Costa Rica – Know Your Customer (KYC) Rules

 

 

While not a major regional financial center, Costa Rica remains vulnerable to money laundering and other financial crimes, including various schemes that target U.S.-based victims. Money laundering activities are primarily related to the foreign proceeds of international trafficking in cocaine. A sizeable internet gaming industry also launders millions of dollars in illicit proceeds through Costa Rica and offshore centers annually. To a lesser extent, proceeds are laundered in Costa Rica from domestic criminal activities, including trafficking narcotics, persons or arms; fraud; corruption; and contraband smuggling. A significant market exists in the smuggling of contraband liquors from bordering countries. The Government of Costa Rica (GOCR) reports that Costa Rica is primarily used as a bridge to send funds to and from other jurisdictions using, in many cases, companies or banks established in offshore financial centers.

Money laundering occurs across the formal financial sector; the non-financial sector, especially via both licensed and unlicensed money remitters; and within the free trade zones (FTZs). Nicaraguan nationals residing in Costa Rica send over $200 million in remittances annually to family members in their home country, much of which is sent via unlicensed money remitters. Both these unlicensed and licensed money services businesses are a significant risk for money laundering and a potential mechanism for terrorist financing. In addition, Costa Rica‘s 35 FTZs, used by approximately 284 companies, are susceptible to money laundering. The smuggling of bulk currency across borders with Panama and Nicaragua is also prevalent. Trade-based money laundering, while utilized, has not been detected with the same frequency as the other typologies described above. The GOCR has not reported investigations of terrorism financing in 2011.

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:  YES

Costa Rica – KYC covered entities

 

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

    • Banks, credit institutions, and savings and loan cooperatives
    • Pension funds
    • Insurance companies and agents
    • Money exchangers and remitters
    • Trust managers, investment fund and safekeeping companies
    • Issuers, sellers or redeemers of travelers checks and postal money orders
    • Securities dealers

Panama – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 294 from January – September 2011

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

    • Banks, credit institutions, and savings and loan cooperatives
    • Pension funds
    • Insurance companies and agents
    • Money exchangers and remitters
    • Trust managers, investment fund and safekeeping companies
    • Issuers, sellers or redeemers of travelers checks and postal money orders
    • Securities dealers

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: Nine from December 2010 to October 2011
Convictions: Two from December 2010 to October 2011

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

In October 2010, the Judicial Branch appointed a new Attorney General. As part of a subsequent restructuring, in December 2010, the Attorney General‘s Office (AGO) transferred the prosecution of money laundering cases from the Organized Crime Bureau to the Economic Crimes Bureau. In addition, the Attorney General appointed a new bureau chief to the renamed Economic Crimes, Taxation, and Money Laundering Bureau. Based on these changes, beginning in January 2011, there has been a significant emphasis placed on money laundering investigations, including those involving advanced typologies and transnational crime. Nevertheless, the AGO and the Judicial Police still lack adequate resources to effectively investigate and prosecute many of the complex money laundering cases linked to Costa Rica.

Moreover, the legal doctrine of “self-laundering” prevents prosecutors from charging money laundering in many cases. Under Costa Rican law, a person who commits a predicate crime and who subsequently launders the proceeds of that crime cannot be charged with money laundering as an additional offense (e.g., a drug dealer who is convicted on drug charges cannot also be prosecuted for laundering the drug proceeds). In Costa Rica, money launderers oftentimes use legitimate businesses and shell corporations to launder illegal proceeds. However, criminal liability does not extend to legal persons.

Land-based casinos and internet gaming companies are effectively not regulated in Costa Rica and represent a significant risk for money laundering. The online gaming industry transacts billions of dollars annually and employs thousands of Costa Rican nationals. Most of its proceeds are laundered in offshore centers but millions of dollars still circulate in Costa Rica.

The GOCR reports that Costa Rican attorneys oftentimes conduct large cash purchases of real estate on behalf of persons located in the United States. While many of these transactions appear legal, the GOCR has concerns that some of the international wire transfers ostensibly for legitimate real estate transactions are, in fact, the proceeds of illegal activities in the United States.

In 2011, the GOCR pursued its first case under the 2009 civil forfeiture law. The presiding judge subsequently referred the case to the Costa Rican Supreme Court for an advisory opinion which has yet to be issued. It is still unclear whether the GOCR will assist other countries in obtaining non-conviction-based forfeiture.

While it has demonstrated a genuine commitment to strengthening its anti-money laundering/counter-terrorist financing (AML/CFT) regulatory regime, the GOCR has not fully implemented recently enacted risk-based regulations. The GOCR and its regulators have focused considerable attention on the formal financial sector; however, they have not adequately supervised money service businesses, especially money remitters, and issuers, sellers or redeemers of travelers checks and postal money orders. While the FIU is tasked with oversight authority with respect to these entities, it lacks the resources, personnel, or capacity to comply with this mandate. Additionally, designated non-financial businesses and professions (DNFBPs), such as dealers of precious stones and metals, accountants, real estate agents, lawyers and notaries, are not covered by the AML/CFT provisions.