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### Viewing cable 10HAMILTON12, CORRECTED COPY: BERMUDA'S 2009-2010 INTERNATIONAL NARCOTICS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
10HAMILTON12 | 2010-01-15 21:47 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Hamilton

`

    VZCZCXRO1550
    RR RUEHHT
    DE RUEHHT #0012/01 0152147
    ZNR UUUUU ZZH
    R 152147Z JAN 10 ZFF4
    FM AMCONSUL HAMILTON
    TO RUEHC/SECSTATE WASHDC 3964
    INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
    RUEHHT/AMCONSUL HAMILTON 2142

` `

    UNCLAS SECTION 01 OF 13 HAMILTON 000012

    SENSITIVE
    SIPDIS

    DEPT FOR INL;
    DEPT FOR SCT;
    DEPT FOR EEB;
    JUSTICE FOR AFMLS, CIA, OPDAT;
    TREASURY FOR FINCEN (BEZEK AND MICHAEL);
    DEPT FOR EUR/WE (MARBURG AND ABBASZADEH);
    DEPT FOR EUR/PPD (MCMANIS AND PIPKIN);
    LONDON (HUBER AND M. JOHNSON);

    E.O. 12958: N/A
    TAGS: KCRM EFIM KTFN SNAR PGOV BD
    SUBJECT: CORRECTED COPY:  BERMUDA'S 2009-2010 INTERNATIONAL NARCOTICS
    CONTROL STRATEGY REPORT (INCSR)

    REF: A. A) HAMILTON 0006;
         ¶B. B) 2009 STATE 114960

    HAMILTON 00000012  001.16 OF 013

    ¶1.      U.S. Consulate General Hamilton provides this corrected
    copy of the money laundering and

    financial crimes section of the 2009-2010 INCSR (REFTEL A).
    Post has updated responses to questions (45) and (55), see
    paragraphs 30 and 44..

    GENERAL QUESTIONS

    ¶2.      (18) Yes.  An overseas territory of the United Kingdom
    (U.K.), Bermuda is considered an

    important regional and global financial center.  It is the third
    largest reinsurance center in the world and the second largest
    captive insurance domicile, with firms based in the jurisdiction
    writing significant volumes of business in the U.S. and U.K.  It
    is not considered to be significant in terms of money
    laundering.  Bermuda is not considered a major drug source or
    transshipment country; however, the majority of the money
    laundering that occurs in Bermuda is believed to be related to
    the domestic drug trade.

    ¶3.      (19) Money laundering in Bermuda is related primarily to
    proceeds from domestic criminal

    activity involving marijuana, cocaine, cocaine freebase and
    heroin.  Amounts seized in 2008 were 241.2 kilos, 4.8 kilos, .22
    kilos and .8 kilos respectively.  The Island is an end-user
    jurisdiction in narcotics trafficking, rather than a
    transshipment point for drugs.  Bermuda's drugs originate in
    South and Central America, using the Caribbean, the U.S. and to
    a lesser extent the U.K. as transshipment points into Bermuda.
    Money laundering proceeds are controlled primarily by gangs,
    which have proliferated in recent years.  Public corruption does
    not contribute to money laundering/terrorist financing.

    ¶4.      (20) There is no significant black market for smuggled
    goods in Bermuda.

    ¶5.      (21) The Bermuda Monetary Authority (BMA) closely
    supervises Bermuda's financial services

    sector for prudential and Anti-Money Laundering/Combating
    Financing Terrorism (AML/CFT) purposes, and permits no
    unlicensed or unregistered entities to operate in this sector.
    There have been no cases of terrorist financing in Bermuda, and
    there was no significant increase in financial crimes in 2009.
    In December the Government of Bermuda (GOB) passed the
    Anti-Terrorism (Financial and Other Measures) Amendment Act
    2009, effective January 13, 2010.  In conjunction with that act,
    and in conformance with the U.S. and the U.K., the GOB will
    issue by January 15, 2010 a directive to sanction the Islamic
    Republic of Iran Shipping Lines (IRISL), which has obtained
    insurance through a company legally domiciled in Bermuda - the
    South of England Protection and Indemnity Association (SEPIA).
    The directive to SEPIA to cease doing business with IRISL would
    be effective immediately, with provision for winding up existing
    contracts within seven days.  The GOB responded expeditiously
    and comprehensively to U.S. concerns on this issue.

    There are cases where criminals utilize the formal financial
    sector for money laundering purposes, resulting in criminal
    investigations and pending prosecutions.  There are no free
    trade zones, hawalas or other informal financial sector entities
    in Bermuda in which money laundering/financing terrorism occurs.
     There are four banks, one deposit company and two money service
    businesses involved in money transmission services, all of which
    the BMA licenses.

    HAMILTON 00000012  002.16 OF 013

    ¶6.       (22)  The National Anti-Money Laundering Committee
    (NAMLC) believes that the currency

    used in Bermuda for payment to international narcotics
    traffickers is the U.S. dollar and that there have been cases
    where traffickers utilized the formal financial sector for money
    laundering purposes.  The proceeds of narcotics trafficking may
    be destined for the U.S. or may pass through the U.S. for
    transmission to some other country.

    ¶7.      (23) No, there are no indications that trade-based money
    laundering occurs in Bermuda. There

    are no free-trade zones in Bermuda.

    OFFSHORE FINANCIAL CENTERS

    ¶8.      (24)  Within the specific definition of the term
    provided, Bermuda is not considered an offshore

    financial center as there is no distinction in how it regulates
    businesses operating in the local economy and those operating
    internationally from within Bermuda.

    ¶9.      (25) No, Bermuda does not permit either shell companies
    or offshore banks.  However, a

    foreign bank may establish a subsidiary as a Bermuda company
    with its own board of directors, but may not establish a branch.
     A large international business sector - including exempt
    companies - underpins the Island's economy.  Section 92A of the
    Companies Act requires every company to maintain a register of
    directors and officers that is to be open for inspection by
    members of the public.

    ¶10.  (25a)  To post's knowledge, Bermuda performs adequate
    background checks on applicants for

    banking and business licenses for all entities.

    ¶11.  (25b)  According to the Registrar of Companies, at the end
    of September 2009, there were

    13,634 exempted or international companies registered in
    Bermuda, 1,230 exempted partnerships, 536 overseas companies and
    70 overseas partnerships.  In March 2008, there were a total of
    1,315 investment funds in Bermuda:  883 mutual funds, 80
    umbrella funds, and 388 segregated accounts.  There were also
    106 unit trusts and 168 umbrella trusts.

    Exempted companies are exempt from Bermuda laws that apply to
    local entities, including the restriction that at least 60
    percent of local entities must be owned by Bermuda residents.
    Exempt companies are not subject to currency controls or capital
    controls, and they are free from all forms of direct taxation on
    income and capital gains.  Therefore, exempt companies are
    normally prohibited from doing business in the local economy.
    The majority of exempt companies are not required to have a
    physical presence on the Island, but designate local directors
    (generally a local lawyer and secretary) to manage corporate
    affairs in Bermuda.  Directors must be natural persons.  Before
    exempt companies can be established or any shares transferred
    between nonresidents, the owners and controllers must be vetted
    by the BMA, the sole regulatory body for financial services.

    HAMILTON 00000012  003.15 OF 013

    ¶12.  (25c)   Anonymous directors and trustees are not allowed.

    ¶13. (26) Lotteries, casinos, and gambling, including Internet
    gambling, are prohibited business   activities.  However,
    gambling that does not use gaming machines is allowed, including
    bingo, raffles, and Crown and Anchor.  The Prohibition of Gaming
    Machines Act 2001 prohibits the importation of gaming machines
    and their parts and accessories.  Casinos are illegal; a bill to
    allow cruise ship casinos to operate while in port was defeated
    in 2009.  The Lotteries Act 1944 prohibits the import of foreign
    lottery material.

    ¶14. (27) The BMA regulates Bermuda's entire financial services
    sector.  There are separate regulatory acts which apply to each
    sector (e.g. trusts, deposit taking, investment business etc.),
    but the requirements are the same whether the entity is
    operating solely within the local economy or operating from
    within Bermuda internationally.  All classes of financial
    institutions required to be regulated under the Financial Action
    Task Force (FATF) standards are subject to customer due
    diligence, ongoing monitoring, record keeping and all other
    AML/ATF (Anti-Terrorist Financing) requirements, including the
    filing of Suspicious Activity Reports (SARs) for money
    laundering or terrorist financing.

    FREE TRADE ZONES

    ¶15. (28-30) There are no free trade zones in Bermuda.

    LEGAL FOUNDATION OF AML REGIME

    ¶16. (31) Bermuda has a robust legal framework as it relates to
    AML/CFT and is committed to

     keeping up to date with international standards.  There have
    been several waves of related legislation since the inception of
    money laundering regulation in 1997.

    The Proceeds of Crime Act (POCA) 1997, as amended, is the
    foundation of the GOB's AML/ATF regulatory regime applying money
    laundering controls to financial institutions such as banks,
    deposit companies, and trust companies.  Subsequent amendments
    expanded the scope of the legislation to cover the proceeds of
    all indictable offenses and added investment businesses,
    including broker-dealers and investment managers, to the list of
    regulated institutions.  Trust service providers, lawyers and
    corporate service providers are now subject to the same customer
    due diligence, record-keeping and supervision arrangements as
    financial institutions.

    With respect to anti-terrorism financing, the GOB enacted the
    Anti-Terrorism (Financial and Other Measures) Act (ATFA) in 2004
    to criminalize terrorist financing and provide the framework to
    ensure implementation of the FATF Special Recommendations on
    terrorist financing.  The Act makes it an offense to raise funds
    for terrorism, creates specific offenses relating to the
    raising, use, or possession of funds for purposes of terrorism,
    imposes a duty to report suspicious activity, and provides for
    the forfeiture of terrorist cash.  The effect is to parallel the
    provisions already in place under the POCA for money laundering
    and the proceeds of other serious crimes.  Financial
    institutions were directed to conduct full reviews of their
    clients against officially published lists of terrorist
    suspects.  There has been no known identified evidence of
    terrorist financing in Bermuda.

    In December 2009, to implement Schedule 7 of the UK Counter
    Terrorism Act 2009, the Bermuda Parliament passed the
    Anti-Terrorism (Financial and Other Measures) Amendment Act 2009

    HAMILTON 00000012  004.15 OF 013

    and the Proceeds of Crime (Anti-Money Laundering and Terrorist
    Financing) Regulations 2009.  The act and regulations are
    expected to be enacted on January 13, 2010 and are a very high
    priority for Bermuda.  The Minister of Justice is empowered,
    under certain strictly defined conditions, to give directions
    relating to enhanced due diligence, enhanced ongoing monitoring,
    systematic reporting and limiting/ceasing business.  The BMA is
    designated as the supervisory and enforcement authority.  Local
    and cross border wire transfers regulations aim to bring Bermuda
    into compliance with FATF recommendations.  The legislation
    requires financial institutions to verify the accuracy of the
    information on the payer/originator before transferring funds,
    require financial institutions to retain for a period of five
    years, complete records on the payor/originator of the fund
    transfer, require financial institutions receiving wire
    transfers to maintain effective procedures to detect whether
    complete information on the payor/originator is received with
    the wire transfer and specify how the receiving institution
    should treat transfers with missing or incomplete information.

    In March 2009 Bermuda updated the Revenue Act 1898 to strengthen
    the requirements relating to cross border transportation of
    currency and monetary instruments. The threshold for reporting
    is $10,000.  Mandatory declaration forms are used for all
    incoming passengers (regardless of point of embarkation) and for
    outgoing passengers to the US.  For outgoing passengers to
    Canada and the U.K. there is a disclosure system in place.
    Additionally, goods, currency and negotiable instruments may be
    forfeited if not declared or are falsely declared.  Penalties
    for related offenses were increased and directors and officers
    of companies can now be charged.

    The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist
    Financing) Regulations 2008, which came into effect on January
    1, 2009, give the BMA broader responsibilities and powers for
    monitoring and compliance enforcement of AML/CTF-regulated
    financial institutions.  It formalized the requirements for
    customer due diligence, including for correspondence banking,
    and broadened the range of financial institutions, including
    trust service providers, lawyers and accountants.  Financial
    institutions are required to take specified measures to
    compensate for higher risk when a customer has not been
    physically present for purposes of identification and must
    conduct enhance customer due diligence for politically exposed
    persons (PEPs).

    The GOB enacted the Proceeds of Crime (Supervision and
    Enforcement) Act 2008 (SEA) effective January 1, 2009, to
    establish a civil money penalty regime and to allow the BMA to
    use its regulatory powers to address AML/ATF breaches.  The
    definition of "financial institution" under SEA includes
    insurers, but not reinsurers, licensed under the Insurance Act.
    The BMA has established a specialized AML/ATF unit to undertake
    its supervisory and monitoring functions, including both on-site
    and off-site monitoring.

    Also effective on January 1, 2009, the Anti-Terrorism (Financial
    and Other Measures) Amendment Act 2008 essentially addressed the
    recommendations in the 2007 IMF Report relating to terrorism and
    terrorist financing.  It broadens the meaning of "terrorism,"and
    terrorist financing" and adds the offences of "tipping-off,"
    "organizing or directing others to commit offences," and
    "offences by bodies corporate, partnerships, and unincorporated
    associations."  It also makes provisions for offenses by bodies
    corporate, and authorizes the Minister of Justice to make
    regulations for the purposes of detecting and preventing the
    financing of terrorism. The latter provision resulted in the
    Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist
    Financing) Regulations 2008 relating to customer due diligence,
    ongoing monitoring, record keeping, etc.

    Collective investment schemes (CISs) are regulated by the BMA,
    and fund administrators are regulated persons for the purposes
    of the POCA.  To strengthen regulations, CISs, including hedge
    funds, are subject to the Investment Funds Act 2006, which came

    HAMILTON 00000012  005.15 OF 013

    into effect in January 2007.  The Investment Funds Act is the
    legal framework for regulating investment funds, which includes,
    in addition to mutual funds and unit trusts, other business
    vehicles that pool and manage investment monies.  The act also
    required fund administrators in Bermuda to be licensed and
    subjects them to minimum standards and a code of conduct.
    Licensees are also recognized persons for POCA purposes and are
    subject to compliance monitoring by the BMA.  The BMA continues
    to apply differentiated requirements involving lighter
    regulation of schemes catering to institutional and
    sophisticated investors, with greater reliance on transparency
    and disclosure.  The BMA is also able to conduct compliance
    checks of POCA procedures as carried out by CIS administrators.

    The Insurance Amendment Act 2004 implemented a number of changes
    to Bermuda's insurance regime pursuant to the International
    Association of Insurance Supervisors' (IAIS) adoption of revised
    core principles for supervision.  Further amendments to the
    Insurance Act were enacted in the summer of 2006 to upgrade
    provisions and powers to provide the BMA with the ability to
    comply with IAIS core principles, like those existing for
    banking and investments.

    The amended Investment Business Act 2003 enhances the regulatory
    powers of the BMA, granting the BMA stronger intervention powers
    and clarifying certain provisions, such as the BMA's ability to
    cooperate with foreign regulatory bodies. Other provisions
    include measures to strengthen criminal and regulatory
    penalties.  The Act also brought the Bermuda Stock Exchange
    (BSX) under the regulation of the BMA.  In 2004, provisions were
    added to the Criminal Code Amendment Act to create specific
    offenses of insider trading and market manipulation in
    securities markets.  Fines up to $100,000 and prison terms of
    five years are in place for market manipulation and up to
    $175,000 and seven years jail time for insider trading.  These
    provisions are in addition to existing regulations of the
    Bermuda Stock Exchange that prohibit members from insider
    trading and market manipulation, on penalty of sanctions,
    including expulsion from the BSX.

    In March 2009, the BMA issued Guidance Notes for AML/ATF
    Regulated Financial Institutions on Anti-Money Laundering and
    Anti-Terrorist Financing, outlining and interpreting the legal
    and regulatory framework, indicating good industry practices,
    and assisting institutions to design and implement systems and
    controls to limit AML/ATF risks to institutions.

    2006 Guidance Notes broadened the scope of the POCA regulations.
    The POCA includes "know your customer" requirements and provides
    for the monitoring of accounts for suspicious activity.
    Furthermore, the GOB performs due diligence on persons seeking
    to undertake business on the island.  The vetting process is
    undertaken when an entity is incorporated.  A personal
    declaration form must be submitted for beneficial owners of
    international businesses prior to incorporation.  Similar
    requirements apply to proposals to transfer shares.
    Additionally, a company must detail its business plan and
    maintain a register of shareholders at its registered office.

    The Basel Committee's Core Principles for Effective Banking
    Supervision are implemented through the Banks and Deposit
    Companies Act 1999.  Banks and other financial institutions are
    required to retain records for a minimum of five years.  Bermuda
    has not adopted bank secrecy laws, but like the UK, recognizes a
    banker's common-law duty of client confidentiality.  Bankers and
    others are protected by law with respect to their cooperation
    with law enforcement officials.  Bermuda law requires money
    transmission services to be conducted in association with a
    licensed deposit-taker, and conversion of funds is subject to
    bank reporting standards.

    ¶17. (32) No, Bermuda has no secrecy laws.

    FINANCIAL SECTOR

    ¶18. (33) No, Section 53 of the Companies Act 1981 prohibits
    bearer shares.

    ¶19. (34) Responsibility for determining AML/CFT policy

    HAMILTON 00000012  006.15 OF 013

    statutorily rests with the National Anti-Money Laundering
    Committee (NAMLC), which was created by POCA in 1997.  The NAMLC
    now resides within the Ministry of Justice, and is headed by an
    independent National AML/CFT Chairman.  Bringing together key
    ministries and departments - including the FIA, police, attorney
    general, director of public prosecutions, Ministry of Finance,
    and the BMA - the NAMLC advises the Minister of Justice in
    relation to the detection and prevention of money laundering and
    terrorist financing in Bermuda, the development of a national
    plan of action, and the participation of Bermuda in the
    international effort against money laundering.  The BMA
    supervises, regulates, inspects and secures compliance of
    financial institutions operating in or from Bermuda and assists
    other authorities in Bermuda with the detection and prevention
    of financial crime.

    The Bermuda Monetary Authority is the sole regulatory body for
    financial services and is responsible for the licensing,
    supervision, and regulation of financial institutions, including
    those conducting deposit-taking, insurance, investment, and
    trust business in Bermuda.  The BMA Amendment Act 2002
    formalized the BMA's responsibilities to include assisting with
    the detection and prevention of financial crime.  The BMA
    conducts on-site reviews and detailed compliance testing of
    financial institutions' AML/CTF controls.  It engages in active
    perimeter policing responsibilities and has legal powers to
    undertake investigations of unlicensed persons suspected of
    breaching the regulations, although the BMA has not found it
    necessary to use these legal powers extensively.  In 2008
    Bermuda passed the Proceeds of Crime Regulations (Supervision
    and Enforcement) Act 2008, which designated the BMA as the
    supervisory body for securing compliance with the regulations by
    regulated entities.  BMA officers have indicated that it needs
    more resources, including increased staffing, to handle its
    responsibilities.

    ¶20. (35) Yes, banks and other financial institutions are
    required to know and record the identity of customers.  However,
    Bermuda's reporting framework currently is based only on a
    suspicion of money laundering or terrorist financing.  Financial
    institutions are required to conduct customer due diligence on
    all customers and transactions without a threshold.  Simplified
    due diligence is only permitted in certain limited
    statutorily-defined circumstances pertaining to specified types
    of financial products.  There is no general statutory threshold
    for these purposes.  However, in March 2009 Bermuda updated the
    Revenue Act 1898 to strengthen the requirements relating
    specifically to cross border transportation of currency and
    monetary instruments. The threshold for such reporting is
    $10,000.

    ¶21. (36)  Yes, the Proceeds of Crime (Anti-Money Laundering and
    Anti-Terrorist Financing) Regulations 2008 require that records
    of a customer's identity and supporting evidence and records for
    business relationships and occasional transaction which are the
    subject of customer due diligence be kept for five years.  In
    any case where a police officer has notified a relevant person
    in writing that particular records are or may be relevant to an
    investigation which is being carried out, the relevant person
    must keep the records pending the outcome of the investigation.

    ¶22. (37) Yes, all financial institutions are required to and do
    report suspicious transactions. Such reporting is mandatory for
    all persons who during the course of any trade, profession,
    business or employment acquire knowledge or suspicion of another
    person's involvement in money laundering.  A failure to report
    this knowledge or suspicion to the Financial Intelligence Agency
    (FIA) is a criminal offence.  There is no statutory threshold
    for the reporting of suspicious transactions.

    ¶23. (38) Yes, there is statutory protection for all persons who
    make the disclosure of any knowledge or suspicion of money
    laundering which comes to them during the course of their trade,
    profession, business or employment.

    INFORMAL FINANCIAL SECTOR AND NONFINANCIAL BUSINESSES AND
    PROFESSIONS

    ¶24. (39) AML/CFT controls apply to all categories of financial

    HAMILTON 00000012  007.15 OF 013

    institutions as defined by FATF, both bank and non-bank (NBFIs).
     Bermuda has not made Designated Non-Financial Businesses and
    Professions (DNFBPs) subject to reporting obligations, customer
    due diligence, etc., although the GOB is planning such
    legislation for 2010.  However, some intermediaries, such as
    lawyers and accountants, are already included.  Bermuda
    considers trust service providers, brokerage houses and money
    service businesses as financial institutions, so they are
    covered.

    FINANCIAL INTELLIGENCE UNIT (FIU)/INVESTIGATIONS

    ¶25. (40) Yes, Bermuda law establishes and authorizes funding for
    an FIU, although it is called a Financial Intelligence Agency
    (FIA) in Bermuda.

    ¶26. (41) Yes, Bermuda established the FIA in November 2008 to
    replace the FIU housed within the Police Department.  The FIA
    operates as an independent agency within the Ministry of
    Justice.  It has both operational and budgetary independence.
    It has a small staff, which the FIA has plans to augment.

    ¶27. (42)  The FIA acts as an independent agency authorized to
    receive, gather, store, analyze and disseminate information
    relating to suspected proceeds of crime and potential financing
    of terrorism, received in the form of Suspicious Activity
    Reports (SARs).  It does not have investigative or regulatory
    responsibilities.

    ¶28. (43) Yes, Section 16 of the Financial Intelligence Agency
    Act gives the FIA access to any information required for enquiry
    into a SAR.  Sections 18 and 19 also allow for disclosure of
    information to relevant authorities.  There are also the
    necessary gateways in place to allow for sharing of information
    with relevant authorities both domestically and internationally.
    In addition, although not required for sharing of information,
    the FIA has signed memoranda of understanding (MOUs) with a
    number of other FIUs to ensure efficient and effective
    cooperation.

    ¶29. (44) The FIA received 651 SARs in 2009.  Of those, it
    referred 73 to investigatory authorities - the BPS, Bermuda
    Customs and the BMA.  The GOB does not routinely keep statistics
    on the number of SARS actually investigated.  The following
    information for 2008 was prepared especially in response to
    Michael Foot's Review of the U.K.'s offshore financial centers,
    released in October 2009.

    Bermuda averaged 200-250 SARs per year from 2003-2008. Of those,
    only a fraction was investigated: 24 cases in 2008, four in 2007
    and one in 2006.  Local prosecutions for financial crime
    2003-2008 were in the single digits, although there were
    prosecutions in other jurisdictions where Bermuda evidence
    contributed: sixteen in 2007 and ten in 2006.  The courts seized
    proceeds of crime assets in 2008 amounting to $45.7 million;
    assets confiscated that year were $22.9 million. The POCA, as
    amended, provides protection from criminality resulting from a
    SARs filing.

    ¶30. (45) The FIA is responsible for analyzing SARS; the BPS,
    Bermuda Customs and the BMA investigate financial crimes. The
    BMA has indicated it needs additional staffing.  The Association
    of Certified Anti-Money Laundering Specialists (ACAMS) conducted
    training for 12 police officers from the Financial Crimes Unit
    in Bermuda in September 2009; a number of officers have now

    HAMILTON 00000012  008.15 OF 013

    successfully achieved the CAMS certification.  Candidates from
    the BMA, various financial institutions and the NAMLC office
    also benefitted from the training.  The BPS is focusing its
    resources on increasing prosecutions for drug trafficking and
    money laundering.  There was realignment in 2009 to enable the
    BPS's Financial Crimes and Narcotics Units to work more closely
    together.

    ASSET FORFEITURE AND SEIZURE LEGISLATION

    ¶31. (46) There have been no arrests, prosecutions or convictions
    for terrorist financing in Bermuda.  Since January 2009 the BPS
    has arrested fifteen persons on suspicion of offences related to
    money laundering.  Of the fifteen arrested, two people were
    charged and five people are waiting to be charged.

    In the past five years there has been one prosecution and
    conviction for money laundering. This case was in October 2008
    and involved monies resulting from drug trafficking ($159,985)
    being sent to Trinidad and Tobago.  The monies were sent through
    a variety of methods including the use of "nominees" (named
    recipient who is not the ultimate beneficiary), wire transfers,
    and ATM cards being sent to individuals in Trinidad and Tobago
    who then withdrew money using the ATM cards.

    Bermuda has assisted a number of other jurisdictions in money
    laundering cases that have resulted in prosecutions.

    ¶32. (47) Yes, Bermuda has enacted asset forfeiture and seizure
    legislation.  For persons convicted of money laundering, the
    POCA Amendment Act 2008 empowers the court to order the
    forfeiture of any property used for the purposes of the money
    laundering offense.   Any payment received by a defendant in
    connection with a money laundering offense is subject to
    confiscation.  Any agreement entered into for the purposes of
    money laundering is void.

    The SEA Act empowers the BMA to impose civil penalties not
    exceeding $500,000.  The Customs Traveler Declaration form
    provides for reporting incoming transportation of currency and
    bearer negotiable instruments from all countries and outgoing
    transportation of currency to the US, and a disclosure system
    for the outgoing transportation of currency and bearer
    negotiable instruments to all countries, excluding the US.

    When seized currency is suspected as being the proceeds of
    crime, Bermuda Customs is required to forward the case for
    investigation and prosecution by the relevant authority.  The
    Revenue Amendment Act 2008 imposes a penalty of $100,000 or a
    term of imprisonment between 2-10 years.

    ¶33. (48) There are no obstacles or disincentives to enacting
    asset seizure/forfeiture legislation.

    ¶34. (49) Bermuda's laws permit seizure of property directly
    related to the commission of a crime.  Although real estate used
    in the cultivation of narcotics cannot be seized, it is possible
    to prevent it from being disposed of or otherwise used so as to
    deplete its value.  Bank accounts and other property can be
    restrained also to prevent use or depletion.  Substitute assets
    cannot be seized, unless made subject of a court order
    restraining the disposal of such property insofar as they
    represent realizable assets against.

    ¶35. (50) The Financial Crimes Unit (FCU) of the Bermuda Police
    Service (BPS) is responsible for carrying out investigations
    into and tracing of assets arising as proceeds from the
    commission of crimes.  With the assistance of the Department of
    Public Prosecutions, the FCU is also responsible for seeking
    restraint orders to prevent the disposal/depletion of such
    assets.  However, any investigating unit within the BPS
    conducting an investigation that gives rise to the discovery of
    property used in the commission of the crimes may seize such

    HAMILTON 00000012  009.15 OF 013

    property under warrant. A magistrate may issue an order to
    freeze assets for a period not exceeding seven days.

    Restraint orders are made where there are reasonable grounds to
    believe that a confiscation order may be made in relation to the
    case in the future.  Accordingly, as long as an investigation or
    prosecution is pending or in progress, restraint orders will
    usually remain in effect until the date a confiscation order is
    made in relation to that case or until the court otherwise
    orders termination.

    Restrained funds are referred to the Accountant General's
    Department, but if they were in a bank account at the time of
    restraint, then they will remain with the bank in which the
    account resides. Cash which had been seized by the Police and
    retained under the Proceeds of Crime Act are deposited into the
    statutory Confiscated Assets Fund until the court makes further
    orders in relation to it.

    A confiscation order is an order to the individual to pay an
    amount specified by the court on or before a stipulated date.
    There is no automatic procedure for restrained property to be
    converted immediately for satisfaction of the confiscation
    order.  Therefore, in order to prevent the depletion of the
    restrained funds when a confiscation order takes effect and
    terminates the restraint order, then a charging order is usually
    coupled with the confiscation order.  This means that if at the
    end of the stipulated time the confiscation order is not
    satisfied then further action can be taken against the charged
    property to satisfy the order.

    The Department of Public Prosecution applies for a confiscation
    order and pays this sum to a court or directly to the Accountant
    General's Department.  If the defendant fails to pay within the
    required time, the Department of Public Prosecutions returns to
    court to seek orders that will levy against his property. The
    court can name a receiver to manage the process of levying
    against the property.

    The Minister of Finance has responsibility for the management of
    the seized assets.  Pursuant to Section 55A(3) of POCA, the
    Minister of Justice and the Minister of Finance may authorize
    payments to be made out of the Confiscated Assets Fund, which
    are invested, with earned income returned to the fund.  The
    money can be disbursed for purposes related to law enforcement:
    to investigate suspected cases of drug trafficking, terrorist
    financing and money laundering; to cover costs associated with
    the treatment and rehabilitation of drug addicts;  to cover
    costs associated with the prevention and public education
    concerning drug abuse; to meet the expenses of the Department of
    National Drug Control; to train officials in the effective
    implementation of the provisions of POCA in relation to money
    laundering and in relation to terrorist financing; to satisfy an
    obligation of the Government of Bermuda to a foreign
    jurisdiction in respect of confiscated assets, whether under a
    treaty or arrangement providing for mutual assistance in
    criminal matters or otherwise;  to meet the expenses of the
    National Anti-Money Laundering Committee; to meet the expenses
    of the FIA;  to meet the remuneration and expenses of a receiver
    appointed under POCA or the Anti-Terrorism (Financial and Other
    Measures) Act 2004; to pay compensation or costs awarded under
    POCA or the Anti-Terrorism (Financial and Other Measures) Act
    2004; or to cover costs associated with the administration of
    the Confiscated Assets Fund.  Post cannot make a judgment as to
    the GOB's capacity to manage seized assets.

    ¶36. (51) Yes, the banking community cooperates with enforcement
    efforts to trace funds and seize/freeze bank accounts.

    ¶37. (52) Yes, Bermuda law allows for civil as well as criminal
    forfeiture.

    ¶38. (53) Yes, the Bermuda government enforces existing asset
    seizure and forfeiture laws, and there are adequate police
    powers and resources.  The asset seizure and forfeiture laws are
    set out in the Proceeds of Crime Act 1997, the Anti-Terrorism
    (Financial and Other Measures) Act 2004 (ATFA) and the Terrorism
    (United Nations Measures) (Overseas Territories) Order.   Assets
    can be frozen without delay.

    HAMILTON 00000012  010.15 OF 013

    ¶39. (54) Yes, Bermuda does have an independent national system
    and mechanism for freezing terrorist assets.  The Terrorism
    (United Nations Measures) (Overseas Territories) Order gives the
    Governor power to freeze terrorist assets.   ATFA provides for
    `enabling cash' to be forfeited if it is intended to be used for
    the purposes of terrorism; or is, or represents, property
    obtained through terrorism; or is property earmarked as
    terrorist property.  Cash can be seized by an authorized officer
    ("authorized officer" means a police officer, a customs officer
    or an immigration officer) if he has reasonable grounds for
    suspecting that it is terrorist cash.  An application for the
    forfeiture of the whole or any part of it may be made and the
    court may order the forfeiture if it satisfied that it is
    terrorist cash.

    ¶44. (55) In 2009, $70,096 in cash was forfeited pursuant to the
    Misuse of Drugs Act 1974, with two applications still pending
    hearing.  During that period, confiscation orders made under the
    Proceeds of Crime Act 1997 totaled $104,329; two money
    laundering cases were brought before the courts and are pending
    trial.

    ¶45. (56) Yes, Bermuda has enacted laws for the sharing of seized
    assets with other governments and has negotiated Mutual Legal
    Assistance Treaties and other such agreements to allow for
    effective cooperation in this regard.

    TERRORIST FINANCING

    ¶46. (57) Yes, Bermuda has criminalized the financing of
    terrorism.  The act of terrorism is defined in section 3 of the
    Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA)
    and also the Terrorism (United Nations Measures) (Overseas
    Territories) Order 2001, which the U.K. enacted under it powers
    established by the United Nations Act 1946 and is applicable to
    Bermuda.

    In December 2009, to implement Schedule 7 of the U.K. Counter
    Terrorism Act 2009, the Bermuda Parliament passed the
    Anti-Terrorism (Financial and Other Measures) Amendment Act 2009
    and the Proceeds of Crime (Anti-Money Laundering and Terrorist
    Financing) Regulations 2009.  The act and regulations will
    become effective on January 13, 2010 and are a very high
    priority for Bermuda.  The Minister of Justice will be
    empowered, under certain strictly defined conditions, to give
    directions relating to enhanced due diligence, enhanced ongoing
    monitoring, systematic reporting and limiting/ceasing business.
    The BMA is designated as the supervisory and enforcement
    authority.  The act will also bring non-long term insurance
    companies as potential recipients of Directions for Systematic
    Monitoring and Limit/Cease business only, in respect of the risk
    associated with the proliferation of certain types of weapons.
    Local and cross border wire transfers regulations aim to bring
    Bermuda into compliance with FATF recommendations.

    In relation to the financing of terrorism, pursuant to section 5
    of ATFA and article 3(1) of the Terrorism (United Nations
    Measures)(Overseas Territories) Order, a person commits an
    offence if he invites another to provide money or other
    property, and intends that it should be used, or suspects that
    it may be used, for the purposes of terrorism; receives money or
    other property, and intends that is should be used, or suspects
    that it may be used, for the purposes of terrorism; provides
    money or other property, and knows or suspects that it will or
    may be used for the purposes of terrorism.

    Pursuant to section 6 of ATFA, a person commits an offence
    relating to the use and possession if he uses money or other
    property for the purposes of terrorism or possesses money or
    other property, and intend that it should be used, or suspect
    that it may be used, for the purposes of terrorism.

    Pursuant to section 7 (funding arrangements) of ATFA, a person
    commits an offence if he enters into or becomes concerned in an
    arrangement as a result of which money or other property is made
    available or is to be made available to another, and he knows or
    suspects that it will or may be used for the purposes of
    terrorism.

    The U.K. has extended to Bermuda by Order in Council a number of

    HAMILTON 00000012  011.15 OF 013

    legislative measures to comply with UN requirements.  These
    measures include:  The Terrorism (United Nations Measures)
    (Overseas Territories) Order 2001; the Afghanistan (United
    Nations Sanctions) (Overseas Territories) Order 2001; and the
    Al-Qa'ida and Taliban (United Nations Measures) (Overseas
    Territories) Order 2002 and its 2002 amendments.  The UK has not
    yet extended to Bermuda the Suppression of the Financing of
    Terrorism (Vienna Convention) or the UN Convention against
    Transnational Organized Crime 2000 (Palermo Convention), a
    situation that the IMF said in its 2008 review "should be
    remedied without delay."  Although the GOB notes that the
    provisions of those conventions have largely already been
    incorporated into Bermuda's legislation, the government will
    work with the U.K. in 2010 to officially extend those
    conventions to Bermuda.

    ¶47. (58) Yes, Bermuda has circulated to its financial
    institutions all of the relevant lists relating to terrorist
    organizations/financiers.  Bermuda did not identify, freeze,
    seize and/or forfeit terrorist-related assets in 2009.

    ¶48. (59) Bermuda does not have alternative remittance systems
    such as hawala or hundi or black market exchanges.   Money
    service businesses are required to be licensed by the financial
    services regulator for them to operate within the jurisdiction.
    Bermuda has a declaration/disclosure system in place to address
    cross border cash transactions.

    ¶49. (60) Charities are required to be registered with the
    Registrar General and to file annual accounts.   The Ministry of
    Culture and Social Rehabilitation, the Ministry of Justice and
    the NAMLC are currently undertaking a review of laws and
    regulations related to non-profit organizations to ensure that
    they cannot be misused for financing terrorism.

    CROSS-BORDER TRANSPORTATION OF CURRENCY AND NEGOTIABLE
    INSTRUMENTS

    ¶50. (61) Yes, there are statutory requirements for monitoring
    the cross-border transportation of currency and monetary
    instruments.  In March 2009 Bermuda updated the Revenue Act 1898
    to strengthen the requirements relating to cross border
    transportation of currency and monetary instruments. The
    threshold for reporting is $10,000.  Mandatory declaration forms
    are used for all incoming passengers (regardless of point of
    embarkation) and for outgoing passengers to the U.S.  For
    outgoing passengers to Canada and the U.K. there is a disclosure
    system in place.  Additionally, goods, currency and negotiable
    instruments may be forfeited if not declared or are falsely
    declared.  Penalties for related offenses were increased and
    directors and officers of companies can now be charged.

    In December 2009, Bermuda's Parliament passed The Proceeds of
    Crime (Anti-Money Laundering and Anti-Terrorist Financing)
    Amendment Regulations 2009 authorizing the BMA to oversee wire
    transfers.  The regulations will become effective on January 13,
    ¶2010.  The legislation requires financial institutions to verify
    the accuracy of the information on the payer/originator before
    transferring funds, require financial institutions to retain for
    a period of five years, complete records on the payor/originator
    of the fund transfer, require financial institutions receiving
    wire transfers to maintain effective procedures to detect
    whether complete information on the payor/originator is received
    with the wire transfer and specify how the receiving institution
    should treat transfers with missing or incomplete information.

    ¶51. (62) No, cash declarations are not entered into a database,
    but smuggling reports are.  The information for smuggling
    reports is shared with the BPS and FIA if they pertain to cash.

    INTERNATIONAL COOPERATION

    ¶52. (63) Yes, Bermuda executed its first Tax Information
    Exchange Agreement (TIEA) in 1986 in a treaty between the United
    States, the United Kingdom, and Bermuda.  Bermuda has similar

    HAMILTON 00000012  012.15 OF 013

    arrangements with other jurisdictions.  On January 12, 2009, the
    United States and the GOB signed a Mutual Legal Assistance
    Treaty (MLAT), authorizing authorities in the U.S. and Bermuda
    to request and obtain assistance from each other in criminal
    investigations and prosecutions and related administrative and
    other proceedings.  The MLAT provides for cooperation between
    the U.S. and Bermuda in combating a wide variety of crimes,
    including economic crimes and money laundering, by facilitating
    the collection of evidence needed by authorities in one country
    but located within the other country.

    ¶53. (64) In June 2009, Bermuda moved onto the OECD's "white
    list" with the signing of the minimum required 12 TIEAs.  As of
    December 21, 2009 Bermuda has signed 18 TIEAs with the Aruba,
    Australia, Denmark, Faroe Islands, Finland, France, Germany,
    Greenland, Iceland, Ireland, Japan, Mexico, the Netherlands, New
    Zealand, Norway, Sweden, the United Kingdom and the United
    States.  Bermuda expects to sign additional TIEAs in early 2010
    with Belgium, Canada, Japan, Portugal, and Spain.

    Bermuda is also a member of the Egmont Group of Financial
    Intelligence Units, in which information sharing is implicit. In
    May 2009, the FIA officially replaced the former FIU as the
    member of record in Egmont.  Subsequently, the FIA signed
    Memoranda of Understanding (MOUs) to share AML/ATF information
    and intelligence with Armenia, Australia, Belgium, Canada,
    Indonesia, Korea, Monaco, Montenegro, the Netherlands Antilles,
    Nigeria, the Philippines, Romania, St. Vincent, United Arab
    Emirates, the United Kingdom, and the United States.  Meanwhile,
    the GOB continues to pursue MOUs with other countries.

    The BMA Amendment (No. 3) Act 2004 clarifies the power of the
    BMA to cooperate with other overseas authorities.  Other laws
    also authorize the sharing of information with overseas
    regulators:  the Banks and Deposit Companies Act 1999, the
    Trusts (Regulation of Trust Business) Act 2001 and the
    Investment Business Act 2003.

    ¶54. (65) Yes, Bermuda cooperates well with the United States and
    other governments investigating financial crimes relating to
    narcotics, terrorism, and terrorist financing.

    ¶55. (66) There are no known instances of refusals by the GOB to
    cooperate with foreign governments.

    ¶56. (67)  No, the U.K. has not yet extended to Bermuda the
    Suppression of the Financing of Terrorism (Vienna Convention) or
    the UN Convention against Transnational Organized Crime 2000
    (Palermo Convention), a situation that the International
    Monetary Fund said in its 2007 review "should be remedied
    without delay."  Although the GOB notes that the provisions of
    those conventions have largely already been incorporated into
    Bermuda's legislation, the government will work with the UK in
    2010 to officially extend those conventions to Bermuda.

    The U.K. has extended to Bermuda by Order in Council a number of
    legislative measures to comply with UN requirements.  These
    measures include:  The Terrorism (United Nations Measures)
    (Overseas Territories) Order 2001; the Afghanistan (United
    Nations Sanctions) (Overseas Territories) Order 2001; and the
    Al-Qa'ida and Taliban (United Nations Measures) (Overseas
    Territories) Order 2002 and its 2002 amendments.

    ¶57. (68) Yes, Bermuda strives to adhere to international money
    laundering standards.  Bermuda is a        member of the
    Caribbean Financial Action Task Force, and the FIA is a member
    of the Egmont Group.  Bermuda is also a member of regulatory
    standard-setting bodies for banking, insurance and investment
    business.

    HAMILTON 00000012  013.15 OF 013

    ¶58.  AMCONGEN Hamilton's points of contact are Douglas Boudreau
    (boudreaudr@state.gov) or Astrid Black (blackac@state.gov).SHELTON

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