Money laundering risks in Georgia have existed and discussed by relevant international organisations as well as strategic partners. Money laundering risks of Georgia has been discussed by the US State Department for years. According to the last US State Department report [1] bank fraud and cybercrime are significant generators of illicit proceeds in Georgia, while social engineering schemes are also used to commit mass marketing fraud. The general economic situation in Georgia, which is far from being a developed economy, forms fruitful ground for money launderers to find front men. At the same time, the unchecked growth of the gaming industry, including internet gaming, is concerning.[2]
The Council of Europe’s anti-money laundering body MONEYVAL [3] published a report on 2 November 2020, where it calls on the Georgian authorities to better combat money laundering and financing of terrorism. [4] The report assesses the effectiveness of Georgia's system for countering money laundering (ML) and financing of terrorism (FT) and its compliance with Recommendations issued in 2012 by the Financial Action Task Force (FATF).
The FATF recommendations cover and accordingly, MONEYVAL report assesses following areas in connection with money laundering and terrorist financing:
- risks and policies as well as domestic coordination;
- pursuing money laundering, terrorist financing and the financing of proliferation;
- preventive measures for the financial sector and other designated sectors;
- powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities) and other institutional measures;
- transparency and availability of beneficial ownership information of legal persons and arrangements;
- international cooperation.
The MONEYVAL report takes into account and assesses National Risk Assessment (NRA)[5] on money laundering and terrorism financing of Georgia issued in 2019.
The MONEYVAL report concludes that Georgia has achieved a moderate level of effectiveness in implementing all areas covered by the FATF Standards, except for:
- International cooperation - substantial effectiveness;
- investigation and prosecution of terrorism financing offences - substantial effectiveness;
- prevention of terrorists, terrorist organisations and financiers from raising, moving and using funds and abusing the NPO sector - low effectiveness.
According to the MONEYVAL report the evaluation mission detected shortcomings with regard to identification of some threats and vulnerabilities and subsequent understanding of some of the ML/TF risks.
The MONEYVAL report concludes that Georgia needs to conduct a further analysis of integrity in public and private sectors because the NRA analysis of Georgia carried out by the FMS is not always methodological enough.
The MONEYVAL report says that the factor of informal economy is not sufficiently analysed by the NRA and it completely ignores the ML risks associated with the presence of wealthy foreign and domestic politically exposed persons and their associates.
The MONEYVAL report states that Georgian authorities did not fully assess all forms of potential TF risk, especially trade-based TF, the volume, origin and destination of financial flows and potential for abuse of non-profit organisations (NPOs).
According to the MONEYVAL report there is no effective gate-keeper in the real estate sector to prevent its use in ML/TF, while supervision of casinos and real estate transactions are not in line with the ML/TF risks identified in the NRA.
MONEYVAL states that excluding National Agency of Public Registry (NAPR) – the only gatekeeper in the real estate sector - from the reporting obligation is a matter of a serious concern.
MONEYVAL team considers that the financial intelligence unit (FIU) enjoys operational independence but is under-resourced.
According to the MONEYVAL team major improvements are needed to improve the effective exchange of information and intelligence, and the operation between the FMS and law enforcement agencies (LEA).
MONEYVAL report reveals that potential ML cases are not sufficiently detected in Georgia and the number of convictions involving complex ML is low.
MONEYVAL team concluded that the risks presented by the high level of cash circulation in Georgia is underestimated and there is no effective gate-keeper for the real estate sector in Georgia.
The technical deficiencies for licensing requirements of casinos seriously undermine the effectiveness of preventing criminals or their associates from holding, or being the beneficial owner of, a significant or controlling interest, holding a management function in, or being an operator of, a casino.
MONEYVAL report claims that the existing mechanisms to obtain information on beneficial ownership cannot be relied upon as the information provided by them is not always adequate, accurate and current.
The MONEYVAL report highlights that there is proven abuse of legal persons in Georgia, including through the use of “fictitious” companies and the authorities have not taken adequate measures to deal with the issue.
Criminal measures are not applied against legal persons when they should be and an opportunity to mitigate abuse is being missed.
The analysis of the MONEYVAL report provides a basis for emphasizing once again the need of strengthening of the fight against high-level corruption through the establishment of an independent anticorruption agency, as the money laundering risks covered in the report pose a threat of high-level corruption crimes. It is also important to ensure a high level of transparency regarding the beneficial owners, which IDFI has been talking about for years and which is also mentioned in the MONEYVAL report. It is important to conduct an integrity analysis in public and private sectors and develop integrity strategies, which IDFI, with the support of USAID GGI, has already implemented in several municipalities. At the same time, special attention should be paid to the issues of informal economy, large cash flow, legal entities and real estate oversight in the country. IDFI calls on the authorities to spare no effort to implement the recommendations of MONEYVAL and the FATF.
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[1] United States Department of State Bureau of International Narcotics and Law Enforcement Affairs, International Narcotics Control
Strategy Report, Volume II, Money Laundering, 2020, available on the following link.
[2] Ibid.
[3] The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism - MONEYVAL is a permanent monitoring body of the Council of Europe entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism and the effectiveness of their implementation and provide relevant recommendations.
[4] MONEYVAL, Anti-money laundering and counter-terrorist financing measures - Georgia, fifth Round Mutual Evaluation Report, available on the following link.
[5] Money Laundering and Terrorism Financing Risk Assessment of Georgia (2019), Financial Monitoring Service, available on the following link.
/public/upload/Blog/MONEYVAL final ENG.pdf
This material has been financed by the Swedish International Development Cooperation Agency, Sida. Responsibility for the content rests entirely with the creator. Sida does not necessarily share the expressed views and interpretations.
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