Azerbaijan is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Azerbaijan was undertaken by the Financial Action Task Force (FATF) in 2015. According to that Evaluation, Azerbaijan was deemed Compliant for 4 and Largely Compliant for 25 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 2 of the 6 Core Recommendations.
US Department of State Money Laundering assessment (INCSR)
Azerbaijan is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Azerbaijan is both a transit point between the East and West, given its geographic location, and a conduit for illicit funding, given its economic difficulties. The majority of foreign investment and international trade in Azerbaijan continues to be in the energy sector. Azerbaijan’s government is working to diversify the economy away from energy by prioritizing investments in agriculture, tourism, trade logistics, telecommunications, and information technology. The economic realities of a weak currency and a poorly supervised financial sector, coupled with Azerbaijan’s physical location between Iran and Russia, create an environment conducive to the transit of illicit funds.
In February 1992, the Organisation for Security and Co-operation in Europe (OSCE) requested that all OSCE participating states should introduce an embargo on 'all deliveries of weapons and munitions to forces engaged in combat in the Nagorno-Karabakh area'. This embargo is still in force.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 30
World Governance Indicator – Control of Corruption 22
Corruption poses significant compliance risks to businesses operating or planning to invest in Azerbaijan. Political corruption increases business costs and represents the main challenge for foreign companies; patronage is particularly prevalent in the oil industry, which yields the state's largest revenue. A weak judiciary and insufficient regulatory enforcement allows government officials to act with impunity. The government has a comprehensive anti-corruption legal framework in place: Passive and active bribery, extortion and abuse of office are illegal under the Criminal Code. Nevertheless, the government does not implement anti-corruption provisions effectively. Azerbaijani law puts restrictions on gifts, but companies are likely to encounter demands for facilitation payments or other informal payments. For further information - GAN Integrity Business Anti-Corruption Portal
Azerbaijan's high economic growth has been attributable to large and growing oil and gas exports, but some non-export sectors also featured double-digit growth, including construction, banking, and real estate. Oil exports through the Baku-Tbilisi-Ceyhan Pipeline, the Baku-Novorossiysk, and the Baku-Supsa pipelines remain the main economic driver, but efforts to boost Azerbaijan's gas production are underway. The eventual completion of the geopolitically important Southern Gas Corridor between Azerbaijan and Europe will open up another, albeit, smaller source of revenue from gas exports.
Azerbaijan has made only limited progress on instituting market-based economic reforms. Pervasive public and private sector corruption and structural economic inefficiencies remain a drag on long-term growth, particularly in non-energy sectors. Several other obstacles impede Azerbaijan's economic progress, including the need for stepped up foreign investment in the non-energy sector and the continuing conflict with Armenia over the Nagorno-Karabakh region. Trade with Russia and the other former Soviet republics is declining in importance, while trade is building with Turkey and the nations of Europe.
Long-term prospects depend on world oil prices, Azerbaijan's ability to negotiate export routes for its growing gas production, and its ability to use its energy wealth to promote growth and spur employment in non-energy sectors of the economy.
Agriculture - products:
fruit, vegetables, grain, rice, grapes, tea, cotton, tobacco; cattle, pigs, sheep, goats
petroleum and petroleum products, natural gas, oilfield equipment; steel, iron ore; cement; chemicals and petrochemicals; textiles
Exports - commodities:
oil and gas 90%, machinery, foodstuffs, cotton
Exports - partners:
Italy 26.3%, Germany 13.3%, Indonesia 7%, France 6.9%, Czech Republic 6% (2015)
Imports - commodities:
machinery and equipment, foodstuffs, metals, chemicals
Imports - partners:
Russia 19.9%, Turkey 16.5%, UK 8.6%, Germany 6.6%, Italy 6.3%, US 4.1% (2015)
Investment Climate - US State Department
The overall investment climate in Azerbaijan continues to improve incrementally, although significant challenges remain. Over the past few years, the Government of Azerbaijan has worked to integrate the country more fully into the global marketplace, attract foreign investment, diversify its economy and maintain growth. However, as a country dependent on oil and gas products for roughly 90 percent its export revenue, continued low world oil prices have hit Azerbaijan’s economy hard. Economic growth slowed to 1.1 percent in 2015 from 2.8 percent in 2014, and the European Bank for Reconstruction and Development forecasts GDP growth of 2.5 percent in 2016 as a result of the drop in world oil prices.
While the oil and gas sector have historically attracted the majority of foreign investment, the Azerbaijani government has targeted four non-oil sectors as key to diversifying the country’s economy and ensuring future prosperity: agriculture, transportation, tourism, and information/communication technology. Economic diversification and greater foreign investment continue to be the stated goals of President Aliyev and the government. Although significant challenges remain for U.S. companies and investment in the non-oil sector, such as red tape and weak legal institutions, the Azerbaijani government has begun taking necessary steps to improve the business climate and reform the overall economy. Steps planned or underway include suspending certain inspections of businesses, doing away with certain redundant business license categories, empowering the popular “ASAN” government service centers with licensing authority and active steps to improve transparency, simplifying certain customs procedures, and creating tax incentives for investors. In March 2016, President Aliyev signed a decree on a strategic roadmap of the national economy and assigned a working group, led by the newly appointed Assistant to the President for Economic Reforms Natig Amirov, to draft an economic development strategy and action plan for 2016-2020. President Aliyev signed another decree in March 2016 establishing a free trade zone area next to the Alat seaport, located 65 km south of Baku, and has assigned the Ministry of Economy the task of drafting the necessary legislation and development concepts within six months. Newly adopted amendments to the Customs Tariff law provide exemptions of up to seven years to entrepreneurs importing capital equipment for priority sectors. Additionally, up to 50 percent of their revenues can be exempted from income, property, and land taxes for up to seven years. Furthermore, Azerbaijan’s business community reports seeing real improvements in customs, including more transparency, and improved and systematized customs fee collection procedures.
Azerbaijan has worked to improve its regulatory system over the past several years, but opaque procedures in a number of areas and continued allegations of corruption remain problems. In early 2016, several roundtable discussions brought government and business community representatives together, including an April-session that the President held with the board of the American Chamber of Commerce in Azerbaijan, with both sides welcoming and applauding this increase in communication and engagement.
Under Azerbaijani law, foreign investors may engage in investment activities not prohibited by law. Private entities may freely establish, acquire and dispose of interests in business enterprises. Foreign citizens, organizations, and enterprises may lease, but not own land. Azerbaijan's Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under certain specified circumstances. The Government of Azerbaijan has not shown any pattern of discriminating against U.S. persons or entities by way of an illegal expropriation. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan provides U.S. investors with recourse to settle any investment dispute using the International Center for the Settlement of Investment Disputes (ICSID). The average length of time it takes for international business disputes to be resolved, either through the use of domestic courts or alternative methods of dispute resolution like mediation and/or arbitration, varies widely.
In 2015, Azerbaijan devalued its local currency, the manat (AZN), by 35 percent in February and again by 48 percent in December as a result of continued low world oil prices and relieve pressure on the Central Bank’s foreign currency reserves. In general, however, there are no restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate. Azerbaijan has an underdeveloped financial services sector – of which banking comprises more than 90 percent – that inhibits economic stability, growth, and diversification. Many state-owned enterprises (SOE's) enjoy quasi-governmental or near-monopoly status in their respective sectors, with unclear lines of separation between regulatory bodies and state corporate interests. Responsible Business Conduct (RBC) is a relatively new concept in Azerbaijan and local companies generally consider basic charitable donations and paying taxes as acts of social responsibility. There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.
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