Georgia Risks to Become a Money Laundering Center

Experts predict that in 2003 Georgia will be included in a “black list” of countries, which are considered attractive for the money laundering operations.

In response to this risk, the Georgian government drafted the law to counter the money laundering. However, many experts believe that it would be difficult to pass the bill in the Parliament, because quite often, the governmental officials and MPs are taking part in corrupt operations.

26-nation Finance Action Task Force on Money Laundering (FATF), originally established by G-7 might include Georgia in “black list”. At the moment 15 countries are in “black list” and 31 in “gray list”. The difference between the two lists is that the “gray” one includes countries whose banking laws are tougher than those of countries on the “black list.”

The Anticorruption Bureau developed a draft law with participation of the National Bank. The document was discussed at the National Security Council in November. It is anticipated that the draft law will be discussed in the Parliament in the beginning of the next year.

“If we do not adopt the law against money laundering urgently, Georgia will become a ‘money laundry’. If we are late, the black money will grow too influential in the Georgian politics,” Demur Giorkhelidze, Chairman of the Parliamentary Committee on Sector Economy told Civil Georgia.

The draft law considers creation of a Financial Monitoring Service (FMS) uniting 4-5 experts. It is planned that the Service will primarily have analytical functions and will not be a prosecuting body.

Despite objections of the Ministry of Finance, it was decided by the National Security Council to subordinate FMS to the National Bank of Georgia. However, the Anticorruption Bureau prefers for it to be a completely independent agency.

If the body is subordinated to the state agency, the business companies fear that their commercial secrets might be compromised. According to the draft, financial institutions will have to inform the FMS about every transaction, which exceeds 30 thousand Lari (approximately USD 15 000).

“The Anticorruption Bureau wanted the Service to be an independent body precisely to ensure safeguarding of the commercial secrets of the companies. Besides, this body must not become a structure of terror,” Koba Chekurishvili of Anti-Corruption Bureau, one of the co-authors of the draft law, told Civil Georgia.

Murtaz Kikoria, head of the Monitoring Division of the National Bank counters, that “the National Bank has great experience in protecting commercial secrets.” He says the National Bank  “enjoys good confidence of other banks.”

While the sides line up to protect their interest, independent experts involved in a study of the money laundering problems indicate, that the trends become alarming.

In summer 2002, a program of the Washington-based Transnational Crime and Corruption Center (TraCCC) was launched in Georgia to study the money laundering related issues in the country.

Londa Esadze, coordinator of the program, told Civil Georgia that adoption of anti-money laundering law is a necessary measure for Georgia to avoid appearing on the “black list” of money laundering countries.

As Londa Esadze says, a study revealed “many gaps [in national legislation], which create favorable conditions for money laundering”.

The only legal provision to counter the money laundering in Georgia is a paragraph of the Criminal Code, which deals with “legalization of unlawful incomes”. Experts say that this is a “dead provision” which was never applied by the courts in Georgia so far.

A TraCCC research showed, that like in many other countries, the casinos, offshore companies and illegal arms and drugs smuggling represent the spine of money laundering in Georgia.

Londa Esadze also thinks that some suspicious export operations might be used in Georgia for money laundering. For example, the Finance Ministry reports that in 2002 Georgia exported tea worth of 55 thousand USD to India, 19 thousand USD worth paper for the books to Antarctica, and various types of aircraft to Uganda (150 000 USD).

Researchers conclude that Georgia, where up to 20 casinos operate, became an attractive for the money launderers from Turkey, Azerbaijan and recently Armenia, where the casinos are banned. Couple of years ago Georgian President tried to ban casino business in vain. 

Although the risks are apparent, experts are pessimistic regarding the chances of adopting the draft law by the Parliament. Kakha Ugulava, chairman of the Anticorruption Bureau, thinks that the law will go against personal interests of certain officials.

Experts also say that indifference among the politicians and businessman towards the issue would also hinder adoption of the draft. Influential Georgian businessmen, who also have seats in the Parliament, are more concerned by putting an end to smuggling than by countering money laundering.

“The Government has to start dealing with the shadow economy [scale of which is officially confirmed to be 50%] by fighting the smuggling first. Money laundering is the last problem today,” says Gogi Topadze, a member of the Parliament and one of the most successful Georgian businessmen. Mamuka Khazaradze, president of the Georgian Glass and Mineral Water Company also agrees to this opinion.

“You would hear quite often from an official: if a criminal got money and wants to launder it, but at the same time he or she builds churches and schools, what is so bad about that? I fear that this way of thinking will doom our fight against money laundering,” says Londa Esadze.

The experts hope that strong anti-money laundering public relations campaign among the politicians and society would be helpful for changing the attitudes and fostering urgency of saying no to the prospect of Georgia as a ‘money laundry.’

By Goga Chanadiri, Giorgi Sepashvili, Civil Georgia