## _cr1305 - 2012. The views expressed here, as well as in the full assessment report, are those of the staff

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---

### B. Key Findings
- The Georgian AML/CFT regime has significantly improved since the last assessment in 2007.
- Amendments to the legal framework enacted between 2008 and February 2012 improved technical compliance with the FATF recommendations, in particular with respect to the criminalization of ML and FT and the preventive measures for financial institutions.
- Significant progress since 2007 with regard to:
  - effective use of the ML criminal provisions,
  - provisional and confiscation measures,
  - international cooperation.
- Remaining weaknesses undermining effectiveness: combination of technical deficiencies, poor implementation, and limited resources affecting the FIU and AML/CFT supervision.
- Major loopholes identified in:
  - transparency of legal entities,
  - domestic cooperation,
  - measures to prevent terrorism financing,
  - preventive measures for designated non-financial businesses and professions (DNFBPs).
- Noted ML/FT vulnerabilities and threats:
  - customers that are, or are owned by, offshore companies for which the identity of their beneficial owners is unknown or where the identity has not been verified;
  - a rapid and ongoing increase of nonresident deposits;
  - the development of private banking activities, including a clientele of foreign politically-exposed persons (PEPs);
  - the rapid growth of the casino business and rising number of non-face–to-face transactions;
  - the existence of large Georgian-led criminal organizations abroad which exposes the risk of proceeds of crime being transferred back to Georgia;
  - domestic statistics demonstrating the existence of major proceeds-generating crimes, such as corruption, tax evasion, and drug trafficking.

### C. Legal Systems and Related Institutional Measures
- ML and FT criminalization
  - Georgia has a comprehensive legal framework criminalizing both ML and FT as autonomous offenses.
  - ML is criminalized through three separate provisions in the Criminal Code and provisions are in line with 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 offenses to ML are criminalized.
- Implementation concerns for ML provisions
  - Based on authorities’ statistics, ML provisions do not seem to be applied effectively to combat the most prevalent proceeds-generating crimes or to combat transnational organized crime.
  - Modest number of legal persons investigated or prosecuted for ML despite reported widespread use of companies in ML schemes.
  - Statutory sanctions are proportionate, but the liberal and frequent use of plea agreements, including in the majority of aggravated ML cases, undermines their dissuasive effect.
- FT offenses
  - FT is criminalized broadly in line with the FATF standard, but legal shortcomings remain.
  - 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” does not fully cover offenses in the Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation and the 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 available for all predicate offenses, ML and 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 that legal provisions could be applied more effectively to confiscate proceeds of other crimes; practice often applies confiscation only where property is actually available at time of conviction.
- UNSCRs implementation
  - Framework established and amended in December 2011; revisions constitute a significant improvement, but effectiveness could not be established given recent enactment.
- FIU performance issues
  - Some sectors not legally obliged to report suspicious transactions (real estate agents, lawyers, trust and company service providers (TCSPs), and electronic money institutions), limiting FIU's ability to request additional information.
  - Quality of analysis of STRs is poor due to lack of analytical tools and weak quality of reporting.
  - Limited use of FIU powers to access law enforcement information on ongoing investigations and prosecutions or information from financial and nonfinancial institutions other than banks.
  - Increased workload handled without corresponding budget increase and a significant decrease in human resources.
- Law enforcement framework and practice
  - Framework broadly in place; implementation needs improvement.
  - Since the Minister of Justice decision in 2010 recommending ML investigations when LEAs suspect illegal proceeds, number of ML investigations increased.
  - LEAs started better use of powers and investigative techniques but lack power to access information held by lawyers when conducting financial activities on behalf of clients.
  - LEAs need increased reliance on financial analysis and investigation techniques, especially for stand-alone ML cases, to trace origin of illegal funds, detect patterns, identify ultimate beneficial owners, and share information across agencies.
- Cross-border currency controls
  - Measures to detect physical cross-border transportation of currency and bearer negotiable instruments are not comprehensive nor effective.
  - Customs or other 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 declared.

### D. Preventive Measures – Financial Institutions
- Scope and coverage
  - Scope of preventive measures recently updated and relatively comprehensive, but does not cover factoring and credit card services (currently offered only by banks), electronic money, and investment funds.
  - Some MVT operators not subject to regulation and supervision, including electronic money institutions, casino accounts operated to move value within Georgia, and self-service terminals accepting cash and providing transfer facilities (Pay-boxes).
- CDD and record-keeping
  - Most CDD and record-keeping provisions required under the international standard are in place, but implementation and effectiveness are limited.
  - Deficiencies in legal framework: lack of prohibition on numbered accounts; existence of a minimum monetary threshold for when standard CDD must be carried out; inconsistencies relating to measures applied on a risk-sensitive basis; timing for undertaking CDD.
  - Implementation weaknesses: identification and verification of beneficial owners; documentation of purpose and nature of account business; ongoing CDD; application of risk-sensitive measures.
  - Major legal shortcomings regarding reliance on third parties and introduced business, and monitoring of wire transfers.
- Reporting obligations and STRs
  - Requirement for reporting ML and FT suspicious transactions and other information largely in line with the standard; 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; leasing and insurance companies not filing STRs.
  - High STR volumes explained by reliance on fixed indicators triggering automatic reports and tendency toward defensive reporting.
  - Overall quality of STRs is poor; reporting entities confused about distinction between monitoring transactions and reporting suspicious transactions due to lack of guidance.
  - While known FT risks exist in Georgia, no FT-related STRs have ever been received by the FIU.
- Internal controls and supervision
  - Internal control and compliance provisions need strengthening, particularly for money remittance operators and currency exchange bureaus.
  - These professions are not required to ensure AML compliance officer and relevant staff have timely access to customer information, nor obliged to screen employees and 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) improvements:
    - NBG exercises regulatory and supervisory oversight over around 1,700 institutions.
    - NBG has only 5 staff for onsite AML/CFT inspection.
    - Electronic money institutions are not yet subject to AML/CFT supervision.
    - Given limited resources, supervisory cycle has been 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 have been introduced but are too recent to be assessed.
  - Market entry reforms were recently introduced after the on-site mission; at time of onsite visit there were no fit or proper tests for owners and administrators for a number of categories of financial institutions.

### E. Preventive Measures – Designated Non-Financial Businesses and Professions (DNFBPs)
- Coverage and implementation
  - Preventive measures for DNFBPs substantially similar to those for financial institutions; implementation at early stages.
  - Preventive measures apply to notaries, casinos, dealers in precious metals and stones, and more recently, accountants.
  - Notaries have implemented majority of CDD requirements but identification of beneficial owners presents challenges; reporting levels for notaries relatively low; internal control implementation weak.
  - Casinos show little to no compliance with requirements other than customer identification; no STRs reported by casinos despite rapid industry growth.
  - Obligations for dealers in precious metals and stones not implemented.
  - Accountants subject to AML/CFT requirements since January 2012.
  - Absence of requirements for lawyers, real estate, and TCSPs exacerbates risk in vulnerable sectors.
- Supervision
  - Except for notaries, DNFBPs are not supervised.
  - A number of supervisory authorities designated as AML/CFT supervisors in their areas of responsibility, but other than Ministry of Justice activities for notaries, no AML/CFT examinations have been conducted.

### F. Legal Persons and Arrangements & Non-Profit Organizations
- Legal persons and beneficial ownership
  - Inability to ensure adequate and accurate information on beneficial ownership of legal entities is a serious weakness given risks of criminals integrating proceeds generated abroad or using Georgian entities to invest abroad.
  - Establishment of the National Agency of Public Registry (NAPR) has enhanced access to information on legal persons.
  - At time of the mission, most data in existing registries had not been migrated nor updated.
  - Bearer shares exist under Georgian law but, except for listed companies, there are no appropriate measures to ensure bearer shares are not misused for money laundering.
- Nonprofit organizations (NPOs)
  - Measures relating to NPOs are deficient and do not adequately address risks in Georgia.
  - 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 deemed unreliable.
  - Lack of outreach to NPO sector.
  - Domestic coordination mechanisms related to NPOs are weak and there is no appropriate point of contact and procedures to respond to international requests related to NPOs.

### G. National and International Co-operation
- National coordination
  - Georgia does not have a central coordinating body/committee to steer and coordinate development and implementation of policies and activities to combat ML and TF.
  - No mechanism allowing cooperation between supervisory agencies of FIs and DNFBPs, notably the NBG, the Ministry of Justice, and the Ministry of Finance.
- Mutual legal assistance and extradition
  - Georgia’s mutual legal assistance (MLA) framework is solid and allows provision of a wide range of assistance to foreign countries in criminal investigations and prosecutions.
  - Assistance does not seem subject to unduly restrictive or unreasonable requirements.
  - Some grounds for refusal of MLA are drafted in a rather general manner, but low number of rejected requests suggests narrow interpretation in practice.
  - Both ML and FT are extraditable offenses.
  - For assistance requiring dual criminality, shortcomings in FT offense may limit Georgia’s ability to provide MLA or extradite in certain cases.
  - Georgia’s lack of diplomatic relations with Russia constitutes a practical challenge to effectively provide and receive international cooperation in ML and FT cases.

### International cooperation: summary finding
- Information exchanged with foreign FIUs is comprehensive; however timeliness could be improved and the FIU would benefit from making more proactive use of international collaboration channels.
- The NBG is responsive to requests from foreign supervisors but could make additional use of cooperation mechanisms to help ascertain if fit-and-proper criteria are met.
- LEAs exchange information through a variety of channels including Interpol as well as bilateral and multilateral agreements.
- There is a lack of a clear legal basis that allows LEAs to compel production of information detained by lawyers based on international requests.

### Key ratings and overall assessment (selected entries preserved verbatim)
- FATF 40+9 Recommendations and Ratings (context line preserved).
- Legal System and Related Institutional Measures
  - R.1          LC
  - R.2          LC
  - R.3          LC
  - SR.II       PC
- The Financial Intelligence Unit and its functions
  - R.26        PC
- Law enforcement, prosecution and other competent authorities
  - R.27        LC
  - R.28        LC
- Cross Border Declaration or disclosure
  - SR IX     NC
- Preventive Measures: Financial Institutions (selected)
  - R.5          PC
  - R.6          LC
  - R.7          PC
  - R.8          PC
- Suspicious transaction reports and other reporting
  - R.13        LC
  - R.14        LC
  - R.19        C
  - R.25        PC
  - SR.IV     LC
- Supervisory and oversight system–competent authorities and SROs
  - R.17        LC
  - R.23        PC
  - R.25        PC
  - R.29        LC
- Preventive Measures: Non-Financial Businesses and Professions
  - R.12        NC
  - R.16        PC
  - R.24        NC
  - R.20        LC
- Legal Persons and Arrangements & Nonprofit Organizations
  - R.33        PC
  - R.34        NA
  - SR.VIII  PC
- National and International Cooperation
  - R.31        PC
  - R.35        LC
  - SR.I        PC
  - R.36        LC
  - R.37        C
  - R.38        LC
  - SR.V       PC
  - R.39        LC
  - R.40        LC
  - SR.V       LC
- Other Issues
  - R.30        PC
  - R.32        LC

### Key assessor recommendations on international cooperation and related items
- 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.

### Selected operational and legal recommendations (extracted)
- 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.
- Amend Article 323 to remove the requirement that an act “infringes upon public safety, etc.”
- 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.
- 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.
- 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.
- Authorities should 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.
- Maintain in a systematic fashion comprehensive statistics on international cooperation by LEAs and supervisors, including whether the request was granted or refused.

### Resources, statistics and capacity recommendations
- 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 comprehensive statistics on international cooperation.

### Authorities’ response: main points
- Georgian authorities have put the recommendations into an Action Plan to implement corrective measures.
- Authorities dispute some ratings (e.g., R7, 11, 15, 25, 26) as being rated partially compliant without sufficient justification.
- Specific points raised by authorities:
  - R.7: assert that the large majority of essential criteria are fully met by the Georgian AML/CFT legal framework.
  - R.11: argue evaluators’ conclusions on effectiveness are subjective.
  - R.15: assert essential criteria are fully met; note practical burdens on sole entrepreneurs (currency exchange bureaus and money remittance services) to employ a separate AML/CFT compliance officer.
  - R.26: cite factual circumstances evaluators did not fully consider, including:
    - Publication of annual reports on the official web site of the FIU;
    - Publication of guidance by the FMS for each monitoring entity on the manner of reporting (since the establishment of reporting obligations);
    - Access of the FIU to a large number of databases (list of databases are given in par 322).
  - Note on FMS budget and staffing: since 2007 the budget of the FMS has only been increased (paragraph 352), and workload increases were addressed by special software facilitating data collection within FIU; evaluators did not fully account for these circumstances.
- Authorities reaffirm commitment to continue efforts under the Action Plan to strengthen the AML/CFT legal framework of Georgia in compliance with FATF standards.

*Source: _cr1305 - 24.      International cooperation mechanisms are in place for the FIU, LEAs, and*

### 2012. The views expressed here, as well as in the full assessment report, are those of the staff

### _cr1305 - 2012. The views expressed here, as well as in the full assessment report, are those of the staff

### B. Key Findings
- The Georgian AML/CFT regime has significantly improved since the last assessment in 2007.
- Amendments to the legal framework enacted between 2008 and February 2012 improved technical compliance with the FATF recommendations, in particular with respect to the criminalization of ML and FT and the preventive measures for financial institutions.
- Significant progress since 2007 with regard to:
  - effective use of the ML criminal provisions,
  - provisional and confiscation measures,
  - international cooperation.
- Remaining weaknesses undermining effectiveness: combination of technical deficiencies, poor implementation, and limited resources affecting the FIU and AML/CFT supervision.
- Major loopholes identified in:
  - transparency of legal entities,
  - domestic cooperation,
  - measures to prevent terrorism financing,
  - preventive measures for designated non-financial businesses and professions (DNFBPs).
- Noted ML/FT vulnerabilities and threats:
  - customers that are, or are owned by, offshore companies for which the identity of their beneficial owners is unknown or where the identity has not been verified;
  - a rapid and ongoing increase of nonresident deposits;
  - the development of private banking activities, including a clientele of foreign politically-exposed persons (PEPs);
  - the rapid growth of the casino business and rising number of non-face–to-face transactions;
  - the existence of large Georgian-led criminal organizations abroad which exposes the risk of proceeds of crime being transferred back to Georgia;
  - domestic statistics demonstrating the existence of major proceeds-generating crimes, such as corruption, tax evasion, and drug trafficking.

### C. Legal Systems and Related Institutional Measures
- ML and FT criminalization:
  - Georgia has a comprehensive legal framework criminalizing both ML and FT as autonomous offenses.
  - ML is criminalized through three separate provisions in the Criminal Code and provisions are in line with 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 offenses to ML are criminalized.
- Implementation concerns for ML provisions:
  - Based on authorities’ statistics, ML provisions do not seem to be applied effectively to combat the most prevalent proceeds-generating crimes or to combat transnational organized crime.
  - Modest number of legal persons investigated or prosecuted for ML despite reported widespread use of companies in ML schemes.
  - Statutory sanctions are proportionate, but the liberal and frequent use of plea agreements, including in the majority of aggravated ML cases, undermines their dissuasive effect.
- FT offenses:
  - FT is criminalized broadly in line with the FATF standard, but legal shortcomings remain.
  - 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” does not fully cover offenses in the Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation and the 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 available for all predicate offenses, ML and 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 that legal provisions could be applied more effectively to confiscate proceeds of other crimes; practice often applies confiscation only where property is actually available at time of conviction.
- UNSCRs implementation:
  - Framework established and amended in December 2011; revisions constitute a significant improvement, but effectiveness could not be established given recent enactment.
- FIU performance issues:
  - Some sectors not legally obliged to report suspicious transactions (real estate agents, lawyers, trust and company service providers (TCSPs), and electronic money institutions), limiting FIU's ability to request additional information.
  - Quality of analysis of STRs is poor due to lack of analytical tools and weak quality of reporting.
  - Limited use of FIU powers to access law enforcement information on ongoing investigations and prosecutions or information from financial and nonfinancial institutions other than banks.
  - Increased workload handled without corresponding budget increase and a significant decrease in human resources.
- Law enforcement framework and practice:
  - Framework broadly in place; implementation needs improvement.
  - Since the Minister of Justice decision in 2010 recommending ML investigations when LEAs suspect illegal proceeds, number of ML investigations increased.
  - LEAs started better use of powers and investigative techniques but lack power to access information held by lawyers when conducting financial activities on behalf of clients.
  - LEAs need increased reliance on financial analysis and investigation techniques, especially for stand-alone ML cases, to trace origin of illegal funds, detect patterns, identify ultimate beneficial owners, and share information across agencies.
- Cross-border currency controls:
  - Measures to detect physical cross-border transportation of currency and bearer negotiable instruments are not comprehensive nor effective.
  - Customs or other 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 declared.

### D. Preventive Measures – Financial Institutions
- Scope and coverage:
  - Scope of preventive measures recently updated and relatively comprehensive, but does not cover factoring and credit card services (currently offered only by banks), electronic money, and investment funds.
  - Some MVT operators not subject to regulation and supervision, including electronic money institutions, casino accounts operated to move value within Georgia, and self-service terminals accepting cash and providing transfer facilities (Pay-boxes).
- CDD and record-keeping:
  - Most CDD and record-keeping provisions required under the international standard are in place, but implementation and effectiveness are limited.
  - Deficiencies in legal framework: lack of prohibition on numbered accounts; existence of a minimum monetary threshold for when standard CDD must be carried out; inconsistencies relating to measures applied on a risk-sensitive basis; timing for undertaking CDD.
  - Implementation weaknesses: identification and verification of beneficial owners; documentation of purpose and nature of account business; ongoing CDD; application of risk-sensitive measures.
  - Major legal shortcomings regarding reliance on third parties and introduced business, and monitoring of wire transfers.
- Reporting obligations and STRs:
  - Requirement for reporting ML and FT suspicious transactions and other information largely in line with the standard; 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; leasing and insurance companies not filing STRs.
  - High STR volumes explained by reliance on fixed indicators triggering automatic reports and tendency toward defensive reporting.
  - Overall quality of STRs is poor; reporting entities confused about distinction between monitoring transactions and reporting suspicious transactions due to lack of guidance.
  - While known FT risks exist in Georgia, no FT-related STRs have ever been received by the FIU.
- Internal controls and supervision:
  - Internal control and compliance provisions need strengthening, particularly for money remittance operators and currency exchange bureaus.
  - These professions are not required to ensure AML compliance officer and relevant staff have timely access to customer information, nor obliged to screen employees and 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) improvements:
    - NBG exercises regulatory and supervisory oversight over around 1,700 institutions.
    - NBG has only 5 staff for onsite AML/CFT inspection.
    - Electronic money institutions are not yet subject to AML/CFT supervision.
    - Given limited resources, supervisory cycle has been 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 have been introduced but are too recent to be assessed.
  - Market entry reforms were recently introduced after the on-site mission; at time of onsite visit there were no fit or proper tests for owners and administrators for a number of categories of financial institutions.

### E. Preventive Measures – Designated Non-Financial Businesses and Professions (DNFBPs)
- Coverage and implementation:
  - Preventive measures for DNFBPs substantially similar to those for financial institutions; implementation at early stages.
  - Preventive measures apply to notaries, casinos, dealers in precious metals and stones, and more recently, accountants.
  - Notaries have implemented majority of CDD requirements but identification of beneficial owners presents challenges; reporting levels for notaries relatively low; internal control implementation weak.
  - Casinos show little to no compliance with requirements other than customer identification; no STRs reported by casinos despite rapid industry growth.
  - Obligations for dealers in precious metals and stones not implemented.
  - Accountants subject to AML/CFT requirements since January 2012.
  - Absence of requirements for lawyers, real estate, and TCSPs exacerbates risk in vulnerable sectors.
- Supervision:
  - Except for notaries, DNFBPs are not supervised.
  - A number of supervisory authorities designated as AML/CFT supervisors in their areas of responsibility, but other than Ministry of Justice activities for notaries, no AML/CFT examinations have been conducted.

### F. Legal Persons and Arrangements & Non-Profit Organizations
- Legal persons and beneficial ownership:
  - Inability to ensure adequate and accurate information on beneficial ownership of legal entities is a serious weakness given risks of criminals integrating proceeds generated abroad or using Georgian entities to invest abroad.
  - Establishment of the National Agency of Public Registry (NAPR) has enhanced access to information on legal persons.
  - At time of the mission, most data in existing registries had not been migrated nor updated.
  - Bearer shares exist under Georgian law but, except for listed companies, there are no appropriate measures to ensure bearer shares are not misused for money laundering.
- Nonprofit organizations (NPOs):
  - Measures relating to NPOs are deficient and do not adequately address risks in Georgia.
  - 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 deemed unreliable.
  - Lack of outreach to NPO sector.
  - Domestic coordination mechanisms related to NPOs are weak and there is no appropriate point of contact and procedures to respond to international requests related to NPOs.

### G. National and International Co-operation
- National coordination:
  - Georgia does not have a central coordinating body/committee to steer and coordinate development and implementation of policies and activities to combat ML and TF.
  - No mechanism allowing cooperation between supervisory agencies of FIs and DNFBPs, notably the NBG, the Ministry of Justice, and the Ministry of Finance.
- Mutual legal assistance and extradition:
  - Georgia’s mutual legal assistance (MLA) framework is solid and allows provision of a wide range of assistance to foreign countries in criminal investigations and prosecutions.
  - Assistance does not seem subject to unduly restrictive or unreasonable requirements.
  - Some grounds for refusal of MLA are drafted in a rather general manner, but low number of rejected requests suggests narrow interpretation in practice.
  - Both ML and FT are extraditable offenses.
  - For assistance requiring dual criminality, shortcomings in FT offense may limit Georgia’s ability to provide MLA or extradite in certain cases.
  - Georgia’s lack of diplomatic relations with Russia constitutes a practical challenge to effectively provide and receive international cooperation in ML and FT cases.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1305.pdf*

### 24.      International cooperation mechanisms are in place for the FIU, LEAs, and

### 24.      International cooperation mechanisms are in place for the FIU, LEAs, and

### International cooperation: summary finding
- Information exchanged with foreign FIUs is comprehensive; however timeliness could be improved and the FIU would benefit from making more proactive use of international collaboration channels.
- The NBG is responsive to requests from foreign supervisors but could make additional use of cooperation mechanisms to help ascertain if fit-and-proper criteria are met.
- LEAs exchange information through a variety of channels including Interpol as well as bilateral and multilateral agreements.
- There is a lack of a clear legal basis that allows LEAs to compel production of information detained by lawyers based on international requests.

### Key ratings and overall assessment (selected entries preserved verbatim)
- FATF 40+9 Recommendations and Ratings (context line preserved).
- Legal System and Related Institutional Measures
  - R.1          LC
  - R.2          LC
  - R.3          LC
  - SR.II       PC
- The Financial Intelligence Unit and its functions
  - R.26        PC
- Law enforcement, prosecution and other competent authorities
  - R.27        LC
  - R.28        LC
- Cross Border Declaration or disclosure
  - SR IX     NC
- Preventive Measures: Financial Institutions (selected)
  - R.5          PC
  - R.6          LC
  - R.7          PC
  - R.8          PC
- Suspicious transaction reports and other reporting
  - R.13        LC
  - R.14        LC
  - R.19        C
  - R.25        PC
  - SR.IV     LC
- Supervisory and oversight system–competent authorities and SROs
  - R.17        LC
  - R.23        PC
  - R.25        PC
  - R.29        LC
- Preventive Measures: Non-Financial Businesses and Professions
  - R.12        NC
  - R.16        PC
  - R.24        NC
  - R.20        LC
- Legal Persons and Arrangements & Nonprofit Organizations
  - R.33        PC
  - R.34        NA
  - SR.VIII  PC
- National and International Cooperation
  - R.31        PC
  - R.35        LC
  - SR.I        PC
  - R.36        LC
  - R.37        C
  - R.38        LC
  - SR.V       PC
  - R.39        LC
  - R.40        LC
  - SR.V       LC
- Other Issues
  - R.30        PC
  - R.32        LC

### Key assessor recommendations on international cooperation and related items
- 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.

### Selected operational and legal recommendations (extracted)
- 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.
- Amend Article 323 to remove the requirement that an act “infringes upon public safety, etc.”
- 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.
- 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.
- 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.
- Authorities should 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.
- Maintain in a systematic fashion comprehensive statistics on international cooperation by LEAs and supervisors, including whether the request was granted or refused.

### Resources, statistics and capacity recommendations
- 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 comprehensive statistics on international cooperation.

### Authorities’ response: main points
- Georgian authorities have put the recommendations into an Action Plan to implement corrective measures.
- Authorities dispute some ratings (e.g., R7, 11, 15, 25, 26) as being rated partially compliant without sufficient justification.
- Specific points raised by authorities:
  - R.7: assert that the large majority of essential criteria are fully met by the Georgian AML/CFT legal framework.
  - R.11: argue evaluators’ conclusions on effectiveness are subjective.
  - R.15: assert essential criteria are fully met; note practical burdens on sole entrepreneurs (currency exchange bureaus and money remittance services) to employ a separate AML/CFT compliance officer.
  - R.26: cite factual circumstances evaluators did not fully consider, including:
    - Publication of annual reports on the official web site of the FIU;
    - Publication of guidance by the FMS for each monitoring entity on the manner of reporting (since the establishment of reporting obligations);
    - Access of the FIU to a large number of databases (list of databases are given in par 322).
  - Note on FMS budget and staffing: since 2007 the budget of the FMS has only been increased (paragraph 352), and workload increases were addressed by special software facilitating data collection within FIU; evaluators did not fully account for these circumstances.
- Authorities reaffirm commitment to continue efforts under the Action Plan to strengthen the AML/CFT legal framework of Georgia in compliance with FATF standards.

*Source: _cr1305 - 24.      International cooperation mechanisms are in place for the FIU, LEAs, and*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1305.pdf_