Azerbaijan – Know Your Customer (KYC) Rules

 

 

Throughout the past decade, Azerbaijan has undergone rapid economic development and implemented notable economic reforms. While Azerbaijan is focused on the need for economic diversification, the energy sector generated almost half of Azerbaijan‘s gross domestic product in 2011. All other sectors lag energy in growth and sophistication, including the financial sector. This gap – coupled with Azerbaijan‘s shared history, long-standing trade relationships, and common border with Iran – makes Azerbaijan‘s financial institutions vulnerable to being used by foreign entities looking to conduct money laundering and terrorist financing transactions involving Iran.

A major source of criminal proceeds in Azerbaijan is endemic corruption, which cuts across all sectors of the economy and all layers of society. International reports also identify Azerbaijan as a transit country for the Afghan drug trade; Azerbaijani authorities suspect this illicit drug trade generates a significant amount of illicit funds. Other generators of illicit funds include robbery, tax evasion, smuggling, trafficking and organized crime. Money laundering likely occurs in the formal financial sector, non-bank financial systems, alternative remittance systems and the construction industry. The FMS has attempted to address these problems by discouraging cash-based transactions, educating banks in Azerbaijan about their reporting requirements for suspicious transactions and seeking to combat the illegal flow of narcotics through Azerbaijan to markets in Europe and Russia.

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KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: YES
    • Domestic PEP: NO

Azerbaijan – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Azerbaijan Law:

    • Banks
    • Insurance and reinsurance companies, and intermediaries
    • Notaries, lawyers and auditors
    • Company formation agents and asset managers
    • Real estate brokers and agents
    • Pawnshops
    • Securities brokers and investment funds
    • Lotteries
    • the National Post
    • Non-governmental organizations

Azerbaijan – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 10,874 from January 1 to July 1, 2011

Number of CTRs received and time frame: 97,862 from January 1 to July 1, 2011

The following is a list of STR covered entities covered by Azerbaijan Law:

    • Banks, money remitters
    • Insurance and reinsurance companies, and intermediaries
    • Securities brokers and investment funds
    • Leasing companies
    • Company formation agents and asset managers
    • Lawyers and auditors
    • Company formation agents and asset managers
    • Real estate brokers and agents
    • Lotteries
    • Dealers of precious metals and stones
    • Pawnshops
    • Non-governmental organizations

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: Five from January 1 to October 1, 2011
Convictions: One in 2011

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The AML law excludes travel agencies, auto dealers, and dealers of art, antiquities, and other high-value consumer goods from the list of covered entities. Accordingly, these entities are not required to maintain customer information or report suspicious activity.

In 2011, Azerbaijan made progress in increasing its ability to address money laundering/terrorist financing vulnerabilities by strengthening its Financial Monitoring Service (FMS), Azerbaijan‘s financial intelligence unit (FIU), and implementing new regulations in line with international standards. It is in the process of building a database and expertise. Currently, inadequate interagency cooperation and training significantly diminish its investigative abilities. The FMS has concluded information exchange agreements with a number of regional FIUs. In 2011, the FMS became a member of the Egmont Group.

Intergovernmental discussions of draft amendments to the criminal code and code of criminal procedure recently were finalized. In particular, the draft amendments include corporate criminal liability in relation to money laundering and terrorist financing offenses, and special confiscation procedures with an all crimes approach, which will make it possible to confiscate proceeds for all forms of offenses.