Cape Verde
Report on the Observance of Standards and Codes: FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

This report focuses on the Observance of Standards and Codes for the Financial Action Task Force 40 (FATF) recommendations for antimoney laundering (AML) and nine special recommendations for combating the financing of terrorism (CFT) in Cape Verde. The assessment reveals that Cape Verde has taken a number of measures to establish an AML framework but is less advanced with initiatives to establish an effective CFT regime. There is scope for strengthening the framework for the criminalization of money laundering and a clear need to criminalize the financing of terrorism.

Abstract

This report focuses on the Observance of Standards and Codes for the Financial Action Task Force 40 (FATF) recommendations for antimoney laundering (AML) and nine special recommendations for combating the financing of terrorism (CFT) in Cape Verde. The assessment reveals that Cape Verde has taken a number of measures to establish an AML framework but is less advanced with initiatives to establish an effective CFT regime. There is scope for strengthening the framework for the criminalization of money laundering and a clear need to criminalize the financing of terrorism.

A. Introduction

1. This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations for Combating the Financing of Terrorism (CFT) was prepared by the International Monetary Fund (IMF). The report provides a summary of the AML/CFT measures in place in Cape Verde, the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The assessment is based on the information available at the time of the mission from April 30 to May 15, 2007 and was conducted using the 2004 Assessment Methodology. The detailed assessment report (DAR) on which this ROSC is based was adopted by the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) on November 6, 2007. The views expressed in this document are those of the IMF mission team and do not necessarily reflect the views of the government of Cape Verde or the Executive Board of the IMF.

B. Key Findings

2. Cape Verde has taken a number of measures to establish an AML framework but is less advanced with initiatives to establish an effective CFT regime. There is scope for strengthening the framework for the criminalization of money laundering and a clear need to criminalize the financing of terrorism. Significant work needs to be done to strengthen the institutional arrangements. There is currently no institutional arrangement in place that fully meets the FATF requirements for an effective financial intelligence unit. As the regulator of financial institutions, the Bank of Cape Verde needs to substantially review its AML supervisory strategy. There are currently significant differences in arrangements for the regulation and supervision of on-shore and off-shore financial institutions. The authorities need to pay particular attention to the vulnerabilities that arise from the less robust arrangements for financial institutions operating in the offshore sector.

3. Cape Verde has a number of arrangements in place that promote the transparency of legal persons and arrangements including the non-profit sector. However the various official registrars lack the capacity to provide timely information on the beneficial owner of legal persons. In addition there has been no specific review of the vulnerability of NPOs to abuse in the context of the financing of terrorism. While the legal framework extends obligations to some Non-Financial businesses and professions, there has been no implementation of these requirements. The modest arrangements that are in place to facilitate some level of cooperation among various government entities need to be addressed by the authorities.

C. Legal Systems and Related Institutional Measures

4. In 2002, Cape Verde enacted legislation that expanded the list of predicate offenses beyond illicit drug trafficking and criminalized money laundering in a manner consistent with the material and subjective elements required by the Vienna Convention. However the range of predicate offenses for money laundering under the existing legislation falls short of the requirements set forth in the FATF 40 Recommendations. There have so far been no convictions for money laundering. While Cape Verde has ratified the UN Convention for the Suppression of the Financing of Terrorism, it has not yet criminalized the offense of the financing of terrorism domestically, in accordance with the convention.

5. Cape Verde has a comprehensive framework that addresses the freezing, seizing and confiscation of the proceeds and instrumentalities of crimes (including money laundering) or assets of corresponding value. There are also adequate provisions to protect the rights of bona fide third parties.

6. While financial institutions and other covered persons and entities have an obligation to file suspicious transaction reports with the judiciary police (JP), this office does not perform all of the functions of a financial intelligence unit. Within the JP, reports are received by an internal unit known as the Central Section for the Investigation of Trafficking of Stupefacients (SCITE). SCITE is not an operationally independent unit and does not have the autonomy to decide what information can be disseminated to the public ministry for possible prosecution. This unit does very limited financial analysis of reports and treats STRs in a manner very similar to criminal investigations. After informing the public ministry of the information contained in an STR, the JP has a great deal of autonomy in pursuing any matters related to the STRs. However, the JP does not have timely access to additional banking records or other confidential information.

7. Cape Verde has the necessary institutional framework, as well as the necessary powers in place for the investigation and prosecution of money laundering offenses. The JP has general powers to obtain information during the course of an investigation and to carry out inspection and searches for documents and information, including banking information if so authorized by a magistrate of the public ministry. However it does not have resources or expertise to adequately perform its investigatory functions related to money laundering offenses.

8. Cape Verde’s money laundering law provides that persons entering the country must make a declaration to Customs when they are in possession of foreign currencies or bearer securities in excess of one million escudos (EUR 9,090). The law does not apply to persons leaving Cape Verde and is silent on whether transportation methods such as shipments through containerized cargo or mailing are covered by the law. The Customs Department has the responsibility to ensure compliance with this obligation but indicates that it does not have the power to stop or restrain currency or bearer instruments that are falsely declared or are suspected to be related to ML or the financing of terrorism. The system has not yet been implemented.

D. Preventive Measures—Financial Institutions

9. Cape Verde’s regime for preventive measures is built on its principal money laundering law and technical instructions (TIs) issued by the Bank of Cape Verde. The TIs require specific types of identity documents to be used where transactions are in excess of one million escudos (EUR 9,090). For transactions that fall below this threshold, the AML law contains a general obligation to identify the customer but there is less certainty about the types of identity documents that are considered to be acceptable.

10. The customer due diligence (CDD) regime also allows financial institutions to base customer identification, in part, on verifications provided by foreign institutions, without establishing a framework to ensure that only well supervised institutions that adequately apply the FATF recommendations are used for this purpose. Existing arrangements for preventive measures do not adequately address the risks posed by certain types of higher risk customers such as PEPs, and those associated with correspondent banking relationships and regimes for introduced business. The framework does not require financial institutions to apply Cape Verde requirements to foreign branches and subsidiaries.

11. There are a number of significant concerns about Cape Verde’s framework for the operation of international financial institutions. Under existing arrangements it is possible for institutions operating in this sector to fall outside of acceptable arrangements for global consolidated supervision and to operate without a substantive physical presence in Cape Verde. In a number of instances regulatory arrangements for these institutions are also less rigorous than the arrangements in place for institutions that operate in the domestic sector.

12. There are some fundamental weaknesses in relation to the obligation to monitor transactions which also spill over to the obligation to report suspicious transactions. The obligation to monitor transactions is limited to those transactions that are suspected of being linked to a predicate offense currently covered by the money laundering legislation.

13. While the legal framework meets the requirements for the time period over which records should be maintained, institutions appear unaware of the requirements of the money laundering law in this regard and do not generally have well documented record retention policies.

14. The Banco de Cabo Verde (BCV) is the regulator for all activities conducted by financial institutions and the Auditor General of Capital Markets (AGMVM), which supervises capital market licensees, is a unit within BCV. The Bank Supervision Department has issued AML regulations and has undertaken AML inspections of banks that operate in the domestic market. It has not however clearly defined an AML/CFT supervisory strategy and does not have a clear perspective on the varying levels of risk across the different financial institutions and their lines of business. The department’s staff has had varying degrees of basic training relevant to AML supervision but is in need of a more systematic and focused program of training in this regard.

E. Preventive Measures—Designated Non-Financial Businesses and Professions

15. AML obligations are extended to individuals or corporations engaged in the operations of gaming establishments, real estate or property brokerage, property buying for resale and dealers in precious metals and stones, antiques, works of art and motor vehicles. Lawyers, notaries, accountants, and trust and company service providers are not covered by the legal framework.

16. There are currently no gaming houses or casinos in Cape Verde although discussions during the course of the assessment suggest that there may be some interest, on the part of a group of foreign investors, in establishing a casino at some time in the future. There are no persons providing trust and company services as a distinct form of business activity. The authorities also report that there is no significant activity in the sale of precious metals and stones, antiques and works of art.

17. The Ministry of Finance and Public Administration is designated as the regulator of designated non-financial businesses and professions (DNFPBs). The ministry has not issued any regulations or guidance to assist with the implementation of the principal money laundering law in respect of the covered DNFBPs. Discussions with persons who undertake some of the covered activities indicated that they are generally not aware of their obligations under the AML law.

18. The only covered activities which conduct any significant volume of business are real estate agents and dealers in motor vehicles. The real estate market is unregulated and highly informal, except for the general licensing requirements for the construction of buildings and the large resort-like projects which account for the vast majority of intermediation. These projects are undertaken by large foreign and multinational agents whose principal clients are foreigners (mainly from the UK) who purchase properties for their personal use and for investment purposes. The law’s coverage of motor vehicle dealers is comprehensive and not limited to those who sell high-end vehicles.

19. There are approximately 120 lawyers licensed to practice in Cape Verde. Their activity is supervised by the Bar Association which administers their disciplinary code. Notaries are public officers, employed by the Ministry of Justice and are generally responsible for the authentication of real estate title deeds. They do not receive money from persons involved in the purchase of property and do not perform any of the designated functions outlined under FATF Recommendation 12. They are well placed to contribute to the detection of suspicious transactions in respect of contracts involving the sale of real estate but do not have a legal obligation to do so.

F. Legal Persons and Arrangements & Non-Profit Organizations

20. It is mandatory that all legal persons, associations, foundations and companies be registered in the commercial registry. Records must include the company by-laws, the names and identification of the shareholders, the name of the legal person, the object, the place of incorporation, the amount of capital, the capital held by each shareholder, the composition of management and persons who can act on behalf of the company. Changes to any of these elements must also be registered. Information recorded in the commercial registry is available to the general public and any interested person can therefore have access to the identification of any shareholder. However, the various official registrars lack the capacity to provide timely information on the beneficial owner of legal persons.

21. Joint-stock companies can issue nominative and bearer shares. Bearer shares are issued in paper form and are not subject to registration. It is required that the persons holding these shares be identified during the annual general meeting of the issuing company and when receiving dividends. There are very few joint-stock companies in Cape Verde and an even smaller number that issue bearer shares.

22. Cape Verde’s Civil Code establishes a regime for the operation of associations, foundations, and unincorporated associations. It establishes requirements for the constitution and internal organization of these entities which are also subject to registration in the commercial registry. Information held on these persons includes their by-laws, the names of their managers, the place of incorporation, their object, the name of persons who can act on their behalf and the capital and property held by the legal persons if they are foundations. Before registration of any legal person, either of a civil or commercial nature, the Registrar must verify that the registrant has been constituted in accordance with the country’s Constitution and the Civil Code and that its aims are legal. However, Cape Verde has not taken any specific measures to review the vulnerability of NPOs to abuse in the context of the financing of terrorism. The authorities have not undertaken, in general, any outreach to the NPO sector aiming at raising the awareness of the the financing of terrorism vulnerabilities of these entities. It was not demonstrated as well that NPOs were obliged to maintain records and documents of their operations for a period of at least five years. Nor was it demonstrated that there are sanctions applicable to NPOs for failing to comply with existing laws and regulations.

G. National and International Cooperation

23. Cape Verde does not have a strong framework for national cooperation in the context of AML/CFT issues. The National Committee for Coordination on the Fight against Drugs, Organized Crime and Corruption (NCC) is potentially a good foundation for such cooperation as it brings together most of the relevant government institutions involved in the fight against ML/the financing of terrorism. While the committee has successfully undertaken some relevant initiatives, there is not strong and effective operational cooperation across all relevant agencies.

24. There is some level of interaction between the JP and the Public Prosecutor’s office which, by the nature of their functions, are compelled to collaborate on investigations and prosecutions. There is, however, no mechanism that governs such cooperation or ensures that it takes place in a structured and consistent manner. There is little or no coordination between BCV and the law enforcement agencies.

25. Mutual Legal Assistance in Cape Verde is carried out through bilateral and multilateral treaties applicable in Cape Verde. The Attorney General’s Office is the central authority with the ability to render mutual legal assistance in judiciary matters and coordinate the gathering of the relevant information from the Public Ministry and the criminal police. The criminal police also has the ability to cooperate internationally and respond to foreign requests for assistance. Upon receiving a specific and well-founded request from a judiciary authority of a foreign State, the judiciary police has the ability to investigate whether assets or products arising from money laundering committed abroad are located in Cape Verde. They can also search for and seize those goods or products applying all the measures provided for in the Criminal Procedure Code and inform the foreign authorities of the outcome of its measures. If the enquiries reveal that assets or products are related to the offense of money laundering or the relevant predicate offense, the Cape Verde authorities are empowered to initiate criminal proceedings for the crime of money laundering and take the necessary measures to prevent the disappearance of the assets through seizure. Although the law enables the cooperation between countries related to foreign requests for seizure and confiscation of assets or property related to ML/the financing of terrorism, there are no coordinating arrangements or mechanisms in place. Discussions during the mission did not provide conclusive evidence that the authorities’ interpretation of the dual criminality principle is flexible enough to overlook technical differences between the laws of Cape Verde and those of the requesting state, in order not to impede the provision of mutual legal assistance.

26. Extradition is legally possible only if the foreign court has jurisdiction for the trial and the offense is punishable with a penalty of one year or more of imprisonment, under Article 88 of Decree-Law No. 6/1997 of May 5. However, when in the requested country the offense is punishable by a death sentence or life imprisonment or offense to the physical integrity of the person the extradition is forbidden. Extradition is also prohibited for political grounds or for offenses related to the freedom of speech, under Article 90 of the above mentioned Decree-Law.

27. The authorities did not produce any evidence that they have cooperated internationally in matters related to the financing of terrorism. In the absence of the criminalization of the financing of terrorism, the lack of clarity about the application of the dual criminality principle creates doubt about the authorities’ ability to cooperate on the financing of terrorism matters, using the existing framework for MLA.

H. Authorities’ Response

28. In response to a request from the Cape Verde authorities, in 2007 the IMF undertook an assessment of the AML/CFT system in Cape Verde. The results of this assessment are recorded in a DAR, a document which has been ratified by the country authorities who made a number of comments—but which, a little more than a year later, has not been updated to incorporate the latest AML/CFT developments in Cape Verde.

Summary Table of Observance and Key Recommendations

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Compliant (C): the Recommendation is fully observed with respect to all essential criteria. Largely compliant (LC): there are only minor shortcomings, with a large majority of the essential criteria being fully met. Partially compliant (PC): the country has taken some substantive action and complies with some of the essential criteria. Non-compliant (NC): there are major shortcomings, with a large majority of the essential criteria not being met. Not applicable (NA): a requirement or part of a requirement does not apply, due to the structural, legal or institutional features of a country.

Countries could refer to reports, assessments or reviews concerning AML/CFT that are published by the FATF, FSRBs, the IMF or World Bank.

29. The need to find solutions to the concerns expressed by the international community regarding the repercussions from money laundering practices dovetails with longstanding concerns expressed by the Cape Verde authorities. In response to these requirements, Cape Verde has ratified the main UN conventions on AML/CFT and has approved Law No. 17/VI/2002 of December 16, 2002 which equips Cape Verde with a major AML/CFT framework. Key efforts to improve the legal and regulatory framework for AML/CFT in Cape Verde include the 2005 legislation on IFIs as well as regulations issued by the BCV to improve the monitoring of the activities of banking and parabanking institutions, and thereby prevent any slippages.

30. With regard to the more recent issue of combating the financing of terrorism, a number of steps have been taken, including the adoption of international conventions, promulgation of the new Criminal Code, and publication of technical instructions by the BCV. The Cape Verde authorities are aware, however, that these actions ought to be further strengthened if they are to confront this issue as effectively as possible, in particular, through the adoption of special legislation criminalizing the financing of terrorism.

31. This initial report identifies a number of vulnerabilities in the existing AML/CFT system in Cape Verde and suggests ways to overcome these deficiencies; in addition, the document serves as a benchmark for optimal decision-making, with a view to reforming—gradually, but as thoroughly as possible—the legal and regulatory framework currently in place in Cape Verde, in order to align it with international standards and practices.

32. To assist the authorities in their efforts to strengthen the AML/CFT system, a joint decision (despacho) by the Ministers of Finance, Justice, and Domestic Administration was issued at end-2007 to appoint an ad hoc commission which, on the basis of the DAR, prepared a plan establishing priority actions for 2008 and 2009. Since the DAR was finalized, the authorities have made progress with the following measures inter alia:

  • Creation and establishment of a Financial Intelligence Unit (FIU, which is already operational and which will shortly be submitting a formal request for membership of the Egmont Group).

  • Far-reaching reforms of Law No. 17/VI/2002, broadening its scope and aligning it with the provisions of the Palermo Convention (the draft law was examined at a meeting of the Council of Ministers and submitted to the National Assembly).

  • Preparation of a Law criminalizing the Financing of Terrorism (the draft law was examined at a meeting of the Council of Ministers and submitted to the National Assembly);

  • Review of the banking sector law which dates from 1996, including in order to strengthen the supervisory framework for the banking sector, harmonize banking secrecy requirements with the needs associated with the exchange of information among supervisory institutions and ultimately, if possible, in order to unify the entire banking sector in regard to prudential requirements (the draft decree (dipoma) is at an advanced stage of preparation, and the first version is expected to be completed by end-December 2008);

  • The signing of memoranda of understanding between the BCV and foreign supervisors.

33. In addition to in-service training activities, there are plans in 2009 to regulate the designated nonfinancial activities and professions [Actividades e Profissões Não Financeiras Designadas (APNFD)] as well as to review and strengthen the BCV’s technical instructions pertaining to AML/CFT for the banking sector and to prepare technical instructions for the insurance sector and the capital market.

34. It should be noted that at the request of the Cape Verde authorities, the IMF in November 2008 embarked upon the first phase of an assessment of the stability of the financial sector in Cape Verde (FSAP). Furthermore, the implementation of the recommendations of this exercise (whose second phase will be concluded in January 2009) should help to strengthen Cape Verde’s framework for monitoring and supervising the financial sector, thereby further hampering attempts to use this sector for money laundering or terrorist financing activities.

Praia, December 15, 2007

Cape Verde: Report on the Observance of Standards and Codes: FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism
Author: International Monetary Fund