Criminalization of Money Laundering (c. 1.1—Physical and Material Elements of the Offence):

126. Armenia has signed and ratified both the United Nations Convention Against Transnational Organized Crime (the Palermo Convention) and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention).

127. The first part of Armenia’s money laundering offence covers the conversion or transfer of proceeds of crime, whereas the second part criminalizes the concealment or disguise of such property. The third part criminalizes the acquisition, possession, use or disposition of criminal proceeds if the person knew at the time of receipt that proceeds stem from the commission of a crime.

128. Armenia’s money laundering offence therefore covers all material elements of the money laundering offences as defined in the Palermo and Vienna Conventions.

The Laundered Property (c. 1.2):

129. Article 190 defines the term “property obtained in a criminal way” in line with the international standard to include “any type of property, including assets, securities and property rights, and other objects of civil rights derived or obtained, directly or indirectly, through commission” of a predicate offense.

Proving Property is the Proceeds of Crime (c. 1.2.1):

130. Article 190 CC does not require that a person be convicted of a predicate offense to prove the illicit origin of proceeds. However, from discussions with the authorities it appeared that until recently, the common understanding was that in practice a conviction for the predicate offense was required to prove that proceeds stem from a predicate offense. Both representatives of the General Prosecutor’s Office and the Judiciary stated that after having received training on AML/CFT, the general understanding would now be that a conviction or parallel proceedings for the predicate offense would no longer be required to convict a person for autonomous money laundering, but it is too early to determine whether the courts will be receptive of this new orientation.

131. The authorities pointed to one judicial case in which money laundering was the sole offence being adjudicated, which had resulted in a conviction. However, this case (Armenia vs. Vahan Suren Madatyan Case No. N 1/11-2006) is not conclusive because the defendant had been convicted for the predicate offense (illegal logging) in an earlier trial. In a second judicial case also referred to by the authorities, (Armenia vs. Volodya Tsatur Ghukasyan Case No. EADD/0041/0/08), parallel charges were brought for both the predicate offense (commercial bribery) and the money laundering offense and a conviction was handed down for both charges. Thus, in the judicial practice so far, a conviction for money laundering was obtained either based on or together with a conviction for the predicate offense.

132. The authorities also informed the assessors that an investigation only for the money laundering offense is currently in the pre-trial stage and would soon be filed with the courts. It is expected that this case will clarify the court’s position on whether a charge for a standalone money laundering can be filed even in the absence of a conviction or pending proceedings for the predicate offense.

133. The authorities stated that the standard of proof applicable to prove that property is proceeds of crime would be the “beyond reasonable doubt” standard. This means that the prosecutor will have to prove the specifics of the predicate offense, e.g. that the conduct amounted to a designated offense, the timeframe when the predicate offense was committed, the perpetrator, the types of assets that originated from the predicate offense. The assessors consider this a rather high standard of proof.

The Scope of the Predicate Offences (c. 1.3):

134. All FATF designated categories of predicate offenses are covered, as outlined below. In addition, tax evasion is criminalized through Articles 205 & 206 CC and constitutes a predicate offense for money laundering under Armenian law.

Predicate Offense	Law
Participation in an organized criminal group and racketeering	Article 222, 223 & 224 CC.
Terrorism, including terrorism financing	Articles 217, 388, 389 CC.
Trafficking in human beings and migrant smuggling	Articles 132, 132.1, & 168 CC.
Sexual exploitation, including sexual exploitation of children	Articles 132, 132.1, 166, 261&d 262 CC.
Illicit trafficking in narcotic drugs and psychotropic substances	Articles 215, 266 CC.
Illicit arms trafficking	Article 215, 235 CC.
Illicit trafficking in stolen and other goods	Article 216 CC.
Corruption and bribery	Articles 200, 201, 311, 312 & 313 CC.
Fraud	Article 178, 184, 194, & 212 CC.
Counterfeiting Currency	Articles 202 & 203 CC.
Counterfeiting and piracy of products	Articles 197, 207 CC.
Environmental crime	Articles 281, 284, 286, 287, 288, 289, 291, 292, 295, 297 &298 CC.
Murder, grievous bodily injury	Articles 104, 112, 113, 117 CC.
Kidnapping, illegal restraining and hostagetaking	Articles 131, 132, 133, 134, & 218 CC.
Robbery or theft	Articles 175-181, 234, 235, 238, 269, 383 CC.
Smuggling	Article 215 CC.
Extortion	Article 182 CC.
Forgery	Article 269 CC.
Piracy	Articles 220, 221 CC.
Insider trading and market manipulation	Articles 195, 199 & 214 CC.

View Table

Predicate Offense	Law
Participation in an organized criminal group and racketeering	Article 222, 223 & 224 CC.
Terrorism, including terrorism financing	Articles 217, 388, 389 CC.
Trafficking in human beings and migrant smuggling	Articles 132, 132.1, & 168 CC.
Sexual exploitation, including sexual exploitation of children	Articles 132, 132.1, 166, 261&d 262 CC.
Illicit trafficking in narcotic drugs and psychotropic substances	Articles 215, 266 CC.
Illicit arms trafficking	Article 215, 235 CC.
Illicit trafficking in stolen and other goods	Article 216 CC.
Corruption and bribery	Articles 200, 201, 311, 312 & 313 CC.
Fraud	Article 178, 184, 194, & 212 CC.
Counterfeiting Currency	Articles 202 & 203 CC.
Counterfeiting and piracy of products	Articles 197, 207 CC.
Environmental crime	Articles 281, 284, 286, 287, 288, 289, 291, 292, 295, 297 &298 CC.
Murder, grievous bodily injury	Articles 104, 112, 113, 117 CC.
Kidnapping, illegal restraining and hostagetaking	Articles 131, 132, 133, 134, & 218 CC.
Robbery or theft	Articles 175-181, 234, 235, 238, 269, 383 CC.
Smuggling	Article 215 CC.
Extortion	Article 182 CC.
Forgery	Article 269 CC.
Piracy	Articles 220, 221 CC.
Insider trading and market manipulation	Articles 195, 199 & 214 CC.

Threshold Approach for Predicate Offences (c. 1.4):

135. Since 2006, Armenia follows a list approach in defining the predicate offenses for money laundering. As outlined above, all FATF designated categories of predicate offenses are covered by this list.

Extraterritorially Committed Predicate Offences (c. 1.5):

136. Under Armenian law money laundering is punishable even if the predicate offence has been committed abroad if the underlying conduct also constitutes a criminal offence in Armenia. Article 14 CC provides that Armenian criminal law applies to all crimes that “started, continued or finished” in Armenia as well as to any act that was carried out “in complicity with a person who committed crimes abroad”. The provision further states that for conduct that has been committed both in Armenia and another jurisdiction, the Armenian criminal provisions apply if the person was subjected to criminal liability in Armenia. Thus, if just an individual part of the conduct occurred in Armenia (for example the laundering activity), Armenian law would be applicable. Thus, as long as part of the laundering activity took place in Armenia, the Money Laundering provisions apply also with respect to predicate offenses committed in another jurisdiction.

137. In addition, Article 15 CC provides that, with respect to Armenian citizens and stateless persons permanently residing in Armenia, there is jurisdiction even when no part of the offence occurred in Armenia, provided the act constitutes a criminal offense in the country where the conduct occurred. Armenia is therefore in compliance with this criterion.

Laundering One’s Own Illicit Funds (c. 1.6):

138. Article 190 CC criminalizes the conversion or transfer, the concealment or disguise and the acquisition, possession, use of disposition of criminal proceeds regardless of whether the predicate offence has been committed by the money launderer or a third party. Self-laundering is therefore criminalized for all acts constituting money laundering. This was confirmed in Armenia vs. Grigoryan(1/11-2006), where the court convicted the defendants for both the predicate and the money laundering offense. Representatives of the General Prosecutor’s Office stated that, at the time of the onsite visit, another case for self laundering was pending before court. This was also confirmed through a chart provided by the authorities, which indicates the status of all money laundering cases investigated or pending before the courts. Armenia is therefore compliant with this criterion.

Ancillary Offences (c. 1.7):

139. Ancillary offences are defined in the general section of the CC and apply to all criminal offenses, including money laundering.

140. Article 33 CC provides that sanctions for a criminal offense are not only being applied to completed crimes but also to attempted crimes or anybody who prepares a crime. Pursuant to Article 34CC a crime is considered attempted if a willful act or inaction immediately aimed at the committing a crime has been taken and the crime was not completed for reasons beyond the person’s control. Article 35CC furthermore provides that a crime has been prepared if means or tools for the commission of a crime requiring direct willfulness have been provided or adapted or other conditions for the commission of a crime have been willfully created and the crime was not completed for reasons beyond the person’s control. Persons voluntarily refusing to complete the crime and preventing the completion of the crime by the perpetrator are not subject to criminal liability.

141. Article 38 CC defines a number of types of accomplices, including organizers (the person who arranges or directs the commission of the crime or a group for the purposes of committing a crime); abettors (person who assists the main perpetrator of the crime through persuasion, financial incentives, threats or means) and helpers (person who assists the main perpetrator of the crime, through pieces of advice, instructions or information, or who provides means or tools or eliminates obstacles to the commission of the crime, or who has promised harbor to the criminal, or to hide means and tools of a crime, traces of the crime, or items acquired through a crime, or the person who has promised to acquire or sell such items).

142. Article 39CC further stipulates that the maximum sanction for all types of accomplices is the same as for the main perpetrator, whereby the nature and degree of participation of each of them in committing the crime has to be taken into account by the court.

143. The FATF standard requires that countries criminalize either conspiracy or association to commit money laundering. Conspiracy as generally known in common law systems is not criminalized under Armenian law, which is a civil-law jurisdiction. The Armenian law provides for the criminalization of “preparation” (by Article 35, described above), although the authorities confirmed that at a minimum, a preparatory act as defined in this Article has to be carried out for a person to be held criminally liable. A mere agreement (as in the case of conspiracy) would therefore not constitute the crime of “preparation”.

144. However, Article 223 CC criminalizes the “creation of a criminal association” and Article 41 CC further defines the term “criminal association” as “a stable group of individuals who previously united to commit one or more crimes.”

Additional Element—Whether an act occurs overseas which does not constitute an offence overseas, but would be a predicate offence if it had not occurred domestically, leads to an offence of ML (c. 1.8):

145. For certain grave offenses committed abroad and designated through Article 15 CC, Armenian citizens or stateless persons permanently residing in Armenia may be held criminally liable under Armenian law regardless of whether the conduct involved does or does not constitute a criminal offense in the country where it occurred. Amongst others, the list of designated offences includes international terrorism, warfare, genocide, violations of international humanitarian law.

Liability of Natural Persons (c. 2.1):

146. The language of Article 190 CC provides that with respect to the acts of converting or transferring proceeds, the offender has to act with a purpose of either concealing or disguising the illicit origin of the property or to assist another person to evade liability for a crime. No specific purpose element is required for the other acts envisaged by Article 190 CC.

147. Article 28 CC provides that all crimes require that the perpetrator acts willfully unless it is specifically stated that a certain crime may be committed negligently. Article 29 CC further differentiates between “direct willfulness” where the person understood the danger and foresaw the consequences of his action and desired these consequences and “indirect willfulness” where a person “did not desire those consequences but knowingly allowed them to take place.” For all acts covered by Article 190 CC, the offender therefore has to be acting with direct or indirect willfulness.

148. With respect to the property involved in the commission of the money laundering offense, for the acts of “conversion, transfer, concealing or disguising”, Article 190 CC requires that the perpetrator of the money laundering offense knew that property is proceeds of crime. With respect to “acquisition, possession and use” that knowledge has exist at the time of receipt of the property.

149. Article 190 CC therefore meets the mens rea requirement as stipulated in the Vienna and Palermo Conventions.

The Mental Element of the ML Offence (c. 2.2):

150. Although the criminal law does not explicitly foresee that the intentional element of the ML offense may be inferred from objective factual circumstances, Armenia, as confirmed by the authorities, relies on the principle of free evaluation of evidence by the judiciary (codified by Article 25, CPC), which enables the judge to make this inference.

151. In accordance with this principle, the intentional element of any crime may therefore be inferred from factual circumstances as required by the Vienna and Palermo Conventions.

Liability of Legal Persons (c. 2.3.); Liability of Legal Persons should not preclude possible parallel criminal, civil or administrative proceedings & c. 2.4):

152. Armenian law does not currently provide for criminal liability of legal persons.

153. While the authorities held that two principles of Armenian criminal law, namely the principles of “personal liability” or “nullum crimen sine culpa” would preclude the criminal liability of legal persons, the assessors could not confirm that this amounts to a fundamental principle under Armenian law as this is not confirmed by any provision in the Armenian Constitution, nor through a ruling to that effect by the Supreme Court.

154. In any case, the authority’s interpretation as outlined above does not seem convincing as a draft law introducing the concept of criminal liability of legal persons in the area of corruption is currently being considered by government. The authorities also conceded that the introduction of the same principle for money laundering offences (but not for terrorism financing) was being discussed.

155. Legal persons involved in money laundering are, however, subject to administrative sanctions pursuant to Article 28 AML/CFT Law. Sanctions may include fines, revocation, suspension or termination of the legal person’s license and filing of a request with the courts to liquidate the legal person.

Sanctions for ML (c. 2.5):

156. Person guilty of money laundering pursuant to Article 190 CC may be sanctioned with imprisonment of up to four years and confiscation of the property involved pursuant to Article 55(4) CC²¹. Confiscation is a mandatory sanction for money laundering.

157. In aggravated circumstances, i.e. if the offense involves amounts exceeding 500-fold minimal salary at the time when the offense was committed. At the time of the onsite visit, the minimum salary was 1000 AMD and threshold was therefore 500,000 AMD (approximately 16,367 USD or 12,835 EUR). If the offense was committed based on a prior agreement of a group of people, the sentence may be increased on imprisonment of four to eight years and confiscation of the property involved in accordance with Article 55(4) CC.

158. In particularly grave cases, i.e. when the offense involves amounts exceeding 10000-fold of the minimal salary set at the time of the offense was committed (approximately 32,730 USD or 25,700 EUR), or the offense is committed by an organized group of people or with abuse of official functions, the sanction may even be increased to imprisonment of six to twelve years and confiscation of the property involved.

159. The sanctions for money laundering seem to be consistent with the sanctions applicable for other financial crimes under Armenian law. For example, fraud may be sanctioned with imprisonment of two years or a fine (Article 184 CC), embezzlement with up to two years and a fine (Article 179 CC), market manipulation with up to one year and a fine (Article 204 CC), and extortion with imprisonment of up to 4 years and a fine (Article 182 CC).

160. The statutory sanctions available for money laundering pursuant to Article 190 CC seem to be proportionate and would be dissuasive. However, it is difficult to reach a conclusion as to whether they are effective as, since the introduction of the ML offence, only two convictions were obtained for such offence and in neither case did the court sentence the defendant to imprisonment. In the first case the sanction actually imposed was a fine of 400,000 AMD (approx. 1,040 EUR or 1,308 USD), whereby the defendant was relieved from payment of the fine based on amnesty. In the second case, the court imposed a fine of 300,000 AMD (approx. 780 EUR or 980 USD) and confiscation of the property laundered in the amount of 4,600,000 AMD (approx. 12,000 EUR or 12,040 USD).

Statistics and Effectiveness:

Statistics:

161. Statistics on criminal investigations initiated and brought before the courts are maintained on a centralized basis by the Information Center of the Police. The relevant law enforcement agencies are also required to periodically provide to the FMC statistics on the conducted ML/TF criminal investigations as required by Central Bank Board Decision 23-N of January 27, 2009.

162. Since 2005, about 15,000 investigations for predicate offenses were initiated, most of which involved the crimes of “Theft”, “Swindling”, “Illicit Turnover of Narcotic Drugs or Psychotropic Substances with the Purpose of Sale”, and “Illegal procurement, Transportation or Carrying of Weapons, Ammunition, Explosives or Explosive Devices.”

The type of crime	Investigations
	2005.	2006.	2007.	2008
Kidnapping (Article 131)	22	26	25	27
Trafficking in human beings and migrant smuggling (Article 132)	11	13	8	15
Counterfeiting Currency (Article 202)	52	44	44	70
Counterfeiting alcoholic beverages (Article 207)	16	13	15	10
Illicit Trafficking in Narcotic Drugs, Psychotropic Substances and Arms) Article 215	50	62	77	69
Banditry (Article 175)	103	90	75	122
Robbery (Article 176)	152	147	94	171
Theft (Article 177)	1998	2489	2148	2573
Swindling (Article 178)	445	380	412	384
Embezzlement (Article 179)	119	75	68	75
Extortion (Article 182)	15	10	16	19
Illegal Entrepreneurial Activity (Article 188)	23	46	15	13
Trade of Foreign Currency without a License (Article 188.1)	0	0	0	3
False Entrepreneurial Activity (Article 189)	23	13	8	3
Bribery (Article 200)	3	1	0	9
Counterfeiting Payment Documents (Article 203)	3	4	2	0
Tax Evasion (Article 205)	21	48	53	16
Illicit Trafficking in Criminally Obtained Goods (Article 216)	15	22	15	16
Illegal procurement, Transportation or Carrying of Weapons, Ammunition,	212	190	184	214
Explosives or Explosive Devices (Article 235)
Illicit Turnover of Narcotic Drugs or psychotropic Substances wit the Purpose of Sale (Article 266)	76	161	235	282
Abuse of Official Authority (Article 308)	26	22	21	60
Taking Bribes (Article 311)	7	14	5	49
Giving a Bribe (Article 312)	1	3	2	10

View Table

The type of crime	Investigations
	2005.	2006.	2007.	2008
Kidnapping (Article 131)	22	26	25	27
Trafficking in human beings and migrant smuggling (Article 132)	11	13	8	15
Counterfeiting Currency (Article 202)	52	44	44	70
Counterfeiting alcoholic beverages (Article 207)	16	13	15	10
Illicit Trafficking in Narcotic Drugs, Psychotropic Substances and Arms) Article 215	50	62	77	69
Banditry (Article 175)	103	90	75	122
Robbery (Article 176)	152	147	94	171
Theft (Article 177)	1998	2489	2148	2573
Swindling (Article 178)	445	380	412	384
Embezzlement (Article 179)	119	75	68	75
Extortion (Article 182)	15	10	16	19
Illegal Entrepreneurial Activity (Article 188)	23	46	15	13
Trade of Foreign Currency without a License (Article 188.1)	0	0	0	3
False Entrepreneurial Activity (Article 189)	23	13	8	3
Bribery (Article 200)	3	1	0	9
Counterfeiting Payment Documents (Article 203)	3	4	2	0
Tax Evasion (Article 205)	21	48	53	16
Illicit Trafficking in Criminally Obtained Goods (Article 216)	15	22	15	16
Illegal procurement, Transportation or Carrying of Weapons, Ammunition,	212	190	184	214
Explosives or Explosive Devices (Article 235)
Illicit Turnover of Narcotic Drugs or psychotropic Substances wit the Purpose of Sale (Article 266)	76	161	235	282
Abuse of Official Authority (Article 308)	26	22	21	60
Taking Bribes (Article 311)	7	14	5	49
Giving a Bribe (Article 312)	1	3	2	10

163. Between 2005 and February 15, 2009, 22 criminal cases for money laundering were instigated, whereby three of those cases have been suspended (one of them in 2005, and the other two in 2006). Of the remaining 19 cases, five were discontinued, ten are pending before the courts, one led to an acquittal, two led to a conviction and one case was transferred to another jurisdiction. Of the 22 criminal investigations, 12 were instigated by the NSS, six by the GPO’s Investigation Department, two by the police and two by regional prosecutor’s offices. Of the 22 criminal investigations, seven were instigated on the basis of the FMC’s referrals (one case in 2005, two cases in 2006, two cases in 2007 and two cases in 2008).

164. The statistics provided do not indicate the number of cases in which Law Enforcement Agencies (LEAs) conducted operational-search activities with respect to an alleged ML cases and subsequently decided not to instigate a criminal case.

Statistics on instigated ML criminal cases
Year	Initiated cases	Suspende d cases	Cases with discontinued prosecution	Acquittals	Seized property	Convictions	Penalties
2005	5	1	1
2006	4	2				1	Fine of 400,000 AMD
2007	3		3	1
2008	6		1		40,000 EUR and 31,650,000 AMD
2009 (as of 15/02)	4					1	Confiscation of 4,600,000 AMD

View Table

Statistics on instigated ML criminal cases
Year	Initiated cases	Suspende d cases	Cases with discontinued prosecution	Acquittals	Seized property	Convictions	Penalties
2005	5	1	1
2006	4	2				1	Fine of 400,000 AMD
2007	3		3	1
2008	6		1		40,000 EUR and 31,650,000 AMD
2009 (as of 15/02)	4					1	Confiscation of 4,600,000 AMD

Effectiveness:

165. While the money laundering criminal provision is largely in line with the material elements of the Vienna and Palermo Conventions, questions could be raised in regard to its effective implementation.

166. The overall number of cases investigated versus the convictions obtained for ML would be reasonable for a jurisdiction the size of Armenia, especially considering that, until recently, a prior conviction for the predicate offence was required.

167. However, compared with the overall number of investigations instigated for predicate offenses, which since 2005 amounts to approximately 15,000 cases, as outlined in the table above, the number of cases instigated for money laundering, which is 22, appears to be rather low. While the assessors acknowledge that many of those predicate offenses may have been petty crimes, the comparison still gives rise to questions regarding the effective implementation of the money laundering provisions.

168. Also, assessors were unable to determine whether the implementation of the ML offence is effective, as approximately the 80% of criminal investigations and prosecutions are still pending, or were discontinued or suspended.

Criminalization of Financing of Terrorism (c. II.1):

171. Article 217.1. CC provides that the direct or indirect provision or collection of financial means with the criminal intent or the knowledge that the funds will be used, fully or in part, by a terrorist organization or an individual terrorist to commit terrorism constitutes the offense of terrorist financing and may be sanctioned with imprisonment of three to seven years and confiscation of the property involved in the commission of the crime.

172. The CC does not provide for a definition of “terrorist organization” or “individual terrorist”. However, the authorities stated that the definition of “terrorist” as contained in the Law on the Fight against Terrorism would be applicable to Article 217.1. CC. Article 5 of this law defines “terrorist” as “any person having committed an act of terrorism, or having prepared or attempted such.”

173. If the offense is committed by a group of people based on a prior agreement, or by an organized group, the sanction may be increased to imprisonment of eight to twelve years and confiscation of the assets.

174. Special Recommendation II requires that the terrorist financing offense extends to any person who provides or collects funds by any means, directly or indirectly, with the intention that they be used for terrorist acts as defined in the TF Convention, by a terrorist organization or by an individual terrorist:

Financing of Terrorist Acts as defined in the TF Convention:

175. “Terrorism” is defined through Article 217 CC as “actions inflicting significant damage to property or actions causing danger to the public, or threat of such actions, if these actions were committed with the purpose of violation of the public security, intimidation of the population or exerting pressure on decision making by a state official, or for the purpose of fulfilling another demand of the perpetrator.”

176. Pursuant to Article 2 TF Convention, “terrorist acts” include: (1) offences as defined in the nine Conventions and Protocols listed in the Annex to the TF Convention; and (2) any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a Government or an international organization to do or to abstain from doing any act.

177. With respect to the generic terrorism offense it would appear that the scope of Article 217 CC covers all but one aspect of the TF Convention’s definition. While the TF Convention’s definition also includes acts designed to intimidate an international organization, no such reference to international organizations is contained in Article 217 CC.

178. Article 217 CC does not contain an express reference to the offenses defined in the nine Conventions and Protocols listed in the Annex to the TF Convention. To satisfy the requirements of the international standard on that point, the generic terrorism offense would therefore have to be broad enough to cover all offenses defined in the nine Conventions and Protocols. However, the generic terrorism offense as defined in Article 217 CC has a special intent requirement, namely that an act is committed “with the purpose of violation of the public security, intimidation of the population or exerting pressure on decision making by a state official, or for the purpose of fulfilling another demand of the perpetrator,” whereas most of the offences as defined in the nine Conventions and Protocols listed in the Annex to the TF Convention do not require such an intent.²²

179. In addition, while the infliction of damage to property or the causing of danger to the public or threat with such action is required for an act to fall under the definition of Article 217 CC as outlined above, one of the offenses in the Conventions and Protocols do not require the occurrence of damage or danger or threat thereof. The Nuclear Material Convention makes it a terrorism offense to fraudulently obtain nuclear material, regardless of whether or not the perpetrator uses or threatens to use the material against the public or any state.

180. The scope of the terrorism offense therefore does not extend to all “terrorist acts” as defined in the TF Convention.

Financing of Individual Terrorist or Terrorist Organizations pursuant to Special Recommendation II:

181. Article 217.1. CC criminalizes the financing of terrorists or terrorist organization only if the financial means are being collected or provided with the intention or the knowledge that the property will be used to commit a specific act. Thus, the provision or collection of funds to finance a terrorist (e.g. supporting life style) or terrorist organization generally is not covered. This was also confirmed in discussions with the authorities. Therefore, the terrorist financing provision does not cover all the requirements of Special Recommendation II on this point.

182. With respect to all criminal offenses, Article 29 CC differentiates between two forms of intent, namely “direct willfulness,” where the person understood the danger and foresaw the consequences of his action and desired these consequences, and “indirect willfulness”, where a person did not desire those consequences but knowingly allowed them to take place. When providing or collecting funds, the offender of the terrorism financing therefore has to act with direct or indirect willfulness. In addition, the offender has to have the intent or the knowledge that funds will be used for terrorism. The international standard requires that the perpetrator of a terrorism financing offense acts willfully and with intent that the funds be used, in the knowledge that they are to be used, for financing of terrorism and Armenian law therefore meets the international standard on this aspect of Criterion II.1(a).

Funds:

183. While the language of the TF provision does not discriminate between “legitimate and illegitimate” assets (and therefore includes both types of funds), the notion of “financial means” is not defined in the law. Paragraph 3 of Article 217.1. CC, however, defines the term “objects of terrorism financing” as propertyaimed at terrorist financing, including “the property used or intended to be used to finance acts as defined in Article 217.1. CC as well as the crime instruments intended fo the commission of terrorism and owned by the convicted, and if property linked to terrorism financing has not been discovered, other property of equivalent value.” The term “property” is further defined in the Civil Code to include all funds as defined in the FATF standard.

184. The authorities confirmed that the terminology used in paragraph 1 (“financial means”) and paragraph 3 (“objects of terrorism”) does not match due to a legal drafting mistake. However, they held that for the purpose of interpreting the scope of the terrorism financing provision in paragraph 1, the scope of “objects of terrorism financing” would still be applicable. Due to the lack of any case law on this point, however, this view has not yet been confirmed by the courts, Thus, to ensure that Article 217.1. CC applies to all “funds” as defined in the FATF standard and avoid any possibility to challenge the authorities’ interpretation, the assessors would consider it important to harmonize the terms used in paragraphs 1 and 3 of Article 217.1. CC.

185. Article 217.1. CC provides that the offence of terrorist financing is committed when a person collects or provides funds with the intention to support a terrorist act. The language of the provision does not require that funds have actually been used to carry out or attempt to carry out a terrorist act or that the funds collected/provided are linked to a specific act on the list. Representatives of the General Prosecutor’s Office confirmed that Article 217.1. CC does not require that a specific act has been carried out or attempted. The mere provision or collection of the funds with the required intent or knowledge would suffice to prosecute a person for terrorism financing.

Ancillary Offenses pursuant to Article 2(5) TF Convention:

186. The provisions in the general part of the CC defining ancillary offenses apply to all crimes, including terrorism financing. As outlined in detail under Recommendation 1, criterion 7, Article 33 CC criminalizes attempt and Article 38 CC extends to any person acting as accomplices in the commission of a crime or who arranges or directs the commission of the crime or directs or abets a group for the purposes of committing a crime. All ancillary offenses as defined in Article 2(5) TF Convention are therefore covered under Armenian law.

Predicate Offence for Money Laundering (c. II.2):

187. Terrorist financing is listed in Article 190 CC and therefore constitutes a predicate offense for money laundering under Armenian law.

Jurisdiction for Terrorist Financing Offence (c. II.3):

188. Article 217.1. CC provides that the provision or collection of funds with the intention that they are to be used by terrorists or terrorist organizations is a criminal offense. Article 217.1. does not discriminate between the financing of terrorists and terrorist organizations located in Armenia and those located abroad.

189. In addition, Article 14 CC provides that Armenia’s criminal laws are applicable to all conduct committed in Armenia. As long as the “provision or collection” takes place in Armenia, Article 217.1. therefore applies even in situations where the beneficiary is located outside of Armenia.

190. Furthermore, terrorist financing offenses committed outside Armenia by Armenian citizens as well as stateless persons permanently residing in Armenia are subject to criminal liability under Armenian law if the act constitutes a criminal offense in the country where the conduct occurred. Therefore, the Armenian terrorism offense applies regardless of whether the person alleged to have committed the financing offense is in the same country or a different country from the one in which the terrorist or the terrorist organization is located or the terrorist act occurred or will occur.

The Mental Element of the TF Offence (applying c. 2.2 in R.2):

191. Article 25 CPC provides for the application of the general principle of free assessment of evidence in criminal cases. According to this principle, the judge is not bound by strict rules in assessing and evaluating the evidence gathered but may decide according to his own conviction. In accordance with this principle, the intentional element of any crime may therefore be inferred from factual circumstances.

Liability of Legal Persons (applying c. 2.3 & c. 2.4 in R.2):

192. Armenian law does not provide for criminal liability of legal persons but administrative sanctions are available. The detailed analysis carried out under Recommendation 2, criteria 2 and 3 also applies to the terrorism financing offense.

Sanctions for TF (applying c. 2.5 in R.2):

193. Terrorist financing pursuant to Article 217.1. CC may be sanctioned with imprisonment of three to seven years plus confiscation of the assets involved. If the offense was committed by a group of people based on a prior agreement, or by an organized group, the applicable sanction is eight to twelve years imprisonment and confiscation of the property involved.

194. The sanctions available for terrorist financing seem to be proportionate and would be dissuasive. However, in the absence of any case law it is impossible to establish whether they are also effective.

Effectiveness:

195. As of the time of the onsite visits, there have been no inquests, investigations or prosecutions for terrorism financing.

Confiscation of Property related to ML, TF or other predicate offences including property of corresponding value (c. 3.1); Confiscation of Property Derived from Proceeds of Crime (c. 3.1.1 applying c. 3.1):

199. Confiscation is defined pursuant to Article 55(1) CC as “the compelled and ultimate deprivation of property or its part found to be owned by the defendant and its conversion into the state’s ownership.”

200. Article 55 comprises three separate confiscation provisions: 55(3) is the general confiscation provision which, with a few exceptions, is applicable to all grave and particularly grave crimes. Articles 55(4) & 55(5) contain confiscation provisions applicable exclusively to ML and TF offenses, respectively.

201. Article 55(3) provides that “confiscation of property can be applied to grave and particularly grave crimes […] in cases stipulated by the Special Part of the CC” and with the exception of those defined by Articles 55(4) & 55(5), which relate to cases of ML and TF, as for those crimes the more specific confiscation provisions of Article 55(4) and (5) apply as outlined below.

202. For the ML offence, Article 55(4) provides that “confiscation is mandatory with regard to illicit property including the property derived, directly or indirectly, from legalization of illicit proceeds and commission of the offenses defined by Article 190 CC, i.e. income or other benefits from the use of that property the instruments used or intended for use in the commission of those offences, and if the illicit property has not been discovered, other property of corresponding value.” While the language of Article 55(4) CC would suggest that the provision is applicable not only to ML but to all offenses involving illicit proceeds, in discussions with the authorities it was stated repeatedly that the scope of the provision would be limited to ML only and that the provision could therefore not be used to confiscate property relating to the predicate offense.

203. Article 55(5) stipulates that “confiscation is mandatory with regard to property linked to, including property used or intended to be used for financing the actions defined in Article 217 CC and including income or other benefits from the use of that property, the instruments used or intended for use in the commission of those offences and, if the property […] has not been discovered, other property of corresponding value.”

204. In all three cases, confiscation is a conviction based sentence. However, whereas confiscation is mandatory upon conviction for ML and TF, it is a discretionary sanction in the context of Article 55(3) as outlined above.

Property relating to the money laundering offense:

205. Article 55(4) CC provides for mandatory confiscation of illicit proceeds, including of property derived or obtained, directly or indirectly, from legalization of illicit proceeds and the commission of ML offenses, including income or other benefits from the use of that property, the instruments used or intended for use in the commission of money laundering offenses, and in cases the illicit property has not been discovered, property of corresponding value to such illicit proceeds.

206. The provision further stipulates that the property should be confiscated regardless of whether it is owned or held by the defendant or a third party, therefore also allowing for the confiscation of property that has been transferred to a third party. The authorities clarified that the provision would extend to property over which the defendant has legal ownership and property of which the defendant merely has in his possession, as well as to any property that is owned or held by a third party. Bona fide third parties are protected from confiscation as outlined below.

207. Article 55(4) CC therefore allows for the confiscation of proceeds from, instrumentalities used for or intended for use in the commission of the ML offense. While Article 55(4) CC does not expressly refers to the property laundered, the court in Armenia vs. Ghukasyan (EADD/0041/01/08) confiscated the proceeds of the predicate offense as the object of the ML offense pursuant to Article 55(4) CC.

Property relating to the commission of a terrorist financing offense:

208. Article 55(5) CC stipulates that confiscation is mandatory with regard to property linked to terrorist financing, including property used or intended to be used for the financing of actions defined in Article 217 CC, income or other benefits from the use of that property, the instruments used or intended for use in the commission of those offences, and, if the property has not been discovered, property of corresponding value.

209. As in the case of confiscation relating to ML, property relating to TF may be confiscated regardless of whether it is held by a defendant or a third party.

210. The Article 55(5) therefore covers both the object of the TF offense as well as the proceeds from, instruments used or intended for use of the commission of the offense.

Property relating to the predicate offense:

211. As outlined above, while the language of Article 55(4) CC would suggest that the provision is applicable not only to ML but to all offenses involving illicit proceeds, in discussions with the authorities it was stated that the scope of the provision would indeed be limited to ML only and could not be used to confiscate property relating to the predicate offense.

212. However, for crimes other than ML and TF, the general confiscation provision of Article 55(3) stipulates that confiscation of property may be applied to “grave and particularly grave offences committed with mercenary motives” in cases provided for in the Special Part of the CC and with the exception of cases of ML and TF.

213. Article 55(1) further specifies that all property found to be owned by the defendant may be confiscated, whereby certain private items, such as household items in use, books needed for professional study, and moving accessories for disabled persons are excluded from confiscation pursuant to Section 3 Penitentiary Code. All other items owned by the defendant, including instrumentalities used for or intended for use in commission of predicate offense, proceeds from the commission of the offense and property of corresponding value may be confiscated.

214. “Grave offenses” include any willful act with a maximum applicable sentence of five to ten years, whereas “particularly grave offenses” comprise any such act with imprisonment of ten years to life pursuant to Article 19(4) & (5) CC. Most of the predicate offenses as defined in Article 190 CC do not fall under the categories of “grave” or “particularly grave” offense. In particular, Article 55(3) does not allow for the confiscation of proceeds from certain offenses relating to sexual exploitation (namely the crimes of “involvement in prostitution” and “promoting prostitution”), the basic arms trafficking offense, illicit trafficking in stolen or other goods, a number of offenses relating to fraud, corruption and bribery, the offence of counterfeiting of products, most offenses constituting environmental crimes, many offenses relating to theft or robbery, and the basic extortion offence.

215. Article 55(1) CC only applies to property owned by the defendant and only with respect to a limited range of predicate offenses as outlined above.

216. Thus, as the scope of Article 55(3) CC does not extend to all predicate offenses as outlined above, Armenian law only allows for the confiscation of proceeds of and instrumentalities used or intended to be used for the commission of some but not all predicate offenses.

Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2):

217. As a general rule, Article 233(1) CPC allows for the seizure of property in criminal cases only to secure civil claims and court expenses, whereby seizure is possible only if: (1) the material to be seized may be hidden, spoiled or consumed; (2) there is sufficient grounds to suspect that the accused or the person possessing the property will hide, spoil or consume it; and (3) the property is or may become subject to confiscation. Seizure of property is imposed both on the property of the suspect as well as those persons whose actions can cause financial responsibility, regardless of who possesses and owns that property.

218. Article 233(1) refers to property that is or may become subject to confiscation and thus implies that all property that is or may become subject to confiscation as outlined under criterion 3.1. could also be seized.

219. However, Article 233(1.1.) CPC provides that with respect to a list of criminal offenses, including ML, TF and all FATF designated categories of predicate offenses, the prosecuting body shall impose a seizure on property if the evidence collected in the case provides a sufficient basis to assume that the suspect, the accused or person who possesses the property can hide, spoil, or consume the property subject to confiscation. The provision allows for the seizure of property derived or obtained, directly or indirectly through the commission of the enlisted offenses, including income or other benefits, instruments used or intended to be used in the commission of any such crime, immediately after their discovering. Seizure is available with respect to property held or owned by the defendant or a third party. Unlike the confiscation provisions discussed under criterion 3.1., Article

233(1.1.) CPC does therefore not allow for the seizing of legitimate assets of equivalent value to proceeds from or instrumentalities used or intended for use in the commission of ML, TF or predicate offenses.

220. The decision to seize property does not require a court order but may be taken by the investigating body, which in the case of ML and TF is the NSS, anytime after a criminal case has been instigated and subject to the supervision of the prosecutor’s office pursuant to Article 55 CPC in combination with Article 233(1.1.) as outlined above.

221. The Armenian CPC does not provide for separate restraint powers. Bank accounts would therefore be secured just like any other property, namely through a seizing order pursuant to Article 233 CPC. In addition to Article 233 CPC, Article 13 CPC provides for the “security of property” defined as the “imposition of an arrest on bank deposits and other property of a person” after a criminal case has been instigated. The measure may be taken even in the absence of a court order and based on a decision by the competent investigative or prosecuting body.

222. The Armenian CPC provides for three stages of investigating cases of ML and TF – the instigation of a criminal case, the stage of inquest, and the investigation of a case (all at pre-trial level).

223. Pursuant to Article 182 CPC, a criminal case may only be instigated if there are “reasons and grounds” to do so or “on the occasion.”

224. A detailed discussion of the various stages of a ML case, including the difference between instigation, inquest, and investigation, is provided for under Recommendation 27 of this report.

225. Article 233(3) CPC further provides that the decision to seize assets must indicate the property that may be seized. Article 235 stipulates that upon making a decision to seize property, the investigator or prosecutor, as the case may be, should hand over the decision to seize to the owner or manager of the property and demand that the property be submitted. If the demand is rejected, or there are grounds to suspect that the property will not be surrendered based on the seizing order, the prosecutor may apply to the court for a search warrant to facilitate enforcement of the seizing order. The decision to seize property may be appealed to the prosecutor but an appeal does not prevent execution of the decision.

226. Additional powers are provided for in the Law on Police. Article 20 states that the police has the right to “enter [...] into the areas occupied for production and other entrepreneurial activities [...] and [...] perform inspection, including the vehicles, and confiscate [...] documents, samples of raw materials and production directly associated with the offence”. Article 19 provides the police with the power to search hand-luggage and suitcases of train, air and sea passengers and to confiscate items of which the shipment is prohibited. Article 23 further allows for the inspection of places in which arms are being traded or kept and to confiscate and destroy the arms which are prohibited from circulation.

Ex Parte Application for Provisional Measures (c. 3.3):

227. Article 233(2) CPC provides that the decision to seize property is made by the investigating body or the prosecutor, as the case may be. It is not required to obtain a court order to seize assets pursuant to Article 233 CPC. The seizing measure remains in place until the case has either been terminated or the court has issued a conviction. The measure may therefore be applied ex parte and without prior notice to the parties concerned and Armenia is in compliance with this criterion.

Identification and Tracing of Property subject to Confiscation (c. 3.4):

228. Both the CPC and the LOSA provide for a range of measures to identify and trace property that is or may become subject to confiscation. Further provisions dealing with access to confidential information held at financial institutions are provided for in the Banking Secrecy Law and the AML/CFT Law.

229. The measures provided for in the LOSA include control over correspondence, mail, telegrams, phone conversations and other communications, internal observations of a person or premises by means of technical devices, controlled delivery and purchase of goods and services, and access to financial data and secret control over the financial transactions from financial institutions.

230. The CPC further provides for the seizure of evidence and documents and the issuance of search warrants by the courts. However, as outlined above as well as in the sections of this report dealing with Recommendation 28, investigative measures pursuant to the CPC are only available after a case has been instigated. Prior to the initiation of a criminal case measures pursuant to the LOSA are available (discussed later under Recommendation 27).

231. For the analysis of the provisions concerning access of competent authorities to information covered by financial secrecy, please refer to Recommendations 4 and the issues noted therein. For the analysis of the provisions concerning access to information which is protected by professional secrecy please refer to Recommendation 26 and Recommendation 28 and to the issues noted therein.

Protection of Bona Fide Third Parties (c. 3.5):

232. Both seizure pursuant to Article 233(1.1.) CPC and confiscation pursuant to Article 55(4) and (5) CC are possible regardless of whether the property in question is owned or held by the defendant or a third party. With respect to predicate offenses, however, Article 55(3) does not allow for the confiscation of the defendant’s assets if they are held or owned by a third party and protection of bona fide third parties is therefore not provided for.

233. With respect to confiscation, Article 55(6) specifically provides that property held by bona fide third parties may not be confiscated, whereby “bona fide third party” is defined to include any person who, at the time of the transfer of the property to other persons or at the time of acquisition of the property, did not know or could not have known that the property will be used or is intended to be used for illicit purposes.

234. The provisions are therefore in line with this criterion.

Power to Void Actions (c. 3.6):

235. There is no express provision in the CPC that would allow a court or prosecutor to prevent or void actions, whether contractual or otherwise, where the person involved knew or should have known that as a result of those actions the authorities would be prejudiced in their ability to recover property subject to confiscation. However, transactions may be voided pursuant to Article 313 of the Civil Code if they were made under the influence of fraud or based on a bad-faith-agreement of the parties involved. Armenia’s law is therefore in line with this criterion.

Additional Elements (Rec 3)—Provision for: a) Confiscation of assets from organizations principally criminal in nature; b) Civil forfeiture; and c) Confiscation of Property which Reverses Burden of Proof (c. 3.7):

236. Armenian law does not provide for civil forfeiture or confiscation of property with a reverse burden of proof to show the lawfulness of the property in question. Equally, the law does not allow for the confiscation of assets of criminal organizations other than those directly related to an offense for which a conviction has been obtained.

Effectiveness and Statistics (R 32)

237. Statistics relating to seizures and confiscations are maintained by the Service for Compulsory Enforcement of Court Decrees.

238. According to those statistics, since 2005 Armenia has seized property in three ML cases instigated, amounting to EUR 40,000, AMD 15,000,000 (approx. 49,155 USD or 39,200 EUR) and AMD 16,650,000 (approx. 54,560 USD or 43,600 EUR). In the first case, the decision to seize was repealed and the assets of EUR 40,000 returned. In the other two cases, the trials are still pending.

239. In one case, assets in the amount of 4,600,000 AMD (approx. 12,000 EUR or 12,040 USD) were confiscated upon conviction for ML.

Year	Number of criminal cases with property seized	Total value of property seized	Number of cases with property confiscated	Total value of property confiscated
2005	-	-	-	-
2006	-	-	-	-
2007	-	-	-	-
2008	3	EUR 40.000 and AMD 31,650,000	-	Trials in process.
2009 (as of Feb.15, 2009)	-	-	1	AMD 4,600,000

View Table

Year	Number of criminal cases with property seized	Total value of property seized	Number of cases with property confiscated	Total value of property confiscated
2005	-	-	-	-
2006	-	-	-	-
2007	-	-	-	-
2008	3	EUR 40.000 and AMD 31,650,000	-	Trials in process.
2009 (as of Feb.15, 2009)	-	-	1	AMD 4,600,000

240. Since 2005 approximately 15,000 cases for predicate offenses have been instigated, whereby in 121 cases property in the total amount of approximately 500,000,000 AMD (approx. 1.3 million EUR or 1.6 million USD) was confiscated.

241. While the legal framework provides for the availability of seizing and confiscation measures with regard to property laundered, proceeds from and instrumentalities used in and intended for use in ML and TF and some predicate offenses, based on the statistics as outlined above assessors seriously question how effectively those measures are implemented in practice and in the context of ML and other cases.

242. In particular, it is unclear why in only three out of 22 cases prosecuted for ML the authorities decided to seize property or instrumentalities and why only one case led to the confiscation of property.

243. Looking at the overall number of cases investigated for predicate offenses and the total of assets confiscated in such proceedings, it seems that the law enforcement authorities are familiar with the seizing and confiscation provisions of the CC and CPC and also use those measures in the context of cases other than ML. It is therefore unclear why in ML cases, seizing measures have so far been used only in limited cases.

Freezing Assets under S/Res/1267 (c. III.1):

250. While Article 25 AML/CFT Law is meant to implement UNSCR 1267, the freezing measure pursuant to Article 25 is merely of a temporary nature. The authorities stated that also in the context of lists received from the UN Security Council pursuant to UNSCR 1267 the freeze can only be maintained based on the initiation of domestic criminal proceedings and remains in place until the end of such proceedings. This approach is problematic as the issuance of a domestic freezing order is within the discretion of the Armenian courts while under UNSCR 1267 countries clearly do not have any discretion to freeze property of designated individuals or organizations. Armenia’s approach to link the freezing measures under Article 25 AML/CFT Law to domestic proceedings would also mean that a freeze can only be initiated if the authorities meet the standards articulated in the domestic legislation for a criminal law freeze.

251. Also, since the initiation of domestic proceedings is dependent on the identification of a suspect, which in the absence of criminal liability for legal entities may only be a natural person, the measures under Article 25 AML/CFT Law are also not available with respect to legal entities designated by the UN Security Council. No other procedures or measures adequately addressing the requirements under UNSCR 1267 are available under Armenian law.

Freezing Assets under S/Res/1373 (c. III.2):

252. As outlined above, while Article 25 AML/CFT Law gives the CBA the authority to designate persons linked to terrorism and release such lists of designation, this power has been delegated to the FMC pursuant to Article 10 AML/CFT Law.

253. The authorities stated that in practice it has never been considered necessary to make designations pursuant to UNSCR 1373 based on national intelligence or other information received. The authorities further stated that on two occasions, lists from other jurisdictions with a request to freeze the assets of designated individuals and entities (the US OFAC lists and the EU regulations on terrorism related persons and groups) have been received by Armenia. The FMC in consultation with the Interagency Commission considered the requests and decided not to adopt those designations. Therefore, the lists were not forwarded to the financial institutions or DNFBPs operating in Armenia. However, representatives of the FMC stated that in both cases the names of the listed individuals were added to the FMC database so that STRs and CTRs submitted by reporting entities would automatically be checked for a match, in which case the FMC would immediately freeze any transactions affected. The approach of the authorities took in those cases is not entirely comprehensible. On the one hand, the names on the OFAC and EU lists have been maintained for STR purposes, meaning that such person’s funds would be frozen if a STR regarding that person would be received. On the other hand, the names were not sent to the institutions for matching persons, for the possibility that a suspicion would be raised and thus a STR filed if that name appears.

254. Armenia has not adopted any formal screening procedures for incoming lists of other countries.

Freezing Actions Taken by Other Countries (c. III.3):

255. Armenia has never received a request to give effect to freezing actions initiated under the freezing mechanisms of other jurisdictions. Should the case arise, the FMC may, based on Article 25 AML/CFT Law, freeze property for a period of 15 days. After expiration of this period, the freeze can only be maintained if domestic proceedings for TF can be initiated.

Extension of c. III.1-III.3 to funds or assets controlled by designated persons (c. III.4):

256. Article 25 AML/CFT Law provides for the freezing of “funds of the persons included in […] lists as well as of other persons linked to terrorism financing”. There is no specific reference in the provision to property owned jointly and it is unclear whether the freezing measures may also be applied with respect to funds merely controlled but not legally owned by such individuals.

257. As discussed in the overview, the term “funds” is not defined anywhere in the law and it therefore remains unclear to what extent Article 25 AML/CFT includes all funds and other assets as defined in the FATF standard. While the reporting entities covered by the AML/CFT Law and therefore subject to obligations pursuant to Article 25 include a range of DNFBPs, it remains unclear how the freezing of such property would be implemented in practice. The authorities stated that Article 25 AML/CFT Law would merely extend to financial assets but not to property such as real estate or other economic resources.

Communication to the Financial Sector (c. III.5):

258. As outlined in the overview, while Article 25 AML/CFT Law makes the CBA responsible for the “release” of lists of “persons linked to terrorism”, in practice Article 10 AML/CFT Law delegates this authority to the FMC.

259. The authorities stated that the lists issued pursuant to UNSCR 1267 would be forwarded to the financial institutions as well as the supervisory bodies of DNFBPs of hardcopy, instructing the financial institutions and DNFBPs to freeze, without delay, any funds held by listed entities or individuals. Some but not all financial institutions and supervisory bodies of DNFBPs acknowledged receipt of such written notifications.

260. In addition, the FMC would also make a notification of the update on the FMC homepage, reminding reporting entities of their obligations to freeze any funds held by designated entities and providing a direct link to the relevant UN web page.

261. With respect to designations made by the CBA as the Authorized Person, the authorities stated that while such designations have never been made in practice, dissemination of such designations would take place through circular letters should the case arise.

Guidance to Financial Institutions (c. III.6):

262. The FMC has not issued any formal guidance to reporting entities and other persons or entities that may be holding targeted funds or other assets concerning their obligations in taking freezing actions pursuant to Article 25 AML/CFT Law.

De-Listing Requests and Unfreezing Funds of De-Listed Persons (c. III.7); Unfreezing Procedures of Funds of Persons Inadvertently Affected by Freezing Mechanism (c. III.8):

263. The authorities have not issued any guidance or procedures on how entities or persons listed by the Central Bank as “persons linked to terrorism” could challenge this decision and apply for delisting, should the situation arise. Persons and entities listed by the Security Council pursuant to UNSCR 1267 could apply for a delisting directly with the United Nations.

264. However, since freezing actions pursuant to Article 25 AML/CFT Law are dependent on the initiation of domestic proceedings and limited to the duration of such proceedings, upon determination that a person is not guilty the seizing measure would be lifted even with respect to persons or entities designated by the Security Council or the CBA. The authorities confirmed that freezing measures taken both in respect of entities or persons designated pursuant to UNSCR 1267 and 1373 could be lifted through domestic proceedings. This would apply regardless of whether the appeal is filed by persons claiming to be inadvertently affected or persons appealing the measure on the merits of the case.

265. Once the assets have been seized, the individual may take recourse to the prosecutor.

Access to frozen funds for expenses and other purposes (c. III.9):

266. Article 25 AML/CFT Law provides that persons are entitled to apply to the court for an order, allowing them access to frozen funds for family, medical, and other personal means. In the context of freezing measures issued for entities listed pursuant to UNSCR 1267, the court order should be issued in accordance with and in the manner provided for by the resolutions of the UN Security Council.

Review of Freezing Decisions (c. III.10):

267. As outlined in the previous sections, the maintenance of freezing measures applied pursuant to Article 25 AML/CFT Law is dependent on the initiation of domestic proceedings. During the initial 5 days of the freeze, in which the Authorized Body is to make a decision on whether or not to forward a specific case to the law enforcement authorities, the measure cannot be appealed against by the person or entity whose funds or other assets have been frozen with a view to having the measure removed. The same is true for the 10 days following a transfer of the case to the law enforcement authorities. However, once the law enforcement authorities have taken a decision to seize assets pursuant to Article 233 CPC, the individual concerned may challenge the seizure before the prosecutor and eventually the pre-trial court based on Article 290 CPC.

Freezing, Seizing and Confiscation in Other Circumstances (applying c. 3.1-3.4 and 3.6 in R.3, c. III.11)

268. As outlined in the general section above, Article 25 AML/CFT Law not only applies with respect to persons designated by the UN Security Council or the CBA as the authorized person, but also with respect to domestic proceedings where a person has been identified as a “suspect, accused or convicted.” In addition, seizing and confiscation measures based on Article 55(5) CC and Article 233 CPC apply. A detailed discussion and analysis of these measures is provided for under Recommendation 3 of this report.

Protection of Rights of Third Parties (c. III.12):

269. In confiscation matters, third party protection is covered by Article 55(7) CC, which expressly excludes from confiscation those assets that are owned or held by bona fide third parties, defined as a person who, at the moment of transfer of the property to other persons, did not know or could not know that the property was obtained in a criminal way.

270. Outside of criminal proceedings, there are no special and appropriate provisions on protection of bona fide third parties caught in the initial freezing process pursuant to Article 25 AML/CFT Law.

Enforcing the Obligations under SR III (c. III.13):

271. The authorities stated that compliance with Article 25 AML/CFT Law would be monitored in the course of the CBA’s supervision for AML/CFT purposes. When conducting AML/CFT audits, financial institutions would be required to provide their internal procedures with respect to freezing measures and be instructed to remedy any shortcomings identified.

272. Any violations of Article 25 AML/CFT Law may be sanctioned pursuant to Article 28 AML/CFT Law.

Establishment of FIU as National Centre (c. 26.1) and Dissemination of Information (c. 26.5):

273. The ROA Law on Combating Money Laundering and the Financing of Terrorism (June 21, 2008 HO-80-N, hereinafter “AML/CFT Law”) provides for an “Authorized Body for Combating Money Laundering and Terrorism Financing” (Article 10). Article 3, paragraph 11 of the AML/CFT Law states that such Authorized Body is the Central Bank of Armenia (CBA). The ROA Law on the Central Bank of the ROA (hereinafter “Law on CBA”) indicates, among the objectives of the CBA also “organize and regulate combating legalization of criminal proceeds and financing of terrorism’ (Article 5, paragraph 1(d)).

274. Article 10 of the AML/CFT law enumerates various functions of the Authorized Body in the area of AML/CFT, which are performed by a “responsible structural unit” established within the CBA– the Financial Monitoring Centre (FMC)²³. These functions, according to Article 10, paragraph 2, (and on FMC’s Statute) are to be exercised directly by the FMC – except in some cases, in which the functions of the Authorized Body are conferred either directly to its “supreme management body” or through its competent divisions²⁴. The supreme management body, according to Article 19, paragraph 1 of the Law on CBA, is the Board of the CBA.

275. For the purpose of determining whether the FMC meets the R26 definition—that is an FIU that serves as a national centre for receiving, analyzing and disseminating disclosures of STR and other relevant information concerning suspected ML or TF activities (hereinafter referred to as “FIU’s core functions”)—it should be noted that among the various functions whose performance is assigned to the FMC directly by the law, Article 10 of the AML/CFT law specifically indicates the reception “of reports from reporting entities and information from state bodies and organizations” (paragraph 1.(1); the analysis of the “received reports and information” (paragraph 1.(2); and the dissemination of a “statement to criminal investigation authorities” when the FMC has reasonable suspicions of money laundering or terrorist financing, as a result of the analysis of a report filed by a reporting entity or of other information (Article 10, paragraph 1(3) and Article 13, paragraph 3, respectively). As mentioned earlier, the AML/CFT law assigns the performance of these “functions and authorities stipulated for the Authorized Body” directly to the FMC, which is therefore the FIU for Armenia.

276. The FMC was established in 2005, pursuant to 10 of the first AML/CFT law, adopted by Armenia on December 14, 2004 (this law was then superseded by the adoption of the new AML/CFT Law in 2008). According to the Article 10 of the former AML/CFT law established the FMC as a separate division of the CBA. The FMC is composed of the Head, Deputy Head and Secretary Assistant and of three division: “Legal compliance and International Relations Division”(5 employees); “Analysis Division” (3 employees) and “Information Technology (IT) division” (4 employees).

277. The FMC has the following structure:

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278. The functions and structure and organization of the FMC are further detailed in the “Statute”, adopted by the CBA Board with Decision no. N97A, dated March 3, 2005. In addition to restating the responsibility to receive, analyze and disseminate to competent investigative authorities referrals on ML/TF that are the result of the analysis the Statute describes analytically what these functions encompass and indicate various other functions, relevant to the FATF recommendations, such as the exchange of information and cooperation with other State authorities and foreign FIUs; training of staff of state authorities and reporting entities; supervision on the implementation of the AML/CFT requirements; formation of a database. While these other functions are performed (either fully or for certain aspects only) “with the support of the relevant subdivision of the CBA” (Article 5.2. of the Statute), the core FIU’s responsibilities envisaged by R26 are solely of the FMC.

279. The FMC is also responsible to initiate the process of suspending a suspicious transaction or business relationship (Article 24 of the AML/CFT law) and it is the authority responsible to “release the lists of the persons linked to terrorism” and to initiate the freezing mechanisms envisaged by the AML/CFT law. Although the responsibility to “release the lists of terrorist” is vested in the CBA as authorized Body and not specifically assigned to for the FMC by an ad hoc provision, the FMC is adamant that such responsibility stems from the provision in the Law according to which any responsibility vested in the Authorized body that it is not assigned to the CBA board is by default assigned to the FMC. As paragraph 18 of such Article states that the Authorized Body “performs other authorities and responsibilities stipulated by the Law” (and such provision is not among the ones in which the Authorized Body’s responsibilities are vested in the Board of the CBA), it follows that the authority to “release the list” is of the FMC (by virtue of Article 25, in combination with Article 10, paragraph 18). However, while the FMC has the power to initiate the procedure for suspending a transaction/terminating the business relationship and the freezing mechanisms in the case of persons linked to terrorisms, the relevant decision is of the Board of the CBA, in both cases (Article 10, paragraphs 1(12) and 3)).

280. Pursuant to Article 5 of the AML/CFT law, that regulates the reporting of transactions requirements, the FMC receives from reporting entities 3 types of reports:

• a. Transactions above the threshold of 20 million drams (approximately $55,000); from all reporting entities except attorneys, as well as for persons providing legal services, independent auditors and auditing firms, independent accountants and accounting firms.

• b. Transactions related to real estate above the threshold of 50 million drams (approximately $130,000, these reports, as well as the ones mentioned under a) will be hereinafter referred to as “threshold transaction reports” TTR);

• c. Suspicious transactions or business relationships, regardless of any amount.

281. In addition, the FMC may receive information relevant to ML or TF from other State bodies and organizations.

282. Most reports of the reporting entities (from all the financial institutions, the majority of notaries and the State Cadastre for real estate transactions) are received in electronic formats, through a secure line that enabled reporting entities have with the CBA (CBA Net network + TR20/50). A “Manual on internal procedures of the FMC” details the responsibilities and the procedures for processing the information (including the case in which the information is received by other state bodies, or foreign FIUs), from the moment it is received until a determination is taken of the case: referral to competent investigation authorities (the NSS), inclusion in a “monitoring list”, suspension of the case in the case of need of additional analysis, filing of the case. In addition to this Manual another Manual (adopted with decision of the Chairman of the CBA 1/38 FOU-L and dated December 4, 2007) deals specifically with the actions to be taken by the FMC “in the course and as result of analysis of suspicious transaction cases” which has introduced a risk-based approach aimed at the prioritization of the processing and analysis of STRs.

283. The analysis process of the incoming information is described by the following sequence:

• preliminary analysis;

• decision to open a case/absence of grounds for opening a case. A case is open in the following circumstances;

• match of the incoming information with the terrorist list (an internal list maintained by the FMC) and a monitoring lists (which contains information on subjects/businesses/transactions considered at risk). These lists are maintained in the database of the FMC;

• on the basis of a match of the information with the criteria/typologies of suspicious and/or higher risk transactions (these are criteria are transposed as algorithms into the database and allow automatic red- flagging);

• on the basis of an STR; or

• on other grounds;

• analysis (including tactical analysis, that consists on a preparation of a analysis report for each of the opened case);

• conclusion of the case analysis: this can either be: i) referral to law enforcement; ii) entering the case in the monitoring list; and ii) suspension of further case analysis.

284. The major features of the analysis procedure are: review of the information received either through the CBA network/FMC’s electronic mail/hard copy-received information; entry of the hard copy-received information into the FMC database; retrieval of electronic-received information in the forms of excerpts (TR). In the case of STRs (either received electronically or on hard paper) these are forwarded to the Head of FMC for “appropriate instructions” (including the opening of a case); entry of terrorist lists and “monitoring lists” into FMC database; regular screening/matching of data received against terrorist and monitoring lists; regular review of FMC database with reference to criteria/typologies of suspicious and/or higher risk transactions. The analysis is corroborated, if needed, by access to additional information from the reporting entities or from other state bodies (discussed later on in this section).

285. The FMC also conducts “Strategic analysis”, mostly on the TTRs received, aimed at identifying typologies of risks and identify flows of money. This analysis also consists of compiling an outline of each case analyzed each year and summary of suspicious and/or high risk criteria/typologies.

Guidelines to Financial Institutions on Reporting STR (c. 26.2):

286. Regarding the manner on reporting, specification of reporting forms and the procedures that should be followed, these are envisaged directly by the AML/CFT law and further substantiated by decisions of the CBA board (for financial institutions only). Therefore such responsibility is not directly vested in the FMC but – as allowed by R.26 – in “another competent authority”. The FMC indicated that it has also provided guidance to the reporting entities, either in the course of training initiatives or in the context of verbal feedback with respect to the suspicious transaction reporting obligation and, specifically, on “the manner of reporting”.

287. The rules on the submission of STRs as well as the mandatory content of the STRs, applicable to all reporting entities, are stipulated directly in the AML/CFT law (Article 7), in a quite articulated and detailed manner (the provision requires the data on the customer, authorized persons and of the beneficial owner, differentiated in the case of a natural and legal persons, a description of the transaction, its value and the grounds for suspicions as well as indicating some procedural rules for the way or reporting)²⁵. The provision also establishes that normative legal acts of the Authorized Body “shall establish the rules, timeframes and forms for filing reports” (Article 7, paragraph 6). This responsibility falls with the Board of the CBA (which has the responsibility to adopt “legal acts and guidelines” which are stipulated by the law, pursuant to Article 10, paragraphs 1(7) and (3).

288. Different forms are available for: i) banks, credit organizations and financial intermediaries; ii) insurance companies; and iii) all DNFBPs, except dealers in precious metals and stones, and dealers in artworks and organizers of auctions. The reporting forms for lawyers, notaries, real estate agents, independent accountants and independent auditors were approved on January 27, 2009, but only entered into force on March 12, 2009 (right after the on site mission).

289. Unless a specific requirement exists (such in the case of DNFBPs or for the Cadastre) the form is for all STRs, TTRs and suspension of transactions/termination of business. With decision Number 231-N, dated July 31, 2008 the CBA Board has adopted the latest version of the form for reporting STR for financial institutions, which also includes “Guidelines for filling out and transmitting the forms” and the timeframe for the transmission.

290. The specified timeframe indicates that a TTR should be submitted to the FMC within three working days of concluding the transaction, whereas in the case of an STR it should be submitted within the same working day or, if it is not possible (these cases are indicated by the Guidelines), before noon of the following working day.

291. As mentioned earlier, most reports of the reporting entities are received by the FMC in an electronic format, through a secure line that enabled reporting entities have with the CBA (CBA Net network + TR20/50). Banks and other financial institutions confirmed that they are reporting to the FMC using the CBA secure line and that they are using a program which was provided by the FMC. All DNFBPs met by the assessors stated they received a package from the FMC, including reporting forms. However with the exception of banks, the remaining FIs have not yet reported a single STR (except 1 STR submitted by a bureau de change) and are just reporting the TRs that fall in the threshold of 20 and 50 million drams.

Access to Information on Timely Basis by FIU (c. 26.3):

292. Financial, administrative and law enforcement information is accessible to the FMC mostly in an indirect way, based on written requests to the relevant authorities. The legal basis for the power of the FMC to request information and the relevant obligation for the requested parties to provide it, is in Article 10, paragraph 1(5) and Article 13, paragraph 5: the first provision empowers the FMC to request information (including information classified as secret as prescribed by the law) from state bodies, for the purpose of the AML/CFT law; the second provides that when such information is requested pursuant to the AML/CFT law, the state bodies, including supervisory and law enforcement authorities must provide it within ten days. A different timeframe for the provision may be indicated in the request of the FMC (shorter eventually, in order to accommodate cases which may require a quicker reply), but, conversely, the requested state body can also delay the provision of the information, although in such a case it would be required to provide substantiated reasons for that.

293. The FMC has stipulated MoUs with the GPO, NSS, Police, State Revenue Committee, which restate the obligation for these authorities to provide information “if the inquiry is justified by the need to implement the analysis of a ML/TF offence”. In the MoUs with the GPO such information entails also “information classified as investigation or preliminary examination secret”; whereas in the case of the State Revenue Committee the information entails “operative and preliminary confidential information”.

294. Through written requests, the FMC has therefore access to the information maintained by the following authorities:

• GPO

• NSS

• Police

• State Revenue Committee

• State Cadastre

• State Register of Legal Persons

295. The following are statistics on FMc’s domestic exchange of information and referrals (notifications) received/made by the FMC to other domestic authorities under signed MoUs.

Statistics on domestic exchange of information with the FMC

Agencies	2007		2008		2009 (as of 01.04.2009)
	Outgoing from FMC	Incoming to FMC	Outgoing from FMC	Incoming to FMC	Outgoing from FMC	Incoming to FMC
General Prosecutor’s Office	5	5	4	5	0	2
National Security Service	1	3	9	12	2	6
Police	2	3	6	2	1	1
State Revenue Committee	4	2	4	2	1	1

View Table

Agencies	2007		2008		2009 (as of 01.04.2009)
	Outgoing from FMC	Incoming to FMC	Outgoing from FMC	Incoming to FMC	Outgoing from FMC	Incoming to FMC
General Prosecutor’s Office	5	5	4	5	0	2
National Security Service	1	3	9	12	2	6
Police	2	3	6	2	1	1
State Revenue Committee	4	2	4	2	1	1

296. A specific agreement with the Financial Supervision Department (FSD) of the CBA foresees the exchange of information between the FMC and the FSD obtained as a result of conducting supervision, which relates to AML/CFT, as well as the exchange of relevant information on ML/TF suspicious transactions. Such information is exchanged both in the stages of planning, conducting supervision and the conclusion of its results. The agreement specifies that the FSD will provide information either based on a request of the FMC—in which case the FMC’s request must “substantiate the necessity of taking actions with regard to transactions related to ML/TF”—or on its own initiative, if the exercise of its supervisory tasks reveals “characteristics of suspicious transactions”. The agreement also envisages “joint discussions” between the FMC and the FSD on ML/TF-related suspicious transactions, “aimed at the disclosure of suspicious transactions and at the clarification of the circumstances thereof”. The FMC indicated that these discussions are not on the STRs it receives but on “high risk transactions”.

Additional Information from Reporting Parties (c. 26.4):

297. The AML/CFT law (Article 10, paragraph 1(4) clearly establishes the power of the FMC to request from requesting entities “other information for the purpose of this law (i.e. aimed at AML/CFT)”. While financial secrecy law cannot be opposed to the FMC by reporting entities that are financial institutions for the express provision of this Article, there is an exception (by way of cross reference to the cases stipulated by Article 3, paragraph 4) in the case of notaries, attorneys, persons providing legal services, independent auditors and auditing firms, independent accountants and accounting firms. In these instances Article 4, paragraph 3 provides the obligation to provide the information “only in cases not contradicting to the confidentiality requirements established under the legislation regulating their activities”²⁶. For these types of reporting entities it is more complex to establish whether, legally, they could claim professional secrecy to refuse the provision of additional information to the FMC, because of the language of Article 4, paragraph 3.

298. From the laws the assessors had access to and from the information gathered during the meetings with DNFBPs, it was determined that professional secrecy exists at least in regard to attorneys (advocates), notaries, accountants and auditors. The laws regulating these activities note specifically the requirements stemming from the AML/CFT law and prescribe that the regulated subjects abide by it; but these laws only generically refer to the duty to perform “responsibilities provided by the law on Combating Money Laundering and Terrorism Financing” (for lawyers, notaries, auditors and accountants). Only in the case of notaries there is a specific provision (Article 5, paragraph 9 on the law on notaries) that allows the notary to provide information to the CBA in compliance with the AML/CFT Law.

299. The Law on Advocacy, pursuant to Article 19, states that advocates cannot reveal ‘advocates secrets’ except for cases provided by the law. An Advocate’s secret is defined in Article 25 as information confidentially provided to an advocate by a client as well as information and evidence obtained in the course of the advocate’s activity. Further, the advocate can disclose the information if “there is definite information about preparation of grave or especially grave crime provided by the CC of the republic of Armenia.” While the Law on Advocacy contains a specific provision (Article 19(7) which requires the advocate to “perform obligations set forth by the Republic of Armenia Law “On Combating Money Laundering and Terrorism Financing”, this provision is silent as to whether it would comprise the power of the FMC to provide additional information. Because of the cross reference to the notion of secrecy in the relevant laws it could be argued that the provision of the additional information is not due when the ML offence is not “grave” (i.e. for basic ML).

300. The provisions set forth in the Law on Notarial System specifically require notaries to ensure observance of the provisions of the AML/CFT Law (Article 23(6)), but, as noted earlier, pursuant to Article 5, paragraph 9 the notary is permitted to provide information to the CBA in compliance with the AML/CFT Law.

301. In relation to the audit profession, the Law on Audit Activities contains a confidentiality provision in Article 18 whereby auditors are expected to keep all information obtained in the course of their duties confidential except to perform responsibilities provided by the AML/CFT Law.

302. For accountants, Article 5.3 of the Law on Accounting requires “accounting of an organization shall be maintained in accordance with the requirements of the Law On Combating Money Laundering and Terrorism Financing”. Article 18 of the Law on Accounting further provides that “information [contained in] the […] accounting documents, account books, as well as in the reports for internal use is considered to be commercial secrecy and can be accessed upon the permission of the organization’s chief executive in cases and by the procedure provided for by the founding documents of the organization and the legislation.” Ambiguity arises on whether the obligations of the AML/CFT law override the secrecy provisions and permits the provision of additional information.

303. No DNFBP raised issues with the confidentiality requirements and the ability to waive such requirements under the relevant laws for the purposes of the AML/CFT law. All DNFBPs met by the mission interpret this provision that confidentiality is waived for the reporting obligations and other obligations under the AML/CFT Law. However, no DNFBP has filed an STR, so the matter of confidentiality has not been tested. All understood that the provisions allowed for the waiver of privilege in the event of information needing to be supplied with the competent authority, the meaning of it all and the purpose. The FMC reckoned that obtaining access to additional information to a DNFBPs which is entitled to claim professional privilege can be challenging.

304. The law does not require that the additional information needed be linked to a received STR or limited to the reporting entity that has filed it; however in practice the provision has been implemented that if the additional information is for an STR (or TTR) the FMC would request it from the reporting entity that has filed the report, whereas in other (e.g. when the need for additional information is not originating by a report filed by a reporting entities or the information related to the report involves some institution other than the reporting entity) the information would be usually requested by the FSD of the CBA, on behalf of the FMC.

Operational Independence (c. 26.6):

305. Although the FMC operates within the CBA and the various AML/CFT responsibilities described above are vested by the AML/CFT law directly in the CBA as the “Authorized Body”, the AML/CFT law gives a specific status and autonomy to the FMC, by defining it a “responsible structural unit” and, moreover, by specifically vesting it with the responsibility to implement the FIU’s core functions of receiving, analyzing and disseminating the information received pursuant to the AML/CFT law, as well as other responsibilities envisaged therein. The autonomy of the FMC as a separate structure within the CBA is also manifested by the fact that the FMC (unlike other departments of the CBA) has a specific Statute: only the Internal Audit Group in the CBA enjoys a separate Statute. This circumstance also confirms that the core FIU’s functions relevant to R.26 and to the definition of FIU adopted by the Egmont Group are the sole responsibility of the FMC. The FMC has also a separate budget.

306. Regarding the independent performance of the FIU’s core functions by the FMC, it should be noted that these include the decision as to whether the information received pursuant to the law should be referred to the competent investigation authorities, where the FMC “has reasonable suspicions on ML or TF” as the outcome of the analysis of such information²⁷; or, where the analysis has failed to substantiate such suspicions, to discard the case or to store it in the “internal monitoring list”. As stated earlier, the procedures for the reception and analysis of the information and for the referral of a case to the competent authorities or for the dismissing of it or storing in the internal monitoring lists, are not only regulated in detail by a specific manual but also designed in a way to prevent the risk of undue influence/interference.

307. The role of the Board of the CBA is limited to approving the strategy, the annual program and the budget of the FMC as well as deciding upon the proposal of the FMC to suspend a transaction or to terminate a business relationship pursuant to Article 24 of the AML/CFT law and to approve the decision to suspend a transaction/terminating a business relationships (Article 24) or the freezing mechanisms stipulated by Article 25. The FMC has informed the mission that, so far, in all instances in which it has proposed the Board of the CBA to adopt one of these measures the Board has always sustained the proposal. Finally, the FMC submits reports to CBA quarterly (and, once a year submits the public report on its activity).

308. Unlike other heads of structural units within the CBA—who are appointed and removed based on a decision of the Chairman of the CBA—the appointment/removal procedure of the head of the FMC is within the responsibility of the Board of the CBA, hence ensuring more collegiality in the decision process. The FMC enjoys also different procedures in the hiring process of its employees (detailed under the analysis of Recommendation 30). The FMC’s budget has a different status within the CBA budget, in that (as an exception to the preparation/allocation of the budget of the CBA), it is composed and approved as a stand-alone expenditure line (category) within the overall budget of the CBA. This entails that the Head of FMC proposes the forthcoming yearly budget of the FMC (with an internal specification of certain categories), which should be inserted in the CBA’s Budget without any alteration. The Budgetary commission, which oversees the budget allocation process for the CBA, has no right to change the FMC’s budget, but can only make recommendations for its further substantiation. If such recommendations are raised, the Head of FMC substantiates the budgetary expenditures before the Board of the Central Bank. Then, by approving the CBA’s overall budget, FMC’s budget is considered automatically approved as a part of it.

309. Overall, it can be concluded that the role of the Board of the CBA vis-á-vis the FMC does not undermine the operational independence and autonomy of the FMC, nor influence or interfere with the FMC’s activities.

310. Looking at the legal structure and responsibilities of the FMC as envisaged by the AML/CFT law, it can be fairly concluded that the FMC enjoys sufficient operational independence and autonomy. However, it has to be noted that the Statute of the FMC, approved in 2005, has not yet been changed²⁸ to reflect the wider spectrum of responsibilities assigned by the new AML/CFT law directly to the FMC. According to the Statute some of the AML/CFT responsibilities assigned by the AML/CFT law to the FMC are, however, to be implemented with the support of other structures of the CBA²⁹. These include training of reporting entities, domestic cooperation with other AML/CFT competent authorities, and cooperation with foreign FIUs (although the latter is is only limited to the development of concepts of cooperation with foreign FIUs, preparation of cooperation agreements, coordination of their adjustment and signing procedures: the exchange of information, both with domestic counterparts and with foreign FIUs, is to be performed solely by the FMC, according to section 2.3.4. of the FMC Statute). These responsibilities may be not specifically pertaining to the FIU’s core functions envisaged by R26, but they are nevertheless relevant to other FIU-related FATF recommendations and important for the FIU to properly develop as an autonomous “interface” with the relevant counterparts, at domestic and international level. The fact that for these responsibilities the FMC can rely on the support of other CBA units is not per se an issue (an intertwining between the FMC and the CBA is a consequence of the FMC operating within the CBA) except that the limited staff assigned to it makes it more likely that the FMC has to heavily rely on the CBA (particularly with the FSD) in order to effectively perform these other functions.

Protection of Information Held by FIU (c. 26.7):

311. Article 10, paragraph 7 of the AML/CFT law establishes that only staff of the FMC can have access to the information “in the course of the FMC’s receiving and analyzing of the information” received pursuant to the law. Paragraph 8 further states that the FMC’s employees who have access to “the received and stored information shall maintain confidentiality of the information constituting secrecy as prescribed by law and by the legal acts of the Authorized Body, both in the course of performing their duties and after termination thereof, as well as shall bear legally defined responsibility for its unlawful disclosure”. Furthermore the provisions states that such information “can be used only for the purposes of this Law”. The FMC’s premises are accessible only to FMC’s staff with a special pass (electronic key).

312. All the information maintained by the FMC is classified and it is protected pursuant to the regulations of the CBA and to the legislative provisions relevant to the classification of information as “state secret” or as “confidential information” for the purpose of the Law on banking secrecy, as appropriate. The information maintained in hard copy is in partly stored within the FMC’s premises, which are not accessible to other staff than FMC’s, partly in a separate section of the archive of the CBA, which is subject to restricted access by a selected number of staff, subject to confidentiality requirements under the CBA’s rules. The information that is maintained in a database is only accessible to FMC’s designated staff. The list of the server users, the scope of their responsibilities, and other recordings of information security are considered confidential and are available to authorized personnel only. Every case of access to data is monitored and regulated by procedures requiring written confirmations in the electronic registers. These registers are limited to administrators of information security and servers (system) with read-only permissions only.

313. For the purpose of network safety the FMC employs a separate Domain system, which is used to manage and monitor the exploitation of information in the FMS network by the users with corresponding authorities. The FMS exchanges information with the “external world” using physically separated digital channels. The software security of this communication system is ensured with a reliable and advanced network operation system (Lotus Domino System). The system is extended to all financial institution in Armenia, i.e. banks, credit organizations, (re)insurance organizations, and currency dealers. The center of the system service is located in the Central Bank, which is run by high-class experts of a separate department.

314. While access to the information maintained by the FMC electronically is restricted to FMC’s staff only, the IT maintenance/security is of the responsibility of the IT staff of the CBA. However access to the servers where such information is stored is subject to a double password (one of which is known to the designated staff of the FMC only). The server where the database of the FMC is maintained (including a machine used for back-up purposes) is located where the CBA’s servers are stored. Access to such room is also protected by password-based entry system.

Publication of Annual Reports (c. 26.8):

315. In accordance with Article 10, paragraph 1(15) the FMC, “in the manner established by its legal acts, publicize annual reports on its activities”. So far, the FMC has published an annual report for 2007. At the time of the on site mission the 2008 report was being finalized. While the report for 2007 includes information regarding FMC’s activities, it does not include statistics and trends.

Membership of Egmont Group (c. 26.9):

316. The FMC obtained the status of a member of the Egmont Group during the Egmont Group Plenary Session on March 29, 2007.

Egmont Principles of Exchange of Information Among FIUs (c. 26.10):

317. As a member of the Egmont Group, the FMC has regard to the Egmont principle of Exchange of information among FIUs which were adopted in The Hague on June 13, 2001. These principles are also at the base for the MoUs which the FMC has so far signed (at the time of the on-site visit, with Belarus, Georgia Russia, and Ukraine). A random check done on a sample of received requests for information, comparing the requests of exchange for information received from the FMC and the responses provided to the requesting FIUs, showed an average time of 7 days for providing the information and of 3-4 weeks (if the request prompted the need to obtain information not maintained by the FMC). Additional information on international cooperation is provided under the analysis for R.40.

Adequacy of Resources to FIU (c. 30.1):

318. The current total staff of the FMC is of 16 staff (including the Head, Deputy Head and the Secretary-assistant and one contractual staff). The “Legal compliance and International Relations Division” has 5 employees, the “Analysis Division” three and “Information Technology (IT) division” four. One pending vacancy is to be filled and the FMC is currently considering to open two more. The assessors deem the number of FMC’s staff insufficient, especially given the broader responsibilities assigned to the FMC by the new law and the likely increase of the volume of reporting (which has been low so far, for the STRs), once the new AML/CFT law will be fully implemented, including by DNFBPs.

319. The budget allocated to the FMC has so far been appropriate for the FMC to properly undertake its functions. The FMC budgets for years 2005, 2006, 2007, 2008 and the 2009 budget estimation are set forth below, broken down per year.

FMC budget expenditures	2005	2006	2007	2008	2009
		thousand drams	Thousand drams	thousand drams	Thousand drams
Operational costs (subscriptions to information databases, costs associated with memberships in international organizations)		5,180.0	7,080.0	1,440.0	12,985.0
Administrative costs (business trips of the staff, representation expenditures, literature and stationary, excluding wages and bonuses)		11,430.6	16,001.2	16,456.2	26,328.6
Fixed assets purchase (Office equipment, computers, software, excluding capital investments and projected construction costs)		19,897.0	18,371.0	4,211.0	9,050.0
Operational Costs (Conferences, summits, regional workshops, translation of legal acts)		-	-	4,000.0	12,400.0
Administrative Costs (Wages, bonuses, social protection and other costs)		31,412.70	50,661.72	61,853.77	74,224.52
Total		67,920.30	92,113.92	87,960.97	134,988.12

View Table

FMC budget expenditures	2005	2006	2007	2008	2009
		thousand drams	Thousand drams	thousand drams	Thousand drams
Operational costs (subscriptions to information databases, costs associated with memberships in international organizations)		5,180.0	7,080.0	1,440.0	12,985.0
Administrative costs (business trips of the staff, representation expenditures, literature and stationary, excluding wages and bonuses)		11,430.6	16,001.2	16,456.2	26,328.6
Fixed assets purchase (Office equipment, computers, software, excluding capital investments and projected construction costs)		19,897.0	18,371.0	4,211.0	9,050.0
Operational Costs (Conferences, summits, regional workshops, translation of legal acts)		-	-	4,000.0	12,400.0
Administrative Costs (Wages, bonuses, social protection and other costs)		31,412.70	50,661.72	61,853.77	74,224.52
Total		67,920.30	92,113.92	87,960.97	134,988.12

320. Additional budget may be needed to increment FMC’s staff, as well as for additional training for reporting entities, especially with regard to detection of STRs (all, especially financial institutions) and outreach to DNFBPs.

321. The FMC is presently equipped with technical resources necessary for the proper implementation of its functions (computers, printers, etc.).

Integrity of FIU Authorities (c. 30.2):

322. For the purpose of ensuring the high reputation and functionality of the FMC, several requirements are set out for the professional, moral characteristics and the corresponding skills of the FMC employees, in accordance with the Labor Code, as well as the job descriptions established for each job position. The FMC has also its own code of conduct which sets outs professional and ethical standards for its employees.

323. Allocation and removal of the FMC staff are regulated by the internal procedures of the CBA. Each vacancy at the FMC is filled with a competition process. According to the Statute of the FMC, the Board of the CBA determines the number of FMC members, the requirements towards them and the job descrptions. The selection process entails an interview, which is held by the FMC Head (or substitute), Head of the relevant FMC division, and Head of the HR department (or substitute) who is responsible for organizational logistics. Short-listed applicants then pass a written exam, which is arranged based on the questionnaire provided and periodically updated by the FMC. Examination papers are anonymously checked by ad-hoc random panels, chosen from the FMC and other CBA departments relevant to the vacancy’s profile (the latters are designated by the FMC through the HR). The assessment of examination papers is done through an established grading system. The HR department then calculates the average grade of each applicant’s paper and such results are introduced to the Central Bank’s Board consideration (this is exceptional for the FMC only, based on Para 5 of Article 10 of the AML/CFT law, since in the case of other structural units of the CBA, the hiring of the staff is vested in the Chairman of the CBA). Before considering the issue at the Board, the Internal Security Department of the CBA conducts screening of applicants based on its confidential procedures. During the discussions of written examination results at the Central Bank’s Board, the Head of the FMC introduces his (her) substantiated opinion regarding the preferred candidacy, based on which the Board takes a decision on recruiting the successful applicant.

324. FMC’s staff, as employees of the CBA are subject to the confidentiality requirements set forth by Article 28 of the Law on Central Bank (according to which the staff of the Central Bank may neither publicize nor otherwise disseminate information containing secrets, nor may use such information for personal gain). In addition to this provision a specific requirement is set forth in the AML/CFT law (Article 10, paragraph 8), which states that the employees of the FMC, who have access to the received and stored information, shall maintain, in the manner prescribed by law and legal acts of the Authorized Body, the confidentiality of information constituting secret in the course of performing their duties and after their termination, as well as shall be legally responsible for its disclosure. Appropriate sanctions exist for non compliance of these confidentiality requirements.

Training for FIU Staff (c. 30.3):

325. All the employees of the FMC have been trained on AML/CFT. The employees of the FMC participate in internal or external trainings on AML/CFT issues in a semi-annual periodicity on average. Training is mostly provided in the context of events organized by international organizations and donors. The staff of the FMC has also participated in-house training events organized by the Central Bank or the FMC (the FMC regularly organizes training when a staff member participated to training initiatives abroad and in the occasion of drafting off typologies and guidance for the reporting entities).

Statistics (applying R.32 to FIU):

326. The FMC maintains statistics on STRs and above-threshold transactions report; on cases disseminated to competent authorities and on international cooperation with foreign FIUs. The latter will be discussed under Rec. 40. The following table shows a breakdown of STRs and above-threshold transactions reports by type of financial institution, DNFBP, or other business or person making STR, for both ML and FT.

Reporting entities	Reports filed to the FMC in 2006		Reports filed to the FMC in 2007		Reports filed to the FMC in 2008
	Above-threshold Transactions Reports	Suspicious transaction Reports	Above-threshold Transactions Reports	Suspicious transaction Reports	Above-threshold Transactions Reports	Suspicious transaction Reports
Banks	52006	27	74090	27	89588	36
Credit organizations	112	-	382	-	498	-
Persons engaged in foreign currency trading	-	-	-	-	-	1
Persons engaged in dealer-broker foreign currency trading	386	-	269	-	71
Licensed persons providing cash (money) transfers	-	-	-	-	-	-
Persons rendering investment services in accordance with the Republic of Armenia Law on Securities Market	739	-	976	-	250	-
Central depositary for regulated market securities in accordance with the Republic of Armenia Law on Securities Market	-	-	-	-	-	-
Insurance (including reinsurance) companies	16	-	69	-	167	-
Insurance (including reinsurance) brokers	-	-	-	-	-	-
Pawnshop	-	-	2	-	-	-
Realtors (real estate agents)	-	-	-	-	-	-
Notaries	148	-	1546	-	1232	-
Attorneys, as well as independent lawyers and firms providing legal services	-	-	-	-	-	-
Independent auditors and auditing firms	-	-	-	-	-	-
Independent accountants and accounting firms	-	-	-	-	-	-
Dealers in precious metals	-	-	-	-	-	-
Dealers in precious stones	-	-	-	-	-	-
Dealers in artworks	-	-	-	-	-	-
Organizers of auctions	-	-	-	-	-	-
Persons and casinos organizing prize games	-	-	-	-	-	-
Persons organizing lotteries	-	-	1	-	-	-
Persons organizing internet prize games	-	-	-	-	-	-
Trust and company service providers	-	-	-	-	-	-
Credit bureaus	-	-	-	-	-	-
The Authorized Body responsible for maintaining the integrated state cadastre of real estate	-	-	390	-	1546	-
The state body performing registration of legal persons (the State Registry),	-	-	-	-	-	-
Charity organizations	1	-	5	-	5	-
Total	53,408	27	77,730	27	93,357	37

View Table

Reporting entities	Reports filed to the FMC in 2006		Reports filed to the FMC in 2007		Reports filed to the FMC in 2008
	Above-threshold Transactions Reports	Suspicious transaction Reports	Above-threshold Transactions Reports	Suspicious transaction Reports	Above-threshold Transactions Reports	Suspicious transaction Reports
Banks	52006	27	74090	27	89588	36
Credit organizations	112	-	382	-	498	-
Persons engaged in foreign currency trading	-	-	-	-	-	1
Persons engaged in dealer-broker foreign currency trading	386	-	269	-	71
Licensed persons providing cash (money) transfers	-	-	-	-	-	-
Persons rendering investment services in accordance with the Republic of Armenia Law on Securities Market	739	-	976	-	250	-
Central depositary for regulated market securities in accordance with the Republic of Armenia Law on Securities Market	-	-	-	-	-	-
Insurance (including reinsurance) companies	16	-	69	-	167	-
Insurance (including reinsurance) brokers	-	-	-	-	-	-
Pawnshop	-	-	2	-	-	-
Realtors (real estate agents)	-	-	-	-	-	-
Notaries	148	-	1546	-	1232	-
Attorneys, as well as independent lawyers and firms providing legal services	-	-	-	-	-	-
Independent auditors and auditing firms	-	-	-	-	-	-
Independent accountants and accounting firms	-	-	-	-	-	-
Dealers in precious metals	-	-	-	-	-	-
Dealers in precious stones	-	-	-	-	-	-
Dealers in artworks	-	-	-	-	-	-
Organizers of auctions	-	-	-	-	-	-
Persons and casinos organizing prize games	-	-	-	-	-	-
Persons organizing lotteries	-	-	1	-	-	-
Persons organizing internet prize games	-	-	-	-	-	-
Trust and company service providers	-	-	-	-	-	-
Credit bureaus	-	-	-	-	-	-
The Authorized Body responsible for maintaining the integrated state cadastre of real estate	-	-	390	-	1546	-
The state body performing registration of legal persons (the State Registry),	-	-	-	-	-	-
Charity organizations	1	-	5	-	5	-
Total	53,408	27	77,730	27	93,357	37