P 101654Z DEC 08
FM AMEMBASSY REYKJAVIK
TO SECSTATE WASHDC PRIORITY 3919
INFO DEPT OF TREASURY WASHINGTON DC
DEPT OF JUSTICE WASHDC
DEA WASHDC
AMEMBASSY COPENHAGEN

UNCLAS REYKJAVIK 000291 
 
 
STATE FOR INL, EUR/RPM AND EUR/NB 
DEA FOR OFFICE OF DIVERSION CONTROL 
TREASURY FOR FINCEN 
JUSTICE FOR AFMLS, OIA, AND NDDS 
COPENHAGEN FOR DEA 
 
E.O. 12958: N/A 
TAGS: SNAR KTFN EFIN KCRM IC
SUBJECT:  ICELAND: 2009 INTERNATIONAL NARCOTICS CONTROL STRATEGY 
REPORT (INCSR) PART 2: MONEY LAUNDERING 
 
REFS: A)STATE 104800 
  B)REYKJAVIK 259 
 
¶1.  Post provides the following submission for Part 2 of the INCSR 
report.  Part 1 (Narcotics) was transmitted Ref B. 
 
¶2.  Begin text of submission: 
 
Iceland 
 
Money laundering is not considered a major problem in Iceland, 
though international observers have questioned the effectiveness of 
the anti-money laundering regime in the country. The Icelandic Penal 
Code criminalizes money laundering regardless of the predicate 
offense, although the code specifies that sentences in cases 
involving multiple crimes be determined based on the worst crime. 
Therefore, if a case involves both drug offenses and money 
laundering, the sentence will be based on the laws that concern the 
drug case. In cases that concern money laundering activities only, 
the maximum sentence is ten years' imprisonment. 
 
Iceland based its money laundering law on the Financial Action Task 
Force's (FATF's) Forty Recommendations. In June 2006, the parliament 
passed the Act on Measures to Counteract Money Laundering and the 
Financing of Terrorist Acts (MCML-FTA). This legislation replaces 
the 1993 Act on Measures to Counteract Money Laundering (MCML) and 
subsequent amendments. The legislation covers a broad range of 
financial institutions, but is more specific than the previous 
legislation, and imposes obligations on legal entities to report any 
suspicious activities to the authorities. The legislation extends 
requirements against money laundering and financing of terrorism to 
the full range of designated non-financial businesses and 
professions. The MCML-FTA covers a broader scope of designated 
non-financial business and professions in items, including 
attorneys, auditors, real estate dealers, and other service 
providers and dealers in accordance with FATF recommendations. 
 
The MCML-FTA also applies due diligence laws to the legal entities 
that fall under the reporting requirement. There are provisions in 
the law that allow for a fine for failure to comply. 
 
The regulation for the MCML-FTA requires that any suspicion that a 
transaction can be traced to money laundering or terrorist financing 
shall be reported to the Economic Crime Division of the National 
Commissioner of Police, specifically to the Financial Intelligence 
Unit (FIU).  The law requires those legal entities that fall under 
the reporting requirement to pay special attention to 
non-cooperative countries and territories (NCCTs) that do not follow 
international recommendations on money laundering. The Financial 
Supervisory Authority (FME), the main supervisor of the Icelandic 
financial sector, is to publish announcements and instructions if 
special caution is needed in dealing with any such country or 
territory. 
 
The MCML requires banks and other financial institutions, upon 
opening an account or depositing assets of a new customer, to have 
the customer prove his or her identity by presenting personal 
identification documents. The legal entities that fall under the 
reporting requirement shall verify customers' reliability:  when 
they make individual transactions amounting to 15,000 euros (ISK 
2.25 million) or more; at the beginning of a permanent business 
relationship; when making currency exchange amounting to 1,000 euros 
(ISK 150,000) or more, whether the transaction takes place in one or 
more related transactions; when there is suspicion of money 
laundering or the financing of terrorist acts, without regard to 
exceptions or limitations of any kind; or when there is doubt that 
information about a customer is correct or reliable enough. 
 
An individual party may not leave the country with more than the 
equivalent of 15,000 euros in cash, unless it is accounted for at 
the customs authorities. As Iceland is now facing a severe financial 
crisis, the parliament granted the Central Bank the authority to 
issue rules on foreign exchange in order to support the exchange 
value of the ISK. On December 1, the Central Bank used its authority 
to issue such rules. Among other things, the rules dictate that 
Icelandic banks cannot sell more than 500,000 ISK in foreign 
currency to any individual party per calendar month. These rules are 
meant to be temporary measures. 
 
Financial institutions record the name of every customer who seeks 
to buy or sell foreign currency. All records necessary to 
reconstruct significant transactions are maintained for at least 
seven years. Employees of financial institutions are protected from 
civil or criminal liability for reporting suspicious transactions. 
 
In July 2007, the FATF released its first evaluation of the 
Icelandic money laundering and terrorist financing regime since the 
passage of the new legislation.  The report expressed concerns 
regarding the effectiveness of the enforcement system.  It noted 
that penalties for money laundering seem disproportionately low and 
as a result not dissuasive. In addition, there has been a decline in 
the number of money laundering prosecutions and convictions in 
recent years, despite a rise in the number of Suspicious Transaction 
Reports (STR), a steep increase in the number of drug crimes, and an 
extraordinary expansion of the financial sector. 
 
On terrorist financing, the report noted that the law defines 
terrorist financing in broad terms but fails to fully cover the 
financing of acts listed in the Terrorist Financing Convention. The 
effectiveness of provisional and confiscation measures is 
satisfactory, but further improvement would make them even more 
effective. The report recommends that Iceland adopt a comprehensive 
mechanism to freeze assets in the context of UN Security Council 
Resolution S/RES/1373. Furthermore, the FATF report suggests that 
Icelandic authorities increase sanctions for directors and managers 
of financial institutions found to be in violation of the law. 
 
As noted, suspicious transaction reports (STRs) have consistently 
risen in Iceland in recent years, but Icelandic authorities continue 
to ascribe this to better training and awareness of the issue. The 
FIU has an officer assigned to cover suspicious transactions and has 
expanded the training provided to financial institutions to include 
those working at financial intermediaries such as lawyers and 
accountants. The FIU received 241 STRs in 2003, 301 STRs in 2004, 
283 STRs in 2005, 323 STRs in 2006, and 496 STRs in 2007. 
 
The first successful prosecution under the money laundering law 
occurred in 2000. There have been nine cases prosecuted since then, 
with convictions resulting in each case.  There were no money 
laundering prosecutions in 2008. 
 
Iceland's FIU is the primary government agency responsible for asset 
seizures and is authorized under the criminal code to freeze or 
seize funds based on reasonable suspicion of criminal activity. 
There are no significant obstacles to asset seizure in practice. The 
FME and the FIU make every effort to enforce existing drug-related 
asset seizure and forfeiture laws. In recent years, asset seizure 
has become quite common in embezzlement crimes, while only a small 
fraction of total asset seizures has related to money laundering. 
Under the Icelandic Penal Code, any assets confiscated on the basis 
of money laundering investigations must be delivered to the 
Icelandic State Treasury. There have been no instances of the U.S. 
or any other government requesting seized assets from Iceland. 
Foreign transfer or sharing of seized assets is not covered by 
existing legislation. 
 
Icelandic law specifically criminalizes terrorism and terrorist 
acts, and requires the reporting of suspected terrorist-linked 
assets and transactions involving possible terrorist operations or 
organizations. A March 2003 amendment to the Law on Official 
Surveillance on Financial Operations strengthened Iceland's ability 
to adhere to international money laundering and asset freezing 
initiatives and agreements. In accordance with international 
obligations or resolutions to which Iceland is a party, the FME 
shall publish announcements on individuals or legal entities 
(companies) whose names appear on the UNSCR 1267 Sanction 
Committee's consolidated list or on European Union clearinghouse 
list and whose assets or transactions Icelandic financial 
institutions are specifically obliged to report to authorities and 
freeze. Prior to the amendment, the government had to publish the 
names of terrorist individuals and organizations in the National 
Gazette in order to make them subject to asset freezing. The 
government formally enacted financial freeze orders against 
individuals and entities on the UNSCR 1267 Sanction Committee's 
consolidated list. Government of Iceland officials have said they 
will consider applying their terrorist asset freeze strictures 
against U.S.-only designated entities (i.e., names not on UN or EU 
lists) on a case-by-case basis. To date, Iceland has discovered no 
terrorist-related assets or financial transactions. 
 
When dealing with other European Economic Area (EEA) member 
countries, the FME can disclose confidential information to other 
governments, provided that this sharing is beneficial for conducting 
investigations of suspicious money laundering activities, and that 
EU Data Protection guidelines are followed. Concerning requests for 
information from countries outside of the EEA, the FME may, on a 
case-by-case basis, disclose to supervisory authorities information 
under the same conditions of confidentiality. To date there have 
been no requests from either EEA or non-EEA countries for an 
exchange of information concerning suspected acts of money 
laundering. 
 
There is currently no agreement (nor discussions toward one) between 
Iceland and the United States to exchange information concerning 
financial investigation, and no Mutual Legal Assistance Treaty 
(MLAT). The National Commissioner of Police has acted on tips from 
foreign law enforcement agencies in the investigation of money 
laundering activities, and the process of international cooperation 
with the law enforcement authorities of other countries appears to 
work smoothly. 
 
Iceland is a party to the 1988 UN Drug Convention; the Council of 
Europe Convention on Laundering, Search, Seizure, and Confiscation 
of the Proceeds from Crime; the UN Convention against Transnational 
Organized Crime (ratified May 2008); and the UN International 
Convention for the Suppression of the Financing of Terrorism. 
Iceland is party to several multilateral conventions on terrorism 
and rules of territorial jurisdiction, including the 1977 European 
Convention on the Suppression of Terrorism. Iceland is a member of 
the FATF, and its financial intelligence unit is a member of the 
Egmont Group. 
 
The Government of Iceland should continue to enhance its anti-money 
laundering/counterterrorist financing regime through the enforcement 
of existing laws, review and implementation of FATF recommendations 
for effective use of that legislation and reinforcement of relevant 
institutions' understanding of the regime. 
 
End text of submission. 
 
VAN VOORST