including information on operations, balances, and accounts of any physical or legal persons, can be disclosed to LEAs based on a court order.
  - Article 10.2 of the Law on Microfinance Institutions: information regarding the borrower can only be submitted to the borrower, his representative, the NBG, and in cases defined under the legislation, to the FMS. Other persons are not authorized to request such information without a court order or prior written agreement by the borrower.
  - LEAs can only compel production of certain kinds of information from banks and microfinance institutions.
  - LEAs cannot compel production of financial documents from lawyers (see Law on Advocacy professional secrecy).
- Search persons or premises:
  - Article 121 of the CPC: with probable cause, prosecutor, investigator, or persons with authority to carry out detention may seize objects, documents, substances, or other items containing relevant information discovered on a person’s clothes, belongings, vehicle, or body by conducting a personal search. In urgent cases, CPO can use these powers directly but must obtain ex post factum court validation within 24 hours.
  - Article 120 of the CPC: under same conditions, allows search and seizure at premises based on a court order or, in case of urgency, on the basis of a ruling.
  - Level of evidence required to get a court order is deemed appropriate by the CPO; statistics show such power is used effectively in most ML investigations.
- Lawyer professional secrecy:
  - Article 7 of the Law on Advocacy obliges lawyers to protect professional secrecy without time limit and not to spread client information without prior consent.
  - Bar association interprets Article 7 to include lawyers’ activities of preparing and carrying out transactions for clients.
  - LEAs did not encounter requests for information held by lawyers during the mission.
- Seize and obtain:
  - Article 119 paragraph 1 and Article 120.4 of the CPC: search and seizure aim at uncovering and seizing any object, document, substance, or other item containing information related to the case; investigator should offer voluntary turnover in urgent cases; refusal leads to compulsory seizure; other objects with evidentiary value may also be seized.
  - Article 120 paragraph 7: investigator may open closed storage or premise if person refuses voluntary opening.
  - Search and seizure cover objects, documents, or other items containing relevant information and any other object containing information that might have evidentiary value or indicate other crime.
- Statistics on use by AML division at the CPO (in coordination with other LEAs):
  - Search: 11 cases; 50 persons
  - Seizure: 20 cases; 128 persons
  - Freezing: 8 cases; 73 persons
  - Access to Data held in computers (Articles 136 to 138): 1 case; 1 person
- Court order of January 11, 2012 (authorities’ account) explicitly indicated that IS of the MOF under supervision of the CPO are “authorized to seize the account extracts, opening documents, their further direction and all bank operations carried out on the accounts (payment orders, income and outgoing cash box orders, SWIFT extracts, deposits, transfers and other financial and legal documents), including the information and identification data obtained by banks through the process of examining clients (including information on beneficial owners) and business correspondence related to customers."

### Power to take witnesses’ statements (c. 28.2)
- CPO powers:
  - CPO can summon witnesses, hear testimony, and discuss matters related to alleged crimes including ML and FT; powers and witness rights provided in Article 94 of the CPC.
- Sanctions for refusal or false testimony:
  - Article 371 of the CCG: criminal responsibility for refusal to give testimony by a witness; punishable by a fine or socially useful work for a term from a 120 to 180 hours or correctional work for a term of up to one year or imprisonment for a term of up to four years.
  - Article 370: giving false testimony by a witness is criminalized.

### Statistics (R.32)
- Statistical information provided (cases received from FMS; Investigations; CTRs involved; STRs involved):
  - 2004: 5; 1200; 107
  - 2005: 12; 16; 3035; 156
  - 2006: 14; 10; 2706; 142
  - 2007: 17; 9; 3512; 184
  - 2008: 10; 9; 2863; 227
  - 2009: 8; 9; 1390; 92
  - 2010: 9; 22; 2406; 206
  - 2011: 15; 40; 3204; 273
- Observations and analysis:
  - From 2004 to 2010, all ML investigation cases were initiated after receiving information from the FMS.
  - January 2010: Minister of Justice issued recommendations for the CPO to raise awareness about Article 194 of the CC criminalizing ML and required departments investigating predicate crimes to carry out ML investigations to identify and trace proceeds of crimes. Decision was forwarded to relevant departments at MIA and MOF.
  - As a result, LEAs initiated in few cases ML investigations in parallel with predicate crimes investigations, contributing to increases in 2010 and 2011.
  - 2010: nine investigations triggered by FMS and 13 initiated by LEAs; until July 2011: 10 from FMS and 11 by LEAs.
  - Most ML cases have been initiated by the FMS via CTRs and STRs; few ML cases were detected in context of predicate offenses in 2010; number increased in 2011 but not significantly.
  - Concerns that many LEAs still concentrate solely on predicate crime and do not follow proceeds to examine potential money laundering activity.
  - Very few FT cases were investigated; generally low level of understanding of FT techniques, methods, and trends among competent authorities.
  - Recommendation: collect additional statistics on whether the offense was prosecuted autonomously or together with the predicate offense to assist domestic analysis of criminalization effectiveness.

### Adequacy of resources—LEA (R.30)
- Human resources:
  - Total currently: 332 prosecutors and 46 investigators in the Prosecution Service of Georgia.
  - Prosecutor’s Office is part of the Ministry of Justice and consists of Main Prosecutor’s Office and city, district, regional prosecutor’s offices, and autonomous republics of Ajaria and Abkhazia (located in Tblisi).
  - Minister of Justice has exclusive authority to conduct prosecution against certain high-level officials; minister proposes candidate for chief prosecutor who is appointed by the president; chief prosecutor appoints and dismisses lower-level prosecutors and investigators.
  - AML Division staffing: five staff members (three investigators and two prosecutors).
  - Additional operational support: six operational staff at AML unit of the MOI and additional investigators at the MOF can assist the AML Division if necessary.
  - Investigative resources:
    - Six investigators work for the AML Unit at the SOD.
    - These investigators can be assisted by 60 investigators working at the organized crimes division within the SOD and additional investigators from other divisions.
    - IS of the MOF has a large number of financial investigators that can assist the prosecutor’s office in ML investigations.
  - Legal framework supports LEA independence: prohibition on establishing political organizations, special training, prohibition on combining work with other government/commercial employment, explicit prohibition on interference.
  - Judicial admission and selection:
    - Admission to the High School of Justice includes written examinations and interviews; trainees receive evaluations in theoretical and internship modules and obtain ranking number into the Qualification List.
    - High Council of Justice considers evaluations based on criteria including decision making skills, communication skills, managerial skills, impartiality, moral reputation, interpersonal characteristics, judicial temperament.
    - Consideration of contacts or personal relationships during selection is strictly excluded.
  - Judicial ethics and discipline:
    - New mandatory judicial ethics rules adopted in 2007.
    - In 2008, out of 1,256 complaints filed, 35 cases were brought against judges; of these, 12 judges were found to have violated ethics requirements and three judges were dismissed.
  - Police and Prosecutor’s Office dismissal grounds:
    - Law lists legitimate grounds for dismissal of police officers.
    - Employees of the Prosecutor’s Office are to be independent and cannot be dismissed except as stipulated in the law.
- Financial resources:
  - LEAs receive sufficient funding from the state budget, enabling improvement in material and human resources.
  - Authorities state the Prosecutor’s Office has sufficient financial and human resources to perform its duties.
  - Salary levels are adequate; employees receive bonuses, benefits, and allowances.
- Technical resources:
  - LEAs generally have good IT equipment and are scheduled to move to a fully electronic case management system.
  - Police database is actively used to obtain timely information on criminal records, arrests, and prosecutions.
  - Limitations: IT equipment does not allow for effective communication channels on suspects and associates and related information between various LEAs and between specialized departments within agencies.
  - All investigations are supervised and guided by the Prosecution Service; Chief Prosecutor’s Office coordinates investigations nationwide and makes decisions on case allocation and submissions to different law enforcement bodies.
  - Communication between CPO administrations and other LEAs is largely informal, resulting in uneven information and inconsistent timing.
- Training:
  - Between 2007 and 2011, investigators and prosecutors involved in AML/CFT participated in trainings, typically one week for 2 to 3 officials on average.
  - 2011 trainings:
    - OECD Anti-Corruption Network for Eastern Europe and Central Asia seminar on AML and AC investigation and prosecution
    - Organized Crime Seminar, U.S. DOJ
    - The Asset Tracing/Asset Recovery Training–Basel Institute on Governance
  - 2010 trainings:
    - Asset Tracing/Asset Recovery Training. Basel Institute on Governance
    - Training on ML investigation organized by the U.S. DOJ
    - Training on money laundering and financial crimes, Embassy of France
    - Seminar on AML/CFT for Criminal Justice Officials IMF
  - 2009 trainings:
    - Workshop on Typologies of ML/FT IMF
    - Training on ML investigation–Financial Police of the Kingdom of the Netherlands
  - 2008 trainings:
    - Workshop on Typologies of ML/FT IMF
    - Seminar on Assets Forfeiture, U.S. DOJ
    - Regional AML/CFT training seminar–EBRD
    - Regional AML Seminar Organized by U.S. DOJ
  - 2007 training:
    - Workshop on AML Measures–U.S. DOJ

*Source: _cr1304 - 413.      The CPC was amended in October 28, 2011 and a new Article 124.1 was introduced to allow*

### 451.      The judges have been provided with a number of training seminars in respect to the criminal

### _cr1304 - 451.      The judges have been provided with a number of training seminars in respect to the criminal

### Operational independence
- Anti-corruption activities of law enforcement agencies "appear to have resulted in a virtual eradication of bribery in public administration."
- Law expressly prohibits public officials, as well as political and civil groups, from interfering with a prosecutor’s activities.
- Prosecutors cannot be legally instructed by another authority not to prosecute a specific case.
- The Law on Prosecutor’s Office requires appointments to be made on the basis of professional criteria:
  - Individuals need to complete at least six months of internship and pass examinations in a number of legal disciplines before they can be appointed as prosecutors or investigators.
  - Employees of the Office are to undergo accreditation every three years.
  - The law does not set out criteria for the promotion of prosecutors.
- Major concern identified by the Venice Commission: the justice minister (a political official) has direct prosecutorial powers and some legal provisions may be open to interpretation that the minister can override decisions of prosecutors on individual cases.

### Implementation and developments in investigations
- Since the decision of the Minister of Justice in 2010 recommending initiation of ML investigations when LEAs suspect the generation of illegal proceeds, ML investigations have increased and LEAs started using their competencies and investigative techniques better.
- Several LEAs are responsible for conducting ML and FT investigations. The CPO coordinates investigations carried out under his supervision by the MIA (SOD and CTC) and MOF-Investigative Service.
- Local police authorities and district prosecutors have been involved in high-profile ML cases, raising doubts about resource use and case allocation.
- To avoid perception of politicization, authorities should follow a transparent and even approach to ML and FT investigations.

### Analysis of effectiveness — findings
- Georgian authorities successfully investigated ML; most convictions were derived from reports of the FMS, originating from analysis of Suspicious Transactions reports received from reporting entities.
- The MOJ recommendation had a positive impact on effective ML investigations initiated from predicate crimes investigations, but implementation needs monitoring and reinforcement via:
  - sharing of information through developed analysis tools;
  - additional ML and FT trainings;
  - analysis and sharing among LEAs of ML and FT trends, methods, and techniques;
  - collection of information from foreign counterparts.
- LEAs lack powers to compel production of information held by lawyers when they conduct activities on behalf of clients; such information is not being sufficiently analyzed to identify and trace proceeds and real beneficial owners.
- Coordination and information-sharing weaknesses:
  - Investigative bodies obtain operative assistance through specialized intelligence divisions of the MIA and Investigative Service of the MOF, but mechanisms and tools to coordinate agencies for AML/CFT measures need further development.
  - Need for appropriate technical resources and computerized databases to allow sharing of information in ongoing investigations and related persons.
- Personnel management:
  - A modern personnel management system introduced at the CPO and MIA ensures hiring on professional criteria, with detailed procedures for recruitment, promotion, evaluation, and dismissal; employees recruited through open criteria and follow training courses.
  - However, high turnover and persistent vacancies at almost all levels inhibit continuity and institutional memory.
- Case allocation concerns:
  - Case distribution among LEAs is not clearly defined.
  - Example: a major ML investigation involving a commercial bank suspected of money laundering, owned by a PEP, and where millions of dollars were seized, was investigated by a district prosecutor supported by local police not specialized in ML or high-profile crime — raising concerns about discretionary allocation and effectiveness.
- Limited FT investigations:
  - Very low number of FT investigation cases, mainly due to limited knowledge of LEAs of methods, trends, and techniques to detect FT, including monitoring cash couriers, implementing SR.IV requirement, protecting alternative remittance systems, and ensuring NPOs are not abused for TF.

### Identified reasons for limited ML and FT case numbers
- Low level of coordination and cooperation between LEAs; absence of coordinated policies and ineffectual communication channels; communication largely informal, causing uneven information and inconsistent timing.
- Most LEAs concentrate investigations solely on the predicate crime and do not follow proceeds to examine potential money laundering activity.
- Lack of utilization of sophisticated financial investigation tools and databases to trace origin of illegal funds, create patterns among suspects and associates, and identify ultimate beneficial owners of legal persons, accounts, and transactions.
- Common belief among law enforcement authorities that "Georgia is not vulnerable to money laundering operations" despite threats.
- High turnover in personnel and vacancies impeding continuity.
- Very low number of FT investigations due to limited LEA knowledge of FT methods and monitoring requirements.

### Recommendations and comments (to fully comply with Recommendations 27 and 28)
- Provide LEAs with the power to compel the production of documents detained by Lawyers when they prepare for or carry out business transactions for their clients.
- Implement more systematically the 2010 Recommendation of the CPO to investigate more proactively and regularly ML and/or terrorist financing offenses as standalone crimes irrespective of whether the source of information emanates from the FMS or any other source.
  - Use ML and FT investigations proactively through specialized financial investigators; such investigations should be standard operating procedure when investigating profit-generating crime or terrorism to determine proceeds of crimes (type and amount) and determine properties that can be frozen, seized, and ultimately confiscated.
- Use more frequently financial analysis and investigation techniques to:
  - trace the origin of illegal funds;
  - create patterns between suspects and associates;
  - identify the ultimate beneficial owners of legal persons, accounts, and transactions;
  - share this information between various LEAs.
- Provide AML/CFT training to all investigative agencies at all levels.

### Compliance with Recommendations 27 & 28 — ratings and effectiveness notes
- R.27: LC
  - Effectiveness: Law enforcement investigation and prosecution of money laundering and terrorist financing is not fully effective, particularly regarding standalone investigations into money laundering and autonomous money laundering cases related to predicate crimes committed abroad.
- R.28: LC
  - Identified deficiency: Lack of powers of LEAs to access information detained by lawyers when conducting financial activities on behalf of their clients.
  - Effectiveness: Lack of effectiveness in ML and FT investigations, limited use of powers to compel production of financial information from lawyers, and lack of sharing of information between concerned agencies to properly investigate ML, associated predicate crimes, and FT.

### Cross-Border Declaration or Disclosure (SR.IX) — Legal framework and description
- Georgia Revenue Service is Tax and Customs Administration of Georgia. Customs Border Protection Department of the Georgia Revenue Service is in charge of BCPs. The Customs Service is a Department under the Ministry of Finance (MOF).
- Basic regulation of cross-border transportation of goods (including cash and securities) is regulated under the Georgian Tax Code adopted in September 2010.
- The FMS Decree on “on Receiving, Systemizing and Processing the Information by the Revenue Service and Forwarding to the FMS” adopted in November 2004, amended in February 2011.
- Relevant instruments: Article 214 of the CCG; Order 993 of the Minister of Finance on “Approval of an Instruction on Movement and Clearance of Goods across the Economic Territory of Georgia” (December 31, 2010) — referred to as the MOF Order for the control of goods.
- Pursuant to Article 5.3 of the AML Law amended in November 2010: “the import into and export from Georgia of cash and securities exceeding GEL 30,000 (around US$18,300) (or its equivalent in other currencies) should be subject to monitoring by the Customs Agencies.”
  - Article 3 of the AML Law considers the Revenue Service as monitoring entity required to implement Article 5.3.
- Article 209 of the Tax Code of 2010 on status of goods: goods include money, securities, electric and thermal energy, gas, and water; goods can only be seized if smuggled.
- Article 21.3.d of the MOF order: cash (national or foreign currencies), checks and other securities with more than total nominal value of GEL 30,000 or its equivalent in other currencies should be declared while crossing Georgia’s customs border.
- Article 38.1 of the MOF order (Order 993): Natural person’s commodity declaration procedure for imported goods with value less than GEL 30,000; currency and securities are considered goods to be declared; declaration process described (oral declaration, form Annex IX-03, registration, two copies).
- Regime requires natural persons making physical cross-border transportation of currency and securities above the threshold to make a disclosure to designated competent authorities. Authorities can ask passenger to declare currency or securities in case of non-declaration. Voluntary and involuntary declarations are made available to the FMS as CTRs with distinction between declared (voluntary) and non-declared (involuntary).
- Customs authorities do not have authority/power to request further information on origin or intended use of currency or bearer negotiable instruments upon discovery of a false declaration or failure to disclose.
- BCP employees authorized to inspect personal and hand luggage when there is reasonable suspicion of hiding items subject to state control (Article 33 of Order 2724 of the Director General of the Revenue Service on “Entry/Removal of Goods to/from the Economic Territory of Georgia and Implementation of Procedures related to the Declaration”).
- Inspection process under Order #2724 (Article 34): inspection of personal luggage and hand luggage in presence of owner or representative; if owner not identified or refuses, inspection may proceed without passenger in presence of attendants; personnel should offer voluntary submission of hidden/prohibited items; in case of resistance, act in accordance with the Criminal Procedure Code of Georgia.
- Pursuant to Article 271.7 of the Tax Code: if signs of an offense (trafficking) are identified, materials shall be sent to relevant investigative body; sanctions under Article 289 of the Tax Code determined after investigative body or court decision. These powers relate to trafficking and not to suspicion of ML and FT or false declaration.
- Designated authorities do not have power to stop or restrain currency or bearer negotiable instruments for a reasonable time to ascertain whether evidence of ML or FT may be found where there is suspicion of ML or FT or where there is a false declaration; authorities can only search and, in case of resistance, arrest the person when hiding things.
- Retention and forwarding of information to FMS (FMS Decree, Order #1 of the Head of the FMS of February 8, 2011):
  - If a person is included in terrorist lists or there exists a supposition or preliminary information that the person is related to terrorists or persons financing terrorism, or carried cash/checks/securities related to or used for terrorism—report shall be sent on the same date information is received; all respective materials and documents available to the responsible employee of the Revenue Service shall be provided to the Service along with the reporting form; other measures provided in legislation shall be undertaken (Article 7(3) of the Regulation on the Revenue Service).
  - If no sufficient space for full information, additional electronic sheet(s) with detailed information shall be attached to the form, including information on person avoiding customs control or secretly exporting/importing cash/checks/securities; top of each sheet must indicate form and box numbers and the first and last names of the person responsible for making the final decision under the internal Regulation (Article 7(11) of the Regulation for the Revenue Service).

*Source: _cr1304 - 451.      The judges have been provided with a number of training seminars in respect to the criminal*

### 477.      According to Article 6 of the Regulation for the Revenue Service, the Service shall retain the

### _cr1304 - 477.      According to Article 6 of the Regulation for the Revenue Service, the Service shall retain the

### Retention requirements and scope
- Article 6 of the Regulation for the Revenue Service: the Service shall retain the “natural person’s declaration” filled by persons carrying cash, checks, and other securities for not less than six years from the time of crossing the customs border by such persons.
- Such retention requirements do not extend to all kinds of bearer negotiable instruments declared or otherwise detected, or the identification data of the bearer for use by the appropriate authorities in instances when: (i) a declaration exceeds the prescribed threshold; (ii) there is a false declaration; or (iii) there is a suspicion of ML or FT.

### Access to information and reporting processes (c. IX.5)
- According to the AML/CFT Law of Georgia and the AML/CFT Regulation on the Revenue Service CTRs are submitted electronically to the FMS by the Revenue Service.
- Information is sent automatically to the FMS and registers in its database as CTRs.
- A new updated program for reporting, described under Recommendation 26, is in place.

### Domestic cooperation, risk management, and operational procedures (c. IX.6)
- Coordination on SR.IX implementation is provided under Common Order #985- N1187 of December 31, 2010 (Minister of Finance and Minister of Internal Affairs) on travel document indications and automated database reflection.
- Risk management system: risk criteria implemented in the Personal Identification and Recognition System (PIRS) Program of Patrol Police.
  - PIRS: determines and delivers encrypted information to BCP officers on necessary control measures based on advanced parameters and multiple information sources (Database of the Revenue Service, Database of “PIRS” Program, international experience, etc).
  - Patrol police present at BCPs and can assist Customs in arresting travelers when necessary.
- Coordination between Customs and Immigration generally adequate, but:
  - No MOU between Customs and Immigration regarding SR.IX.
  - Patrol Police powers are not in line with SR.IX; procedures to implement SR.IX not developed.
  - Police may treat cases as smuggling of goods rather than transportation of cash, not aligned with SR.IX.

### International cooperation (c. IX.7)
- Georgia has signed Agreements on Cooperation on Customs Matters with numerous countries (examples include Turkey: entered into force 16.05.94; China: 03.06.93; Turkmenistan: 17.08.93; Azerbaijan: 10.07.95; Iran: 03.11.96; Ukraine: 14.02.97; Uzbekistan: 28.05.96; Armenia: 19.02.08; Estonia: 16.06.05; Latvia: 16.06.05; Lithuania: 12.11.00; Greece: 14.01.99; Israel: 09.09.98; Kyrgyz Republic: 22.04.97).
- Article 6.a of the Agreement with Turkey: upon request, the other party may observe persons suspected of customs violations of the requesting party.
- Authorities were not able to provide statistics on the number of requests received and made between Customs/Immigration and foreign counterparts.

### Sanctions for false declarations and investigative powers (c. IX.8; c. IX.9)
- Sanctions for false declaration/disclosure defined under Tax Code of Georgia (Article 289); Criminal Code of Georgia (CCG) establishes criminal liability for violations of rules on movement of goods across Customs Border. Sanctions can be imposed on natural persons.
- Customs officers do not have arrest powers; they obtain assistance from patrol police to detain carriers of trafficked goods, precious goods, or currency. Investigation is carried out by the investigative unit of the Revenue Service.
- These powers do not extend to persons who make false declarations contrary to SR.IX obligations—only to cases of trafficking. Therefore, no sanction has been imposed in accordance with SR.IX for false declaration.
- Article 7(3) of the AML/CFT Regulation for the Revenue Service: if a physical person is on a list of terrorists/persons supporting terrorism or there is suspicion/preliminary information linking a person or cash/checks/securities to terrorism, the report shall be sent on the same date the information is received; all respective materials and documents available to the responsible employee of the Revenue Service shall be provided with the reporting form; other legislative measures shall be undertaken.
- Such persons are not sanctioned; only a report on their transit is filed to the FMS. No dissuasive and persuasive criminal, administrative, and civil sanctions on their behalf.

### Confiscation and provisional measures (c. IX.10; c. IX.11)
- Article 289.12 of the Tax Code allows confiscation of goods including currency. Bringing in/carrying out cash and securities with a value from GEL 30,000 to GEL 50,000 (or equivalent) by evading control or secretly is subject to fine of GEL 1,000 or confiscation of goods.
  - This sanction is not related to ML or FT and only applies to smuggling of currency and securities.
- No provisional powers or confiscation measures available to competent authorities in relation to persons physically transporting currency and bearer negotiable instruments related to TF or ML.
- Terrorist lists are received by the patrol police and inspected against travelers who can be arrested. The Revenue Service has access to a terrorist list and can refer positive matches to patrol. The police have never had cases of confiscation pursuant to UNSCRs.

### Special control for precious metals/stones and cooperation (c. IX.12)
- Special control of gold, precious metals, or precious stones is not provided in the Tax Code.
- No mechanisms to cooperate with foreign counterparts to establish source, destination, and purpose of movement of such items to take appropriate action.

### Safeguards, data handling, and reporting systems (c. IX.13; c. IX.17)
- Based on AML Law and FMS requirements, the Revenue Service must define procedure for submission of reporting forms to the FMS from regional centers, appoint employee/unit in charge of monitoring, and send information to the FMS in reporting form as an encoded file.
- In practice, Revenue Service premises have proper and strict safeguards to ensure data is recorded.
- Article 39 of the Tax Code provides safeguards of information and includes sanctions in case of breach.
- Reports are maintained in a computerized database at Customs. Copies are filed with the FMS as CTRs.

### Training, data collection, enforcement and targeting programs (c. IX.14)
- Employees of the Revenue Service participated in trainings:
  - Training on “Anti-Money Laundering and Combating Financing of Terrorism” organized by the Ministry of Foreign Affairs and the Ministry of Finance of Republic of Poland on April 11–15, 2011 in Poland;
  - Training on “Combating Illegal Trade of Narcotics, Psychotropic Substances and Precursors” organized with support of the Ministry of Finance of Republic of Poland on June 13–17, 2011;
  - Training for Employees of Customs Authorities on “Combating Legalization of Illegal Incomes (Money Laundering)” in November 2008.
- Authorities have not given consideration to implementation of the measures set out in FATF’s International Best Practices (c. IX.16).

### Resources, organizational structure, equipment, and recruitment (R.30)
- Revenue Service (Ministry of Finance) unifies Tax and Customs Administrations. Main functions include administration of taxes/duties, tax audits, state control over customs border crossing and clearance, phyto-sanitary/ veterinary/ sanitary quarantine control, non-tariff measures, licensing decisions within competence.
- Structure and staffing:
  - Central Apparatus (over 300 employees);
  - Special structural units;
  - Customs Clearance Department (360 employees): Administration; Analyses and Monitoring Division; Customs Clearance Zone–“Tbilisi;” Customs Clearance Zone–“Poti;” Customs Clearance Zone–“Batumi.”
  - Customs Border Protection Department (631 employees): Logistics Division; Analyses and Methodology Division; Operational Management and Video monitoring Division; Sanitary, Phyto-sanitary and Non-tariff Agreements Division; and BCPs (Sadakhlo; Tsiteli Khidi; Akhkepi; Gardabani; Guguti; Lagodekhi; Samtatskaro; Kazbeghi; Vale; NinoTsminda; Sarpi; Mtkvari; Kutaisi and Senaki Airports; Batumi Airport; Batumi Port; Poti and Kulevi Ports; Poti Free Industry Zone; Kutaisi Free Industry Zone; Tbilisi Airport).
- BCP equipment: mobile, portative, and hand luggage x-ray machines; radiation, stationary, and portable equipment; radiation pagers; metal detector; density measurement devices; busters; other technical devices.
- “Rules for Recruiting New Employees … (Order N257 of March 31, 2010)” set standards for hiring new staff. Hiring requires appropriate knowledge, experience, state language proficiency, and submission of documents (CV, Certificate of Conviction, Medical Certificate, Medical Examination, etc.). Competition provided for hiring new staff.

### Implementation coverage and operational statistics
- Customs control 18 border crossing points:
  - Airports: Tbilisi–Batumi;
  - Ports: Poti and Kulevi–Batumi–Kutaisi and Senaki;
  - Land: Sadakhlo–Tsiteli Khidi–Akhkepi–Gardabani–Guguti–Lagodekhi–Samtatskaro–Kazbeghi–Vale–NinoTsminda–Sarpi–Mtkvari;
  - Free Zones: Poti Free Industry Zone–Kutaisi Free Industry Zone.
- Reports submitted from Customs to FMS on cross-border transportation of cash exceeding GEL 30,000 and the volume of currency declared are relatively low given Georgia’s cash-based economy, large Georgian diaspora, and growing international commercial relationships.
- Report counts and declared amounts: reports have steadily increased since 2007:
  - 2007: 57 reports;
  - 2008: 147 reports;
  - 2009: 293 reports;
  - 2010: 304 reports;
  - 2011: 337 reports.
- Declared amounts (Time Period / Declared Amount):
  - 2007 GEL 56, 581, 282  
  - 2008 GEL 18,232,735  
  - 2009 GEL 27,030,660  
  - 2010 GEL 35,092,918  
  - 2011 (6 months) GEL 31,094,790
- Non-declared amounts (Time Period / Non-declared amount):
  - 2007 US$138,928  
  - 2008 US$125,000 and  GEL 175,805  
  - 2009 US$190,711 and GEL 39,358, €17.760 EUR, 145 TL, 150 BHD and 20.210 PKR
  - 2010 US$723,380, 79.400 TL, €19.850, and GEL 300
- Note from mission: gross value of declarations at Tbilisi airport for 2010 (GEL 2.38 million) is very high, suggesting overall number of reports to the FMS from Customs is still low.
- According to authorities, declared amounts are those voluntarily declared by carriers; non-declared refers to situations where a passenger is asked by Customs to fill the declaration form after detecting the currency.

### Analysis of effectiveness
- AML Law covers only declaration of threshold amounts of currency, gold, and other precious materials.
- Customs and other competent authorities lack power to stop and investigate inbound/outbound movement of cash and bearer negotiable instruments unless Customs consider it smuggling.
- Only a small percentage of inbound and outbound transportation of currency and bearer negotiable instruments is actually declared.
- Without additional powers required under SR.IX, efforts to monitor cross-border movement of illegal proceeds will be hampered.
- Smuggling is widespread; investigations of smuggling likely to lead to ML or FT cases, but current measures do not allow competent authorities to use SR.IX powers to detect, stop, or restrain suspicious movements.
- Neighboring countries with significant Georgian organized crime can easily transport cash or negotiable instruments to Georgia; current measures insufficient to detect or restrain such flows.

### Recommendations and corrective actions (2.7.2)
- Amend requirements to extend to shipment of currency and bearer negotiable instruments through cargo containers and the mail.
- Define clearly the term “bearer negotiable instruments” to include monetary instruments in bearer form such as: travelers cheques; negotiable instruments (including cheques, promissory notes, and money orders) that are either in bearer form, endorsed without restriction made out to a fictitious payee, or otherwise in such a form that title can pass upon delivery; and incomplete instruments (including cheques, promissory notes, and money orders) signed, but with the payee’s name omitted.
- Take legislative steps to align cross-border cash and bearer negotiable instruments powers to enable Customs to request and obtain further information from the carrier regarding origin of the currency or bearer negotiable instruments and their intended use in cases of suspicion of ML or TF; provide temporary restraint measures; and establish adequate and uniform sanctions.
- Provide competent authorities present at BCPs with authority to stop or restrain cash or bearer negotiable instruments for a reasonable time to ascertain whether evidence of ML or FT may be found, where there is a suspicion of ML or FT; or where there is a false declaration.
- Once system established, Customs should be trained on the FATF best practices paper for SR.IX.

### Compliance with Special Recommendation IX (2.7.3) — Rating and factors
- Overall SR.IX rating: NC
- Factors underlying rating include:
  - Lack of clear powers to request and obtain further information from the carrier regarding origin and intended use of currency/bearer negotiable instruments.
  - Lack of powers to stop or restrain currency and bearer negotiable instruments for a reasonable time to ascertain ML or FT evidence.
  - Lack of proportionate sanctions for false disclosure, failure to disclose, or cross-border transportation for ML and FT purposes.
  - Retention requirement does not extend to all kinds of bearer negotiable instruments declared or otherwise detected, nor to identification data of the bearer.
  - Absence of clear definition of “bearer negotiable instruments.”
  - Weak implementation of transportation monitoring across all BCPs.
  - Insufficient statistics from various BCPs to assess effectiveness.
  - Lack of training on best practice implementation of SR.IX.
- Effectiveness conclusion:
  - In a cash-based society, the declaration system is not being implemented effectively to detect transportation of cash and negotiable instruments that could be transported by launderers or terrorist financiers.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 3. PREVENTIVE MEASURES—FINANCIAL INSTITUTIONS

### 3. PREVENTIVE MEASURES—FINANCIAL INSTITUTIONS

### Regulatory framework (law, regulations and other enforceable means)
- Georgia adopted its AML/CFT Law in 2003, coming into force on January 1, 2004.
- Recent amendments to the AML/CFT Law of Georgia were adopted on December 20, 2011 and came into force on January 1, 2012; assessors took those amendments into account, including new FMS decrees issued in January 2012.
- Article 10.4.c of the AML/CFT Law empowers the FMS to issue normative acts (Decree) to monitoring entities on “the conditions and procedures for receiving, systemizing, processing and forwarding the relevant information and identification of the person.” Article 10.4.c was amended in December 2011 to enable the FMS to adopt normative acts for implementation of the AML/CFT Law. These Decrees are secondary legislation issued by the FMS based on authorization by the Parliament through the Law on Normative Acts and impose mandatory requirements with sanctions for noncompliance.
- Under Article 2.m of the AML/CFT law, natural and legal persons that are subject to AML/CFT requirements are defined as “monitoring entities.” Those entities are obliged to fulfill AML/CFT requirements regarding identification of the persons involved in transactions, registration, and systemization of information of the transaction and report this information to the FMS.
- With the December 2011 amendments, “monitoring entity” is defined under Article 2(m) as an entity which, for the purpose of facilitating the prevention of legalization of illicit income, is required to undertake actions prescribed by the legislation; Article 3 gives the list of monitoring entities.
- AML/CFT supervision of activities of financial “monitoring entities” is conducted by the National Bank of Georgia (NBG) as supervisory body for FIs (Articles 11, para. 1, and 4. a)), including:
  - commercial banks,
  - currency exchange bureaus,
  - non-bank depository institutions,
  - microfinance organizations,
  - entities performing money remittance services,
  - brokerage companies and securities registrars,
  - insurance companies and non-state pension scheme founders.
- Leasing activities were included in the legislation with the December 2011 amendments; factoring and credit services (credit cards) are not yet subject to AML obligations. Assessors note there are currently no credit companies and factoring companies providing services separately from banks and credit unions.
- The AML Law has been complemented by eight FMS decrees, which elaborate on the requirements of the AML Law for each category of financial institution.

### Scope: financial institutions covered and gaps
- Main categories of financial institutions as defined in the FATF Glossary are covered in the AML Law. Examples and supervisory coverage include:
  - Acceptance of deposits and other repayable funds from the public (including private banking): Banks; Credit unions — Prudential regulator & supervisor: NBG — AML/CFT: NBG.
  - Lending (including consumer credit; mortgage credit; factoring, with or without recourse; and finance of commercial transactions): Banks; Credit card companies; Factoring and finance/consumer credit — Prudential regulator & supervisor: NBG — AML/CFT: NBG; Factoring not covered.
  - Financial leasing: Banks; Leasing companies — Prudential regulator & supervisor: NBG; MOF — Financial leasing activities are not permitted for commercial banks. Only operational leasing: NBG.
  - Transfer of money or value: Banks; Money remitters — NBG — NBG (pay box services no regulated/ supervised).
  - Issuing and managing means of payment: Banks; Credit cards companies; Electronic money institutions — NBG (draft Law) — There are no Credit Card Companies as separated legal entities. Not regulated as an activity yet. The draft law on payments services providers will regulate this activity as part of payment service under NBG. Debit card are considered as forms of deposits.
  - Trading in money market instruments, foreign exchange, transferable securities, commodity futures trading: Banks; Investment companies — NBG — NBG.
  - Underwriting and placement of life insurance and other investment related insurance: Life insurance companies; Lateral pension funds; Life insurance agents and brokers — NBG — NBG.
  - Money and currency changing: Banks; Foreign exchange offices — NBG — NBG.
- New AML/CFT Law (as amended on December 20, 2011) includes leasing companies as monitoring entities.
- There is no reference to AML regulation/supervision for factoring activities, credit card companies, pay box, and investment funds.
- Authorities informed there is no investment fund registered in Georgia; stock exchange members are brokerage companies or registrars under AML obligations. In December 2011, there were five transactions and the amount traded was GEL 20,042; there are nine active members.

### Customer Due Diligence (CDD) and Record Keeping — Risk and legal provisions
- The Georgian legal framework makes no provision for excluding or exempting financial institutions from due diligence measures based on risk.
- Main preventive measure provisions are spread across the AML/CFT Law Articles 6 and the following FMS Decrees:
  - Before December amendments (during on-site): Commercial banks–FMS Decree No. 95; Insurance organizations and non-state pension schemes–FMS Decree No. 100; Brokerage Companies–FMS Decree No. 6; Microfinance Organizations–FMS Decree No. 10; Credit unions–FMS Decree No. 104; Securities Registrars–FMS Decree No. 7; Currency Exchange Bureaus–FMS Decree No. 96; Money Remittance Services–FMS Decree No.1.
  - After amendments (updated January 2012): Commercial Banks: No. 4; Insurance organization and non-state pension schemes: No. 3; Brokerage companies: No. 6; Microfinance institutions: No. 7; Credit unions: No. 2; Securities Registrars: No. 5; Currency exchange bureaus: No. 1; Money Remittance Services: No. 8.
- The NBG issued to commercial banks NBG Instruction 24/04 on requirement for opening an account (Instruction 24) and issued a guideline for “Financial institutions on identification on beneficial owners of customers and verification of their identity” in January 2012.
- For this assessment, covered financial institutions include:
  - commercial banks, credit unions, microfinance institutions, money remittances, exchange bureaus;
  - securities registrars and securities brokerage companies;
  - insurance organizations and non-state pension schemes;
  - leasing companies.

### Prohibition of anonymous accounts (c. 5.1)
- Article 6.9 of the amended AML/CFT Law states that financial institutions “shall be prohibited from opening or maintaining anonymous accounts or accounts in fictitious names”.
- The same provision is included in Article 6.10 of FMS Decree No. 95, now FMS Decree No. 4.
- Numbered accounts (accounts in which the owner is identified by a number instead of a name) are neither prohibited nor regulated.
- Implementation observations:
  - Authorities and private sector representatives stated no anonymous account or accounts in fictitious names are permitted due to the prohibition and the CDD obligations when opening an account under NBG Instruction N.24.
  - At least two banks indicated numbered accounts are commonly used in private banking; CDD requirements similar to other accounts apply. One bank stated linkage between account number and customer name is locked in a protected file accessible to senior managers and private banking staff.
  - Private banking business lines appeared somewhat independent and not well integrated into core AML functions. The new AML/CFT Law (Article 8) includes “the position of the employee in charge of monitoring” at senior management level, granting access to customers’ data for AML purposes, but whether proper CDD is applied within private banking is unclear to assessors.
  - FIs affirmed bearer checks are possible and have been seen in circulation, though their use is not widespread.

### When CDD is required (c. 5.2)
- New AML/CFT Law (as amended on December 20, 2011) defines client as “any person who addresses to the monitoring entity for the service defined by Georgian legislation as the principal activity of the latter /or uses such service.” The definition of “person” covers natural persons (resident and nonresident) and legal entity having business relation with the entity. The new definition also mentions legal arrangements as “organizational formations not representing a legal entity” (Article 2q-1).
- Pursuant to amendments to Article 6 of the new AML/CFT Law, financial institutions shall perform CDD measures in the following circumstances:
  - the amount of the transaction (operation) exceeds GEL 3,000 (or its equivalent in another currency);
  - the client aims to carry out domestic and/or cross-border wire transfers that exceed GEL 1,500 (or its equivalent in another currency);
  - doubts arise regarding the veracity or adequacy of previously-obtained client identification data; and
  - the transaction is suspicious according to the AML Law provisions.
- The GEL 3,000 threshold for business relations is identified as a deficiency.
- CDD obligations are mirrored in FMS Decrees for commercial banks, microfinance organizations, brokerage companies, securities registrars, insurance companies, credit unions, money remittance services, and currency exchange bureaus. FMS Decree amendments require identification if the transaction is suspicious, and if doubts arise regarding veracity and/or adequacy of previously-obtained customer identification data.
- Assessors emphasize the importance of separating the obligation to identify the customer and apply CDD from the obligation to report suspicious operations as a consequence of ongoing due diligence and customer profile analysis.
- Despite progress from amendments, the monetary threshold of GEL 3,000 to identify remains a deficiency (Aprox.1,812 US Dollars).

### Implementation of CDD and sectoral concerns
- Most banking entities apply the thresholds established by the AML Law; some banks follow international standards and apply CDD to all customers when establishing business relations due to group internal procedures.
- Non-banking financial institutions appear to identify customers only above the threshold of GEL 3,000.
- Above the threshold, FIs identify customers, make copies of the ID presented and verify identity using the Civil Registry database for natural persons if the FI has a contract to access it. CDD focus is on identification and verification.
- Securities sector:
  - Volume of business declined since the 2008 crisis; securities registrars face pressure from a shrinking market and low margins, which can create adverse pressures for low compliance with CDD requirements and increased ML/FT vulnerability.
  - Assessors have special concerns about implementation of AML measures in securities registrars due to increased trading in non-public companies (OTC or grey market) where ML risk awareness is lower.
  - Market participants cited the need to remain profitable amid scarce resources compared with banks, potentially affecting compliance.

### Identification measures and verification sources (c. 5.3)
- Article 6.2 requires financial institutions to identify all customers when the transaction amount exceeds GEL 3,000 or GEL 1,500 if processed through a payment network system. After December amendments, “customer” was replaced by “client”; authorities view the new term as covering occasional customers.
- The GEL 3,000 threshold for business relations remains a deficiency.
- Article 6.1 requires financial institutions to identify their client, its representative, or/and proxy. When a transaction is concluded in favor of a third person, that third person should also be identified.
- The amended AML Law requires monitoring entities to take reasonable measures to “verify clients’ identity by means of reliable and independent source of information.”
- Article 6.7 indicates financial institutions “shall by themselves determine the procedures (except for account opening procedures) that are necessary for identification of a person. They shall be authorized to require any other information and/or documents related to the transaction (operation).”
- Article 6.8 requires monitoring entities ensure “verification of identification details, at a minimum on the basis of national identification documents (ID) or passport (of foreign) or a document having equal legal force under the Georgian legislation, while in case of a legal entity they shall ensure examination of identification details on the basis of document issued by the state, which confirms foundation of the legal entity and authority of its representative(s).”

*Source: _cr1304 - 3. PREVENTIVE MEASURES—FINANCIAL INSTITUTIONS*

### 546.      With regard to the procedures that are necessary for identification of a person, the NBG and

### _cr1304 - 546. Procedures for identification of a person (Georgia AML/CFT)

### Legal and regulatory framework for identification
- Article 6 of NBG Instruction 24/04 for banks: non-business individuals must submit an identification document including a sample of signature; legal persons must submit an extract of their inscription from the registry.
- Article 6.12 FMS Decree No. 95 (now No. 4, January 2012) on commercial banks: individual should provide the national ID, or a passport (for foreigners), or any other official document which contains the relevant information or its equivalent under the Georgian legislation. Individual businessmen (sole proprietors) should present a document confirming registration of the business.
- For Georgian legal entities or other organizational formations not representing a legal entity: required documentation includes a resolution that established the legal entity, or an extract from a Registry of Entrepreneurs (or other relevant registry) and document evidencing the authority of the person authorized to act on behalf of the legal entity.
- For nonresident or foreign legal entities: documents proving “the foundation (establishment) and registration” issued by respective bodies in the country of origin, and a document certifying authority of persons legally representing such clients.
- FMS Decrees contain similar provisions for microfinance institutions, credit unions, insurance companies, and securities brokers. FMS Decree No. 1 (currency exchange bureaus) requires same data for physical persons and identification details of the representative for legal entities.
- FMS Decree No. 8 (money remittances) includes requirements only for conducting business with physical persons (Georgian or foreign citizens); Art.2 (a) NBG Decree No. 26/04 on “regulation and registration of money remittance services” does not allow money remittance services to conduct transactions for legal entities.
- Article 6.5 addresses transactions carried out by a brokerage company for its client through a bank: responsibility to identify the client lies with the broker, not the bank.
- “Guideline for financial institutions on identification of beneficial owners of the customers and verification their entity” (UBO guideline) provides a list of reliable sources; Civil Registry Agency is considered a reliable source for individuals.
- New AML/CFT Law (as amended on December 20, 2011):
  - Defines “client” (Article 2.y) and “person” (Article 2.q-1) to include residents and nonresidents, natural persons, legal entities, and organizational formations not representing a legal entity.
  - Article 6.1: monitoring entities shall identify its client, its representative, and proxy when the type or amount of the transaction fall into the cases mentioned.
  - Article 6.6.e: monitoring entities obliged to record/retain information “necessary for the identification of the person by whom the transaction is being concluded or undertaken on the basis of the order of third or other person.”
  - Article 6.8: monitoring entities “shall ensure examination of identification details on the basis of document issued by the state, which confirms foundation of the legal entity and authority of its representative(s).”
  - Article 6.7: allows FIs to determine procedures to identify a customer (except in the case of opening an account) and requests additional information.
- FMS decree for banks Article 6 para. 13 (c) requires for an “organizational entity not legal entity”:
  - full name and legal address;
  - legal act or other documents based on which this entity is created;
  - tax payer identification number; and
  - identification data of the person authorized to manage or represent the arrangement or entity and who represents it in a specific bank transaction subject to monitoring.
- Commercial Banks Law Articles 1 (n) and 20 indicate that trust services can be provided by banks, but Georgian legislation does not provide specific CDD measures for trustees or trustees receiving banking services.
- Article 6.5 of the AML Law: when brokerage companies operate for clients through commercial banks, brokers must identify and keep client identification documents; banks are not required to identify broker’s company clients (beneficial owners). Omnibus accounts are allowed per Instruction N24/04.

### Findings on implementation by financial institutions
- Banks report compliance with legal requirements for identification and verification of individuals; for transactions above designated thresholds they keep photocopies or scanned copies of passports or other ID documents.
- Georgian ID card includes all elements required in FMS Decree No. 95 (now No. 4, amended on January 2012), Article.6.14, except marital status and address, which may not be current and need separate updating.
- Verification practices:
  - Georgian individuals: FIs verify identity mainly through access to the civil registry database; access appears included in a general clause to all contracts. Direct access requires a US$12,000 annual fee.
  - Foreign customers: one FI trains employees to detect passport forgery; another searches the internet to verify zip code coherence with provided address.
  - Legal entities: FIs verify identification through access to the National Public Registry (NAPR) database.
  - Foreign companies: generally not verified; sometimes rely on public sources (internet searches) when limited information is available.
- UBO guideline not cited by private entities visited as a reference for legal persons’ identity verification.
- Money remittance providers are not identifying natural persons using their services on behalf of legal entities, though their services are used by representatives of legal persons.
- Some financial institutions rely on their representative offices abroad to perform due-diligence; documentation copy sent to headquarters in Georgia to open current accounts.
  - Out of 18 operating banks, two have representative offices in the United Kingdom and Israel.
- Financial institutions report difficulties identifying owners/controllers of exchange bureaus operating as individuals; exchange bureaus often open current accounts as regular individuals despite requirements.
- FIs report difficulty identifying and monitoring companies providing loans without authorization from the Central Bank; such unregulated companies escape prudential or AML/CFT requirements despite being common.

### Identification of legal persons and other arrangements (CDD obligations)
- FIs use NAPR business registry to verify legal status of legal persons.
- For foreign legal persons, supervisors expect identification by a document issued by the foreign state of registration, either through Apostille or notarized in Georgia or country of origin; no requirement to obtain a certificate of good standing from foreign corporate registrar.
- Banks face challenges identifying owners and controllers of exchange bureaus due to non-declared business structures and cash-intensive operations.
- No specific CDD provisions or regulations for trust services provided by banks; trusts are treated as fiduciary capacity contracts by authorities.
- Omnibus accounts: use is common; responsibility to identify beneficiary customers rests with brokerage companies; banks identify brokers only. No evidence banks adhere to 2001 Basel CDD paper criteria or that authorities issued guidelines; at time of on-site visit no brokerage company had been inspected for AML compliance purposes.

### Identification and verification of beneficial owners
- Definition (Article 2.q AML Law): beneficial owner is “a natural person(s) representing an ultimate owner(s) or controlling persons (of a person) and/or a person on whose behalf the transaction (operation) is being conducted; beneficial owner of a business legal entity (as well as of an organizational formation (“arrangement”) not representing a legal entity, provided for in the Georgian legislation) shall be the direct or indirect ultimate owner, holder or/ and controlling natural person(s) owning 25 percent or more of such entity’s share or voting stock, or natural person(s) otherwise exercising control over the governance of the business legal entity.”
- Article 6.10 of the AML Law: “monitoring entities shall identify the beneficial owner of the client and take reasonable measures to identify his/her identity by means of reliable and independent source of documents and be satisfied that it knows who the beneficial owner of the client is.” Mirrored requirements exist in FMS Decrees and NBG guidelines.
- December 2011 amendments introduced definition of the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted, and requirement for FIs to determine whether the customer is acting on behalf of another person.
- Limitations and gaps:
  - Definition is narrower than standards because it references a 25 percent threshold while also obliging knowledge of those exercising control regardless of share percentage.
  - No specific provisions for foreign trusts to identify settler, persons exercising ultimate effective control, and beneficiaries.
- Implementation observations:
  - FIs generally request information on beneficial owners but do not take measures to verify identities; practice is to obtain deed of incorporation copy with no further steps.
  - FIs expressed need for guidance on what constitutes “reasonable” measures to identify and verify beneficial owners.
  - FIs do not typically determine capacity under which a customer is acting (self, agent, representative, proxy, trustee).
  - None of the FIs met identify ultimate beneficial owners under the 25 percent threshold.
  - NAPR limitations impede establishing ultimate ownership/control of legal arrangements.
  - Risk that banks relying on omnibus accounts may not identify beneficial owners when required.

### Information on purpose and nature of business relationship
- AML/CFT Law does not require FIs to obtain information on the purpose and nature of the business relationship; this requirement is contained in FMS Decrees (e.g., Commercial Banks–Article 6.10; Insurance Companies–Article 6.9; Credit Union–Article 6.6; Currency Exchange Bureaus–Article 5.9).
- Implementation:
  - Banks and insurance companies include requests for purpose and intended nature of the business relationship in KYC forms, but generally rely on information provided by the customer without further inquiry or verification if information is missing.

*Source: Excerpt from the IMF mutual evaluation report content unit _cr1304 - 546.*

### 579.      Other non-banking financial institutions met by the assessors do not appear to implement this

### _cr1304 - 579.      Other non-banking financial institutions met by the assessors do not appear to implement this

### Ongoing Due Diligence on Business Relationship (c. 5.7; 5.7.1 and 5.7.2)
- Pursuant to amended Article 6.15 of the new AML/CFT Law (as amended on December 20, 2011), monitoring entities are required to exercise “permanent monitoring of business relationships with their clients.”
- The monitoring process includes:
  - “maintaining current information and records relating to the client and its beneficial owner;
  - updating periodically existing identification data and ensuring their conformity with current norms;
  - scrutiny of transactions in order to establish that the conducted transactions is consistent with the knowledge of the client, client’s business and personal activity or risk profile and where necessary the source of property (including funds).”
- All the new FMS Decrees reiterate the obligation to perform ongoing scrutiny of relations on existing customers.
- Additionally, amended Article 21 of the Law on “the activity of commercial banks requires banks to “maintain constant monitoring of business relationship with a client.”
- At the time of the on-site visit, the legal framework did not meet the standards’ requirement to ensure that documents, data, or information collected under the CDD process was not only kept up-to-date, but that such include reviews of existing records, particularly for higher-risk categories of customers or business relationships.
- Entities referenced in law/decrees (as listed in the source):
  - Microfinance Organizations–Article 6.10; Microfinance Organizations–Article 6(8);
  - Securities Registrars–Article 5.8; Securities’ Registrars–Article 5(17);
  - Money Remittances–Article 6.6; Money Remittance Entities–Article 6(15);
  - Brokerage Companies–Article 5(9); Brokerage Companies–Article 5 (15);
  - Accountants and Auditors–Article 5(6);
  - Insurance and Non-State Pension Schemes – Article 6(7).

### Implementation of Ongoing Due Diligence
- Overall, the financial institutions met by the assessors consider that ongoing due diligence on the business relationship consists in updating customer identification documentation.
- Assessors could not assess the level of implementation of the new requirements related to ongoing due diligence as they were only introduced in December 2011/January 2012.

### Risk—Enhanced Due Diligence for Higher-Risk Customers (c. 5.8)
- Pursuant to amended Article 6.13 of the AML Law, “monitoring entities are required to have in place the appropriate risk management systems for identification of such client whose activity may pose a high risk of legalization of illicit income and FT and shall exercise enhanced identification, verification, and enhanced monitoring procedures with respect to them.”
- “Identification and verification procedure shall be conducted on a risk-sensitive basis depending on the type and nature of the client, business relationship, products/service risk or the transactions or otherwise as it is prescribed by the normative act of the Financial Monitoring Service classified as higher-risk customers, and these requirements should be applied to all monitoring entities including banks, credit unions, exchange bureaus, and money remitters.”
- The former FMS decrees did not have a risk-based approach, as such an assessment of the implementation of the new decrees be cannot be assessed. New FMS decrees include the risk-based CDD obligation related to high-risk category customers.
- The AML Law, FMS, or any guidelines or instruments do not provide examples of higher-risk categories, except for PEPs, from whom special requirements are covered in Article 6.1 of the new AML/CFT Law (as amended on December 20, 2011).
- Implementation notes:
  - As the amendments to the AML Law (December 20, 2011) were introduced after the assessors on-site visit, it has not been feasible to assess the implementation of the new AML requirements.
  - While the legal framework has improved, at the time of the mission, the FI’s interviewed had not developed a risk-based approach to compliance, especially non-banking entities as bureaux de change, money remitters, brokerage companies, and securities registrars.
  - Almost all of the private sector representatives interviewed were very confident on the soundness of their clientele and saw no ML/FT risks arising from any particular economic sector, product, service, or customer.
  - The only concern expressed by banks was in relation to the difficulty to understand the cash-intensive nature of business conducted by exchange bureaus operated by individual entrepreneurs.
  - Some FIs identified higher-risk transactions/customers in internal procedures (PEPs, NGOs, casinos, gambling halls, arms dealers, exchange bureaus), but classification was more based on international standards than on an analysis of the Georgian situation.

### Risk—Application of Simplified/Reduced CDD Measures when appropriate (c. 5.9)
- Article 6.13 of the amended AML Law states that “identification and verification procedure shall be conducted on a risk-sensitive basis depending on the type and nature of the client, business relationship, products/service risk or the transactions or otherwise as it is prescribed by the normative act of the Financial Monitoring service of Georgia.” It may be assumed that simplified CDD are addressed under this law, even if not explicitly stating that simplified measures may be applied.
- In February 2010, the NBG issued the Guidance on the Risk-Based Approach to Combat Illicit Income Legalization.
- Pursuant to the FMS Decrees effective at the time of the on-site visit, for commercial banks, insurance, securities brokers, securities registrars, and microfinance institutions, monitoring entities could apply simplified procedures for identification and verification of identification data (see former Article 6.2. FMS Decree for commercial banks).
- However, as no circumstances or examples have been identified where the risk of ML and FT is lower, it is not certain when FIs are allowed to apply simplified or reduced measures.
- Exception: Article 9 of the NBG Instruction No. 24/04 “Instruction on Opening of Accounts and Foreign Currency Operations” allows banks to open accounts based on verified and legalized copies of the documents received via postal, if:
  - the customer is either a natural person (individuals) or legal entities having accounts in banks operating in OECD countries or natural persons that already hold accounts in other commercial banks in Georgia;
  - Instruction 24 requires making the first payment from the existing identified account.
  - All other customers are required to be physically present in order to open an account.
- Assessors note a problematic equivalence in risk assessment: some countries listed by FATF through the ICRG process as “countries with strategic AML/CFT deficiencies” are OECD members, which should require reconsideration of the basis for allowing simplified procedures for OECD countries appearing in the ICRG’s list.

### Risk—Simplification/Reduction of CDD Measures relating to overseas residents (c. 5.10)
- There are no provisions to allow simplified CDD only for customers from countries that effectively apply the FATF Recommendations.
- The presence of OECD countries in the ICRG list suggests that the authorities should consider disallowing simplified CDD measures for such and other similarly listed countries.

### Risk—Simplified/Reduced CDD Measures Not to apply when Suspicions of ML/TF or other high-risk scenarios exist (c. 5.11)
- There is no prohibition to apply simplified customer due-diligence measures when there is suspicion on money laundering, terrorist financing, or in cases where higher risk applies.

### Risk-Based Application of CDD to be Consistent with Guidelines (c. 5.12)
- In February 2010, the NBG Guidance on the Risk-Based Approach to Combat Illicit Income Legalization advises assessing initial risk by country risk, customer risk, and product/services risk when establishing a business relationship.
- However, the guidelines are of limited application as they do not assist in determining the extent of CDD measures on a risk-sensitive basis, except for the NBG Instruction N24/04 lower-risk scenario.
- Implementation: Some financial institutions indicated they have started to develop internal risk-based CDD procedures to apply to their clients.

### Timing of Verification of Identity—General Rule (c. 5.13)
- Pursuant to Article 5.7 AML Law (at the time of the on-site visit), “if it is impossible to identify a person intending to set business relations with a monitoring entity, as well as in the case described in subparagraph ‘a’ of para. 2 of Article 6-1, when there is no permission from the management, monitoring entity shall refuse such person to carry out the transaction (to service the client).”
- Article 6-1.2.a refers to the requirement to obtain permission from management to establish business with a PEP.
- This provision was not compliant with the standards because:
  - i) it only referred to the requirement to identify the customer, and did not consider the identification of the beneficial owner and the verification of both the customer and the beneficial owner;
  - ii) it did not consider the situation of occasional customers.
- The amended AML/CFT Law (as of December 20, 2011) defines timing of identification and verification of each client and its beneficial owner. According to Article 6(14):
  - “The identification and verification of each client as well as its beneficial owner and obtaining of other information, shall take place before carrying out of a transaction or opening of an account or establishing of another type of a business relationship, as well as prior further continuation of the business relationship if legalization of illicit income or FT is suspected or if doubts exist about the veracity or adequacy of previously-obtained client identification data.”
  - The FMS of Georgia is authorised to define the circumstances in which the verification of identity of the client and its beneficial owner may be completed after the establishment of the business relationship.
- Concerning occasional customers, definition of “client” was added to the AML/CFT law under the amendments of December 20, 2011 that it may also cover occasional customer. However, no specific reference to occasional customers is made across the new text.
- Implementation:
  - During the on-site visit, the assessment team noted that in general, FIs’ common understanding is that they are not allowed to perform any transaction or to establish any business relationship without prior identification and verification of the identity of the customer above the threshold established.

### Timing of Verification of Identity—Treatment of Exceptional Circumstances (c. 5.14 and 5.14.1)
- Pursuant to Article 6.14 of the amended AML Law (December 20, 2011), monitoring entities should identify and verify the identity of each client and its beneficial owner, plus obtain other information mentioned in the AML Law before carrying out a transaction or opening an account or establishing other types of business relationship.
- The legal framework establishes that the FMS is authorized to define the circumstances in which the verification of the identity of the client and of the beneficial owner may be completed after the establishment of the business relationship with the exception of the cases mentioned in Article 5.7 (impossibility to identify the customer, or no permission obtained from managers with respect to a PEP).
- FMS has not yet defined the time when the identification has to be completed in the cases where the information is delayed or incomplete, nor specified scenarios where the verification of the identity may be postponed. Authorities noted that relevant legislation drafting is in process.
- Additionally, in case of delaying the verification of the client’s identity, the AML law does not require FIs to effectively manage ML/FT risks.
- Article 9 NBG Instruction 24/04 authorizes banks to open an account based on electronic submission of documents when the customer:
  - is registered in an OECD member country,
  - has an account in an OECD member country, or
  - is a natural person who has already an account in another commercial bank licensed in Georgia.
- According to NBG Instruction 24/04, the placement of funds is permitted before the client presents original or notarized approved copies of the documents required. In this case, the identification and verification is made after establishing the business relationship, so it seems to be an exception to the general rule.
- Implementation:
  - FIs interviewed were aware of the obligation to identify and verify customers’ identity prior to establishing a business relationship.
  - For individual customers, verification was immediate through request of valid identification documents with photocopies made if the amount of the operation exceeds the threshold.
  - FIs expressed difficulty with legal persons, especially foreign entities and verification of the beneficial owner; these cases take more time.
  - Some FIs include internal clauses prohibiting operations until main documents are presented; requests for additional documents can require reminders and time to obtain complete information.
  - Operationally, the risk under Instruction 24/04 is mitigated because customer operations appear limited until documentation arrives, but NBG Instruction 24/04 does not put in place specific AML/CFT risk management procedures (e.g. classifying the operations subject to CDD).

### Failure to Complete CDD before commencing the Business Relationship (c. 5.15)
- There is no requirement in the AML/CFT framework to prohibit a financial institution to open an account, commence business relations, or perform transactions if it is unable to comply with all CDD requirements described in criteria c. 5.3. to c. 5.5.
- The only case where a financial institution is prohibited to commence business relations is related to the impossibility to identify the customer (Article 5.7 AML Law); this provision is narrower as it only covers identification and not full CDD.
- Pursuant to Article 9.1 of the new AML Law (as amended December 20, 2011) and requirements specified in updated FMS Decrees (January 2012), monitoring entities are obliged to immediately notify the FMS using the respective form (STR) if there are doubts regarding the authenticity of the identification data or identification of the client is not possible before establishing the relationship.

### Failure to Complete CDD after commencing the Business Relationship (c. 5.16)
- There is no specific requirement in the AML/CFT framework to terminate the business relationship where the financial institution has already commenced the business relationship and is unable to comply with CDD requirements described in criteria c. 5.3. to c. 5.5.
- Additional gaps:
  - i) in case an account is opened following Article 9 NBG Instruction 24/04 and the institution is unable to comply with CDD requirements when documents are received by post;
  - ii) where the financial institution has doubts about the veracity or adequacy of previously obtained identification data, the provision only refers to not carrying out the transaction but nothing is said on ending the relationship;
  - iii) where financial institutions are not able to apply CDD requirements to existing customers.
- Implementation: None of the financial institutions met declared that they have ever interrupted a relationship due to the lack of compliance with CDD measures.

### Existing Customers—CDD Requirements (c. 5.17)
- There is no specific provision to require that FIs apply CDD requirements to existing customers on the basis materiality and risk.
- The new requirements on ongoing CDD (Article 6.15) should infer CDD measures applied to all customers once FIs apply AML Law’s new provision appropriately.
- Article 15.5-1 on transitional provisions requires that FIs ensure the extension of requirements of Article 6, by December 2012, for clients and beneficial owners with whom the relationship existed as of January 1, 2012.

*Source: _cr1304 - 579.      Other non-banking financial institutions met by the assessors do not appear to implement this*

### 612.      Assessors consider that it is not the same to review client’s accounts prior to the enactment of

### _cr1304 - 612.      Assessors consider that it is not the same to review client’s accounts prior to the enactment of

### CDD look-back and implementation of new AML/CFT Law
- Assessors note a distinction between reviewing client accounts prior to the enactment of the new Law (December 2011) and reviews of customers’ data made before the first AML measures were implemented.
- A look-back at CDD procedures under the new AML/CFT Law should focus on more important business lines, clients, and risks.
- At the on-site visit, the legal framework did not include specific provisions on existing customers. Article 6.11 of the former AML Law required financial institutions “to update regularly existing identification data and bring those into compliance with the AML/CFT law requirements”, but:
  - The requirement referred only to “identification data” rather than full “CDD requirements”.
  - There was no reference to applying this requirement to existing customers at the date new requirements are brought into force on the basis of materiality and risk, making practical implementation difficult to do all at once.
- It was not possible for the mission to assess implementation of applicable provisions of the new law as it was put into effect after the mission.

### Existing anonymous-account customers (CDD Requirements c. 5.18)
- Anonymous accounts have been prohibited in Georgia since 2008; Article 6.7-1 AML Law prohibits “to open or maintain anonymous accounts.”
- The law did not require FIs to perform CDD measures on anonymous accounts that existed prior to 2008 and prior to the new 2011 AML/CFT Law.
- Implementation observations:
  - FIs indicated anonymous accounts were not commonly used in Georgia before 2008.
  - The NBG declared no anonymous accounts were present in the banking sector; on-site inspections and bank-provided information did not confirm existence of such accounts.

### Effectiveness of the CDD regime
- December amendments to the AML Law improved the legal framework for CDD measures.
- Nonetheless, the widespread view that ML/FT risks are absent in the financial sector, combined with gaps between the legal framework and FI practices, makes the CDD regime generally ineffective at preventing major ML/FT risks—especially regarding:
  - CDD applied to legal persons and legal arrangements.
  - Identification of beneficial ownership.
- Specific vulnerabilities and risk indicators noted despite FI confidence:
  - existence of customers which are offshore companies and whose beneficial owners are not verified;
  - nonresident deposits currently growing fast;
  - development of private banking activities including a clientele of foreign PEPs;
  - existence of large Georgian-led criminal organizations abroad known for having transferred proceeds to Georgia in recent years;
  - stated existence of a terrorist threat in relation to Abkhazia and Tskhinvali Region/South Ossetia;
  - domestic statistics demonstrating the existence of major proceeds-generating crimes such as corruption, tax evasion, drug, and human trafficking.
- Consequences of limited CDD implementation:
  - significant gap between legal framework and implementation;
  - systemic weakness in AML/CFT architecture;
  - explains part of poor quality of reports transmitted to the FMS, low number of convictions in major ML cases, and low level of confiscation.
- Noted inconsistency: If FIs/authorities claim low ML/FT risks, this does not reconcile with the relatively high number of STRs; low-quality STRs point to systemic compliance vulnerabilities.

### Recommendations and comments (authorities are recommended to)
- Regulate under the AML/CFT Law factoring activities, companies issuing meaning of payments such as credit and debit cards, and electronic money institutions.
- Issue regulations (FMS decrees) for leasing activities.
- Pass legislation on the issuing of bearer instruments (e.g., bearer checks).
- Either regulate or prohibit the use of numbered accounts.
- Ensure that in the case of numbered accounts, full CDD compliance is applied.
- Remove the identification threshold for customers to ensure all customers are identified and verified when establishing business relationships.
- Ensure representatives of legal entities are identified and CDD measures applied when these entities engage with money remittance and money exchange services providers.
- Ensure full CDD measures are equally applied to all bank financial groups’ customers, including those from representative offices; ensure legal status of foreign legal entities is adequately verified.
- Introduce a requirement in the AML/CFT law for FIs to understand the ownership and control structure of the customer in line with the UBO guidelines.
- Introduce a requirement in the AML/CFT Law to terminate the business relationship where the FI has commenced the business relationship and is unable to comply with CDD requirements described in criteria c.5.3. to c.5.5 of the common assessment methodology.
- Amend guidelines to clarify distinction between riskier financial products, services or customers and what should be detected as a “red flag” and consequently analyzed closely.
- Amend the AML/CFT Law explicitly stating when simplified measures may be applied; such measures should only be allowed for countries that effectively apply FAFT recommendations.
- Amend the AML/CFT Law to prohibit applying simplified CDD measures when there is a suspicion of ML/FT or in cases of high risks.
- Ensure FIs look back at all existing customers and apply CDD procedures according to the new AML/CFT Law focused on more important business lines, clients, and risks.
- With respect to trust services and foreign trust customers, ensure trustee clients and the settlors and persons who exercise the ultimate effective control of the trust and beneficiaries are identified.
- Ensure all providers of financial services are identified and CDD applied when operating with banks.
- Ensure FIs identify and verify and have an understanding of the ownership and control structure of the customer in all circumstances regardless of amount of transaction or ownership control.
- Ensure the new provisions of the AML/CFT law regarding identification and verification of the beneficial owner are applied and that all monitoring entities:
  - ensure FIs determine whether the customer is acting on behalf of another person; and
  - ensure FIs incorporate those persons who exercise ultimate effective control over a legal person or arrangement.
- Ensure effective implementation of measures on information of purpose and nature of business.
- Ensure full CDD measures are applied to all existing customers.
- Regulate cases where FIs may complete verification of identity of customers and beneficial owner after establishment of the relationship.

### Additional considerations authorities should consider
- Include prohibition of anonymous accounts in all FMS regulations (e.g., for insurance or securities companies).
- Clarify to FIs applicability for CDD with respect to business relations and occasional transactions.
- Review legal framework to ensure legal person’s representatives are always identified regardless of the type of financial entity providing the service.
- Create systems to recognize foreign trusts doing business in Georgia.
- Grant free access to data in the Civil Registry.
- Assist FIs to extend CDD measures on a risk-sensitive basis.
- Guide FIs to elaborate risk profiles on customers and products customized to Georgian economy and financial system characteristics.

### Compliance with Recommendation 5 — summary of factors underlying rating
- R.5          PC
- Key legal/regulatory deficiencies:
  - Electronic money institutions not covered.
  - No regulation developed for leasing companies (FMS decrees).
  - Numbered accounts neither regulated nor prohibited.
  - Existence of a minimum threshold for customer identification and verification.
  - No requirement to terminate the business relationship where the FI has commenced the business relationship and is unable to comply with CDD requirements.
  - No specific prohibition or regulation on simplified CDD or its application.
  - No specific prohibition to apply simplified CDD in cases of suspicion of ML/FT or high-risk scenarios.
  - Exception in the time of verification of customer’s identity not regulated.
  - No requirement to apply CDD measures to existing customers on the basis of materiality and risk, and to conduct CDD on such relationships at appropriate times.
- Implementation deficiencies:
  - Limited scope of implementation of ongoing due diligence measures.
  - Concerns about identification and verification of legal persons due to deficiencies in Recommendation 33 and NAPR.
  - Poor compliance with obligation to understand ownership and control structure in all circumstances.
  - Banks applying simplified CDD in some current account openings, including with countries not compliant with FATF standards.
  - Poor implementation of enhanced due-diligence for risky customers.
  - Very poor implementation of measures to identify legal arrangements.
  - Poor implementation of measures on information of purpose and nature of business.
  - Poor compliance with timing of verification of legal person’s identity.
  - Concerns on CDD applied to brokerage and other intermediaries’ customers operating through banks with omnibus accounts.
  - Impossible to assess implementation of the new AML/CFT framework (as amended on December 20, 2011) for requirements including:
    - requirement to determine whether the customer is acting on behalf of another person;
    - requirement to incorporate those who exercise ultimate effective control over a legal person or arrangement;
    - ongoing due diligence;
    - timing on verification after starting the business relationship;
    - identification and verification of CDD procedures on a risk-sensitive basis; and
    - application of new requirement to existing customers.
  - Concerns on adequacy of CDD when performed in banks’ offices of representation.
  - No identification carried out when legal entity representatives operate with money remittance companies.

### Foreign PEPs (Recommendations 6 and related criteria)
- Identification requirement (c. 6.1):
  - Article 6, para. 1 of the AML/CFT Law requires FIs to identify whether clients or their beneficial owner belong to the category of Politically-Exposed Persons (PEPs).
  - Updated FMS Decrees include similar provisions for commercial banks (Article 7.1), credit unions (Article 7.1), microfinance organizations (Article 7.1), money remittance organizations (Article 7.1), currency exchange bureaus (Article 6.1), securities registrars (Article 6.1), brokerage companies (Article 6.1), and insurance and non-state pensions schemes (Article 7.1).
  - Definition of PEP (Article 2.v): “Politically Exposed Person (PEP): foreign citizen, who has been entrusted with prominent public functions in a respective country and carries out significant public and political activities. They are: head of State or of government, member of government, their deputies, senior official of government institution, member of parliament, member of the supreme courts and constitutions court, high ranking military official, member of the central (national) bank’s council, ambassador, senior executive of state owned corporation, political party (union) official and member of executive body of the political party (union), other prominent politician, their family members as well as person having close business relations with them; a person shall be considered as politically exposed during a year following his/her resignation from the foreign position.”
  - AML Law Article 2.w and FMS decrees define “family member and close business associates.” Family member: “a spouse of a person, his / her parents, siblings, children (including step – children) and their spouses.” Close business relationship: “a natural person who owns or/and controls a share or voting stock of that legal entity, in which a share or voting stock is owned or/and controlled by the Politically Exposed Person (PEP); also, a person having other types of a close business relationship with the Politically Exposed Person (PEP).”
  - Scope is broad and covers standards; December 2011 amendments include a definition of customer/client that includes existing and potential customers (applies to PEP identification). The definition of close business relationship does not seem to cover legal arrangements.
  - Amended AML Law substitutes “permanent monitoring” with “enhance monitoring”; no guidelines provided yet on what enhanced monitoring involves.
  - FATF plenary has concluded (in context of EU Member States’ mutual evaluations) that the one-year limit threshold is not a material deficiency when there is a general obligation to apply enhanced D.D. to customers (including PEPs) who still present higher ML/FT risk, regardless of timeframe.

- Risk management (c. 6.2; 6.2.1):
  - Article 6-1. para. 2 AML/CFT Law requires that if a monitoring entity has a business relationship with a customer classified as a PEP (or his/her beneficial owner), it is required to “obtain permission from the management to establish a business relationship with such person.”
  - For existing customers who become PEPs after the relationship is established, Article 6, para. 3 requires FIs to follow the same steps as for new PEP customers, including management approval.
  - FMS Decrees require FIs to define specific procedures to seek information from the client to identify and check PEPs.
  - Note: AML/CFT Law requires approval at management level, not explicitly senior management level. Authorities referenced Law on Entrepreneurs (Article 9) where persons authorized as management (directors) are defined as senior management. Georgian term used is “ხელმძღვანელობა”, which authorities noted could be translated to imply senior management.

- Requirement to determine source of wealth and funds (c. 6.3):
  - Amended Article 6-1, para. 2.b requires monitoring entities “to take reasonable measures to establish the source of wealth (including funds) of PEPs and their beneficial owners.”
  - Similar provisions included in FMS Decrees/regulations across multiple sectors (securities registrars, microfinance institutions, exchange bureaus, credit unions, brokerage companies, money remittances, insurance sector) as detailed in relevant Articles of FMS Decrees.

- Ongoing monitoring (c. 6.4):
  - Amended Article 6-1, para. 2.c requires financial institutions to perform enhanced monitoring over business relationships with PEPs.
  - Similar provisions included in 2012 updated FMS Decrees for commercial banks (FMS Decree No. 4 Article 7), securities registrars (FMS Decree No. 5 Article 6), microfinance institutions (FMS Decree No. 7 Article 7), exchange bureaus (FMS Decree No. 1 Article 6), credit unions (FMS Decree No. 2 Article 7), brokerage companies (FMS Decree No. 6 Article 6), insurance and non-state pensions schemes (FMS Decree No. 3 Article 7), and money remittance (FMS Decree No. 8 Article 7).
  - In the absence of a definition of “enhanced monitoring,” assessing effective implementation is difficult.

- Domestic PEPs (additional element c. 6.5):
  - Domestic PEPs are not covered by the AML Law.

- Ratification of the Merida Convention (additional element c. 6.6):
  - Parliament of Georgia ratified the 2003 UN Convention against Corruption on October 10, 2008 under Resolution 337-H.

- Implementation observations for PEPs:
  - Legal framework exists requiring most FIs to identify clients or beneficial owners as PEPs, but lack of implementation of appropriate risk management systems and limited scope of enhanced monitoring create room for improvement.
  - FIs rely largely on information provided by customers.
  - Some banks use IT solutions to verify customers against international PEP lists; smaller banks and nonbank FIs often use web browsers on the internet, sometimes only occasionally.
  - Implementation is almost nonexistent for money remitters and currency exchange bureaus.

*IMF staff report content (section covering paragraphs 612–639).*

### 640.      The financial institutions met by the assessors indicated that, in the absence of a definition of

### _cr1304 - 640.      The financial institutions met by the assessors indicated that, in the absence of a definition of

### Politically Exposed Persons (PEPs): findings and effectiveness
- Legal/terminology issues:
  - At the time of the on-site mission, the AML Law wording referred to “permanent monitoring” instead of “enhanced monitoring.”
  - Financial institutions indicated that, in the absence of a definition of “permanent monitoring,” it is difficult to clearly understand their obligations.
- Implementation and practices:
  - Financial institutions mainly focus on identification of the individual PEP and do not consider situations where a PEP may be the ultimate beneficial owner or in the verification of the origin of wealth and funds.
  - The identification of a PEP as a shareholder of a legal entity is not common.
  - Some financial institutions have established internal procedures to more frequently monitor transactions carried out by these customers (in most cases, manually).
  - Verification of the origin of the funds is almost nonexistent; all institutions affirmed they rely on customer information to obtain the source of the funds.
  - Some institutions expressed difficulty in apprehending the concept of “reasonable measures.”
  - Managers approving the relation with PEPs were not always at senior managerial level.
  - Monitoring after identification often focused on increasing monitoring periodicity without further analyzing whether the operations and rationale of funds transfers correspond to the customer profile.
  - A one-year limit timeframe to identify PEPs restricts Georgian financial institutions’ effective management of ML/FT risks related to PEP customers.
- Effectiveness concerns:
  - The current legal framework and poor implementation pose a significant risk of misuse of the Georgian financial system by foreign PEPs, including laundering the proceeds of corruption.
  - One Georgian bank has a subsidiary in Belarus; two banks have representative offices in Israel dedicated to attracting nonresident clients to conduct business in Georgia.
  - Nonresident deposits increased from 6.2 percent in December 2008 to 11.8 percent in 2011.
  - One bank’s wealth management department counts customers from more than 50 countries, some identified as PEPs.
  - Business approach to nonresident customers often relies on the individual customers to disclose PEP status; verification typically uses international PEP databases but without clear implications for risk profiling.

### Cross-Border Correspondent Accounts and Similar Relationships: legal requirements and practice
- Definitions and recent regulations:
  - NBG Instruction 24: a correspondent account is an account opened by one bank for another and used for settlements between banks (Article 2 NBG Instruction 24); correspondent accounts have to be opened in headquarter banks.
  - Recently adopted Regulation for commercial banks (FMS Decree No. 4) includes Article 8 “On establishing correspondent relations by the bank.”
- Requirement to obtain information on respondent institution (c. 7.1):
  - Article 6.6 of the FMS Decree No. 95 required Georgian banks to obtain, before establishing the correspondent relation, information from public sources on the reputation of the respondent bank, the level of supervision, and the ML/FT risk that the agreement might imply.
  - NBG Instruction 24/04 Article 8 (domestic cross-respondent relationship) requires submission of: a) an application on opening an account signed by the authorized person; b) an extract from the registry; c) identification document and a sample of the signature, along with a copy of the banking license.
  - For a nonresident bank: a) an application, identification document, and sample signature; b) documentation that reflects the policy of the bank against ML/FT; c) other documentation in accordance with the internal procedure of the bank.
  - Amendments to the FMS decree (N4) extend provisions: new Article 8.1 requires banks seek information from public sources regarding respondent bank’s reputation (authorities indicated “reputation” includes investigation or regulatory action on AML/CFT), but there is no specific clarification or definition in the AML/CFT Law, FMS decrees, or guidelines.
- Assessment of AML/CFT controls in respondent institution (c. 7.2):
  - Article 6.6 of the FMS Decree required Georgian banks to request information on internal controls with respect to ML/FT risks; FMS Decree No. 4 maintains this requirement in Article 8.
  - Article 8.4.c) of NBG Instruction 24 requires documentation that reflects the policy of the bank against the legalization of illicit income and financing terrorism, and a standard questionnaire will be developed by the bank where the account is being opened.
  - AML/CFT Law does not require assessing that the respondent institution’s AML/CFT controls are adequate and effective. Amended FMS decree includes a direct requirement (Article 8.1) to request information on the degree of internal control and assess the level of such control.
- Approval and documentation (c. 7.3–7.4):
  - Article 6.7 of FMS Decree No. 95 and Article 8.2 of FMS Decree No. 4 require authorization of the bank directorate (curator director) to establish a correspondent relationship; Article 8.6 of Instruction 24 NBG includes the “authorized manager.”
  - Possible inconsistency on who is authorized (curator director vs authorized manager) but authorities indicate this is a translation issue; Georgian versions use same term.
  - Neither FMS Decree No. 4 nor Instruction 24 requires documenting the respective AML responsibilities of each institution.
- Payable-through accounts (c. 7.5):
  - Article 8.5 of Instruction 24 NBG: correspondent accounts may be opened only to banks; operation of “payable-through accounts” not envisaged and cannot be used directly by third parties.
  - Authorities confirmed PTAs do not exist in Georgian banks.
- Implementation practices and gaps:
  - Banks have developed a KYC questionnaire for prospective respondent banks covering management, business, and AML/CFT controls, but only one entity confirmed requesting information on possible AML/CFT investigations.
  - AML Law does not specifically require correspondent banks to check whether the respondent has been the subject of an ML/FT investigation; this was rarely included in KYC questionnaires.
  - Banks reported curator may be anyone responsible for international payments/operations; authorities informed curators are always members of the Board.
  - After establishing correspondent relationships, AML/CFT information on respondent banks is not updated; none of the Georgian banks have interrupted or considered reviewing relationships even when respondent banks were involved in ML investigations.
- Statistics on correspondent (loro) accounts (Source: NBG):
  - Armenia: 8
  - Azerbaijan: 5
  - Belarus: 1
  - Great Britain: 1
  - Iceland: 1
  - Kazakhstan: 1
  - Russia: 3
  - Ukraine: 2
  - Total: 22
- Effectiveness:
  - Georgian banks are aware of need to check internal controls before establishing correspondent relationships but generally do not update AML/CFT status post-establishment and have not taken action where respondent banks were involved in ML investigations.

### Misuse of New Technology and Non-Face-to-Face Business: legal framework and implementation
- Legal requirements:
  - Article 6.24 FMS Decree No. 95 required banks to have policies and procedures to control ML/FT risk from new technology.
  - December 2011 amendments to the AML Law extend requirements related to misuse of new technology to all monitoring entities, obliging them “to pay special attention to any threats that may arise from new technologies, products and service that might favor anonymity during the service,” and to take measures to prevent use of new technology “in legalization of illicit income and terrorist financing.” Updated FMS Decrees mirror this.
  - No guidance exists to assist financial institutions to implement this requirement.
- Non-face-to-face risk provisions:
  - Amended Article 6.16 AML Law requires monitoring entities to have identification and verification procedures to reduce risks associated with non-face-to-face services “under the Georgian legislation” and apply them before and after establishing the business relationship.
  - Article 6.23 of FMS Decree on banks requires banks to apply policies and procedures that reduce risks associated with non-face-to-face service when establishing a business relationship and when conducting permanent monitoring.
  - Assessors unclear about required policies/background checks because these provisions were introduced after the on-site mission.
- Implementation:
  - Amendments introduced after on-site visit; assessors could not ascertain implementation.
  - Main Georgian banks offer e-banking services; 7 to11 percent of bank customers utilize e-banking.
  - No limitation on operations through e-banking channel; FIs have not developed special procedures to mitigate potential risks.
  - Non-face-to-face account opening can be an exception regulated in Article 9.1 of the Instruction on Opening of Account and Foreign Currency Operation: banks can open accounts based on verified and legalized copies of documents received via postal mail if the customer is a person or legal entity having accounts in banks operating in OECD countries or a natural person that already holds accounts in other commercial banks in Georgia. Instruction 24 requires making the first payment from the existing identified account.
  - Entities do not apply special measures in relation to that case; pre-existing account in OECD country or Georgia considered less risky.
  - Assessors note some OECD members are listed by FATF as “countries with strategic AML/CFT deficiencies.”
- Pay boxes and electronic payment systems:
  - Pay boxes are widely used and growing; it might be possible to cash in up to GEL 10,000 in a pay box (private sector representatives).
  - Pay box services allow cash deposits to transfer to a Georgian bank account, a money remitter, e-money companies, or internet casinos.
  - According to NBG, there are plans to regulate pay boxes in the future.
  - Authorities stated all pay boxes have limits for performing deposits on bank accounts because banks limited the transaction; thresholds vary from GEL 1,000 to GEL 3,000 and theoretically are defined by the commercial bank themselves due to AML/CFT law requirements.
  - However, there are no limitations outside of the banking system; possibility of cash placement plus anonymity from pay boxes creates an ML/FT risk.
  - Authorities estimate pay boxes are used mainly for utility payments; volume per month of one of the biggest electronic money institutions is GEL 177,000.
- Effectiveness:
  - At the time of the on-site mission, effective AML/CFT regulation on new technologies was very general and vague.
  - Non-existence of special procedures by FIs to manage new technologies and non-face-to-face transactions.
  - Possibility to open a non-face-to-face account de facto in case of pre-existence of an account in Georgia or in an OECD country; concerns about scope of ongoing CDD measures and potential misuse of electronic payment systems not under NBG supervision.

### Recommendations (text as in source)
- Recommendation 6 — Authorities are recommended to:
  - Ensure that EDD apply when PEPs are beneficial owners of legal arrangements
  - Ensure that financial institutions take reasonable measures to ascertain the source of wealth of the customer and their compliance with the new AML requirements for PEPs.
  - Ensure that FIs apply enhanced ongoing monitoring in business relationships with PEPs.
- Recommendation 6 — Authorities should consider to:
  - Clarify the definition of “reasonable measures.”
  - Perform targeted on-site inspections to ensure that foreign PEPs (and relevant domestic PEPs) are not misusing the Georgian financial sector.
  - Provide guidance to FIs on the required “enhanced monitoring” measures to be applied to PEPs.
  - Amend the AML/CFT Law in order to introduce in the article related to PEPs the specific requirement for FIs to put in place appropriate risk-management systems, as it is mentioned in the FMS decrees, or a reference that Art 6.13 applies as PEPs are considered high-risk customers.
- Recommendation 7 — Authorities are recommended to:
  - Require that financial institutions that engage in correspondent banking activities document the respective responsibilities of each institution.
  - Ensure that correspondent relationships are approved by senior management.
  - Ensure that financial institutions periodically monitor their correspondent banking relationships with respect to AML/CFT issues and assess the possible reputational risks arising from those relationships.
- Recommendation 7 — Authorities should consider to:
  - Clarify that, when determining the reputation of a respondent institution, financial institutions should also determine from publicly available information if the respondent institution has been subject to a money laundering or terrorist financing investigation or regulatory action.
- Recommendation 8 — Authorities are recommended to:
  - Ensure that entities have in place identification and verification procedures and develop enhanced measures to control and mitigate non-face-to-face business relationships and the use of new technology risks for all FIs.
  - Ensure that entities apply adequate ongoing CDD to non-face-to-face customers.
  - Clarify and issue guidelines on the use of non-face-to-face channels.
  - Ensure that AML/CFT provisions cover the operations regulated in the Instruction on Opening of an Account and Foreign Currency Operation which allows under certain circumstances to open a current account without physical presence and send the documentation by postal mail.
  - Ensure that AML/CFT provisions cover all electronic payment systems, including electronic payment points and electronic money institutions.
- Recommendation 8 — Note:
  - June 2012: Authorities informed that the draft Law on Payment systems has recently been adopted by the Parliament.

### Compliance with Recommendations 6 to 8 — ratings and underlying factors
- R.6 — LC
  - The definition of close business relationship with PEPs does not cover legal arrangements.
  - Implementation concerns:
    - Concerns about the risk procedures applied for the identification of PEPS in medium/small banks and in non-banking financial entities.
    - Poor implementation on the approval by a senior management.
    - Poor verification of funds and wealth.
    - The absence of enhanced ongoing due diligence measures applied to PEPs, in conjunction with the time-frame constriction of the AML/CFT Law, restrict Georgian financial institutions’ effective management of the ML/FT risks related to that segment of customers.
  - Impossible to assess implementation of the measures introduced by the AML law amendments to apply to PEPs potential customers and PEPs as beneficial owners.
- R.7 — PC
  - No requirement to document the respective AML responsibilities of each institution.
  - Implementation concerns:
    - Poor implementation for a correspondent relationship to be approved by a senior manager.
    - Poor assessment that the respondent institution’s AML/CFT controls are adequate and effective.
    - No information about whether the institution has been subject to an ML/FT investigation prior to establishment of the correspondent relationship.
    - In the case of a respondent bank involved in a ML/FT investigation no actions taken by the correspondent institution.
    - Concerns whether banks ascertain ML/FT risks in correspondent relationships.
- R.8 — PC
  - Electronic payment system not covered by the AML/CFT Law, including pay box and electronic money institutions.
  - Implementation concerns:
    - Non-existence of special procedures applied by FIs to manage the risk of new technologies and of non-face-to-face transactions.
    - Possibility to open a non-face-to-face account, de facto, in the case of pre-existence of an account in Georgia or in an OECD country.
    - Concerns about the implementation and the scope of ongoing CDD measures.
    - Concerns about the possible misuse of some electronic payment systems that are not under NBG supervision.

*Source: _cr1304 - 640.*

### 677.      In Georgia, it is permitted for FIs to rely on intermediaries or other third parties to perform

### _cr1304 - 677.      In Georgia, it is permitted for FIs to rely on intermediaries or other third parties to perform

### Reliance on Third Parties (Requirement to Immediately Obtain Certain CDD elements from Third Parties; R.9)
- Legal basis:
  - Article 6.11 of the AML/CFT Law (amended in December 2011) permits monitoring entities to rely on a third person/intermediary to carry out identification and verification, maintain documents (copies), and be subject to AML/CFT supervision and regulation.
- Identified shortcomings relative to the standard:
  - Article 6.11 has a narrower scope than the standards; it does not include a specific requirement related to immediately obtaining the necessary customer’s information (para. 679).
  - Article 6.11 mentions access to client identification documents but does not explicitly include beneficial owner identification data or “other relevant documents relating to CDD” (paras. 680–681).
  - The AML Law does not require that financial institutions be satisfied that the third party has measures in place to comply with the CDD requirements set out in R.5 and R.10 (para. 682).
  - No requirement that competent authorities consider whether the country where the third party is based adequately applies the FATF Recommendations (para. 683).
  - Ultimate responsibility for customer identification and verification remains with the financial institution relying on the third party (para. 684).
- Implementation and effectiveness issues:
  - In consolidated groups, banking, insurance, and securities activities are separated into different subsidiaries that carry out CDD independently (para. 685).
  - Amendments to the AML Law were introduced after the assessors’ on-site visit; assessors cannot ascertain implementation (para. 686).
  - Reliance on CDD performed by banks’ representative offices staff raises concerns; banks have not developed special procedures for this business channel (para. 687).
- Recommendations (para. 688):
  - Require that financial institutions are satisfied that the third party has measures in place to comply with the CDD requirements set out in R.5 and R.10.
  - Amend the AML/CFT law to require financial institutions relying on third parties immediately to obtain from the third party the necessary information related to all CDD process.
  - Require that financial institutions relying on third party immediately to obtain access to other relevant documents relating to CDD.
  - Require that financial institutions relying on third party to obtain access to information on beneficial owner.
  - Ensure that competent authorities take into account information available on whether the countries in which the third party can be based adequately apply the FATF Recommendations.
- Compliance summary with Recommendation 9 (para. 3.3.3):
  - Rating: R.9 PC
  - Factors underlying rating:
    - No requirement to immediately obtain from the third party necessary information related to all elements of the CDD process.
    - No requirement to grant access to other relevant documents relating to all elements of CDD.
    - No requirement to grant access to information related to beneficial owner.
    - No requirement that FIs are satisfied that the third party has measures in place to comply with the CDD requirements.
    - No requirement that competent authorities take into account information available on whether the countries in which the third party can be based adequately apply the FATF Recommendations.

### Financial Institution Secrecy or Confidentiality (Recommendation 4)
- Legal framework and scope:
  - Secrecy provisions present in sectoral laws: Article 17 of the Law on Activities of Commercial Banks; Article 10.2 of the Law on Microfinance Organizations; Article 32(2) of the Law on Securities Markets; Article 29 of the Law on Insurance; Article 16 of the Law on Credit Unions (para. 689).
  - Secrecy lifted for supervision by NBG (Article 17.1 of the Law on the Activities of Commercial Banks) and for reporting (Article 12.4 of the AML Law) and providing additional information to the FMS (Article 10.4.a of the AML Law) (para. 690).
- Access to information by competent authorities:
  - Article 17.1 prohibits revealing a bank’s confidential information but allows disclosure to the National Bank within appropriate responsibilities (para. 691 and footnote text).
  - Article 17.2 allows disclosure to respective account holders and their representatives, and in cases specified by legislation to the Financial Monitoring Service of Georgia (FMS) and Executive Authority in the course of implementing decisions provided for in the Law of Georgia on Executive Proceedings (para. 692).
  - Article 10.2 (Microfinance) limits disclosure to borrower, representative, NBG, and cases defined under the legislation to the FMS; other persons require a court order or prior customer consent (para. 693).
  - Article 10.4.a of the AML Law authorizes the FMS to request and obtain additional information and documents (original or copy), including confidential information, from all monitoring entities and to forward questions and obtain information from state and local bodies, and from any individual or legal entity exercising public legal authority; “Other persons” is interpreted to include LEAs under a court order (para. 694).
  - Article 16 (Credit Unions) and Article 32(2) (Securities Markets) contain similar confidentiality provisions but allow supervisory access for supervisory functions (para. 695).
- Lex specialis and practical access:
  - Authorities state the AML Law prevails over sectoral laws on confidentiality where AML matters are involved (lex specialis); thus no impediment for FMS to obtain customer information from monitoring entities under the AML Law (para. 696).
  - Article 11.2 and Article 11.23 of the AML law provide for domestic supervisory cooperation and information sharing; an MOU between NBG and FMS (May 2006) sets out exchange of inspection and reporting information (para. 697).
- Exchange of information between financial institutions (R.7, R.9, SR.VII):
  - Obligations for banks re wire transfer rules and correspondent banking relationships in Article 6 of the FMS Regulation and Article 6, para. 6 of the FMS Decree; reliance on third parties addressed in Article 6.10 of the AML Law (para. 698).
- Implementation and effectiveness:
  - NBG and FMS carry out AML inspections and obtain information without impediment; financial institutions cooperate when disclosure conditions are met (para. 699).
  - Banks commonly include broad contractual clauses allowing transmission of customer information to receiving financial institutions; if customers refuse, banks will not proceed with the transaction (para. 700).
  - For nonbank FIs (microfinance, securities, insurance), R.7 and SR.VII not applicable; reliance on third parties and transfer of customer information is based on customer consent—without consent the transaction will not proceed (para. 701).
  - FMS has not encountered challenges to obtaining information from monitoring entities; provision of information to judicial or investigative agencies is subject to a court order (para. 702).
- Recommendations (para. 703):
  - Ensure the AML Law and the sectoral laws for all licensed financial institutions contain consistent provisions (and exceptions) relating to confidentiality to ensure legal clarity for the FMS’ access to financial institutions’ records.
  - Amend sectoral laws to allow financial institutions to exchange and share information for the purpose of Recommendation 9 and Special Recommendation VII for AML purposes, even in the absence of customer consent.
- Compliance summary with Recommendation 4 (para. 3.4.3):
  - Rating: R.4 LC
  - Factor underlying rating:
    - No specific provision allowing financial institutions to exchange and share information for the purpose of Recommendation 9 and Special Recommendation VII.

### Record-Keeping and Wire Transfer Rules (Recommendation 10 & SR.VII)
- Legal framework:
  - Article 6 and 7 of the AML Law.
  - Sectoral laws and multiple FMS Decrees and NBG regulations listed (para. beginning of 3.5); specific instruments include:
    - FMS Decrees (various, including new FMS Decree No. 4, No. 7, No. 8, No. 2 referenced after December amendments).
    - Financial Supervisory Authority Decree No.17, Addendum No. 1.
    - NBG Order 242/01 on Determining and Imposing of Pecuniary Penalties on Commercial banks.
    - NBG regulation on Cash-less Operation N 166 June, 2007.
  - Wire transfers/funds transfers defined in NBG regulation on Cash-less Operation N166 June, 2007 as “operation of cash-less payment, when transfer of funds from the bank account of a payer to the payee is undertaken through banking or other settlement technologies.” The scope covers electronic transactions including credit and debit card transactions (para. under Legal Framework).
- Record-keeping requirements (paras. 704–707):
  - Article 7, para. 3 of the AML Law requires monitoring entities to retain information (documents) on transactions as well as records related to unusual transactions and transactions from banks, insurance companies, and broker companies with watch zones and suspicious zones, regardless of whether transactions executed in name of client or third parties, “for at least six years from the moment of concluding or implementing the transaction, if there is no request from the respective supervisory authority for retaining that information for a longer period of time.” (para. 704).
  - Article 6.6 requires monitoring entities to record information on the content of the transaction subject to monitoring, date and place of the transaction, amount and the document used to identify the person involved, and to identify the person on whose order the transaction is concluded. For transactions made on behalf of a third person, the monitoring entity should also keep information to identify the person by whom the transaction is being undertaken (para. 705).
  - Article 7.4 requires documentation to be recorded and filed “in a way where all its data fully reflect the concluded or implemented transactions and, when needed, can be submitted to the respective supervisory body in a timely manner, and in the event of criminal prosecution, is used as evidence” (para. 706).
  - Article 7.4 and FMS decrees enumerate transaction data to be recorded, including:
    - i) content of operation; ii) date of operation execution, amount and currency; iii) identification details of person based on whose order the Bank implements operation, including type, number and opening date (closing date if necessary) of the bank account(s) used; iv) other party to the operation and its bank account details; v) identification details of the person acting on behalf of the Bank’s client, and power of attorney details; vi) if transaction is in favor of a third person—identification details of such person; vii) basis for operation implementation (para. 707, bullet list).
  - Microfinance-specific additional requirements under FMS Decree No. 10 include: i) second party to the operation and bank account details; ii) basis for operation implementation; and when recording transactions representing the basis for implementation, document: i) type of transaction; ii) subject of transaction; iii) form of transaction; iv) purpose of transaction; v) identification details of persons involved; vi) date and place of concluding transaction and validity period (para. 707, Microfinance paragraph).

*Source: _cr1304 - 677. In Georgia, it is permitted for FIs to rely on intermediaries or other third parties to perform*

### 708.      In addition to previous information required to be kept, by FMS Decree No. 2, in case of a

### _cr1304 - 708.      In addition to previous information required to be kept, by FMS Decree No. 2, in case of a

### Record-keeping obligations and retention periods
- Credit Unions (by FMS Decree No. 2) must keep identification details of a partner on whose order the Credit Union implements transactions, when the transaction is subject to registration — including: name of the registering authority, registration data, place, number, and purpose of the transaction. Documentation must be kept in both hard and electronic copy.
- Exchange bureaus must keep two additional documents: (i) the second copy of the foreign exchange receipt related to the operation subject to monitoring; and (ii) the reporting forms submitted to the FMS. These documents should be kept at least six years from the moment of the execution of the transaction.
- The supervisory authority (NBG) alone may request an extension of record-keeping periods; the FMS and other competent authorities do not have this power.
- Pursuant to Article 23 of the Law on Commercial banks, the NBG has extended record-keeping obligations up to 15 years for the following documents (to be kept in electronic format):
  - applications and all contractual documents pertaining to the transaction (including credit, guarantee and collateral agreements);
  - the financial records of bank’s counterparties (including borrowers and guarantors), and any other documentary evidence on which the bank relied in approving the transaction;
  - the signed written record of the bank’s decision in approving the transaction;
  - other documents as the National Bank of Georgia may specify by regulation.
- Article 7 of the AML/CFT law requires monitoring entities to keep identification information (electronic or paper) for no less than six years from the moment of breaching–ending the business relationship, unless the respective supervisory authority sets a longer term.
- The new Georgian AML law introduced a record-keeping obligation for monitoring entities to maintain records of account files and business correspondence in electronic or documentary form for six years; extension power rests with the NBG only.

### Availability of records to competent authorities and access
- Article 7.4 requires financial institutions to submit information kept on transactions and customers to the supervisory authority in a timely manner.
- The supervisory authority in Article 7, para. 4 is the NBG. Article 10.4 empowers the FMS to request and obtain from “monitoring entities” additional information and documents; law enforcement authorities can access the information through a court order.
- NBG affirmed it has never encountered difficulty accessing documents; inspections have imposed administrative fines for record-keeping violations (examples summarized below).

### Sanctions examples (years and amounts recorded in the source)
- 2011:
  - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process — Amount of fine: 5,400 (Currency Exchange Bureaus)
  - Violation of the record-keeping obligation — Amount of fine: 173,400 (Currency Exchange Bureaus)
  - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process — Amount of fine: 900 (Microfinance Organization)
  - Violation of the record-keeping obligation/copy of identification doc — Amount of fine: 200 (Entities Performing Money Remittance Services)
- 2010:
  - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process — Amount of fine: 40,000 (Banks)
  - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process — Amount of fine: 7,450 (Currency Exchange Bureaus)
  - Violation of the record-keeping obligation/copy of identification doc — Amount of fine: 800 (Currency Exchange Bureaus)

### Implementation observations and effectiveness
- Financial institutions reported confusion under the former AML Law Articles 7.1 and 7.2 about whether to retain documentation in electronic form, hard copy, or both. FMS indicated either system is acceptable as long as information is retained.
- The amended AML/CFT Law (as amended on December 20, 2011) incorporates both electronic and paper retention possibilities.
- In practice, financial institutions reported they keep customer identification data for more than six years from the time the customer started operating with them, in both electronic and hard copy — which appears inconsistent with the AML Law obligation to keep data for more than six years following the end of the relationship.
- Assessors were unable to check implementation of the record-keeping policies related to account files and business correspondence because that requirement was introduced by the AML/CFT Law amendment on December 20, 2011, after the on-site visit.
- Shortcomings in CDD measures, particularly in identifying and verifying ultimate beneficial owners, impair effective implementation of record-keeping requirements. Available information appears insufficient to permit reconstruction of individual transactions, especially those involving offshore jurisdictions.

### Special Recommendation VII — originator information for wire transfers
- Article 6.1.b of the AML/CFT law (as amended on December 20, 2011, in force January 1, 2012) obliges monitoring entities to identify all business-related persons for transactions exceeding GEL 1,500, or its equivalent in another currency in the case of transactions implemented through SWIFT or similar networks. (Footnote in source: Approximately US$930.)
- In Georgian law only banks, money remittances, and microcredit institutions can carry out wire transfers.
- FMS Decree No. 4 for banks requires recording on the originator: name, account number or person unique number, and address (address may be substituted by ID/passport number or date and place of birth and the identification number of taxpayer).
- Same provisions apply to money remittances (FMS Decree No.1 Article 6.1) and microfinance entities (FMS Decree No. 10 Article 7).
- Legislation does not distinguish between domestic and cross-border transfers; the same full originator information is compulsory for both.
- FMS Decree No. 4 for Commercial Banks (Article 8.5) requires intermediary banks to ensure transfer of the person’s identification data from the paying Bank to the beneficiary Bank. Similar provisions are in FMS Decree No. 7 for Microfinance and FMS Decree No. 8 for Money remittance entities.
- If it is not feasible to transmit originator information for technical reasons, intermediary must retain payer’s identification data for six years. The provision does not limit retention as a temporary measure, creating a risk that intermediaries could keep information without sending it.
- There is no requirement that beneficiary institutions adopt effective risk-based procedures for handling wire transfers not accompanied by complete originator information.
- NBG is the designated supervisory authority for banks, microfinance organizations, and entities performing money remittance with respect to AML compliance, including wire transfers.
- NBG guidance and the “NBG banks On Site Inspection Methodic manual concerning the Prevention of Illicit Income Legalization” indicate wire transfers and electronic transfers are checked during on-site inspections; review tends to be based on formal compliance with SWIFT copy records.
- NBG supervision staff indicated wire transfers are covered under prudential inspection procedures, but for banks there is room to elaborate specific AML/CFT inspection procedures for wire transfers.
- Authorities informed assessors that sanctions imposed on CDD would include wire transfer violations, but NBG does not differentiate statistics; assessors received only general record-keeping violation statistics without differentiation for wire-transfer-related sanctions.

### Implementation and effectiveness for wire transfers
- Financial institutions indicated they identify customers and keep copies of identification documents for transactions above the GEL 1,500 threshold. All commercial banks are SWIFT members; almost all implemented the new cover payment form.
- Reported missing incoming transfer information most commonly: address and sometimes account number. General practice: request missing information and settle the transfer; firms reported all missing information was provided once requested. No reports were submitted to the FMS for missing originator information.
- Financial institutions did not appear to consider restricting or terminating business relationships if originator information was not provided.
- Almost all FIs use the new SWIFT form to include cover payment information.
- Assessors found low awareness among FIs to apply AML/CFT controls for wire transfers; most monitoring is manual and focused on classified risk, watch-zone countries, PEP customers, or transactions exceeding reporting thresholds. No specific sanctions were identified by assessors for the FIs visited.

### Recommendations (from the source)
- Recommendation 10 — Authorities are recommended to:
  - Empower other competent authorities than the NBG to request an extension of the record keeping obligations.
  - Ensure FIs implement AML requirements in an adequate way, especially regarding the time reference applied to record keeping requirements of the AML Law.
  - Consider clarifying the requirement regarding how information should be kept, and provide guidance to FIs on key information or documents to be kept to facilitate reconstruction of transactions and provide, if necessary, evidence for prosecution of criminal activity.
- Special Recommendation VII — Authorities are recommended to:
  - Ensure that all domestic and cross-border transfers are adequately monitored and supervised in terms of ML/FT risk management.
  - Amend the AML/CFT law and FMS Decrees to ensure that there is an obligation for the intermediary to transmit the originator information along the messages chain without any exception.
  - Require beneficiary institutions to adopt effective risk-based procedures for identifying and handling wire transfers not accompanied by complete originator information, including consideration to report to the FMS and to restrict or terminate the business relationship with counterpart financial institutions failing to meet SR.VII standards.
  - Ensure that nonbanking institutions carrying out wire transfer are compliance with the AML/CFT Law.
  - Consider developing guidelines to assist FIs in understanding the relationship of wire transfers to the monitoring process and to ensure the accuracy of the data received with regards to the originator information from incoming transfers received by the FIs.

### Compliance ratings and key factors (as given in the source)
- R.10 — LC
  - Factors:
    - No other competent authorities, apart from NBG, are empowered to request an extension of the record-keeping obligations.
    - Implementation shortcomings: improper implementation of record-keeping measures by FIs related to time references and types of documents; no specific guidance on “the key documents” to ensure reconstruction of transaction cycles; no record-keeping obligations applied to electronic money institutions.
    - Effectiveness: shortcomings in CDD, particularly in identifying and verifying ultimate beneficial owners, impair record-keeping effectiveness.
- SR.VII — PC
  - Factors:
    - Ambiguous obligation for the intermediary to transmit originator information.
    - No requirement for beneficiary institutions to adopt effective risk-based procedures for identifying and handling missing/incomplete originator information, or to consider whether such transfer is suspicious.
    - No reporting obligations fulfilled for missing originator information.
    - No sanctions imposed for non-compliance with the reporting obligation in cases of missing/incomplete originator information.
    - Implementation: poor FI internal controls on wire transfers (national/cross-border) for AML/CFT purposes.

*Source: _cr1304 - 708.      In addition to previous information required to be kept, by FMS Decree No. 2, in case of a (IMF PDF content provided).*

### 740.      The AML Law and the FMS Decrees for various monitoring entities obliged to report

### _cr1304 - 740.      The AML Law and the FMS Decrees for various monitoring entities obliged to report

### Types of reports required to be filed to the FMS
- Four categories of transactions that should be reported to the FMS or require special attention by “monitoring entities” under the AML law:
  - Suspicious Transactions Reports (STRs) — to be filed to the FMS by all monitoring entities (see Recommendation 13 and SR.IV).
  - Threshold Transactions or Cash Reports (CTR) — exceeding GEL 30,000 from all monitoring entities, including customs reporting cross-border transportation of cash exceeding this amount (see Recommendation 19 and SR.IX).
  - Unusual Transactions Reports (UTR) — from all monitoring entities require special attention to ascertain the purpose of the transaction (see Recommendation 11).
  - “Reporting” of certain transactions related to watch or suspicious zones — from banks, insurance companies, and security brokers as specified under Article 5.9 and Article 5.2 of the AML Law (see Recommendation 21).

### Monitoring entities (scope and changes)
- Financial institutions subject to preventive measures including STR reporting:
  - commercial banks; insurance and reinsurance companies; non-state pension schemes; asset management companies; securities independent registrars; securities brokerage companies; money remitters (including postal organizations to the extent they carry out wire transfers); currency exchange bureaus; microfinance organizations; and credit unions.
  - Insurance brokers are indirectly subject to AML/CFT requirements.
  - Electronic money institutions are not considered monitoring entities and are not required to report.
  - Leasing companies were included under the list of monitoring entities in the amended AML/CFT Law of December 2011.
- Monitoring entities as defined under Article 3 additionally include:
  - the National Agency of Public Registry (NAPR); and
  - the Revenue Service including Customs.
- Revenue Service including customs sending declaration forms as CTRs was treated under SR.IX; NAPR reporting treated under Section 4 on DNFBPs (effectiveness section).

### Definitions and obligations regarding unusual, complex, and suspicious transactions
- Article 5.9 requires monitoring entities to “pay special attention to unusual transactions, and transactions determined under paras. 2.c, 2.d, 2.1.c, and 2.2.d of Article 5, which do not have apparent or visible economic (commercial) content or lack lawful purpose, and ascertain the purpose of such transaction within the scope of their capability and register obtained results in writing.” (amendment introduced March 2008).
- Definition introduced in March 2008 under Article 2.h-1:
  - “complex, unusual large transaction, also types of transactions, which does not have apparent or visible economic (commercial) content or lack lawful purpose and is consistent with the ordinary business activity of the person involved therein.”
- Assessment observations:
  - The “unusual pattern of transactions” has not been covered in accordance with the standard.
  - FMS Decrees (amended March 2008) to various entities (banks; insurance companies; securities; exchange companies; Credit Unions; Money Remittance Entities; Brokerage companies; Microfinance companies) include the same requirement (referenced Articles listed in source).
  - FMS developed two forms: the Threshold Reporting Form and the Suspicious Reporting Form; both forms contain a box for reporting unusual transactions.
- Article 5.10 requires monitoring entities to “determine themselves the principles for identifying unusual transactions of persons having business relationship with them”.
  - Identifying unusual transactions is left to monitoring entities’ appreciation; no clear requirement to make such transactions available to auditors.

### Examination and record-keeping of findings
- Article 5.9 and FMS Decrees (amended March and August 2011) require relevant financial institutions to “ascertain the purpose of the transaction within the scope of their capability and register obtained results in writing”.
- Article 7.3 retention requirement:
  - monitoring entities “should be required to retain information (documents) on transactions, as well as records provided for in Article 5.9. for not less than six years from the moment of concluding or implementing transaction, if there is no request from the respective supervisory authority for retaining those for a longer period or/and if longer period for retention of such information (documents) is not set under the Georgian legislation.”
  - Authorities interpret “records” under Article 7.3 to include transactions and results of ascertaining the purpose of the transactions registered in writing.
- Implementation findings:
  - No guidelines provided to financial institutions to assist in identifying unusual transactions; the principles are left to misinterpretation.
  - No clear requirement in the AML Law or FMS Decrees to make such transactions available to external auditors.
  - Both reporting forms include a box for unusual transactions, and many FIs report unusual transactions automatically instead of examining background and purpose, negatively affecting quality of reporting; such results are not made available to auditors.

### Watch zones, suspicious zones, and related reporting requirements
- Article 2.e defines watch zone or non-cooperative zone as “country or a part of the territory” “identified as such on the basis of the information provided by competent international organization, or if the grounded supposition exists that in such zone weak mechanisms for controlling illicit income legalization are effective”. Competent international organizations are determined under Article 2.f as “the Council of Europe, FATF, and other organizations recognized as such by the international community”.
- Article 5.2 requires commercial banks to monitor suspicious transactions and those concluded or implemented by a person and/or series of transactions resulting from partition of the transaction, if its amount or the series of transactions exceeds the threshold of GEL 30,000 or its equivalent in other currency, specifically:
  - Article 5.2.c — “transfer of funds by the account holder from the bank operating or registered in watch or suspicious zone to the bank account in Georgia or transfer of funds from Georgia to account in the bank operating or registered in such zone”.
  - Article 5.2.d — “extension or receipt of loan by the person registered in watch or suspicious zone, or implementation of any other transaction (operation) by such person through banking institution operating in Georgia.”
  - Article 5.2.1.c — extends same requirements to broker company regarding “transactions implemented in securities by person residing and registered in watch or suspicious zone or/and through use of bank account operating in such zone”.
  - Article 5.2.2.d — extends same requirement to insurance companies regarding “transaction implemented by person residing and registered in watch or suspicious zone or/and through use of bank account operating in such zone.”
- Article 2.h (suspicious transaction definition prior to December 2011 amendment):
  - lengthy definition starting “a transaction (regardless of its amount and operation type) supported with reasonable grounds to suspect that it had been concluded or implemented for the purpose of legalizing illicit income or/and the property ... or any involved person’s legal or real address or place of residence is located in a non-cooperative zone and the transaction amount is transferred to or from such zone.”
  - Authorities clarified there are no countries identified as non-cooperative zone.
- December 2011 amendment to the definition adjusted wording to include financing terrorism (FT) and terrorist organizations.
- Assessment finding:
  - Different provisions are confusing for financial institutions; unclear whether they need to pay special attention or report transactions related to watch and suspicious zones.
  - FMS reporting forms include boxes for transactions from watch and suspicious zones, increasing confusion.

### Watch zone list and shortcomings
- The list of watch zone countries was updated and adopted by a Presidential Decree of August 24, 2011. It includes 42 countries:
  1. Afghanistan
  2. Anguilla
  3. Antigua and Barbuda
  4. Barbados
  5. Guatemala
  6. Grenada
  7. Guam
  8. Dominica
  9. Iraq
  10. Vanuatu
  11. the Turks and Caicos Islands
  12. India
  13. Indonesia
  14. Iran
  15. Cape Verde
  16. Cayman Islands
  17. Columbia
  18. Republic of Korea (North Korea)
  19. Cook Islands
  20. Lebanon
  21. Liberia
  22. Marshall Islands
  23. Myanmar (Burma)
  24. Micronesia
  25. Montserrat
  26. Nauru
  27. Nigeria
  28. Niue
  29. Pakistan
  30. Palau
  31. Samoa
  32. Seychelles
  33. Saint-Lucia
  34. St.Vincent and the Grenadines
  35. St. Kitts and Nevis
  36. Syria
  37. Sudan
  38. Tahiti
  39. Tajikistan
  40. the Philippines
  41. Northern Mariana Islands
  42. Djibouti
- The Presidential Decree requires the FMS to update the list at least annually and submit it to the NBG.
- FMS stated the list was created based on the United States State Department list and IMF assessments; the Presidential Decree was published on the FMS website.
- Assessment observations regarding the list:
  - The list does not include all countries identified by the FATF as not or insufficiently applying FATF Recommendations under the International Cooperation Review Group.
  - Some countries that are FATF members with no serious AML/CFT deficiencies were included (example: India and Tahiti).
  - Some countries identified in the FATF public statement (example: Turkey) are not included.
  - The list is published but does not include specific concerns about weaknesses in the AML/CFT systems of the 42 watch zone countries.
  - Analysis of weaknesses is developed and communicated between the FMS and NBG but is not communicated to financial institutions.
  - Article 2.o of the AML/CFT Law defines suspicious zones as determined by monitoring entities based on information available to them.

### Examinations and countermeasures relating to countries not sufficiently applying FATF Recommendations
- Article 5.9 and FMS Decrees require relevant FIs to “ascertain the purpose of the transaction within the scope of their capability and register obtained results in writing.”
- Requirements do not extend to examining the transaction background and there is no clear requirement to make such transactions available to auditors.
- There is no mechanism in Georgia to apply appropriate counter-measures to countries that do not apply or insufficiently apply the FATF Recommendations.
- Implementation summary:
  - Watch zone determination and certain FI obligations exist, but limited to specified transaction types and threshold monitoring (GEL 30,000).
  - No broader countermeasures mechanism is in place.

*Source: _cr1304 - 740.      The AML Law and the FMS Decrees for various monitoring entities obliged to report*

### 771.      The requirement of paying special attention to certain transactions related to watch zone

### _cr1304 - 771.      The requirement of paying special attention to certain transactions related to watch zone

### Background and recent amendments
- The requirement to pay special attention to certain transactions related to watch zone countries was introduced in the AML Law in 2008, and FMS Decrees were amended to reflect the AML Law amendment. (¶771)
- Recently-adopted provisions of the AML Law and FMS Decrees are limited to specific transactions above the threshold detailed above. (¶772)
- Forms for reporting are not clear and include boxes in the breakdown of threshold and suspicious transactions. (¶772)
- The list of countries on the watch zone includes 42 countries that do not match with the ones identified by the FATF ICRG process. (¶773)

### Analysis of effectiveness and implementation weaknesses
- The recently-adopted requirements for unusual transactions and those related to watch zone are described as neither clear nor comprehensive. (¶774)
- STR and CTR forms developed by the FMS are confusing since they include a breakdown of unusual and watch zone transactions. (¶774)
- No guidelines were provided to financial institutions on:
  - identifying and paying attention to unusual and watch zone transactions;
  - examining purpose and background;
  - keeping findings in writing and making them available to concerned authorities and auditors. (¶774)
- Financial institutions consulted were unclear whether they should report or merely “pay special attention” to such transactions; where they were to “pay attention,” they lacked knowledge on examining, writing findings, record-keeping, and sharing with auditors. (¶773)
- The long watch zone list (42 countries) is perceived by FIs as creating an extra burden to identify, monitor, and often report transactions related to the watch zone. (¶773)
- Overall conclusion: the framework is confusing, neither comprehensive nor properly implemented, and does not target all relevant jurisdictions. (¶778)

### Specific legal and definitional gaps (Recommendation 11)
- Unusual patterns of transactions are not covered under the current definition of unusual transactions. (¶775)
- The AML Law prevails and should be implemented by all monitoring entities, but some sectors do not seem to implement the requirement since it was not included in their sectoral Decrees; principles are left to be determined by the FIs. (¶775)
- The requirement to examine the purpose of the transaction does not extend to checking its background, and there is no clear requirement in the AML Law or FMS Decrees to make such transactions available to external auditors. This reduces the effectiveness of the unusual transactions requirement. (¶775)

### Specific legal and operational gaps (Recommendation 21)
- The requirement to pay special attention to transactions from some countries does not extend to business relationships and transactions with persons, including companies and financial institutions from countries which do not or insufficiently apply the FATF standards. There is no mechanism to apply appropriate countermeasures. (¶776)
- The watch zone list (42 countries) does not reflect the FATF ICRG countries: it excludes some ICRG countries and excludes others on the FATF public list (example noted: Turkey). Turkey is identified as a major trade and financial partner to Georgia; the exclusion creates a major vulnerability. (¶776)
- Many banks are automatically reporting all unusual transactions and those related to watch zone countries, transmitting them as CTR and sometimes as STRs—this behavior contributes to poor quality of suspicious reports transmitted to the FMS. (¶777)

### Recommendations and proposed actions (¶779)
- Ensure the legal basis for unusual and watch zone related transactions is clear and comprehensive by:
  - Amending the definition of unusual transactions to include unusual patterns of transactions. (Recommendation 11)
  - Extending the watch zone related transactions obligation to all financial institutions defined by the FATF standards to include business relationships and transactions with persons, including companies and financial institutions from countries which do not or insufficiently apply the FATF standards. This requirement should go beyond specific transactions currently determined in the AML Law to include all transactions and business relationships. (Recommendation 11)
- Provide financial institutions with guidelines on the implementation of the requirement to pay special attention to unusual and watch zone related transactions and amend the reporting forms to exclude the unusual and watch zone related transactions from the breakdown list. (Recommendation 21)
- Update the watch zone list to include countries identified by FATF which do not or insufficiently apply FATF Recommendations. (¶779)
- Provide for the possibility to apply counter-measures in cases where a country continues to not apply or apply insufficiently the FATF Recommendations. (¶779)

### Compliance ratings and summary of factors (3.6.3)
- R.11 — PC
  - Factors:
    - Unusual pattern of transactions is not covered under the current definition of unusual transactions.
    - No clear requirement in the AML Law or FMS Decrees to make unusual transactions available to auditors.
  - Effectiveness:
    - Obligation to pay special attention to unusual transactions is confusing and leading to reporting which appears counter-productive, discouraging better understanding of these transactions.
- R.21 — PC
  - Factors:
    - Absence of possibility to require domestic financial institutions to apply counter-measures in cases where a country continues not to apply or insufficiently applies the FATF Recommendations.
  - Effectiveness:
    - The framework is confusing, neither comprehensive nor properly implemented, and does not target all relevant jurisdictions.
    - Requirement to give special attention to business relationships and transactions with persons from some countries is confusing and limited to a certain number of transactions above the threshold of GEL 30,000, and should be enlarged to countries which do not or insufficiently apply the FATF recommendations.
    - Measures lack effectiveness notably because of the long list of watch zone countries and limitation to a number of transactions above threshold.

### STR reporting: legal framework and implementation (selected findings)
- Suspicious transaction definition history and amendments:
  - Pre-December 2011 definition of suspicious transaction (Article 2.h, before amendment) described a transaction “regardless its amount and operation type” with reasonable grounds to suspect ML or FT, or links to terrorists or non-cooperative zones. (¶780)
  - December 2011 amendment broadened language to include funds “for the purpose of FT” and references to terrorist organizations and persons financing terrorism. (¶781)
  - 2012 amended AML/CFT Law broadened definition further to include “proceeds of criminal activity” and explicit references to terrorist organizations; the new definition is stated verbatim in the source. (¶783)
- Article 5 requires all monitoring entities to report suspicious transactions as defined under Article 2.h. “Monitoring” includes transactions exceeding GEL 30,000 (or equivalent) or transactions that are suspicious according to Article 2.h and includes submission of information to the FMS. (¶782)
- No reporting threshold for STRs: the definition explicitly states no threshold for suspicious transaction reporting; this was introduced in March 2007 following MONEYVAL recommendation. (¶785)
- FMS Decrees for various FIs cover attempted transactions; FMS language indicates attempts and related facts/circumstances are subject to monitoring. (¶786–¶787)
- All-crimes approach to predicate offenses includes tax evasion under Article 194 of the CCG; no exclusion of tax matters from suspicious transaction reporting. (¶788)
- AML Law requires FIs to report when they suspect funds are proceeds of all criminal acts that would be predicate offenses domestically. (¶789)

### STR reporting statistics and implementation impacts (selected figures)
- Banks represent 95 percent of the total assets of financial institutions and report the highest number of STRs. (¶790)
- Reported STR trends:
  - Number of STRs decreased in 2009 (reasoned to be political turmoil and financial crisis of 2008). (¶791)
  - Number of STRs more than doubled in 2010 and during first half of 2011 after NBG imposed fines; banks attributed increase mainly to defensive reporting and introduction of watch zone reporting requirement plus fines. (¶792)
  - Watch zone list includes 42 countries and requires banks to report certain transactions related to persons or accounts at or from these countries. (¶792)
  - Six cases of false hits with terrorist list were filed in 2008 and 2009. (¶792)
- Banks — STR counts (as presented)
  - 2007: 4591
  - 2008: 7340
  - 2009: 6277
  - 2010: 13212
  - 2011: 19708
  - TOTAL: 51128
  - NBG sanctions imposed: 17 times (noted inline with table). (¶792)
- Insurance companies
  - STRs by year:
    - 2007: 0
    - 2008: 1
    - 2009: 1
    - 2010: 0
    - 2011: 0
    - TOTAL: 2
  - Insurance companies represent around one percent of total size of FIs. (¶793)
  - Indicators of suspicious transactions were issued by FMS in May 2010. Three fines imposed by NBG in 2011; insurance companies filed only two STRs. (¶793)
- Currency exchange offices
  - STRs by year:
    - 2007: 18
    - 2008: 2
    - 2009: 0
    - 2010: 0
    - 2011: 0
    - TOTAL: 20
  - Currency exchanges mostly file threshold reporting but not STRs. Fines were imposed by NBG in 2008 and 2009. (¶794)
- Securities broker companies
  - STRs by year:
    - 2007: 24
    - 2008: 6
    - 2009: 114
    - 2010: 192
    - 2011: 80
    - TOTAL: 416
  - FMS Decree issued in 2008 and adopted in 2011; no sanctions imposed. (¶795)
- Securities registrars
  - STRs by year:
    - 2007: 16
    - 2008: 10
    - 2009: 4
    - 2010: 4
    - 2011: 7
    - TOTAL: 41
  - FMS Decree first issued August 2004, amended 2008 and 2012; declining STRs. (¶796)
- Microfinance companies
  - STRs by year:
    - 2007: 0
    - 2008: 0
    - 2009: 7
    - 2010: 264
    - 2011: 874
    - TOTAL: 1145
  - Sanctions imposed on microfinance companies and FMS Decree issued in 2010 and updated in 2011 might explain increase in STRs filed. (¶797)

*Source: _cr1304 - 771. The requirement of paying special attention to certain transactions related to watch zone (excerpts).*

### 798.      The reporting from money remittance increased after issuing the FMS Decree but the level of

### _cr1304 - 798.      The reporting from money remittance increased after issuing the FMS Decree but the level of

### Reporting from money remittance and monitoring entities
- Reporting from money remittance increased after issuing the FMS Decree but the level of reporting is still relatively low.
- Money remittance STRs by year and total:
  - 2007: 0
  - 2008: 0
  - 2009: 0
  - 2010: 194
  - 2011: 189
  - TOTAL: 383
- Regulation: √
- Correlation: Yes
- Nonbank depository institutions have not reported suspicious transactions.
- Electronic money institutions are not considered monitoring entities and, therefore, not required to report.

### Protection for making STRs (c. 14.1)
- Article 12.4 of the AML Law (amended March 19, 2008) provides that “when acting within the scope of their powers, the FMS, monitoring entities, supervisory bodies, their management and employees shall not be held liable for failure to observe the confidentiality of information considered under a normative act, or under an agreement, or/and for protection or referral of such information, except for the case when the crime considered under the CCG of Georgia is committed.”
- The AML Law does not distinguish between temporary or long-term employment; authorities treat both as “employees”.
- Article 12.4 does not specify that protection applies to both criminal and civil liability for breach of any restriction on disclosure imposed by contract or legislative/regulatory/administrative provision.
- Article 12.4 does not state protection is available even if the reporter did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.
- Authorities reiterate that the general term in Article 12.4 “is not to be liable” covers both criminal and civil liability.

### Prohibition against tipping-off (c. 14.2)
- Article 12.1 of the AML Law: “management and employees of the FMS, monitoring entities and supervisory bodies are not be authorized to inform parties to the transaction or other persons that the information on transaction has been forwarded to the relevant authority in conformance with obligations defined under this law.”
- Article 202-1 of the CCG (added March 2008) on violating the Secrecy of a transaction Subject to Monitoring:
  - Disclosure of transfer of information to competent authorities by leadership and personnel of the FMS or about a deal subjected to monitoring is punishable by a fine or deprivation of the right to hold office or pursue an activity for a term of up to three years.
  - The same offense that caused significant damage is punishable by imprisonment for a term of up to two years or deprivation of the right to hold office or pursue an activity for a term of up to three years.
- FMS Decrees to multiple reporting entities (Commercial Banks Article 9.19; Microfinance Organizations Article 10.19; Credit Unions Article 9.19; Insurance Companies Article 9.19; Brokerage Companies Article 8.17; Securities Registrar Article 7.18; Money Remittance Entities Article 9.17; Exchange Bureaus Article 9.17) stipulate the same protection and disclosure requirements.
- Authorities report no known tipping-off cases since monitoring entities started reporting.

### Confidentiality of reporting staff (c. 14.3)
- Article 12.7 of the AML Law: “in the course of fulfilment of the obligation to submit information to the FMS provided for in this Law, the identity of employees of monitoring entities shall not be disclosed.”

### Consideration of reporting of currency transactions above a threshold (c. 19.1)
- Banks must report transactions where the amount of a transaction or series of transactions exceeds GEL 30,000 (or its equivalent in other currency) and which by content represent specified operations (ten enumerated types, including receipt of money using bank checks in bearer form; trade of foreign currency in cash form; transfers involving banks operating or registered in watch or suspicious zones; transfers to/from anonymous persons; placement of cash in bank accounts followed by transfer by an individual; transfer from/to accounts of legal entities within 90 calendar days of registration; etc.). (Changed under Law No. 2829 of March 23, 2010)
- Broker Companies report when amount(s) exceed GEL 30,000 (or equivalent) and by content represent specified operations: (i) transactions implemented through securities, in bearer form; (ii) transaction carried out through participation of a suspicious financial institution; (iii) transactions by persons residing and registered in watch or suspicious zone and/or through use of bank account operating in such zone; (iv) transactions implemented in cash.
- Insurance companies report when amount(s) exceed GEL 30,000 (or equivalent) and represent specified operations: (i) returnable life insurance; (ii) annuity or pension insurance; (iii) personal insurance with condition of returning the premium; (iv) transactions by persons residing and registered in watch or suspicious zone and/or through use of bank account operating in such zone; (v) insurance contract terminated by initiative of an insurer within the first three months; (vi) transactions with participation of a suspicious financial institution; (vii) transactions implemented in cash.
- FMS Decrees imposed a threshold reporting for the rest of monitoring entities for all operations and noncash settlement exceeding the above-mentioned threshold regardless of typology.

### Implementation — CTRs filed (by sector and year)
- Banks — TOTAL CTRs:
  - TOTAL: 48570
  - 2007: 43166
  - 2008: 40595
  - 2009: 47937
  - 2010: 57045
- Insurance companies — TOTAL CTRs by year:
  - TOTAL: 1060
  - 2007: 382
  - 2008: 222
  - 2009: 176
  - 2010: 187
  - 2011: 157
- Currency Exchange — TOTAL CTRs by year:
  - TOTAL: 14314
  - 2007: 990
  - 2008: 1655
  - 2009: 2541
  - 2010: 5216
  - 2011: 7811
- Broker companies — TOTAL CTRs by year:
  - TOTAL: 1441
  - 2007: 1165
  - 2008: 141
  - 2009: 13
  - 2010: 92
  - 2011: 48
- Securities’ registrar — TOTAL CTRs by year:
  - TOTAL: 1160
  - 2007: 310
  - 2008: 233
  - 2009: 258
  - 2010: 202
  - 2011: 247
- Micro Finance — TOTAL CTRs by year:
  - TOTAL: 8553
  - 2007: 0
  - 2008: 0
  - 2009: 1387
  - 2010: 3778
  - 2011: 6273
- Money remittance — TOTAL CTRs by year:
  - TOTAL: 262
  - 2007: 0
  - 2008: 0
  - 2009: 0
  - 2010: 73
  - 2011: 69
- Non bank depository institutions — TOTAL CTRs by year:
  - TOTAL: 12
  - 2007: 0
  - 2008: 0
  - 2009: 0
  - 2010: 9
  - 2011: 29
- Total number of CTRs by year and total:
  - 2007: 51417
  - 2008: 45417
  - 2009: 44974
  - 2010: 57494
  - 2011: 71679
  - Total: 270981

### Use of CTRs and FMS resource implications
- FMS receives a high number of threshold reports. CTRs are treated equally as STRs, Customs declarations, unusual transactions, and those related to watch zone.
- Analysts at FMS go through all reports manually which affects efficiency of suspicious reporting and undermines FMS human resources.

### Computerized database and access (c. 19.2, c. 19.3)
- Transactions subject to monitoring are submitted in electronic form; FMS created a database where all incoming reports are stored and analyzed by the Analytical Department.
- The database ensures systematization and confidentiality. Database and software distributed to monitoring entities have protection mechanisms. Information is encrypted and can only be decrypted by authorized employees of the FMS.
- Since June 1, 2010 CTRs are submitted electronically; hard copies only when electronic submission is impossible (Article 9.3).
- Article 10.5 of the AML Law requires FMS to create an information network, systemize and analyze obtained information, and ensure proper functioning of the relevant database. Staff of the Analytical Department has unlimited access within their competence.
- FMS operates two independent and isolated Local Area Networks (LANs):
  - One connected to the Internet to receive encrypted STRs and CTRs from reporting entities.
  - Upon receipt, an authorized person transfers the data to a flash drive, deletes it from the external network, and moves it into the internal network where they are decrypted and processed.
  - The internal network has no external connections. Access to the internal network is restricted to certain FMS staff designated by the Head of the FMS.
- During the on-site mission, FMS activated new software for receiving and processing reporting forms.

### Guidelines, feedback, and statistics (c.25.1, c.25.2, R.32)
- FMS issued Guidance for Commercial Banks on Essential Indicators for Detection of Suspicious or Unusual Transactions on January 27, 2010. Similar guidelines issued to insurance companies, notaries, and the NAPR.
- Article 3(3) of the Regulation for Brokerage Companies and Article 3(3) of the Regulation for Securities Registrars include indicators for Brokers and Registrars.
- Similar guidelines and indicators were not issued for the rest of the FIs and DNFBPs.
- FMS and NBG do not provide financial institutions with clear guidelines to assist in implementing AML/CFT requirements.
- No guidelines on money laundering and terrorist financing techniques and typologies were provided to FI and DNFBPs.
- Competent authorities, particularly FMS, did not provide guidance to assist financial institutions on FATF-recommendation-related AML/CFT issues, including descriptions of ML/FT techniques and additional measures to ensure AML/CFT procedures are effective.
- FMS receives feedback via MOUs with LEAs about names of convicted persons; these names are forwarded to directors of relevant reporting entities. No additional information on investigation, prosecution and provisional measures is provided to FMS.
- FMS provides reporting entities (mainly banks) when necessary some general feedback and a confirmation of receipt.
- One annual report on FMS activity was published in 2011 containing some information and few statistics.
- FIs felt discouraged from reporting since they are not receiving feedback regularly. Feedback has not been provided regularly to all FIs and DNFBPs.
- FMS-provided statistics should include further breakdowns:
  - (i) Suspicious transactions excluding those related to terrorist lists, unusual transactions, and watch zone;
  - (ii) Threshold reporting by type of transaction as determined in the AML Law (e.g., those related to loans by banks, transfers by banks and excluding Customs declarations).
- FMS should review the reporting system by sector regularly to assess effectiveness and conduct strategic analysis using these statistics.

### Analysis of effectiveness
- Total number of STRs is increasing and for the last year almost equaled the number of CTRs due mainly to:
  - Expansion of the list of designated categories of predicate offenses including tax matters (April 2007) and Georgia’s broad approach to Article 194 of the CCG (applying to any illegal or undocumented property).
  - Defensive reporting after imposing sanctions by NBG.
  - Entry into force of requirement to “monitor”, including reporting unusual and watch zone related transactions.
- Total number of STRs by year and total:
  - 2007: 4668
  - 2008: 7366
  - 2009: 3
  - 2010: 6404
  - 2011: 3
  - TOTAL: 13867
- The reporting system should be streamlined. Observations:
  - Number of reports submitted to FMS is very high (over 40,000 and almost the same as CTRs), driven by fixed indicators triggering automatic reports and defensive reporting.
  - Unusual transactions in the sense of Recommendation 11 are also reported to FMS.
  - Most reports received to date have come from banks.
  - Overall quality of STR reporting is poor and CTRs are sent inconsistently, reducing effectiveness:
    - Monitoring entities are confused about different reporting requirements; some bank manuals unclear on report types.
    - Electronic money institutions are not monitoring entities and do not report.
    - Leasing companies became monitoring entities in December 2011 and have not started reporting yet.
    - Some sectors required to report never filed STRs (e.g., non bank depository institutions); others filed very few reports (insurance, insurance brokers and agents). Supervision departments at NBG and FMS staff consider there are no risks in these sectors.
  - Level of reporting does not represent effective and adequate reporting across the whole banking sector and is mostly defensive against sanctions imposed by NBG.
  - Two attempted transactions were reported in 2010 and ten in 2011.
  - FMS received most reports after the suspicious transaction had been carried out.

*Source: _cr1304 - 798.      The reporting from money remittance increased after issuing the FMS Decree but the level of*

### 833.      Representatives from FMS and FIs mentioned that the requirement for paying special

### _cr1304 - 833.      Representatives from FMS and FIs mentioned that the requirement for paying special

### Effectiveness of Suspicious Transaction and FT Reporting
- Representatives from FMS and FIs reported that the requirement for paying special attention on unusual transactions is leading to the filing of a high volume of suspicious reports due to confusion between this requirement and the one on filing STRs.
- Reporting entities always report complex, unusual large transactions automatically as required by the AML Law.
- Reporting entities report transactions related to persons in watch zones but do not perform an independent analysis of jurisdictions that do not or insufficiently apply the FATF recommendations.
- The reporting regime for FT is not effective:
  - In the absence of guidance and awareness of FT typologies, trends and indicators, financial institutions and DNFBPs are not capable to detect FT suspicions.
  - Confusion exists between STRs and requirements related to the UNSCRs; three false hits under the UNSCRs were submitted to the FMS in 2008 and three in 2009.
  - Despite the threat of terrorism activity in Georgia, no reports have been received from any institution (FIs and DNFBPs) regarding terrorist financing.
- Evidence of terrorism/TF threat cited:
  - The national threat assessment document 2010-2013 mentions the threat posed to Georgia by international terrorist organizations.
  - Investigations on terrorism and terrorism financing conducted by Georgian law enforcement agencies.
  - A recent (February 2012) bomb attack targeting an embassy in Tbilisi.
- When asked about reporting from the bank under investigation for money laundering and under inspection from NBG in October 2011, FMS staff specified that none of the STRs they had received from this bank were related to the ML investigation.
- Sector-specific guidance on suspicious transactions and adequate feedback to FIs and DNFBPs is needed in line with the FATF Best Practice Guideline on Providing Feedback to Reporting Financial Institutions and Other Persons.
- As detailed under Recommendation 26:
  - There were a high number of STRs based on ML and 314 cases opened by the FIU since 2004, resulting in 79 disseminations to law enforcement.
  - The attrition rate suggests STR quality is poor and the overall reporting regime may not yet be fully effective.

### Recommendations and Required Actions (to comply fully with Recommendations 13, 14, and 25)
- Recommendation 13 and 14 and SRIV:
  - Require electronic money institutions companies to report STRs.
  - Amend the FT offence to bring it in line with the FT convention.
  - Ensure that supervisors and FMS draw up an action plan to encourage reporting across all sectors – a prioritized and phased plan based on potential ML and FT risks posed by the different sectors may be necessary, given overall resources, to effectively bring this about. Training and effective enforcement should also be implemented.
  - Amend Article 12 of the AML Law to ensure that protection and tipping-off requirements extend to temporary or long term establishment situation of staff and apply to both criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision. Also, this protection should be available even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.
- Recommendation 25 — Ensure that competent authorities, and particularly FMS:
  - Provide guidance to clarify the different types of reporting, i.e. suspicious and threshold.
  - Assist the FIs in understanding the requirement on monitoring or paying special attention to unusual transactions and those related to watch zone.
  - Assist financial institutions on AML/CFT issues covered under the FATF recommendations, including, at a minimum, a description of money laundering and terrorist financing techniques and methods; and any additional measures that these institutions could take to ensure that their AML/CFT procedures are effective.
  - Establish a mechanism for providing feedback to reporting institutions, including general and specific or case-by-case feedback.
  - Consider reviewing the guidance provided by the FATF Best Practice Guidelines on Providing Feedback to Reporting Financial Institutions and Other Persons.
  - Provide specialized training to financial institutions to improve the quality and quantity of STRs, and require treating them differently than other types of reporting.
  - Strengthen the guidelines and feedback across all sectors to: (i) incorporate different examples covering sectors other than banking; and (ii) provide more Georgian examples of money laundering and terrorist financing typologies.

### Compliance Ratings Summary (Recommendations 13, 14, 19, 25 (criterion 25.2), and SR IV)
- R.13 — LC
  - ML Reporting requirements do not extend to electronic money institutions.
  - Effectiveness:
    - Important sectors such as exchange bureaus and insurance companies are filing very low numbers of STRs.
    - Effectiveness was not established: weak quality of suspicious reporting with respect to money laundering as a consequence of defensive filing. Also, the scope of the STR requirement is not clear and confused with other types of reporting.
    - None of the STRs were related to FT cases.
- R.14 — LC
  - Protection of information and tipping-off requirements do not extend to temporary or long term establishment situation of staff.
  - The protection against liability does not apply to both criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision. Also, this protection should be available even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.
- R.19 — C
  - This Recommendation is fully met.
- R.25 — PC
  - Limited guidelines and feedback are only predominately orientated towards the banking and insurance sector; no account is taken of other reporting entities.
  - Effectiveness:
    - There is no effective feedback being offered via the FMS or other competent body to reporting institutions, including general and specific or case-by-case feedback.
- SR.IV — LC
  - FT Reporting requirements do not extend to electronic money institutions companies.
  - Limited scope of the FT offence affects the reporting requirement.
  - Effectiveness:
    - The definition of FT suspicious transactions is now comprehensive after it has been amended in January 2012 to include terrorist organizations; however this additional aspect has not been tested.
    - FIs met during the assessment are not capable of detecting FT suspicion due to the lack of guidance and awareness of FT typologies, trends and indicators.
    - Despite the very real threat of terrorism and TF activity in Georgia, no STRs relating to terrorist financing have been received from any financial institution.

### Internal Controls, Compliance, Audit, and Foreign Branches (R.15 & 22) — Legal Framework and Observations
- Legal and regulatory basis:
  - Requirement for financial institutions to maintain internal controls for AML/CFT is provided in Article 8 of the amended AML/CFT Law.
  - Article 4 of sectoral Regulations (variously across financial lines) expands on “Approval of the Regulation on Receiving, Systemizing and Processing the Information by Commercial Banks and Forwarding to the Financial Monitoring Service of Georgia.”
  - Sectoral regulations referenced include Articles for Commercial Banks, Microfinance Organizations, Money Remittance Entities, Insurance Organizations and Founders of Non-State Pension Scheme, Brokerage Companies, Securities Registrars, Credit Unions, and Currency Exchange Bureaus.
- Establish and maintain internal controls to prevent ML and TF (c. 15.1, 15.1.1 and 15.1.2):
  - Article 8 of the AML/CFT Law requires monitoring entities to develop internal regulations (internal control procedures) and take adequate measures for enforcement.
  - Article 8.1: financial institutions required to ensure implementation of internal control for preventing illicit income legalization.
  - Article 8.2: obligations to develop internal regulations including rules and procedures for identification of clients and persons willing to establish business relationship, analyzing information, revealing suspicious transactions within the monitoring entity and rules and procedures for transfer of information to the Financial Monitoring Service in conformance with requirements of this Law and normative acts of the Financial Monitoring Service and with consideration of work specificity of monitoring entities.
  - An employee or structural unit responsible for revealing suspicious transactions and forwarding the information and his duties shall be identified.
  - At the time of on-site visit, Article 8 did not address internal controls for financing of terrorism; subsequent amendment on December 20, 2011 expanded Article 8 to include financing of terrorism.
  - Sectoral regulations require internal rules for identification, analysis, revealing suspicious transactions, record keeping and transfer of information to FMS, and that all employees should get acquainted with internal regulation (Regulation for Commercial Banks–Article 4.3; Regulation for Microfinance Organizations–Article 4.3; Regulation for Money Remittance Entities–Article 4.3; Regulation for Securities Registrars–Article 4.3; Regulations for Insurance Companies–Article 4.3; Regulation for Credit Unions–Article 4.3; Regulation for Currency Exchange Bureaus–Article 4.2).
- Appropriate compliance management arrangements (c.15.1):
  - Article 8, paras. 2, 4, and 5 mandate monitoring entities identify/designate relevant staff member or structural unit responsible for:
    - a) implementation of internal regulation, in compliance with procedure and frequency defined under the regulation; and
    - b) submit written information on transactions subject to monitoring to the management body in compliance with procedure and frequency defined under the regulation (Articles 8.4 and 8.5).
  - Sectoral Regulations require AML officer to be designated at senior management level in Commercial Banks (Article 5.1), Insurance Companies and Founders of Non-State Pension Schemes (Article 5.1), Brokerage Companies (Article 4.6), Securities Registrars (Article 4.5), Credit Unions (Article 5.1), and Microfinance Organizations (Article 5.5).
  - For currency exchange bureaus, Article 5.b of the Regulation obliges the owner to designate an employee in charge of monitoring; similar provision in Regulation on Money Remittance Services–Article 4.3. Many currency exchange bureaus are sole proprietorships; the FATF Recommendation allows a risk-based approach but owner-as-AML-officer does not represent proper segregation of duties and proper controls.
- Compliance officer’s access to relevant information:
  - Article 5.5 of the Regulation for Commercial Banks requires banks to authorize the AML officer to have access to any information necessary and the officer must ensure confidentiality.
  - Similar provisions existed for Microfinance Organizations–Article 5.5 and Insurance Companies and Founders of Non-State Pension Schemes–Article 5.
  - At on-site visit, no such access provision was present for Securities brokers, securities registrars, credit unions, money remittance service operators and currency exchange bureaus.
  - In January 2012, legal amendments provided AML/CFT officers with access to relevant information for Securities Registrars–Article 4.6; broker companies–Article 4.7; and Credit Unions–Article 5.5.
  - No amendment was made for money remittance service operators and currency exchange bureaus. Authorities indicated many were sole proprietorships and owners acted as compliance officers; assessors noted 27.4 percent (or 409 entities) of currency exchange bureaus were non sole-proprietorships before accounting for money remittance operators, and recommended provisions for timely access to customer information for these sectors.
- Independent audit of internal controls to prevent ML and TF (c. 15.2):
  - A direct obligation for financial institutions to have an adequately resourced and independent audit function to prevent ML and TF is not present in the AML Law, sectoral laws or other enforceable means.
  - Such direct obligation exists for commercial banks only: Article 16 of the Law on the Activities of Commercial Banks requires commercial banks to have an audit committee comprising independent members. No specific requirement that internal audit should cover compliance testing with AML/CFT policies, procedures and controls.
  - The requirement for internal or external audits does not exist for other categories of financial institutions.
- Ongoing employee training on AML matters (c. 15.3):
  - Article 8.6 of the AML Law requires monitoring entities to provide periodic training for employees involved in detecting ML/FT.
  - Articles 4 and 5 of the Regulation for Commercial Banks require ongoing training programs to ensure employee acquaintance with legislative changes and new techniques, methods and trends of money laundering and FT. Similar provisions for Microfinance Organizations–Article 4.2.e; Article 5.4.c; Insurance Organizations and Founder of Non-State Pension Scheme–Article 4.2.e; Article 5.4.c.
  - At on-site visit, no provision about scope of AML training for securities brokers, securities registrars, currency exchange bureaus, money remittance service operators and credit unions; January 2012 amendments set out requirement and scope for Securities Registrars–Article 4.2.g; Broker Companies–Article 4.2.g; and Credit Unions–Article 5.4.
  - For money remittance operators and currency exchange bureaus, amendments introduced requirement for AML training but no provision on scope. Regulations for Money Remittance Operators–Article 4.3 require relevant training programs; Regulations for Currency Exchange Bureaus–Article 4.3.f contains a similar provision.
- Employee screening procedures (c. 15.4):
  - Sectoral Regulations require financial institutions to put in place screening procedures for hiring to prevent ML and FT involvement:
    - Commercial Banks–Article 4.6: policy for selection of staff including investigation of qualifications and reputation.
    - Similar provisions for Microfinance Organizations–Article 4.6; Insurance Companies–Article 4.6; Securities Brokers–Article 4.6; Securities Registrars–Article 4.7; Credit Unions–Article 4.7.
  - No employee screening provision existed for money remittance service operators and currency exchange bureaus.
- Additional element — Independence of compliance officer (c. 15.5) (section header appears; related details follow in source beyond provided excerpt).

*Source: _cr1304 - 833. Representative excerpt from the IMF assessment PDF content provided.*

### 854.      There is a provision in the sectoral regulations which requires that the AML/CFT compliance

### _cr1304 - 854.      There is a provision in the sectoral regulations which requires that the AML/CFT compliance

### Provision and Implementation of Internal Controls (Legal framework and sectoral regulations)
- There is a provision in the sectoral regulations which requires that the AML/CFT compliance officer report only to the administrator of the financial institution (Regulations for Commercial Banks–Article 5.6; Regulations for Credit Unions–Article 5.6; Regulations for Microfinance Organizations–Article 5.6; and Regulations for Insurance Companies–Article 5.6).
- Legal requirements exist to establish and maintain internal controls on AML, conduct ongoing employee training and do employee screening prior to hiring; these requirements are generally implemented by financial institutions with varying degree of effectiveness.
- Compliance with these requirements is checked by NBG examiners during the supervisory cycle of on-site inspections, and inspections are carried out on a surprise basis.
- Institutions interviewed could produce internal AML policies and procedures and explain CDD and monitoring procedures to FMS; all had an AML officer as required by the AML Law and Regulations.
- AML officers reported adequate access to customer identification data, CDD information, transaction records, and other relevant information to discharge their duties (as indicated by interviewed institutions).
- Institutions indicated they have training programs for staff involved in direct customer contact and transaction processing, and have human resources procedures for screening new hires to prevent ML or TF activities.

### Implementation specifics and gaps (internal controls content)
- Most financial institutions’ policies and procedures focus on AML; at the time of the on-site visit there was no specific wording in the AML Law and sectoral Regulations relating to internal controls on CFT, so most institution policies addressed AML but not CFT.
- A few institutions understood the provisions to cover CFT and included rules on identifying transactions potentially related to financing of terrorism.
- Reviewed bank policies and procedures include board-approved sections on:
  - prohibition of anonymous accounts;
  - customer identification and verification;
  - identifying and reporting threshold and suspicious transactions;
  - screening customer names against the list of terrorist names;
  - rights and responsibilities of the AML department and officer;
  - responsibilities of operational departments and branches in monitoring transactions for ML or FT risks;
  - instructions on suspending transactions due to suspicion;
  - record retention.
- Some compliance officers lacked adequate understanding in business lines dominated by business managers (e.g., wealth management).
- Very limited understanding was evident concerning cover payments (for SWIFT payments), although banks have implemented the new payment template to minimize concealment of underlying customers.
- Some compliance officers considered transactions used to circumvent tax issues in certain countries as economically justifiable.

### Monitoring, reporting and internal audit
- The AML law requires the AML officer to submit information on STR and CTR to management periodically; banks reported submitting such information monthly or quarterly.
- Internal audit functions perform audits on banks and branches’ compliance with AML requirements.
- Training programs on AML have been provided to compliance, front line and new staff; tracking mechanisms identify staff that have not attended or completed training.
- Less resourced sectors (securities brokerage companies, securities registrars, credit unions, microfinance organizations, money remittance service entities, currency exchange bureaus) generally have less developed internal policies and procedures; in some cases these are compilations of regulatory requirements and guidance with limited in-house rules.
- AML regulations allow money remittance service entities and currency exchange bureaus to designate the owner to also act as the AML officer; this accommodation reflects sole proprietorship structures but “does not add value from the control point of view.”
- Employee training in securities brokers, securities registrars, currency exchange bureaus, money remittance operators and credit unions was noted as very basic and primarily focused on reporting transactions.

### Effectiveness of internal controls (findings)
- Most financial institutions interviewed could identify high risk customers and high risk products and services.
- Many institutions exhibited complacency about ML risks in the Georgian economy, believing the economy was not vulnerable owing to very low level of perceived “non-resident” activity.
- Financial institutions reported basic efforts on identifying beneficial ownership and emphasized that beneficial ownership identification is highly challenging.
- Questions exist about effectiveness of internal policies/training given the low level of STRs/absence of STRs in some sectors (as discussed in R.13 and SR.IV).
- NBG examiners assess adequacy of policies and procedures via on-site examinations, reviewing samples of customer files, transaction records and relevant reports to obtain an overview of control environment and effectiveness, and to identify recurring weaknesses and adequacy of remedial procedures.
- Georgia has imposed requirements relating to criteria 15.1, 15.3, and 15.4 on financial institutions to:
  - maintain internal controls relating to development of internal policies and procedures;
  - provision of ongoing staff training on AML;
  - require screening of staff prior to hiring.
- These measures are implemented by financial institutions, but with varying degree of effectiveness.
- There is no requirement relating to criterion 15.2 on maintaining an adequately resourced and independent audit function to test compliance (including sample testing) with these procedures, policies and controls.
- There is no provision on the scope of AML training under criterion 15.3 for money remittance operators and currency exchange bureaus.

### Application of AML Measures to Foreign Branches and Subsidiaries (Legal framework — Recommendation 22)
- Legal provisions for commercial banks, insurance companies and securities market participants to apply AML group policy on their overseas branches and subsidiaries are set out in sectoral laws:
  - Article 10.1 of the law on Commercial Banks;
  - Article 28.1 of the Law of Georgia on Insurance;
  - Article 21.1 of the Law of Georgia on “Securities’ Market”, securities’ registrar and brokerage company.
- For banking, Article 5 of the Decree of the President of the NBG of February 22, 2010, #24/01 supplements the legal provision.
- Only commercial banks, insurance companies and securities market participants are envisaged to have overseas branches and subsidiaries.
- Article 10.1 of the law on Commercial Banks requires that the bank within 14 days of establishing a subsidiary abroad shall inform the NBG that its international subsidiary has adopted an AML program according to Georgian law and FATF recommendations.
- If the host country does not allow fulfillment of FATF recommendations and prevention of ML, the bank shall:
  - a) take an obligation in written form that the subsidiary will follow requirements on facilitation the prevention of illicit income legalization according to Georgian law and FATF recommendations; and
  - b) guarantee to inform the National Bank about the fact that the subsidiary’s host country has restrictions regarding prevention of illicit income legalization, and accordingly the subsidiary is not able to follow the Georgian law and FATF requirements.
- Article 5 of the Decree of the President of the NBG of February 22, 2010, #24/01 requires a commercial bank establishing a branch outside Georgia to submit a statement from the Supervisory board that the branch will carry out policy against money laundering and FT from commencement, including implementing internal control mechanisms, hiring standards, appointing a compliance officer, training staff, having an internal audit function to audit AML, and informing the NBG if the branch is unable to apply AML measures under Georgian legislation and FATF Recommendations.
- Financial institutions must submit a full package of laws and by-laws of the AML/CFT system of the country where the branch is located.
- Similar provisions exist in Article 28.1. of the Law of Georgia on Insurance and Article 21.1 of the Law of Georgia on “Securities’ Market”.
- There is no specific provision requiring application of the higher standard where minimum AML requirements of home and host countries differ; however this is implied by requiring overseas branches and subsidiaries to implement AML measures according to Georgian law and FATF Recommendations.

### Requirement to inform home supervisor if unable to implement AML measures
- Article 10.1 of the Law on Commercial Banks and Article 5 of the Decree of the President of the NBG of February 22, 2010, #24/01 require banks to inform the NBG if their branches and subsidiaries are unable to implement AML measures.
- These provisions stipulate that if host country laws/regulations do not provide legal basis for compliance with Georgian AML legislation and FATF recommendations, or FT/ML measures are not used and FATF recommendations are not or are insufficiently applied, the Supervisory board shall inform NBG and undertake in writing to ensure application by its branch of measures to fight illicit income legalization and terrorist financing in conformity with Georgian requirements.
- Similar provisions apply in Article 28.1 of the Law of Georgia on Insurance and Article 21.1 of the Law of Georgia on “Securities’ Market”.

### Consistency of CDD measures at group level
- There is no explicit provision requiring application of consistent CDD measures at group level.
- Banking groups interviewed informed assessors that they follow group standards and policies.

### Implementation of group-wide policies (observations)
- At the time of the on-site visit there were two bank subsidiaries belonging to Georgian financial institutions operating overseas in Ukraine and Belarus (subsequently after the on-site in early 2012, one bank subsidiary was disposed of with only one bank subsidiary left in Belarus).
- Georgian financial institutions implemented the legal requirement to apply group-wide policy on AML by requiring overseas operations to observe requirements in Georgia or the host country.
- Supervisory councils of financial institutions are required to provide a written statement to NBG that overseas entities comply with AML measures; in case of different requirements in the host country, financial institutions would notify NBG.
- Financial institutions indicated they were required by sectoral laws and NBG licensing decree to comply with AML group-wide policy for their branches and subsidiaries and had established group-wide AML policies and measures for foreign branches/subsidiaries.
- One case: where the host country had a lower standard for interpretation of ultimate beneficial ownership, the relevant financial institution sent a letter to NBG in compliance with the requirement.
- Overseas operations reported to Head Office on AML/CFT implementation; group internal auditors audit subsidiaries; NBG required written statement from supervisory board to ensure application of AML group-wide policy.

### Effectiveness of group-level application (findings)
- Georgian financial sector had established only two bank subsidiaries overseas at on-site; after disposal there was only one overseas bank subsidiary in Belarus.
- Other categories (credit unions, microfinance organizations, currency exchange bureaus, money remittance operators) do not establish overseas operations and business models do not envisage overseas operations.
- Georgia requires commercial banks, insurance and securities companies’ overseas subsidiaries and branches to comply with home country AML requirements and FATF Recommendations, but effectiveness cannot be tested: no evidence that NBG had included application of group-wide AML/CFT policies in its examination scope and no procedure in the On-site Inspection Manual that examiners should examine management of overseas offices.
- Overall risk from overseas operations is limited: only one bank subsidiary operating outside Georgia and its asset size and revenue size constituted both one percent of its parent bank’s figures.

### Recommendations (Recommendation 15 and Recommendation 22)
- Recommendation 15:
  - For money remittance operators and currency exchange bureaus, introduce a provision to ensure that the AML officer and other appropriate staff have timely access to customer identification data and other CDD information, transaction records, and other relevant information.
  - Introduce a provision for money remittance operators and currency exchange bureaus on employee screening procedures.
  - Establish a requirement for financial institutions to have an adequately resourced and independent audit function for AML purposes.
  - For money remittance operators and currency exchange bureaus, expand the provision on AML training to indicate that the training should be provided on an ongoing basis to ensure employees are kept informed of new developments, including information on current ML and FT techniques, methods and trends, and that there is a clear explanation of all aspects of AML/CFT laws and obligations, and in particular, requirements concerning CDD and suspicious transaction reporting.
  - Consider the policy decision and appropriateness of current provisions which allow for the owner of currency exchange bureau and money remittance services to also act as the AML officer.
- Recommendation 22:
  - In case the activity of Georgian institutions abroad further develops, the authorities should consider introducing more supervisory monitoring of financial institutions’ management of overseas branches and subsidiaries.

### Compliance ratings and underlying factors (summary)
- R.15: PC
  - Factors underlying R.15 PC rating:
    - No provision to ensure AML officer and appropriate staff at money remittance operators and currency exchange bureaus have timely access to customer identification data and other CDD information, transaction records, and other relevant information.
    - No provision for money remittance operators and currency exchange bureaus on employee screening procedures.
    - Lack of requirement for financial institutions to have an adequately resourced and independent audit function to test compliance with AML/CFT policies, procedures and controls.
    - Lack of specific provision on scope of AML training for money remittance operators and currency exchange bureaus to ensure ongoing training covering new developments, ML and FT techniques, CDD and STR requirements.
    - Implementation note: Wording on internal controls to cover CFT aspect was recently included and effectiveness cannot be assessed.
- R.22: C
  - This Recommendation is fully met.

*IMF staff report excerpt*

### 877.      The legal framework on prohibiting the establishment of shell banks in Georgia and the

### _cr1304 - 877.      The legal framework on prohibiting the establishment of shell banks in Georgia and the

### Legal framework on shell banks
- Definition:
  - Article 2.t of the AML Law of Georgia: "a shell bank is defined as a bank, which is physically not present in the country where it is registered or licensed and which is not being controlled and supervised."
  - Relevant provisions on shell banks are included in the AML Law (Articles 2.t and 11.1) and sector specific Regulations.
- Statutory provisions:
  - Article 11.1 of the AML Law of Georgia prohibits the establishment and existence of shell banks and the establishment of business relations with such banks (including correspondent relations).
  - Article 11.1.2 requires representatives of the financial sector to undertake reasonable measures to ascertain "whether the person they have business relationship with (or person with whom they are establishing business relations) belongs to the category of shell bank".

### Prohibition of correspondent banking with shell banks
- Legal prohibitions:
  - Article 11.1 of the AML Law of Georgia and Article 8.5 of the Regulation for Commercial Banks prohibit banks in Georgia from entering into or continuing correspondent banking relations with a shell bank.
  - Article 6.8 of the Regulation for Microfinance Organizations contains similar provisions for microfinance organizations.
- Due diligence expectations:
  - Article 8 of the Regulation on Commercial Banks requires banks to undertake reasonable measures to identify:
    - a) Whether the person they have business relationship with (or person with whom they are establishing business relations) belongs to the category of the shell bank; and
    - b) Whether the person they have business relationship with (or person with whom they are establishing business relations) has relations with the shell bank.
  - Article 6.8 of the Regulation on Microfinance Organizations contains a similar provision.
- Noted shortcoming:
  - The wording does not explicitly require financial institutions to satisfy themselves that their respondent financial institutions do not permit their accounts to be used by shell banks—criterion not fully met.

### Implementation by the National Bank of Georgia (NBG)
- Licensing and disqualification:
  - NBG implements prohibition on establishment of shell banks through licensing requirements disqualifying shell banks, including requirements on financial resources, shareholder, ownership structure and reputation of major shareholders/controllers, management and staff expertise.
  - Applicants must obtain approval for appointment of senior executives who are required to be based in Georgia, inform NBG of the date of commencement of business, and NBG licenses have a validity period set at six months; license will no longer be valid if no operations have been set up during that period.
- Bank practices:
  - Banks require respondent banks to complete a detailed questionnaire covering: general information, ownership and management information, dealings with politically exposed persons, general AML policies, practices and procedures, risk assessment, customer due diligence, reportable transactions and policy on reporting STR, screening, monitoring and prohibitions, and AML training.
  - NBG examines these measures during on-site inspection.

### Effectiveness findings
- NBG supervision and inspection:
  - NBG reviews list of correspondent banking accounts opened, examines account opening procedures and checks compliance with prohibition on maintaining correspondent banking relationships with shell banks as part of on-site inspections.
- Industry perception and practice:
  - Banks perceive international correspondent banking as a high risk business area susceptible to money laundering or terrorist financing.
  - Establishment of a business relationship with a respondent bank is subject to management’s approval.
  - Banks shared KYC questionnaires requiring respondent banks to confirm they do not have any relationships with shell banks.
  - Although the law only requires ascertainment of whether respondent banks have relations with shell banks, interviewed banks indicated they understood they should ensure their respondent banks do not have dealings with shell banks.

### Recommendation (3.9.2) and compliance (3.9.3)
- Recommendation:
  - "The authorities are recommended to introduce a specific provision that explicitly requires financial institutions to satisfy themselves that their respondent financial institutions do not permit their accounts to be used by shell banks."
- Compliance with Recommendation 18 (R.18 rated as PC in the 2007 MER):
  - Rating summary: R.18                        LC
  - Underlying factor:
    - "Lack of a specific provision that explicitly requires financial institutions to satisfy themselves that their respondent financial institutions do not permit their accounts to be used by shell banks."

### Supervisory, monitoring and sanctioning framework (selected points)
- Legal basis and designation:
  - Articles 4 and 11 of the AML Law designate supervisory authority responsibilities; Articles 4.a and 11 designate NBG as supervisory authority for commercial banks, currency exchange bureaus, nonbank depository institutions, microfinance organizations, entities performing money remittance and currency exchange services, broker companies and securities' registrars, insurance companies and non-state pension scheme founders with respect to AML compliance.
  - The legal basis for AML/CFT supervision is further elaborated in the Organic Law of NBG and sectoral laws and regulations (Article 49.1.c of the Organic Law of Georgia on NBG; Article 29 of the Law on the Activities of Commercial Banks; Article 27 of the Law on Credit Unions; Article 21.b of the Law on Insurance; Article 32.3 of the Securities Market Law; Article 50.1 and Article 50.2 and Article 51.c and Article 52.e of the Organic Law on NBG referenced).
- Evolution of supervisory architecture:
  - Initially three independent supervisory bodies existed; a unified Financial Supervisory Agency of Georgia (GFSA) was established; functions of GFSA later vested with NBG, making NBG the integrated supervisor and central bank.
- Institutions subject to NBG AML supervision (No. of Licensed/Registered Institutions as of end Sep 2011):
  - Commercial Banks: 19 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG /Licensing — AML Supervisor: NBG
  - Microfinance Organizations: 57 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG /Registration — AML Supervisor: NBG
  - Credit Unions: 18 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG /Licensing — AML Supervisor: NBG
  - Insurance Companies: 16 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Licensing — AML Supervisor: NBG
  - Non-State Pension Scheme Founders: 0 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Registration — AML Supervisor: NBG
  - Insurance Brokers: 5 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Registration — AML Supervisor: NBG
  - Securities Brokers: 11 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG /Licensing — AML Supervisor: NBG
  - Securities Registrars: 6 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Licensing — AML Supervisor: NBG
  - Stock Exchange: 1 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Licensing — AML Supervisor: Not subject to AML law and supervision
  - Central Depository: 1 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Licensing — AML Supervisor: Not subject to AML law and supervision
  - Money Remittance Services: 58 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Registration — AML Supervisor: NBG
  - Currency Exchange Bureaus: 1485 — Prudential supervisor/regulator: NBG — Supervisor (licensing or Registration Requirement): NBG/Registration — AML Supervisor: NBG
  - Leasing (subject to AML/CFT Measures since Dec. 2011): Not available — Supervisor (licensing or Registration Requirement): Registration MOF
- Supervisory powers and practices:
  - NBG authorized to conduct off-site surveillance, auditing and on-site visits and inspections; authorized to receive any information within its competence from financial institutions including confidential information and to impose penalties for non-submission.
  - Inspections are carried out on a surprise basis without notification; scope includes review of policies and procedures, books and records, and sample or transaction testing.
  - At the time of the on-site visit, there was no dedicated unit for off-site AML surveillance; NBG did not have practice of collecting AML indicator statistics off-site or requesting an AML questionnaire prior to strengthening of framework.
  - NBG has since set out off-site monitoring function, using a risk-based approach and included a questionnaire for financial institutions to provide off-site information on AML/CFT policies, training, transaction monitoring and AML/CFT officer details; requirement to develop supervisory plan of on-site examinations introduced.
- External audit and sanctions:
  - Article 27 of the Law on the Activities of Commercial Banks and NBG Regulation on External Audit require external auditors to audit financial statements and internal control mechanisms; management letters provided to NBG may define weaknesses on internal controls including AML/CFT issues.
  - NBG has power to impose sanctions under the Organic Law and sector-specific legislation; NBG has issued regulation on pecuniary sanctions separately for each category of financial institution.

*Italic line: Source: _cr1304 - 877.      The legal framework on prohibiting the establishment of shell banks in Georgia and the*

### 1. Each bank shall prepare and submit to the NBG

### _cr1304 - 1. Each bank shall prepare and submit to the NBG

### Reporting and inspection obligations
- Each bank shall prepare and submit to the NBG (both for the bank itself and separately for each of its subsidiaries) reports concerning organizational administrative and operational activities and concerning liquidity, solvency, and profitability to enable NBG to assess their financial conditions both individually and on a consolidated basis. Reports shall be prepared in such form and detail and shall be submitted at such intervals as shall be prescribed by regulation of NBG.
- Each bank and each of its subsidiaries shall be subject to inspections by inspectors of NBG or by auditors appointed by it. If the inspection is being conducted in a branch office or subsidiary of a foreign bank, auditors may be employees of financial or controlling authorities operating in the given foreign country where the bank is located.
- In inspections, NBG and its inspectors/auditors may:
  - examine all books, accounts, funds, files and other documents of banks and their subsidiaries; and
  - require that administrators and employees of banks and their affiliates submit for review information on the banks’ shareholders, controlling persons and administrators and any information concerning the bank's operation and transactions.
- Non-observance of these requirements triggers sanctions set forth in Article 30.

### Scope of supervision across financial sectors
- NBG supervises credit unions, insurers and non-state pension scheme founders, securities market participants, microfinance organizations, currency exchange bureaus, and entities conducting money remittance, with specific powers for licensing, inspection (on-site and off-site), imposition of limitations and sanctions, placement under temporary administration or liquidation, and other supervisory actions as defined by the Organic Law of the National Bank of Georgia and sectoral laws.
- NBG inspects observance of normative and methodological requirements, audits accounting documents and components of financial statements, and may request any information within its competence from licensees.

### Inspection manuals, aims, and on-site coverage
- NBG developed an inspection manual for commercial banks, insurance companies, securities brokers and registrars, money remittance services, and currency exchange bureaus. The manual defines scope and examination procedures and states the aims of inspection as:
  - Assessment of the effectiveness of financial institutions’ internal policies, procedures and internal control mechanisms;
  - Assessment of financial institutions’ compliance with internal policies, procedures and internal control mechanisms with requirements of the AML legislation;
  - Assessment of the risk of money laundering and risk control mechanisms of financial institutions;
  - Assessment of the adequacy of financial institutions’ training programs; and
  - Development of recommendations in case of deficiencies.
- Inspectors must assess whether licensees have implemented recommendations from previous inspections and issue a written inspection report describing assessed areas, transactions reviewed, violations noted, and recommendations to rectify AML deficiencies.
- On-site inspections typically cover:
  - KYC policy;
  - Internal control policy (procedure to identify a client, analysis and recording of information, procedure to determine suspicious transactions, procedure to submit information and other related matters);
  - Rights and obligations of the person in charge of AML compliance;
  - Conducting operations and services;
  - Record keeping of relevant information;
  - Policy and practice of internal audit;
  - Training policy; and
  - Assessment of management’s efforts with respect to implementation of internal policies and procedures for ensuring compliance with AML regulations and risk management and mitigation.
- Registration rules for currency exchange bureaus include a description of inspection areas to be examined.
- At the time of the on-site visit, manuals had not yet been adopted for securities market participants, credit unions, microfinance organizations and money remittance operators; a working group was established to develop these manuals. Since the on-site visit, manuals were completed for securities market participants, money remittance and currency exchange bureaus. NBG began inspecting insurance, securities and money remittance operators only recently, as it became the supervisory authority of these entities from December 1, 2010.

### Overseas subsidiaries and MOUs
- All applications by Georgian financial institutions to establish a subsidiary or branch overseas are subject to NBG approval; applications must include relevant information, including information regarding the AML framework in the host country. The AML inspection unit has full powers to investigate documents via the Georgian bank head office regarding the established foreign branch and its compliance.
- As at end of September 2011, there were two bank subsidiaries and one securities subsidiary operating in Azerbaijan, Belarus, and Ukraine.
- NBG has signed supervisory MOUs with counterparts in Azerbaijan, Belarus, and Ukraine with respect to on-site inspection access to these overseas subsidiaries; however, NBG had yet to conduct any inspection of these overseas subsidiaries.

### Power to compel production of records and confidential information
- Article 45 of the Organic Law of Georgia on the National Bank of Georgia authorizes NBG to require and receive from state institutions and any other person all statistical, accounting and other information (including confidential) necessary for discharging duties.
- Article 48(5) provides that for performance of supervisory functions, NBG is authorized to demand and receive any information (including confidential information) from prescribed persons within its competence.
- The term “any other person” is interpreted to include financial institutions which are obliged to provide requested information to NBG. Sanctioning regulations include a pecuniary sanction for non-submission of information requested by NBG.
- For commercial banks specifically:
  - Article 49.b authorizes NBG to require and receive information on the source of origination of any commercial bank’s capital and beneficial owners who hold a significant share in the bank.
  - Article 49.c empowers NBG to compel information from commercial banks and to inspect commercial banks and nonbank depository institutions and their subsidiaries, audit accounting documents, components of financial statements and other material; and to receive any information within its competence.
- Article 17 of the Law on Commercial Banks permits confidential information to be submitted to the NBG and states such information may be disclosed only to the National Bank within its responsibilities.
- NBG is not required to apply to the court to receive any information from a regulated entity even when such information might be considered confidential.

### Adequacy of resources and supervisory capacity
- NBG has a dedicated unit of five staff members to perform AML on-site inspection of all financial institutions operating in Georgia. There was no dedicated unit for AML off-site monitoring at the time of the on-site visit (some AML issues may be monitored by NBG’s prudential section).
- Number of licensed/registered financial institutions as of end Sep 2011:
  - Commercial Banks 19
  - Microfinance Organizations 57
  - Credit Unions 18
  - Insurance Companies 16
  - Non-State Pension Scheme Founders 0
  - Insurance Brokers 5
  - Securities Brokers 11
  - Securities Registrars 6
  - Stock Exchange 1
  - Central Depository 1
  - Money Remittance Services 58
  - Currency Exchange Bureaus 1485
  - Total 1677
- Given only five on-site inspection staff for 1,677 institutions, supervisory cycles are long: supervisory cycle for banks is about two to three years, and for money exchange bureaus, the cycle is once every five years. The resource allocation for AML supervision and monitoring was assessed to be inadequate.
- Effectiveness observations:
  - Positive: dedicated team of examiners for targeted AML inspections.
  - Negative at on-site visit: absence of dedicated off-site monitoring to assess ML risk profile and no systematic approach for developing a supervisory plan and inspection list.
  - Developments after on-site visit: policy document issued to establish an off-site function, improve coordination between off-site and on-site functions, and create a systematic approach to develop a supervisory plan; implementation still required before effectiveness can be assessed.

### Sanctions, enforcement powers and scope
- NBG’s authority to impose sanctions for AML violations is provided in the Organic Law of the NBG, sector-specific regulations, and NBG’s regulations on pecuniary sanctions.
- NBG has a range of regulatory and supervisory sanctions and can direct removal of a chief executive or officer or issue a formal reprimand if they willfully contravened or caused contravention of AML regulations.
- Georgia can impose criminal and administrative sanctions on financial institutions (legal and natural persons) failing to comply with AML law. NBG is responsible for non-criminal sanctions and can submit cases to court for criminal sanctions.
- Article 48.3 authorizes NBG to issue decrees and orders, require implementation of measures and impose relevant sanctions.
- Sector-specific general authority to impose sanctions:
  - Commercial Banks and nonbank depository institutions: Article 49.1.a (issuance and revocation of licenses, audit and regulation, imposition of restrictions and sanctions).
  - Insurance companies and non-state pension scheme founders: Article 51.g (NBG authorized to set sanctions including monetary penalties; amount and rule defined under NBG normative act; monetary penalty wired to the state budget of Georgia).
  - Securities Market Participants: Article 52.g.
  - Microfinance organizations: Article 50.1.
  - Currency Exchange Bureaus and Entities conducting money remittance: Article 50.2.
- As at the date of the on-site mission, leasing companies and electronic money institutions were not covered by the AML law and not subject to supervision, enforcement, and sanction by a supervisory body.
- Subsequent amendment: AML Law was amended in December 2011 to include leasing companies as monitoring entities subject to AML/CFT measures; the amendment entered into force on January 1, 2012. Electronic money institutions were still not covered by the AML/CFT Law as at the cut-off date of February 13, 2012 for considering legal amendments.
- Range of sanctions available to NBG includes issuing written warnings and instructions, imposing fines according to NBG rules and amounts, suspending signing authority of administrators and requiring their temporary or permanent dismissal, imposing restrictions on operations, and revoking licenses. For microfinance organizations, powers include written warnings, financial fines, or cancellation of registration under NBG procedures for AML/CFT issues.
- Pecuniary sanctions (fines) for financial institutions are defined by the NBG Regulation on imposition of pecuniary sanctions. Typical AML-related violations triggering sanctions include:
  - Non-submission or/and incompliance with the set time frame – delayed submission of information on transactions subject to monitoring to the FMS;
  - Non-submission of information on transactions subject to monitoring to FMS;
  - Rendering services without identification of documentation;
  - Violation of the requirements set for registering and documentation for the monitoring process;
  - Non-submission or/and incompliance with the set time-frame – delayed submission of additional information and documents on transactions subject to monitoring to FMS; and
  - Non-submission of additional information and documents requested by the FMS.

*Italic: Content extracted from the supplied IMF PDF chapter/section.*

### 925.      At the time of the on-site visit, there were no pecuniary sanctions (fines) for failure to comply

### _cr1304 - 925.      At the time of the on-site visit, there were no pecuniary sanctions (fines) for failure to comply

### Sanctioning framework and recent legal amendments
- At the time of the on-site visit, there were no pecuniary sanctions (fines) for failure to comply with the requirement on the maintenance of proper internal controls.
- In February 2012, legal amendments were introduced in the regulations for all financial sectors under the NBG supervision to include imposition of sanctions for failure to maintain proper internal controls.
- The NBG became a supervisory authority for money remitters since December 1, 2010.
- NBG issued regulation on imposition of pecuniary sanctions for money remitters set out in Article 4 of the Decree No. 22/01 of the President of the National Bank of Georgia concerning the Definition, Imposition and Execution of the amount of Pecuniary Sanctions on Microfinance Organizations and Money Remittance Services.
- Pecuniary fines for currency exchange bureaus are set out in Article 7, para.6 of the Decree of the President of National Bank on Approval of Rule of Registration and Regulation of Currency Exchange Point.
- Sanctioning regime for Credit Unions is defined under Article 31 of the Law on Credit Unions and under the NBG regulation on imposition of pecuniary sanctions; February 2012 legal amendments empowered NBG to impose sanctions on credit unions as well as the management of credit unions.
- Since February 7, 2012, NBG introduced amendments that include sanction on violation of internal control mechanism.
- Since February 7, 2012, legal amendments were introduced to empower NBG to impose pecuniary sanctions on directors and management of financial institutions in case they fail to ensure the adoption and observance of appropriate internal control mechanisms and rules by relevant financial institutions.

### Range of fines by category of financial institution (as stated)
- Banks: GEL 100 to 5,000 (for each instance of violation)
  - Examples and specific amounts (each instance of violation):
    - in the event of non-submission or/and incompliance with the set time frame - delayed submission of the information on transactions subject to monitoring to FMS of Georgia by the date established under the NBG order on the bank’s inspection:
      - up to 30 days delay–at the amount of GEL 100 (one hundred);
      - 30 days and more delay–at the amount of GEL 300 (three hundred).
    - in the event of non-submission of information on transactions subject to monitoring to FMS of Georgia by the date established under the NBG order on the bank’s inspection–at the amount of GEL 5,000 (five thousand) for each instance of violation;
    - in the event of rendering banking services to any person without identification–at the amount of GEL 1,000 (one thousand) for instance of violation;
    - in the event of revealing violation of the requirements set for registering and maintaining information (documentation) about the monitoring process–at the amount of GEL 1,000 (one thousand) for each instance of violation;
    - in the event of non-submission or/and incompliance with the set time frame - delayed submission of the additional information and documents on transactions subject to monitoring to FMS of Georgia by the date established under the NBG’s order or ruling on the bank’s inspection, for each instance of violation:
      - up to 30 days delay–at the amount of GEL 100 (one hundred);
      - 30 days and more delay–at the amount of GEL 300 (three hundred).
    - in the event of non-submission of additional information and documents on transactions subject to monitoring to FMS of Georgia by the date established under the NBG’s order on the bank’s inspection–at the amount of GEL 5,000 (five thousand) for each instance of violation.
- Securities Brokers and Securities Registrars: GEL 150–2,000 (for each instance of violation)
- Insurance Companies: GEL 100-2,000 (for each instance of violation)
- Non–State Pension Scheme Founders: GEL 100-2,000 (for each instance of violation)
- Microfinance Organizations: GEL 100-2,000 (for each instance of violation)
- Money Remitters: GEL 50-2,000 (for each instance of violation)
- Currency Exchange Bureaus: GEL 50-200 (for each instance of violation)
- Credit Unions (sanctions introduced since February 2012): GEL 50-2,000 (for each instance of violation)

### Application, supervisory practice and remedial measures
- NBG applies administrative sanctions focused on identification, reporting and timeliness of reporting under the AML Act.
- As at the time of the on-site visit, there was no sanction that addressed deficiencies in financial institutions’ internal control systems; amendments since February 7, 2012 included sanction on violation of internal control mechanism.
- In on-site inspections, NBG examiners:
  - comment on compliance with AML regulations and policies/procedures;
  - require financial institution management to rectify deficiencies normally within one to six months, depending on deficiency type and remediation time; major system changes or procurement needs may warrant more time.
- For institutions under consolidated supervision of foreign regulators, NBG did not have the practice of sending inspection reports to head offices and parent regulators at that time.
- NBG follows up on examination findings via a team of five AML examiners.
- At the time of the on-site visit, NBG was not authorized to impose pecuniary penalties on directors and senior management; it could impose other sanctions such as removal of director and restriction of signatory authority (legal amendments in February 2012 addressed pecuniary sanctions on directors/management).
- For currency exchange bureaus, NBG did not consider introducing a separate sanctioning regime for their managers because 72.4 percent of currency exchange bureaus are registered as sole proprietorship (sole partnership) under Georgian law; sole partnership owners are fully liable and may be considered managers. The assessment team recommended NBG consider introducing a sanctioning regime for managers of currency exchange bureaus.

### Implementation — Statistics on measures/sanctions imposed by NBG (period 2007–2011)
- Number of Financial Institutions that were sanctioned by NBG:
  - 2007: 7 banks; 82 currency exchange bureaus
  - 2008: 10 Banks; 159 currency exchange bureaus
  - 2009: 10 banks; 67 currency exchange bureaus
  - 2010: 5 Banks; 10 Microfinance Institutions; 27 Money remitters; 132 Currency Exchange Bureaus
  - 2011: 6 Banks
- Type of measure/sanction — written warnings:
  - The Georgian authorities indicated written warnings had been issued but no statistics were maintained; table shows "117" in one cell with a note.
- Fines (selected aggregate annual totals shown in table):
  - 2007: Fines GEL 583,100 (EUR 255,052) for banks; GEL 41,000 (EUR 17,934) for currency exchange bureaus. Total amount of fines: GEL 624,100 (EUR 272,986).
  - 2008: Fines GEL 1,347,600 (EUR 615,736) for banks; GEL 8,250 (EUR 3,770) for currency exchange bureaus. Total amount of fines: GEL 1,355,850 (EUR 619,506).
  - 2009: Fines GEL 464. 800 (EUR 199,442 ) for banks; GEL 21,750 (EUR 9,333) for currency exchange bureaus. Total amount of fines: GEL 486,550 (EUR 208,775).
  - 2010: Fines GEL 25,000 (EUR 10,579) for banks; GEL 153,100 (EUR 64,872) for microfinance institutions; GEL 43,750 (EUR 18,538) for money remitters; GEL 173,400 (EUR 73,474) for currency exchange bureaus. Total amount of fines: GEL 395,250 (EUR 167,478).
  - 2011: Fines GEL 342,400 (EUR 145,084) for banks. Total amount of fines: GEL 395,250 (EUR 167,478) shown in table header (see detailed breakdown below).
- Detailed breakdowns (selected years):
  - Year 2011 (Inspected Total Financial Sanctions were imposed on : Amount of Fines)
    - Banks: 6 inspected; 6 sanctions; Amount of Fines: 369,700
      - Non submission of information to FMS110,000
      - up to 30 days delay11,500
      - 30 days and more delay89,100
      - Non-submission of additional information to FMS up to 30 days delay of the additional information 100
      - Violation of the CDD process159,000
      - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process
    - Insurance companies: 3 inspected; 2 sanctions; Amount of Fines: 3,100
      - Violation of the CDD process100
      - Non submission of information to FMS3,000
    - Total: 9 inspected; 8 sanctions; Total Amount of Fines: 372,800
  - Year 2010
    - Banks: 1 inspected; 1 sanction; Amount of Fines: 25,000
      - Non submission of information FMS20,000
      - up to 30 days delay500
      - 30 days and more delay4,200
      - up to 30 days delay of additional information to FMS 300
    - Entities Performing Money Remittance Services: 27 inspected; 14 sanctions; Amount of Fines: 43,750
      - Non-submission of the form of registration in FMS 3,000
      - Non submission of the information to FMS31,000
      - Violation of the CDD measures9,750
    - Microfinance Organization: 6 inspected; 4 sanctions; Amount of Fines: 153,100
      - Non submission of the information 142,000
      - Delay of the information5,400
      - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process600
      - Violation of the CDD process5,100
    - Currency Exchange Bureaus: 132 inspected; 57 sanctions; Amount of Fines: 173,400
      - Violation of the record-keeping obligation1,400
      - Non submission of the information 21,300
      - Delay of the information5,400
      - Violation of the CDD process900
      - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process200
      - Violation of the record-keeping obligation/copy of identification doc144,000
      - Non-submission of the form on registration in FMS 200
    - Total: 166 inspected; 76 sanctions; Total Amount of Fines: 395,250
  - Year 2009
    - Banks: 10 inspected; 10 sanctions; Amount of Fines: 517,800
      - Non submission of the information 415,000
      - up to 30 days delay4,800
      - 30 days and more delay26,700
      - Non-submission of the additional information 30,000
      - up to 30 days delay of the additional information 700
      - 30 days and more delay of the additional information 600
      - Violation of CDD process40,000
      - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process
    - Currency Exchange Bureaus: 149 inspected; 67 sanctions; Amount of Fines: 21,750
      - Violation of the record-keeping obligation7,800
      - Non submission of the information 3,000
      - Delay of the information700
      - Identification process violation7,450
      - Violation of the requirements set for registering and maintaining the information (documentation) about the monitoring process800
      - Violation of the record-keeping obligation/copy of identification doc1,400
      - Non-submission of the form of registration in FMS 600
    - Total: 159 inspected; 77 sanctions; Total Amount of Fines: 539,550

### Enforcement procedures and sanctions characteristics
- NBG issues an administrative legal act called an Ordinance of the Governor/Vice Governor on the imposition of sanction/pecuniary penalty; the Ordinance is delivered to the institution and NBG is empowered to enforce the sanction one month from the delivery date based on proof of delivery.
- NBG has imposed pecuniary penalties and issued written warnings but has not employed other sanctions such as removal of AML compliance officer or revocation of license (no findings were deemed severe enough to warrant revocation).
- Pecuniary penalties are often small, in a number of cases amounting to several hundred Laris.
- NBG indicated pecuniary penalties were dependent on the size and development of each financial sector and based on principles of rationality and fairness.
- Sanctions and fines are designed with proportionality: severity increases with severity of violations/deficiencies (financial fines → written warnings → revocation of license in most severe cases).
- Within fines framework, amounts are proportional to nature of violations: several ten/hundred GEL for late reporting; several hundred/thousand GEL for non-reporting of STR.
- The sanction regime has served as a factor in motivating commercial banks to develop policies, procedures and guidelines and put in place AML/CFT measures; it also raised awareness for submission of reports to the FMS.
- For other financial institutions (insurance companies, money remittance operators, microfinance organizations, currency exchange bureaus), compliance attitudes were driven to a large extent by the amount of financial fines imposed, but these entities had more resource limitations in developing and implementing policies, systems and controls.
- The amount of fines cannot be considered dissuasive in some cases since violation of CDD requirement attracts only a range of fines from GEL 100 to 1,000. The assessment team noted money laundering involves proceeds-generating crimes and fines need to be punitive to be dissuasive and effective.

### Effectiveness and outstanding issues
- The sanction regime has been effective at enforcing compliance with reporting requirements.
- Effectiveness on:
  - imposition of sanctions for failure to maintain proper internal controls on senior management of financial institutions, and
  - imposition of sanctions on credit unions and their management
  cannot be tested since legal amendments were introduced recently in February 2012.
- Few or no sanctions existed for failure to identify ultimate beneficial ownership or politically-exposed persons despite those issues featuring prominently in discussions with financial institutions.

### Market entry, licensing and registration (c. 23.3 & 23.3.1; c. 23.5; c. 23.7)
- At admission, financial institutions must obtain NBG approval by applying for a license or registration to carry on business in Georgia.
- Financial institutions subject to licensing requirements: commercial banks, credit unions, insurance companies, securities brokers, securities registrars, stock exchange, and central depository.
- Financial institutions subject to registration requirement: microfinance organizations, non-state pension scheme founders, insurance brokers, money remittance services, and currency exchange bureaus.
- All the above categories are subject to the AML Law except for the stock exchange and central depository.
- In accordance with the Organic Law of Georgia on the National Bank of Georgia, NBG is authorized to inspect financial institutions (Article 49.g; Article 51.g; Article 52.e).
- For microfinance institutions, money remitters and currency exchange bureaus, Article 50 stipulates that for AML/CFT purpose NBG is authorized to supervise these entities and supervisory measures include: registration, cancellation of registration, inspection, setting of minimum requirements, and imposing sanctions.
- Entities conducting money remittance services were introduced in year 2008 and encompass postal organizations now supervised by NBG; registration requirement applies to them.
- Requirement for insurance brokers to be registered at NBG was introduced from December 1, 2009.
- AML Law was amended in December 2011 to include leasing companies as monitoring entities subject to AML/CFT measures; the amendment entered into force on January 1, 2012.

*Source: _cr1304 - 925.      At the time of the on-site visit, there were no pecuniary sanctions (fines) for failure to comply*

### 945.      All financial institutions when applying for a license or registration at NBG have the duty to

### All financial institutions when applying for a license or registration at NBG have the duty to register at FMS

### Fit and Proper Checks
- Directors and members of senior management of financial institutions subject to the Core Principles are required to satisfy fit and proper criteria: no criminal or other adverse regulatory records, appropriate qualifications and expertise for their level of responsibility, and expected to be financially sound.
- Legal and regulatory powers and requirements:
  - Article 49 of the Organic Law of Georgia on the “National Bank of Georgia” empowers NBG to require and receive information on the source of origination of any commercial bank’s capital and beneficial owners holding a significant share.
  - Article 41 of the Law of Georgia on Commercial Banks sets out fit and proper criteria for shareholders and administrators holding significant shares in a commercial bank.
  - NBG approval is required for: (1) the appointment of directors and senior management; and (2) specific threshold changes in the shareholdings of the financial institution.
  - NBG approval is required for those who intend to hold or control a significant investment; at admission NBG will establish the identity of any person having the ultimate controlling interest or exercising controlling influence (beneficial owners).
- Prohibitions and criteria under the Law on the “Activities of Commercial Banks”:
  - An individual is prohibited from owning a significant share of a commercial bank if he has been convicted for especially grave crime, FT and/or illicit income legalization, or economic crime or/and for the crime against any entrepreneurial or other economic activity.
  - Cases when an individual is allowed to be an administrator: not declared incapable by the court; has not been convicted for illicit income legalization or/and FT; has respective education or /and experience; is not simultaneously administrator of another bank except certain group cases; has not been convicted for an economic crime or/and a crime against any entrepreneurial or other economic activity.
- Decree No. 234 of the President of the National Bank of Georgia on “Fit and Proper Criteria For Administrators of Commercial Banks” bases criteria on professional education, qualifications, experience, competence, and honest approach to work.
- Specific fit-and-proper qualification and experience requirements (Decree):
  - Members of bank directorate, head of a branch and deputy: university education in economics, finance, banking, business administration, audit, accounting or jurisprudence.
  - Chief accountant and deputy, branch chief accountant and deputy: university education in economics, finance, banking, business administration, audit, or accounting.
  - Member of bank directorate: minimum of four years of work experience in the banking and finance sectors, of which two years are in the position of a senior manager (head or deputy head of a structural unit).
  - Head of branch and deputy, head of a division and deputy: minimum of three years of work experience in the banking and finance sectors, of which one year is in the position as a senior manager (head or deputy head of a structural unit).
  - Chief accountant of a bank and deputy: minimum of three years of work experience in the banking and finance sectors.
  - Chief accountant of a branch and deputy: minimum of two years of work experience in the banking and finance sectors.
  - A person to be appointed shall not be a member of the supervisory council or the auditing commission of the same bank and/or of any other commercial bank, nonbank depository institution–credit union, and/or a member of directorate or other administrator of any other enterprise.
  - A person to be appointed shall not be subject to the requirement of the National Bank of Georgia to the bank’s supervisory council and/or the board of directors to be dismissed from his/her position.
  - Member of bank directorate shall not be the spouse, child or close relative of a member of the same bank’s directorate.
  - Chief accountant of the bank and deputy, chief accountant of its branch and deputy shall not be the spouse, child or close relative of the director of the same bank or the director of the same branch.
- NBG enforcement powers regarding administrators:
  - NBG authorized to examine compliance with fit-and-proper criteria and to examine the truthfulness and accuracy of information submitted.
  - In case of noncompliance, NBG may terminate an administrator’s signatory right and request temporary or permanent dismissal in writing; if supervisory council/board fail to act, NBG may apply sanctions under Article 30 of the Law of Georgia on the Activities of Commercial Banks.
- Sector-specific provisions and gaps:
  - Insurance companies: Law of Georgia on Insurance allows NBG to request information on source of capital (Article 21) and sets propriety criteria for administrators and owners (subparagraph “f” of para. 5 of Article 22). Requirements include not declared incapable, not convicted for legalization of illicit income or/and FT, not convicted for economic crime or/and any other offense against business or economic activity, not simultaneously administrators of other insurers except in group-control cases. However, no fitness tests exist to determine competence, formal qualifications, previous experience and track record.
  - Securities brokerage companies and securities registrars: Article 24 and Article 29 of the Law of Georgia on “Securities Market” require that a governance member has not been convicted of economic crime in the preceding 10 years and has not been imposed administrative punishment for gross violation of Georgian securities legislation in the last five years. No propriety tests for owners; no fitness tests for administrators to determine competence, qualifications, experience, track record.
  - Microfinance organizations (Article 7 of Law on “Microfinance Organizations”): directors may not be partner/shareholder or board member of commercial bank, credit union or other Microfinance Organization; prohibits directors who participated in operations causing substantial loss or insolvency, failed financial obligations to bank/credit union, declared bankrupt or convicted of a financial crime under the Georgian CCG and not cleared. At on-site visit there were no propriety tests for owners and no fitness tests for administrators; legal amendments in February 2012 introduced a fit-and-proper test for owners of microfinance organizations.
  - Credit unions: at on-site visit there were no fit-and-proper checks on senior executives of credit unions; legal amendments in February 2012 introduced a propriety test for management of credit unions.
  - Currency exchange bureaus and money remittance services: at the time of the on-site visit there were no fit and proper tests on owners and administrators; legal amendments in February 2012 introduced propriety tests for owners and administrators of such businesses.
  - Money-changing or remittance business operators: required to be registered under Article 50 of the Organic Law on the National Bank of Georgia and supervised by NBG from the AML perspective; at on-site visit no propriety tests on owners and administrators (amended February 2012 to introduce such tests).
  - Leasing companies: not subject to supervision or oversight for AML at on-site visit; effective January 1, 2012, leasing companies included as monitoring entities under the AML Law and required to comply with AML obligations; Georgian Ministry of Finance is supervisory body for leasing sector under Article 4 of the AML Law.
  - Electronic money institutions: not yet subject to the AML Law at the time of the on-site visit.

### Implementation and Effectiveness of Market Entry Controls
- Assessment at time of on-site visit: implementation and effectiveness of Georgia’s market entry framework assessed to be weak due to absence of fit or proper tests for owners and administrators in multiple categories.
- Specific gaps identified:
  - No propriety tests on owners of securities brokerage, securities registrars, microfinance organizations and credit unions.
  - No fitness tests on administrators of insurance companies, securities brokerage, securities registrars, microfinance organizations and credit unions.
  - No fit and proper tests on owners and administrators of currency exchange bureaus and money remittance services at on-site visit.
- Beneficial ownership and shareholder change controls:
  - NBG empowered to require and obtain information on beneficial owners of commercial banks.
  - Under Article 8(1) of the Law on Commercial Banks, any change in shareholding of ten percent or more is subject to approval by NBG.
  - Uncertainty noted over whether adequate due diligence is carried out to identify and verify ultimate beneficial ownership of banks in all cases.
  - NBG had not made requests of foreign counterparts to do background checks of prospective bank shareholders despite high foreign ownership; NBG reasoned most foreign shareholders are well known international financial institutions, investment funds, and commercial banks and well known high net worth individuals and therefore did not need to conclude MOU with each shareholder’s country.
- Recommendation-level finding:
  - Proper market entry controls and due diligence on shareholders and administrators are crucial to prevent criminals or their associates from holding, controlling, or managing financial institutions; compensatory controls needed as Georgia develops policies to attract foreign investments.
  - After the on-site visit, fit and proper tests had been introduced for owners and management of several categories of financial institutions.

### Ongoing Supervision: Regulation, Inspection Scope and Frequency
- NBG responsibilities and approaches:
  - NBG regulates and supervises financial institutions for AML purposes by licensing/registering and performing ongoing supervision.
  - In licensing commercial banks, NBG assesses risk profile and group structure using bottom-up and top-down approaches: determine if bank is part of a financial conglomerate or controlled by a bank or shareholders; whether parent company is regulated and supervised (including for AML); ability to identify ultimate beneficial owners and complexity of structure; assess subsidiaries especially if abroad and possibility of cooperation with foreign supervisory authority.
- Consolidated supervision:
  - Georgian financial institutions have banking and securities operations in Azerbaijan, Belarus, and Ukraine.
  - NBG has signed supervisory MOUs with supervisory authorities of these three countries containing agreement for cooperation on on-site inspections.
  - NBG has not yet conducted any on-site inspection of the overseas operations, though authorized to check such operations through head offices of Georgian financial institutions.
- Formalized AML on-site inspection policy (issued November 1, 2011):
  - Inspection scope and purpose:
    - Assess policies, procedures and internal control mechanisms for adequacy and compliance with the AML Law and Regulations.
    - Determine the institution’s management mechanisms and oversight and the institution’s risk level.
    - Issue recommendations or, in case of violations, impose sanctions.
  - Selection and approval process:
    - AML unit selects financial institutions for inspection and makes a report to the Governor or Vice-Governor containing recommendations on institution to be inspected; period and duration; and reason and subject of inspection.
    - For most financial institutions, identification for inspection based on lapse in time from last inspection and ML risk level assigned.
    - For currency exchange bureaus and money remittance entities, identification for inspection based on location by regions and districts and the volume of their business.
    - NBG can select institutions for inspection based on extraordinary factors.
- Inspection frequency by type of institution:
  - Commercial banks:
    - For banks rated as high risk from the last inspection, inspection frequency is two to three years.
    - Banks rated medium or low risk are inspected every three or four years.
    - Frequency can be adjusted based on changes in the bank’s risk level.
  - Insurance companies and non-state pension funds: inspected every two or three years.
  - Microfinance organizations and credit unions: inspected every three years.
  - Independent registrar of stocks and brokerage companies: inspected every three years.
  - Money remitters: inspected every four years.
  - Currency exchange bureaus: inspected every five years.
- Inspection duration and number of inspectors by institution (policy-defined):
  - Commercial banks:
    - Large-sized bank – duration of inspection: five to six weeks, number of inspectors: five;
    - Medium-sized bank - duration of inspection: three to four weeks, number of inspectors: two to three;
    - Small-sized bank - duration of inspection: two to three weeks, number of inspectors: two.
  - Insurance companies and non-state pension funds: duration of inspection: one to two weeks, number of inspectors: two to three.
  - Microfinance organizations: duration of inspection: five to ten days, number of inspectors: two.
  - Brokerage companies and independent registrars of stocks: duration of inspection: five to ten days, number of inspectors: two.
  - Nonbanking depositary institutions (i.e., credit unions): duration of inspection: five to ten days, number of inspectors: two.
  - Money remitters: duration of inspection: two to three days, number of inspectors: two.
  - Currency exchange bureaus:
    - Duration of inspection dependent on the volume of financial activity.
    - If large size, duration of inspection is generally two to three days; if small size – two hours.
    - In both cases number of inspectors is two.

*Source: IMF on-site assessment content unit _cr1304 - 945.*

### 972.      At the end of each inspection, the AML team prepares a report and presents it to the Vice-

### _cr1304 - 972.

### AML inspections: process and oversight
- At the end of each inspection, the AML team prepares a report and presents it to the Vice-Governor.
- In case of violations of AML requirements:
  - A decision on sanctioning is taken.
  - The Vice-Governor instructs the Legal Department to prepare an ordinance on pecuniary penalty in accordance with the requirements of the AML Law.
- In special cases, based on severity of violations and risks:
  - The inspection act and report prepared by inspectors are discussed by a committee comprising senior officials of NBG (the Committee of Financial Sector Supervision).
  - After discussion, the Committee presents to the Governor of National Bank its recommendations about measures to be taken towards the relevant financial institution.

### Implementation — overview and common inspection findings
- Statistics cover AML inspections carried out by the NBG for years 2009 to 2011, violations noted, and fines imposed.
- No on-site inspections of securities brokers, securities registrars, and credit unions in 2009, 2010, and 2011, justified by:
  - NBG risk assessment of the securities market: low transaction volume and significant portion of trades executed by bank-owned securities entities required to implement parent banks’ policies and procedures.
  - Very limited or no usage of higher risk products and services such as fund/wealth management, investment funds, bearer securities, bills of exchange and wholesale securities market.
  - Securities trades above the threshold of GEL 30,000 were required to be reported and monitored by FMS.
  - Credit unions assessed low risk given total asset size of GEL 4.4 million and an average deposit size of GEL 2,500; members required to be identified at the outset.
- NBG examiners review adequacy of AML policies, procedures and controls, and compliance with the AML Law and FMS decrees/regulations; detailed transaction checking is conducted in all inspections.
- Common weaknesses noted:
  - Non-submission of CTR or STR to FMS;
  - Delay in submission of CTR or STR to FMS;
  - Violation of the CDD process;
  - Violation of the record-keeping obligation;
  - Violation of the requirements set for registering and maintaining information (documentation) relating to the monitoring process.
- Observed incentive effect of sanction regime:
  - Georgian sanction regime places much emphasis on levying monetary fines for each instance of violation.
  - NBG on-site examinations are geared towards detailed transaction testing to detect violations to impose monetary fines.
  - Financial institutions reported that NBG on-site inspections were focused on detecting violations that warrant a monetary fine.

### Money remittance and currency exchange sectors — scope and supervision
- As at end of September 2011:
  - 58 money remittance services;
  - 1,485 money exchange bureaus;
  - 57 microfinance organizations (that carry out money remittance operations).
- These operators are subject to AML requirements under the AML law, subject to NBG’s registration and on-site inspection, and subject to decrees/regulations issued by FMS.
- NBG is the supervisory body for money remittance service entities and currency exchange bureaus (Article 50 of the Organic Law of Georgia on the National Bank of Georgia).
  - Supervisory powers include: registration, cancellation of registration, inspection, and imposition of sanction.
- Registration process requires provision of information on person in charge of AML compliance; application form states owner and person responsible should be well aware of AML legislation.
- NBG authorized to inspect financial institutions in accordance with Article 50(1) and (2) of the Organic Law of Georgia on the National Bank of Georgia.
- NBG monitors regulatory compliance of all money-changing and remittance business operators by performing on-site inspections.
- Inspection activity examples:
  - 2010: inspected 27 money remitters, six microfinance organizations, and 132 currency exchange bureaus.
  - 2009: inspected 149 currency exchange bureaus.
  - Most findings related to non-reporting or delay in reporting to the FMS and violation of CDD requirements.
- Supervisory cycles (per inspection policy issued on November 1, 2011):
  - Money remitters: once every four years.
  - Currency exchange bureaus: once every five years.
  - Microfinance organizations: once every three years.
- Assessment: supervisory cycle for these operators appears infrequent and represents significant lapse of time between inspections.

### NBG supervisory capacity and shortcomings (Core Principles institutions)
- Institutions subject to the Core Principles: banks, microfinance organizations, credit unions, insurance companies, securities brokerages, independent securities registrars.
- Shortcomings in implementation noted at time of on-site visit:
  - No propriety tests on owners of securities brokerage companies, securities registrars, microfinance organizations, and credit unions.
  - No fitness tests on administrators of insurance companies, securities brokerage, securities registrars, microfinance organizations, and credit unions.
  - Ongoing supervision inadequate due to:
    - Lack of a systematic off-site monitoring unit to assess risk profiles.
    - Limited resources allocated for on-site inspections.
    - No supervisory plan identifying and listing financial institutions to be inspected at start of each year.
  - Monitoring of money remittance and currency changing sector inadequate due to lack of off-site monitoring, fit-and-proper checks on owners/operators, and NBG’s long supervisory cycle.

### Effectiveness of supervision and inspection approach
- AML off-site function introduced only recently in February 2012; hence:
  - Effectiveness of AML off-site supervision to assess risk profile and monitor developments cannot be tested.
  - Absence of off-site supervision at time of visit prevented detection of problems between inspections.
  - Effectiveness of supervisory plan and identifying targeted institutions also cannot be tested (introduced February 2012).
- Current examination approach focuses on strict compliance with objective elements (e.g., threshold reporting, watch zone) and is not complemented by thorough inspection of:
  - Subjective elements (e.g., suspicious operations, “reasonable measures”);
  - Complex elements (e.g., identification of politically-exposed persons, ultimate beneficial owners).
- Supervisory cycle for some institutions (currency exchange bureaus and money remitters) appears too long given risk profile.

### NBG guidance, industry engagement, and industry behavior
- NBG issued “Guidance on the risk based approach to combating illicit income legalization” in February 2010 covering:
  - Risk-based approach, customer due-diligence measures, know your client policy, and requirements for internal rules and procedures.
- NBG also issued guidelines on identification and verification of “ultimate beneficial owners”.
- NBG consultations:
  - Conducts consultations with representatives of financial sectors, via industry associations or bilaterally.
  - Consultations before adoption of new regulations or instructions; semi-annual meetings separately with each financial institution subject to core principles (primarily focused on prudential issues; AML may be discussed).
- Industry behavior observed:
  - Some institutions had challenges implementing requirements such as identification of beneficial owners and record keeping.
  - Many institutions did not consult directly with NBG, influenced by imposition of substantial penalties for CDD violations and a focus on meeting examiners’ interpretation.
  - In some institutions, AML measures appeared aimed chiefly at mitigating regulatory risks rather than controlling underlying ML or TF risks.
  - One institution performed CDD not only at inception of account opening but also each time customers perform a transaction.

### Recommendations (from assessment)
- Recommendation 17 — authorities are recommended to:
  - Review and increase the amount of monetary fines for several categories of violations to ensure that the fines are punitive and dissuasive.
  - Include proper sanctions against electronic money institutions for non-compliance with AML/CFT requirements.
- Recommendation 23 — NBG is recommended to:
  - Initiate practical implementation of significant reforms introduced in February 2012 as soon as resources are available. Reforms included: introduction of fit and proper tests for several categories of financial institutions; establishing an AML off-site function; and developing a supervisory plan for on-site inspections.
  - Consider re-orientating its on-site inspection approach to ensure financial institutions have proper risk management processes to ensure compliance with AML laws and to control and mitigate ML and TF risks — rather than focusing inspections on detecting violations which call for a monetary fine.
  - Impose AML/CFT requirements against electronic money institutions.
- Recommendation 25 (Guidelines) — observations:
  - Industry would benefit from more clarity and guidance from NBG on actual implementation of preventive measures, especially on identification of beneficial ownership.

### Compliance ratings and key factors underlying ratings
- R.17 — LC
  - Fines are too low in nominal terms to be punitive and dissuasive for some categories of violations.
  - Electronic money institutions are not subject to sanctions.
  - Effectiveness relating to implementation of several categories of sanctions cannot be tested as the sanctions were introduced only in February 2012 (includes sanctions for failure to maintain internal controls, updated sanctions for credit unions, and sanctions for officers of financial institutions).
- R.23 — PC
  - Supervisory cycle relatively long for currency exchange bureaus and money remittance operators given their risk profile.
  - Electronic money institutions are not subject to AML/CFT supervision.
  - Effective implementation of significant reforms introduced in February 2012 (fit and proper tests; systematic AML off-site function; supervisory plan) could not be tested.
  - Fit and proper tests reform will not apply retrospectively to the existing 1485 currency exchange bureaus and money remitters.
- R.25 — LC
  - Effectiveness: the industry would benefit from more clarity and guidance from NBG on implementation of preventive measures, especially identification of beneficial ownership.
- R.29 — LC
  - Electronic money institutions are not subjected to the AML Law and supervision.
  - Effectiveness of the power to supervise leasing companies cannot be tested as they have only been subjected to the AML Law in January 2012.

### Money or Value Transfer Services (SR.VI) — legal framework and registration
- Money transfers are conducted by commercial banks, microfinance organizations, and money remittance services (including post offices representing entities performing money remittance services).
- Money remittance service operators are subject to the AML Law (Article 3.a.1) and are supervised by the NBG (Article 4 of the AML Law and Articles 48.2 and 50 of the Organic Law on the National Bank of Georgia).
- Designation and registration details:
  - As at end of September 2011, 58 money remittance service operators conducting business in Georgia.
  - Money remittance operators required to register with NBG and are subject to regulation, on-site inspection and sanctions.
  - Article 48.2 authorizes NBG to regulate entities conducting money remittance by registering, auditing them and setting minimum requirements.
  - Article 50 provides NBG shall supervise entities conducting money remittance services and currency exchange points for preventing circulation of forged money and, for purposes of Law on Facilitating the Prevention of Illicit Income Legalization, by registering, revoking registration, auditing, and setting minimum requirements and sanctions. Rules on registration/revocation, amount of pecuniary penalty and its imposition are defined under NBG normative act; monetary penalty wired to state budget of Georgia.
  - Regulation on registration (grandfathered from GFSA) requires persons to register at NBG before commencing activities and present registration form. Registration prerequisites include premises satisfying AML requirements, a computer, copy machine and printing equipment, special software for registration of money transfer transactions.
  - Money remittance providers obliged to inform NBG within seven days of changes in registration information/documents.
  - NBG authorized to cancel registration when: (i) upon written request by applicant; (ii) in case of death, liquidation, bankruptcy of entity or court-declared missing or with diminished capacity; (iii) liquidation of legal person has been started.

### Applicable AML requirements for money remitters (list)
- As nonbank financial institutions, money remittance service operators are subject to AML Law requirements including:
  - CDD (Article 6 of the AML Law of Georgia and Article 6 of the Regulation on Money Remittance Services);
  - Obligations on PEPs (Article 6¹ of the AML Law of Georgia and Article 6¹ of the Regulation on Money Remittance Services);
  - Reliance on third party/intermediary (Article 6.10 of the AML Law of Georgia and 6.11¹ of the Regulation on Money Remittance Services);
  - Recordkeeping (Article 7 of the AML Law of Georgia and Article 8 of the Regulation on Money Remittance Services);
  - Internal control (Article 8 of the AML Law of Georgia and Article 4 of the Regulation on Money Remittance Services);
  - Obligations related to non-cooperative or watch zones (Article 2.e of the AML Law of Georgia and Article 2.j; Article 3.3 of the Regulation on Money Remittance Services).
- Deficiencies recorded elsewhere in the report are equally applicable to money remittance operators.

*Source: _cr1304 - 972.*

### 997.      As nonbank financial institutions, money remittance service operators are subject to

### _cr1304 - 997.      As nonbank financial institutions, money remittance service operators are subject to

### Legal and supervisory framework for money remitters
- NBG oversight:
  - Article 48.2 of the Organic Law of Georgia on the National Bank of Georgia authorizes NBG "to regulate entities conducting money remittance by way of registering, auditing them, and setting minimum requirements for them for AML purposes."
  - All money remittance service operators, including those acting as agents, are required to be registered with NBG. NBG keeps a register of these entities and persons conducting money remittance services.
  - Operators maintain a list of their agents; this meets the requirement on maintaining a list of service operators and agents made available to NBG as the designated competent authority.
- FMS registration:
  - MVT service operators are obliged to register with FMS within 10 working days from the registration at the NBG.
  - The registration regulation (Article 3.2.b) directly states that MVT service operators are obliged to satisfy the requirements set out in the AML regulation issued by the FMS.

### Sanctions and regulatory instruments
- Pecuniary penalties:
  - Sanctions for violation of the AML obligations by money remittance entities are defined under the Regulation on Defining, Imposing and Collecting Pecuniary Penalties against Microfinance Organizations and Money Remitters (approved under the Decree of the President of the National Bank of Georgia of February 22, 2010, #22/01).
  - Sanctions primarily focus on ensuring strict compliance with objective elements of laws and regulations (e.g. threshold reporting, watch zone).

### Supervisory resources, cycles, and inspection practice
- Resourcing and cycle:
  - "No specific resources have been assigned by NBG to the supervision of money remittance service operators, and they are included in the AML supervision for the financial sector."
  - The supervisory cycle for on-site inspection is generally once in four years (policy document on on-site inspection of financial institutions issued by NBG on November 1, 2011).
  - NBG indicated it "could shorten the cycle depending on the risks of the entities."
- Inspection statistics and outcomes:
  - Figures on AML on-site inspections conducted on MVT operators since they came under NBG’s supervision in December 2009 are provided in the source.
  - NBG carried out inspections on 27 money remittance service operators in 2010.
  - Based on the inspections carried out by NBG on 27 money remittance service operators in 2010, there were 14 cases where fines were imposed due to violations of AML requirements. These violations related to non-reporting or late reporting to FMS and violation of CDD requirements.
- Gaps identified:
  - "No specific resources" and a "relatively long" four-year supervisory cycle mean NBG should consider having more resources for monitoring/supervising this sector.
  - Lack of fit and proper checks on owners and administrators of entities up to the time of the on-site visit undermined effectiveness; amendments introduced propriety tests after the on-site visit.
  - Financial and statistical reporting obligations were introduced post-visit to enhance supervision.
  - Supervisory resources for this sector were generally not adequate; supervisory cycle generally envisaged to be once in four years.

### Remittance volumes and channels
- Aggregate flows:
  - In 2008, the total volume of money transfers to Georgia exceeded US$1 billion, an increase of US$136 million (15.7 percent) on the 2007 figure.
- Distribution of transfer methods (household survey):
  - money transfers via money remittance service providers–42 percent;
  - bank transfers–28 percent;
  - sending money via driver, agent, or courier–27 percent.
- Informal sector and enforcement:
  - The banking industry is an almost exclusive payer of remittances but competes with a relatively important informal sector.
  - Georgian authorities indicated that unauthorized remittance activities are illegal as far as these activities are subject to registration; Article 192 of the CCG of Georgia defines it as a criminal offense to conduct services without the requisite registration or licensing.
  - The Georgian financial police have full authority to take action against any unauthorized remittance activity.

### Implementation, effectiveness, and vulnerabilities
- Application of AML Law:
  - "The AML Law applies to money remittance service operators and they are subject to all applicable preventive measures. They are also subject to on-site examination by NBG."
- Effectiveness issues:
  - Up to the time of the on-site visit, there were no propriety checks on owners and administrators to prevent criminals or their associates from having beneficial ownership or management.
  - Supervisory activity in relation to money remitters appeared to be low; there were no inspections on remitters in 2009 and 2011 as shown in the inspection data.
  - Remittances were de facto conducted by casinos accounts and payment systems such as Paybox; these were not registered by the NBG and operated outside of the regulated system.
  - Amount of fines for many types of violations (such as performing services without client identification) is very small for MVT operators to be considered effective and dissuasive.
  - Effectiveness of implementation of reforms introduced with respect to systematic off-site monitoring and fit and proper tests could not be tested at the time of the report.

### Best practices and additional elements for MVT sector
- Coverage of Best Practices:
  - As part of the nonbank financial institution sector, the full range of applicable measures under the AML Law is relevant to the MVT sector.
  - Elements covered include:
    - Extending all the obligations of the AML Law to money remitters, which are considered reporting entities;
    - Money remitters are required to be registered with NBG, and are subject to on-site inspection by the NBG;
    - Money remitters are subject to sanctions for non-compliance with the AML Law, decrees and regulations.

### Recommendations (as stated in the source)
- Take measures to address remittances which are taking place outside the regulated sector in Georgia.
- Rectify the legal deficiencies relating to preventive measures that apply to MVT operators.
- Increase supervisory resources available to supervise MVT operators.

---

*Source: IMF assessment text (excerpt) contained in content unit _cr1304 - 997.*

### 1035.      Article 6.5 outlines: “monitoring entities shall be obliged to identify a person involved in

### Article 6.5 outlines: “monitoring entities shall be obliged to identify a person involved in

### Identification requirements — general
- Article 6.5 of the AML/CFT Law requires “monitoring entities shall be obliged to identify a person involved in the transaction (operation) and verify identity of such person through documents of reliable and independent source.”
- Article 5.1 of FMS Decree No. 93 requires notaries to identify persons for which they have a business relationship, their representatives and proxies, as well as any third person in whose favor transaction is being concluded, when:
  - transaction (operation) amount exceeds GEL 3,000 (or its equivalent in other currency); and
  - transaction is suspicious according to Article 2.e.
- Recent amendments to the AML/CFT Law (Article 6.1.c) and Decree No. 93 include identification and verification requirements when “doubts arise regarding the veracity or adequacy of previously obtained client identification data”.
- Article 6.1.c (as amended) imposes identification when “doubts arise regarding the veracity or adequacy of previous obtained information”.

### Notaries — rules, procedures, and implementation
- Rules of Drawing-Up Notary Deeds impose broader requirements than the AML/CFT Law by requiring identification of all clients for whom a transaction is prepared or conducted.
- Article 5.5 of the recently amended FMS Decree No. 93 for notaries indicates that “notaries shall not be authorized to certify (confirm) transaction (document), carry out any other notarial activity or establish business relationship with the person (render services to the client), without preliminary identification of this person”.
- Implementation:
  - Notaries systematically apply CDD requirements; key client information must be entered into prescribed software and a notary act cannot be recorded if client information is not properly entered.
  - When there is suspicion about the identification document provided, the notary is required to refuse to conduct the transaction.
- Identification documents required under Article 5.7 of FMS Decree No. 93:
  - for a Georgian citizen–a citizen identity card, a passport, or any other official document of same or equal value under Georgian legislation; if the physical person is registered as a sole proprietor–document confirming registration;
  - for a foreign citizen–passport issued by the competent authority of the relevant State or other official document of same or equal value under the Georgian legislation;
  - for resident legal entity–respective legal act on establishing the legal entity or/and excerpt from enterprise register (or other relevant register) and document confirming person’s representational authority;
  - for a nonresident legal entity–documents issued by competent authorities of the foreign State, legalized in conformance with the Georgian legislation and confirming foundation of the non-resident legal entity and certifying respective authority of its representative(s).
- Identification data to be obtained under Article 5.6 of FMS Decree No. 93:
  - For a physical person: first name, last name; citizenship; date of birth; permanent (registered) place of residence; number of ID (passport) and citizen’s personal number by ID (passport); if the physical person is registered as an individual entrepreneur–the relevant registration date, number, registering authority, identification number of tax payer.
  - For a legal entity: full name; business activity; legal address (in case of the branch or representation the legal address of the head office also); registering authority, date and number of registration; identification number of tax payer; identification details of persons authorized for management and representation (separately shall be indicated details of the person, who represents this legal entity in a transaction).
  - For an organizational formation which does not represent a legal entity: full name; legal address; legal act, based on which this formation has been established (or has been functioning); identification number of tax payer; identification details of persons authorized for management and representation in (separately shall be indicated details of the person, who represents this legal entity in a transaction).
- Beneficial ownership:
  - Recent amendments to Decree No. 93 (Article 5.2) require a notary to “identify the beneficial owner of the person having business relationship with the Notary (client), as well as to undertake reasonable measures to verify his/her identity by means of reliable, independent source and be satisfied that it knows who the beneficial owner of the person (client) is. Identification procedures similar to those used for natural persons shall be applied against beneficial owner.”
  - Article 5.8.b of FMS Decree No. 93 specifies that, if documents stored in or presented to the Notary allow, the notary should document identification details on physical persons and legal entities owning 20 percent and more of the stock or share; date of appointing persons authorized for management and representation; bank account details.
  - The requirement to obtain identification details on persons owning 20 percent and more of the stock is only applicable if documents allow, making it non-mandatory and limiting a notary’s ability to fully understand ownership and control structures.
- Additional notary provisions:
  - Article 19.4 of the Rules for Drawing-Up Notary Deeds: notary must indicate parties’ first and last names, birth date, place of residence, personal identification number (or passport issuance date and number for foreign citizens without personal identification number).
  - Article 20.1 requires representation authority documents for legal entities: Articles of incorporation from the Registry; equivalent foreign documents legalized or apostilled; original or verified copy of charter (bylaws) if necessary.
  - Article5.7-1 of FMS Decree No. 93 allows notaries to use electronic databases of identification documents provided by the Civil Registry Agency.
  - The obligation to verify powers to bind a legal person is in Article 48 of the Georgian Law on Notaries.
  - Decree No. 93 (as amended January 31, 2012) Article 5.1 requires identification for transactions over GEL 3,000; suspicious transactions; or when doubts arise about veracity/adequacy of previously obtained identification data.
  - Recent changes to Decree No. 93 require notaries to ascertain the nature and purpose of relations the client intends to establish (Article 5.4).
- Ongoing CDD obligations under the AML/CFT Law:
  - Article 6.15 of the AML/CFT Law outlines a permanent monitoring requirement for business relationships.
  - Article 6.10 requires entities to undertake reasonable measures to identify the beneficial owner of the client and take reasonable measures to verify his/her identity.
  - The requirement to keep information up-to-date is set out in Article 6.11 of the AML/CFT Law and is in line with the standard.

### Casinos and Gambling Establishments — rules and implementation
- Legal requirements:
  - In addition to Article 6.2 and 6.5 of the AML/CFT Law, FMS Decree No. 94 stipulates that “casinos shall identify all persons taking part in a transaction, when:
    - a) transaction amount exceeds GEL 3,000 (or its equivalent in other currency);
    - b) transaction is suspicious according to Subparagraph (i) of this Regulation;
    - c) in other cases provided for in the Law.”
  - Identical provision exists in FMS Decree No. 94 for Persons Organizing Lotteries, Gambling and Commercial Games.
  - Article 5.6 of FMS Decree No. 94: for identification of resident physical person, a citizen identity card, or a citizen passport, or any other official document equalized under Georgian legislation is required.
  - Article 5.7 of FMS Decree No. 94: for nonresident physical persons, passport issued by the competent authority or other official equivalent document is required.
  - Article 5.5 of FMS Decree No. 94 mandates collection of: first name, last name; citizenship; date of birth; permanent (registered) place of residence; number of ID (passport) and citizen’s personal number by ID (passport).
- Implementation findings:
  - Implementation of client identification varies by casino internal regulations.
  - Some casinos identify at entry and issue a casino number used to track chip purchases at cash teller and tables; purchases are reviewed daily for FMS reporting purposes.
  - Identification is not requested again when the GEL 3,000 identification threshold is reached in some casinos.
  - Transactions at slot machines cannot always be monitored, making it impossible in these cases to identify transactions above GEL 3,000 and subsequently identify the client conducting these transactions.
  - Other casinos identify at the GEL 3,000 threshold only when an employee visually ascertains that GEL 3,000 worth of credits are displayed on the slot machine.
  - An internet casino took identification at client registration, but verification was only done if the client cashed out at one of its locations.
  - Inconsistent application prevents systematic linkage of identification with client transactions.
- Gaps:
  - Client identification requirement is not comprehensive as it does not apply to business relationships or instances when there are doubts about previously obtained information, though Article 6.1.c of the AML/CFT Law addresses doubts.
  - There are no modalities on how to identify legal entities for casinos and gaming institutions; authorities and private sector indicated that no legal entities gamble in casinos.
  - There is no third party determination requirement for casinos or requirement to document the purpose and intended nature of a transaction.
- AML/CFT Law changes relevant to casinos:
  - Article 15 of the AML/CFT Law outlines a permanent monitoring requirement for business relationships.
  - Article 6.10 requires reasonable measures to identify beneficial owners and verify identity.

### Dealers in Precious Metals and Stones
- Article 6.2-1 of the AML/CFT Law: “persons engaged in activities related to precious metals, precious stones and products thereof, as well as antiquities, proceeding from their major activity, shall carry out identification of business-related persons, if the amount (paid in cash) of transaction (operation) exceeds GEL 30,000 (US$18,100/€13,500).”
- Article 6.2 of the new AML/CFT Law (as amended on December 20, 2011) stipulates that “persons engaged in activities related to precious metals, precious stones and product thereof, as well as antiquities shall carry out identification of clients if the amount (paid in cash) of transactions exceeds GEL 30,000.”
- The client identification and verification threshold is in line with the standard.
- Article 6.2 (as amended on December 20, 2011) addresses concerns related to previous wording.

### Accountants and DPMS
- Article 5.1 of FMS Decree No. 12 extends client identification requirements to persons conducting accountancy and/or auditor activities when they prepare or carry out transactions for the client in the following triggering activities:
  - a) buying and selling of real estate;
  - b) managing funds, securities or other assets;
  - c) managing bank, savings or securities accounts;
  - d) organizing contributions for the creation, operation or management of legal entities;
  - e) creating operating or managing legal entities or organizational formations;
  - f) buying and selling of legal entity (share).
- Gaps in scope:
  - The article refers to “the buying and selling legal entities” rather than “the buying and selling of a business entity,” thus not addressing purchases of businesses that are not legal entities (e.g., sole proprietorships).
  - The wording “creation, operation and management of legal entity or organizational formation” does not clearly cover legal arrangements; “organizational formation” may not cover legal arrangements as required by the standard.
- Implementation:
  - With the absence of a decree pertaining to AML/CFT obligations, DPMS did not conduct CDD.
  - Implementation of accountants’ obligations could not be ascertained due to the recent coming into force of the requirements.

### Required CDD measures and documentation (R.5.3–5.7)
- Notaries (Article 5.7 / Article 5.6):
  - Documents and information listed above under the Notaries subsection (resident/nonresident documents; personal and legal entity data) are required.
- Beneficial ownership documentation:
  - Article 5.8.b requires, if documents allow, identification details on persons owning 20 percent and more of the stock or share; date of appointing persons authorized for management and representation; bank account details—non-mandatory if documents do not allow.
- Recordkeeping and updating:
  - The requirement to keep information up-to-date is established in Article 6.11 of the AML/CFT Law and is in line with the standard.
- Transaction scrutiny:
  - Recent changes to Decree No. 93 require notaries to scrutinize transactions to establish consistency with knowledge of the client, client’s business, personal activity or risk profile and, where necessary, the source of funds—this obligation is in line with the standard.

### Identified gaps and compliance issues
- The client identification requirement for casinos, gaming establishments, and certain monitoring entities is not comprehensive for business relationships or when doubts arise (though recent amendments to Article 6.1.c address doubts).
- Identification thresholds limit application:
  - Notary identification obligations and many monitoring requirements apply only for transactions over GEL 3,000, creating potential misalignment with the standard where full CDD for business relationships is required.
- Beneficial ownership:
  - Requirement to identify persons owning 20 percent and more is conditional on available documents, making it non-mandatory and limiting transparency.
- Monitoring and record linkage:
  - Casinos face operational difficulties linking client identification to transactions at slot machines, and inconsistent internal policies impede systematic identification when the GEL 3,000 threshold is crossed.
- Accountants and DPMS:
  - Lack of an AML/CFT decree for DPMS resulted in no CDD by DPMS; accountants’ compliance implementation could not be ascertained because requirements came into force recently.

*Source: Excerpt from the referenced IMF staff report content unit.*

### 1073.      All CDD obligations for DPMS are outlined in the AML/CFT Law. No decree has been

### _cr1304 - 1073.      All CDD obligations for DPMS are outlined in the AML/CFT Law. No decree has been

### CDD requirements and identified legal shortcomings
- All CDD obligations for DPMS are outlined in the AML/CFT Law. No decree has been issued for this sector.
- Article 6.2: DPMS “shall carry out identification of clients if the amount (paid in cash) of transaction exceeds GEL 30,000”.
- Shortcomings identified in Section 3 (legal analysis) include:
  - Absence of requirements regarding the identification and verification of legal arrangements.
  - Absence of definition or guidelines on what should be considered as reasonable measure and reliable source.
  - No requirement to understand the ownership and control structure of the customer.

### Accountants — legal requirements and implementation status
- Article 5.1 of Decree No.12 outlines client identification and verification requirements for accountants; subject to triggering activities in criteria 5.2.
- Content of Decree No. 12 is substantially similar to Decree No. 93.
- Implementation: the implementation of accountants’ obligation could not be ascertained due to the recent coming into force of the requirements.

### Notaries — implementation findings
- Some aspects of CDD are undertaken by notaries; identification data used to verify identity of individuals are reliable and independent.
- Registry of Entrepreneurial and non Entrepreneurial Legal Entities (National Agency of Public Registry, Ministry of Justice) is used to verify existence of Georgian legal entities owned by Georgian individuals; information on entities registered prior to 2010 is not available on this site.
- Notary challenges:
  - Difficulty identifying and verifying beneficial ownership when legal entity is owned by a foreign legal entity, particularly when the foreign entity is in an offshore jurisdiction.
  - Notary requires decision-making structure and documents proving authority to bind the corporation; transactions may be completed even if ultimate beneficial ownership information is not obtained, if decision structure is understood.
  - Notaries do not proactively ask if a transaction is conducted on behalf of a third person, except when a power of attorney is in place.
- Identification is verified for each notary act; purpose and intended nature of the transaction must be recorded when registering the notary act.
- There was no requirement to conduct ongoing due diligence at the time of the on-site visit; implementation of the new obligation could not be ascertained.

### Casinos — implementation findings and shortcomings
- In absence of supervision, client identification and verification practices vary and are not in line with the standard.
- Land-based casinos claim to undertake client identification at some point; timing varies:
  - Identification when entering the casino.
  - Ad-hoc monitoring when a client attains GEL 3,000.
  - Identification only when a client “cashes out.”
- No verification of identification was undertaken by any casinos met during the on-site visit.
- Identification documents used in face-to-face settings: national ID card and passports (considered reliable and independent).
- Internet casinos:
  - Client identification and verification practices insufficient; no rules governing identification.
  - Some internet casinos collect name and national identification number at registration but request no copy of the identification document and do not verify that the identification number corresponds to the name.
  - No controls to prevent use of fictitious names and ID numbers.
  - Identification sometimes collected only at cash-out; no verification when depositing money or when sending money to bank account or credit card.
- Monitoring software exists that tracks gaming activity and financial transactions, but focus is on fraud detection rather than AML/CFT prevention.
- Casinos did not systematically verify identification or verify that identification documents remained valid.

### DPMS and accountants — practical implementation
- With absence of regulations regarding CDD requirements, DPMS did not conduct CDD.
- Implementation of accountants’ obligation could not be ascertained due to recent coming into force of requirements.
- There is no indication that DPMS have complied with the requirement to refuse transactions when identification is impossible.

### Risk, simplified CDD, and related legal provisions (R.5.8–5.12)
- Recent amendments to the AML/CFT Law include an enhanced due diligence requirement at Article 6.13.
- Identical provisions are in amended Decree No. 93 (notaries), Decree No. 94 (casinos) and newly adopted Decree No. 12 (accountants). No decree has been issued for DPMS.
- The application of simplified CDD has been stipulated under recent amendments of the AML/CFT Law.
- There is no specific prohibition to apply simplified CDD when there is a suspicion of ML/FT or in cases of high risk and no regulation indicating when simplified measures are appropriate.
- Implementation: due to adoption of risk-related obligations following the on-site visit, implementation could not be assessed for all covered DNFBPs.

### Timing of verification (R.5.13–5.14)
- Recent amendments to the AML/CFT Law outline timing of verification requirements for reporting entities (see Section 3 for legal analysis).
- Requirement does not consider the situation of occasional customers.
- Implementation observations:
  - Notaries identify clients prior to transactions; timing mandated by software that registers notary acts.
  - Casinos’ timing of verification varies; most appear to identify clients when they enter the casino, but instances exist where identification is not undertaken at entry.
  - Casinos noted they do not verify clients when GEL 3,000 threshold is reached, relying on previously obtained identification.
  - DPMS do not undertake identification of clients.
  - Implementation of accountants’ obligation could not be ascertained due to recent coming into force of requirements.
- The prohibition to undertake transactions without identification is not enforced by the Ministry of Finance for casinos.

### Failure to satisfactorily complete CDD (5.15–5.16)
- Notaries:
  - Article 5.3 of FMS Decree No. 93: “a notary shall not be authorized to certify (confirm) transaction (document), carry out any of notarial activities, render services to the client or establish business relationship with him, without preliminary identification of this person”.
  - Article 5.5 further stipulates that when a person willing to establish a business relationship cannot be identified or when a party is on the list of terrorists, the notary cannot conduct notarial activities and should report to the FMS.
  - Article 19.3 of the Rules for Drawing-Up Notary Deeds: “if notary is suspicious about the identification card presented by the party, he or she is obliged to refuse performing the notary deed”.
  - Observed gaps:
    - Requirement to report to the FMS should not be limited to clients who do not want to be identified or persons on the terrorist list; to be in line with the standard, notaries should be required to consider reporting an STR in any instance where CDD is not undertaken as appropriate.
    - No prohibition to perform the transaction if ownership and control structure is not understood or beneficial owner is not determined.
    - No requirements to terminate the business relationship and consider making an STR where a relationship has commenced and CDD cannot be completed per criteria 5.3–5.6.
  - Implementation: notary acts cannot be registered without identification information and recording of purpose/nature, but notaries have proceeded with transactions when beneficial ownership information could not be obtained.
- Casinos/Gambling Establishments:
  - Article 5.3 of FMS Decree No. 94: casinos shall not permit participation in a game, pay winnings, or receive monetary amount without fulfilling identification requirement.
  - Article 5.6: casino shall not suspend services except where:
    - a) person cannot be identified;
    - b) any party is on terrorist list;
    - c) refusal to establish business relations with a PEP when obtaining management approval.
  - Article 5.7: if casino suspects authenticity of identification details, it shall submit reporting form to the Financial Monitoring Service of Georgia on the day of origination of suspicion; in cases of suspicion or terrorist-list matches, submit reporting form, available materials and any other information immediately.
  - Recent amendments to the AML/CFT Law (Article 6.14) require that identification and verification be undertaken before the transaction is carried out.
  - Observed gaps:
    - No prohibition to perform transaction if purpose and intended nature of business relationship is not recorded.
    - No requirement to terminate an existing business relationship and consider making an STR where the casino cannot comply with CDD requirements in criteria 5.3–5.6.
  - Implementation: instances where casinos failed to identify clients when GEL 3,000 threshold is reached; no procedures to deal with unidentified clients or unverified identification.
- Dealers in Precious Metals and Stones (DPMS):
  - Article 5.7 of the AML: entity shall refuse to carry out transaction if it is impossible to identify the person intending to set a business relationship.
  - Gap: no prohibition to perform transaction or consider submitting an STR if:
    - identification of a one-time customer is not undertaken;
    - ownership and control structure is not understood;
    - beneficial owner is not determined or identified;
    - purpose and intended nature of the business relationship is not recorded.
  - No requirements to terminate an existing business relationship and consider an STR where CDD cannot be complied with.
- Accountants:
  - Article 5.8 of Decree No. 12: accountants shall not establish a business relationship with the client and shall submit a report to the FMS when:
    - the person wanting to establish a business relationship cannot be identified;
    - a party to the transaction is on the list of terrorists;
    - senior management refuses to establish a business relationship with a PEP.
  - Shortcomings same as those identified for DPMS above.

### Existing customers (R.5.17–5.18)
- Article 16.11 of the AML/CFT Law requires updating existing identification data to bring those into compliance with effective requirements.
- Gap: no requirement to conduct due diligence on existing relationships on the basis of materiality and risk at appropriate times.
- Implementation:
  - Notaries: identification information obtained for all notary acts; existing client information automatically kept up-to-date by notaries.
  - Casinos: no procedures to address circumstances where client identification is not taken; existing customer information not systematically updated and no process to ensure previously obtained identification remains valid.
  - DPMS: no indication of compliance.
  - Accountants: implementation could not be ascertained due to recent coming into force.

### Politically Exposed Persons (PEPs) (R.6)
- Section 3 legal analysis: definition of close business relationship does not include legal arrangements.
- Similar provisions in Article 5-1 of Decree No. 12 (accountants), Decree No. 93 (notaries) and Decree No. 94; no decree for DPMS.
- Accountants have an additional requirement (Article 6.4): “Persons Conducting Accountancy or/and Auditor Activity shall have respective procedures based on which it ensures obtaining respective information from client, as well as from public sources or respective electronic databases for the purpose of ascertaining and verifying Politically Exposed Persons”.
- Implementation:
  - Notaries and casinos rely on internet searches to identify PEPs.
  - Notaries research all foreign clients more systematically; casinos that implement requirement conduct searches on individuals from certain ethnic communities.
  - Internet searches are not effective in identifying all potential PEPs.
  - No entity met obtained senior management approval; obtained source of wealth and funds; or conducted ongoing monitoring.
  - Absence of guidance compounds lack of awareness.
  - Accountants: implementation could not be ascertained due to recent coming into force.

### Non-face-to-face transactions and new technologies (R.8)
- Recent amendments to the AML/CFT Law outline obligations at Article 6.16.
- Similar provisions in Article 5.14 of Decree No. 93, Article 5.13 of Decree No. 94 and Article 5.14 of FMS Decree No. 12 for accountants. No decree for DPMS.
- Implementation:
  - Notaries: robust mechanism for non-face-to-face identification established. Georgian clients are interviewed through the internet; name, address, date of birth, and national identification number confirmed with civil registry; notary ascertains if internet conference participant visually matches civil registry photo; process is videotaped and witnessed by two observers.
  - Other sectors: due to adoption of obligations following the on-site visit, implementation could not be assessed.
  - Internet casinos conduct initial client identification through non-face-to-face channels but have no specific policies addressing risks of non-face-to-face channels; no verification that identification number corresponds to name; no controls to prevent fictitious names and ID numbers.

### Introducers (R.9)
- Article 6.10 (Section 3) describes introducer requirements applying to notaries, casinos, DPMS and accountants.
- Notaries:
  - Amended Decree No. 93 Article 5.3 allows reliance on a third person/intermediary “who according to international standards carry out identification and verification of identification of a person and its beneficial owner, maintaining of documents defined under Article 7 of the Regulation and is subject to the respective supervision and regulation for the purpose of preventing illicit income legalization and FT.”
  - The Article further specifies that the Notary must take action to ensure immediate access to information (documents or copies) required for identification, and that ultimate responsibility for identification and verification remains with the Notary.

*Source: Excerpts from the provided IMF assessment content (paragraphs 1073–1115).*

### 1116.      This requirement is not entirely in line with the standard. There is no requirement for the

### _cr1304 - 1116.

### Customer Due Diligence (CDD) and Reliance on Third Parties
- The requirement is not entirely in line with the standard: there is no requirement for the third party to comply with some requirements set out in Recommendation 5 and the requirement to immediately obtain information from the third party does not relate to all elements of the CDD process.
- Identical provisions for casinos (Article 5.3 of FMS Decree No. 94) and accountants (Article 5.3 of FMS Decree No. 12) have the same shortcomings as those outlined for notaries.
- No decree was issued for DPMS; AML/CFT Law only mentions access to the client (and not the beneficial owner) identification data documents while the standards also include other relevant documents relating to CDD.
- Implementation: the mission was not able to ascertain instances of reliance on third parties in the casino, DPMS, accounting or notary sectors.

### Record Keeping (R.10)
- Record-keeping requirements are outlined in Article 7 of the AML/CFT Law (described and analyzed in Section 3).
- The power to request an extension of the record keeping period is attributed to the respective supervisory authority and does not allow other competent authorities to extend the record keeping period. These requirements apply to notaries, casino, DPMS and accountants.
- FMS Decree No. 12, No. 93 and No. 94 outline obligations of accountants, notaries, casinos and gaming establishments to keep information; provisions are either identical or substantively similar to the AML/CFT Law.
- Recent amendments to Decree No.12, No. 93 and 94 at Article 5 include an obligation to keep business correspondence records for six years.
- Notaries are also required to keep records indefinitely pursuant to Article 40 of the Rules for Drawing Up Notary Deeds. No decree was issued for DPMS.
- Implementation:
  - The assessment team believes that notaries comply with record keeping requirements (based on Ministry of Justice examinations and mandatory prescribed software that keeps records of transaction details).
  - Due to absence of supervision in the casino sector, it is impossible to ascertain if records are kept by casinos.
  - DPMS do not appear to keep records for AML purposes.
  - Implementation of accountants’ obligations could not be ascertained due to recent coming into force of the requirements.

### Attention to Complex, Unusual Transactions (R.11)
- Requirements to pay special attention to complex and unusual transactions are outlined in Article 5.9 of the AML/CFT Law (description and compliance analysis in Section 3).
- Unusual patterns of transactions are not covered under the current definition of unusual transaction.
- No clear requirement in the AML/CFT Law or FMS Decrees to make unusual transactions available to external auditors.
- These requirements apply to notaries, casinos, DPMS and accountants.

Notaries
- FMS Decree No. 93 Article 3.3-1 requires notaries to pay special attention to unusual transactions, including complex, unusual large transactions and transactions without apparent economic purpose; substantially the same as the AML/CFT Law except the Decree requires notaries ascertain the “grounds” for concluding such a transaction while the AML/CFT Law requires that the “purpose” be ascertained.
- Article 3.2 of FMS Decree No. 93 adds monitoring requirement regarding terrorism: “any transaction (regardless its amount), other than transactions listed in para. 1 of this Article shall be subject to monitoring, if there is a supposition that any party of the transaction is related or is likely to be related with terrorists or persons supporting terrorism or/and funds involved in the transaction whether obtained legally or illegally, which may be related with or used for terrorism, terrorist act or by terrorists or persons financing terrorism. The list of terrorists and terrorism–supporting persons shall be published in the Official Gazette–“Sakartvelos Sakanonmdeblo Macne” by the Financial Monitoring Service of Georgia”.

Accountants
- Decree No. 12 contains identical provisions to those in Decree No. 93 for notaries.

Casino
- Decree No. 94 for casinos contains no specific provision related to complex and unusual transactions; in the absence of additional decree requirements, there is no specific requirement to examine the “background” of the transaction.

DPMS
- No decree has been issued for DPMS.

Implementation
- Notaries: requirement partially implemented. Notaries primarily focus on identifying CTRs over GEL 30,000. Some attention to red flags provided by the FMS; ML/FT vulnerabilities are poorly understood. Notaries met were unaware that grounds of the transaction should be examined and documented when unusual or complex transactions are identified.
- Casinos: monitor unusual and complex transactions for fraud purposes but do not leverage monitoring for ML/FT purposes; casinos met were unaware of requirement to examine and document grounds of unusual/complex transactions.
- DPMS: no indication of compliance.
- Accountants: implementation could not be ascertained due to recent coming into force of requirements.

Effectiveness
- Assessors question ability of most DNFBP sectors to provide comprehensive information to competent authorities in ML investigations due to:
  - Lack of obligations for most DNFBP sectors.
  - Ineffective implementation of CDD obligations for casinos and DPMS.
  - Challenges obtaining beneficial ownership information for notaries, accountants, and lawyers.
- Absence of obligations for lawyers and company service providers presents a risk given common ML method in Georgia of using legal entities to conceal proceeds.
  - Notaries, accountants, lawyers and company service providers play a role in creation of legal entities and sometimes transact on their behalf; their inclusion in AML/CFT framework is important.
  - Failure to extend obligations to lawyers and TCSPs creates an opportunity for launderers to target these sectors.
  - Absence of coverage of lawyers creates vulnerabilities given scope of legal privilege in Georgia and lack of ability for competent authorities to access documents related to financial transaction in a lawyer’s office.
- Casino sector vulnerabilities:
  - Possibility that launderers are not identified and laundering proceeds undetected.
  - Inadequate CDD measures allow anonymous transactions.
  - Absence of regulation on how client identification practices are undertaken results in CDD procedures defined by each casino and uneven application.
  - Varying client identification procedures result in clients sometimes not identified at prescribed threshold and clients not associated with particular transactions, limiting reconstruction of individual transactions for prosecution.
  - Rapid sector expansion not effectively managed to ensure AML/CFT obligations are understood and supervised.
  - Internet casino vulnerabilities: internet casino accounts used as remittance vehicles; absence of regulation on client identification for non-face-to-face channels and inconsistent/no identification measures create attractive anonymous laundering vehicle.

### Recommendations and Comments (selected)
- Authorities are recommended to:
  - Extend obligations to lawyers, real estate, and company service providers.
  - Extend triggering activities for accountants to all AML/CFT obligations.
  - Define precious metals and stones.
  - Issue implementing regulations (FMS decree) for DPMS.
- Recommendation 5:
  - Extend the prohibition to open anonymous accounts to DNFBPs.
  - Remove client identification threshold for accountants.
  - Establish CDD requirements when establishing a business relationship for sectors other than notaries.
  - Extend circumstances when “CDD” is required to all aspects of CDD, not just identification and verification.
  - Establish a requirement related to the identification and verification of legal arrangements.
  - Establish a requirement for DPMS to verify the authority of a person purporting to act on behalf of the customer or a legal entity.
  - Establish definition or develop guidelines on what is considered reasonable measure and reliable source.
  - Establish provisions that require entities to understand the ownership and control structure of the legal entity for all DNFBP sectors except notaries and casinos.
  - Establish a requirement to obtain information on the purpose or intended nature of business relationships for all sectors except notaries and accountants.
  - Establish regulations that govern cases where DNFBPs may complete the verification of the identity of customers and beneficial owners after the establishment of the relationship.
  - Establish a requirement for DPMS to terminate the business relationship and to consider making an STR when the DNFBP has commenced the business relationship and is unable to comply with CDD requirements described in c.5.3 to c.5.5 of the common assessment methodology.
  - Establish a requirement to conduct due diligence on existing relationships on the basis of materiality and risk at appropriate times.
  - Amend the AML/CFT Law to explicitly state when simplified measures may be applied; such measures should only be allowed for countries that effectively apply FATF Recommendations.
  - Amend AML/CFT Law to prohibit simplified measures when there is a suspicion of ML/CFT or in cases of high risks.
  - Ensure that beneficial ownership information is systematically captured and verified by notaries.
  - Ensure that CDD measures are applied by casinos.
- Recommendation 6:
  - Establish requirement for entities to have appropriate risk-management systems to determine whether the customer is a PEP for all sectors except accountants.
  - Expand definition of close business relationship to cover legal arrangements.
  - Ensure that senior management approval and source of wealth and funds is obtained when establishing a PEP relationship.
  - Ensure that DNFBPs apply ongoing due diligence with PEP relationships.
  - Clarify the definition of “reasonable measures”.
  - Provide guidance on the required “enhanced monitoring” measures to be applied to PEPs.
- Recommendation 8:
  - Prescribe CDD methods for the casino sector including timing of identification and verification as well as acceptable methods of non-face-to-face identification methods for internet casino.
  - Ensure that internet casinos apply adequate ongoing CDD to non-face-to-face customers.
  - Issue guidelines on the use of non-face-to-face channels.
- Recommendation 9:
  - Require that DNFBPs relying on third party immediately obtain from the third party information related to all elements of the CDD process.
  - Require that DNFBP relying on a third party immediately obtain access to other relevant documents relating to CDD.
  - Require that DNFBPs relying on a third party obtain access to information on beneficial owner.
  - Ensure that competent authorities have an explicit requirement to take into account information available on whether the countries in which the third party can be based adequately apply the FATF Recommendations.
- Recommendation 10:
  - Empower other competent authorities other than the respective supervisor to request an extension of the record keeping period.
- Recommendation 11:
  - Ensure that the legal basis for unusual and watch zone related transaction is clear and comprehensive by:
    - Amending the definition of unusual translations to include the unusual patterns of transactions; and
    - Extending the watch zone related transactions to all financial institutions and DNFBPs defined by the FATF standards to include business relationship and transactions with persons, including companies, DNFBPs and financial institutions from countries which do not or insufficiently apply the FATF standards. This requirement should go beyond specific transactions currently determined in the AML/CFT Law to include all transactions and business relationships.
  - Provide DNFBPs with guidelines on implementation of the requirement to pay special attention to unusual and watch zone related transactions and amend reporting forms to exclude the unusual and watch zone related transactions from the breakdown list.
- Authorities should also consider:
  - Prohibiting the use of casino accounts as remittance vehicles.
  - Providing guidance with respect to effective CDD for PEPs.

### Compliance with Recommendation 12 (R.12) — Rating Summary and Factors
- Rating: R.12 NC
- Summary of factors relevant to s.4.1 underlying overall rating:
  - Customer due diligence measures and record keeping obligations do not apply to lawyers, real estate agents, and trust and company service providers.
  - Unclear scope of accounting activities that are covered by the legislation.
  - Absence of definition of “precious metals and precious stones”.
  - No implementing regulations for DPMS.

Specific deficiencies (by recommendation):
- Recommendation 5:
  - Existence of minimum threshold for customer identification for accountants.
  - No CDD requirement when establishing a business relationship for sectors other than notaries.
  - Absence of requirements regarding the identification and verification of legal arrangements.
  - No obligation for DPMS requiring the verification of the authority of the person purporting to act on behalf of the legal entity or the customer.
  - No provisions that require accountants and DPMS to understand the ownership and control structure of the legal entity.
  - No requirement to obtain information on the purpose or intended nature of business relationships other than for notaries and accountants.
  - No regulations governing cases where DNFBPs may complete verification after establishment of relationship.
  - No requirement for DPMS to terminate the business relationship and to consider making an STR when unable to comply with CDD requirements.
  - No specific prohibition to apply simplified CDD when there is a suspicion of ML/FT or in cases of high risk and no regulation indicating when simplified measures are appropriate.
  - No requirement to conduct due diligence on existing relationships on basis of materiality and risk at appropriate times.
- Recommendation 6:
  - Definition of close business relationship does not include legal arrangements.
- Recommendation 9:
  - No requirement that DNFBPs relying on a third party immediately obtain information related to all elements of the CDD process.
  - No requirement that DNFBPs are satisfied that the third party has measures in place to comply with all elements of the CDD requirements.
  - No requirement for third party to grant access to other relevant documents relating to CDD and beneficial ownership.
- Recommendation 10:
  - No ability for other competent authorities other than the respective supervisor to request an extension of the record keeping period.
- Recommendation 11:
  - Unusual pattern of transactions is not covered under the current definition of unusual transaction.
  - No clear requirement in the AML/CFT Law or FMS Decrees to make unusual transactions available to external auditors.
  - No specific requirement to examine the background of transactions that have no apparent or visible economic or lawful purpose for casinos or DPMS.

Implementation deficiencies:
- Beneficial ownership requirements by notaries are not effectively implemented.
- CDD measures by casinos are not effectively implemented.
- Senior management approval and source of wealth and funds are not obtained when establishing a PEP relationship.
- No ongoing due diligence is applied with PEP relationships.
- No procedures implemented to mitigate risks associated with non-face-to-face transactions in internet casinos.

Effectiveness concerns:
- Poor CDD measures in casinos increase the risk of laundering occurring undetected.
- Effectiveness and implementation of several obligations could not be assessed due to recent coming into force, including:
  - All obligations applying to accountants.
  - Conducting ongoing due diligence of business relationships.
  - Implementation of policies and procedures to mitigate the risk of non-face-to-face transactions.
  - Monitoring of risks associated with new technologies.
  - Conducting enhanced due diligence of high risk customers, business relationships and transactions.
  - Not carrying out transactions or ceasing business relationships if beneficial owner cannot be subject to identification and verification.

### Suspicious Transaction Reporting (R.16) — Legal Framework (intro)
- The AML/CFT Law outlines requirements related to STR reporting in Article 5. Obligations regarding internal controls are outlined in Article 8.
- The legislative framework regarding STR reporting and internal controls does not apply to lawyers, real estate agents, and trust and company service providers.
- Regulation of activities related to STR reporting and internal controls are also outlined in the following Decrees:
  - Regulation on Rule and Terms of Receiving, Systemizing and Processing the Information by the Persons Organizing Lotteries, Gambling and Commercial Games and Forwarding to the Financial Monitoring Service of Georgia (approved under the FMS Decree No. 94 of the Head of the FMS of July 28, 2004);
  - Regulation on Rule and Terms of Receiving, Systemizing and Processing the Information by Casinos and Forwarding to the Financial Monitoring Service of Georgia (approved under the FMS Decree No. 94 of the Head of the FMS of July 28, 2004);
  - Regulation on Receiving, Systemizing and Processing the Information by Notaries and Forwarding to the Financial Monitoring Service of Georgia (approved under the FMS Decree No. 93 of the Head of the FMS of July 27, 2004);
  - Regulation on Receiving, Systemizing and Processing the Information by Persons Conducting Accountancy or/and Auditor Activity and Forwarding to the Financial Monitoring Service of Georgia (approved under the FMS Decree No. 12 of the Head of the FMS of Georgia of January 31, 2012).

*Source: _cr1304 - 1116.*

### 1143.      FMS Decree No. 65/4 of the President of the National Bank of Georgia of August 24, 2011

### FMS Decree No. 65/4 of the President of the National Bank of Georgia of August 24, 2011

### Watch zones / high-risk countries
- FMS Decree No. 65/4 “Establishing the List of Watch Zones for the purposes of the Law of Georgia of Facilitating the Prevention of illicit Income Legalization” outlines high risk countries subject to special attention.

### Legal framework applicability to DNFBPs
- Legislative provisions described in Section 3 apply equally to Designated Non-Financial Businesses and Professions (DNFBPs): DPMS, notaries, accountants, casinos and gaming establishments.
- Any deficiencies identified in Section 3 regarding the legislative framework also apply to DNFBPs.

### Requirements to make STRs on ML and TF to the FIU (coverage and decrees)
- Article 3 of the AML/CFT Law: monitoring of transactions requirement applies to notaries, casinos, DPMS and accountants.
- Article 5 of the AML/CFT Law and FMS Decree No. 12 (accountants), No. 93 (notaries), No. 94 (Casinos and Persons Organizing Lotteries, Gambling and Commercial Games) specify transaction monitoring and modalities of reporting suspicious transactions.
- Recent decree amendments:
  - FMS Decree No. 94 was amended on February 6, 2012.
  - FMS Decree No. 93 was amended on January 31, 2012.
- Specific amendments and obligations:
  - Decree No. 93 Article 8.4.b: if transaction or identification data is considered suspicious, the report should be submitted on the day of origination of supposition or suspicion.
  - Decree No. 94 Article 5.11 (Article 5.14 of Decree No. 94, amended February 6, 2012): requirement for casinos to develop an electronic data base for revealing suspicious and structured transactions.
- No decree has been issued for DPMS.

### STRs related to terrorism financing and reporting thresholds
- STR obligations for ML and TF apply to notaries, casinos, DPMS and accountants; refer to Section 3 for legal framework analysis.
- No significant deficiencies were found in the legal framework regarding:
  - STRs related to terrorism and its financing.
  - No reporting threshold for STRs.
  - Making of ML and TF STRs regardless of possible involvement of fiscal matters.
  - Reporting of all criminal acts.
- Implementation caveat: while the legal framework lacks significant deficiencies, application and awareness differ across DNFBP sectors.

### Implementation of STR reporting by DNFBPs (findings)
- STR reporting extended to casinos, accountants, DPMS and notaries.
- Observed implementation issues:
  - Notaries and casinos aware they had to report suspicious transactions, but many reduced suspicious reporting to identifying countries on the watch list.
  - DPMS generally unaware of the obligation and did not report any STRs.
  - Implementation of accountants’ obligations could not be ascertained due to recent entry into force.
  - Requirement to report attempted transactions:
    - Generally understood by notaries.
    - Casinos and DPMS were not aware of the obligation.
    - FMS has not received any suspicious attempted transactions from DNFBP sectors.
  - Notaries indicated they would report suspicious transactions related to tax matters and funds that were proceeds of all criminal acts.
  - Casinos indicated they would report all suspicions but did not distinguish underlying crimes in reporting practice.

### STRs submitted to the FMS by DNFBPs (as presented in source)
- STRs by reporting sector and year (table as presented in source):
  - Columns: 2007 2008 2009 2010 2011
  - Notary: 19 7 1 1 11
  - Lawyers: - - - - -
  - Accountants: - - - - -
  - DPMS: - - - - -
  - Casino: - - - - -
  - Gambling: - - - - -
  - Real Estate: - - - - -
  - TCSP: - - - - -
  - Total: 19 71135
- Additional text statements in source:
  - Paragraph 1156: “Implementation of the STR reporting requirement is low as only notaries are reporting STRs.”
  - Paragraph 1156: “82 percent of notaries were sanctioned in 2009 for incomplete or late reporting to the FMS.”
  - Paragraph 1157: “The number of STRs submitted by notaries saw a sharp decrease but has rebounded in 2011. The number of STRs went from 19 reports in 2007 to one report in both 2009 and 2010. The statistics may lend credibility to the argument that notaries focused on CTR reporting following sanctions being applied by the Ministry of Justice to notaries who submitted incomplete CTRs to the FMS in 2009. The number of STRs has seen an increase in 2011 to 36 reports.”
  - Paragraph 1158: “It is unclear how many of the STRs reported by the notaries are watch list related as the FMS does not keep distinct statistics for STRs as defined by the standard and ‘watch list’ transactions.”
- Implementation observations for casinos:
  - Casinos may not fully understand STR requirements, evidenced by the total absence of STRs being reported.
  - Casinos provided information to law enforcement (e.g., at least 10 times a year in one casino) but did not file STRs in those cases.
- Quality:
  - FMS indicated the quality of STRs received from notaries is good; Ministry of Justice supervisory actions in 2009–2010 improved reporting quality.
- Cross-country comparison excerpt (as presented in source table):
  - Georgia: 2007: 19, 2008: 7, 2009: 1, 2010: 1
  - Albania: 2007: -, 2008: -, 2009: 4, 2010: 6
  - Armenia: 2007: -, 2008: -, 2009: -, 2010: -
  - Moldova: 2007: -, 2008: 1, 2009: 6, 2010: 6
- Note: source contains inconsistent numeric reporting for 2011 (table shows Notary 11 and Total line shows “19 71135”, while paragraph 1157 states “36 reports” in 2011).

### Protections, tipping-off, and confidentiality
- Protection for making STRs:
  - Refer to Section 3 for legal framework analysis; requirements apply to notaries, casinos, DPMS and accountants.
  - There is no express protection for civil liability.
- Prohibition against tipping-off:
  - Article 12.1 of the AML/CFT Law: prohibition on tipping-off applies to notaries, casinos, DPMS and accountants.
  - Decree provisions substantively mirror the AML/CFT Law:
    - Article 8.17 of FMS Decree No. 93 (notaries).
    - Article 4.7 and Article 4.6 of FMS Decree No. 94 (casinos; persons organizing lotteries, gambling and commercial games).
    - Article 9.13 of FMS Decree No. 12 (accountants).
  - No decree for DPMS.
- Implementation of tipping-off prohibition:
  - Some casinos and all notaries met were aware they must not inform parties that a report was submitted.
  - One gaming establishment stated it would inform the customer if it ever submitted an STR.
  - DPMS were not aware of the prohibition; implementation assessment limited by low STR numbers.
- Confidentiality of reporting staff:
  - Article 12.7 of the AML/CFT Law: “in the course of fulfillment of the obligation to submit information to the FMS provided for in this Law, the identity of employees of monitoring entities shall not be disclosed.” Applies to notaries, casinos, DPMS and accountants.

### Internal controls, audit, training, employee screening, and compliance officers
- Internal controls (Article 8 of AML/CFT Law) apply to notaries, casinos, DPMS and accountants; requirement does not mandate that the compliance officer be designated at the management level.
- Notaries:
  - Article 4 of FMS Decree No. 93: “the notary shall exercise internal control in accordance with the normative acts issued by the Ministry of Justice”.
- Casinos:
  - Article 4 of FMS Decree No. 94: internal controls largely identical/substantively similar to AML/CFT Law.
  - Article 4.2 specifies internal control elements including:
    - a) Identification of persons involved in monitored transactions, beneficial owners, other transaction participants; measures against Politically-Exposed Persons (PEP) (02.06.2010 #11).
    - b) Analyzing identification information and revealing transactions subject to monitoring; documenting, systemizing and filing such information.
    - c) Submission of information on monitored transactions to the Financial Monitoring Service of Georgia in the special reporting form.
  - Article 4.4.c: compliance officer role—person making decision to consider a transaction suspicious and forwarding reporting form should be “a person in charge of monitoring”; final decision may be a representative of management or other authorized person of the Casino.
- Accountants:
  - Article 4 of Decree No. 12: internal control content includes client identification; PEP measures; permanent monitoring; analyzing monitored information; recording, systemization and filing; reporting to FMS.
- DPMS:
  - No decree has been issued for DPMS.
- Independent audit of internal controls:
  - No requirement in AML/CFT Law or related decrees for an adequately-resourced and independent audit function for DNFBP sectors.
- Ongoing employee training:
  - Article 8, para. 6 of AML/CFT Law: “monitoring entities shall be obliged to provide periodic training for the employees involved in the process of detecting the facts of legalizing illicit income and terrorism financing.”
  - Casinos: Article 4.2.d of FMS Decree No. 94 requires training for all employees — more comprehensive than AML/CFT Law and more aligned with the standard.
  - Notaries and accountants: no additional decree requirements beyond the AML/CFT Law provision.
  - DPMS: no decree issued.
- Employee screening procedures:
  - No specific requirement in AML/CFT Law for employee screening.
  - Notaries:
    - Georgian Law on Notaries Article 11: eligibility conditions for notary appointment (higher legal education, in-depth training or at least one year service as notary or five years public service in specialty, passed qualification examinations).
    - Article 14: grounds to refuse appointment (convicted of deliberate crime; current prosecution; crime connected with notary activity; released from public service; released from notary service for misdemeanor).
    - Minister of Justice appoints notaries (Article 13).
    - Ministry of Justice oversees qualification exam and conducts criminal background checks prior to appointment; Ministry reviews employee contracts and can sanction/remove employees with questionable background.
    - Procedures to ensure integrity of notary profession are in line with the standard.
  - Casinos / DPMS / Accountants: no formal employee screening procedures in place per decrees.
- Independence of compliance officer:
  - No specific legal provision for an independent compliance officer.
- Implementation findings on internal controls, training, screening, compliance officers:
  - DNFBPs met during the mission generally unaware of requirements to implement internal controls, training programs, review controls, and put in place screening procedures.
  - Casinos had some procedures documented in internal regulations required by licensing; included some client identification guidance but other elements lacking.
  - Notaries and DPMS had not implemented internal control requirements.
  - Training implementation:
    - Relatively poor across DNFBP sectors.
    - Notaries did not provide direct training to staff; some AML/CFT training delivered by the Chamber of Notaries in cooperation with the FMS.
    - Only one casino provided training to cash-cage employees on client identification and detection of fraudulent currency.
    - DPMS do not provide AML/CFT training to employees.
  - Employee screening in practice:
    - Despite no decree requirement, casinos and notaries developed screening procedures:
      - Notaries: Ministry of Justice conducts criminal background checks; notaries verify employee integrity and confidentiality; Ministry can sanction/remove employees.
      - Casinos: require criminal background checks, some require drug tests, verify references from previous employers.
  - Compliance officers in practice:
    - All notaries and some casinos had appointed compliance officers.
    - Notaries often appointed themselves as compliance officers.
    - Casino compliance officer positions varied; often at management level (finance manager, cash cage manager); in one casino three individuals were designated for reporting but no single compliance officer was appointed.
    - Compliance officers had access to CDD and transaction information but often were not aware they were responsible for all AML/CFT obligations listed in the AML/CFT Law.
    - DPMS were not aware of obligation to appoint a compliance officer.

*Source: FMS Decree No. 65/4 of the President of the National Bank of Georgia of August 24, 2011 (as presented in the supplied IMF assessment text).*

### 1191.      The implementation of accountants’ obligations could not be ascertained due to the recent

### _cr1304 - 1191.      The implementation of accountants’ obligations could not be ascertained due to the recent

### Special attention to countries not sufficiently applying FATF Recommendations (c. 21.1 and 21.1.1)
- Legal framework:
  - Article 5.1 of the AML/CFT Law outlines monitoring requirements.  
  - The legal framework does not require DPMS to apply counter-measures in cases where a country continues not to apply or insufficiently applies the FATF Recommendations.
- Notaries:
  - Article 2.j of FMS Decree No. 93 for Notaries defines a non-cooperative area or watch zones as country or a part of the territory thereof defined by the National Bank of Georgia on the basis of proposition of the Financial Monitoring Service of Georgia (FMS).
  - Identification basis: information provided by competent international organization, or if the grounded supposition exists that in such zone weak mechanisms for controlling illicit income legalization are effective.
  - Shortcoming: watch list published by the NBG does not include all ICRG listed countries (example: Turkey).
  - No specific measures beyond publication to advise notaries of AML/CFT system weaknesses.
- Casinos/Gambling establishments:
  - Article 3.3 of FMS Decree No. 94 requires monitoring of any transaction regardless of amount implemented by persons operating or registered in watch or suspicious zone.
  - Publication of non-cooperative countries and watch zones by NBG (same shortcomings as for notaries).
  - Article 5.1 of the AML/CFT Law and definition of suspicious transaction in Article 2.h of FMS Decree make monitoring requirement more explicit.
  - Shortcoming: same as notaries (watch list incompleteness; lack of advisory measures).
- DPMS:
  - No decree issued for DPMS.
- Accountants:
  - Decree No. 12 for Accountants contains provisions similar to Decree No. 94 for Casinos.
  - Shortcomings identified for casinos also apply to accountants.

### Examinations of transactions with no apparent economic or visible lawful purpose from countries not sufficiently applying FATF Recommendations (c. 21.2)
- Legal framework:
  - Article 5.9 of the AML/CFT Law outlines the requirement for this criterion.
  - Requirement examines purpose of transaction but does not extend to examining its background.
  - No clear requirement to make such transactions available to auditors.
- Notaries:
  - Article 3.3 of FMS Decree No. 93 requires notaries to “focus special attention on unusual transactions and within their competence ascertain the purpose and grounds for concluding such transaction and depict findings in writing”.
  - Definition: Article 2.o of FMS Decree No. 93 defines unusual transactions as “complex, unusual large transaction, also types of transactions, which does not have apparent or visible economic (commercial) content or lack lawful purpose and is inconsistent with the ordinary business activity of the person involved therein”.
  - Assessment: requirement is in line with the standard for ascertaining purpose and grounds and depicting findings in writing.
- Casinos/Accountants/DPMS:
  - No additional requirements outlined in decrees for casino and accountants.
  - No decree issued for DPMS.

### Implementation (monitoring and reporting practice)
- Watch zone monitoring:
  - Notary sector: notaries consult the watch list when transactions involve foreign clients or entities.
  - Casino sector: monitoring is piecemeal; list consulted for foreign clients from certain countries but not systematically for all foreign clients.
  - DPMS: did not implement this obligation.
- Follow-up and reporting:
  - Little effort made to subsequently understand background and purpose of monitored transactions or to determine suspiciousness.
  - Watch zone list can serve as a catalyst for reporting STRs, but:
    - Absence of reporting for casinos.
    - Relatively low level of reporting for notaries.
  - Unclear basis for removal from the list of certain countries identified by the FATF, potentially impacting implementation.

### Ability to apply countermeasures with regard to countries not sufficiently applying FATF Recommendations (c. 21.3)
- Finding:
  - No mechanism in place in Georgia to apply appropriate countermeasures to countries that insufficiently apply FATF recommendations.
- Further analysis:
  - Analysis of implementation and effectiveness referenced in Section 3 of the report.

### Effectiveness — R.16: STR Reporting, Internal Policies and Controls, Special attention to transactions from some countries
- STR Reporting (findings):
  - Absence of reporting requirements for lawyers, TCSP, real estate and, until recently, accountants undermines reporting effectiveness.
  - Overall very poor STR reporting from covered DNFBP sectors.
  - No STRs reported by casinos despite risks from internet casinos and ability to remit funds via internet casino accounts.
  - Land casinos have been asked by law enforcement to monitor robbery suspects conducting transactions in casinos; yet no STRs filed by the sector.
  - Absence of adequate CDD measures impairs casinos’ ability to link clients to transactions.
  - Notaries: in 2010, one STR reported compared to 8,455 CTRs reported in the same period; increase in STRs in 2011 noted but overall level remains low.
  - Notaries reported difficulty identifying beneficial owners, especially for entities in foreign jurisdictions.
  - Use of foreign legal entities identified as a common ML typology; expectation that STRs would be higher.
  - Monitoring entities confused about reporting requirements: STRs, CTRs, unusual transactions, and watch zone transactions — focus on non-STR reporting detracts from STRs.
- Internal policies and controls (findings):
  - Absence of internal AML/CFT policies and procedures across DNFBPs reflected in very low compliance.
  - Lack of documented policies results in lack of awareness and uncoordinated ML/FT monitoring and detection.
  - Client identification may be performed, but employees/management do not link identification to transaction monitoring.
  - Absence of procedures affects ability to define suspicious activity contextually and to establish reporting processes to the FMS.
  - Difficulty implementing specific CDD elements: identification of beneficial owners and PEPs; refusing transactions when CDD incomplete.
  - Limited training further exacerbates lack of awareness; entities focus on CTRs to the detriment of other AML/CFT requirements.
- Special attention to transactions from some countries (findings):
  - Absence of obligations for lawyers, TCSPs and, until recently, accountants allows transactions with countries insufficiently applying FATF recommendations to be conducted without further scrutiny.
  - Requirement to pay special attention is limited to a narrow list of transactions.
  - Watch zone list does not reflect FATF ICRG countries; excludes some FATF ICRG countries and excludes others on the FATF public list (example: Turkey).

### Recommendations and comments (4.2.2)
- Recommended actions:
  - Extend STR reporting and internal control requirements to lawyers, real estate agents, and TCSPs.
  - Provide for the possibility to apply countermeasures in cases where a country continues not to apply or to apply insufficiently the FATF recommendations.
  - Develop guidance regarding reporting and internal controls for DNFBPs.
  - Implement an outreach program to raise awareness of ML/FT sectoral vulnerabilities and STR monitoring and reporting amongst DNFBPs.
  - Amend Article 12 of the AML/CFT Law to ensure that the protection and tipping-off requirements extend to temporary and long term establishment situation.
  - Apply both criminal and civil protection for STR reporting.
  - Establish requirement for screening procedures to ensure high standards when hiring employees for DPMS, accountants, and casinos.
  - Update the watch zone list to include countries identified by FATF which do not or insufficiently apply FATF recommendations.
  - Establish a requirement to make information on transactions with no apparent economic or visible lawful purpose available to auditors.

### Compliance with Recommendation 16 — summary (4.2.3)
- Overall rating: R.16 — PC
- Key factors relevant to overall rating:
  - Recommendation 16 and SRIV:
    - ML and FT suspicious transaction reporting and implementation of internal controls do not apply to lawyers, real estate agents and trust, and company service providers.
  - Recommendation 14:
    - Protection of information and tipping-off requirements do not extend to temporary or long term establishment situations of staff.
    - Protection against liability does not apply to both criminal and civil liability for breach of restrictions on disclosure imposed by contract or legislative/regulatory/administrative provision.
    - Protection should be available even if individual did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.
  - Recommendation 15:
    - No screening procedures requirements for hiring employees for casinos, accountants and DPMS.
    - Lack of requirement for DNFBPs to have an adequately resourced and independent audit function.
  - Recommendation 21:
    - No ability for DNFBPs to apply countermeasures in cases where a country continues to not apply or insufficiently applies the FATF Recommendations.
    - Requirement to give special attention to business relationships and transactions with persons from some countries is confusing and limited to certain number of transaction over GEL 30,000 and should be enlarged to countries which do not or insufficiently apply FAFT recommendations.
    - No requirement to make information on transactions with no apparent economic or visible lawful purpose available to auditors.
    - Requirement to examine purpose of transactions with no apparent economic or visible lawful purpose does not extend to examining its background for casinos and DPMS.
- Implementation deficiencies:
  - Policies and procedures are not developed by DNFBPs.
  - Training programs targeted to employees are not delivered by DNFBPs.
  - Audit functions to test compliance with policies and procedures are not established by DNFBPs.
  - Background and purpose of transactions conducted in countries that insufficiently apply FATF standards are not examined and documented.
  - Despite threat of terrorism and TF activity in Georgia, no STRs relating to terrorist financing have been received from any DNFBP.
  - No attempted transactions reported by DNFBPs.
- Effectiveness conclusion:
  - STR reporting level is not commensurate with the level of risk associated with casino and notary sector (explicit example: no reporting of STRs by casinos).

### Regulation, supervision, and monitoring (R.24-25) — legal framework and supervision designation
- Article 4 of the AML/CFT Law designates supervisory authorities for DNFBP sectors and reported entity counts:
  - Notaries — Designated Supervisor: Ministry of Justice — Number of entities: 210
  - Casinos — Designated Supervisor: Ministry of Finance (no specific powers to conduct AML/CFT inspections) — Number of entities: 15 land casinos (8 operate internet casinos); 150 gambling establishments
  - DPMS — Designated Supervisor: Ministry of Finance — Number of entities: 100
  - Accountants — Designated Supervisor: Organization created on the basis of the Georgian legislation that is the member of the International Federation of Accountants (Legislation designating organization not yet adopted) — Number of entities: 5000
  - Lawyers — No AML supervisor or obligations — Number of entities: 3,500
  - Real Estate — No AML supervisor or obligations — Number of entities: 100-150
  - TCSP — No AML supervisor or obligations — Number of entities: Unknown
- Observations:
  - Article 4 lists supervisory bodies but does not clearly indicate supervisory bodies are responsible for AML/CFT supervision (this can be inferred).
  - Responsibilities of supervisory bodies are described under Article 11 of the AML/CFT Law.
  - Recent amendments extend obligations to accountants and designate the “member organization of the International Federation of Accountants” (intended to refer to Georgian Federation of Professional Accountants and Auditors; formal designation legislation not yet adopted).
  - Law on Games of Chance describes licensing and operation requirements for casinos.
  - Article 4.c designates Ministry of Justice as responsible for supervision of notaries for AML/CFT purposes; Law on Notaries and associated decrees outline supervisory authority and disciplinary liability.
- Regulation and supervision of casinos (c.24.1, 24.1.1, 24.1.2 & 24.1.3):
  - Designated competent authority:
    - MOF responsible for supervision of AML/CFT obligations for casinos and gambling establishments.
    - Article 7.3 of the Law on Games of Chance empowers the Revenue Service of the MOF to monitor fulfillment of permit conditions.
    - Legal framework does not vest the MOF with power to conduct inspections (including on-site inspections) or enforcement and sanction powers.
  - Licensing:
    - Article 7 of the Law on Games of Chance: permits for games of chance and winning games issued by the Revenue Service.
    - Article 19 details documents for a casino permit: extract from Public Registry certifying property ownership; conditions/regulations of setting up a casino including list of gaming tables with name, serial number, year of manufacture and manufacturing country; minimal and maximal stakes; casino work rules; rules of conduct; rules of games; samples of gaming tokens.
    - No additional information required regarding owners or operators; no fit and proper controls applied.
    - Legal framework does not confer authority to Revenue Service to request information to establish whether owners or operators are fit and proper.
    - Separate licenses for casinos, gaming establishments, lottery and sports betting.
    - A land-based casino is required to operate an internet casino but no special license required to operate an internet casino.
  - Measures to prevent criminals:
    - No provisions in place to prevent criminals or their associates from holding or being beneficial owners of significant or controlling interest, holding a management function in, or being an operator of a casino.
- Implementation:
  - No supervision of the casino sector for AML/CFT purposes.
  - Revenue Service conducts spot checks of casinos with respect to compliance with internal regulations developed to obtain casino license in the context of tax audits.
  - No specific examinations undertaken regarding compliance with the AML/CFT Law.

*Source: _cr1304 - 1191.      The implementation of accountants’ obligations could not be ascertained due to the recent*

### 1228.      Licensing requirements are focused on ensuring that the proper documentation is filed and

### _cr1304 - 1228.      Licensing requirements are focused on ensuring that the proper documentation is filed and that the owners on the casino are not on the Revenue Service black list or on the list of terrorist issued by the FMS.

### Licensing and casinos
- Licensing requirements focus on:
  - Ensuring that the proper documentation is filed.
  - Ensuring that the owners on the casino are not on the Revenue Service black list or on the list of terrorist issued by the FMS.
- When applying for a license, casinos are required to provide information on the owners of the casino.
- During the licensing process:
  - The Revenue Service will identify the beneficial owner of the casino if the casino is owned by a legal entity.
  - If the casino is owned by a foreign legal entity, the Revenue Service would obtain information on the ultimate beneficial owner although no casinos are currently owned by foreign interests.
- Gaps identified:
  - No steps are taken to determine whether the owners, management or operators of the casino could be criminals or their associates.
  - No information is gathered on the management and operators of the casino.
  - The Revenue Service does not conduct any AML/CFT related supervisory activities for casinos.

### Monitoring systems for other DNFBPs (c. 24.2 & 24.2.1)
- Article 4 of the AML/CFT Law of Georgia:
  - Identifies the MOF as responsible for ensuring compliance with AML/CFT obligations for entities organizing lotteries and commercial games; entities engaged in activities related to precious metals, precious stones and products.
  - Designates the Ministry of Justice of Georgia as the supervisory authority for notaries.
  - The designation in Article 4 does not clearly indicate that the supervisory bodies are responsible for supervision of AML/CFT matters although this can be inferred.
  - The responsibilities of the supervisory bodies are described under Article 11 of the AML/CFT Law.
- No AML/CFT supervision is undertaken for lawyers, TCSPs and real estate agents as they currently are not subject to obligations.

### DPMS (Dealers in Precious Metals and Stones)
- Article 4 designates the Ministry of Finance as the AML supervisor for dealers in precious metals and stones.
- Legal framework limitations:
  - The legal framework does not vest the MOF with the power to conduct inspections (including on-site inspections) or enforcement and sanction powers.
  - No inspections have been undertaken regarding compliance with obligations in the AML/CFT Law.

### Accountants
- Article 4 of the recently amended AML/CFT Law designates the “member organization of the International Federation of Accountants” to supervise “persons conducting accountants and/or auditor activity as it is defined by the legislation”.
- The Georgian Federation of Professional Accountants and Auditors will be undertaking these supervisory responsibilities.
- Advantages and considerations for the Federation:
  - Consolidation of resources dedicated to licensing and supervision.
  - Integration of AML/CFT training into the Federation’s continual education program.
  - Knowledge of the sector.
- Implementation caveats:
  - Supervisory powers (inspections, compelling documents, sanctions) must be identified in the AML/CFT Law for the Federation.
  - Absence of a funding source for resources to conduct inspections is a serious drawback.
  - Absence of defined expectations regarding the number of examinations to be conducted.
  - Proposal to collect inspection fees may be ill-advised given that the majority of accountants are small business owners.

### Notaries — legal framework and supervisory powers
- Ministry of Justice authority to supervise notaries is outlined in Article 10 of the Law of Notaries. Article 10 states the Ministry:
  - Controls compliance of notary’s activities with the Georgian legislation and accuracy of making pay duties for fulfillment of notary acts;
  - Requires from the notary all information and material being necessary for making supervision;
  - Transfers the supervision authority to the Notary Chamber of Georgia on certain issues of official activities of notaries.
- Subparagraph 3 of the Law on Notaries specifies the Ministry of Justice is responsible for supervision over notaries in accordance with the rules established by the AML/CFT Law.
- Article 10.2 of the Decree on Supervising Authority of the Notary Activities stipulates that the Ministry of Justice should inspect notary deeds with respect to the AML/CFT Law.
- Regulation on Disciplinary Liability of Notaries:
  - Article 5.f: “a notary (substitute) commits an average disciplinary misdemeanor if she (he) unduly fulfills the requirements set by the Georgian Law on Facilitating the Prevention of Illicit Income Legalization and relevant legal acts and acts of the financial monitoring service of Georgia”.
  - Article 8: for disciplinary misdemeanors a notary will be assigned punishments: a) oral warning; b) written reprimand; c) termination of commission; d) releasing from the position.
  - Article 18 of the Law on Notaries: a notary’s license can be revoked for having committed an extremely grave misdemeanor or for having been found guilty of a criminal act.
  - Non-compliance with the AML/CFT Law is considered an average disciplinary misdemeanor.
  - There are no criminal or monetary sanctions that can be applied to non-compliance with AML/CFT obligations.

### Implementation — Notaries (inspection activity and sanctions)
- Extension of obligations to accountants and designation of the Federation occurred following the on-site visit; effectiveness was not assessed.
- The Ministry of Justice undertakes regular supervision of notaries for AML purposes.
- AML/CFT on-site examinations by year:
  - 2007             2008             2009             2010             2011
  - AML/CFT on-site examinations - - - 210 210
- Type and number of sanctions applied in notaries sector for AML/CFT violations:
  - 2007 2008 2009 2010 2011
  - Oral warning  - -  9 48
  - Written reprimand  - - 172 7 16
  - Termination of commission  - - - 9 -
  - Release from position  - - - - -
  - Total Number of Sanctions - - 172 25 64
- Inspection focus and methods:
  - Prior to 2009, regular on-site visits included an AML/CFT component but emphasis was on other requirements.
  - In 2009 and 2010, the main component of examinations was focused on AML/CFT obligations.
  - AML/CFT inspections focus on whether transactions of more than GEL 30,000 were reported to the FMS.
  - Inspectors review submitted reports for timeliness, comprehensiveness, client identification verification, record-keeping.
  - On-site inspections are supported by weekly off-site monitoring of reports submitted to the FMS by the Ministry of Justice.
  - Instances where indicators of ML (provided by the FMS) are present will be flagged.
  - No analysis of the effectiveness of notary’s STR monitoring system is undertaken.
- Coverage and frequency:
  - The Ministry of Justice must undertake inspections of all notaries at a minimum every three years.
  - In 2010 and 2011, on-site inspection was conducted in all notary bureaus (210 bureaus).
  - Inspections are conducted for a period of three to four hours with a total of three inspectors and a representative of the Chamber of Notaries. At least one inspector is focused exclusively on AML/CFT issues.
- Sanctions application and impact:
  - Disciplinary sanctions related to breaches regarding the submission on CTRs have been applied to 172 notaries in 2009; 25 notaries in 2010, and 64 notaries in 2011.
  - Sanctions include oral warning; written reprimand, and suspension of activities for up to three months.
  - Most deficiencies were related to CTRs not having all the prescribed information or being submitted after the prescribed timeline.
  - 82 percent of notaries were subject to disciplinary measures in 2009.
  - The application of sanctions was effective as the level of compliance with reporting obligations improved following their application.
- Limitations:
  - Absence of criminal and monetary sanctions impacts the sanctioning regime’s ability to be proportionate and dissuasive for more serious offenses.
  - Ministry of Justice does not ensure compliance with other obligations in the AML/CFT Law (PEPs determination, internal controls, periodic training, attention to unusual transactions).
  - Beneficial ownership compliance is not included in the scope of current examinations.
  - No particular attention is paid to instances where the ultimate beneficial owner is not identified but information necessary to complete the notary act is obtained.

### Effectiveness — R.24 (Casinos, Notaries, Accountants)
- Casinos:
  - Absence of supervision in the casino sector increases ML risks.
  - Number of casinos increased from 2 to 15 since the 2007 assessment.
  - Rapid expansion not accompanied by commensurate focus on AML/CFT obligations.
  - Absence of supervision creates no incentive to comply with client identification and reporting requirements.
- Notaries:
  - Supervision by the Ministry of Justice does not focus on ML risks associated with the notary profession.
  - Failure to identify the ultimate beneficial owner is a shortcoming in CDD by notaries.
  - Compliance with beneficial ownership requirements is not included in current examinations.
  - Ministry of Justice does not inspect requirements related to internal controls and PEPs.
- Accountants:
  - Issues to address for effective supervision by the Federation:
    - Need for supervisory powers in law (inspections, compel documents, sanctions).
    - Funding source for inspections.
    - Defined expectations on number of examinations.
    - Concerns about inspection fee proposals given small-business nature of many accountants.

### Guidelines for DNFBPs (applying c. 25.1, 25.2)
- The FMS has issued STR indicators for notaries and published on its website the FATF International Best Practices Papers and RBA guidance.
- No indicators have been published for casinos, accountants or DPMS.
- Manuals on Rules and Procedures on Completing the Reporting Form Subject to Monitoring have been issued for notaries and casinos, but:
  - They do not assist entities in complying with other AML/CFT requirements.
  - No manual has been published for accountants or DPMS.
- Guidance documents lack:
  - Description of ML and FT techniques and methods.
  - Sanitized examples of money laundering cases involving DNFBP sectors.
- Reporting feedback:
  - FMS provides an acknowledgement of receipt of the report to reporting entities when a report is received.
  - No specific case-by-case feedback is provided regarding the quality of reporting.
  - No specific information is provided on ML/FT techniques, trends and methods other than indicators for notaries.

### Adequacy of resources — Supervisory authorities for DNFBPs (R.30)
- DPMS/Casinos:
  - No resources are dedicated to AML/CFT supervision for DPMS and casinos within the Revenue Service.
  - Knowledge of AML/CFT obligations and issues is very poor within the Revenue Service; additional training required.
- Accountants:
  - Federation did not know how supervisory resources would be funded; speculated inspection fee.
  - Present staff lack necessary expertise; no additional resources negotiated with government.
  - Training required once a team of inspectors is identified.
- Notaries:
  - Within the Ministry of Justice, the section overseeing compliance with the AML/CFT Law has three officers with supervisory backgrounds and AML/CFT training.
  - Ministry of Justice is adequately structured and funded to oversee the notaries sector.
  - Coverage rate 100 percent in 2010 and 2011; number of resources attributed to AML/CFT inspections within the notary sector is appropriate.
  - Team is appropriately skilled but would benefit from additional knowledge on internal controls, ongoing monitoring, and enhanced due diligence measures.

### Recommendations and comments (4.3.2)
- It is recommended that authorities:
  - Undertake AML/CFT supervision in the casino, accountant and DPMS sectors.
  - Establish provisions to prevent criminals or their associates from holding or being the beneficial owner of a significant or controlling interest, holding a management function in, or being an operator of a casino.
  - Establish supervisory power for an accounting body responsible supervision in the accounting sector, including a funding source for supervisory activities as well as the definition of clear expectations on the number of inspections to be conducted.
  - Establish effective, proportionate and dissuasive sanctions that can be applied when monitoring entities fail to comply with AML/CFT obligations for casinos; dealers in precious metals and stones; and accountants.
  - Broaden range of sanctions available to Ministry of Justice to establish an effective, proportionate and dissuasive sanctioning regime for notaries.
  - Issue guidance and provide feedback on reporting to DNFBPs.
  - Undertake supervision of all AML/CFT requirements in the notaries sector.

### Compliance with Recommendations 24 and 25 (criterion 25.1, DNFBP)
- R.24 NC — Summary of factors:
  - No supervision of casinos, accountants, and dealers in precious metals and stones.
  - No effective, proportionate and dissuasive sanctions for casinos, dealers in precious metals and stones, and accountants.
  - Sanctioning regime for notaries is not effective, proportionate or dissuasive.
  - No mechanisms to prevent criminals and their associates to own or control a casino.
  - No supervisory powers for accounting sector supervisor.
  - Implementation: Supervision undertaken by the Ministry of Justice for notaries does not cover all AML/CFT obligations.
  - Effectiveness: Effectiveness of supervisory measures for accountants could not be assessed.
- R.25 NC — Summary of factors:
  - Guidance for notaries is not comprehensive and no guidance has been issued for casinos, accountants and DPMS.
  - No feedback on reporting is provided to DNFBPs other than an acknowledgement of receipt.

### Other Non-Financial Businesses and Professions — Modern, secure transaction techniques (R.20)
- Article 3 of the AML/CFT Law extends AML/CFT obligations to:
  - Entities organizing lotteries and commercial games;
  - Entities engaged in activities related to antiques;
  - Entities engaged in the extension of grants and charity assistance.
- Extension rationale and supervision:
  - Extension to antiques dealers was based on similarity to DPMS; market not considered very big.
  - Extension to the lottery sector was to include activities covered by the Law on Organizing Games of Chance and Winning Games.
  - Extension to entities engaged in grants and charity assistance was to align with the Civil Code requiring NPOs to register with the Revenue Service for charitable status.
  - All these entities are subject to preventive measures, but FMS has not received any reports and authorities believe awareness and compliance are very low.
  - Ministry of Finance designated as supervisory authority for entities organizing lotteries and other commercial games; antiques dealers and charitable organizations; however no AML/CFT examinations have been undertaken.
- Modernization of conduct of financial transactions (c. 20.2):
  - Largest Georgian banknote was GEL 500 (approx. EUR 215), but the NBG indicated the banknotes have never been circulated and have been destroyed.
  - Share of banknotes with highest nominal value (GEL 200) in total cash in circulation decreased from    8,65 percent in 2007 to 7,5 percent in 2010.
  - RTGS system turnover to nominal GDP ratio increased from 2.15 percent in 2007 to 3.62 percent in 2010, reflecting increasing reliance on non-cash interbank payment.
  - In December 2010, a new RTGS system was introduced with PKI based security, digital signature and encryption technology based on Public Key Technology.
  - The RTGS turnover to Nominal GDP ratio reached 3,75 for first quarter 2011.

*Source: _cr1304 - 1228.      Licensing requirements are focused on ensuring that the proper documentation is filed and that the owners on the casino are not on the Revenue Service black list or on the list of terrorist issued by the FMS.*

### 1262.      The payment cards market in Georgia is rapidly growing. The number of payment cards

### The payment cards market in Georgia is rapidly growing.

### Payment cards market trends and infrastructure
- Number of payment cards increased by 278 percent from 965,032 as of January 2007 up to 3,459,418 as of July 2011.
- Cards per capita:
  - 2007: two cards per capita on average.
  - 2010: eight cards per capita on average.
- ATM and POS infrastructure (end of July 2011 relative to December 2007):
  - Number of ATMs: 1,488 (a rise of 72 percent from December 2007).
  - Number of POS-terminals at merchants: 8,062 (79 percent more than at the end of 2007).
- Card operations growth (2010 compared to 2007):
  - Volume increased by 123 percent.
  - Value increased by 97 percent.
- Security and processing:
  - Most banks have started to issue chip based cards.
  - Some acquirers have developed E-commerce Security technologies (Verified by Visa and MC Secure Code).
  - Georgian Card and UFC completed assessment against the Payment Card Industry Data Security Standards (PCI DSS) and were validated as being PCIDSS compliant.
  - Other two in-house processing centers planned to finish PCI DSS validation at the end of the current year.

### Regulatory and policy changes reducing cash use
- Decree No. 607 of Minister of Education dated August 4, 2010: all public schools must accept only non-cash payments at their cafeterias.
- All state aid and social programs are delivered through bank accounts.
- A change to the registration process for real estate transactions came into force on January 1, 2012: Real estate transactions will now need to be settled through a bank account with payment in cash being prohibited.
- Actions taken on banknotes and payments:
  - Destruction of GEL 500 banknotes and efforts to promote non-cash payment mechanisms have resulted in the decrease of circulation of the GEL 200 note and the increased use of non-cash interbank payments and ATM machines.

### Implementation status and gaps
- No analysis has been conducted to identify sectors that could potentially be vulnerable to ML or FT.
- The requirement to settle real estate transactions through bank accounts will assist in reducing the prevalence of cash in a key sector; compliance aided by registration of real estate transaction details with the National Agency of Public Registry (NAPR).
- Extension of requirements to other reporting sectors had minimal impact on strengthening the national AML/CFT framework as the designation was not based on risk.
- No reporting has been received by the FMS, and compliance with AML/CFT obligations are low.
- A 2007 World Bank analysis of remittances channels indicated the majority were using informal channels such as friends traveling home to send remittances.

### Recommendations and suggestions (payment-cash nexus)
- Authorities are recommended to:
  - Conduct an analysis of ML vulnerabilities and consider extending obligations to vulnerable sectors identified in the analysis.
  - Continue their efforts to reduce the prevalence of cash in society.
- Authorities should consider:
  - Establishing a requirement requiring taxpayers and physical or legal commercial persons not to engage in cash transactions where the amount is in excess of GEL 5,000.
- Compliance with Recommendation 20:
  - R.20 rating: LC
  - Underlying factor: Measures taken by the authorities have not been sufficient to significantly reduce the reliance on cash.

### Legal persons, NAPR registration and beneficial ownership (R.33)
- Legal framework references:
  - Law on Entrepreneurs of 2009; Articles 29 and 30 of the Civil Code; Law of Georgia on Public Registry; Instruction of Registration of Entrepreneurs and Non-entrepreneur (noncommercial) Legal Persons (“NAPR Instruction”), Civil Code: Article 724 to 728.
- Since January 1, 2010, Georgian legal entities (commercial and non-commercial) are required to be registered by the National Agency of Public Registry (NAPR).
- Prior to 2010, companies were registered by the Revenue Service of the Ministry of Finance or at the Registry of Entrepreneurs; old registers were transferred to NAPR for merging into one database accessible online.
- Registration information required (minimum information for all entity types includes):
  - a) firm name
  - b) organizational-legal form
  - c) legal address
  - d) object of activities
  - e) data on the commencement and termination of the company
  - f) first name and surname, place and date of birth, profession and home address of individual entrepreneur or each founding partner
  - g) right to give the authority to the representative
- Additional requirements for specific entity forms (examples preserved as in source):
  - Special/limited partnership: Details on the amount of deposits of each “commandite” partner.
  - Limited Liability Companies / Limited Liability and Stock Companies: prerequisites including amount of authorized capital, documents on deposit, amounts of deposits of each founding partner and corresponding amounts of shares, first name and surname, place and date of birth, profession and home address of each director, documents on appointment of directors and members of supervisory council, documents certifying the appointment of directors or the members of Councils.
- Identification documents for registration (Article 9 of NAPR Instruction):
  - For Georgian physical persons: the original or certified copy of the ID. The ID is verified through the civil service database (Article 9 of NAPR instruction) maintained by the NAPR.
  - For non Georgian citizens: certified copy of the passport, which could be notarized inside or outside Georgia. Presentation of the passport is not required.
  - If the representative is another legal person: identification and registration of the legal person as a representative, an extract of its registration from the relevant State registry (in case of its existence) or a certificate of foundation (Article 9.2).
- Extract issued at registration:
  - Indicates legal form, name and legal address; contains information on authorized persons who represent the entity and their powers; information on the governing body; information on partners and their shares for limited liability companies; identification data and requisites of authorized representative persons and registered partners; information on registered lien, tax lien and hypothec, date of registration and scope, requisites of certificate of lien and its issuing body; information on date of application, registration and extract preparation, registered lien, registration of rights and obligations, registration number.
  - Entity is assigned a nine digits identification number. The term of validity of the Extract is not defined and therefore obtains the same validity as tax registration certificate (Articles 9 and 12 of the NAPR Instruction).
- Migration and data quality issues:
  - Total companies registered in Georgia: 400,000 companies.
  - Only a small percentage of the 400,000 companies have been formed under the new system.
  - NAPR migration progress at time of on-site visit: 40 percent of the data migrated; NAPR staff facing challenges contacting owners and controllers.
  - NAPR presumes authenticity and completeness of existing data (Article 5.5) but has no power to require provision of updated information.
  - Article 14-2 of the Law of Georgia on Entrepreneurs: entity given a 30-day deadline to correct inaccurate data; if not corrected, NAPR begins compulsory liquidation and if still not corrected within the term set for liquidation (four months), the registration is cancelled by an administrative act. Assessors did not receive any indication that those measures have ever been applied.
  - Authorities provided information that in May 2012, all information was migrated to the new system in NAPR but only a 40 percent of data accuracy have been checked.
  - NAPR taking more than 30 days to contact companies during migration.
  - In cases of suspected forgery or criminal behavior, NAPR suspends registration and submits documents to the Prosecutor’s Office; assessment team did not receive supporting statistics.
- Access to information and quality concerns:
  - All information available to NAPR is available online through its website; competent authorities can access necessary information about newly formed companies on a timely fashion.
  - However, information on beneficial ownership and control of legal persons is in most cases not adequate, inaccurate and not current, for reasons including:
    - No specific requirement to obtain information on the ultimate beneficial ownership.
    - Absence of strict obligation to provide and update information in any case of change of ownership or control (instruction mentions founders only).
    - Information about legal persons registered under the old system is not accurate and has not been updated.
    - At time of on-site mission, only 40 percent of information were migrated from the old system; LEAs usually send requests to NAPR and NAPR manually searches and replies.
- Bearer shares:
  - Articles 51 and 52 of the Law of Entrepreneurs of 1995 allow formation of joint stock companies with possibility of issuing bearer or registered stocks. An updated version no longer mentions the possibility of issuing bearer shares although there is no specific prohibition or provision requesting bearer shares issued prior 2009 to be converted into nominal form.
  - Except for listed companies, there are no appropriate measures to ensure that bearer shares are not misused for money laundering. No beneficial ownership information for bearer shares companies is available.
  - Assessors were informed of the existence of small companies with bearer shares trading in the ‘grey market’ mainly through securities registrars and brokerage companies.
- Access by financial institutions:
  - NAPR database is accessible online for free and could be used by FIs to verify customers, but information on beneficial owners is not adequate, accurate, and current, especially for companies formed under the old regime.
  - NAPR staff reported difficulties updating companies’ data, significant gaps in old registry information, and challenges uploading information kept in hardcopies.
  - Identification and verification of foreign companies’ beneficial ownership is especially challenging, particularly for those based in offshore territories. No further inquiries are made for legal entities located in an offshore territory beyond documents presented.
- Effectiveness assessment:
  - The system of identification of beneficial owners and control of legal persons is not effective.
  - Information is accessible online but not accurate, adequate and current for entities registered under the old process.
  - No verification of documentation for foreign companies beyond those covered by Apostille agreements.
  - Inability to ensure adequate and accurate information on beneficial ownership is a serious weakness of the AML/CFT regime given the risk of criminals integrating proceeds generated abroad in Georgia or using Georgian entities to invest abroad.

### Recommendations and comments (legal persons and R.33)
- Authorities are recommended to:
  - Review the entrepreneurship Law and NAPR instruction to ensure adequate transparency concerning the beneficial ownership and control of legal persons. Both laws should be consistent with the AML legal framework.
  - Ensure that adequate, accurate and current information on the beneficial ownership and control of legal persons is available to competent authorities in a timely fashion.
  - Regulate, or prohibit the use of bearer shares or other bearer instruments if there are not appropriate measures applied to ensure that those instruments are not misused for money laundering.
- More precisely:
  - Speed the process of migration of legal persons registered under the old regime to the new one managed by NAPR.
  - Ensure that the Law of Entrepreneurs is applied in relation to the updating and registration of companies’ requirements and that deadline is established for communicating any changes or missing information.
  - Require the update of information in case of change of ownership or control of legal persons.
  - Put in place appropriate measures to ensure that bearer shares are not misused for money laundering.
- Compliance with Recommendation 33:
  - R.33 rating: PC
  - Summary of factors underlying rating:
    - No specific requirement to obtain data on beneficial ownership.
    - Absence of appropriate safeguards to ensure that bearer shares and other bearer instruments are not misused for money laundering.
    - Implementation issues: inaccurate and inadequate current information on beneficial ownership and control of legal persons; poor data verification on foreign legal persons and ownership control especially for companies located in an offshore territory or with complex ownership structures; only a limited number of entities have been registered under the new system established in 2010; registry still in construction with some information unreliable and out of date; concerns about the updating process.
    - Effectiveness: inability to ensure adequate and accurate information on beneficial ownership is a serious weakness given risks of criminals integrating proceeds generated abroad or using Georgian entities to invest abroad.

*Source: _cr1304 - 1262.*

### 1297.      The assessors had to determine if Recommendation 34 is applicable in Georgia. The

### The assessors had to determine if Recommendation 34 is applicable in Georgia

### Applicability of Recommendation 34
- Recommendation 34 was rated non-applicable in 2007 and the authorities indicated that no Georgian residents act as trustees for foreign trusts.
- Georgia has not signed the Hague Convention on the Law applicable to trusts and on their recognition.
- Elements considered by the assessors:
  - Article 20.g of the law on commercial banks authorizes commercial banks to engage in “trust operations on behalf of clients”.
  - Article 1.n of the law on commercial banks defines trust as “fiduciary capacity”.
  - Article 1.q defines fiduciary operation as “trust services on behalf and at expenses of a customer, which a bank or trust company carries out (generally for management of investments); the customer is liable for all risks while the bank receives fees”.
  - Article 724 of the Civil Code: “Under a contract of property trust, the Settlor transfers property to the trustee, who holds and manages it in accordance with the interests of the settlor”.
  - Article 725 of the Civil Code: the trustee should be bound to manage the property held in trust in his own name and enjoys the owner’s entitlement in relation with third persons.
  - Article 729 of the Civil Code: the rules governing a contract of mandate shall apply to the contract of property trust.
  - The AML/CFT law, as amended on December 20, 2011, identifies legal arrangements as “organizational formation not representing a legal entity”.
- Conclusion: Because Article 729 of the Civil Code and Article 20.g of the law on commercial banks mean the contract of mandate applies to the property trust (no transfer of ownership of the property), and similar provisions exist in other regional civil law countries where Recommendation 34 was rated non-applicable (e.g. Latvia, Russia), it was decided that Recommendation 34 is not applicable in Georgia.
- Rating summary: R.34 — NA

### Non-Profit Organizations (SR.VIII) — Legal Framework
- Special Recommendation VIII previously rated PC in the 3rd round.
- Civil Code: procedures for registration of non-entrepreneurial (non-profit) legal entities, registration of changes, and procedures for rescinding registration (Law of Georgia on Entrepreneurs and the Civil Code).
- Order #241 of the Ministry of Justice: procedures for NPO registration and National Agency on Public Registry (Agency) decision process.
- Article 32 of the Tax Code: requirements for charitable organizations.
- Article 33 of the Tax Code: religious organizations should be registered according to procedures prescribed by legislation.
- Article 3.g of the AML/CFT Law: monitoring entities include entities engaged in the extension of grants and charity assistance.

### Review of Adequacy of Laws & Regulations of NPOs (criterion VIII.1) — Key findings
- Authorities have access to information on NPOs through the National Agency of Public Registry.
- Registry statistics:
  - 15,045 local NPOs
  - 129 branches of foreign NPOs
- Charitable status: 72 NPOs have obtained charitable status through the Revenue Service.
- Registration requirements include:
  - goals and activities of the NPO
  - an annual program report for the activities of the past year including a description of activities undertaken
  - a financial report of received revenues indicating sources and function of incurred expenses
  - past year’s financial documents verified by an independent auditor
- No detailed sectoral information appears to be available, hindering capacity to identify NPOs at risk of misuse for terrorist financing (FT).
- No formal review or initial assessment of adequacy of laws and regulations related to NPOs has been undertaken; no reassessment has been conducted.

### Outreach to the NPO Sector (criterion VIII.2)
- The Financial Monitoring Service (FMS) has published on its website the FATF International Best Practice Paper on Combating Abuse in NPOs.
- No other outreach has been undertaken to raise awareness about risks of terrorist abuse and available protective measures.

### Supervision/Monitoring of Higher-Risk NPOs (criterion VIII.3)
- Article 4.b of the AML/CFT Law: Ministry of Finance of Georgia responsible for supervising entities engaged in the extension of grants and charity assistance.
- Revenue Service (inside Ministry of Finance): responsible for ensuring charitable organizations comply with Article 32 of the Tax Code regarding charitable status.

Implementation — inspections and targeting:
- Some inspections of charitable organizations have been undertaken to determine compliance with the Tax Code.
- No monitoring specifically targeted at NPOs having a significant portion of sector resources or substantial share of international activities.

### Information maintained by NPOs and public availability (criterion VIII.3.1)
- Article 5 of the Law on Entrepreneurs: registration application requirements (includes detailed identification of founders, managers, representatives, governance, and, where applicable, actual place of residence).
- Article 29.2 of the Civil Code requires foundation documents for NPOs to state:
  - Purpose of activity of non-profit legal entity;
  - Procedure for admission, resignation and expulsion of members (if membership-based);
  - Name of authority responsible for decision making on reorganization and liquidation, regulation and procedure of decision making;
  - Procedure for establishing (electing) governing body and period of its authority.
- National Agency of Public Registry (NAPR) maintains a publicly available registry; its role is limited to ensuring information submitted is comprehensive.
- NPOs information gathered aligns partially with the standard: includes purpose and identity of persons who own, control or direct NPO activities via the “authority responsible for decision making on reorganization and liquidation, regulation and procedure of decision making” (Article 29.2).
- Shortcomings:
  - No specific requirement to state the activity of the NPO.
  - Information on NPOs registered prior to 2010 has not been migrated to the public registry; available via requests to NAPR but quality is inconsistent.
- Charitable organization application requirements under Article 32 of the Tax Code must indicate:
  - a) name; b) organizational-legal form; c) main objectives; d) main fields of activities for the past year; e) addresses of a management body and the branches.
  - Attachments: copy of charter, copy of state/tax registration certificate, report for past year’s activities (description of activities/projects/services), last year’s financial documents (balance and profit-and-loss statement) verified by an independent auditor.
- Article 32.17 of the Tax Code requires the Revenue Service to maintain a unified registry of charitable organizations containing:
  - a) name of the organization; b) addresses of head office, branches, and representations; c) main objectives; d) date of granting the status and the number; e) names and addresses of all members of the highest management body.
- National Agency of Public Registry also maintains registry of NPOs electronically.
- Observations:
  - NPOs and charities obliged to maintain information on purpose and objective of activities and to identify founding partners and persons authorized for management and representation.
  - For charitable organizations, the Revenue Service considers persons responsible for managing funds including all board members as the “highest management body” (not defined in Tax Code).
  - Contrast exists between “highest management body” for charitable status (focused on those who control funds) and “authority responsible for decision making on reorganization; liquidation, regulation and procedure of decision making” collected for all NPO registrations.
- Implementation:
  - Presence of required information is reviewed by NAPR and Revenue Service before registration is granted.
  - NAPR cannot fine for failure to update information but can revoke registration.
  - Compliance with initial registration is high; compliance with maintaining current information varies.
  - Information is available on Ministry of Justice (NPOs) and Ministry of Finance (charities) websites.

### Sanctions and Deregistration (criterion VIII.3.2)
- Deregistration mechanisms:
  - Suspension or prohibition of activity of non-entrepreneurial legal entities is adopted by a court under the organic law “Suspension of Activity of Civil Associations and their Prohibition”; after prohibition decision, the Agency should cancel registration.
  - For charitable organizations, Article 32 of the Tax Code: charitable status shall be deprived if the organization violated the Tax Code requirements or its state/tax registration was cancelled.
- Limitations:
  - Deregistration mechanisms do not appear to apply to violations of oversight measures or rules by NPOs.
  - No sanctions other than deregistration are available for NPOs and charities, including sanctions for persons acting on behalf of NPOs.

### Licensing/Registration and availability (criterion VIII.3.3)
- Article 28 of the Civil Code: NPOs required to be registered by the National Agency of Public Registry; registry is publicly available including documentation.
- Georgia Revenue Service confers charitable status under Article 32 of the Tax Code. Registering as a charitable organization is not mandatory.
- A unified registry of charitable organizations is maintained by the Georgia Revenue Service and is available at http://www.seragency.gov.ge.
- Article 33 of the Tax Code: religious organization defined as established to carry out religious activity and registered as such; no explicit requirement that religious organizations engaged in raising/disbursing funds for charitable, religious, cultural, education, social or fraternal purposes register with the Revenue Service or NAPR.

### Record-keeping by NPOs and availability to authorities (criterion VIII.3.4)
- Article 136.3 of the Tax Code: “a taxpayer shall be obligated to completely record all transactions related to its activity, in order to guarantee control over their commencement, implementation, and completion.”
- Article 43.1.f of the Tax Code: taxpayers must retain documents for six years.
- Article 6.4 of the AML/CFT Law obliges monitoring entities (including entities engaged in extension of grants and charitable assistance) to record/retain for transactions subject to monitoring:
  - a) content of transaction (operation);
  - b) date and place of conclusion of a transaction, as well as the amount of money needed for the transaction and the currency thereof;
  - c) information (documents), as prescribed by this Law, presented for the identification of a person involved in the transaction;
  - d) information (documents) necessary for the identification of the person at whose order the transaction is concluded or undertaken;
  - e) information (documents) necessary for the identification of the person by whom the transaction is being concluded or undertaken on the basis of the order of third or other person.
- Gaps:
  - Charities are not required to keep information on transactions under GEL 3,000 and wire transfers under GEL 1,500. This may impact authorities’ ability to verify whether funds have been spent consistent with the organization’s purpose and objectives.
- Article 7.3 of the AML/CFT Law: entities engaged in extension of grants and charitable assistance must retain information/documents on transactions, as well as records provided for in Article 5.9, for not less than six years from the moment of concluding or implementing the transaction, unless a supervisory authority requests a longer period or longer period is set under Georgian legislation.

*Source: IMF assessment text.*

### 1332.      For charitable organizations registered with the Revenue Service, there is an annual

### _cr1304 - 1332.      For charitable organizations registered with the Revenue Service, there is an annual

### Reporting requirements for charitable organizations (Article 32.9 of the Tax Code)
- Annual submission required:
  - a) Program report for the activities for the past year, indicating the description of activities (including economic activities).
  - b) Financial report about received revenues, indicating the sources and the function of incurred expenses.
  - c) Past year’s financial documents (balance, profit and loss statement) verified by an independent auditor.

### Purpose and anticipated benefit of reporting
- Reporting requirements assist authorities in determining whether funds have been spent in a manner consistent with the purpose and objective of the organization.

### Implementation — record keeping and awareness
- NPOs do not appear to be aware of record keeping obligations regarding the AML/CFT Law.
- Some NPOs maintain transaction records to comply with Tax Code requirements.
- Record keeping methods vary across organizations, making it unclear whether transactions align with the organization’s purpose and objectives.

### Measures to ensure effective investigation and information gathering (c. VIII.4)
- Law enforcement has powers to investigate and gather information from NPOs.
- The FMS has authority to request information from NPOs pursuant to the AML/CFT Law.
- Information on NPOs registered since 2010 is available on-line; information on NPOs registered previously is kept manually and has not been migrated to the new registration system, which may impede law enforcement’s ability to gather information.

### Domestic cooperation, coordination, and information sharing on NPOs (c. VIII.4.1)
- No coordination mechanisms are in place to facilitate information sharing between authorities that hold relevant information on NPOs.

### Access to administration and management information during investigations (c. VIII.4.2)
- Article 123 of the CPP outlines procedure for search, seizure and arrest of property at offices of public organizations, including:
  - Objects, documents, articles or other items containing scientific or educational information may not be searched, seized or arrested from offices of mass-media, publishing houses, scientific, educational, religious, public organizations or political parties toward which reasonable expectation of public release exists.
  - The restriction does not apply if there is probable cause that the object, document, substance or other item represents the subject or tool of a crime.
  - A court is authorized to rule on search, seizure and/or arrest only when there is obvious and reasonable ground that the investigative action would not violate rights guaranteed under the Georgian constitution; investigative action shall be conducted in an effective form to provide for most minimal restriction of these rights.
- The FMS can request and obtain from monitoring entities additional information and documents (original or copy), including confidential information on any transaction and parties, pursuant to Article 10.4.
- National Agency of Public Registry website contains information on NPOs including:
  - purpose of activity; procedure for admission, resignation and expulsion of members; name of authority responsible for decision making on reorganization and liquidation; regulation and procedure of decision making; procedure for establishing (electing) governing body and period of its authority.
  - No information on persons owning, controlling or directing the NPO is available. Name and address of management is collected.
- For entities registered as charitable organizations with the Revenue Service, publicly available information includes:
  - a) name;
  - b) organizational-legal form;
  - c) main objectives;
  - d) main fields of activities for the past year;
  - e) the addresses of a management body and the branches.
- All other information can be obtained using general investigative techniques provided by the Criminal Procedure Code of Georgia and the Law of Georgia on Operative Searching Activities.

### Implementation — use of powers and investigative activity
- The FMS can access information related to charities through a court order, but it has never used its powers to request this type of information.
- Law enforcement can obtain registration information through the Public Registry; however it requires a court order to obtain information from NPOs.
- Investigative Service of the Ministry of Finance conducted searches and seizures in approximately 30 NPOs on financial and ML investigations.
- In previous years, the Investigative Service has seized information from NPOs approximately five times.

### Sharing information and investigative capability regarding NPOs suspected of FT (c. VIII.4.3)
- FMS pursuant to Article 10.5.b must immediately submit information, following analysis, to the corresponding authority of the Prosecutor’s Office of Georgia and the Ministry of Internal Affairs of Georgia in case of suspicion of ML or FT.
- Agencies that can undertake investigations regarding NPOs: ACT, CTC, MIA, Financial Investigation Unit of the Ministry of Finance. Competent authority determined by nature of suspected offense:
  - ACT and CTC undertake investigations related to terrorism.
  - SOD investigates ML.
  - Financial Investigation Unit investigates fraud.
- Prosecutor’s Office determines which law enforcement agency will undertake the investigation.
- No special investigation unit focuses on cases related to NPOs.
- Knowledge of FT within law enforcement agencies could be strengthened; this applies to TF investigations that involve links to NPOs.

### Implementation — case examples and FMS activity
- Financial Investigations Unit of the Ministry of Finance jointly with the Prosecutor’s Office initiated an investigation regarding an NPO suspected of bringing goods intended for charitable purposes and selling them for profit; case was brought to attention by a foreign jurisdiction that suspects a link between the NPO and organized crime.
- The FMS has not had any cases related to NPOs.

### Responding to international requests regarding NPOs (c. VIII.5)
- Mechanisms for responding to international requests are the same as those outlined in Recommendation 36, 38, SR.V and 40.
- No special point of contact has been designated to address international requests regarding particular NPOs suspected of terrorist financing or other forms of terrorist support.
- Mechanisms outlined do not touch directly the Revenue Service or the National Agency of Public Registry, limiting the ability of foreign counterparts to obtain information in a timely basis.

### Overall implementation assessment
- Most criteria of the Recommendation have not been implemented, resulting in an overall lack of effectiveness in addressing NPO vulnerabilities to terrorist financing.
- No government authority appears responsible for taking a holistic view of the NPO sector; organizations interact with NPOs narrowly through respective mandates.
- No information mechanisms to discuss NPOs generally or their link to FT; no review of adequacy of NPO laws undertaken.
- Very little understanding about size of sector, key activities, or how it could be used for FT.
- No information shared with international counterparts on NPOs.
- NPOs are not aware and have not implemented obligations related to the AML/CFT Law; no outreach has been conducted to raise awareness.
- Absence of supervision in the sector: Ministry of Finance is not conducting inspections with respect to the AML/CFT Law; audits are part of regular tax audits and do not focus on AML requirements.
- Some registration/tax information can help obtain administration and management information, but pre-2010 NPO registration data has not been migrated to the new public registry.

### Analysis of effectiveness
- Registration through the National Agency of Public Registry and registration process for charitable organizations provides some transparency on operating NPOs and their activity types, with limitations due to absence of pre-2010 data in the internet registry.
- Lack of effective implementation enhances the risk of NPOs being used for FT in Georgia.
- Authorities expressed concerns regarding terrorism from external sources.
- Investigations have identified schemes where NPOs import goods intended for charitable distribution, sell them at full market value and pocket the profits; similar schemes divert charitable funds to finance political activities.
- Studies have highlighted lack of supervision as a factor enabling NPO abuse.

### Recommendations and comments (5.3.2)
- Authorities are recommended to:
  - Conduct a review of the adequacy of laws and regulations that relate to non-profit organizations.
  - Identify types and features of NPOs that are at risk of FT.
  - Conduct a reassessment of NPOs risk by reviewing information on the sector’s potential vulnerabilities.
  - Conduct outreach to raise awareness in the NPO sector about the risks of terrorist abuse.
  - Establish effective supervision or monitoring of NPOs.
  - Establish a requirement for NPOs to state the activity they undertake.
  - Establish appropriate measures to sanction violations of oversight measures or rules by NPOs.
  - Expand requirement to keep information on transactions above GEL 3,000 to all transactions.
  - Migrate pre-2010 NPO registration data in publicly available registry.
  - Establish domestic coordination mechanisms regarding NPOs.
  - Establish point of contact for receipt of information queries on NPOs within the Revenue Service and the National Agency of Public Registry.

### Compliance with Special Recommendation VIII — Summary (5.3.3)
- SR.VIII rating: PC
- Factors underlying rating:
  - No review of the adequacy of law and regulations related to NPOs.
  - No identification of types and features of NPOs that are vulnerable to FT.
  - No periodic reassessment of NPO risks.
  - No outreach conducted other than publication of FATF best practices paper to raise awareness about risks of terrorist abuse.
  - No publicly available registration data for NPOs registered prior to 2009.
  - No supervision or monitoring of NPOs.
  - No requirement to keep transactional information below GEL 3,000.
  - No appropriate point of contact and procedures to respond to international requests related to NPOs.
- Implementation:
  - Lack of domestic cooperation and sharing of information related to NPOs between appropriate authorities.
- Effectiveness:
  - Measures in place do not address the TF vulnerabilities that exist in the sector.

### National and international cooperation (beginning of section 6)
- Legal basis for national cooperation and coordination provided in the AML/CFT Law and MOUs between FMS, supervisory bodies, and law enforcement agencies.
- Article 11(2) of the AML/CFT Law: supervisory bodies obligated to collaborate with each other, competent Georgian and other countries’ authorized agencies and international organizations through exchanging information and experience, and assist law enforcement agencies, within the scope of their competence.
- At time of on-site visit no AML/CFT coordination Committee existed; after the on-site visit AML/CFT Law amended on November 25, 2011 establishing a committee chaired by the Minister of Justice to coordinate policy and implementation of relevant UNSCRs.
- Georgia established an Anti-Corruption Council (ACC) comprising senior officials to coordinate efforts to implement UNCAC; Council meets every two months and at times discusses AML issues.
- FMS has MOUs with NBG (May 2006), MIA (June 2008), MOJ including CPO (January 2009) and MOF (2009) aiming to coordinate activities and exchange information.
- Under MOUs some databases of MOJ and MOF are accessible by FMS; FMS is not receiving feedback from LEAs on trends, methodologies and typologies developed by relevant LEAs.
- CPO coordinates investigations conducted under his supervision by MIA (SOD and CTC) and MOF.
- Supervisory bodies required to inform FMS about monitoring entities’ compliance with AML/CFT Law including inspection results and statistical data.
- MOU between FMS and NBG sets out coordination in regulatory requirements, guidance documents and training; exchange of information on reporting, licensing/registration data, inspection findings; meetings at least once a year or when necessary.
- Practically, meetings between NBG (Banking and Non Banking Supervision Departments) and FMS are held very often per year focusing on AML/CFT Law implementation by monitoring entities.
- FMS informs NBG about financial institutions not complying with requirement to register with FMS, but no systematic consultation exists on identifying financial institutions and prioritizing on-site inspections.
- New provision introduced in February 2012 in Article 48(5) of the Organic Law of Georgia on NBG provides for NBG’s power to cooperate with national supervisory and LEAs.
- No mechanism allowing cooperation between supervisory agencies of FIs and DNFBPs notably NBG, MOJ, and MOF.
- FMS organizes meetings and consultations with monitoring entities to:
  - Review current AML/CFT legislation and practical problems related to its implementation.
  - Discuss results since the previous meeting.
  - Discuss AML/CFT draft laws and relevant legislation.

*Italic: Content derived from the source document _cr1304 - 1332.      For charitable organizations registered with the Revenue Service, there is an annual*

### 1370.      Although the authorities are maintaining the relevant statistics, they are not reviewing the

### _cr1304 - 1370. Although the authorities are maintaining the relevant statistics, they are not reviewing the

### Implementation and Effectiveness
- Although the authorities are maintaining the relevant statistics, they are not reviewing the effectiveness of the AML/CFT system on a regular basis.
- Georgia has not set up an AML/CFT Coordination Committee to enable the concerned authorities to cooperate and, where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat ML and TF.
- An Inter-Agency Committee on implementing UNSCRs has been established.
- An Anti-corruption Council has been created for coordinating anti-corruption policies and implementing the requirements of the UNCAC. It includes the membership of agencies involved in the fight against ML, more precisely the FMS, NBG, MOF, and MOJ.
  - AML/CFT issues were said to be regularly discussed at the Council’s meetings, but the discussions were expected to be more in relation to the Council’s mandate in fighting corruption.
  - A similar council to steer and coordinate AML/CFT issues is highly advised.

### Recommendations and Comments (section 6.1.2)
- Put in place effective mechanisms between policy makers, the FMS, LEAs and supervisors which enable them to cooperate and, where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat ML and TF. An AML/CFT Council similar to the one for Anti Corruption that could develop a strategy and action plan is highly advised.
- Review statistics in the relevant areas of the fight against ML and TF on a regular basis to assess the effectiveness of the AML/CFT regime.
- Establish a mechanism allowing the cooperation between supervisory agencies of FIs and DNFBPs notably, NBG, MOJ, and MOF.

### Compliance with Recommendation 31 (section 6.1.3)
- R.31 — PC
  - Lack of a central coordinating body/committee to steer and coordinate the development and implementation of policies and activities to combat ML and TF.
  - Implementation: There is no mechanism allowing the cooperation between supervisory agencies of FIs and DNFBPs notably, NBG, MOJ, and MOF.
- R.32 — LC
  - The effectiveness of Georgia’s AML/CFT systems is not being reviewed on a regular basis.

### The Conventions and UN Special Resolutions (R.35 & SR.I) — Description and Analysis (section 6.2.1)
- Under Georgian law, Conventions that have been ratified by parliament are self-executing to the extent that the Convention provisions are specific enough to be applied without transposition into national law.
- Ratification of AML-Related UN Conventions (c. 35.1):
  - Georgia signed the Palermo Convention on December 13, 2000, and ratified the Convention on September 5, 2006.
  - Georgia is a member to the Vienna Convention, ratified on January 8, 1998.
- Ratification of CFT-Related UN Conventions (c. I.1):
  - Georgia ratified the International Convention for the Suppression of the Financing of Terrorism (“FT Convention”) on September 27, 2002.
  - Georgia has ratified twelve out of the remaining fifteen international legal instruments on terrorism, including all nine Conventions and Protocols listed in the Annex to the TF Convention.
  - The Convention on the Marking of Plastic Explosives for the Purpose of Detection, the Convention on Offenses and Certain Other Acts Committed on Board Aircraft, and the Convention for the Suppression of Acts of Nuclear Terrorism remain unratified.
  - The Amendments to the Nuclear Material Convention, the Protocol to the Maritime Convention, and the Protocol to the Protocol on Fixed Platforms have been signed but not yet ratified.
- Implementation of Vienna Convention (Articles 3-11, 15, 17 & 19, c. 35.1):
  - Georgian law complies with many provisions of the Vienna Convention.
  - ML is criminalized largely in line with the Vienna Convention; confiscation and seizing measures are available for all offenses under the Convention.
  - The power of law enforcement agencies to identify and trace property that is or may become subject to confiscation is generally not hindered by financial secrecy.
  - Access to information held by lawyers and other legal professionals is limited.
  - Georgia may provide a wide range of MLA with respect to drug related ML offenses and grant extradition for such crimes.
- Implementation of FT Convention (Articles 2-18, c. 35.1 & c. I.1):
  - Georgian law criminalizes terrorist financing broadly in line with the requirements under the FT Convention and allows for the application of comprehensive confiscation and provisional measures in the context of such offenses.
  - Preventive measures are in place for banks and nonbank financial institutions. However, the legal framework setting out the various obligations is still subject to a number of shortcomings as discussed under section 3 of this report. In particular, customer due diligence measures, record keeping, and STR reporting requirements could be strengthened further.
  - TF is an extraditable offense under Georgian law as indicated under Recommendation 39 below.
- Implementation of Palermo Convention (Articles 5-7, 10-16, 18-20, 24-27, 29-31 & 34, c. 35.1):
  - Georgian law complies with most provisions of the Palermo Convention.
  - ML offenses involving organized crime are criminalized largely in line with the Palermo Convention and confiscation and seizing measures in relation to proceeds obtained through the commission of such offenses are available.
  - Georgia may provide a wide range of different types of MLA with respect to ML offenses involving transnational organized crime, including in searching for and/or seizing property or evidence in relation to such offenses.
  - Preventive measures and a supervisory regime are in place for banks and nonbank financial institutions, but shortcomings remain in customer due diligence measures, record keeping, and STR reporting requirements.
  - Georgia has established an FIU and has in place a cross-border declaration system but significant shortcomings have been identified in relation to both.
- Implementation of UN SCRs relating to Prevention and Suppression of FT (c. I.2):
  - Georgia’s new mechanism to implement its requirements under UNSCR 1267 and 1373 suffer from a number of significant shortcomings and does not implement all aspects of the requirements under the Resolutions.
- Additional Element—Ratification or Implementation of other Relevant International Conventions (c. 35.2):
  - Georgia has signed and ratified a large number of international and regional treaties and conventions, including the Merida Convention, the European Convention on Corruption, and the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime.

### Recommendations and Comments (section 6.2.2)
- Fully implement the Vienna, Palermo, and FT Conventions.
- Address the shortcomings identified in relation to the implementation of UNSCRs 1267 and 1373.

### Compliance with Recommendation 35 and Special Recommendation I (section 6.2.3)
- R.35 — LC
  - Georgia has ratified and implemented most but not all provisions of the Palermo, Vienna, and FT Conventions.
- SR.I — PC
  - Georgia has ratified and implemented many but not all provisions of the CFT Convention as outlined in the various sections of this report. In particular, shortcomings remain with respect to the FT offense.
  - Some shortcomings remain in respect of the implementation of UNSCR 1267 and 1373.

### Mutual Legal Assistance (R.36-38, SR.V) — Description and Analysis (section 6.3.1)
- Legal Framework:
  - Georgia’s mutual legal assistance (“MLA”) framework is set out in the Law of Georgia on International Cooperation in the Field of Criminal Law (“MLA Law”).
  - Before the MLA Law came into force in 2010, Georgia did not have any relevant and overarching legislation in place but provided assistance in criminal matters exclusively on the basis of the treaties and agreements it had signed.
  - Georgia has entered into bilateral MLA treaties with Bulgaria, Turkey, Ukraine, Turkmenistan, Kazakhstan, Azerbaijan, and Greece.
  - Georgia has ratified a large number of international and regional treaties relevant in relation to MLA, including the European Convention on Mutual Assistance in Criminal Matters, and the Merida, FT, Palermo, and Vienna Conventions.
- Widest Possible Range of Mutual Assistance (c. 36.1):
  - Georgia may provide MLA in criminal cases based on a multilateral or bilateral agreement or (with the exception of extradition and enforcement of foreign judgments) on the basis of the principle of reciprocity.
  - Dual criminality is only required to carry out coercive measures upon foreign request. For all other forms of assistance, dual criminality is not a precondition.
  - The authorities confirmed that MLA may be provided already during the investigative stages of a case. Before a case has reached the trial stage in the requesting country, coercive measures such as searches or seizures may however only be ordered by a Georgian court if procedural requirements under the law of the requesting country have been met, i.e. if a court or another competent authority such as the prosecutor of the requesting country has issued a decision to this effect. Once the case abroad has entered the trial stages, such measures may be ordered by the Georgian courts directly based on the foreign request, including in the absence of a foreign court order or prosecutorial decision.
  - Pursuant to Article 11 of the MLA Law, Georgia may provide assistance in criminal matters whenever there are “relevant legal grounds” to do so. The authorities indicated that this requirement would be considered to be met whenever the conditions under Article 2 MLA Law are deemed fulfilled.
  - The MLA Law does not list explicitly the types of assistance that Georgia may provide but states more generally in Article 11 that requests for assistance are to be executed in accordance with the legislation of Georgia. According to the authorities, all investigative measures available under Georgian law are therefore also available upon foreign request.
  - Georgia may provide the widest range of MLA to foreign countries, including assistance in:
    - The production, search and seizure of information and evidence, including financial records from financial institutions, DNFBPS and other persons or legal entities (Article 17 of the Law of Georgia on Activities of Commercial Banks; Article 10.2 of the Law on Microfinance Institutions; Article 7 related to professional secrecy in the Law on Advocacy, Articles 120, 121, 151, and 152 CPC). LEAs power to access information held by lawyers is limited due to the application of legal privilege.
    - Article 12 (2) of the MLA Law provides that measures involving search and seizure may only be carried out upon request of a foreign country if: (1) a treaty or agreement provides for it; or (2) the principle of dual criminality is met in relation to the crime in question; (3) the crime is an extraditable offense under Georgian law; and (4) the execution of such a measure complies with the legislation of Georgia. All ML, FT, and predicate offenses are extraditable offenses pursuant to Article 18 of the MLA Law. For cases that are still at the pre-trial stage in the requesting country, the Georgian prosecutor must submit a foreign court decision or other procedural document authorizing the conduct of the requested investigative actions to the local Georgian court. Once a case has entered the trial stage abroad, the prosecutor’s motion may be based only on the MLA request of the respective foreign court.
    - The taking of evidence or statements from persons (Articles 114, 115, 116, 117, 118 of the Criminal Procedure Code).
    - Providing originals or copies of relevant documents and records, or other information or evidence (Chapter IV of the MLA Law are executed in accordance with the provisions of the Criminal Procedure Code of Georgia). Information and evidence obtained or compelled by law enforcement authorities based on a court order may be provided to the requesting authorities without any restrictions or conditions. Copies of financial transaction records may thus also be provided in such cases. Judicial consent is required for cases that have not yet entered the trial stage in the requesting country.
    - Effecting service of judicial documents: Persons present in Georgia may be summoned as defendants, witnesses, experts, victims in regard of a foreign criminal case in accordance with the rules established by the relevant international treaties, ad hoc agreements or under the conditions of reciprocal cooperation. Authorities confirmed that they could also effect service of judicial documents not involving a summons, such for example of criminal judgments.
    - The voluntary appearance of persons for the purpose of providing information or testimony to the requesting country can be facilitated in accordance with the rules established by the relevant international treaties, ad hoc agreements or under the conditions of reciprocal cooperation (Article 94 of the CPC).
    - Identification, freezing, seizure or confiscation of proceeds or instrumentalities of crime (Article 151 CPC and Article 52 CC).
- Provision of Assistance in Timely, Constructive, and Effective Manner (c. 36.1.1):
  - The Ministry of Justice is the central authority in charge of receiving, processing and responding to MLA requests from foreign countries that are based on letter rogatory. In cases where MLA is requested based on an international or bilateral treaty, direct channels may be utilized.
  - Pursuant to Article 11 of the MLA Law, where information provided by the requesting country is found to be insufficient to execute the request, the Ministry of Justice may ask for additional information from the foreign state.
  - All MLA requests are submitted to the International Cooperation Unit of the Legal Department of the Office of the Chief Prosecutor, Ministry of Justice of Georgia (“International Cooperation Unit”).
    - The International Cooperation Unit examines whether a submitted request is consistent with the relevant international agreement, ad hoc agreement or the conditions of the reciprocal cooperation, and that there are no grounds for refusal of the request.
    - Execution of the request is initiated either by transmitting the request to local prosecution or police officers (for cases at the pre-trial stage) or by forwarding it to the local courts (for cases at the trial stage and with some exceptions).
    - The official competent to implement a specific request must report any measures taken in relation to a specific request to the International Cooperation Unit within forty days of receipt of the request.
    - Evidence or information obtained is sent to the appropriate authority in the requesting state through the International Cooperation Unit.
  - At the time of the assessment, the International Cooperation Unit was staffed with:
    - two prosecutors,
    - one adviser,
    - two English language translators,
    - two Russian language translators, and
    - one professional to keep a register of all MLA requests received, granted, denied etc.
  - The International Cooperation Unit is funded from the regular state budget. The authorities stated that the Unit has sufficient resources and know-how to enable Georgia to provide MLA in an effective and timely manner.
  - There are no formal timeframes in place for the processing of MLA requests. However, the authorities stated that MLA requests have in the past been executed within two to three months.
- No Unreasonable or Unduly Restrictive Conditions on Mutual Assistance (c. 36.2):
  - With the exception of enforcement of foreign judgments, Georgia may provide all forms of MLA based on reciprocity, including in the absence of treaty.
  - Article 2 (4) of the MLA Law provides that reciprocity conditions shall be determined “based on the minimum guarantees under the MLA Law,” but that introducing a higher standard would not be precluded. The authorities indicated that “minimum guarantees” are considered to have been provided based on a written commitment of reciprocity by the requesting state or could be provided for on the basis of an ad hoc agreement.
  - Article 12 of the MLA Law provides an exhaustive list of grounds for refusal of MLA requests that are based on reciprocity:
    - The execution of the request would prejudice the sovereignty, security, public order or other vital interest of Georgia (mandatory).
    - The execution of the request would violate Georgian law (discretionary).
    - The crime in relation to which the request was made is considered a political offense under Georgian law, which means that “the goal, motive, form, methods or other circumstances do not outweigh the political aspects of committing an offense” (mandatory). The authorities stated that FT was not considered a political offense under this provision, supporting their view by reference to the various FT conventions and treaties Georgia has ratified.
    - The execution of the request would violate human rights and fundamental freedoms (mandatory).
    - The execution of the request would incur double jeopardy (mandatory).
    - The crime in relation to which the request was made is considered a military offense under Georgian law and double criminality is not met (discretionary).
    - The transmission of the requested evidence would delay criminal proceedings domestically (discretionary).
  - The existence of grounds for refusal of a specific request is determined by the International Cooperation Unit.
- Provision of Assistance Regardless of Possible Involvement of Fiscal Matters (c. 36.4):
  - The potential involvement of a fiscal offense is not included under Article 12 of the MLA Law as a ground for refusal of MLA.
  - The authorities pointed out that tax evasion was a predicate offense for ML under Georgian law and that MLA could therefore also be provided in relation to such crimes.
  - The authorities indicated that requests involving tax offenses have never been denied in the past.

*Source: _cr1304 - 1370. Although the authorities are maintaining the relevant statistics, they are not reviewing the — IMF content unit (PDF chapter/section)*

### 1398.      There is no limitation in domestic legislation preventing the Georgian authorities from

### _cr1304 - 1398.      There is no limitation in domestic legislation preventing the Georgian authorities from

### International cooperation and mutual legal assistance (MLA) framework
- Article 11 of the MLA Law: requests for assistance are to be executed in accordance with the legislation of Georgia and "all measures available under Georgian criminal procedures" (including seizing measures under Article 151 of the CPC) are available upon foreign request.
- Article 52 of the MLA Law: where a foreign court has issued a confiscation as part of a criminal sanction, an authorized Georgian district court may issue an order for confiscation of property located in Georgia; once executed, confiscated property is to be transferred into ownership of Georgia, but the competent Georgian court is authorized to transfer the confiscated property to the requesting state if that state has special interest.
- Article 55 of the MLA Law: discretionary grounds for refusal of a foreign confiscation order include:
  - Lack of dual criminality;
  - Enforcing the judgment would be against fundamental principles of Georgian law;
  - The judgment is in relation to a political or military offense under Georgian law;
  - There is probably cause to believe that the judgment was rendered based on the convict’s race, nationality, ethnicity, religious or political opinions or similar circumstances;
  - Criminal proceedings are pending, have been refused or terminated in Georgia for the same offense;
  - Georgia is “not able” to enforce the judgment (authorities indicated this would cover situations where no property is available in Georgia for confiscation);
  - The statute of limitation has expired;
  - Any other grounds set out in an applicable treaty based on which the judgment may not be enforced.

### Availability of powers, dual criminality, and scope
- Dual criminality is a precondition only for:
  - execution of a request to search and/or seize property; and
  - enforcement of foreign criminal judgments.
- All other forms of MLA may be provided even in the absence of dual criminality.
- In assessing dual criminality, mere technical differences between requesting state law and Georgian law "would not pose an impediment"; the International Cooperation Unit reviews facts to determine whether the described conduct would be criminalized in Georgia.
- For requests involving coercive measures in TF cases, the limited scope of Georgia’s FT offense could potentially limit Georgia’s ability to provide MLA where dual criminality is required; authorities consider the dual criminality principle would be interpreted broadly and that a combination of offenses (e.g., an ancillary offense combined with a terrorist offense) could serve as a basis to meet dual criminality. However, legal limitations remain where a person or organization is considered “terrorist” under the requesting state's law but not under Georgian law.

### Seizing, confiscation, and corresponding value
- Seizing measures requested during pre-trial stages may be taken only based on a decision by a foreign competent authority or court; seizing orders upon foreign request are subject to same conditions as domestic orders and require dual criminality in the MLA context.
- Once the foreign case has entered the trial stage, freezing or seizing orders may be applied in Georgia without the need for a corresponding foreign order, with rights of bona fide third parties to be observed.
- Article 151 of the CPC allows for seizing and Article 52 of the CCG for confiscation of property corresponding in value to proceeds of crime in cases where proceeds cannot be located.

### Coordination, asset management, and sharing
- No formal procedures are in place to coordinate seizure and confiscation actions with other countries; Georgia may cooperate and liaise on an ad hoc basis.
- Georgia has not considered setting up a designated asset forfeiture fund; all assets confiscated in Georgia are managed by the Service Agency of the Ministry of Finance, which may allocate assets for law enforcement, health, education or other appropriate purposes.
- No legal provision deals with sharing of confiscated assets; courts may decide confiscated property should be remitted (in full or part) to the requesting state and the Ministry of Justice can decide to share confiscated assets on a case-by-case basis.

### Implementation and statistics (applying R.32)
- Since 2007, Georgia received 1102 requests for assistance in criminal matters:
  - 918 were executed;
  - 17 (or 1.5 percent) were rejected.
- Of the 1102 requests received, eight related to cases of ML. Of these eight:
  - Two from Spain;
  - One from Germany;
  - One from France;
  - One from Belarus;
  - Two from the Ukraine;
  - One from Russia (authorities indicated the request from Russia was still pending at the time of the assessment due to the political situation and the lack of diplomatic relationship).
  - The remaining seven requests have been executed.
- No case ever received in the context of a foreign FT offense.
- Measures requested in MLA cases included seizure of evidence, obtaining information from Georgian public agencies (e.g., criminal records), and identification and interrogation of natural persons. No request was ever received for seizing or confiscation of property.
- Average time to respond to requests: two to three months.
- Grounds for the 17 rejected cases:
  - Person could not be identified or located: seven cases;
  - Withdrawal of the request by the foreign country: four cases;
  - Measure requested was not envisaged by Georgian criminal procedure: one case;
  - Evidence sought related to an offense sanctioned with the death penalty and requesting state did not provide assurance death penalty would not be imposed: one case;
  - Political situation would not allow execution (three cases received from Russia);
  - Lack of sufficient information to execute the request: one case.

- Total Number of MLA Requests Received by Georgia (table summary):
  - TOTAL: 2007: 391; 2008: 230; 2009: 224; 2010: 169; 2011 (until June): 88; TOTAL: 1102
  - Executed: 2007: 375; 2008: 215; 2009: 193; 2010: 112; 2011 (until June): 57; TOTAL: 952
  - Refused: 2007: 7; 2008: 1; 2009: 5; 2010: 3; 2011 (until June): 1; TOTAL: 17
  - Pending: 2007: 9; 2008: 14; 2009: 26; 2010: 54; 2011 (until June): 30; TOTAL: 133
  - Av. Response time: 2-3 months (listed for each year)

- Total Number of MLA requests received by Georgia for ML offenses (table summary):
  - TOTAL Nr. of Requests: 2007: 1; 2008: 2; 2009: 1; 2010: 4; 2011 (until June): - ; TOTAL: 8
  - Requests to freeze: all years shown as - 
  - Requests to seize: 2008: 1; 2009: 1; 2011 (until June): 2; other years: -
  - Executed: 2007: 1; 2008: 2; 2009: 1; 2010: 3; 2011 (until June): - ; TOTAL executed: 7
  - Pending: 2010: 1; 2011 (until June): 1
  - Av. Time: 2-3 months (for listed years)

- Total Number of MLA requests received by Georgia for offenses other than ML and FT (table summary):
  - TOTAL Nr. of Requests: 2007: 390; 2008: 228; 2009: 223; 2010: 165; 2011 (until June): 88; TOTAL: 1094
  - Requests to freeze: 2009: 1; 2010: 1; 2011 (until June): - ; TOTAL: 2
  - Requests to seize: 2007: 12; 2008: 12; 2010: 8; 2011 (until June): 2; TOTAL: 34
  - Executed: 2007: 347; 2008: 213; 2009: 192; 2010: 109; 2011 (until June): 57; TOTAL: 918
  - Rejected: 2007: 7; 2008: 1; 2009: 5; 2010: 3; 2011 (until June): 1; TOTAL: 17
  - Pending: 2007: 9; 2008: 14; 2009: 26; 2010: 53; 2011 (until June): 30; TOTAL: 132
  - Av. Time: 2-3 months (for listed years)

### Effectiveness and case examples
- Georgia’s MLA framework is described as "solid" and allows provision of a wide range of assistance; assistance "does not seem to be subject to any unduly restrictive or unreasonable requirements."
- The low number of rejected requests suggests provisions in Article 12 of the MLA Law, while drafted generally, are interpreted narrowly in practice.
- Limited number of AML-related requests received makes it difficult to assess effective implementation of MLA for AML matters; lack of requests to seize or confiscate property based on foreign proceedings limits confirmation of authorities' interpretations.
- Example case (2009, France):
  - MLA requested by France based on letter rogatory in a ML case involving Georgian natural and legal persons.
  - Georgian authorities conducted interrogations, seized information on bank accounts and transactions from a Georgian financial institution, and provided all materials and information to French authorities.
  - French investigators participated in procedural actions in Georgia.
  - Coordination led to initiation of criminal cases in both France and Georgia; domestic case pending at time of assessment.
- No MLA requests ever received by Georgia for FT offenses.

### Limitations, challenges, and strategic concerns
- Complete absence of international cooperation in criminal matters between Georgia and Russia negatively impacts effectiveness of MLA framework, especially given significant number of Georgian citizens located in Russia and operation of Georgian criminal organizations there.
- Some limitations exist in relation to DNFBPs due to the wide definition of legal privilege affecting compelled production of records and documents from lawyers.
- No formal mechanisms for determining best venue for prosecutions where more than one country may prosecute; conflicts may be solved by ad hoc agreement (one coordination example resulted in prosecution in both Georgia and France).

### Recommendations and comments (section 6.3.2)
- Review the scope of legal privilege to ensure that LEAs’ powers to trace proceeds and instrumentalities of crime are not negatively affected, including where such measures are requested by a foreign state.
- Define the FT offense fully in line with the FATF standard to ensure that Georgia’s ability to provide MLA is not limited in cases where dual criminality is required.
- Consider establishing an asset forfeiture fund.
- Consider mechanisms that would allow the provisions of MLA to all countries, including Russia.

### Compliance ratings summary (6.3.3)
- R.36: LC
  - Lack of clear legal basis for the compelled production of records and documents from lawyers.
  - There are challenges for cooperation with Russia.
- R.37: C
  - This Recommendation is fully met.
- R.38: LC
  - Lack of clear legal basis for the compelled production of records and documents from lawyers.
  - The establishment of an asset forfeiture fund has not been considered.
  - There are challenges for cooperation with Russia.
- SR.V: PC
  - Lack of clear legal basis for the compelled production of records and documents from lawyers.
  - Legal shortcomings with respect to the FT offense may limit Georgia’s ability to provide MLA where dual criminality is required.
  - There are challenges for cooperation with Russia.

### Extradition framework (beginning of 6.4)
- Georgia’s extradition framework is set out in Chapter III of the MLA Law: extradition may only take place on the basis of an applicable international or bilateral treaty, including ad hoc treaties; extradition based on reciprocity alone is not permitted.
- Georgia has entered into a number of bilateral and multilateral extradition treaties, including:
  - European Convention on Extradition (Paris, 13.XII.1957);
  - Additional Protocol to the European Convention on Extradition (Strasbourg, 15.X.1975);
  - Second Additional Protocol to the European Convention on Extradition (Strasbourg, 17.III.1978);
  - Treaty between Georgia and the Republic of Armenia on Extradition (3.V.1997);
  - Treaty between Georgia and the Republic of Turkey on Mutual Legal Assistance in Civil, Commercial and Criminal Matters (4.IV.1996);
  - Treaty between Georgia and Turkmenistan on Mutual Assistance in Civil and Criminal Matters (20.III.1996);
  - Treaty between the Republic of Georgia and Ukraine on Legal Assistance and Legal Relations in Civil and Criminal Matters (9.I.1995);
  - Treaty between Georgia and the Republic of Kazakhstan on Mutual Legal Assistance in Civil and Criminal matters (17.IX.1996);
  - Protocol to the Treaty between Georgia and the Republic of Kazakhstan on Mutual Legal Assistance in Civil and Criminal matters (31.III.2005);
  - Treaty between Georgia and the Republic of Azerbaijan on Legal Assistance and Legal Relations in Civil, Family, and Criminal Matters (12.VI.1996);
  - Agreement between Georgia and the Hellenic Republic on Legal Assistance in Civil and Criminal Matters (10.V.1999).

_ _cr1304 - 1398.      There is no limitation in domestic legislation preventing the Georgian authorities from_

### 1427.      Based on Article 18 of the MLA Law, extradition from Georgia is only possible for

### _cr1304 - 1427.      Based on Article 18 of the MLA Law, extradition from Georgia is only possible for

### Extradition legal framework and grounds for refusal
- Extradition from Georgia requires dual criminality per Article 18 of the MLA Law; dual criminality is determined based on the conduct rather than the named criminal offense.
- Mere technical differences between the law of the requesting state and Georgian law do not impede extradition.
- Grounds to refuse extradition (Articles 19–29 of the MLA Law) include:
  - Requests involving a political or military offense.
  - Requests pertaining to a Georgian national.
  - Requests relating to offenses that are subject to capital punishment in the requesting state.
  - The verdict underlying the extradition request was issued in absentia, the convicted person was not informed about the court hearings, and the proceedings did not satisfy the minimum rights of defense.
  - The statute of limitations has expired in relation to the offense for which extradition is requested.
  - Extradition would result in double jeopardy.
  - Criminal proceedings are pending domestically in relation to the conduct for which extradition is sought.

### Money laundering as an extraditable offense (c. 39.1)
- Article 18: any crime punishable with deprivation of liberty for at least one year under both Georgian law and law of the requesting country is considered an extraditable offense.
- Threshold determined based on the lowest sanction available in a specific case.
- All ML, FT and predicate offenses under Georgian law are punishable with at least one year imprisonment and are therefore extraditable offenses.

### Extradition of nationals (c. 39.2)
- Article 21: Georgian nationals may not be extradited unless extradition is provided for under an applicable international agreement.
- No requirement to initiate a criminal prosecution domestically where extradition is denied based on nationality.
- Article 42: Ministry of Justice must transfer case files received from a foreign state for purpose of conducting criminal proceedings in Georgia to relevant prosecution or police authorities; evidence obtained in a foreign state and kept in transferred case files have equal legal basis as evidence collected in Georgia.
- Authorities report practical cases where extradition was denied based on nationality and domestic prosecution was initiated based on transferred foreign case files.

### Cooperation for prosecution of nationals (c. 39.2(b), c. 39.3)
- Evidence in a transferred case file has equal legal force as evidence obtained in Georgia.
- If transferred evidence is insufficient, the Ministry of Justice is authorized to obtain additional materials from the foreign state.

### Efficiency of the extradition process (c. 39.4)
- Extradition requests are channeled through the International Cooperation Unit which examines legal requirements and prepares a decree for the Minister of Justice to grant or reject extradition.
- Article 34: unless valid grounds for refusal exist, the Minister of Justice or an authorized person must grant extradition.
- Minister has in practice followed advice of the International Cooperation Unit but retains discretion (e.g., denial for poor health of the person).
- Prosecutors of the International Cooperation Unit may appear before courts to support decisions to extradite when granted but appealed.
- No statutory specific timeframes for processing extradition requests under the MLA Law; authorities stated extradition proceedings have taken no longer than nine months in the past.
- Recommendation: set out mechanisms and procedures to ensure timely handling of extradition requests.

### Implementation and statistics (R.32)
- Since 2007 Georgia received 90 requests for extradition:
  - 2007: Total 26 — Executed 20 — Refused 2 — Pending -
  - 2008: Total 10 — Executed 1 — Refused 8 — Pending -
  - 2009: Total 25 — Executed 11 — Refused 10 — Pending 2
  - 2010: Total 23 — Executed 18 — Refused 2 — Pending 2
  - 2011 (until June): Total 6 — Executed 2 — Refused 1 — Pending 3
  - TOTAL: Total 90 — Executed 52 — Refused 23 — Pending 7
- Average response time reported: 5-6 months (annual entries show "5-6 months" across years).
- Georgia has not received any requests for extradition in relation to a ML offense.
- In 2010, one extradition request was received from Russia in relation to an FT offense; at the time of assessment this request was pending due to diplomatic complications and ongoing domestic proceedings against the person.

### Effectiveness
- Lack of ML extradition requests and only a pending FT request prevents assessors from gauging effectiveness of extradition framework for ML/FT specifically.
- Chapter III of the MLA Law has been applied effectively for other crimes; assessors have no grounds to believe this would not be the case for ML.
- Dual criminality requirement could potentially limit extradition for FT due to the limited scope of the FT offense; authorities assert a liberal application but certain legal limitations remain.

### Recommendations and comments
- Define the FT offense fully in line with the FATF standard to ensure Georgia’s ability to extradite a person is not limited due to the requirement of dual criminality.
- Set out mechanisms and procedures to ensure timely handling of extradition requests.

### Compliance ratings and summary factors relevant to s.6.4
- R.39: LC
  - Absence of clear procedures to ensure timely handling of extradition requests.
- R.37: C
  - This Recommendation is fully met.
- SR.V: PC
  - Shortcomings with respect to the FT offense may limit Georgia’s ability to extradite a person due to the requirement of dual criminality.
  - Absence of clear procedures to ensure timely handling of extradition requests.

### Other forms of international cooperation (R.40 & SR.V) — legal framework and practice (summary)
- Article 13.1 of the AML/CFT Law: Georgian AML agencies shall cooperate with domestic and foreign competent agencies and international organizations in receipt of information, preliminary investigations, court hearings and execution of resolutions.
- Article 13.2: FMS may conclude agreements and forward/respond to requests related to ML and FT; FMS can sign MOUs but does not require one to exchange information.
- Law on International Cooperation in Criminal Matters (July 2010) and Law on Operative Searching Activities (1999) provide basis for LEA cooperation and operative search measures at foreign request.
- Other Acts providing basis for LEA exchange of information: Criminal Procedure Code of Georgia; Law on the Investigation Service of the Ministry of Finance; Law on Intelligence Activities; Presidential Decree N99 of February 12, 2007 on Rules for the National Central Bureau of Interpol of the Ministry of Internal Affairs.
- Article 5 of Organic Law on the National Bank of Georgia allows NBG to exchange information with counterparts within its competence provided confidentiality is maintained.

### FMS (FIU) implementation and effectiveness (c. 40.1.1)
- FMS responds to foreign FIU inquiries usually within two weeks; when third-party information is required responses have taken up to two and a half months (outside the one month Egmont best practice).
- FMS responded to 107 ML requests out of 112 from 2007 to July 2011; one request pending; two requests left unanswered in 2008 and 2010; remaining unanswered requests were voluntary dissemination follow-ups.
- Disclosures to foreign FIUs include persons and associates, criminal background, account numbers, turnover of accounts, real estate transactions, legal entities, and loan information; banking statements are summarized in an information table.
- Information on legal entities may be incomplete due to limitations of the Public Registry: beneficial ownership not systematically contained; legal entities registered prior to 2010 not systematically included (retrievable manually but not always complete).
- Feedback from Moneyval counterparts (six jurisdictions) indicated FMS cooperation was timely, constructive, effective and provided without delay.

### Law enforcement agencies and supervisors — cooperation and implementation
- MIA cooperates mainly with neighboring countries (Azerbaijan, Armenia, Turkey); joint working groups, GUAM sub-group for Corruption and Money Laundering, and police attaché cooperation with EU member states.
- Investigative Service (MOF) has exchanged information and cooperated on ML with Holland, United States, Italy, France, Poland, Austria, Belgium, Czech Republic, and England; also shared with Interpol and Europol; joined Amon and Carin networks in 2012.
- Limits in providing information on legal entities due to Public Registry constraints.
- NBG exchanges information through MOUs; template MOU Article 9 specifies timely exchange on events endangering stability of cross-border establishments and notifications of administrative penalties.
- NBG has exchanged AML/CFT information with two jurisdictions following MOU requests over past few years; information shared included examination findings and ratings; no proactive spontaneous sharing; NBG does not systematically share examination findings where the financial institution operates cross-border; no ML or fit and proper information has ever been requested from a foreign counterpart.

### Gateways for exchange of information (c. 40.2)
- Georgia became a member of the Egmont Group on June 23, 2004; FMS cooperates actively with foreign FIUs.
- FMS does not need MOUs to share information but has the right to conclude agreements and requires such agreements to exchange information with foreign counterparts; MOUs signed by FMS refer to both AML and CFT.

*IMF assessment text as provided in content unit _cr1304 - 1427.*

### 1464.      At the present moment, the FMS has concluded MOUs on exchanging of information with

### _cr1304 - 1464. At the present moment, the FMS has concluded MOUs on exchanging of information with

### FMS MOUs and strategic focus
- FMS has concluded MOUs on exchanging of information with foreign FIUs from 30 countries: Andorra, Armenia, Aruba, Belarus, Belgium, Bulgaria, China, Croatia, Cyprus, Czech Republic, Estonia, Finland, India, Indonesia, Israel, Latvia, Lebanon, Lichtenstein, Macedonia, Moldova, Panama, Poland, Romania, San-Marino, Serbia, Slovenia, Sweden, Thailand, Turkey, Ukraine.
- FMS strategy: proactively sign MOUs with countries where ML standards are weak.
- FMS has signed agreements with three of the forty-two countries listed in the August 2011 NBG watch list: India, Indonesia and Lebanon.
- FMS has never refused to sign a cooperation agreement.

### Information exchange modalities and international standards
- Modalities of information exchange follow Egmont Group’s “Principles for Information Exchange between Financial Intelligence Units for Money Laundering ad FT Cases” (Statement of Purpose; June 13, 2001).

### FMS operational implementation and statistics
- Number of requests sent by the FMS:
  - 2007: 27 ML requests (no FT)
  - 2010: 3 ML requests
  - 2011: 2 requests
- No justification provided by the authorities to explain the sharp decline in external requests for information.
- Following requests received by foreign FIU:
  - 30-50 percent will result in initiating of domestic cases
  - 15-25 percent of total information requests resulting in domestic disclosures
- FMS practice when responding to foreign FIU requests: searches in administrative and commercially available databases and usually contact banks to obtain corporate documents; account information; financial transactions; other bank records.
- FMS has never contacted nonbank sectors when responding to foreign requests.
- Assessors note practice of querying banks is not applied systematically given higher numbers of requests received and open cases compared to number of bank queries.

### Law Enforcement Agencies (LEAs): agreements and networks
- LEAs establish direct contact with foreign counterparts under international agreements; Law on International Cooperation in Criminal Matters allows cooperation on basis of reciprocity.
- GUAM cooperation:
  - Agreement on cooperation among Governments of GUAM Participating States established Sub-Group for Combating Against Corruption and Money Laundering in 2009 (currently chaired by Georgia).
  - The group meets twice a year.
  - National virtual law-enforcement centers established in GUAM member states, facilitating rapid exchange via protected channels and direct communications during joint operations.
- BSEC cooperation:
  - MIA cooperates with law-enforcement agencies of BSEC Member States under Agreement on cooperation in combating crime.
  - Network of liaison officers (additional protocol signed March 15, 2002) facilitates communication of requests and information between law enforcement agencies of BSEC Member States; network meets regularly, at least once a year.
- National Central Bureau of Interpol Tbilisi links national agencies to INTERPOL; governed by Constitution of Interpol and Regulation adopted by Presidential Order No. 99 dated December 2, 2007.
- Georgia has concluded international agreements on combating crime and police cooperation with: Armenia, Austria, Azerbaijan, Belarus, Bulgaria, Egypt, Estonia, France, Italy, Latvia, Malta, Moldova, Poland, Romania, Turkey, Ukraine, United Kingdom, and Uzbekistan.
- Georgia has agreements with Austria, Azerbaijan, Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, and Ukraine in the exchange and mutual protection of classified information.
- On October 20, 2011, MIA signed bilateral agreements with law enforcement agencies of Armenia, Azerbaijan, Moldova, and Ukraine in operative-searching cooperation (includes fight against money laundering and FT).
- Memorandum of cooperation signed between Georgia and Great Britain and Northern Ireland covering multiple Georgian agencies and UK counterparts on cooperation related to serious crime, organized crime, drug trafficking and related issues.

### Customs cooperation agreements (contracting states and entry into force dates)
- Armenia — On mutual administrative assistance in customs matters — 02.19.08
- Azerbaijan — On cooperation in customs work — 07.10.95
- China — On cooperation and mutual assistance — 06.03.93
- Estonia — On cooperation and mutual assistance in customs matters — 06.16.05
- Greece — On cooperation and mutual assistance in customs matters — 01.14.99
- Iran — On cooperation in customs matters — 11.03.96
- Israel — On mutual assistance in customs matters — 09.09.98
- Kyrgyz Republic — On cooperation in customs matters — 04.22.97
- Latvia — On cooperation and mutual assistance in customs matters — 06.16.05
- Lithuania — On cooperation and mutual assistance in customs work — 11.12.00
- Turkey — On cooperation and mutual assistance in customs matters — 05.16.94
- Turkmenistan — On cooperation and mutual assistance in customs matters — 08.17.93
- Ukraine — On cooperation in customs matters — 02.14.97
- Uzbekistan — On cooperation and mutual assistance in customs matters — 05.28.96

### MOF Investigative Service, MIA, SOD, and IS information exchanges
- MIA:
  - Chairs GUAM Sub-Group and uses GUAM virtual law enforcement centre; exchanged information with Ukraine regarding 11 Georgians who created legal entities to launder money in Ukraine.
  - Provided information on police reform and AML/CFT best practices to Armenia, Azerbaijan, Belarus, Kazakhstan, Kirgizstan, Uzbekistan, Moldova, Turkey, and Ukraine.
  - Uses BSEC liaison officers network for requests; however no ML or FT requests have been sent or received via that network.
  - Has exchanged information with foreign counterparts in relation to both money laundering and predicate offense upon request.
  - Authorities indicated spontaneous exchange regarding 20 cases of possible ML conducted via liaison officers; information mainly related to members of Georgian organized crime residing in European countries.
  - MIA conducted inquiries on behalf of foreign counterparts in one instance (request from Ukraine). Some MIA officers mistakenly believe certain financial-detail requests must be referred to Prosecutor’s Office when investigative measures are needed.
  - MIA can conduct investigations when an agreement is in place; presence of an MOU is not mandatory. MIA has conducted investigations (questioning individuals, gathering criminal intelligence) in response to more than 20 requests regarding ML cases from foreign counterparts (mainly EU countries and Ukraine).
- SOD:
  - SOD received 20 requests regarding ML related issues since 2007.
  - Three of these requests were refused because of the lack of substantiation.
  - SOD has never used the gateways in place to request information regarding ML investigations.
- MOF, Investigative Service (IS):
  - 2008–2012: IS received 90 requests from foreign counterparts and requested information 63 times regarding financial crimes.
  - Requested information mostly concerned identification of legal entities, registration data, accounting information, and identification of persons.
  - 2008–2012: information was exchanged with: Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Cyprus, Czech Republic, England, Germany, Greece, Hungary, Italy, Kazakhstan, Kyrgyzstan, Latvia, Luxembourg, Netherlands, New Zealand, Panama, Poland, Serbia, Slovakia, Spain, Switzerland, Turkey, United States, and Ukraine.

### Supervisors (NBG, Ministry of Justice, Georgia Revenue Service)
- NBG:
  - Concluded MOUs with: Armenia, Azerbaijan, Belarus, Germany, Kazakhstan, Lithuania, Turkey, and Ukraine.
  - MOU strategy: focus on countries where foreign banks have subsidiaries or branches in Georgia.
  - Agreements in place with Belarus and Ukraine where financial institutions have subsidiaries.
  - Most MOUs were initiated by the NBG; NBG negotiating with France and Qatar.
  - No request for a MOU has ever been refused.
  - NBG has never used existing MOUs to request information from foreign counterparts.
  - NBG can respond to inquiries both spontaneously and upon request; template MOU allows spontaneous transmittal but does not mention ML or predicate offenses specifically; includes provision: “supervisors will endeavor to inform each other about any event which has the potential to endanger the stability of an authorized institution having cross-border establishments in respect to the other jurisdiction”.
  - NBG has received requests from counterparts to conduct inquiries and has contacted banks to obtain fit and proper information including information on administrators and shareholders, their addresses and other relevant details following a request from a foreign counterpart.
- Ministry of Justice and Georgia Revenue Service:
  - Have not signed any agreements with respect to information sharing related to AML/CFT.
  - Ministry of Justice (supervisor of notaries) participates in exchange of supervisory best practices with Armenia; Azerbaijan; Estonia; and Ukraine. No specific notary information is exchanged.
- Notaries: opportunity to exchange notary specific information is limited because notaries customarily do not operate in multiple jurisdictions.

### Spontaneous exchange of information
- FMS:
  - Article 13.3 mandates FMS to forward requests for information related to legalization of illicit income and FT to authorized agencies of other countries and international organizations and to respond to them.
  - No provision specifies that spontaneous exchanges are permitted or that exchanges are permitted in relation to predicate offenses; however all MOUs concluded by FMS include provisions on exchanging information upon request or spontaneously.
  - FMS has not used its power to spontaneously disseminate information to foreign FIUs.
  - Predicate offense information has not been provided because the information was not available for the cases subject to exchange with foreign FIUs.
- Law Enforcement:
  - Article 102 of the Criminal Procedure Code allows spontaneous provision: “if the investigation shows that the investigation of a criminal case falls under the jurisdiction of a different body, upon completing any urgent investigative actions the prosecutor shall immediately refer the case to the appropriate jurisdiction.”
  - No examples of spontaneous exchange were provided for the IS.
- NBG:
  - Has never shared information spontaneously regarding AML/CFT issues.
  - Instances of responsive information exchange described elsewhere (criteria 40.1.1).

### Making inquiries on behalf of foreign counterparts (c. 40.4 and c.40.4.1)
- FMS authority:
  - Article 13.3 of the AML/CFT Law of Georgia allows FMS to respond to information requests related to ML and TF.
  - FMS can search its own databases including STR-related information; it can search other administrative and commercially available databases.
  - FMS can send requests to any government and private institution based on Article 10, para. 4(a) and (e) of the AML/CFT Law.
- FMS implementation:
  - Conducts searches in administrative and commercially available databases and usually contacts banks for additional information.
  - Has never contacted nonbank sectors in responses to foreign requests.
  - Queries on behalf of foreign counterparts are not applied systematically.
- Law enforcement authority:
  - Article 8.1.f of the Law of Georgia on Operative-Searching Activities and international agreements authorize law enforcement to conduct operative-searching activities (including inquiries) upon request of foreign counterparts.
- Law enforcement implementation:
  - MIA conducted inquiries on behalf of foreign counterparts in one instance (request from Ukraine).
  - Some MIA officers confused referral requirements to Prosecutor’s Office for requests involving investigative measures.
- Supervisors:
  - NBG can inquire on behalf of MOU partners within competency limits.
  - NBG has conducted inquiries (e.g., contacted banks for fit and proper information) following foreign counterpart requests.

### Conducting investigations on behalf of foreign counterparts (c. 40.5)
- Legal basis:
  - MLA framework authorizes law enforcement to conduct investigations on behalf of foreign counterparts (see Recommendations 36–38).
  - Article 100 (1) of the CPC requires an investigator and/or prosecutor to initiate an investigation when he/she receives information about a crime.
  - Article 100 (2): “within three days from the initiation of the investigation, the investigator, prosecutor is required to provide written notice about the initiation of investigation to the person who reported the crime.”
  - These provisions allow initiation of investigations on behalf of foreign counterparts.
- Supervisors:
  - Do not have authority to conduct investigations.
- Implementation:
  - MIA can and has conducted investigations in response to foreign requests (more than 20 such requests).

### Conditions and data protection (c. 40.6)
- Information on personal data is exchanged in accordance with international agreements and national legislation on data protection.
- International agreements stipulate conditions to ensure protection of information and personal data:
  - Personal data and information exchanged shall be processed and protected in compliance with Parties’ relevant national legislation on data and information protection.
  - Personal data and information may be retransmitted to third parties only by authorities competent for implementation of the Agreement and only by written authorization of the sending competent authority.
  - Transmitted personal data and information shall not be used for other purposes than those it has been provided for without prior consent of the sending competent authority.
  - The receiving competent authority shall inform, on request, the sending competent authority about how the transmitted data was used.
  - The receiving competent authority shall effectively protect the received data from unauthorized access, changes or distribution.
- If transmitted data is incorrect or its transmission was not allowed:
  - The receiving competent authority shall correct or destroy them and immediately notify the sending competent authority.
  - Transmitted data which has been used should be destroyed by the receiving competent authority.

*Source: Excerpt from the content unit _cr1304 - 1464.*

### 1506.      The NBG is unable to share information related to state secrets and commercially sensitive

### _cr1304 - 1506.      The NBG is unable to share information related to state secrets and commercially sensitive

### Refusal, discretion, and judicial proceedings
- The NBG is unable to share information related to state secrets and commercially sensitive information. Discretion can be exercised with respect to the relevance of the request and if it is outside the scope of MOU.
- Some MOUs signed by the FMS include provisions that state: “authorities are under no obligation to give assistance if judicial proceedings have already been initiated concerning the same facts as the request is related to.”
- MOUs further stipulate: “if an Authority decides not to respond to a request, the Authority received the request for information will notify the requesting Authority of its decision with a brief justification”.
- Assessment: Most restrictions appear reasonable for protecting confidentiality and judicial proceedings, however the refusal based on the relevance of the request could be interpreted broadly and contribute to limiting the sharing of information.
- Implementation notes:
  - FMS: Although most MOUs contain a clause regarding refusal if judicial proceedings have been initiated, this exception has never been invoked.
  - Law Enforcement Agencies: Agreements include clauses regarding protection of state interest but require justification if refusal is invoked; this clause has not been used regarding ML/FT requests.
  - Supervisors: Discretion was invoked in one instance by the NBG as it determined that the request was outside of its competence.

### Provision of assistance regardless of possible involvement of fiscal matters (c. 40.7)
- There is no specific provision in international agreements or national legislation to refuse solely because the request involves fiscal matters.
- FMS: The FMS can provide information including when it is related to fiscal matters including tax evasion. Tax evasion is a predicate offense in Georgian Law (as outlined in section 1).
- Law Enforcement Agencies: No restrictions for the MIA to share information regarding fiscal matters; they would refer matters they consider not of their competence to the Revenue Service.
- Supervisors: MOUs include ability to share information on the prevention of Illicit Income Legalization. Illicit income legalization includes tax evasion; therefore the supervisor can share information on tax evasion and fiscal matters.
- Implementation: There has never been a request refused on the basis that the matter involved tax evasion or fiscal matters. However there has never been an instance where this type of information has been exchanged.

### Secrecy, confidentiality laws, and professional secrecy (c. 40.8)
- Constitutional and sectoral protections:
  - Article 20 of the Constitution: “Everyone’s private life, place of personal activity, personal records, correspondence, and communication by telephone or other technical means, as well as messages received through technical means shall be inviolable”.
  - Article 20, para. 3 of the Organic Law on the National Bank of Georgia: “Notices on accounts and/or transactions of Natural and legal entities may be issued only on the basis of court decision”.
- NBG international cooperation authority:
  - Article 5 of the NBG Organic Law authorizes NBG, within its competence, to be involved in international cooperation.
  - Article 5, para. 2 authorizes NBG to share confidential information with foreign counterparts, provided the recipient will maintain confidentiality. Confidentiality is not breached if information is transferred to law enforcement or investigative authorities in case of court order.
  - The Organic Law on the National Bank of Georgia prevails over sectoral financial secrecy provisions.
- Legal profession secrecy:
  - Article 7.1 of the Law on Advocates: “An advocate shall be obligated to keep a professional secret regardless of the elapsed amount of time.”
  - A member of the Bar Association indicated revealing beneficial ownership would violate professional secrecy.
  - The Ministry of the Attorney General indicated Article 50 of the CPCG gives law enforcement powers to access information detained by lawyers when conducting financial activities on behalf of clients; in practice information has been requested from lawyers.
- Assessment: Constitutional privacy and court-order requirements for transactional information are reasonable protections. The broad interpretation of professional secrecy could limit law enforcement access to financial information; the Bar Association interprets professional secrecy broadly, including where a lawyer is not representing the client in court. Despite broad interpretation, law enforcement has not indicated this is a significant impediment to exchanging information.
- Implementation:
  - NBG has indicated it would not share client account or transaction information based on constitutional privacy and Article 20, para. 3 of the Organic Law. No request has been refused on the basis of secrecy or confidentiality laws.
  - No requests related to ML or FT have been made to lawyers' offices on behalf of a foreign jurisdiction.

### Safeguards in use of exchanged information (c. 40.9)
- Legal safeguards:
  - Article 13.4 of the AML/CFT Law: Georgian bodies authorized on issues related to legalization of illicit income are required to ensure confidentiality of information provided by foreign authorities and use it only for the purposes indicated in the request. Recent amendments include a reference to TF in Article 13.4.
  - Article 12.3: FMS, supervisory and law-enforcement bodies, their management and employees shall ensure protection of information obtained pursuant to the AML/CFT Law.
  - Cooperation agreements and agreements on exchange/mutual protection of classified information require parties to afford the same level of protection to received personal data/classified information as to domestic sources. These provisions are included in all MOUs signed by the FMS.
  - Access limited to authorized, appropriately cleared, and “need-to-know” persons.
- Implementation:
  - FMS: Access to the Egmont Secure website is limited to the Director of the Analysis Unit. Workflow: Director reviews → informs Head of the FIU → assigns analyst → analyst prepares disclosure package → Director reviews → Head of FIU approves → submission via Egmont Secure Web. Information is subject to the same protection protocols as other FMS-held information.
  - Law Enforcement Agencies: All agreements include a clause regarding protection of information. Secret information shared only through secure, encrypted networks or diplomatic channels; received information is subject to MIA confidentiality/security safeguards.
  - Supervisors (NBG): All MOUs include protection clauses. Standard clause: “Compliance with the obligation of professional secrecy and confidentiality by all employees who receive confidential information from the other Authority in the course of their activities is a necessary condition for a successful co-operation between the Authorities”.
  - Implementation by NBG: Secret information shared only through secure, encrypted networks or diplomatic channels; received information subject to the same safeguards used domestically. Transmission to third parties depends on MOU content; unless MOU stipulates otherwise, advance consent is sought prior to transmission.

### Exchange with non-counterparts (c. 40.10 & c. 40.10.1)
- No provisions allow information exchange via non-counterparts. Non-counterparts may exchange information with their respective counterparts only. If a request is outside the jurisdiction of the requested authority, it will submit the request to the relevant domestic competent authority and inform the requesting authority.
- International agreements require the requesting party to indicate purpose and name of requesting competent authority. Receiving party must not use transmitted personal data/information for other purposes without prior consent of sending party.
- Implementation:
  - FMS: If receiving a request from a non-counterpart, FIU would seek permission from the non-counterpart to contact their domestic FIU and ask that FIU to submit a request. No such request has been received.
  - Law Enforcement: MIA would refer requests from non-counterparts to the relevant competent authority. No such request has been received.
  - Supervisors: NBG would channel non-counterpart requests to law enforcement. No such request has been received.

### Provision of information to FIU by other competent authorities pursuant to foreign FIU request (c. 40.11)
- Legal authority:
  - Article 10.4 (a) and (e) of the AML/CFT Law: FMS empowered to “request and obtain from monitoring entities additional information and documents available to them, including confidential information, on any transaction and parties to it, for the purpose of revealing the facts of illicit income legalization or FT”.
  - Article 10.4.e: FMS entitled to forward questions and obtain information from all state or local self-government and government bodies and agencies, as well as from any individual or legal entity exercising public legal authority.
- Implementation: Although FIU can obtain information from other competent authorities and reporting entities, the FIU has only used this authority with banks.

### International cooperation under SR.V (applying c. 40.1-40.9 in R.40, c. V.5)
- Legal framework:
  - Article 13.2 of the AML/CFT Law: FMS has right to conclude agreements with corresponding agencies of other countries concerning prevention of illicit income legalization and FT.
  - Article 13.3: FMS “without permission from any other entity or organ, shall forward requests for submission of necessary information on issues related to legalization of illicit income and the financing of terrorism to authorized agencies of other countries and international organizations, and respond to such requests.”
  - Article 11.2: Supervisors are obliged to collaborate with other countries’ competent authorities within their competence, which would appear to allow exchange of FT information.
- Implementation:
  - FMS: Requested information on FT in four instances from 2008 to 2011 and responded to three TF related requests. All responses were provided within eight days of receiving the request.
  - NBG: Has not shared information regarding the financing of terrorism as no FT request was received. No spontaneous information was exchanged on FT.
  - Requests for FT information were made by MIA via police attaché channels and within joint working groups established by bilateral international treaties (Turkey, Azerbaijan, Armenia, Ukraine), which meet annually or when necessary. No specific statistics on these exchanges were provided.

### Additional element under SR.V (applying c. 40.10-40.11 in R.40, c. V.9)
- Answers for criteria 40.1 – 40.9 (in R.40) also apply to obligations under SR.V.

### Statistics (R.32)
- FMS keeps regular statistics from subjects of ML/FT Law. Table summary for requests made or received from 2007 to July 2011 (as presented in source):
  - Sent Requests / Received Replies / Received Requests / Sent Replies
  - 2007: 27 / 33 / 24 / 24
  - 2008: (4 ML +1 TF)+1 request to all FIUs / 4+1 from all FIUs / 24 / 22
  - 2009: 3 ML + 1 TF / 2 ML + 1 TF / 22 ML + 1 TF / 21 ML + 1 TF
  - 2010: 3 / 3 / 23 / 22
  - 2011: 2ML / 2ML / 33 ML + 1 TF / 33 ML + 1 TF
  - Totals row in source: 38ML / 2 TF 43 ML / 1 TF  124 ML / 2 TF 119 ML +3 TF
- NBG: Maintains statistics on information exchange with foreign counterparts but does not maintain information on timeliness of responses.
- SOD (AML division) statistics for received requests:
  - YEAR / RECEIVED DIRECTLY / RECEIVED THROUGH INTERPOL
  - 2007: 4 / 4
  - 2008: 2 / 3
  - 2009: 2 / 1
  - 2010: 1 / -
  - 2011: 3 / -
- Implementation notes:
  - Three of the SOD requests were refused because of lack of substantiation. No requests were made by the AML division of the SOD to foreign authorities in these years.
  - GUAM law enforcement centre: conducted inquiries on 11 cases of possible ML cases in 2010-2011 and more than 20 requests via police attaché channels from foreign counterparts.
  - MIA: Received a total of 11 requests from GUAM partners (3 in 2009, 6 in 2010, 2 in 2011). MIA also engaged in information exchanges via police attaché channels totaling 22 exchanges. Breakdown of requests received and sent by MIA via police attachés regarding ML (2008-2011):
    - 2008: Requests received 3 / Requests sent 1
    - 2009: Requests received 4 / Requests sent 2
    - 2010: Requests received 5 / Requests sent 2
    - 2011: Requests received 4 / Requests sent 1
    - Total: Requests received 16 / Requests sent 6
  - MoF IS: Maintains statistics on incoming/outgoing requests related to financial crime. No requests have been received or sent pertaining to ML or FT.

### Effectiveness observations and concerns
- FMS:
  - Dramatic decrease in requests submitted to foreign FIUs: 27 requests submitted in 2007 compared to 3 in 2010 and 2 in 2011.
  - The conflict in Abkhazia and the Tskhinvali Region/South Ossetia was cited as cause of decrease in 2008 and 2009. No explanation was given for low numbers in 2010 and 2011.
  - FMS indicates half their cases involve transactions from foreign jurisdictions, yet they do not use the agreements available. The drop in use of MOUs reduces effectiveness of analysis by limiting access to information held by foreign FIUs.
- MOUs coverage gaps:
  - MOUs exist with some key neighboring countries. No agreements are in place with some offshore jurisdictions identified by Georgian authorities as difficult to obtain beneficial ownership information, including BVI and Seychelles.
- NBG:
  - Has failed to use existing agreements to determine backgrounds of owners, directors, and senior management.
  - Given that 80 percent of banks are owned by foreign interest, enhanced vigilance is required for fit and proper tests.
  - NBG does not spontaneously provide AML/CFT examination reports to foreign supervisors where Georgian subsidiaries or bank headquarters are located.
  - Absence of agreements with majority of countries where shareholders are located, and absence of NBG information requests, call into question effectiveness of international cooperation mechanisms for the banking sector.

*Source: IMF country report content provided in the prompt.*

### 1557.      The FIU has never exchanged information spontaneously. With Georgian organized crime

### _cr1304 - 1557.      The FIU has never exchanged information spontaneously. With Georgian organized crime

### Findings on information exchange, legal privilege, and territorial coverage
- The FIU has never exchanged information spontaneously.  
- The absence of spontaneous information exchange from the FMS to FIU foreign counterparts denotes a lack of effective use of the gateways provided by the legal framework.  
- The scope of legal privilege is too broad, limiting the ability of competent authorities to obtain information regarding financial transactions conducted or facilitated by lawyers.  
- The central authorities are not able to receive or access information held by financial institutions and DNFBPs in Abkhazia and Tskhinvali Region/South Ossetia, creating an environment highly vulnerable to ML due to the lack of transparency regarding activities in these territories.  
- Georgia has taken steps to advise some counterparts, namely through Moneyval, about the situation in Abkhazia and Tskhinvali Region/South Ossetia; however, other jurisdictions and foreign bank supervisors have not been contacted.  
- The conflict has resulted in strained relations with certain countries that have recognized Abkhazia and Tskhinvali Region/South Ossetia’s independence; some information requests received from these countries have remained unanswered.  
- The absence of information exchange between Georgia and these countries exacerbates the risk that ML activities can take place undetected and can undermine cooperation on Georgian criminal organizations operating abroad.

### Recommendations and comments (6.5.2)
- It is recommended that:
  - Authorities provide a clear legal basis that allows compelling production by LEAs of financial transactions detained by lawyers based on international requests.  
  - FMS be more proactive in requesting information from foreign counterparts.  
  - NBG uses MOUs to determine compliance with fit and proper criteria.  
  - FMS and NBG share information spontaneously with counterparts.  
  - FMS negotiates agreements with FIUs and financial supervisors located in off-shore jurisdictions, most commonly found in financial investigations.  
  - Maintain comprehensive statistics on international cooperation.
- The authorities should consider:
  - Contacting foreign counterparts to inform them that financial activity undertaken in Abkhazia and Tskhinvali Region/South Ossetia are not subject to supervision or monitoring by Georgian authorities.

### Compliance with Recommendation 40 and Special Recommendation V (6.5.3)
- R.40 — LC
  - Factors:
    - Lack of clear legal basis that allows compelling production by LEAs of financial transactions detained by lawyers based on international requests.
  - Implementation:
    - FIU responses to request of information from foreign counterparts are not always timely.
    - No information requested from foreign supervisors to ensure that fit and proper criteria are met.
  - Effectiveness:
    - Despite existing risks of foreign proceeds being laundered in Georgia, the absence of spontaneous exchange of information by the FMS and supervisors and the decreasing number of requests from the FMS to foreign counterparts raise doubts on the overall effectiveness of the regime.
- SR.V — LC
  - Factors:
    - Lack of clear legal basis that allows compelling production by LEAs of financial transactions detained by lawyers based on international requests.
  - Implementation:
    - No information requested from foreign supervisors to ensure that fit and proper criteria are met.
    - The NBG has never exchanged information regarding FT.
  - Effectiveness:
    - Despite existing risks related to terrorism financing in Georgia, the absence of spontaneous exchange of information by the FMS and supervisors and the decreasing number of requests from the FMS to foreign counterparts raise doubts on the overall effectiveness of the regime.

### Resources, training, and statistics (7.1)
- Recommended to:
  - Provide competent authorities with adequate, relevant and specialized trainings on a regular basis, including trainings on the risks and vulnerabilities of ML and FT, information technology and other resources relevant to the execution of their functions, and assets management.  
  - Increase the human and financial resources for the FMS and ensure full independence of LEAs.  
  - Develop comprehensive and reliable statistics on property frozen or seized for each type of predicate offense.  
  - Review the effectiveness of Georgia’s AML/CFT systems on a regular basis.  
  - Maintain in a systematic fashion comprehensive statistics on international cooperation by LEAs and supervisors, including whether the request was granted or refused.
- Rating summary of factors underlying rating:
  - R.30 — PC
    - Overall, staff of competent agencies should be provided with adequate, relevant and specialized trainings on a regular basis.
    - Increase in the workload without a corresponding increase in the budget of the FMS. The limited financial resources and decrease in human resources (around 40 percent since 2007) combined with increased level of reporting affect the effectiveness of the core functions of the FMS, mainly the analysis and dissemination of reports.
    - No sufficient safeguards are in place to warrant LEAs operational independence and autonomy.
  - R.32 — LC
    - Competent authorities have yet to develop comprehensive statistics on property frozen or seized for each type of predicate offense.
    - The effectiveness of Georgia’s AML/CFT systems is not being reviewed on a regular basis.

### Selected FATF Recommendation findings (Table 1, summary of issues)
- Legal systems
  - 1. ML offense — LC
    - Effectiveness: The ML provisions are not applied in a sufficiently effective manner, both in relation to domestic and transnational predicate crimes.
  - 2. ML offense—mental element and corporate liability — LC
    - Due to the frequent use of plea agreements, the sanctions regime for ML is not applied in a sufficiently dissuasive and effective manner.
    - Effectiveness: The ML provisions are not applied effectively to legal persons.
  - 3. Confiscation and provisional measures — LC
    - There is a lack of clear legal basis for the compelled production of financial records from lawyers.
    - Effectiveness: The confiscation framework does not seem to be implemented in a fully effective manner.
- Preventive measures (selected)
  - 4. Secrecy laws — LC
    - No specific provision allowing financial institutions to exchange and share information for the purpose of Recommendation 9 and Special Recommendation VII.
  - 5. Customer due diligence — PC
    - Electronic money institutions not covered.
    - No regulation developed for leasing companies (FMS decrees).
    - Numbered accounts neither regulated nor prohibited.
    - Existence of a minimum threshold for customer identification and verification.
    - No requirement to terminate the business relationship where the financial institution has commenced the business relationship and is unable to comply with CDD requirements.
    - No specific prohibition to apply simplified CDD or regulation developed when it applies.
    - No specific prohibition to apply simplified CDD in cases of suspicion of ML/FT or high-risk scenarios.
    - Exception in the time of verification of customer’s identity not regulated.
    - No requirement to apply CDD measures to existing customers it on the basis of materiality and risk, and to conduct CDD on such relationship at appropriate times.
    - Implementation: Limited scope of implementation of ongoing due diligence measures; concerns on identification and verification of legal persons; poor compliance with understanding ownership and control structure; banks applying simplified CDD in some cases; poor implementation of enhanced due diligence; very poor implementation regarding legal arrangements; poor implementation on information of purpose and nature of business; concerns on timing of verification; concerns on CDD in banks’ offices of representation; no identification carried out when legal entity representatives operate with money remittance companies.
  - 6. Politically exposed persons — LC
    - Definition of close business relationship with PEPs does not cover legal arrangements.
    - Implementation: Concerns about PEP risk procedures in medium/small banks and non-banking financial entities; poor approval by senior management; poor verification of funds and wealth; absence of enhanced ongoing due diligence applied to PEPs; time-frame constriction of the AML/CFT Law restricts effective management of ML/FT risks related to PEPs.
  - 7. Correspondent banking — PC
    - No requirement to document respective AML responsibilities of each institution.
    - Implementation: Poor senior manager approval, poor assessment of respondent institution’s AML/CFT controls, no information on prior ML/FT investigations, no action by correspondent institution if respondent bank involved in ML/FT investigation, concerns whether banks ascertain ML/FT risks in correspondent relationships.
  - 8. New technologies & non face-to-face business — PC
    - Electronic payment system not covered by the AML/CFT Law, including pay box and electronic money institutions.
    - Implementation: No special procedures by FIs to manage risks of new technologies and non-face-to-face transactions; possibility to open a non-face-to-face account de facto if pre-existence of an account in Georgia or in an OECD country; concerns about ongoing CDD measures and misuse of electronic payment systems not under NBG supervision.
  - 9. Third parties and introducers — PC
    - No requirement to immediately obtain from the third party necessary information related to all elements of the CDD process; no requirement to grant access to relevant documents; no requirement that FIs be satisfied third party has measures in place to comply with CDD; no requirement for competent authorities to consider whether third party’s country adequately applies FATF Recommendations.
  - 10. Record-keeping — LC
    - No other competent authorities, apart from NBG, empowered to request extension of record-keeping obligations.
    - Implementation: No proper implementation of record keeping measures for FIs; no specific guidance on “key documents”; no record-keeping obligations applied to electronic money institutions.
  - 11. Unusual transactions — PC
    - Unusual pattern of transactions not covered under current definition; no clear requirement to make unusual transactions available to auditors.
    - Effectiveness: Obligation to pay special attention to unusual transactions is confusing and leads to counter-productive reporting.
  - 12. DNFBP–R.5, 6, 8–11 — NC
    - CDD measures and record keeping obligations do not apply to lawyers, real estate agents, and trust and company service providers.
    - Unclear scope of accounting activities covered; absence of definition of “precious metals and precious stones”; no implementing regulations for DPMS.
    - Implementation and effectiveness concerns across notaries, accountants, casinos, and DPMS, including lack of effective beneficial ownership verification, poor CDD in casinos, insufficient procedures for non-face-to-face internet casino transactions, and inability to assess some recent obligations due to recent entry into force.
  - 13. Suspicious transaction reporting — LC
    - ML reporting requirements do not extend to electronic money institutions.
    - Effectiveness: Important sectors such as exchange bureaus and insurance companies file very low numbers of STRs; weak quality of suspicious reporting and defensive filing; none of the STRs were related to FT cases.
  - 14. Protection & no tipping-off — LC
    - Protection and tipping-off requirements do not extend to temporary or long term establishment situation of staff.
    - Protection against liability does not apply to both criminal and civil liability for breach of restrictions on disclosure imposed by contract or by legislative, regulatory or administrative provision; protection should be available even if underlying criminal activity was not known or illegal activity did not actually occur.
  - 15. Internal controls, compliance & audit — PC
    - For money remittance operators and currency exchange bureaus, no provision to ensure AML officer and appropriate staff have timely access to customer identification data and other CDD information, transaction records, and other relevant information.
    - No provision for employee screening procedures for money remittance operators and currency exchange bureaus.
    - Lack of requirement for financial institutions to have an adequately resourced and independent audit function to test compliance with AML/CFT policies, procedures and controls.
    - Lack of specific provision on scope of AML training for money remittance operators and currency exchange bureaus to ensure ongoing training and information on ML/FT techniques, methods and trends.
    - Implementation: Wording on internal controls to cover CFT aspect was recently included and effectiveness cannot be assessed.

*Source: IMF assessment text provided in content unit _cr1304 - 1557.*

### 16. DNFBP–R.13–15 & 21

### 16. DNFBP–R.13–15 & 21

### Recommendation 13 and SRIV
- ML and FT suspicious transaction reporting and the implementation of internal controls do not apply to lawyers, real estate agents and trust, and company service providers.

### Recommendation 14
- Protection of information and tipping-off requirements do not extend to temporary or long term establishment situation of staff.
- The protection against liability does not apply to both criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision.
- Protection should be available even if individual did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

### Recommendation 15
- No screening procedures requirements for the hiring of employees for casinos, accountants and DPMS.
- Lack of requirement for DNFBPs to have an adequately resourced and independent audit function.

### Recommendation 21
- No ability for DNFBPs to apply countermeasures in cases where a country continues to not apply or insufficiently applies the FATF Recommendations.
- Requirement to give special attention to business relationships and transactions with persons from some countries is confusing and limited to certain number of transaction over GEL 30,000 and should be enlarged to countries which do not or insufficiently apply FAFT recommendations.
- No requirement to make information on transactions with no apparent economic or visible lawful purpose available to auditors.
- The requirement of examining the purpose of the transaction for transactions with no apparent economic or visible lawful purpose does not extend to examining its background for casinos and DPMS.

### Implementation (DNFBPs)
- Policies and procedures are not developed by DNFBPs.
- Training programs targeted to employees are not delivered by DNFBPs.
- Audit functions to test compliance with policies and procedures are not established by DNFBPs.
- Background and purpose of transaction conducted in countries that insufficiently apply FATF standards are not examined and documented.
- Despite the very real threat of terrorism and TF activity in Georgia, no STRs relating to terrorist financing have been received from any DNFBP.
- No attempted transactions reported by DNFBPs.

### Effectiveness (DNFBPs)
- STR reporting level is not commensurate with the level of risk associated with casino and notary sector (i.e. no reporting of STRs by casinos).

*Source: _cr1304 - 16. DNFBP–R.13–15 & 21*

### 1.      General

### 1.      General

### 2. Legal System and Related Institutional Measures

- 2.1 Criminalization of Money Laundering (R.1 & 2)
  - Utilize the option to enter into a plea agreement in a more selective manner, in particular in the context of aggravated offenses, and ensure that in all other cases, the sanctions regime for ML is applied in a dissuasive and effective manner.
  - Review the approach taken in applying the ML provisions to ensure that the strong legal framework in place is used to combat predicate crime effectively both in a domestic and transnational context.
  - Proactively investigate and prosecute persons that orchestrate and control ML schemes through Georgia.
  - Law enforcement authorities should address financial flows in their investigations for predicate offenses to detect any potential ML activities.

- 2.2 Criminalization of Terrorist Financing (SR.II)
  - Amend Article 323 to remove the requirement that an act “infringes upon public safety, etc.”
  - Criminalize all offenses defined in the Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation and include them within the scope of Article 331/1.
  - Ensure that offenses under the International Convention for the Suppression of Terrorist Bombings fall within the scope of Article 331/1 also in cases where no terroristic intent can be proven.
  - Define the terms “terrorist” and “terrorist organization” in line with the FATF standard by covering within the scope of “terrorist activity” all terrorist acts as defined under the FATF standard.

- 2.3 Confiscation, freezing, and seizing of proceeds of crime (R.3)
  - Review the scope of legal privilege to ensure that LEAs powers to trace proceeds and instrumentalities of crime is not negatively affected.
  - Make more frequent use of the confiscation framework by applying the confiscation provisions in all cases, not only those where property can be located.

- 2.4 Freezing of funds used for terrorist financing (SR.III)
  - Amend Article 21/31 of the Administrative Procedures Code to clarify that an application for a freezing order must be considered “grounded” by the courts whenever a person is designated by the UN Sanctions Committed under UNSCR 1267.
  - Ensure that freezing measures under UNSCR 1267 and 1373 are applied “without delay” including where such measures are requested by a foreign authority, and consider whether the 15-day period granted under Article 21/32 of the Administrative Procedures Code to issue a freezing order is too permissive. “Without delay” should be interpreted to mean within a matter of hours from the designation of the person.
  - Remove the court’s power to review a freezing order in relation to UN-designated persons, groups, or entities.
  - Ensure adequate processes to grant access to frozen funds for necessary or extraordinary expenses in line with the requirements under UNSCR 1452.
  - Issue more detailed guidance to monitoring entities on how to implement their obligations under freezing orders.
  - Ensure that monitoring entity’s compliance with the obligations under freezing orders is appropriately monitored.

- 2.5 The Financial Intelligence Unit and its functions (R.26)
  - Amend the AML/CFT Law to require the real estate agents, lawyers, TCSPs, and electronic money institutions to report suspicious transactions to enhance the receipt function of the FMS and allow it to request additional information from these sectors.
  - Publish periodic annual reports with comprehensive statistics, typologies, and trends of money laundering and terrorist financing as well as information regarding its activities.
  - Provide reporting entities with comprehensive guidance on the manner of reporting including clear reporting forms.
  - Ensure that FMS asks nonbank financial institutions and DNFBPs for additional information when the information is correlated to another received information.
  - Ensure that FMS have access to other law enforcement information like the investigation, prosecution, and trial records held by the MOJ. Open sources should also be used frequently.
  - Strengthen the quality of STRs and other information analysis by undertaking more in-depth operational and strategic analysis; measures could include:
    - introducing an automated filtering system to allow pre-screening of information flow and generation of red flags and treating STRs differently from other received information;
    - integrating the FMS database with the databases the FMS can access to allow matching information and identifying patterns;
    - introducing analytical software to visualize complex schemes;
    - increasing the number of analysts.

- 2.6 Law enforcement, prosecution and other competent authorities (R.27 & 28)
  - Implement more systematically the 2010 Recommendation of the CPO to investigate more proactively and regularly ML and TF offenses as standalone crimes irrespective of source of information.
  - Use ML and FT investigations proactively through specialized financial investigators; make financial investigation standard operating procedure when investigating profit-generating crime or terrorism to determine proceeds (type and amount) and properties that can be frozen, seized, and confiscated.
  - Provide LEAs with the power to compel the production of documents detained by Lawyers when they prepare for or carry out business transactions for their clients.
  - Use financial analysis and investigation techniques more frequently to trace origin of illegal funds, create patterns between suspects and associates, identify ultimate beneficial owners of legal persons, accounts, and transactions, and share this information between LEAs.
  - Provide AML/CFT training to investigative agencies at all levels.

- 2.7 Cross-Border Declaration & Disclosure (SR IX)
  - Amend the requirements so that they extend to the shipment of currency and bearer negotiable instruments through cargo containers and the mail.
  - Define “bearer negotiable instruments” to include monetary instruments in bearer form such as: travelers cheques; negotiable instruments (including cheques, promissory notes, and money orders) that are either in bearer form, endorsed without restriction made out to a fictitious payee, or otherwise in such a form that title can pass upon delivery; and incomplete instruments (including cheques, promissory notes, and money orders) signed, but with the payee’s name omitted.
  - Align cross-border cash and bearer negotiable instruments powers to Customs to request and obtain further information from the carrier regarding origin and intended use in cases of suspicion of ML or TF; establish temporary restraint measures and adequate and uniform level of sanctions.
  - Provide competent authorities at BCPs authority to stop or restrain cash or bearer negotiable instruments for a reasonable time to ascertain whether evidence of ML or FT may be found, where there is suspicion of ML or FT; or where there is a false declaration.
  - Once system established, Customs should be trained on the best practices paper for SR.IX.

### 3. Preventive Measures–Financial Institutions

- 3.1 Risk of money laundering or terrorist financing
  - (No specific bullets provided in this section of the source beyond the heading.)

- 3.2 Customer due diligence, including enhanced or reduced measures (R.5–8)
  - Regulate under the AML/CFT Law factoring activities, companies issuing meaning of payments such as credit and debit cards, and electronic money institutions.
  - Issue regulations (FMS decrees) for leasing activities.
  - Pass legislation on the issuing of bearer instruments (e.g., bearer checks).
  - Either regulate or prohibit the use of numbered accounts; ensure that in the case of numbered accounts, full CDD compliance is applied.
  - Remove the identification threshold for customers to ensure all customers are identified and verified when establishing business relationships.
  - Ensure representatives of legal entities are identified and CDD measures applied when these entities engage with money remittance and money exchange service providers.
  - Ensure full CDD measures are equally applied to all bank financial groups‘ customers including those from representative offices.
  - Ensure legal status of foreign legal entities is adequately verified.
  - Introduce requirement in the AML/CFT law for FIs to understand the ownership and control structure of the customer in line with the UBO guidelines.
  - Introduce requirement in the AML/CFT Law to terminate the business relationship where the FI has commenced the relationship and is unable to comply with CDD requirements described in criteria c.5.3. to c. 5.5 of the common assessment methodology.
  - Amend guidelines to clarify distinction between riskier financial products/services/customers and operative “red flag” indicators.
  - Amend the AML/CFT Law to explicitly state when simplified measures may be applied; such measures should only be allowed for countries that effectively apply FATF recommendations.
  - Amend the AML/CFT Law to prohibit applying simplified CDD measures when there is suspicion of ML/FT or cases of high risks.
  - Ensure FIs review existing customers and apply CDD procedures according to the new AML/CFT Law focused on important business lines, clients, and risks.
  - For trusts, ensure trustee clients and settlers and persons who exercise ultimate effective control of the trust and beneficiaries are identified.
  - Ensure all providers of financial services are identified and CDD applied when operating with banks.
  - Ensure FIs identify, verify, and understand ownership and control structure of the customer in all circumstances regardless of amount of transaction or ownership control.
  - Ensure new AML/CFT law provisions regarding identification and verification of the beneficial owner are applied and that monitoring entities:
    - Ensure FIs determine whether the customer is acting on behalf of another person; and
    - Ensure FIs incorporate those persons who exercise ultimate effective control over a legal person or arrangement.
  - Ensure effective implementation of measures on information of purpose and nature of business.
  - Ensure full CDD measures are applied to all existing customers.
  - Regulate cases where FIs may complete verification of identity and beneficial owner after establishment of the relationship.

  - Authorities should also consider:
    - Include prohibition of anonymous accounts in all FMS regulations, such as for insurance or securities companies.
    - Clarify to FIs the applicability for CDD with respect to business relations and occasional transactions.
    - Review legal framework to ensure legal person’s representatives are always identified no matter which type of financial entity provides the service.
    - Create systems to recognize foreign trusts doing business in Georgia.
    - Grant free access to the data in the Civil Registry.
    - Assist FIs to extend CDD measures on a risk-sensitive basis.
    - Guide FIs to elaborate risk profiles on customers and products customized to Georgian economy and financial system characteristics.

  - Recommendation 6:
    - Ensure that EDD apply when PEPs are beneficial owners of legal arrangements.
    - Ensure that financial institutions take reasonable measures to ascertain the source of wealth of the customer and their compliance with the new AML requirements for PEPs.
    - Ensure that FIs apply enhanced ongoing monitoring in business relationships with PEPs.
    - Authorities should consider:
      - Clarify the definition of “reasonable measures.”
      - Perform targeted on-site inspections to ensure that foreign PEPs (and relevant domestic PEPs) are not misusing the Georgian financial sector.
      - Provide guidance to FIs on the required “enhanced monitoring” measures to be applied to PEPs.
      - Amend the AML/CFT Law to introduce in the article related to PEPs the specific requirement for FIs to put in place appropriate risk-management systems, as mentioned in the FMS decrees, or a reference that Art 6.13 applies as PEPs are considered high-risk customers.

  - Recommendation 7:
    - Require that FIs that engage in correspondent banking activities document respective responsibilities of each institution.
    - Ensure correspondent relationships are approved by senior management.
    - Ensure FIs periodically monitor correspondent banking relationships with respect to AML/CFT issues and assess possible reputational risks.
    - Clarify that when determining reputation of a respondent institution, FIs should determine from publicly available information if the respondent has been subject to a ML or TF investigation or regulatory action.

  - Recommendation 8:
    - Ensure entities have identification and verification procedures and develop enhanced measures to control and mitigate non-face-to-face business relationships and new technology risks for all FIs.
    - Ensure entities apply adequate ongoing CDD to non-face-to-face customers.
    - Clarify and issue guidelines on the use of non-face-to-face channels.
    - Ensure AML/CFT provisions cover operations regulated in the Instruction on Opening of an Account and Foreign Currency Operation which allows under certain circumstances opening a current account without physical presence and sending documentation by postal mail.
    - Ensure AML/CFT provisions cover all electronic payment systems, including electronic payment points and electronic money institutions.

- 3.3 Third parties and introduced business (R.9)
  - Require that FIs are satisfied that the third party has measures in place to comply with CDD requirements set out in R.5 and R.10.
  - Amend the AML/CFT law to require FIs relying on third parties immediately to obtain from the third party the necessary information related to all CDD processes.
  - Require FIs relying on third parties immediately to obtain access to other relevant documents relating to CDD.
  - Require FIs relying on third parties to obtain access to information on beneficial owner.
  - Ensure competent authorities consider whether countries where the third party is based adequately apply the FATF Recommendations.

- 3.4 Financial institution secrecy or confidentiality (R.4)
  - Ensure, notwithstanding the “lex specialis principle”, that the AML Law and sectoral laws for all licensed financial institutions contain consistent provisions (and exceptions) relating to confidentiality to ensure legal clarity for the FMS’ access to financial institutions’ records.
  - Amend sectoral laws to allow financial institutions to exchange and share information for the purpose of Recommendation 9 and Special Recommendation VII for AML purposes, even in the absence of customer consent.

- 3.5 Record keeping and wire transfer rules (R.10 & SR.VII)
  - Recommendation 10:
    - Empower other competent authorities than the NBG to request an extension of the record keeping obligations.
    - Ensure FIs implement AML requirements adequately, especially regarding the time reference applied to record keeping requirements in the AML Law.
    - Authorities should consider clarifying the requirement regarding how information should be kept, and provide guidance to FIs on key information or documents to be kept to facilitate reconstruction of transactions and provide evidence for prosecution.
  - Special Recommendation VII:
    - Ensure all domestic and cross-border transfers are adequately monitored and supervised in terms of ML/FT risk management.
    - Amend the AML/CFT Law and regulations (FMS Decrees) to ensure there is an obligation for the intermediary to transmit the originator information along the message chain without any exception.
    - Require beneficiary institutions to adopt effective risk-based procedures for identifying and handling wire transfers not accompanied by complete originator information, including consideration to report to the FMS and to restrict or terminate business relationships with counterpart FIs failing to meet SR.VII standards.
    - Ensure nonbanking institutions carrying out wire transfer are compliant with the AML law.
    - Consider developing guidelines to assist FIs in understanding the relationship of wire transfers to the monitoring process and to ensure the accuracy of originator information from incoming transfers.

- 3.6 Monitoring of transactions and relationships (R.11 & 21)
  - Recommendation 11:
    - Ensure legal basis for unusual and watch zone related transaction is clear and comprehensive by:
      - Amending the definition of unusual transactions to include unusual patterns of transactions; and
      - Extending the watch zone related transactions to all financial institutions defined by the FATF standards to include business relationships and transactions with persons, including companies and FIs from countries which do not or insufficiently apply the FATF standards. This requirement should go beyond specific transactions currently determined in the AML Law to include all transactions and business relationships.
    - Provide FIs with guidelines on implementing the requirement to pay special attention to unusual and watch zone related transactions and amend reporting forms to exclude unusual and watch zone related transactions from the breakdown list.
  - Recommendation 21:
    - Update the watch zone list to include countries identified by FATF which do not or insufficiently apply FATF Recommendations.
    - Provide for the possibility to apply counter-measures in cases where a country continues to not apply or apply insufficiently the FATF Recommendations.

- 3.7 Suspicious transaction reports and other reporting (R.13, 14, 19, 25, & SR.IV)
  - Recommendation 13 and 14 and SR.IV:
    - Require electronic money institutions companies to report STRs.
    - Amend the FT offence to bring it in line with the FT convention.
    - Ensure supervisors and FMS draw up an action plan to encourage reporting across all sectors – a prioritized and phased plan based on potential risk posed by different sectors may be necessary given overall resources. Implement training and effective enforcement.
    - Amend Article 12 of the AML Law to ensure that protection and tipping-off requirements extend to temporary or long term establishment situation of staff and apply to both criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision. Protection should be available even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.
  - Recommendation 25 — guidance by competent authorities, particularly FMS:
    - Clarify different types of reporting, i.e. suspicious and threshold.
    - Assist FIs in understanding requirement on monitoring or paying special attention to unusual transactions and those related to watch zone.
    - Assist FIs on AML/CFT issues covered under FATF recommendations, including at minimum a description of money laundering and terrorist financing techniques and methods; and any additional measures these institutions could take to ensure AML/CFT procedures are effective.
    - Establish a mechanism for providing feedback to reporting institutions, including general and specific or case-by-case feedback.
    - Consider reviewing guidance provided by the FATF Best Practice Guidelines on Providing Feedback to Reporting Financial Institutions and Other Persons.
    - Provide specialized training to FIs to improve quality and quantity of STRs, and require treating them differently than other types of reporting.
    - Strengthen guidelines and feedback across all sectors to:
      - incorporate different examples covering sectors other than banking; and
      - provide more Georgian examples of money laundering and terrorist financing typologies.

*Source: _cr1304 - 1.      General*

### 3.8     Internal controls,

### _cr1304 - 3.8     Internal controls,

### Internal controls, compliance, audit and foreign branches (R.15 & 22)
- Recommendation 15:
  - For money remittance operators and currency exchange bureaus, introduce a provision to ensure that the AML officer and other appropriate staff have timely access to customer identification data and other CDD information, transaction records, and other relevant information.
  - Introduce a provision for money remittance operators and currency exchange bureaus on employee screening procedures.
  - Establish a requirement for financial institutions to have an adequately resourced and independent audit function for AML purposes.
  - For money remittance operators and currency exchange bureaus, expand the provision on AML training to indicate that the training should be provided on an ongoing basis to ensure that employees are kept informed of new developments, including information on current ML and FT techniques, methods and trends, and that there is a clear explanation of all aspects of AML/CFT laws and obligations, and in particular, requirements concerning CDD and suspicious transaction reporting.
  - Consider the policy decision and appropriateness of current provisions which allow for the owner of currency exchange bureau and money remittance services to also act as the AML officer.
- Recommendation 22:
  - In case the activity of Georgian institutions abroad further develops, the authorities should consider introducing more supervisory monitoring of financial institutions’ management of overseas branches and subsidiaries.

### Shell banks (R.18)
- Introduce a specific provision that explicitly requires financial institutions to satisfy themselves that their respondent financial institutions do not permit their accounts to be used by shell banks.

### Supervisory and oversight system – competent authorities and SROs (R.23, 29, 17 & 25)
- Recommendation 17:
  - Review and increase the amount of monetary fines for several categories of violations to ensure that the fines are punitive and dissuasive.
  - Include proper sanctions against electronic money institutions for non-compliance with AML/CFT requirements.
- Recommendation 23 (NBG is recommended to):
  - Initiate the practical implementation of the significant reforms introduced in February 2012 as soon as resources are available. These reforms included the introduction of fit and proper tests for several categories of financial institutions; establishing an AML off-site function; and developing a supervisory plan for on-site inspections.
  - Consider re-orientating its on-site inspection approach with the objective of ensuring that financial institutions have proper risk management processes to ensure compliance with AML laws and regulations and to control and mitigate ML and TF risks from the activities of the financial institutions rather than focusing its on-site inspection to detect violations which call for a monetary fine.
  - Impose AML/CFT requirement against electronic money institutions.

### Money value transfer services (SR.VI)
- Take measures to address remittances which are taking place outside the regulated sector in Georgia.
- Rectify the legal deficiencies relating to preventive measures that apply to MVT operators.
- Increase supervisory resources available to supervise MVT operators.

### Preventive Measures – Nonfinancial Businesses and Professions (R.12, R.5–11, R.13–15, R.21)
- Customer due diligence and record-keeping (R.12):
  - Extend obligations to lawyers, real estate, and company service providers.
  - Extend triggering activities for accountants to all AML/CFT obligations.
  - Define precious metals and stones.
  - Issue implementing regulations (FMS decree) for DPMS.
- Recommendation 5 (DNFBP CDD and related measures):
  - Extend the prohibition to open anonymous accounts to DNFBPs.
  - Remove client identification threshold for accountants.
  - Establish CDD requirements when establishing a business relationship for sectors other than notaries.
  - Extend circumstances when “CDD” is required to all aspects of CDD, not just identification and verification.
  - Establish a requirement related to the identification and verification of legal arrangements.
  - Establish a requirement for DPMS to verify the authority of a person purporting to act on behalf of the customer or a legal entity.
  - Establish definition or develop guidelines on what is considered reasonable measure and reliable source.
  - Establish provisions that require entities to understand the ownership and control structure of the legal entity for all DNFBP sectors except notaries and casinos.
  - Establish a requirement to obtain information on the purpose or intended nature of business relationships for all sectors except notaries and accountants.
  - Establish regulations that govern cases where DNFBPs may complete the verification of the identity of customers and beneficial owners after the establishment of the relationship.
  - Establish a requirement for DPMS to terminate the business relationship and to consider making an STR when the DNFBP has commenced the business relationship and is unable to comply with CDD requirements described in c.5.3 to c.5.5 of the common assessment methodology.
  - Establish a requirement to conduct due diligence on existing relationships on the basis of materiality and risk at appropriate times.
  - Amend the AML/CFT Law to explicitly state when simplified measures may be applied. Such measures should only be allowed for countries that effectively apply FATF Recommendations.
  - Amend AML/CFT Law to prohibit simplified measures when there is a suspicion of ML/CFT or in cases of high risks.
  - Ensure that beneficial ownership information is systematically captured and verified by notaries.
  - Ensure that CDD measures are applied by casinos.
- Recommendation 6 (PEP and related measures):
  - Establish requirement for entities to have appropriate risk-management systems to determine whether the customer is a PEP for all sectors except accountants.
  - Expand definition of close business relationship to cover legal arrangements.
  - Ensure that senior management approval and source of wealth and funds is obtained when establishing a PEP relationship.
  - Ensure that DNFBPs apply ongoing due diligence with PEP relationships.
  - Clarify the definition of “reasonable measures”.
  - Provide guidance on the required “enhanced monitoring” measures to be applied to PEPs.
- Recommendation 8 (casino sector):
  - Prescribe CDD methods for the casino sector including the timing of identification and verification as well as acceptable methods of non-face-to-face identification methods for internet casino.
  - Ensure that internet casinos apply adequate ongoing CDD to non-face-to-face customers.
  - Issue guidelines on the use of non-face-to-face channels.
- Recommendation 9 (reliance on third parties):
  - Require that DNFBPs relying on third party immediately obtain from the third party information related to all elements of the CDD process.
  - Require that DNFBP relying on a third party immediately obtain access to other relevant documents relating to CDD.
  - Require that DNDBPs relying on a third party obtain access to information on beneficial owner.
  - Ensure that competent authorities have an explicit requirement to take into account information available on whether the countries in which the third party can be based adequately apply the FATF Recommendations.
- Recommendation 10:
  - Empower other competent authorities other than the respective supervisor to request an extension of the record keeping period.
- Recommendation 11 (unusual and watch zone related transactions):
  - Ensure that the legal basis for unusual and watch zone related transaction is clear and comprehensive, more precisely by:
    - Amending the definition of unusual translations to include the unusual patterns of transactions; and
    - Extending the watch zone related transactions to all financial institutions and DNFBPs defined by the FATF standards to include business relationship and transactions with persons, including companies, DNFBPs and financial institutions from countries which do not or insufficiently apply the FATF standards. This requirement should go beyond specific transactions currently determined in the AML/CFT Law to include all transactions and business relationships.
  - Provide DNFBPs with guidelines on the implementation of the requirement to pay special attention to unusual and watch zone related transactions and amend the reporting forms to exclude the unusual and watch zone related transactions from the breakdown list.

### Suspicious transaction reporting (R.16)
- Extend STR reporting and internal control requirements to lawyers, real estate agents, and TCSPs.
- Provide for the possibility to apply countermeasures in cases where a country continues not to apply or to apply insufficiently the FATF recommendations.
- Develop guidance regarding reporting and internal controls for DNFBPs.
- Recommendation 13:
  - Implement an outreach program to raise awareness of ML/FT sectoral vulnerabilities and STR monitoring and reporting amongst DNFBPs.
- Recommendation 14:
  - Amend Article 12 of the AML/CFT Law to ensure that the protection and tipping-off requirements extend to temporary and long term establishment situation.
  - Apply both criminal and civil protection for STR reporting.
- Recommendation 15:
  - Establish requirement for screening procedures to ensure high standards when hiring employees for DPMS, accountants, and casinos.
- Recommendation 21:
  - Update the watch zone list to include countries identified by FATF which do not or insufficiently apply FATF recommendations.
  - Provide for the possibility to apply countermeasures in cases where a country continues not to apply or to apply insufficiently the FATF Recommendations.
  - Establish a requirement to make information on transactions with no apparent economic or visible lawful purpose available to auditors.

### Regulation, supervision, monitoring, and sanctions (R.17, 24, & 25)
- Undertake AML/CFT supervision in the casino, accountant and DPMS sectors.
- Establish provisions to prevent criminals or their associates from holding or being the beneficial owner of a significant or controlling interest, holding a management function in, or being an operator of a casino.
- Establish supervisory power for an accounting body responsible supervision in the accounting sector, including a funding source for supervisory activities as well as the definition of clear expectations on the number of inspections to be conducted.
- Establish effective, proportionate and dissuasive sanctions that can be applied when monitoring entities fail to comply with AML/CFT obligations for casinos; dealers in precious metals and stones; and accountants.
- Broaden range of sanctions available to Ministry of Justice to establish an effective, proportionate and dissuasive sanctioning regime for notaries.
- Issue guidance and provide feedback on reporting to DNFBPs.
- Undertake supervision of all AML/CFT requirements in the notaries sector.

### Other designated non-financial businesses and professions (R.20)
- Conduct an analysis of ML vulnerabilities and consider extending obligations to vulnerable sectors identified in the analysis.
- Continue their efforts to reduce the prevalence of cash in society.

### Legal Persons and Arrangements & Nonprofit Organizations
- Legal Persons – Access to beneficial ownership and control information (R.33):
  - Review the entrepreneurship Law and NAPR instruction to ensure adequate transparency concerning the beneficial ownership and control of legal persons. Both laws should be consistent with the AML legal framework.
  - Ensure that adequate, accurate and current information on the beneficial ownership and control of legal persons is available to competent authorities in a timely fashion.
  - Regulate, or prohibit the use of bearer shares or other bearer instruments if there are not appropriate measures applied to ensure that those instruments are not misused for money laundering and financing terrorism.
  - Speed the process of migration of legal persons registered under the old regime to the new one managed by NAPR.
  - Ensure that the Law of Entrepreneurs is applied in relation to the updating and registration of companies’ requirements and that deadline is established for communicating any changes or missing information.
  - Require the update of information in case of change of ownership or control of legal persons.
  - Put in place appropriate measures to ensure that bearer shares are not misused for money laundering.
- Legal Arrangements – Access to beneficial ownership and control information (R.34):
  - Take measures to prevent the unlawful use of trusts by money launders. In particular, Georgian legislation should ensure that there is adequate, accurate and timely information on trusts, including information on the settler, trustee and beneficiaries that can be obtained or accessed in a timely fashion by competent authorities. The authorities should consider requiring trusts to be registered in the NAPR.
- Nonprofit organizations (SR.VIII):
  - Conduct a review of the adequacy of laws and regulations that relate to non-profit organizations.
  - Identify types and features of NPOs that are at risk of FT.
  - Conduct a reassessment of NPOs risk by reviewing information on the sector’s potential vulnerabilities.
  - Conduct outreach to raise awareness in the NPO sector about the risks of terrorist abuse.
  - Establish effective supervision or monitoring of NPOs.
  - Establish a requirement for NPOs to state the activity they undertake.
  - Establish appropriate measures to sanction violations of oversight measures or rules by NPOs.
  - Expand requirement to keep information on transactions above GEL 3,000 to all transactions.
  - Migrate pre-2010 NPO registration data in publicly available registry.
  - Establish domestic coordination mechanisms regarding NPOs.
  - Establish point of contact for receipt of information queries on NPOs within the Revenue Service and the National Agency of Public Registry.

### National and International Cooperation
- National cooperation and coordination (R.31):
  - Put in place effective mechanisms between policy makers, the FMS, LEAs and supervisors which enable them to cooperate and, where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat ML and TF. An AML/CFT Council similar to the one for Anti Corruption that could develop a strategy and action plan is highly advised.
  - Review statistics in the relevant areas of the fight against ML and TF on a regular basis to assess the effectiveness of the AML/CFT regime.
  - Establish a mechanism allowing the cooperation between supervisory agencies of FIs and DNFBPs notably, NBG, MOJ, and MOF.
- The Conventions and UN Special Resolutions (R.35 & SR.I):
  - Implement fully the Vienna, Palermo, and FT Conventions.
  - Address the shortcomings identified in relation to the implementation of UNSCRs 1267 and 1373.
- Mutual Legal Assistance (R.36, 37, 38 & SR.V):
  - Review the scope of legal privilege to ensure that LEAs’ powers to trace proceeds and instrumentalities of crime are not negatively affected, including where such measures are requested by a foreign state.
  - Define the FT offense fully in line with the FATF standard to ensure that Georgia’s ability to provide MLA is not limited in cases where dual criminality is required.
  - Consider establishing an asset forfeiture fund.
  - Consider mechanisms that would allow the provisions of MLA to all countries, including all countries in the region.
- Extradition (R.39, 37 & SR.V):
  - Define the FT offense fully in line with the FATF standard to ensure that Georgia’s ability to extradite a person is not limited due to the requirement of dual criminality.
  - Set out mechanisms and procedures to ensure timely handling of extradition requests.
- Other Forms of cooperation (R.40 & SR.V):
  - Authorities provide a clear legal basis that allows compelling production by LEAs of financial transactions detained by lawyers based on international requests.
  - FMS be more proactive in requesting information from foreign counterparts.
  - NBG uses MOUs to determine compliance with fit and proper criteria.
  - FMS and NBG share information spontaneously with counterparts.
  - FMS negotiates agreements with FIUs and financial supervisors located in off-shore jurisdictions, most commonly found in financial investigations.
  - Maintain comprehensive statistics on international cooperation.
  - The authorities should consider contacting foreign counterparts to inform them that financial activity undertaken in Abkhazia and Tskhinvali Region/South Ossetia are not subject to supervision or monitoring by Georgian authorities.

### Other Issues – Resources and statistics (R.30 & 32)
- Provide competent authorities with adequate, relevant and specialized trainings on a regular basis. Trainings on the risks and vulnerabilities of ML and FT, information technology and other resources relevant to the execution of their functions, and assets management are necessary.
- Increase the human and financial resources for the FMS and ensure full independence of LEAs.
- Develop comprehensive and reliable statistics on property frozen or seized for each type of predicate offense.
- Review the effectiveness of Georgia’s AML/CFT systems on a regular basis.
- Maintain in a systematic fashion comprehensive statistics on international cooperation by LEAs and supervisors, including whether the request was granted or refused.

### Annex 1. Authorities’ Response to the Assessment — key points
- Georgian authorities have put the recommendations of the Report into an Action Plan to implement corrective measures.
- Authorities noted divergences on certain ratings (e.g. R7, 11, 15, 25, 26) and argued that some were rated as partially compliant without sufficient justification.
- On Recommendation 15 the authorities state essential criteria are fully met and note practical burdens for sole entrepreneurs operating currency exchange bureaus and money remittance services to employ a separate AML/CFT compliance officer.
- On Recommendation 26 authorities referenced factual matters: publication of annual reports on the official web site of the FIU; publication of guidance by the FMS for each monitoring entity; and FIU access to a large number of databases (par 322).
- Authorities noted that since 2007 the budget of the FMS has only been increased (paragraph 352) and that special software has addressed workload and data collection issues, which evaluators did not fully account for.
- Authorities reaffirm their commitment to continue strengthening the AML/CFT legal framework in compliance with FATF standards based on the Action Plan.

*Source: _cr1304 - 3.8     Internal controls,*

### Annex 2.    Details of All Bodies Met During the On-Site Visit

### Annex 2.    Details of All Bodies Met During the On-Site Visit

### Public and Supervisory Authorities Met
- 1. Financial Monitoring Service (FMS)
- 2. Georgian Central Securities Depository
- 3. Georgian Stock Exchange
- 4. Georgian Intelligence Service
- 5. Law Enforcement Agencies
  - a. Office of the Chief Prosecutor
    - Prosecution Service Unit for Prosecution of Illicit Income Legalization
    - Prosecution Service- Anti-corruption department
  - b. Custom Border protection department (CBPD)
  - c. Georgian Police
- 6. Ministry of Finance (MOF)
  - a. Investigation Service
  - b. Revenue service of Georgia
- 7. Ministry of Foreign Affairs (MFA)
  - a. Counter Terrorism Center
  - b. Special Operative Department (SOD)
- 8. Ministry of Justice
- 9. National Bank of Georgia (NBG)
- 10. National Agency of Public Registry (NAPR)
- 11. Representatives of the judiciary
- 12. Research/Academic Center

### Financial Sector and DNFBPs Met
- 13. Financial Institutions
  - a. Association of Georgian banks
  - b. Association of Georgian insurers
  - c. Representatives from the banking industry
  - d. Representatives from the brokerage companies
  - e. Representatives from the credit unions
  - f. Representatives from the exchanges bureaus
  - g. Representatives from the insurance companies
  - h. Representatives from the insurance brokers
  - i. Representatives from the microcredit institutions
  - j. Representatives from the money remitters
  - k. Representatives from the registrars of securities
- 14. DNFBPS
  - a. Georgia accounting association
  - b. Georgia BAR association
  - c. Representatives from casinos (regular and internet)
  - d. Representatives from dealers in precious metals and precious stones
  - e. Representatives from gambling saloons
  - f. Representatives of real estate agents
  - g. Representatives from NPOs

---

### Annex 3. List of All Laws, Regulations, and Other Material Received

### A. Laws (numbered list as received)
- 1. Constitution of Georgia
- 2. Organic Law of Georgia on the National Bank of Georgia
- 3. The Law of Georgia on Activities of Commercial Banks
- 4. The Law of Georgia on Insurance
- 5. The Law of Georgia on non-bank depositary institutions – Credit Unions
- 6. Law of Georgia on Securities Market
- 7. The Law of Georgia On Microfinance Organizations
- 8. Law on Non-State Pension Assurance and Provision
- 9. The Law of Georgia on Facilitating the Prevention of Illicit Income Legalization
- 10. The law of Georgia on Organized Crime and Racketeering
- 11. Extract from the Law of Georgia on International Cooperation in the Field of Criminal Law
- 12. Criminal Procedure Code of Georgia
- 13. Criminal Code of Georgia
- 14. Tax Code of Georgia
- 15. Law on Entrepreneurs
- 16. The Law of Georgia on Amendment to the Administrative Procedure Code of Georgia
- 17. Organic Law of Georgia on Amendments to the Organic Law on National Bank of Georgia
- 18. Law of Georgia on amendments to certain Legal Acts
- 19. Law of Georgia on Operative-Searching Activity
- 20. Excerpt of the Civil Code of Georgia, Provisions on Transactions and Property
- 21. Law on Normative Acts
- 22. Law on State secrets (Legislative amendments 19 March 1999)

### B. Decrees, Ordinances and Orders (numbered list as received)
- 23. Decree of the FMS of Georgia #95 of July 28, 2004 “On Approval of the Regulation on Receiving, Systemizing and Processing the Information by Commercial Banks and Forwarding to the Financial Monitoring Service of Georgia”
- 24. Decree of the FMS of Georgia #10 of December 15, 2008 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by Microfinance Organizations and Forwarding to the Financial Monitoring Service of Georgia”
- 25. Decree of the FMS of Georgia #1 of February 17, 2009 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by Money Remittance Entity and Forwarding to the Financial Monitoring Service of Georgia”
- 26. Decree of the FMS of Georgia #100 August 3, 2004 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by the Insurance Organizations and Founders of Non-State Pension Scheme and Forwarding to the Financial Monitoring Service of Georgia”
- 27. Decree of the FMS of Georgia #6 September 29, 2008 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by the Brokerage Companies and Forwarding to the Financial Monitoring Service of Georgia”
- 28. Decree of the FMS of Georgia #7 September 29, 2008 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by the Securities Registrars and Forwarding to the Financial Monitoring Service of Georgia”
- 29. Decree of the FMS of Georgia #96 July 30, 2004 “On Approval of the Regulation on Receiving, Systemizing and Processing the Information by Currency Exchange Bureaus and Forwarding to the Financial Monitoring Service of Georgia”
- 30. Decree of the FMS of Georgia #104 August 3, 2004 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by Non-Bank Depository Institutions – Credit Unions and Forwarding to the Financial Monitoring Service of Georgia”
- 31. Decree of the FMS of Georgia #93 July 27, 2004 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by Notaries and Forwarding to the Financial Monitoring Service of Georgia”
- 32. Decree of the Head of the FMS of Georgia #2 of February 16, 2010 “On Approving the Regulation on Receiving, Systemizing and Processing the Information by the National Agency of the Public Registry - a Legal Entity of the Public Law, and Forwarding to the Financial Monitoring Service of Georgia”
- 33. Decree of the Head of the FMS of Georgia #94 of July 28, 2004 “On Approving the Regulation on Rule and Terms of Receiving, Systemizing and Processing the Information by the Persons Organizing Lotteries, Gambling and other Commercial Games and Forwarding to the Financial Monitoring Service of Georgia and the Regulation on Rule and Terms of Receiving, Systemizing and Processing the Information by Casinos and Forwarding to the Financial Monitoring Service of Georgia”
- 34. Decree of the Head of the FMS of Georgia #1 of February 8, 2011 “On Approval of the Regulation on Receiving, Systemizing and Processing the Information by Revenue Service and Forwarding to the Financial Monitoring Service of Georgia”
- 35. Ordinance of the President of Georgia #859 of November 26, 2009 “On Approving the Regulation of Financial Monitoring Service of Georgia – Legal Entity of the Public Law”
- 36. Decree of the Head of the FMS of Georgia #0611/16–1 of June 16, 2011 “On Approving Internal Regulation of the Financial Monitoring Service of Georgia”
- 37. Decree of the Head of the FMS of Georgia #23/1 of June 12, 2009 “On Approving the Regulation of the Department of Methodology, International Relations and Legal Affairs of the Financial Monitoring Service of Georgia”
- 38. Decree of the Head of the FMS of Georgia #21/1 of June 12, 2009 “On Approving the Regulation of Administrative Department of the Financial Monitoring Service of Georgia”
- 39. Decree of the Head of the FMS of Georgia #25/1 of June 12, 2009 “On Approving the Regulation of Analytical Department of the Financial Monitoring Service of Georgia”
- 40. Decree of the Head of the FMS of Georgia #24/1 of June 12, 2009 “On Approving the Regulation of Data Collection and Processing Department of the Financial Monitoring Service of Georgia”
- 41. Decree of the Head of the FMS of Georgia #22/1 of June 12, 2009 “On Approving the Regulation of Informational Technologies Department of the Financial Monitoring Service of Georgia”
- 42. Ordinance of the President of Georgia #326 of August 13, 2001 “On Approving the Regulation on Assigning the Status of Grant and Humanitarian Aid to Goods Imported to Georgia as well as on their Accounting and Use”
- 43. Decree of the President of the National Bank of Georgia 134/01, October 22, 2011, “Rules on External Audit of Commercial Banks”
- 44. Decree of the President of the National Bank of Georgia N24/01, February 22, 2010, “Rules on Establishing of a Branch/Division (Service Center) and a representative office by commercial banks”
- 45. Decree of the President of the National Bank of Georgia, No 71, March 17, 2008, “On Approving the Regulation on Risk Management in Commercial Banks”
- 46. Decree No. 95 of April 10, 2001 of the President of the National Bank of Georgia “Regulation on Supervision and Regulation of the Activities of Commercial Banks”
- 47. Decree of the President of the National Bank of Georgia N126/01, October 11, 2010, “Rules on Forced Administration, Liquidation, and Bankruptcy Proceedings of an Insurance Undertaking”
- 48. Decree of the President of the National Bank of Georgia N170/01, December 28, 2010, “Rule on Designated Stock Market List and Procedure for Public Offering of Securities Admitted to Trading on these Stock Markets”
- 49. Decree of the National Bank of Georgia N169/01, December 28, 2010, “Rules on Licensing, Submission of Financial Statements, and Establishment of Minimum Capital Requirements for a Stock Exchange”
- 50. Decree of the President of the National Bank of Georgia N16/01, February 19, 2010, “Rule on Determination of List of Developed Countries”
- 51. Decree of the National Bank of Georgia N171/01, December 28, 2010, “Rules on Licensing of a Central depository, Submission of Financial Statements, Establishment of Minimum Capital Requirements and Provision of Services by a Central Depository”
- 52. Decree of the President of the National Bank of Georgia #65/04, August 24, 2011 “On Establishing the List of Watch Zones for the Purpose of the Law of Georgia “On Facilitating the Prevention of Illicit Income Legalization””
- 53. Decree of the President of the National Bank of Georgia #33/01, Decree March 9, 2010 “Regulation on Licensing, Submission of Financial Statement, Establishment of Minimum Capital Requirements and Termination of Activities of Securities’ Registrar”
- 54. The Decree of the President of National Bank #344, December 31, 2007 “on Approval of Rule of Registration and Regulation of Currency Exchange Point”
- 55. Decree of the President of the National Bank of Georgia #248, December 12, 2006 “Concerning the Approval of the Registration Rule of Microfinance Organization at the National Bank of Georgia”
- 56. Decree of the President of the National Bank of Georgia #34/01, March 9, 2010 “Concerning the Approval of the “Rule Concerning the Brokerage Company’s Licensing, Definition of Minimum Capital Amount and Submission of Financial Report””
- 57. Decree of the President of the National Bank of Georgia #84, September 10, 1998 “Regulation on Licensing of Banking Institutions”
- 58. Decree of the Head of the Financial Supervisory Authority of Georgia #17, February 9, 2009 “Regulation on Registration of Entities Conducting Money Remittance”
- 59. Decree of the President of the National Bank of Georgia #242/01, December 25, 2009 “Regulation on Determination and Imposing Pecuniary Penalties against Commercial Banks”
- 60. Decree of the President of the National Bank of Georgia #18/01, February 22, 2010 “Regulation on Defining, Imposing and Collecting Pecuniary Penalties against Securities Registrars and Brokerage Companies for Violations of the Requirements of the Law of Georgia on Facilitating the Prevention of Illicit Income Legalization”
- 61. Decree of the National Bank President of Georgia #19/01, February 22, 2010 “Regulation on Defining, Imposing and Collecting Pecuniary Penalties against Founder of Non-State Pension Scheme, Assets Management Company and Specialized Depositary”
- 62. Decree of the President of the National Bank Georgia #23/01, February 22, 2010 “Regulation on Defining, Imposing and Collecting Pecuniary Penalties against Insurer Approved”
- 63. Decree of the President of the National Bank Georgia #22/01, February 22, 2010 “Regulation on Defining, Imposing and Collecting Pecuniary Penalties against Microfinance Organizations and Money Remitters”
- 64. Decree of the President of the National Bank of Georgia N124/01, October 11, 2010 “Regulation on the Registration and Cancellation of Registration Of Insurance Brokers”
- 65. Decree of the President of the National Bank Georgia #1, February 8, 2011 “On Approval of the Regulation on Receiving, Systemizing and Processing the Information by the Revenue Service and Forwarding to the Financial Monitoring Service of Georgia”
- 66. Decree on the Establishment of the Governmental Commission
- 67. Decree of the Financial Monitoring Service of Georgia January 31, 2012 "on Approving the Regulation on Receiving, Systemizing and Processing the Information by Persons Conducting Accountancy or/and Auditor and Forwarding to the Financing Monitoring Service of Georgia"
- 68. Order of the President of the National Bank No24/04, April 7, 2011, “On approving an instruction on opening an account and conducting transactions in foreign currency in the banking institution”
- 69. Minister of Justice Order No. 178, 29 September 2010 “On Determining Investigative Subordination of Criminal Cases”
- 70. Order of the Tbilisi City Court of February 13, 2912 Regarding the Freezing of Assets
- 71. Decree of the Governor of the National Bank of Georgia, 6 July 2010 “On the fulfillment of Obligations defined under the United Nations Security Council Resolutions of year 2010 N1929, year 2006 N1718 and year 2009 N1874
- 72. Order of the Vice-President of the National bank of Georgia December 30, 2004 “Banks’ Onsite Inspection Methodic Manual Concerning the Prevention of Illicit Income Legalization”
- 73. Decree of the President of the National Bank of Georgia on Amendments to the “Rule on Imposition of Pecuniary Sanctions on Non-bank Depository Institutions – Credit Unions” Approved by the Decree N257 of October 8, 2002 (Amendments as of February 7 2012)
- 74. Presidential Order No 542 "On Approving Document on Evaluation of Threats Faced by Georgia 2007-2009"
- 75. Presidential Order No 707 "On Approving Document on Evaluation of Threats Faced by Georgia 2010- 2013"
- 76. Regulation approved by the Head of the Financial Unit of Georgia "On Receiving, Systemizing and Processing the n by the National Agency of Public Registry-a Legal Entity of Public Law, and Forwarding to the Financial Monitoring Service of Georgia"
- 77. Order #241 of Ministry of Justice of Georgia "On Approval of Regulation of Registration of Entrepreneurs and Non- Entrepreneurs (non commercial) Legal Persons"

### C. Other Materials (numbered list as received)
- 78. Recommendation for Completing the reporting forms on Bank Operations
- 79. Sample of STR
- 80. Court Decisions as referenced throughout the report
- 81. Memorandums of Understanding (signed between FMS and Supervisory, also Law Enforcement Agencies)
- 82. Statistical information as provided throughout the report
- 83. Tables of statistics regarding incoming and outgoing MLA requests, Extradition and Requests for transfer of proceedings (2007 - 2011)
- 84. Georgian Crime Survey
- 85. Memorandum on Cooperation between the Financial Supervisory Agency of Georgia and the Financial Monitoring Service of Georgia
- 86. Memorandum on Cooperation between the Financial Supervisory Agency of Georgia and the Ministry of Internal Affairs of Georgia
- 87. Memorandum on Cooperation between the Financial Supervisory Agency of Georgia and the Ministry of Finance of Georgia
- 88. Memorandum on Cooperation between the Financial Supervisory Agency of Georgia and the Ministry of Justice of Georgia
- 89. Memorandum on Cooperation between the National Bank of Georgia and the Financial Supervisory Agency of Georgia
- 90. Excerpt NBG On-Site Inspection Manual for Electronic Funds Transfer
- 91. NBG Internal Rule on Imposition of Sanctions
- 92. Motion of February 10, 2012 by the Governmental Commission on Matters related to the Execution of the United Nations Resolutions
- 93. The Minutes and Decisions of the Meeting of the 1st Session of the Governmental Commission on the Matters related to the Execution of the United Nations Resolutions
- 94. Guidance on the risk based approach to combating illicit income legalization (February 2010)
- 95. List of Bank Shareholders
- 96. STR Indicators for Commercial banks
- 97. STR Indicators for Insurance companies
- 98. Memorandum on Cooperation between Ministry of Internal Affairs of Georgia and the National Bank of Georgia
- 99. Guideline For Financial Institutions "on Identification of Beneficial Owners of Customers and Verification of their Entity"
- 100. Memorandum on Cooperation between Prosecution Service of Georgia and the National Bank of Georgia
- 101. Policy of National Bank of Georgia on facilitating the prevention of illicit income legalization and terrorist financing
- 102. Licensing Procedure for Banking Institutions

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### Annex 4. Copies of Key Laws, Regulations, and Other Measures

### Excerpt provided: Law of Georgia on Facilitating the Prevention of Illicit Income Legalization
- Title and publication note as provided:
  - The Law of Georgia on Facilitating the Prevention of Illicit Income Legalization (Published in “Sakartvelos Sakanonmdeblo Macne” #17, Article 113, June 16, 2003) Informal translation - Last updated 20.12.2011
- Article 1. Purpose and Scope of the Law
  - 1. The purpose of this Law shall be to create legal mechanisms against legalization of illicit income and financing acts of terrorism, and to protect legal rights and interests of public and state.
  - 2. This Law shall regulate the relationship between the authorized bodies and other relevant persons under this Law related to facilitating the detection and prevention of illicit income legalization in Georgia as well as the relationship between Georgian authorized organs, on the one hand, and ones of other countries and international organizations, on the other hand.

*Content unit: _cr1304 - Annex 2. Details of All Bodies Met During the On-Site Visit*

### 3. This Law shall apply to Georgian resident and non-resident persons, their representatives,

### 3. This Law shall apply to Georgian resident and non-resident persons, their representatives,

### Applicability
- This Law shall apply to Georgian resident and non-resident persons, their representatives, missions and branches, as well as to departments, institutions and organizations. (Changed under the Law of February 25, 2004).

### Article 2. Definition of Terms
- a) Illicit income – illicit or / and unjustified property in ownership or possession of a person (Changed under the law of July 4, 2007).
- b) Property – property as considered under the Civil Code of Georgia;
- c) Legalization of Illicit Income - legalization of illicit income (acquisition, use, transfer or other action), as well as concealing or disguising its true origin, proprietor or owner, or/and property rights or attempt to commit such an action; (Changed under the Law of February 25, 2004)
- d) Monitoring – identification of a person that is party to a transaction by the entities conducting monitoring under this Law, and registration and systemization of information on the transaction and submission of such information to the Financial Monitoring Service of Georgia, pursuant to the procedures defined under this Law and other regulations adopted (issued) in compliance with this Law (Changed under the Law of February 25, 2004);
- e) Non-cooperative or watch zone – a country or a part of the territory thereof defined by the National Bank of Georgia on the basis of proposition of the Financial Monitoring Service of Georgia (FMS). The country or territory thereof shall be identified as such on the basis of the information provided by competent international organization, or if the grounded supposition exists that in such zone weak mechanisms for controlling illicit income legalization are effective (Changed under the Law of July 1, 2011);
- f) Competent international organizations - Council of Europe, FATF, and other organizations recognized as such by International Community;
- g) Supervision – supervision of activities of monitoring entities by the supervisory authorities provided for in Article 4 of the present Law (Changed under law of March 19, 2008);
- h) Suspicious transaction – a transaction (regardless its amount and operation type) supported with reasonable grounds to suspect that it had been concluded or implemented for the purpose of legalizing illicit income or/and the property (including funds) on the basis of which the transaction had been concluded or implemented is the proceeds of criminal activity or/and the transaction had been concluded or implemented for the purpose of terrorism financing (person participating in the transaction or the transaction amount causes suspicion, or other reasons exist for considering transaction as suspicious), or any person involved in the transaction is on the list of terrorists or persons supporting terrorism, or / and is likely to be connected with them, or / and funds involved in the transaction may be related with or used for terrorism, terrorist act or by terrorists or terrorist organization or persons financing terrorism, or any involved person’s legal or real address or place of residence is located in a non-cooperative zone or the transaction amount is transferred to or from such zone. (Changed under the Law of December 20, 201; into force from January 1, 2012);
- h1) Unusual transaction – complex, unusual large transaction, also type of transactions, which does not have apparent or visible economic (commercial) content or lack lawful purpose and is inconsistent with the ordinary business activity of the person involved therein (Changed under law of March 19, 2008);
- i) (Rescinded under the Law of March 27, 2007)
- j) Non-resident person - a person who is not a resident under the Tax Code of Georgia;
- k) Identification of a person – obtaining information on the person, which, when necessary, allows tracing such person and distinguishing from other person (Changed under the Law of March 27, 2007);
- l) Financial Monitoring Service of Georgia – a legal entity of public law established pursuant to this Law, which exercises its authorities granted by this Law and other relevant legislation;
- m) Monitoring entity – an entity as determined under Article 3 of this Law, which, for the purpose of facilitating the prevention of legalization of illicit income is required to undertake actions prescribed by the legislation;
- n) Founder of non-state pension scheme – a legal entity defined under the Law of Georgia “on Non-State Pension Insurance and Security”;
- o) Suspicious zone - a country or a part of the territory thereof, identified as having weak mechanisms for controlling illicit income legalization, based on information available to the monitoring entity (Changed under the Law of March 27, 2007);
- p) Financial institutions – institutions determined as such under the Law of Georgia on the Activities of Commercial Banks (Changed under the Law of March 27, 2007);
- q) Beneficial owner – natural person(s) representing an ultimate owner(s) or controlling person(s) of a person or / and a person on whose behalf the transaction (operation) is being conducted; beneficial owner of a business legal entity (as well as of an organizational formation (arrangement) not representing a legal entity, provided for in the Georgian legislation) shall be the direct or indirect ultimate owner, holder or / and controlling natural person(s) of 25% or more of such entity’s share or voting stock, or natural person(s) otherwise exercising control over the governance of the business legal entity (Changed under the Law of December 20, 2011; into force from January 1, 2012);
- q1) Person – any resident as well as non-resident natural person or legal entity, and an organizational formation, provided for in Georgian legislation not representing a legal entity (Changed under the Law of March 23, 2010);
- r) Suspicious financial institution – financial institution determined as such by the National Bank of Georgia, which does not meet standards of preventing illicit income legalization (Changed under the Law of July, 2011);
- s) Society for Worldwide Inter bank Financial Telecommunications (SWIFT) - international inter-bank network (system), is representing one of the means of inter-bank settlements and information exchange (Changed under the Law of March 27, 2007);
- t) Shell bank – a bank, which physically is not present in the country where it is registered / licensed and which is not being controlled and supervised (Changed under law of March 19, 2008);
- u) Entity performing money remittance services – an entity (except commercial bank and microfinance organization), which performs money remittance services (Changed under law of March 19, 2008);
- v) Politically Exposed Person (PEP) – a foreign citizen, who has been entrusted with prominent public functions according to the legislation of a respective country or/and carries out significant public and political activities. They are: Head of State or of government, member of government, their deputies, senior official of government institution, member of parliament, member of the supreme court and constitutional court, high ranking military official, member of the central (national) bank’s council, ambassador, senior executive of state owned corporation, political party (union) official and member of executive body of the political party (union), other prominent politician, their family members as well as person having close business relations with them; a person shall be considered as a politically exposed during a year following his / her resignation from the foregoing positions (Changed under law of March 23, 2010);
- w) Family member – a spouse of a person, his / her parents, siblings, children (including step – children) and their spouses (Changed under the Law of March 23, 2010);
- x) Person having close business relationship with the politically exposed person (PEP) – a natural person who owns or / and controls a share or voting stock of that legal entity, in which a share or voting stock is owned or / and controlled by the Politically Exposed Person (PEP); also, a person having other type of close business relationship with the Politically Exposed Person (PEP) (Changed under the Law of March 23, 2010.)
- y) Client - any person who addresses to the monitoring entity for the service defined by the Georgian legislation as the principal activity of the latter or / and uses such service. (Changed under the Law of December 20, 2011#5580; into force from January 1, 2012)
- z) Leasing Company – a legal entity conducting leasing activity according to the Tax Code of Georgia (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012)

### Article 3. Monitoring Entities
- Monitoring entities shall include:
  - a) Commercial banks, currency exchange bureaus, non-bank depository institutions and microfinance organizations (Changed under law of March 19, 2008);
  - a1) Entities performing money remittance services;
  - b) Broker companies and securities' registrars;
  - c) Insurance companies and non-state pension scheme founders;
  - d) Entities, organizing lotteries and other commercial games;
  - e) Entities engaged in activities related to precious metals, precious stones and products thereof, as well as antiquities;
  - f) Legal entity of public law of the Ministry of Finance of Georgia - Revenue Service (hereinafter – Revenue Service) (12.11.2010 #3806, into force from January 1, 2011);
  - g) Entities engaged in extension of grants and charity assistance;
  - h) Notaries;
  - h1) Legal entity of public law – the National Agency of Public Registry (Changed under law of March 19, 2008);
  - i) (Rescinded under the Law of March 19, 2008).
  - j) Person conducting accountancy or/and auditor activity as it is defined under the Georgian legislation; (Changed under the Law of December 20, 2011; #5580 into force from January 1, 2012);
  - k) Leasing companies (Changed under the Law of December 20, 2011 #5580 into force from January 1, 2012);

### Article 4. Supervision
- Supervisory authorities shall be:
  - a) The National Bank of Georgia - for commercial banks, currency exchange bureaus, and non-bank depository institutions, microfinance organizations; entities performing money remittance services; broker companies and securities' registrars; insurance companies and non-state pension scheme founders; (Changed under the Law of 24.09.2009);
  - b) The Ministry of Finance of Georgia – for entities organizing lotteries and other commercial games; entities engaged in activities related to precious metals, precious stones and products thereof, as well as antiques; the Revenue Service; leasing companies; entities engaged in extension of grants and charity assistance. (Changed under the Law of December 20, 2011 #5580 into force from January 1, 2012);
  - c) The Ministry of Justice of Georgia – for notaries and the National Agency of Public Registry;
  - d) Organization created on the basis of the Georgian legislation that is the member of the International Federation of Accountants - for persons conducting accountancy or/and auditorial activity as it is defined by the Georgian legislation. (Changed under the Law of December 20, 2011 #5580 into force from January 1, 2012)

### Article 5. Transactions Subject to Monitoring (Changed under the Law of March 27, 2007)
- 1. Transaction subject to monitoring:
  - a) The amount of the transaction or the series of transactions exceeds GEL 30,000 (or its equivalent in other currency) in case of cash, as well as non-cash settlements;
  - b) The transaction is suspicious according to Article 2(h) of this law.
- 2. Subject to monitoring by commercial banks:
  - Transactions considered under paragraph 1(b), and transactions where the amount exceeds GEL 30,000 (or its equivalent in other currency) that by content represent:
    - a) Receipt of money using bank checks, in bearer form;
    - b) Trade of foreign currency in cash form;
    - c) Transfer of funds by the account holder from the bank operating or registered in watch or suspicious zone to the bank account in Georgia or transfer of funds from Georgia to account in the bank operating or registered in such zone;
    - d) Extension or receipt of loan by the person registered in watch or suspicious zone, or implementation of any other transaction (operation) by such person through banking institution operating in Georgia;
    - e) Transfer of funds from Georgia to another country to the account of an anonymous person or transfer of funds to Georgia from the bank account of an anonymous person in another country;
    - f) Contribution of funds into the issued capital of an enterprise other than the purchase of stocks of accountable enterprises, as defined under the Law of Georgia on Securities Market.
    - g) Placement of funds in the form of cash to the bank account and following transfer by an individual (non-entrepreneur) (other than transfer of funds to the budget and transfer of funds among such person’s bank accounts within Georgia);
    - h) Extension of a loan to bearer, secured by securities;
    - i) Transfer of funds from or to the account of a legal entity within 90 calendar days from the date of its registration;
    - j) Transfer of funds from or to the account of grant or charity assistance, except for grants transferred from the state or local self – governance budget of Georgia. (Changed under the Law of March 23, 2010)
    - k) Transaction (operation) implemented through participation of a suspicious financial institution.
- 2.1. Subject to broker company monitoring (amount threshold GEL 30,000 or its equivalent in other currency) including:
  - a) Transactions implemented through securities, in bearer form;
  - b) Transaction (operation) carried out through participation of a suspicious financial institution;
  - c) Transactions implemented in securities by person residing and registered in watch or suspicious zone or/and through use of bank account operating in such zone.
  - d) Transactions implemented in cash.
- 2.2. Subject to insurance companies’ monitoring (amount threshold GEL 30,000 or its equivalent in other currency) including:
  - a) Returnable life insurance;
  - b) Annuity or pension insurance;
  - c) Personal insurance with the condition of returning the premium;
  - d) Transactions implemented by person residing and registered in watch or suspicious zone or/and through use of bank account operating in such zone.
  - e) Insurance contract terminated by the initiative of an insurer within the first three months;
  - f) Transactions (operations) performed with the participation of a suspicious financial institution;
  - g) Transactions implemented in cash.
- 2.3. For persons conducting accountancy or / and auditorial activity subject to monitoring shall be transactions defined under subparagraph “b” paragraph 1 if this person is engaged by order of the client or on behalf of the client in the following activities/transactions: (Changed under the Law of December 20, 2011 #5580 into force from January 1, 2012)
  - a) Buying and selling of real estate;
  - b) Management of funds, securities or other assets;
  - c) Management of bank, savings or securities accounts;
  - d) Organization of contributions for creation, operation or management of legal entity;
  - e) Creation, operation or management of legal entity or organizational formation;
  - f) Buying and selling of legal entity (share).
- 3. Subject to monitoring by the Revenue Service: import to, and export from Georgia of cash and securities exceeding GEL 30,000 (or its equivalent in other currency) (12.11.2010 #3806 into force from January 1, 2011).
- 4. Attempts to conclude or implement transactions in paragraph 1(b) and other facts which, pursuant to written instructions of the FMS of Georgia, may be related to legalization of illicit income or funding of acts of terrorism, are also subject to monitoring.
- 5. The Financial Monitoring Service of Georgia may determine for monitoring entities the list of concrete types of transactions on which information shall be provided to the FMS, in certain cases, according to the procedure set by the FMS. (Changed under the Law of December 20, 2011 #5580 into force from January 1, 2012)
- 5.1. Persons conducting accountancy or/and auditorial activity shall submit reports on transactions subject to monitoring in cases not contradicting to the principle of professional secrecy stipulated under the legislation regulating their activity. (Changed under the Law of December 20, 2011#5580 into force from January 1, 2012.)
- 6. Irrespective of doubts about a transaction being suspicious and amount of the transaction, a monitoring entity shall not suspend implementation of a transaction (rendering services to a person (client) related to it with business relations) except for the case provided in paragraph 7 of this Article.

*Italic: Excerpt from the provided IMF PDF chapter/section.*

### 7. If  it  is  impossible  to  identify  a  person  intending  to  set  business  relations  with  a

### _cr1304 - 7. If  it  is  impossible  to  identify  a  person  intending  to  set  business  relations  with  a

### Refusal and suspension of transactions
- If it is impossible to identify a person intending to set business relations with a monitoring entity, or in the case described in subparagraph “a” of paragraph 2 of Article 6(1), and there is no permission from management, the monitoring entity shall refuse such person to carry out the transaction (to service the client).
- The monitoring entity shall suspend performance of the transaction where any participant of the transaction is included in the list of persons that support terrorists or acts of terrorism, and immediately send the respective reporting form to the FMS of Georgia. (Changed under the Law of March 23, 2010)

### Due attention and unusual transactions
- Monitoring entities shall take reasonable measures to ensure that due attention is allocated to all transactions (operations).
- Monitoring entities shall pay special attention to unusual transactions, and transactions determined under paragraphs 2 (c) and (d), 2(1)(c), 2(2)(d) of Article 5, which do not have apparent or visible economic (commercial) content or lack lawful purpose; they shall ascertain purpose of the transaction within the scope of their capability and register obtained results in writing. (Changed under the Law of March 19, 2008)
- Monitoring entities shall determine themselves the principles for identifying transactions of persons having business relationship with them as unusual. (Changed under the Law of March 19, 2008)

### Identification thresholds and mandatory identification
- Monitoring entities (except entities under subparagraphs (e), (f) and (h1) of Article 3) shall identify and take reasonable measures to verify a client’s identity by reliable and independent sources when:
  - the amount of the transaction (operation) exceeds GEL 3000 (or its equivalent in another currency);
  - the client aims to carry out domestic or/and cross-border wire transfers that exceeds GEL 1500 (or its equivalent in another currency);
  - doubts arise regarding the veracity or adequacy of previously obtained client identification data;
  - the transaction is suspicious pursuant to subparagraph (h) of Article 2.
- Persons engaged in activities related to precious metals, precious stones and products thereof, as well as antiquities, shall carry out identification of clients if the amount (paid in cash) of transaction (operation) exceeds GEL 30 000.
- The Revenue Service shall perform identification of persons at border carrying national and foreign currency in cash, checks and other securities in the amount above GEL 30 000 (or its equivalent in other currency).
- The National Agency of Public Registry (Legal Entity of Public Law) shall identify persons participating in purchase–sale of real estate.
- In a transaction carried out by a brokerage company for its client through a commercial bank, the brokerage company shall identify the client (the commercial bank need not identify the brokerage company’s client).

### Information to record/retain on transactions
- Monitoring entities shall record/retain the following information (documents) on transactions subject to monitoring:
  - Content of transaction (operation);
  - Date and place of conclusion of a transaction, as well as the amount of money needed for the transaction and the currency thereof;
  - Information (documents), as prescribed by this Law, presented for identification of a person involved in the transaction (including a client);
  - Information (documents) necessary for the identification of the person at whose order the transaction is concluded or undertaken;
  - Information (documents) necessary for the identification of the person who concludes or implements the transaction on behalf of a third person or another person.

### Identification procedures and verification
- Monitoring entities shall determine procedures (except for account opening procedures) necessary for identification of a client and may require any other information (documents) related to the transaction and participating persons.
- Verification of identification details must be at minimum on the basis of ID or Passport or a document having equal legal force under Georgian legislation; for legal entities, examination must be based on a state-issued document confirming foundation and authority of its representative(s).
- Financial institutions are prohibited to open or / and maintain anonymous accounts or accounts in fictitious names.
- Monitoring entity shall identify the beneficial owner of the client and take reasonable measures to verify his/her identity by reliable and independent sources and be satisfied that it knows who the beneficial owner of the client is.
- A monitoring entity may rely on a third person/intermediary for identification and verification if that intermediary carries out identification and verification according to international standards, maintains documents as defined under Article 7 and is subject to respective supervision and regulation; ultimate responsibility for identification and verification remains with the monitoring entity.
- Monitoring entities are entitled to use electronic databases of identification documents provided by the Civil Registry Agency – Legal Entity of Public Law at the Ministry of Justice of Georgia according to the procedure set by Georgian legislation.

### Risk management, timing, and ongoing monitoring
- Monitoring entities shall have appropriate risk management systems for identification of clients whose activity may pose a high risk of legalization of illicit income and terrorism financing and shall exercise enhanced identification, verification and enhanced monitoring procedures; procedures shall be risk-sensitive and as prescribed by the normative act of the Financial Monitoring Service of Georgia.
- Identification and verification of each client and its beneficial owner, and obtaining other information defined by this Article, shall take place before carrying out a transaction or opening an account or establishing another type of business relationship, and prior to further continuation of the business relationship if legalization of illicit income or terrorism financing is suspected or doubts exist about previously-obtained identification data.
- The Financial Monitoring Service of Georgia is authorised to define circumstances in which verification may be completed after establishment of the business relationship, except cases provided for in paragraph 7, Article 5 of this Law.
- Monitoring entities shall exercise permanent monitoring of business relationships, including:
  - Maintaining current information and records relating to the client and its beneficial owner;
  - Updating periodically existing identification data and ensuring conformity with current norms;
  - Scrutiny of transactions to establish consistency with knowledge of the client, client’s business and personal activity or risk profile and, where necessary, the source of property (including funds).
- Monitoring entities should pay special attention to threats from new technologies, products and services that might favor anonymity and take measures to prevent their use in legalization of illicit income and terrorism financing; they should have policies/procedures reducing risks associated with non face to face service under Georgian legislation.

### Politically Exposed Persons (PEPs)
- Monitoring entity shall identify whether the client or his/her beneficial owner belongs to the category of Politically Exposed Persons (PEPs).
- If a client or beneficial owner is a PEP, monitoring entities shall:
  - Obtain permission from the management to establish or to continue business relationship with such client;
  - Take reasonable measures to establish the source of wealth (including funds) of such client or his/her beneficial owner;
  - Perform enhanced monitoring over its business relations with such person.
- If a client (or beneficial owner) becomes a PEP after establishing business relations, the monitoring entity shall undertake the measures provided in paragraph 2 upon availability of the aforementioned information.

### Retention of information (documents)
- Monitoring entities shall keep identification documents, account files and business correspondence in electronic or documentary form for a period not less than 6 years from the moment of breaching business relationship with such person, unless a supervisory authority sets a longer term, and submit it to competent authorities in cases defined under Georgian legislation. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- Information provided for in paragraph 1 and information on transactions shall be kept in original form, or where impracticable, a copy confirmed by a notary or a recipient person (an authorized employee) shall be maintained. Information submitted for identification and verified according to paragraph 12, Article 6 does not require notarization. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- Monitoring entities shall retain information (documents) on transactions and records provided in Article 5(9) for not less than 6 years from the moment of concluding or implementing transaction, unless a longer retention period is requested by the supervisory authority or set under Georgian legislation. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- Information (documents) shall be recorded and filed so that all data fully reflect concluded or implemented transactions and can be submitted to the supervisory body in a timely manner and used as evidence in criminal prosecution.
- Monitoring entities shall be obligated to create an electronic database (system) to reveal suspicious and partitioned transactions.

### Internal control and staffing
- Monitoring entities shall ensure implementation of internal control for the purpose of preventing legalization of illicit income and terrorism financing. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- Monitoring entities shall develop internal regulations (internal control procedures) that establish rules and procedures for identification of clients and persons willing to establish business relationships, analyzing information, revealing suspicious transactions, and rules for submission of information to the Financial Monitoring Service in conformance with this Law and normative acts; an employee or structural unit responsible for revealing suspicious transactions and forwarding information shall be identified. The Financial Monitoring Service may set principles to be addressed, recall and review internal regulation and request correction. (Changed under the Law of February 25, 2004)
- Monitoring entities shall systemize information on transactions subject to monitoring and develop a data registration system.
- Management shall designate a relevant staff member or structural unit in charge; that responsible person/unit shall:
  - Take control over implementation of the internal regulation in compliance with procedure and frequency defined under the regulation;
  - Submit written information on transactions subject to monitoring to the management body in compliance with the regulation.
- Monitoring entities shall provide periodic training for employees involved in detecting legalization of illicit income and terrorism financing. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012)
- Procedures and conditions of control over observance of this Law by specified non-bank entities shall be determined under the normative act of the respective supervisory authority in agreement with the Financial Monitoring Service of Georgia. (Changed under the Law of March 19, 2008)

### Reporting obligations to the Financial Monitoring Service of Georgia
- If a monitoring entity has suspicion regarding authenticity of identification data, identification is not possible, or a transaction considered under Article 5 is present, it shall send a notice to the Financial Monitoring Service of Georgia according to the rule and procedure set by this Law and the normative act of the Financial Monitoring Service of Georgia. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- Submission of the notice implies completing and forwarding the respective reporting form and confirmation of its submission by the Service according to the procedure set by the normative act.
- Timing requirements:
  - The report shall be forwarded on the day of impracticability of identification or of origination of supposition on suspiciousness on identification data or transaction;
  - If the transaction (operation) amount exceeds the threshold amount defined in Article 5, the report shall be forwarded no later than within five working days from the moment of concluding or implementing the transaction.
- If any transaction participant is on the list of terrorists or persons supporting terrorism or there is a grounded supposition that such person may be related to terrorists or persons supporting terrorism or/and transaction funds may be related to or used for terrorism, the monitoring entity shall send the report to the Financial Monitoring Service of Georgia on the day the information is received, along with all relevant available materials and documents. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012)

*Source: _cr1304 - 7. If  it  is  impossible  to  identify  a  person  intending  to  set  business  relations  with  a*

### 3.  Monitoring  entity  shall  retain  the  respective  reporting  form  (hard  copy  or  electronic)  for

### _cr1304 - 3.  Monitoring  entity  shall  retain  the  respective  reporting  form  (hard  copy  or  electronic)  for

### Record retention and exceptions
- Monitoring entity shall retain the respective reporting form (hard copy or electronic) for not less than six years, if there is no request by the respective supervisory authority for a longer retention. (Changed under the Law of March 19, 2008).
- The normative act of the Financial Monitoring Service of Georgia may define exceptions when the Financial Monitoring Service shall not be notified even though the transaction considered under Article 5 is present; as a rule, this provision applies when the transaction does not evoke suspicion for the purposes of this Law. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).

### Article 10 — Financial Monitoring Service of Georgia: establishment, functions, and powers
- Establishment and legal basis:
  - The Financial Monitoring Service of Georgia shall be established under the National Bank of Georgia in compliance with this Law, the Law of Georgia “On the Legal Entity of Public Law" and organic Law of Georgia “On the National Bank of Georgia”.
- Reporting form design:
  - The Financial Monitoring Service of Georgia, in agreement with the relevant supervisory body, shall design a reporting form on suspicious transactions; the reporting form shall include information on a suspicious transaction and parties to it, as well as on bank accounts (where practicable).
- Guidance to monitoring entities:
  - To ascertain the suspiciousness of the transaction, the Financial Monitoring Service of Georgia shall define and forward to the monitoring entities the information (list, directives, etc) on a suspicious transaction and parties to it.
- Authorized actions (Article 10, paragraph 4):
  - a) Request and obtain, if necessary from monitoring entity, additional information and documents (original or copy) available to them, including confidential information, on any transaction (operation) including bank account or an attempt to conclude or implement transaction (operation) and parties to it, or any other type of information necessary for execution of its activity as defined under this Law. (Changed under the Law of December 20, 2011 #5580 into force from January 1, 2012).
  - b) Provide the supervisory organs with the information to get their response.
  - c) Adopt (issue) normative acts within its competence for the purpose of implementation of this Law. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
  - d) Participate in drafting laws and other normative acts and discussions thereof regarding the issues that regulate the economic sector and related authorities.
  - e) Forward questions and obtain information from all state or local self-government and government bodies and agencies, as well as from any individual or legal entity which exercises public legal authority granted by the legislation. (Changed under the Law of November 10, 2006).
  - f) Apply to the court for the purpose of sealing the property (including bank account) or suspending a transaction (operation), if there is the grounded supposition that the property (including transaction amount) may be used for terrorism financing; in such case materials shall be immediately forwarded to the relevant authorities of the Prosecutor’s Office of Georgia and the Ministry of Internal Affairs of Georgia. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).

### Obligations of the Financial Monitoring Service (Article 10, paragraph 5)
- a) Create an information network, systemize and analyze obtained information, ensure the creation and proper functioning of the relevant database.
- b) If analysis gives rise to grounded supposition that a transaction is suspicious and is implemented for legalization of illicit income or terrorism financing or for the purpose to commit other criminal act, immediately forward this information (including confidential information) and available relevant materials to the corresponding authority of the Prosecutor’s Office of Georgia and the Ministry of Internal Affaires of Georgia, without any permission from any organ or person. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- c) Review the status of the enforcement of this law and prepare appropriate legislative proposals, when needed, to ensure the accomplishment of the goals of this Law.

### Access to and disclosure of confidential information (Article 10, paragraph 6 and Article 12)
- Any person or organ shall receive information from the FMS regarded as confidential pursuant to the Georgian legislation only upon submission of the relevant court resolution except for cases considered under the Constitution of Georgia, International Agreements of Georgia and Agreements concluded by the Financial Monitoring Service of Georgia pursuant to Article 13 of this Law. No one shall have the right to assign the Financial Monitoring Service to seek for (obtain) any information. (Changed under the Law of February 25, 2004).
- Management and employees of the Financial Monitoring Service of Georgia, monitoring entities and supervisory bodies shall not be authorized to inform parties to the transaction or other persons that the information on transaction has been forwarded to the relevant authority in conformance with obligations defined under this law.
- Incompliance with paragraph 1 of Article 12 shall cause responsibility under the Georgian legislation.
- The Financial Monitoring Service of Georgia, supervisory and law-enforcement bodies, their management and employees, shall ensure protection of information obtained pursuant to this Law which contains personal, banking, commercial or professional secrets, and disclose such information in accordance with the applicable Georgian legislation.
- When acting within the scope of their powers, the Financial Monitoring Service of Georgia, monitoring entities, supervisory bodies, their management and employees shall not be held liable for failure to observe the confidentiality of information considered under a normative act, or under an agreement, or/and for protection or referral of such information, except when the crime considered under the Criminal Code of Georgia is committed.
- Material damage inflicted as a result of violation of the obligation to observe confidentiality by officials and employees of the Financial Monitoring Service of Georgia, monitoring entities, supervisory and law-enforcement bodies shall be compensated by the damaging entity by the amount set under the court decision.
- Financial Monitoring Service of Georgia, monitoring entities, their management and employees shall not be held liable for damages which may be inflicted to physical person or/and legal entity for submission of information and materials to the respective authorities with observance of requirements of this law.
- The identity of employees of monitoring entities shall not be disclosed in the course of fulfillment of the obligation to submit information to the Financial Monitoring Service provided for in this Law.
- Material damage inflicted as a result of submission of information and materials on the basis of not grounded supposition (inconsistent with this law) to the competent authorities of the Prosecutor’s Office of Georgia and to the Ministry of Internal Affairs shall be compensated by the Financial Monitoring Service on the basis of a court decision.

### Supervisory bodies: responsibilities and sanctions (Article 11)
- Supervisory bodies shall oversee compliance with obligations prescribed by this Law by monitoring entities in accordance with set rules and procedures.
- Supervisory bodies shall collaborate with each other, with competent Georgian and other countries’ authorized agencies and international organizations through exchanging information and experience, and assist law enforcement agencies within the scope of their competence.
- If a supervisory body reveals that a transaction subject to monitoring was not forwarded to the Financial Monitoring Service of Georgia, or that provisions of this law or relevant normative acts or FMS guidelines have been violated, it shall immediately inform the Financial Monitoring Service and apply the appropriate sanction against the infringer. (Changed under the Law of February 25, 2004).

### Shell bank prohibition (Article 11¹)
- Establishment and existence of the shell bank, and establishing business relations with such bank (including correspondent relations) shall be prohibited.
- Representatives of financial sector shall undertake reasonable measures to ascertain:
  - a) Whether the person they have business relationship with (or person with whom they are establishing business relations) belongs to the category of the shell bank;
  - b) Whether the person they have business relationship with (or person with whom they are establishing business relations) has relations with the shell bank.
- (Changed under the Law of March 19, 2008)

### Domestic and international cooperation (Article 13)
- Georgian bodies authorized to work on issues related to legalization of illicit income and terrorism financing shall cooperate, within their competence, with domestic and foreign competent agencies and international organizations in matters such as receipt of information, preliminary investigation, court hearing and execution of resolutions. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
- The Financial Monitoring Service of Georgia may conclude agreements (covenants) with corresponding agencies of other countries to regulate exchange of information on prevention of illicit income legalization and terrorism financing; such agreements shall provide for observance of confidentiality and use only for the purpose defined under the legislation. (Changed under the Law of February 25, 2004).
- The Financial Monitoring Service of Georgia, without permission from any other entity or organ, shall forward requests for submission of necessary information on issues related to legalization of illicit income and terrorism financing to authorized agencies of other countries and international organizations, and respond to such requests. (Changed under the Law of February 25, 2004).
- Georgian bodies shall ensure the confidentiality of relevant information and use it only for the purposes indicated in the forwarded request. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).

### Governmental Commission on Enforcement of UN Resolutions (Articles 13¹ and 13²)
- Purpose and composition:
  - The Commission shall be created by the Government of Georgia to ensure freezing property owned by a person related to terrorism and individuals designated by UN Resolutions adopted upon Chapter 7 of the UN Charter to prevent financing or support of terrorist or other illegal activities.
  - The Commission shall cooperate with Georgian and foreign state authorities and International Organizations including the UN.
  - The Chairman directs activities, represents the Commission, signs documents; may delegate powers to other members.
  - A Task Force shall be created within the Commission, guided by the Co-Chair of the Commission.
  - The Government of Georgia shall determine the composition of the Commission and appoint the Chairman and Co-chair.
  - Structure, Powers and Rule of Activity of the Commission shall be defined by the Regulation of the Commission approved under the Decree of the Government of Georgia.
- Authority and Task Force powers:
  - 1) The Commission shall be authorized to file motion on freezing the property of persons designated by the UN Resolutions at the Court under the Administrative Procedure Legislation.
  - 2) The Commission shall be entitled to draft the list of persons related to terrorism upon the reference of foreign and/or national competent authorities and submit motion on freezing or unfreezing property owned by the individuals referred to the list at the Court under the Administrative Procedure Legislation.
  - 3) The Task Force shall be authorized to apply to competent state authorities for imposing certain restrictions to carry out sanctions determined by the UN Resolutions; the reference of the Commission shall be binding to execute by the competent state authorities.
- (Changed under the Law of November 11, 2011 #5353)

### Transitional and conclusive provisions (Articles 15 and 16)
- Article 15 transitional requirements:
  - 1) Within ten days from promulgation of this Law, the National Bank of Georgia shall prepare and submit to the President of Georgia for approval appropriate normative acts related to establishment of the Financial Monitoring Service of Georgia.
  - 2) President of Georgia shall be requested to issue, within one month after promulgation of this Law, the decree on approval of the regulation on the Financial Monitoring Service of Georgia.
  - 3) Within three months after promulgation of this Law, the National Bank of Georgia shall complete legal, organizational and financial measures related to the establishment of the Financial Monitoring Service of Georgia.
  - 4) The Financial Monitoring Service of Georgia, in agreement with supervisory bodies, shall ensure adoption (issuance) of normative acts concerning rule and conditions of receiving, processing and forwarding information, and their regular elaboration; monitoring entities shall ensure development of internal regulations considered under Article 8. (Changed under the Law of February 25, 2004).
  - 5) The Supervisory Bodies shall ensure adoption (issuance) of the regulation on definition and application of sanctions (including financial sanctions) against monitoring entities for violation of this law and normative acts adopted on its basis. (Changed under the Law of February 25, 2004).
  - 5¹) Prior to December 31, 2012 financial institutions shall ensure extension of requirements of Article 6 of this Law on those clients and their beneficial owners with whom the business relationship already exists for January 1, 2012. (Changed under the Law of December 20, 2011 #5580; into force from January 1, 2012).
  - 6) Within one year after the promulgation of this Law:
    - a) The Ministry of Finance, together with the National Bank of Georgia, shall carry out necessary measures to record the movement of cash at the Georgian State borders, in the way to ensure the conscientious use of the information received and free flow of capital.
    - b) The National Bank of Georgia shall undertake measures to promote the use and broader application of non-cash payment, and submit legislative suggestions to limit the control over the commercial banks by criminals.
- Article 16 conclusive provisions:
  - 1) This Law, except for Articles 10 and 15 shall be enforced from January 1, 2004.
  - 2) Articles 10 and 15 of this Law shall be enforced upon promulgation.

### Chief of Financial Monitoring Service Order No. 4 (Tbilisi, January 18, 2012)
- On approval of the Statute On the Rule of Receiving, Systematizing, and Processing Information by Commercial Banks and Submitting It to the Financial Monitoring Service of Georgia:
  - 1) The Statute is approved pursuant to Article 10, Paragraph 4, No. 3 of the Georgian Law On Facilitating the Prevention of Illicit Income Legalization.
  - 2) Commercial banks shall:
    - (a) By March 1, 2012, in connection of implementing financial monitoring, ensure completion of adjustments of their internal instructions according to requirements of Statute On the Rule of Receiving, Systematizing, Processing Information by Commercial Banks and Submitting It to the Financial Monitoring Service of Georgia;
    - (b) By December 31, 2012, ensure distribution of requirements considered in Article 6 of Statute On the Rule of Receiving, Systematizing, and Processing Information by Commercial Banks and Submitting It to the Financial Monitoring Service of Georgia, to the clients and their beneficiary owners with who they had business relations to the date of January 1, 2012.

*Source: Excerpt from the Georgian Law On Facilitating the Prevention of Illicit Income Legalization and related orders as provided in the source content.*

### 3. Those commercial banks, which will start functioning after enforcing this order,

### _cr1304 - 3. Those commercial banks, which will start functioning after enforcing this order,

### Order commencement and immediate obligations
- New commercial banks, within 20 days of acquiring a license from Georgia National Bank, shall present registration form to Financial Monitoring Service of Georgia, according to the requirements of Statute On the Rule of Receiving, Systematizing, Processing Information by Commercial Banks and Submitting It to the Financial Monitoring Service of Georgia.
- On the date of entering into force of this Order No. 95 of the Chief of Financial Monitoring Service of Georgia, dated July 28, 2004, On Approval of the Statute On the Rule of Receiving, Systematizing, Processing Information by Commercial Banks and Submitting It to the Financial Monitoring Service of Georgia, shall be considered annulled.
- This Order shall enter into force on the day of its publication.

### Statute purpose, scope, and general provisions
- The Statute is created based on Georgia Law On Facilitating the Prevention of Illicit Income Legalization, and other normative acts of Georgia.
- The Statute applies to Georgian commercial banks (hereinafter – “banks”) and their branches, and to branches (representative offices) of banks of foreign countries in Georgia.
- The Statute regulates principles and rules of implementing financial monitoring to facilitate prevention of legalization of illicit income and terrorism financing, including rules and conditions for acquiring, systemizing, processing, retaining identification and other pertinent information of clients and other involved persons, and submission of this information to Financial Monitoring Service of Georgia.

### Key definitions (selected)
- Illicit income – illicit or/and undocumented  property in ownership or possession of a person.
- Property – as per the Civil Code of Georgia: all objects (movable as well as immovable) and intangible property, which can be possessed, used and managed by individuals and legal entities.
- Legalization of Illicit Income – legalization of illicit income (acquisition, use,  transfer or other action), as well as concealing or disguising its true origin, proprietor or owner, or/and property rights or the attempt to commit such an action.
- Monitoring – identification of persons by the banks defined by the Law On Facilitating the Prevention of Illicit Income Legalization, persons that are party to a transaction by the entities conducting monitoring under Law, and registration and systemization of information on the transaction and submission of such information to Financial Monitoring Service of Georgia, pursuant to the procedures defined under this Law and other regulations adopted (issued) in compliance with this Law.
- Suspicious transaction – a transaction (regardless its amount and operation type) supported with reasonable grounds to suspect that it had been concluded or implemented for the purpose of legalizing illicit income or financing terrorism, or other specified grounds including links to terrorists or non-cooperative zones.
- Unusual transaction – complex, unusually large transaction, also type of transactions, which does not have apparent or visible economic (commercial) content or lacks lawful purpose and is inconsistent with the ordinary business activity of the person involved therein.
- Beneficiary owner – individual(s) representing an ultimate owner(s) or controlling person(s) of a person; beneficial owner of a business legal entity ... shall be the direct or indirect ultimate owner, holder or/and controlling individual(s) of 25 percent or more of such entity’s share or voting stock, or individual(s) otherwise exercising control over the governance of the business legal entity.
- Non-cooperative or watch zone – a country or a part of the territory thereof  defined by the National Bank of Georgia on the basis of proposition of the Financial Monitoring Service of Georgia (FMS).
- Politically Exposed Person (PEP) – a foreign citizen who ... has been entrusted with prominent public functions ... such person shall be considered as politically exposed in the duration of one (1) year following his/her resignation from the foregoing positions.
- Family member – spouse of a person, his/her parents, siblings, children (including step-children) and their spouses.
- Person having close business relations with a PEP – individual who owns and/or controls a share or voting stock of that legal entity, in which a share or voting stock is owned or/and controlled by the politically exposed person; also, a person having other type of close business relations with the PEP.

### Transactions (operations) subject to monitoring
- General rule: transactions are subject to monitoring if suspicious per Article 2(e), irrespective of amount, or if a transaction (or series aimed at partition) exceeds GEL 30,000 (or its equivalent in other currency) and falls into specified categories.
- Specific transaction types that trigger monitoring when exceeding GEL 30,000 include:
  - Receipt of money using bank checks, in bearer form.
  - Trade of foreign currency in cash form.
  - Transfer of funds by the account holder from the bank operating or registered in watch or suspicious zone to the bank account in Georgia or transfer of funds from Georgia to account in the bank operating or registered in such zone.
  - Extension or receipt of loan by the person registered in watch or suspicious zone, or implementation of any other transaction by such person through banking institution operating in Georgia.
  - Transfer of funds from Georgia to another country to the account of an anonymous person or transfer of funds to Georgia from the bank account of an anonymous person in another country.
  - Contribution of funds into the issued capital of an enterprise other than the purchase of stocks of accountable enterprises, as defined under the Law of Georgia on Securities Market.
  - Placement of funds in the form of cash to the bank account and following transfer by an individual (non-entrepreneur) (other than transfer of funds to the budget and transfer of funds among such person’s bank accounts within Georgia); includes transferring from an account, as well as transferring without opening an account.
  - Extension of a loan to bearer, secured by securities.
  - Transfer of funds from or to the account of a legal entity within 90 calendar days from the date of its registration.
  - Transfer of funds from or to the account of grant or charity assistance, except for grants transferred from the state or local self-governance budget of Georgia.
  - Transaction (operation) implemented through participation of a suspicious financial institution.
- Subject to monitoring are monetary funds that may be connected or used for terrorism, for a terrorist act or by terrorists, or by a terrorist organization or entity which finances terrorism.
- Subject to monitoring are attempts to conclude or implement the transaction, and/or other facts (circumstances) which, pursuant to written instructions of the FMS of Georgia, may be related to legalization of illicit income or funding of acts of terrorism.
- Banks must pay special attention to unusual transactions and transactions defined by 1(b.c.) and 1(b.d.), study their aim and basis, and register in written acquired results.
- The Financial Monitoring Service of Georgia may define a list of particular transactions or their characteristics; banks shall report such as defined by this Statute.

### Internal control responsibilities of banks
- Banks must implement internal control pursuant to Article 8 of Georgia Law On Facilitating the Prevention of Illicit Income Legalization to prevent legalization of illicit income and financing terrorism.
- Main elements of internal control:
  - Identification of all persons (clients) connected with bank through business relations, their representatives or principal, beneficiary owner, in cases defined by 1(a) – (d) of Article 6 of this Statute, and when transaction benefits a third person.
  - Implementation of measures towards politically exposed persons as defined in this Statute.
  - Defining rules and conditions of implementing constant monitoring of business relations with client.
  - Analyzing information acquired through identification and defining bank operations subject to monitoring.
  - Documenting, systemizing and retaining information accordingly.
  - Submitting information regarding bank transaction subject to monitoring to the Financial Monitoring Service of Georgia in the form of a report.
  - Implementing training programs for bank staff in order to prevent legalization of illicit income and financing terrorism.
- Banks shall create internal instructions approved by the Board of Trustees or Board of Directors. These internal instructions shall define:
  - Rules for identification of bank clients, beneficiary owners and other persons defined by the Georgia Law On Facilitating the Prevention of Illicit Income Legalization.
  - Rules for identifying politically exposed persons and implementing particular measures towards them.
  - Rules for submitting information acquired through identification to the person (special structural entity) responsible for implementing monitoring.
  - Rules for recording, systemizing and retaining information.
  - Rules for submitting report forms and other materials to the Financial Monitoring Service of Georgia.
  - Rules and conditions for implementing constant monitoring of business relations with client.
  - Functions, rights and responsibilities of the employee responsible for implementing monitoring (or chief and employees of a special structural entity).
  - Functions, rights and responsibilities of other employees and the chief supervising the monitoring process.
  - Chiefs of banks, supervisory personnel and/or employees authorized to possess confidential information pertaining to implementation of monitoring.
  - Rules for approving copies of documents submitted by clients, and employee(s) authorized to approving such, following Article 11(2).
- Internal instructions must address:
  - Case-by-case decisions on whether a transaction is suspicious, uncommon and/or aimed at partition; decisions shall be based on information from client identification, existing bank information (and, after creation, the general banking information network), and instructions from the Financial Monitoring Service of Georgia. Banks are obligated to create an electronic database (system) to expose suspicious, uncommon transactions and/or such aimed at partition.
  - Monitoring must be conducted so that bank clients, transaction participants and other respective persons shall not find out they are subject to monitoring.
  - The bank is obligated to maintain confidentiality of information acquired from monitoring, including identifying clients, beneficiary owners, materials of checking and analyzing information, and confidentiality of reports and forms connected to suspicious operations submitted to the Financial Monitoring Service of Georgia.
  - Participation of all bank employees (within their competencies) in finding facts of legalizing illicit incomes and financing terrorism is a main principle of financial monitoring.

*Source: Statute On the Rule of Receiving, Systematizing, an Processing Information by Commercial Banks and Submitting It to the Financial Monitoring Service of Georgia (excerpt).*

### 6. The policy of selecting of bank employees (which includes studying qualifications and

### _cr1304 - 6. The policy of selecting of bank employees (which includes studying qualifications and reputation of the candidates), established procedures and rules according to the internal instruction shall facilitate stopping possible participation of the bank employees in the processes of legalization of illicit income and financing terrorism.

### Article 5. Rights and Responsibilities of Employee Responsible for Monitoring

- Banks shall specify the employee (or special structural entity) responsible for monitoring according to correspondingly documented decision. The position shall correspond to the upper hierarchical (managerial) level (position may vary in banks of different size).

- The functions, rights, and responsibilities of the employee (special structural entity) responsible for monitoring shall be defined by internal instructions of the bank; also, if defined by internal rules of the bank – corresponding job description (in case of special structural entity – instructions).

- The employee (special structural entity) responsible for monitoring shall guide his/her activities following Georgia Law On Facilitating of Preventing Illicit Income Legalization, this Statute, internal instructions of the bank, rules of the Financial Monitoring Service of Georgia, and normative acts issued by the Financial Monitoring Service of Georgia and the National Bank of Georgia.

- Obligations and delegated authorities of the employee (special structural entity) responsible for monitoring:
  - (a) Organizing the process of monitoring according to the Georgia Law On Facilitating of Preventing Illicit Income Legalization, this Statute, and carrying out works defined by internal instructions of the bank;
  - (b) Analyzing information received from different structural entities of the bank (including identification data of persons, information regarding bank transactions), identifying bank transaction subject to monitoring, reports and filling out forms regarding bank transaction subject to monitoring (in this case defined by this Statute, sending printed forms of reports, and approving such by signatures), and submitting those to the Financial Monitoring Service of Georgia according to the rules established by internal instructions of the bank; systemization and retention of information (documents) associated with the process of monitoring, (authority to consider a bank operation/transaction as suspicious, and making the decision to submit a report form to the Financial Monitoring Service of Georgia; also, the authority to fill out report forms – as defined by this Statute – signing printed forms of reports, all of the above authorities as per internal instructions of the bank can be granted to the employee (chief of special structural entity) responsible for monitoring, as well as chief executive of the bank who supervises issues connected with monitoring);
  - (c) Consulting bank employees and organizing training programs for them on the issues of preventing illicit income legalization and terrorism financing. The training process should be systematic to ensure that employees are familiar with all changes and updates in Georgia Law and bank internal instructions, as well as they that they are aware of new trends of legalizing illicit incomes and financing terrorism;
  - (d) Preparing and submitting suggestions to bank management regarding implementing monitoring process, also, if necessary, regarding improvement of internal instructions of the bank.

- Additional procedural and reporting requirements:
  - The monitoring employee shall be granted authority to receive any kind of information from other employees needed for carrying out his/her functions, and shall be obligated to maintain confidentiality of any kind of information connected with his/her activities.
  - The monitoring employee shall receive orders and report to the bank management executive designated for this particular responsibility by internal instructions of the bank.
  - If the monitoring employee discovers that any employee of the bank is not completing his/her functions defined by internal instructions and does not participate in the process of monitoring according to his/her competencies, this employee shall notify immediately the chief of the bank who is supervising issues associated with monitoring about the facts.
  - In the absence of the monitoring employee, another employee shall be held responsible for completing the above task; this shall be documented in the corresponding decision of the bank.

### Article 6. Bank Obligations Associated with Registering Identification and Identification Data (Documents)

- General identification obligation:
  - The bank is obligated to identify a client (his/her representative and principal, also third person, if the transaction is carried out in favor of the third person) and take necessary measures to check and double-check his/her identity based on information (documents) independent and trustworthy sources, when:
    - (a) The transaction (operation) amount exceeds GEL 3,000 (or its equivalent in other currency);
    - (b) Local and international operations (transfers and sending money) carried out through money funds transferring or notifying system networks, exceed GEL 1500 (or its equivalent in other currency);
    - (c) This transaction represents a suspicious transaction according to Article 2(e) of this Statute;
    - (d) Suspicion arises whether identification information of existing clients is exact and/or respective.

- Beneficial owner identification:
  - The bank is obligated to identify client’s beneficiary owner, also to take reasonable measures to double-check his/her identity based on information (documents) from independent and trustworthy sources, and make sure client’s beneficiary owner’s identity is known to the bank. Identification procedures designated to a natural person shall be applied towards the beneficiary owner.
  - When double-checking identification of a client (his/her beneficiary owner), the bank can rely on a third person/mediator, who carries out identification of client and double-checking of his/her beneficiary owner considering international standards, retains documents according to Article 11 of this Statute and is subject to supervising and regulating according to prevention of illicit income legalization and terrorism financing. The bank shall take necessary measures to ensure immediate access to information of clients' identification (documents or copies of documents). In such cases, the bank shall have the final responsibility for identifying and checking identification of client according to the rules outlined in this Statute.

- Applicable standards and internal procedures:
  - The process of identification shall be carried out following the Georgia Law On Facilitating the Prevention of Illicit Income Legalization, this Statute, normative acts issued by National Bank of Georgia, internal instruction of bank, and according to guidelines and recommendations of the Financial Monitoring Service of Georgia.
  - Banks define procedures necessary for identifying a person (except procedures of opening an account) themselves. Banks have right to demand any other kind of information and/or documents connected with persons participating in transaction (operation).
  - The bank is authorized to use the electronic database of identification documents, presented by the civil registration agency of the Justice Department of Georgia, in order to identify a client (his/her representative or principal, as well as a third person, if the transaction is performed to favor a third person) and his/her beneficiary owner according to the rules and regulation of the Georgia Law On Facilitating the Prevention of Illicit Income Legalization and this Statute.

- Timing and service refusal rules:
  - Identification and checking shall be carried out before performing transaction or opening account, or carrying out any other type of business activity; also, before continuing business relations, if a suspicion arises on legalization of illicit income or financing terrorism, or suspicion arises regarding authenticity of existing identification information.
  - Bank has no right to extend service to a client, or establish business relations with a person (including when performing such bank transactions which do not require opening an account by a person, in particular, transferring or receiving money, selling or buying foreign currency through bank notes, exchanging bank note, etc.), if the bank does not perform his/her identification according to para. 1 of this Article.
  - Banks are prohibited from opening or maintaining an account in a fictitious name or anonymously.

- Client purpose and continuous study:
  - The bank is obligated, before starting business relations with a client, to find out what goals is the client pursuing or what kind of relationship he/she is seeking and to maintain a constant study of relationships between the bank and the existing clients.

- Instances when service is stopped and reporting required:
  - The bank does not stop performing transaction (operation) if there is a suspicion regarding the operation (transaction) (extending service to a person/client connected with bank through business relations), except in the following instances:
    - (a) If the client cannot be identified;
    - (b) If any person participating in the transaction is listed as a terrorist or a person supporting terrorism;
    - (c) Receiving negative response from management to establish business relations with a client in cases discussed in Article 7(2a) of this Statute.
  - In the cases discussed in 11(a) – (c) of this Article, the bank shall refuse to extend services to a client (establish business relations with a person) and immediately submit the corresponding reporting form to the Financial Monitoring Service of Georgia, existing paperwork in possession of the bank and any other information regarding this operation (transaction) and persons participating in such.

- Required identification data from standard identification procedure:
  - If an individual:
    - (a.a.) First and last name;
    - (a.b.) Citizenship;
    - (a.c.) Date of birth;
    - (a.d.) Place of residence;
    - (a.e.) Identification number (passport number) and citizen's private number (according to the passport);
    - (a.f.) If an individual is registered as an individual entrepreneur – the corresponding registration number, date, registration entity/agency, and taxpayer identification number;
  - If a legal entity:
    - (b.a) Full name;
    - (b.b.) Nature of business;
    - (b.c.) Legal address (if it is a branch or representative office, address of such, as well as the address of the head office);
    - (b.d.) Name of registering agency, date and number of registration;
    - (b.e.) Taxpayer identification number;
    - (b.f.) Identification data of persons authorized to manage and represent (according to (a) of this subarticle);
    - (b.g.) Identification data of the person representing the legal entity in a specific bank operation (transaction) subject to monitoring;
  - If organizational entity according to legislature is not a legal entity:
    - (c.a.) Full name;
    - (c.b.) Legal address;
    - (c.c.) Legal act or other document based on which this organizational entity is created (or is functioning);
    - (c.d.) Taxpayer identification number;
    - (c.e.) Identification data of persons authorized to manage or represent (according to (a) of this subarticle);
    - (c.f.) Identification data of the person who represents such an organizational entity in a specific bank operation (transaction) subject to monitoring;

- Documents necessary for identification:
  - (a) If an individual is a citizen of Georgia – identification card or passport, or other official document equal to such, according to Georgian legislation, containing respective data; if a person is registered as an individual entrepreneur, a document proving his/her registration as such;
  - (b) If an individual is a foreign citizen – passport issued by a respective agency, or any other document considered equal to such by Georgian legislation which contains respective data;
  - (c) If resident legal entity (also in case of organizational entity which does not represent a legal entity) – respective act regarding creating of this entity, considered by Georgian legislation and a document proving such person’s authorities.
  - (d) If legal entity is non-resident person – documents issued by a respective agency proving creation and registration of such legal entity and document proving such person’s authorities.

- Additional identification details and procedures:
  - For identification of a person, banks shall identify the country which issued presented documents, the agency, date of issuance and expiration date.
  - For identification of an individual, documents other than ID card and passport can be used in exceptional cases, when a person cannot have an ID card or a passport (for instance, opening an account in the name of a minor).
  - For identifying, systemizing, and better studying identification data of permanent clients of bank (those persons who have more than one account in the bank and who periodically contact the bank to carry out a transactions), a bank can use a questioning procedure. In addition to such a procedure, the bank shall implement creation of a corresponding electronic database.
  - Use of a questioning procedure is also acceptable for identification of such persons who contact the bank on a one-time basis to carry out a financial transaction (transferring or receiving money, selling-buying currency, exchanging bank notes, etc.), or if such persons participate in bank transaction as second or third persons (if the transaction is carried out in favor of a third person).

- Additional data to identify when documents allow:
  - If an individual:
    - (a.a.) Patronymic name;
    - (a.b.) Place of birth;
    - (a.c.) Temporary (actual) place of residence (in Georgia, as well as in a foreign country), if such place is not the same as registered place of residence;
    - (a.d.) Main activities and position;
    - (a.e.) Requisites of account(s) in other bank(s);
    - (a.f.) Telephone, fax number, email address;
  - If a legal entity (also if an organizational entity not representing a legal entity):
    - (b.a.) Date of appointment of persons having managerial or representative authority;
    - (b.b.) Requisites of account(s) in other bank(s);

- Internal rules and risk-based approach:
  - Detailed rules associated with client identification, filling our questionnaires and activities associated with renewing existing identification data, as well as the corresponding functions/job descriptions of bank employees are defined by internal instructions of the bank.
  - The bank shall maintain constant monitoring of business relations with a client, which includes:
    - (a) Retaining current information and records about client and his/her beneficiary owner;
    - (b) Periodic renewal of existing identification data and checking if such data reflect requirements of normative documents;
    - (c) Detailed study of transactions in order to determine if such transactions reflect the client’s knowledge, his/her personal or commercial activities, risk group and, if needed, facts of acquiring his/her wealth (among those – monetary funds).
  - The banks shall have a risk management system in order to double-check client identification, activities of which may create a high level of risk of legalizing illicit income of financing of terrorism; checking and double-checking of identification and monitoring process shall be increased. Procedures of identification and checking background shall be carried out based on and considering risk factors, type of client, and business relations. The bank shall identify clients with a high risk factor of illicit income legalization and/or financing of terrorism. If a client is considered as having a high risk factor, the bank is authorized to use requirements outlined in Article 7 of this Statute.
  - The bank shall pay special attention to the risks associated with implementing such new technologies, products and services which support anonymity in services, and shall take all necessary measures to prevent legalization of illicit incomes and financing of terrorism. The bank shall have such policies for identifications and background checks, which provides decreasing of risks connected with remote servicing of a client considering rules implied by Georgian legislation. Policies and procedures outlined in this paragraph shall be used in establishing business relations and maintaining constant monitoring of such.

### Article 7. Bank Obligations to Politically Exposed Persons

- The bank is obligated to determine whether the person having business relations with the entity and his/her beneficiary owner belongs to the category of politically exposed persons.

- If a client and/or his/her beneficiary owner represents a politically exposed person, in addition to the steps stipulated under the Georgia Law On Facilitating the Prevention of Illicit Income Legalization, the bank (its authorized employee) additionally shall complete the following actions:
  - (a) Obtain permission from the management to establish business relations with such person;
  - (b) Take reasonable measures to ascertain the origin of funds and property of such person;
  - (c) Perform strong monitoring of business relations with such person.

- If the person (his/her beneficiary owner) becomes a politically exposed person (PEP) after establishing business relations with bank, the latter shall undertake measures provided for in para. 2 of this Article against such person upon availability of the aforementioned information.

- The bank shall have defined specific respective procedures, based on which the bank shall seek the respective information from client in order to identify and check politically exposed persons, as well as from public sources or electronic database.

### Article 8. Establishing Correspondent Relations by the Bank

- When establishing international correspondent relations, banks shall seek information from public sources regarding respondent a bank’s reputation and degree of supervision on such and about adequacy and effectiveness, if it represents a person implementing monitoring of illicit income legalization and combating the financing of terrorism. Banks shall require information from respondent banks regarding the degree of internal control towards illicit income legalization and issues associated with combating the financing of terrorism, and assess the level of such control.

- It is unacceptable to create international correspondent relations without agreement of bank directorate (curator director).

- Banks are prohibited to establish correspondent relations with fictitious banks. They are obligated to take reasonable measures to find out:
  - (a) If a person who is in business relations with the bank (or person, with whom the bank is establishing business relations) belongs to the category of fictitious banks;
  - (b) Whether a person who is in business relations with the bank (or a person with whom the bank is going to establish business relations) has relations with a fictitious bank.

*Source: _cr1304 - 6. The policy of selecting of bank employees (which includes studying qualifications and reputation of the candidates), established procedures and rules according to the internal instruction shall facilitate stopping possible participation of the bank employees in the processes of legalization of illicit income and financing terrorism.*

### 1. When carrying out operations (transactions, transfers) defined by Article 6(1b) of this

### _cr1304 - 1. When carrying out operations (transactions, transfers) defined by Article 6(1b) of this

### Identification requirements for money transfers
- Banks are obligated to reflect identification data of a person in the money transfer order (GEL and foreign currency payment, quick money transfer order).
- Required information to collect/reflect from the person sending the money when making domestic and international money transfers:
  - Name (if an individual – first name and last name);
  - Account number or verification code (if such exists);
  - Address (address can be substituted: in case of an individual – by personal number according to ID card or passport, or date and place of birth, by identification code of the payer; in case of a legal entity – with payer ID code).
- Identification data must be fully reflected in the corresponding electronic document of the money transaction so that information is available to the money receiving agency after completion of the transaction.
- If it is technically impossible to fully reflect identification data in the electronic document, the paying bank shall provide the information to the receiving agency upon its request.
- Intermediary banks must ensure transfer of identification information from paying bank to receiving bank; if technically impossible they shall retain identification information of the payer for a specific time period, following Article 8(1) of this Statute.
- For domestic transactions it is acceptable to reflect only items 2(a) and 2(b) (Name and Account number/verification code); in that case the paying bank shall provide the information to the receiving bank if requested within three business days.

### Registration of transaction information (Article 10)
- Banks shall register information (documents) regarding bank operations and/or transactions.
- The obligation extends to transactions executed by the bank and transactions requested by clients that serve as basis for bank operations.
- When registering a bank operation, the bank shall document:
  - Content of the bank transaction (operation) (for instance, transfer, placing on account, sending or receiving money, etc.);
  - Date, amount, and currency of transaction (operation) in which such transaction shall be completed;
  - Identification information of the person on whose request the bank is carrying out the operation (person carrying out the operation), also the type of account(s), number and date of opening (if required, the date of closing as well) used in this particular operation;
  - The second party of the operation (if such exists) and its bank requisites (for instance, when transferring money – the name of the corresponding bank agency, type, number, and name of accountholder);
  - Identification data of the person acting on behalf of the bank client (representative, agent); also the content of affidavit, issuing person, date of issue and date of expiration, also person who approved the affidavit (for instance, notary), date and place of approval;
  - If the operation is conducted in favor of a third person – identification information of such person;
  - Basis of conducting operation – if information is available (for instance, the basis for conducting operation can be considered transaction placed by bank client, based on which he/she carries out the operation, etc.).
- When registering information regarding a transaction placed between bank and client (including loan application or agreement regarding bank services), and information serving as basis for the transaction, the bank shall document:
  - Type of transaction (for instance, deed of purchase, buying-selling, leasing, etc.);
  - Content and subject of transaction (specific object, material value, or intangible value, which represents subject of the transaction, or services, work, which has to be carried out according to the transaction);
  - Form of transaction (written agreement, verbal agreement);
  - Purpose of transaction (for instance, commercial activities, receiving income, charity, paying off a debt, and so on);
  - Date and place of placing a transaction and expiration date of transaction;
  - Amount of transaction and currency in which transaction shall be carried out;
  - If a transaction is subject to registration (confirmation) – the name of registration agency, date of registration, place and number (for instance, when confirming a transaction by notary).
- The bank shall create a corresponding system to record information documentarily, systemize and retain information noted above.
- Identification information of persons who are not clients of bank is recorded based on submitted (existing in bank) information (documents); the bank shall not require a client additionally to present identification documents of the other party.

### Retention of information (Article 11)
- The bank is obligated to retain identification information and other information regarding the bank operation (transaction), documentation of the client’s account and business correspondence, and records specified in Article 3(4) of this Statute for at least 6 years, unless a supervisory agency requires a longer period or Georgian legislation specifies a longer retention.
- Electronically documented data as well as information existing in document format shall be retained for the aforementioned period.
- Identification documents and operation information shall be retained in the original or, if not possible, in copies notarized by a notary or by authorized employee of the bank. Banks shall designate employee(s) authorized to notarize copies; a copy shall clearly show who notarized it and the date.
- Information submitted for identification according to Article 6(6) and data double-checked by the bank do not require notarization.
- Electronic report forms submitted to the Financial Monitoring Service of Georgia pursuant to Article 9 of the Georgia Law and Article 12 of this Statute shall also be retained for 6 years (unless supervisory body requires longer). When retaining electronic documents, banks shall adhere to security rules and internal instructions.
- Retained information shall fully reflect the completed bank transaction and its participants, and be registered, systemized, and retained in a manner that allows quick retrieval (e.g., for supervisory bodies or criminal pursuit).

### Submission of report forms to the Financial Monitoring Service of Georgia (Article 12)
- If the bank suspects authenticity issues with identification information, cannot identify a client, or the transaction represents cases defined by Article 3 of this Statute, the bank shall submit a report form to the Financial Monitoring Service of Georgia through the established rule.
- Submitting a notice means filling out the respective form, sending it to the Service via the web-portal, and receiving confirmation of acceptance; notifications shall be filled out using the web-portal and follow Customer Guidelines on the Financial Monitoring Service web-page.
- Report forms shall be submitted electronically; printed versions only if technically impossible to send electronically.
- Time periods for submission:
  - If the amount of bank operation (transaction) or the total amount of combined bank operations (transactions) aimed at partition of the transaction exceeds GEL 30 000 or its equivalent in another currency, forms shall be submitted within 5 business days from the date of implementing the operation (transaction) or establishing a transaction (or receiving information regarding such transaction, or combined operations/transaction);
  - If a transaction (operation) or identification data are considered suspicious – the same day as suspicion arises;
  - If any person participating is listed as terrorist or person supporting terrorism, and/or may be connected with such, and/or monetary funds involved may be connected or used for terrorism, the information shall be submitted on the same day it is received; in addition, all respective materials and documents in the bank's possession, along with the account forms, shall be submitted.
- In exceptional cases, printed versions (and additional materials) shall be submitted in a well-sealed envelope by an authorized courier or by registered mail; the envelope shall show sending bank and addressee: Financial Monitoring Service of Georgia, its address – 0108, Georgia, Tbilisi, Vukol Beridze Street No. 6, with the stamp “Confidential”.
- Submission is done electronically through the web-portal (www.fms.gov.ge) with respective web-shield and/or supporting web-service.
- The decision to complete and send forms shall be made by a bank employee granted authority by internal instructions; only authorized employees may complete account forms.
- Electronically completed forms remain at the bank and are retained for at least 6 years. In exceptional cases when sending printed versions, two copies are printed, each confirmed by signature of the authorized employee; one copy is sent to the Financial Monitoring Service, the other remains in the bank and is retained for at least 6 years.
- Forms must be filled out completely and registered according to internal instructions.
- When revealing suspicious operation and submitting account forms, the bank shall indicate the basis (circumstances) for suspicion and pay special attention to other operations conducted by persons participating.
- The Financial Monitoring Service of Georgia is authorized to request additional information and documents connected to any bank operation; the bank shall submit all requested information no later than two (2) business days from the date of request.
- If after submitting an account form the bank learns any additional information regarding the operation or participants, it shall immediately submit such information, marked with the account form numbers, according to the “Customers’ Guidelines” regarding additional information.
- Banks must strictly adhere to confidentiality regarding filing and submitting account forms and related information; information about suspicion or reporting shall not be made available to participants, their representatives, or other persons. The bank employee who reveals suspicious operation or fills out forms may pass this information only to employees authorized by internal instructions.

### Registration of commercial banks and monitoring responsibilities (Articles 13–14)
- Commercial banks shall submit a registration form to the Financial Monitoring Service of Georgia through the web-portal (www.fms.gov.ge) to enter into the Service's electronic database; the registration form is considered submitted after sending the electronic notification. If electronic registration is not technically possible, submit in document format.
- If changes are made (including replacing an employee responsible for implementing monitoring) in the submitted registration form, the bank shall submit an updated registration form within 2 business days after implementing such a change.
- Supervision of adherence to the Georgia Law On Facilitation the Prevention of Illicit Income Legalization and this Statute shall be implemented by the National Bank of Georgia.
- Special sanctions shall be applied to a bank, according to rules established by the National Bank of Georgia, for violating provisions and requirements of the Georgia Law and this Statute.

*Source: _cr1304 - 1. When carrying out operations (transactions, transfers) defined by Article 6(1b) of this*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1304.pdf_