Financial Crime World

Azerbaijan Downgraded in MONEYVAL Report for Risk-Based Approach to Anti-Money Laundering

Introduction

The Council of Europe’s anti-money laundering body, MONEYVAL, has released its latest evaluation report on Azerbaijan, downgrading the country from “compliant” to “partially compliant” with regards to its approach to regulating nonprofit organizations (NPOs) to prevent terrorist financing.

Previous Rating and Concerns

Azerbaijan was previously rated “C” for compliance with Financial Action Task Force (FATF) Recommendation 8, which covers the regulation of NPOs. However, the latest evaluation indicates that while some steps have been taken towards meeting the requirements, there are areas that need improvement.

Areas of Concern

The report highlights several concerns, including:

  • Lack of Risk-Based Approach: Azerbaijan lacks a risk-based approach in supervising NPOs, with no measures suggested to address identified vulnerabilities.
  • Legislative Gaps: The country’s legislation differentiates between Non-Governmental Organizations (NGOs) and religious organizations, with some measures promoting accountability but no policies in place to enhance public confidence or protect NPOs from terrorist financing abuse.
  • Ineffective Enforcement: Azerbaijan applies a uniform approach to supervising NPOs, enforces financial reporting requirements with sanctions available, but these are deemed ineffective.
  • Gaps in Information Sharing and International Cooperation: There are gaps in information sharing, international cooperation, and response to suspicions of terrorist financing involvement.
  • Lack of Specific Procedures: Azerbaijan lacks specific procedures for responding to international requests regarding NPOs.

Recommendations

The report calls on the authorities to:

  • Apply preventive, targeted, and proportionate risk mitigation measures
  • Ensure that legitimate NPO activities are not disrupted or discouraged
  • Implement a risk-based approach in regulating NPOs, including:
    • Sustained outreach concerning terrorist financing issues
    • Targeted risk-based supervision or monitoring
    • Effective information gathering and investigation
    • An effective capacity to respond to international requests for information about an NPO of concern

Implications

The downgrade is likely to raise concerns among civil society organizations and donors operating in the country, who will be looking closely at how Azerbaijan responds to MONEYVAL’s recommendations. The report highlights several deficiencies, including:

  • Absence of risk-based supervision
  • Policies to bolster public trust in NPO management
  • Limited educational programs to increase awareness of terrorist financing issues among NPOs and donors

Response and Monitoring

Azerbaijan has been encouraged by MONEYVAL to take swift action to address these concerns and improve its approach to regulating NPOs. The country’s response will be closely monitored by the international community as it seeks to prevent the misuse of its nonprofit sector for terrorist financing purposes.