MODEL REGULATIONS CONCERNING LAUNDERING OFFENSES CONNECTED TO ILLICIT DRUG TRAFFICKING AND RELATED OFFENSES

(Considered and adopted by the General Assembly at its 22nd regular session held in The Bahamas, on May 18th to 23rd, 1992)

INTRODUCTION

Considering the provisions of the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances signed in Vienna, Austria on December 20, 1988 and in force since November 11, 1990 and the mandate contained in point 6 of the Declaration and Program of Action of Ixtapa,approved at the Ministerial Meeting of Ixtapa, Mexico on April 20 1990, the General Assembly of the Organization of American States (OAS) recommends to the Member States, pursuant to the basic provisions of their respective legal systems, that they adopt the norms contained in the following Model Regulations.

These Model Regulations have been prepared reconciling, whenever pertinent, the legal systems prevailing in the inter-American region.

Article 1

DEFINITIONS

The following definitions shall be applicable throughout the text of these Regulations except when another is expressly indicated:

1. "Convention" means the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which was signed in Vienna, Austria, on December 20, 1988, and entered into force on November 11, 1990.

2. "Forfeiture" means the permanent deprivation of property by order of a court or other competent authority.

3. "Freezing" or "seizure" means temporarily prohibiting the transfer, conversion, disposition or movement of property or temporarily assuming custody or control of property on the basis of an order issued by a court or other competent authority.

4. "Illicit traffic" means the offences set forth in the Convention and in these Regulations.

5. "Instrumentality" means something that is used in or intended for use in any manner in the commission of illicit traffic or related offences.

6. "Person" means any entity, natural or juridical, including among others, a corporation, partnership, trust or estate, joint stock company, association, syndicate, joint venture, or other unincorporated organization or group, capable of acquiring rights or entering into obligations.

7. "Proceeds" means any property derived from or obtained, directly or indirectly, through the commission of illicit traffic or related offences.

8. "Property" means assets of every kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or Instruments evidencing title to, or interest in, such assets.

Article 2

LAUNDERING OFFENCES

1. A criminal offence is committed by any person who converts or transfers property and knows, should have known, or is intentionally ignorant that such property is proceeds from illicit traffic or related offences.

2. A criminal offence is committed by any person who acquires, possesses, or uses property and knows, should have known, or is intentionally ignorant that such property is proceeds from ilIicit traffic or related offences.

3. A criminal offence is committed by any person who conceals, disguises or impedes the establishment of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property and knows, should have known, or is intentionally ignorant that such property is proceeds from illicit traffic or related offences.

4. A criminal offence is committed by any person who participates in, associates with, conspires to commit, attempts to commit, aids and abets, facilitates and counsels, incites publicly or privately the commission of any of the offences established in accordance with this Article, or who assists any person participating in such an offence or offences to evade the legal consequences of his actions.

5. Knowledge, intent or purpose required as an element of any offence set forth in this Article may be inferred from objective, factual circumstances.

6. An offence defined in this Article shall be investigated, tried, judged and sentenced by a court or other competent authority as an offence distinct from other illicit traffic or related offences.

Article 3

JURISDICTION

The offences defined in Article 2 shall be investigated, tried, judged and sentenced by a court or other competent authority regardless of whether or not the illicit traffic or related offences occurred in another territorial jurisdiction, without prejudice to extradition when applicable in accordance with the law.

ARTICLE 4

PREVENTlVE MEASURES RELATING TO PROPERTY, PROCEEDS OR INSTRUMENTALITIES

In accordance with the law, the court or other competent authority shall issue, at any time, without prior notification or hearing, a freezing or seizure order, or any other preventive or provisional measure intended to preserve the availability of property, proceeds or instrumentalities connected to illicit traffic or related offences, for its eventual forfeiture.

Article 5

FORFEITURE OF PROPERTY, PROCEEDS OR INSTRUMENTALITIES

1. When a person is convicted of an illicit traffic or related offence, the court shall order that the property, proceeds or instrumentalities connected to such an offence be forfeited and disposed of in accordance with the law.

2. When, as a result of any act or omission of the person convicted, any of the property, proceeds or instrumentalities described in the previous paragraph cannot be forfeited, the court shall order the Forfeiture of any other property of the person convicted, for an equivalent value or shall order the person convicted to pay a fine of such value.

Article 6
BONA FIDE THIRD PARTIES

1. The measures and sanctions referred to in Articles 4 and 5 shall apply without prejudice to the rights of bona fide third parties.

2. In accordance with the law, proper notification shall be made so that all those claiming a legitimate legal interest in property, proceeds or instrumentalities may appear in support of their claims.

3. A third party's lack of good faith may be inferred, at the discretion of the court or other competent authority, from the objective circumstances of the case.

4. In accordance with the law, the court or other competent authority shall return the property, proceeds or instrumentalities to the claimant, when it has been demonstrated to its satisfaction that:

a) the claimant has a legitimate legal interest in the property, proceeds or instrumentalities;

b) no participation, collusion or involvement with respect to iilicit traffic or related offences which are the object of the proceedings can be imputed to the claimant;

c) the claimant lacked knowledge and was not intentionally ignorant of the illegal use of the property, proceeds or instrumentalities, or if he had knowledge, did not freely consent to its illegal use;

d) the claimant did not acquire any right in the property, proceeds or instrumentalities from a person proceeded against under circumstances that give rise to a reasonable inference that any right was transferred for the purpose of avoiding the eventual subsequent forfeiture of the property, proceeds or instrumentalities, and;

e) the claimant did all that could reasonably be expected to prevent the illegal use of the property, proceeds or instrumentalities.

Article 7

DISPOSITION OF FORFEITED PROPERTY, PROCEEDS OR INSTRUMENTALlTlES

Whenever property, proceeds or instrumentalities that are not required to be destroyed and that are not harmful to the public are forfeited under Article 5, the court or other competent authority may, in accordance with the law:

a) retain them for official use, or transfer them to any government agency that participated directly or indirectly in their freezing, seizure, or forfeiture;

b) sell them and transfer the proceeds from such sale to any government agency that participated directly or indirectly in their freezing, seizure, or forfeiture. It may also deposit the proceeds from the sale into the Special Fund provided for in the Inter-American Program of Action of Rio de Janeiro, or into other Funds to be used by the competent authorities in their fight against illicit traffic, prevention of the unlawful use of drugs, treatment, rehabilitation or social reintegration of those affected by its use;

c) transfer the property, proceeds or instrumentalities, or the proceeds from their sale, to any private entity dedicated to the prevention of the unlawful use of drugs, treatment, rehabilitation or social reintegration of those affected by its use.

d) transfer the object of the forfeiture or the proceeds from its sale to any other country which participated directly or indirectly in the freezing, seizure, or forfeiture of the property, if such a transfer is authorized by an international agreement; or

e) transfer the object of the forfeiture or the proceeds from its sale to intergovernmental bodies specializing in the fight against illicit traffic, prevention of the unlawful use of drugs, treatment, rehabilitation or social reintegration of those affected by its use.

Article 8

PROPERTY, PROCEEDS OR INSTRUMENTALITIES OF FOREIGN OFFENCES

The court or other competent authority may order, in accordance whit the law, the freezing, seizure, or forfeiture of any property, proceeds or instrumentalities in its territorial jurisdiction when they are connected to illicit traffic or related offences committed against the laws of another country, and when that offence would have been an offence if committed within its jurisdiction.

Article 9

FINANCIAL INSTITUTIONS AND ACTIVITIES

1. For the purpose of these Regulations, financial institutions are, among others:

a) a commercial bank, trust company, savings and loan association, building and loan association, savings bank, industrial bank, creditù union, or other thrift institution or establishment authorized to do business under the domestic banking laws, whether these be publiclyor privately owned, or mixed;

b) a broker or dealer in securities;

c) a currency dealer or exchanger;

2. Likewise, those persons carrying out the following activities shall be considered to be financial institutions:
a) a systematic or substantial cashing of checks;

b) a systematic or substantial issuance, sale or redemption of traveler's checks or money orders;

c) a systematic or substantial transmitting of funds;

d) any other activity subject to supervision by government bank or other financial institution authorities.

Article 10

IDENTIFICATION OF CLIENTS AND MAINTENANCE OF RECORDS

1. Financial institutions shall maintain accounts in the name of the accountholder. They may not keep anonymous accounts or accounts which are in fictitious or incorrect names.

2. Financial institutions shall record and verify by reliable means, the identity, representative capacity, domicile, legal capacity, occupation or business purpose of persons, as well as other identifying information on those persons, whether they be occasional or usual clients, through the use of documents such as identity documents, passports, birth certificates, driver's license, partnership contracts and incorporation papers, or any other official or private documents, when establishing or conducting business relations, especially when opening new accounts or passbooks, entering into fiduciary transactions, renting of safe deposit boxes, or performing cash transactions over an amount specified by the competent authority.

3. Financial institutions shall take reasonable measures to obtain and record information about the true identity of the person on whose behalf an account is opened or a transaction is conducted, if there are any doubts that a client is acting on his/her own behalf, particularly in the case of a juridical person who is not conducting any commercial, financial, or industrial operations in the State where it has its headquarters or domicile.

4. Financial institutions shall maintain during the period in which an operation is in effect, and for at least five years after the conclusion of the transaction, the records of the information and documentation required in this Article.

5. Financial institutions shall maintain records on customer identification, account files, and business correspondence as determined by the competent authority, for at least five years after the account has been closed.

6. Financial institutions shall also maintain records to enable the reconstruction of financial transactions in excess of an amount specified by the competent authority, for at least five years after the conclusion of the transaction.

Article 11

AVAILABILITY OF RECORDS

1. Financial institutions shall comply promptly,- and within the period of time to be established, with information requests from the competent authorities concerning the records of information and documentation referred to in the previous Article, for use in criminal, civil, or administrative investigations, prosecutions, or proceedings, as the case may be, regarding illicit traffic or related offences, or violations of the provisions of these Regulations.

Financial institutions shall not notify any person, other than a court, competent authority or other person authorized by law, that information has been requested by or furnished to a court or other competent authority.

2. The competent authorities shall share with other national competent authorities said information, in accordance with the law, and when it concerns illicit traffic or related offences, or violations of the provisions of these Regulations.

The competent authorities shall treat as confidential the information referred to in this Article, except insofar as such information is necessary for use in criminal, civil, or administrative investigations, prosecutions, or proceedings, as the case may be, regarding illicit traffic or related offences, or violations of the provisions of these Regulations.

3. The competent authorities may share such information with the competent authorities of other States, in accordance with the law.

4. The legal provisions referring to bank secrecy or confidentiality shall not be an impediment to compliance with this Article, when the information is requested by or shared with the court or other competent authority.

Article 12

RECORDING AND REPORTING OF CASH TRANSACTIONS

1. Each financial institution shall record, on a form designed by the competent authority, each cash transaction involving a domestic or foreign currency transaction exceeding an amount specified by the competent authority.

2. The form referred to in the previous paragraph shall include, at a minimum, the following data for each transaction:

a) the identity, signature, and address of the person who conducts physically the transaction;

b) the identity and address of the person in whose name the transaction is conducted;

c) the identity and address of the beneficiary or the person on whose behalf the transaction is conducted, as applicable;

d) the identity of the accounts affected by the transaction, if any;

e) the type of transaction involved, such as deposit, withdrawal, exchange of currency, check cashing, purchase of certified or cashier's checks or money orders, or other payment or transfer by, through, or to such financial institution;

f) the identity of the financial institution where the transaction occurred; and

g) the date. time, and amount of the transaction.

3. This record shall be recorded, accurately and completely, by the financial institution on the day the transaction has occurred and shall be maintained for a period of five years from the date of the transaction.

4. Multiple cash transactions in domestic or foreign currency which, altogether, exceed a specified amount, shall be treated as a single transaction if they are undertaken by or on behalf of any one person during any one day or any other period established by the competent authority. In such a case, when a financial institution, its employees, officers or agents have knowledge of these transactions, they shall record these transactions on the form determined by the competent authority.

5. For transactions conducted on their own account between the financial institutions defined in Article 9 paragraph 1 (a) that are subject to supervision by the domestic banking and financial authorities, recording on the form referred to in this Article shall not be required.

6. These records shall be available to the court or other competent authority, in accordance with the law, for use in criminal, civil or administrative investigations, prosecutions or proceedings, as the case may be, connected to illicit traffic or related offences, or violations of the provisions of these Regulations.

7. When it deems advisable, the competent authority may establish that financial institutions file with it, within such time as the competent authorities may establish, the form referred to in paragraphs 1, 2 and 3 of this Article. This form shall serve as evidence or as an official report, and shall be used for the same purposes as referred to in paragraph 6 of this Article.

8. Financial institutions shall not notify any person, other than a court, competent authority or holder person authorized by law, that information has been requested by or furnished to a court or other competent authority.

9. The legal provision referring to bank secrecy or confidentiality shall not be an impediment to compliance with this Article, when the information is requested by or shared with the court or other competent authority.

Article 13

REPORTING OF SUSPICIOUS FINANClAL TRANSACTIONS

1. Financial institutions shall pay special attention to all complex, unusual or large transactions, whether completed or not, and to all unusual patterns of transactions, and to insignificant but periodic transactions, which have no apparent economic or lawful purpose.

2. Upon suspicion that the transactions described in paragraph 1 of this Article could constitute or be related to illicit activities, financial institutions shall promptly report the suspicious transactions to the competent authorities.

3. Financial institutions shall not notify any person, other than a court, competent authority or other person authorized by law, that information has been requested by or furnished to a court or other competent authority.

4. When the report referred to in paragraph 2 of this Article is made in good faith, the financial institutions and their employees, staff, directors, owners or other representative as authorized by law, shall be exempted from criminal,civil and/or administrative liability, as the case may be, for complying with this Article or for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, regardless of the result of the communication.

Article 14

LIABILITY OF A FINANCIAL INSTITUTION

1. Financial institutions, or their employees, staff, directors, owners or other authorized representatives who, acting as such, participate in illicit traffic or related offences, shall be subject to more severe sanctions.

2. Financial institutions shall be liable, in accordance with the law, for the actions of their employees, staff, directors, owners or other authorized representatives who, acting as such, participate in the commission of any offence described in Article 2 of these Regulations. Such liability may include, among other measures, the imposition of a fine, temporary suspension of business or charter, or suspension or revocation of the license to operate as a financial institution.

3. A criminal offence is committed by a financial institution or its employees, staff, director, owners or other authorized representatives who, acting as such, willfully fail to comply with the obligations in Articles 10 through 13 of these Regulations, or who willfully make a false or falsified record or report as referred to in the above mentioned Articles.

4. Without prejudice to criminal and/or civil liabilities for offences connected to illicit traffic or related offences, financial institutions that fail to comply with the obligations described in Articles 10 through 13 and 15 of these Regulations, shall be subject to other sanctions, such as imposition of a fine, temporary suspension of business or charter, or suspension or revocation of the license to operate as a financial institution.

Article 15
MANDATORY COMPLIANCE PROGRAMS IN FINANCIAL INSTlTUTlONS

1. Financial institutions, pursuant to the regulation and supervision referred to in Article 17 of these Regulations shall adopt, develop and implement internal programs, policies, procedures and controls to guard and detect against the offences described in Article 2 of these Regulations. Such programs shall include, at a minimum:

2) the establishment of procedures to ensure high standards of integrity of their employees and a system to evaluate the personal, employment and financial history of these employees;

b) on-going employee training programs, such as "know-your-client" programs, and instructing employees in the responsibilities indicated in Articles 10 through 13 of these Regulations;

c) an independent audit function to check compliance with the
programs.

2. Financial institutions shall also designate compliance officers at management level in charge of the application of the internal programs and procedures, including proper maintenance of records and reporting of suspicious transactions. These officers shall function as liaison with the competent authorities.

Article 16

PROVISIONS FOR OTHERS RESPONSIBLE

When it deems advisable, the competent authority shall extend the application of the relevant provisions of these Regulations relating to financial institutions, to any type of economic activities when a transaction is carried out in cash and in excess of an amount specified by the competent authority, such as:

a) the sale or transfer of real estate, weapons, metals, art, archaeological objects, jewelry, automobiles, boats, planes, or other consumer durables, COLLECTIBLES, or travel or entertainment-related services;

b) casino or other gambling operations; or

c) professional services.

Article 17

OBLlGATIONS OF THE COMPETENT AUTHORITIES

1. In accordance with the law, the competent authorities, and especially those with regulatory and supervisory power over financial Institutions shall, among other obligations:

a) grant, deny, suspend or cancel licenses or permits for the operation of financial institutions;

b) adopt the necessary measures to prevent and/or avoid any person who is unsuitable from controlling, or participating, directly or indirectly, in the directorship, management or operation of a financial institution;

c) examine and supervise financial institutions, and regulate and oversee effective compliance with the record keeping and reporting obligations specified in these Regulations;

d) verify, through regular examinations, that the financial institutions have and apply the mandatory compliance programs referred to in Article 1 of these Regulations;

e) provide other competent authorities with the information obtained from financial institutions in conformity with these Regulations, including that information which results from an examination of any financial institution;

f) prescribe instructions or recommendations to assist financial institutions in detecting suspicious patterns of behavior in their clients. These guidelines shall be developed taking Into account modern and secure techniques of money management and will serve as an educational tool for financial institutions' personnel;

g) cooperate with other competent authorities and lend technical assistance in investigations, prosecutions or proceedings relating to the offences described in Article 2 of these Regulations, and other illicit traffic and related offences.

2. The competent authorities, and especially those with regulatory and supervisory power over financial institutions shall, in accordance with the law, report promptly to other competent authorities regarding any information received from financial institutions concerning suspicious transactions or activities that could be related to the offences described in Article 2 of these Regulations and other illicit traffic or related offences.

3. The competent authorities, and especially those with regulatory and supervisory power over financial institutions shall, in accordance with the law, cooperate closely with the competent authorities from other States in investigations, proceedings or prosecutions relating to the offences described in Article 2 of these Regulations, other illicit traffic or related offences, and to violations of the laws and administrative regulations dealing with financial institutions.

Article 18

INTERNATIONAL COOPERATION

1. The court or other competent authority shall cooperate with the court or other competent authority of another State, taking the appropriate measures to provide assistance in matters concerning illicit traffic or related offences, in accordance with these Regulations, and within the limits of their respective legal systems.

2. The court or other competent authority may receive a request from the court or other competent authority of another State to identify, trace, freeze, seize or forfeit the property, proceeds, or instrumentalities connected to illicit traffic or related offences, and may take appropriate actions, including those contained in Articles 4 and 5 of these Regulations.

3. A final judicial order or judgment that provides for the forfeiture of property, proceeds or instrumentalities connected to illicit traffic or related offences, issued by a court or other competent authority of another State, may be recognized as evidence that the property, proceeds or instrumentalities referred to by such order or judgement may be subject to forfeiture in accordance with the law.

4. The court or other competent authority may receive and take appropriate measures with respect to a request from a court or other competent authority from another State, for assistance related to a civil, criminal, or administrative investigation, prosecution or proceeding, as the case may be, involving illicit traffic or a related offence, or violations of any provision established in these Regulations. Such assistance may include providing original or certified copies of relevant documents and records, including those of financial institutions and government agencies; obtaining testimony in the requested State; facilitating the voluntary presence or availability in the requesting; State of persons, including those in custody, to give testimony; locating or identifying persons; servicing of documents; examining objects and places; executing searches and seizures; providing information and evidentiary items; and provisional measures.

5. The legal provisions referring to bank secrecy or confidentiality shall not be an impediment to compliance with this Article, when the information is requested by or shared with the court or other competent authority.

6. Assistance provided pursuant to this Article shall be undertaken in accordance with the law.

Article 19

BANK SECRECY OR CONFIDENTIALITY

The legal provisions referring to bank secrecy or confidentiality shall not be an impediment to compliance with these Regulations, when the information is requested by or shared with the court or other competent authority, in accordance with the law.

RECOMMENDATlONS OF THE GROUP OF EXPERTS TO CICAD

The Group of Experts requests that CICAD consider and adopt the Model Regulations and present them to the next General Assembly of the OAS for its possible adoption by the Member States.

To facilitate the adoption of the Model Regulations, the Group of Experts recommends that CICAD:

1. Periodically consider the effectiveness of the Model Regulations, to assess the extent to which recommended norms have been adopted and implemented by the Member States, facilitate the widest dissemination of information to the Member States regarding the Model Regulations, and recommend those additional activities needed to expedite their adoption and application.

2. Provide the necessary technical collaboration to the Member States which request it, for the adoption and implementation of the Model Regulations and assist in obtaining the financial resources needed for this purpose.

3. Convene periodical seminars and workshops to provide the competent authorities, the judiciary and law enforcement agencies of the member States with a forum to exchange experiences in the fight against laundering offences and related offences, diffuse information in this regard, and discuss new trends and techniques.

4. Establish a close working relationship with the United Nations and other international, regional and governmental bodies and private sector organizations.

On the basis of the Model Regulations the Group of Experts recommends that CICAD urge the member States of the OAS to consider:

1. Designating the domestic competent authorities with regulatory and supervisory power over the financial institutions included in the Model Regulations and transmitting their names to the General Secretariat of the OAS and to the Member States.

2. Designating an authority or authorities, as may be necessary, competent to receive or process all the requests for international cooperation referred to in the Model Regulations and transmitting their names to the General Secretariat of the OAS and to the Member States.

3. Responding promptly to any specific request for cooperation by the competent authorities of other member States made pursuant to the Model Regulations and advising, as soon as possible, on any impediment or obstacle to such requests.

4. Ensuring the establishment of national and/or international communications for the sharing of information on matters related to laundering offences, financial institutions and transactions, illicit traffic and related offences, and the identification, freezing, seizure or forfeiture of property, proceeds or instrumentalities.

Furthermore, the Group of Experts recommends that CICAD suggest to the member States of the OAS that they consider the possibility of:

1. Applying the relevant provisions of the Regulations to laundering connected with other serious offences.

2. Establishing more severe penal, civil and/or administrative sanctions for the offences mentioned in Anicle 2, when the person involved holds a public office and that offence is connected with the office in question.

3. Studying and examining the feasibility and convenience of requiring the recording and/or reporting of the transportation, from one member State to another, of large sums of cash in excess of a specified amount.

4. Studying and examining the feasibility and convenience of forwarding to other Member States information that might be useful in the investigation of the offences referred to in the Model Regulations, without the need for a prior request.