Laos

Laos is a country with an underdeveloped infrastructure, particularly in rural areas. It has a basic, but improving, road system, and limited external and internal landline telecommunications. Electricity is available over 75% of the country. Laos' economy is heavily dependent on capital-intensive natiural resouce exports. The labor force, however, still relies on agriculture, dominated by rice cultivation in lowland areas, which accounts for about 30% of GDP and 75% of total employment. Economic growth has reduced official poverty rates from 46% in 1992 to 26% in 2010. The economy also has benefited from high-profile foreign direct investment in hydropower, copper and gold mining, logging, and construction though some projects in these industries have drawn criticism for their environmental impacts.

Laos is not a regional or offshore financial center. However, its position at the crossroads of mainland Southeast Asia’s drug trade, high rate of economic growth, and weak legal and regulatory framework make it vulnerable to money laundering activities. In 2011, the Government of Laos (GOL) reiterated an earlier estimate of the value of the illicit drug economy of 10% of GDP, or approximately $750 million.

Development assistance from overseas donors accounts for over 80% of the GOL operating budget; there are concerns that a substantial portion of this funding may be stolen and subsequently laundered. Reliable public reporting of revenues from government and private mining and hydropower assets is often lacking. Bulk cash smuggling to Thailand, China, and Vietnam is likely occurring. During 2011 Lao law enforcement authorities seized several large amounts of cash during counternarcotics operations.

Lao banks are not optimal for moving large amounts of money in any single transaction, due to the visibility of such movements in a small, low-tech environment. What money laundering does take place through Lao banks is likely to have been from illegal timber sales or domestic criminal activity, including drug trafficking. In a recent high-profile case involving a foreign-owned company accused of securities fraud, Lao customs authorities seized $300,000 in cash a businessman was transporting to Thailand, in contravention of Lao law. Subsequent investigation indicated that this business had transferred several million dollars from abroad through the Lao banking system in the past year, much of which was reportedly withdrawn in cash. The case revealed the weakness of the Lao banking system in monitoring suspicious transactions.

Laos is the third largest producer of opium in the world, although much of it is consumed domestically. The country has no anti-money laundering legislation, even though it is a regional financial center. Because Laos has strict laws on the exporting of currency it is suspected that laundering out of the country is achieved through alternative remittance systems.

The gaming industry, primarily driven by Chinese tourists visiting  casinos in Special Economic Zones (SEZs) near the border,  continues to present a money-laundering opportunity outside of  the formal financial sector. The Ministry of Information and Culture  (MOIC) is responsible for the regulation of casinos in Laos.  However, its regulatory regime has no known AML controls for  casinos in place. Inside the financial system, the legal regime is  inadequate to cope with the rapid growth of the banking sector,  which has grown by approximately one-quarter in the last two  years. SEZs present an additional complication for the anti-money  laundering (AML) regime, as it is not clear that MOIC regulatory  authority applies to casinos located inside the SEZs.

The GOL continues to struggle with the implementation of existing anti-money laundering laws and decrees. Financial institutions, law enforcement, the Anti-Money Laundering Intelligence Unit (AMLIU) in the Bank of Laos (BOL), and justice system personnel still lack a clear awareness of the threat of money laundering. The establishment of a banking industry trade association in November 2011 provides a possible avenue for raising awareness about money laundering and financial crimes. The GOL should pursue additional avenues to ensure that covered entities are aware of their compliance responsibilities.

Reporting entities designated in the AML decree, other than financial institutions, remain unsupervised for AML purposes. The BOL-issued guidelines for suspicious transaction reporting have resulted in only a small number of reports to date. None are known to have resulted in referrals to law enforcement. The AMLIU continues to lack the technical and procedural means to detect and refer such cases. The GOL should improve the monitoring of all entities not supervised by the Bank of Laos for AML/CFT compliance. Laos began to address the vulnerabilities in the gaming industry through the issuance of a new Prime Ministerial Decree in 2010.

Laos lacks a clear legal and procedural framework for the seizure of assets. The Lao criminal code and drug laws refer to the right  of the state to seize assets of convicted drug traffickers, but the  legal and procedural processes are not specified, and thus  neither the prosecutors nor the court system have taken any legal  action regarding asset seizures. The lack of an asset forfeiture regime could hinder Lao assistance in money laundering or terrorist financing investigations and assistance requests. The GOL should implement an asset forfeiture regime that includes a system to account for forfeited assets and ensure they are disposed of in accordance with the laws.

There are positive developments in Lao in relation to anti-money laundering efforts:

·      There is an AML Decree which contains some of the necessary elements of a satisfactory AML CFT Law. However, some key elements are absent.

·      A coordination Working Group has been established. All key ministries are represented. This is important as it provides a framework for policy and operational coordination.

·      There appears to be a good working relationship between the AMLIU and the other government agencies.

·      The AMLIU has been established with 10 Staff including the Director General.

·      The AMLIU issued a Guideline on Reporting Suspicious Transactions and The Guideline on AML Procedures and Operational Control for Financial Institutions under supervision of the Bank of Lao PDR. In addition, AMLIU has issued two instructions to banks.

·      Some reporting of suspicious transactions has occurred but the numbers are very low.

·      Lao PDR is a member of the APG and through this has access to information about new AML CFT methodologies. It attends APG meeting, Typologies Workshops and other APG arranged training and technical assistance.

·      The UNODC has had in place a system of AML CFT Mentors who provide assistance to Lao PDR, Vietnam and Cambodia.

·      Location of the FIU within the framework of the BOL provides a number of benefits.

·      As a member of ASEAN, Lao PDR is a party to a regional mutual legal assistance treaty.

·      Lao PDR has been a party to the International Convention for the Suppression of the Financing of Terrorism since 29 October 2008. Lao PDR has signed (10 December 2003) and ratified (25 September 2009) the UN Convention against Corruption. LAO PDR has acceded to (26 September 2003) the UN Convention against Transnational Organised Crime.

·      The Ministry of Public Security has recently established the Anti Financial Crimes Division within the Economic Police Department to investigate all financial crimes including money laundering activities.