Uruguay is a money laundering country of primary concern. While the level of domestic money laundering and related crimes is considered relatively low, Uruguay’s financial system nevertheless remains vulnerable to money laundering and terrorist financing risks associated with international sources that may be involved in Uruguay’s cross-border financial operations. Officials from the Uruguayan police and judiciary assess that there is a growing presence of Mexican and Colombian cartels in the Southern Cone and fear they will begin operating in earnest in Uruguay. Drug dealers are slowly starting to participate in other illicit activities like car theft and trafficking in persons, according to the police. The Government of Uruguay (GOU) acknowledges that there is also a risk of money laundering in the real estate sector and in the sports industry, and seeks to develop new regulations soon to address this emerging vulnerability.

In the past, Uruguay’s strict bank secrecy laws, liberal currency exchange and capital mobility regulations, and overall economic stability made it a regional financial center (mainly for Argentine depositors) vulnerable to money laundering, though the extent and the nature of suspicious financial transactions have been unclear. In recent years, however, Uruguay has made significant efforts to expand the reach and strength of its anti-money laundering and counterterrorist financing (AML/CTF) regime, including by enacting several laws to criminalize money laundering and terrorist financing. These recent developments have led to the prosecution of 25 individuals; new legislation and enforcement efforts also resulted in the freezing of $1.5 million in assets, the detection of $1.7 million in undeclared cross-border cash and other financial instrument movements, and increases in suspicious activities reports and information requests about international financial activities.

One government owned commercial bank (which has roughly half of total deposits and credits), 14 foreign-owned banks, six financial houses, six offshore banks, and 21 representative offices of foreign banks comprise Uruguay’s financial sector. The six offshore banks are subject to the same laws and regulations as local banks, with the GOU requiring them to be licensed through a formal process that includes a background investigation. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank. The financial private sector, most of which is foreign-owned, has developed self-regulatory measures against money laundering, such as the Codes of Conduct approved by the Association of Banks and the Chamber of Financial Entities (1997), the Association of Exchange Houses (2001), and the Securities Market (2002).

There are twelve free trade zones located throughout the country. While most are dedicated almost exclusively to warehousing, three host a wide variety of tenants performing a wide range of services, including financial services. Two free trade zones were created exclusively for the development of the paper and pulp industry. Some of the warehouse-style free trade zones have been used as transit points for containers of counterfeit goods bound for Brazil and Paraguay. There are nine casinos, eight of which are government owned, and 26 premises with slot machines (although media reports indicate a problem with businesses running unregistered slot machines). Four of the eight government-owned casinos are run by the state, and the other four by private sector concessions. Fiduciary companies called SAFIs (Anonymous Societies for Financial Investment) are also thought to be a convenient conduit for illegal money transactions. As of January 1, 2006, all SAFIs were required to provide the names of their directors to the Finance Ministry. In addition, the GOU implemented a comprehensive tax reform law in July 2007, which prohibited the establishment of new SAFIs as of that date. All existing SAFIs are to be eliminated by 2010. The tax reform law also implemented a personal income tax for the first time in Uruguay.

Uruguay achieved several notable actions against financial crime in 2008. Parliament passed laws 18.362 and 18.390 in October 2008, which created three courts and two prosecutor’s offices dedicated to prosecuting organized crime. These new offices will deal with money laundering, terrorism financing, banking fraud, tax fraud, counterfeiting, as well as drug trafficking, corruption, trafficking of weapons, child prostitution, among other crimes.

In the past several years, 25 individuals were prosecuted for money laundering; 22 were related to drugs and three to sexual exploitation. Uruguay’s first arrest and prosecution for money laundering (under Law 17.835) occurred in October 2005 and resulted in the conviction of the offender. In another ongoing high-profile case, 14 people were indicted in September 2006 for a money laundering charge tied to the largest cocaine seizure in Uruguay’s history; in June 2008, the kingpin was convicted. This case has significantly invigorated the GOU’s efforts to fight money laundering and to push for increased reporting of suspicious activities. Other cases involving another large cocaine seizure and proceeds from trafficking in 2007 and undeclared transit of gold from Brazil in 2008 are also under investigation. There have been no reported cases or investigations related to terrorist financing.

Unlike neighboring Argentina and Brazil, tax evasion is not an offense in Uruguay, which in practice limits cooperation possibilities because the local Financial Intelligence Unit’s Financial Information and Analysis Unit (UIAF) cannot share tax-related information with its counterparts. Nevertheless, the UIAF is becoming increasingly active in cooperation with counterpart financial units and judiciaries from other countries. From 2006 to 2008, the number of information requests received by the UIAF rose from 25 to 50 (mainly from Argentina and Brazil), and the number of information requests issued by the UIAF rose from five to 16. Information requests received by the UIAF from the judiciary also rose from 10 to 26 in the same period.

In Uruguay, money laundering is treated as an autonomous criminal offense, separate from the underlying crimes, which extends, under certain circumstances, to offenses committed in other countries. Money laundering is criminalized under Law 17.343 of 2001 and Law 17.835 of 2004. The courts have the power to seize and confiscate property, products or financial instruments linked to money laundering activities. Law 17.343 identifies money laundering predicate offenses to include narcotics trafficking; corruption; terrorism; smuggling (valued more than $20,000); illegal trafficking in weapons, explosives and ammunition; trafficking in human organs, tissues, and medications; trafficking in human beings; extortion; kidnapping; bribery; trafficking in nuclear and toxic substances; and illegal trafficking in animals or antiques.

Four government bodies are responsible for coordinating GOU efforts to combat money laundering: (1) the UIAF, (2) the National Anti-Drug Secretariat, (3) the Coordination Commission for Anti-Money Laundering and Terrorism Financing, and (4) the National Internal Audit. Decree 245/007 (passed July 2008), transformed the Center for Training on Money Laundering (CECPLA) into the Coordination Commission for Anti-Money Laundering and Terrorism Financing. The Commission works under the National Anti-Drug Secretariat, which is the senior authority for anti-money laundering policy and is headed by the President’s Deputy Chief of Staff. The Commission’s board is composed of government entities involved in anti-money laundering efforts: the head of the UIAF and the Ministries of Education (via prosecutors), of the Interior (via the police force), Defense (via the Naval Prefecture), and Economy and Finance. The Director of the Commission serves as coordinator for all government entities involved and sets general policy guidelines. The Director defines and implements GOU policies, in coordination with the Finance Ministry and the UIAF. The UIAF is responsible for supervising all financial institutions and the National Internal Audit Office (AIN) is responsible for overseeing all nonfinancial institutions, such as casinos and real estate firms.

The UIAF is a directorate of the Central Bank and is structured in three units: information and analysis, exchange houses, and money laundering control. GOU and private sector entities cannot refuse to provide information to the UIAF on the grounds of banking, professional or tax secrecies. Law 17.835 expands the realm of entities required to file Suspicious Activity Reports (SARs), making reporting of such suspicious financial activities a legal obligation, and conferring upon the UIAF the authority to request additional related information.

Law 18.401 (from October 2008) placed the UIAF under the Central Bank’s Superintendent of Financial Services, and tasked it with several new activities that enhance its power as a mechanism to stop money laundering. While severely understaffed in the past, the UIAF achieved its goal in 2008 of establishing a staff of 19 people. Through funding from the Organization of American States (OAS), the UIAF is updating its hardware and software systems in order to receive SARs electronically, develop electronic early-alarm systems for SARs, and improve control and analysis of its lists. The project is part of the Central Bank’s strategic plan and is expected to be finished this year.

The UIAF has circulated to financial institutions the list of individuals and entities included in UN 1267 Sanctions Committee and published it on its web page. It also works with lists from the Department of Treasury’s Office of Foreign Assets Control (OFAC) and the European Union and is exploring options to purchase commercial databases with global blacklists. The UIAF is also working on a Politically Exposed Persons (PEPs) list that will also be published on their website.

Law 17.835 significantly strengthens the GOU’s anti-money laundering regime by including specific provisions related to the financing of terrorism and to the freezing of assets linked to terrorist organizations, as well as provisions for undercover operations and controlled deliveries. Under this law, terrorist financing is a separate, autonomous offense that can be prosecuted from other terrorism-related crimes. The law, however, suffers from a narrow definition, which is limited to the financing of terrorists or terrorist organizations where specific terrorist acts have been committed or are being planned. As a result, the law does not specifically cover the provision or collection of funds by known terrorists or terrorist organizations for purposes other than terrorist acts. Beyond criminalizing terrorist financing, Law 17.835 provides the courts with the power to seize and confiscate property, products or financial instruments linked to money laundering activities. Despite this power, the way real estate is registered complicates efforts to track money laundering in this sector, especially in the partially foreign-owned tourist sector. The UIAF and other government agencies must obtain a judicial order to have access to the name of titleholders. The GOU is in the process of implementing a national computerized registry that will facilitate the UIAF’s access to titleholders’ names. As of November 2008, the project is at an advanced stage of implementation and its completion target date is December 2008. The UIAF is already using the loaded data for investigation purposes. In 2007, the UIAF froze assets for 72 hours in three occasions, for a total of $1.5 million.

Under Law 17.835, all obligated entities must implement anti-money laundering policies, such as thoroughly identifying customers, recording transactions more than $10,000 in internal databases, and reporting suspicious transactions to the UIAF. This obligation extends to all financial intermediaries, including banks, currency exchange houses, stockbrokers, insurance companies, casinos, art dealers, and real estate and fiduciary companies. Law 17.835 also extended reporting requirements to all persons entering or exiting Uruguay with more than $10,000 in cash or in monetary instruments. This measure has resulted in the detection of over $1.7 million in about 20 undeclared cross-border movements since the declaration requirement entered into force in December 2006. The GOU imposes a fine of 30 percent on all undeclared funds. Since all movements were detected at one single customs office, and given Uruguay’s porous borders, the GOU suspects that many more movements are passing undetected. Lawyers, accountants, and other nonbanking professionals that habitually carry out financial transactions or manage commercial companies on behalf of third parties are also required to identify customers whose transactions exceed $15,000 and report suspicious activities of any amount.

Implementing regulations have been issued by the Central Bank for all entities it supervises (banks, currency exchange houses, stockbrokers, and insurance companies), and are being issued by the Ministry of Economy and Finance for all other reporting entities. On November 26, 2007, the Central Bank issued Circular 1.978, which requires financial intermediary institutions, exchange houses, credit administration companies and correspondent financial institutions to implement detailed anti-money laundering and counterterrorist financing policies. This circular mandates financial intermediaries to report conversion of foreign exchange or precious metals over $10,000 into bank checks, deposits or other liquid instruments; conversion of foreign exchange or precious metals over $10,000 into cash; cash withdrawals over $10,000; and wire transfers over $ 1,000. As of November 2008, the Central Bank’s Capital Market Division is considering requesting reports of transactions with securities over $10,000. Circular 1.978 requires these institutions to pay special attention to business with PEPs; persons, companies, and financial institutions from countries that are not members of the Financial Action Task Force (FATF) or a FATF-style regional body; and persons, companies, and financial institutions from countries that are subject to FATF special measures for failure to comply with the FATF Recommendations.

Obligated entities are mandated to know their customers on a permanent basis, keep adequate records and report suspicious activities to the UIAF. Compliance by reporting entities increased from 94 SARs in all of 2006 to 174 SARs in 2007 and 152 in the first half of 2008. SARs are largely concentrated within the financial system, with banks accounting for 70 percent of total reports and exchange houses for the remaining 30 percent. Other obligated entities, like casinos or real estate agents, have issued few SARs. Sixteen cases from SARs have been filed before the Judiciary but none have been prosecuted. The recent high profile money laundering cases have provided a boost to the money laundering issue and the Central Bank’s efforts.

The GOU states that safeguarding the financial sector from money laundering is a priority, and Uruguay remains active in international anti-money laundering efforts. Uruguay is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GOU is also a member of the OAS Inter-American Drug Abuse Control Commission (CICAD) Experts Group to Control Money Laundering. Uruguay and the United States are parties to a mutual legal assistance treaty that entered into force in 1994. Uruguay is also a founding member of the Financial Action Task Force for South America (GAFISUD). Since early 2005, the former director of the GOU’s Center for Training on Money Laundering Issues (CECPLA) has served as GAFISUD Executive Secretary, and has offered the services of Uruguay’s anti-money laundering training center to GAFISUD.

Several notable developments that will strengthen Uruguay’s anti-money laundering regime are expected in 2009. As of November 2008, the GOU has been working on legislation that would incorporate new money laundering predicate offenses to include prostitution, child pornography, intellectual property, trademark offenses, misappropriation, fraudulent bankruptcy, and counterfeiting of notes. Such legislation is also expected to identify new obligated entities that will be subject to Uruguay’s anti-money laundering regime. New types of financial entities, including firms that provide services of leasing and custody of safety boxes, professional trust funds, professional advisors on investments, transportation of assets and wiring services, will be supervised by the UIAF. Various nonfinancial entities, including notaries, auctioneers, free zone exploiters, real estate brokers and other real estate intermediaries, will be supervised by the AIN.

The 2008 rendering of accounts (Law 18.362) granted the AIN additional funding of about $1 million for staffing needs, but the agency would need further leverage to achieve its new tasks. Pending legislation also provides for new investigation techniques (such as undercover and collaborator agents), new witness protection systems, and new measures to facilitate and speed up the seizure of assets. The UIAF plans to submit its application for Egmont Group membership, which is being sponsored by Brazil, in 2009. The GOU will await parliamentary approval of the impending legislation before applying, since that draft legislation incorporates the possibility of exchanging information to fight terrorism financing, which had been involuntarily left out of previous provisions.

The GOU has taken significant steps over the past few years to strengthen its anti-money laundering and counterterrorist financing regime. To continue its recent progress, Uruguay should expedite the passage of pending legislation and continue its implementation and enforcement of recently enacted legislation. The GOU’s UIAF should prioritize efforts to gain membership in the Egmont Group; such a step would enable it to share financial information with other FIUs globally. The GOU should exert greater vigilance in detecting undeclared and cross-border movements of cash and other monetary instruments, as well as enhanced regulating and monitoring of its real estate sector and sports industries.

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