Syria AML Report

14 February 2018, Bachir El Nakib (CAMS) Senior Consultant Compliance Alert LLC

Sanctions

Syria is currently subject to EU, US and Arab League Sanctions.

FATF AML Deficient List

Yes

Higher Risk

Compliance with FATF 40 + 9 Recommendations
Supporter of / Safe Haven for International Terrorism
Not on EU White list equivalent jurisdictions
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average score)
Failed States Index (Political)(Average score)

Medium Risk

US Dept of State Money Laundering assessment
Weakness in Government Legislation to combat Money Laundering

BACKGROUND

ANTI-MONEY LAUNDERING

FATF Status

Syria is currently on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement - 3 November 2017

Since February 2010, when Syria made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Syria has made progress to improve its AML/CFT regime. In June 2014, the FATF determined that Syria had substantially addressed its action plan at a technical level, including by criminalising terrorist financing and establishing procedures for freezing terrorist assets. While the FATF determined that Syria has completed its agreed action plan, due to the security situation, the FATF has been unable to conduct an on-site visit to confirm whether the process of implementing the required reforms and actions has begun and is being sustained. The FATF will continue to monitor the situation, and will conduct an on-site visit at the earliest possible date.

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Syria was undertaken by the Financial Action Task Force (FATF) in 2006. According to that Evaluation, Syria was deemed Compliant for 5 and Largely Compliant for 8 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 of the 6 Core Recommendations.

US Department of State Money Laundering assessment (INCSR)

Syria was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

The money laundering and terrorist financing concerns involving the Syrian civil war are multi- faceted and complex. The State Department lost its principal source of reporting on money laundering in Syria when it closed Embassy Damascus in February 2012. Much of the information contained in this report is based on information collected or verified in the 2011 reporting cycle.

Syria is an important regional or offshore financial center. Prior to widespread civil unrest beginning in 2011, only 20 percent of Syria’s population used formal banking services, although private sector banks’ market penetration was growing rapidly. However, following the imposition of robust sanctions on individuals, entities, and banks by several jurisdictions, banking services are used considerably less. While large commercial transactions rely on banks, the majority of business transactions are still conducted in cash. The most obvious indigenous money laundering threat involves some members of Syria’s political and business elite, whose corruption and extra-legal activities continue unabated.

A lack of control and authority by the Syrian regime over significant parts of the country, a lack of necessary legislation and poor enforcement of existing laws contribute to significant money laundering and terrorist financing vulnerabilities in Syria’s banking and non-bank financial sectors. Estimates of the volume of business Syrian money changers conduct in the black market range between $15 and $70 million per day. Syria’s borders are porous, most official border crossings are outside the control of the regime, and several are currently controlled by armed opposition groups, including the Kurdish People’s Protection Units (YPG), as well as the Islamic State of Iraq and the Levant (ISIL), a designated terrorist organization. Furthermore, regional hawala networks, intertwined with smuggling and trade-based money laundering, raise significant concerns, including involvement in the financing of terrorism.

The unprecedented volume of participants making payments for illegal services to human traffickers, human smugglers, and document traffickers, including both fraudulent and genuine Syrian passports, entail enormous sums of money. The proceeds of crime generated from human smuggling are often placed into financial institutions by criminal gangs in the EU and Turkey.

Syria has been on the State Department list of countries sponsoring terrorism since the list’s inception in 1979. In 2011, when the Syrian regime began a violent crackdown against protestors, the United States, European Union, Arab League, and individual nations imposed sanctions against individuals, entities, and corporations assisting the regime’s crackdown. The United States has undertaken sanctions on individuals enacted through Executive Orders 13572, 13573, 13582, 13606, and 13608. Several subsequent rounds of sanctions have continued and have targeted the Commercial Bank of Syria (CBS), the Real Estate Bank, Syrian-Lebanese Commercial Bank (SLCB), Central Bank of Syria, Syrian International Islamic Bank, and U.S. dealings with the Syrian petroleum industry.

In May 2004, the U.S. Department of Treasury found the CBS and its subsidiary, the SLCB, to be financial institutions of “primary money laundering concern,” pursuant to Section 311 of the USA PATRIOT Act. This finding resulted from information that CBS had been used by terrorists or persons associated with terrorist organizations as a conduit for the laundering of proceeds generated from the illicit sale of Iraqi oil, and because of continued concerns that CBS was vulnerable to exploitation by criminal and/or terrorist enterprises. In April 2006, Treasury promulgated a final rule, based on the 2004 finding and proposed rulemaking, prohibiting U.S. financial institutions from maintaining or opening correspondent or payable-through accounts with CBS or its SLCB subsidiary.

After suspending Syria’s membership on November 12, 2011, the Arab League approved sanctions on Syria on November 28, 2011. These sanctions include cutting off transactions with the Syrian central bank; halting funding by Arab governments for projects in Syria; a ban on senior Syrian officials traveling to other Arab countries; and a freeze on assets related to President Bashar al-Assad’s government. The declaration also calls on Arab central banks to monitor transfers to Syria, with the result often slowing down nongovernmental organization donations and personal remittances.

There are eight public free trade zones (FTZs) in Syria. Iran had announced plans to build FTZs in Syria; however, it later dropped this idea in favor of pursuing a free trade agreement. China’s free zone in Adra was officially inaugurated in July 2008; As many as 325 businesses have been established in Adra to date. In October 2014, Syria also submitted an application to establish a FTZ with Russia. In October 2015, following Russia’s entrance into the conflict, Russia’s Ministry of Industry and Trade welcomed the potential to create a FTZ with Syria if political and economic issues were eventually resolved. As of 2012, the annual volume of goods entering the FTZs was estimated to be in the billions of dollars and was growing, especially with increasing demand for automobiles and automotive parts, which enter the zones free of customs tariffs before being imported into Syria. While all industries and financial institutions in the FTZs must be registered with the General Organization for Free Zones, part of the Ministry of Economy and Trade, the Syrian General Directorate of Customs continues to lack strong procedures to check country of origin certification or the resources to adequately monitor goods that enter Syria through the zones. There also are continuing reports of Syrians using the FTZs to import arms and other goods into Syria in violation of U.S. sanctions under the Syrian Accountability Act and a number of UNSCRs.

SANCTIONS

Syria is currently subject to EU, US and Arab League Sanctions, which include an arms embargo and a broad range of other financial sanctions

The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include: -

Cutting off transactions with the Syrian central bank
Halting funding by Arab governments for projects in Syria
A ban on senior Syrian officials travelling to other Arab countries
A freeze on assets related to President Bashar al-Assad's government

The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.

It should be noted that Lebanon and Iraq have refused to impose the sanctions.

The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.

BRIBERY & CORRUPTION

Rating (100-Good / 0-Bad)

Transparency International Corruption Index 13

World Governance Indicator – Control of Corruption 2

ECONOMY

Syria's economy continues to deteriorate amid the ongoing conflict that began in 2011, declining by 62% from 2010 to 2014. The government has struggled to address the effects of international sanctions, widespread infrastructure damage, diminished domestic consumption and production, reduced subsidies, and high inflation, which have caused dwindling foreign exchange reserves, rising budget and trade deficits, a decreasing value of the Syrian pound, and falling household purchasing power.

During 2014, the ongoing conflict and continued unrest and economic decline worsened the humanitarian crisis and elicited a greater need for international assistance, as the number of people in need inside Syria increased from 9.3 million to 12.2 million, and the number of Syrian refugees increased from 2.2 million to more than 3.3 million.

Prior to the turmoil, Damascus had begun liberalizing economic policies, including cutting lending interest rates, opening private banks, consolidating multiple exchange rates, raising prices on some subsidized items, and establishing the Damascus Stock Exchange, but the economy remains highly regulated. Long-run economic constraints include foreign trade barriers, declining oil production, high unemployment, rising budget deficits, increasing pressure on water supplies caused by heavy use in agriculture, rapid population growth, industrial expansion, water pollution, and widespread infrastructure damage.

Agriculture - products:

wheat, barley, cotton, lentils, chickpeas, olives, sugar beets; beef, mutton, eggs, poultry, milk

Industries:

petroleum, textiles, food processing, beverages, tobacco, phosphate rock mining, cement, oil seeds crushing, automobile assembly

Exports - commodities:

crude oil, minerals, petroleum products, fruits and vegetables, cotton fibre, textiles, clothing, meat and live animals, wheat

Exports - partners:

Iraq 64.7%, Saudi Arabia 11.2%, Kuwait 7.1%, UAE 6.1%, Libya 4.6% (2015)

Imports - commodities:

machinery and transport equipment, electric power machinery, food and livestock, metal and metal products, chemicals and chemical products, plastics, yarn, paper

Imports - partners:

Saudi Arabia 28%, UAE 13.7%, Iran 10.1%, Turkey 9%, Iraq 8.3%, China 6.1% (2015)

Country Links

Combating Money Laundering and Terrorism Financing Commission (CMLC)

About CMLC

Contact with CMLC

President Bashar Assad, President of Syrian Arab Republic issued in September 2003 the Legislative Decree No. 59. And in line with the international requirements and developments the Legislative Decree 33 for the year 2005 was issued by Mr. President on 1st of May 2005 to replace the previous one.

Decree No. 33 for 2005 Criminalizes money laundering resulting from drug crimes, terrorism crimes, illicit manufacturing and trading in weapons, illegal transferring of immigrants, piracy, kidnapping, organized prostitution, trading in persons and children, illicit trading in human organs, stealing of: nuclear, chemical, germ or toxic materials, or smuggling or illegal trading in it, as well as stealing, embezzlement and seizure of public or private funds by any way of burglary, robbery or by fraudulent means, or illegal transfer of it through computer systems, currency or other means of payments, government bonds, securities or official documents ‘counterfeit, antiquities and cultural property’s theft or illicit trading in it, bribery and blackmail crimes, smuggling crimes and, the use of registered trademarks by non-owners, or imitation of intellectual property rights.

As well as, the legislative Decree 33 for 2005 Criminalizes financing of terrorism, as it considered it as any act intending to provide or collect funds by any means, directly or indirectly, from legal or illicit sources, to be used in a terrorist act within the territory of Syrian Arab Republic or abroad.

Legislative Decree 33 for 2005 established an independent commission in the Central Bank of Syria, with judicial status called « Combating Money Laundering and Financing of Terrorism commission» that has a legal personality, with its task defined as the following:

A.To receive suspicious transactions (reports) and other information relating to money laundering or financing of terrorism and to analyze it.

B. To conduct financial investigations regarding transactions that are suspected to be involving laundering of illegal funds or financing of terrorism.

C. To provide judicial and other authorities with the requested information related to Legislative Decree 33/2005.

D. To put procedures and specific forms in order to implement the provisions of Legislative Decree 33/2005 and supervise its implementation.

E. To adopt rules of information exchange regarding information available at the financial data collecting unit with counterparts in other countries.

The composition of Committee of the Management

- Governor of Central Bank of Syria. President

- First Deputy Governor of Central Bank of Syria. Vice-President

- The Supervisor Director of Banking Supervision Directorate

Or the Director of the Supervision Directorate on his behalf

in his absence. Member

- Mr. Mohamed Samir Tabakh Vice President of

Court of Cassation or his delegate in his absence. Member

- Mr. Bassam Abdul-Nabi, Deputy Minister of Finance. Member

- Ambassador Tammam Sulaiman, Director of

International Organizations and Conferences Directorate. Member

- Major General Mohammed Dib Darwisheh

Director of Crimes Investigation Directorate. Member

- Mr. Bashir Hazza Director of Companies

Directorate at the Ministry of Economy and Trade. Member

- Dr. Mamon Hamdan a representative of

The securities and financial markets. Member

- Mr. Yasser Al Hajj, Director of Anti-smuggling Directorate

At General Customs Directorate. Member

- Dr. May Mahrzee. Member

Commission’s Managerial Committee assigns one of the bank’s auditors of the banking supervision department as a secretary, to be dedicated to do the job the commission assigns him to, and to carry out its decisions, and to directly supervise, under the supervision of the Chairman of the Commission, the units of the Commission that consists of:

· Investigation Unit

· financial data collecting unit

· Compliance Unit

· Information Unit

The chairman of the commission, members of the Commission’s Managerial Committee, its secretary, members of its’ units, all of its employees and whom are assigned to work for the commission, they benefit immunity rights, they can’t be prosecuted or pursued for any civil or criminal responsibility related to doing their duties set forth in Legislative Decree 33/2005. As well as, banking and financial institutions, other institutions responsible for reporting, their managers and staff who would -in good well- report and reveal suspicious transactions that they suspect to involve money laundering or financing of terrorism, they all have the same immunity.

1- Tasks of The Commission:

Article 7 of Legislative Decree No. 33 for 2005 defined the tasks of the commission, as follows:

F. To receive suspicious transactions reports and other information relating to money laundering or financing of terrorism, and to analyze it.

G. To conduct financial investigations regarding transactions suspected to be involving illegal laundering of funds or financing of terrorism.

H. To provide judicial and other authorities with the requested information related to Legislative Decree 33/2005.

I. To set procedures and specific forms in order to implement the provisions of Legislative Decree 33/2005 and supervise its implementation.

J. To adopt rules of information exchange regarding information available at the financial data collecting unit with counterparts in other countries, according to the rules and procedures set by Syrian laws and regulations, international conventions, regional or bilateral agreements that Syria is a party in, or on the basis of

Reciprocity.

2- Members of Commission’s Managerial Committee

1 - The Managerial Committee of the Commission is composed of:

2 - Dr. Adeeb Mayaleh, Governor of Central Bank of Syria. Chairman

3 - In his absence, Mr. Taysir Irbini the First Deputy Governor of Central Bank of Syria will substitute him…

4 - And the membership of:

5 - Dr. George Ozon Second Deputy Governor of Central Bank of Syria, supervisor of Banking Supervision Department.

6 - In his absence, the Director of Banking Supervision Department will substitute him…

7 - Judge Mohammed Sameer Al. Tabbakh

8 In his absence, Judge Mohammed Al. Khateeb will substitute him…

9 - Mr. Bassam Abdelnabi, Deputy Minister of Finance.

1 - General Mohammed Ali Saleh, Legal and financial and banking expert.

T he functions of the Commission’s Managerial Committee:

1.To name the secretary of the commission from one of the auditors of the Banking Supervision Department.

2. To adopt rules of exchanging information with counterparts in other countries.

3. To join agreements or memoranda of understanding with their foreign counterparts.

4. To propos the bylaw of the Commission and its units.

5. To take the decision of freezing, for a period of 12 days non- renewed.

6. To request the Secretary to conduct investigations on behalf of foreign counterparts parties.

7. To determine the truth of the evidence on suspicious transactions.

8. To lift banking secrecy in favor of the respective judicial authorities.

9. To request the Secretary to provide the judicial authorities and other relative authorities with the available information.

10. To adopt the procedures and specific forms in order to implement the provisions of Legislative Decree No. 33/2005.

11. To receive reports from the Compliance Unit on financial institutions, banks and other institutions regarding the implementation of their commitments in combating money laundering and financing of terrorism.

12. To approve all matters related to the commission and its units.

The tasks of the chairman of the Commission:

1 1- To supervise the work of the Commission.

1 2- To receive suspicious transactions reports.

1 3- To receive requests for information, made by Syrian authorities related to the implementation of the provisions of Legislative Decree and their foreign counterparts, and forward it to the secretary to be submitted in the Commission’s Managerial Committee meeting.

1 4- To demand the respective authorities to freeze the accounts of suspects whose names appear on lists of the United Nations and forwarded through the Ministry of Foreign Affairs in order to implement the international obligations of Syria.

1 5- To demand all Syrian official authorities (judicial, administrative, financial and security) or their foreign counterparts to provide the commission with information and details on its work and investigations. Or to mandate an appropriate party to do so.

1 6- To Sign on behalf of the commission on all the agreements and memorandums of understanding made with foreign counterparts to exchange information, and offer assistance regarding combating money laundering and the financing of terrorism, or mandated whom he sees as equivalent to do so.

1 7- To represent the commission before the judiciary.

1 8- To demand banks a temporary freezing of suspicious account/s for six working days, non-renewable.

3- Commission’s secretary

3-1 the secretary of the Combating Money Laundering and Financing of Terrorism commission, Mr. Basil Saleh.

His duties include:

1. Direct supervision of the units and all its employees and who are assigned to work by it.

2. To receive all of the suspicious transactions reports through the chairman of the Commission.

3. To conduct investigations and analysis of information on suspicious transactions, either directly or by the Investigation Unit, or by his delegate.

4. To propos the head of the commission to freeze the suspicious account/s for six working days, non-renewable.

5. To receive the results of the investigation and to submit it to the Managerial Committee of the commission after the feedback.

6. To prepare reports assigned by the Commission’s Managerial Committee or its Chairman.

7. After its approval, intimation of decisions of the Committee to the concerned authorities

8. To implement and follow up the decisions of the Managerial Committee through the specialized units.

9. To follow-up administrative and training issues of the staff of the committee.

10. To follow-up local and foreign laws and regulations related to anti-money laundering and terrorism financing, and to recommend the Managerial Committee of the commission to amend those applied in Syrian Arab Republic.

3-2 Investigation Unit

Its tasks include:

1 - To audit and investigate information received from the financial data collecting Unit, or based on banks, financial institutions or third parties report.

2 - To gather evidence about transactions suspected to be of a money-laundering offense or financing of terrorism.

3 - To inform the Commission’s Managerial Committee, through its Secretary, with the results of investigations relating to suspected transactions.

4 - To inform the financial information Unit with the reports prepared on suspicious accounts and transactions in order to submit the information enclosed in the reports within its data base.

5 - To inform the Compliance Unit with reports prepared on suspicious accounts and transactions in order to be taken into account when carrying out its duties.

3-3 Financial data collecting unit

Its tasks include:

1 . To gather information from different internal and external sources about operations, those are likely to be an offense of money laundering or financing of terrorism.

2 . To analyze and compare this information with previous available information in order to confirm the doubt or to deny it.

3 . To report information and ongoing analysis of them to the Secretary of the Commission to be rechecked and investigated.

4 . To follow-up the results of the ongoing investigations, and keep the information available about operations and investigations at its electronic data base, in a secure and confidential way.

5 . To establish an operations data base, according to sectoral and geographic basis, and to the names of persons involved or suspected to be of involvement in money laundering operations, and to the nature of suspicious transactions, and to data sources.

6 . To document and keep local or regional verdicts against persons convicted of crimes of money laundering or terrorism financing.

7 . To prepare periodic and analytic reports about received information.

8 . To work on establishing a special web site for the commission in coordination with the information Technology unit and Syrian Central Bank web site management.

9 . To following up the laws and regulations aimed at local and foreign anti-money laundering and the financing of terrorism, and the procedures of auditing banking and financial operations. And to make recommendations to amend the relevant law and regulations.

1 0. To exchange information with counterpart agencies in Arab and foreign countries through the secretary under the supervision of the chairman of the commission.

3-4 Compliance Unit

It It s tasks include:

1. To ensure, at the command of the Commission’s Managerial Committee, banks and financial and other institutions compliance with their obligations to combat money laundering and terrorism financing.

2. To prepare periodic reports showing the banks and financial and other institutions referred to in Articles IV and V of the Legislative Decree, observance with those actions and obligations.

3. To inform the Managerial Committee of the Commission, on a regular basis and by the Secretary, with reports they prepare about the compliance of these banks and institutions to the actions and obligations.

4. To study reports prepared by the Banking Supervision Department and banks and other parts’ internal auditors on the Banks compliance with the imposed obligations regarding combating money laundering and terrorism financing, and to prepare summaries of them to be submitted to the commission’s Managerial Committee through the Secretary.

5. To supply Financial data collecting Unit with the reports it prepares in order to be entered in its database.

6. To inform the Investigation Unit with the compliance of banks and financial and other interested institutions with the obligations and procedures imposed on them.

7. To propos and recommend the Commission’s Managerial Committee, through the Secretary of the Commission, to activate the auditing operations and to modify the procedures and the systems of auditing.

3-5 Information Technology Unit:

Its tasks include:

1- To prepare and activate the main server, computers and all the technical devices.

2- To create, update and maintain software programs required for the units’ function, data base, security and surveillance devices.

3- To establish information and programs security procedures, and to ensure their effectiveness.

4- 'To work on establishing a special web site for the commission in coordination with the information Technology unit and the Syrian Central Bank web site management.

5- To study and implement programs to exchange information with local and external authorities concerned with combating money laundering and financing of terrorism.

6- To provide technical assistance to the auditors of investigation and Compliance units during the execution of their duties.