KAZAKHSTAN
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

 

US Dept of State Money Laundering Assessment

Non - Compliance with FATF 40 + 9 Recommendations

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

Medium Risk Areas

Weakness in Government Legislation to combat Money Laundering

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Kazakhstan is not currently identified by FATF as having substantial money laundering and terrorist financing (ML/TF) risks or having strategic AML/CFT deficiencies

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Kazakhstan was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Kazakhstan was deemed Fully Compliant for 1 and Largely Compliant for 12 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 of the 6 Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

Kazakhstan is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

While not a regional financial center, the Republic of Kazakhstan has the most developed economy and financial system in Central Asia and has an ambitious plan for creating a regional financial offshore zone in its capital, Astana.

 

Kazakhstan is a transit country for Afghan heroin and opiates to Europe via Russia and thus is vulnerable to drug-related money laundering crimes. Tracking narcotics revenue remains difficult, as payments make use of informal alternative remittance systems, such as hawala, or through the QIWI Wallet electronic payment system.

 

The absence of parallel financial investigations and the resistance of local key stakeholders to a “stand-alone” money laundering concept create additional challenges. There is currently no criminal or administrative liability for money laundering offenses for legal persons. Enhanced due diligence is required only for foreign PEPs, whereas domestic PEPs are not covered.

 

Low numbers for money laundering investigations and convictions indicate the need to strengthen the efficiency of the current AML regime. The Prosecutor General’s Office (PGO) expressed its strong commitment to resolving open issues related to financial investigations and asset recovery through the development of an interagency working group.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Governmental corruption, an organized crime presence, and a large shadow economy make the country vulnerable to money laundering. A significant part of Kazakhstan’s wealth derived from minerals and hydrocarbons is held in offshore accounts with little public scrutiny or accounting oversight. The major sources of laundered proceeds are graft by public officials, tax evasion, and fraudulent financial activity, particularly transactions using shell companies to launder funds returned in the form of foreign investments. In addition, the smuggling of contraband and fraudulent invoicing of imports and exports remain common practices.

 

Casinos and slot machine parlors are located only in selected territories. The Ministry of Culture and Sport is responsible for the regulation of the gaming sector and also issues licenses to gaming businesses. Kazakhstani law prohibits online casinos and gaming. Law enforcement agencies find it challenging to combat online gaming. The vulnerabilities of these businesses to money laundering and the scope of government oversight are not known.

 

KEY AML LAWS AND REGULATIONS

 

The AML/CFT Law adopted in 2009, as amended in 2012, 2014, 2015, and 2016, creates the legal framework for all preventive measures to be observed by the private sector.

 

Kazakhstan is a member of the EAG, a FATF-style regional body.

 

AML DEFICIENCIES

 

Current AML law does not cover financial management firms; travel agencies; or dealers of art, antiques, and other high-value consumer goods. These entities are not required to maintain customer information or report suspicious activity.

 

Kazakhstan lacks a mechanism to share with other countries assets seized through joint or trans- border operations. Non-conviction-based asset forfeiture provisions will come into effect in 2018.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

During the first 10 months of 2016, prosecutors brought 54 money laundering-related cases to court. Only one money laundering-related conviction occurred during this period.

 

The government requires additional resources to ensure the proper enforcement of its financial crimes regulations. The government should train and educate local institutions and personnel on further implementation of the AML law in accordance with the soon-to-be conducted national risk assessment. The government should ensure due diligence and reporting requirements are applied to all appropriate entities.

 

On January 1, 2018 a new provision will enter into force allowing confiscation of property illegally obtained or purchased with illicit funds, replacing a provision that permits mandatory seizure, in part or in whole, of the property of any person convicted for miscellaneous predicate offenses. Currently, law enforcement agencies do not attempt with any frequency or consistency to determine the origin of assets during the initial stage of an investigation. Since the burden of proof lies with law enforcement, under the new provision it will be difficult to determine the origin of assets that belong to a suspected person.

 

All reporting entities subject to the AML law are inspected by their respective regulatory agencies. Most of those agencies, however, lack the resources and expertise to inspect reporting entities for AML compliance. In addition, all reporting entities, except banks, have difficulties implementing a risk-based approach to AML compliance, so they mostly apply CDD procedures in a blanket fashion. Regulatory agencies, in coordination with the FIU, should ensure the ability of non-bank reporting entities to implement a risk-based AML approach that will lead to improved STR reporting.

 

There is a two-tier AML/CFT Certification Program for private sector representatives that includes both national and international components. Ninety percent of Kazakhstani banks have at least one compliance specialist certified in money laundering investigation.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

29

World Governance Indicator – Control of Corruption

25

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Kazakhstan has made significant progress toward creating a market economy since it gained independence in 1991, and has achieved considerable results in its efforts to attract foreign investment. As of December 31, 2013, the total stock of foreign investment in Kazakhstan reached $209.1 billion. Of that total, net Foreign Direct Investment (FDI) constituted $129.5 billion, with portfolio and other investments comprising the remaining $79.6 billion. The majority of foreign investment is in the oil and gas sector, and the United States is a leading source of investment capital with around $31.4 billion invested in Kazakhstan during the period 2005-2013.

The government continues to make incremental progress toward its goal of diversifying the country’s economy away from an overdependence on extractive industries by improving the investment climate. Kazakhstan’s efforts to remove bureaucratic barriers have yielded some progress, and the World Bank in 2013 ranked the country 50 out of 189 in its annual “Doing Business” report. In spite of these incremental changes, however, corruption and bureaucracy remain challenges for foreign investors working in Kazakhstan. Attracting FDI in the underdeveloped manufacturing sector remains difficult and requires more concrete actions from the government.

The government maintains a dialogue with international investors and is committed to improving the investment climate. President Nazarbayev himself has publicly pledged to create a favorable climate for foreign investors in order to spur domestic innovation and the use of new technologies, and in early 2014 threatened to form a new government if reforms remained stalled. He made good on his threat in April 2014, and appointed a new prime minister with a clear mandate to improve the country’s investment climate.

The country’s vast hydrocarbon and mineral reserves continue to form the backbone of the economy, and foreign investment continues to flow into these sectors. Despite this growing investment, concerns remain about the government's tendency to challenge contractual rights, to legislate preferences for domestic companies, and to create mechanisms for government intervention in foreign companies' operations, particularly in procurement decisions. Together with vague and contradictory legal provisions that are often arbitrarily enforced, these negative tendencies feed the perception that Kazakhstan’s investment environment is less than optimal.

The government is also optimistic that further integration with Russia and Belarus will make the country more attractive to foreign investors by expanding access to those countries’ markets.

Although Kazakhstan has so far not realized the gains it sought when it joined the Customs Union with Russia and Belarus, economic integration will likely continue to deepen following the May 29, 2014 signing of a treaty to create a single economic space to be known as the Eurasian Economic Union.

 

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FURTHER REPORTS

November 2014 - Summary of OECD report by the Istanbul Anti-Corruption Action Plan (IAP)

 

Kazakhstan’s new anti-corruption strategy must be better defined, involving key stakeholders, with targeted actions and goals that address the key corruption challenges facing the country, says a new OECD report by the Istanbul Anti-Corruption Action Plan (IAP).


While the newly created Civil Service and Anti-Corruption Agency is a step forward, it must be independent and have a clear mandate to lead the development and implementation of Kazakhstan’s anti-corruption programme.

The report commends Kazakhstan for its civil service reforms, which significantly decreased the number of political officials and was a move towards competitive and merit-based carriers for high level officials. The report also noted efforts to improve legislation on public procurement and integrity in national companies.

Nevertheless, planned reforms related to criminalisation and prevention of corruption remain unimplemented. Moreover, international surveys show that the levels of corruption remain consistently high despite measures taken to date. Kazakhstan also must:

 

  • Bring corruption incriminations in compliance with international standards;
  • Ensure effective and dissuasive liability of legal persons for corruption; 
  • Establish anti-corruption specialisation of prosecutors; 
  • Adopt an access to information law in line with international standards without further delay;
  • Ensure the independence and integrity of the judiciary;
  • Promote, jointly with business associations, integrity and good governance in Kazakhstan’s companies 
  • Ensure verification and publication of asset declarations for public officials

 

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Extract from IMF Report: Kazakhstan: Financial System Stability Assessment – September 2014

 

Anti-Money laundering regulation is deficient and significant amendments are being contemplated. The FSC has been very active in the implementation and supervision of the existing AML/CFT Law through onsite inspections. However, the existing Law fails to meet international standards, primarily in the areas of correspondent banking and customer due diligence, which limits the effectiveness of supervision and enforcement. Amendments are pending in Parliament to address these deficiencies and approval is expected by summer 2014.

 

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Extract from IMF Report: Republic of Kazakhstan: 2014 Article IV Consultation-Staff Report

Kazakhstan’s anti-money laundering and combating the financing of terrorism (AML/CFT) framework was recently assessed against the AML/CFT standard, the Financial Action Task Force (FATF) 40+9 Recommendations. The evaluation was conducted by the Eurasian Group on money laundering and financing of terrorism (EAG), the FATF-style regional body of which Kazakhstan is a member, and the final mutual evaluation report was adopted in June 2011. The report indicates that the main sources of criminal proceeds in Kazakhstan are crimes related to fraud and abuse of public office. The evaluators found that Kazakhstan had a relatively comprehensive AML/CFT framework in place, but that significant deficiencies nevertheless remained, notably with respect to customer due diligence measures and the reporting of suspicious transactions. Kazakhstan is tentatively scheduled to undergo its next AML/CFT assessment by the EAG in April 2017.

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