Financial Crime World

Azerbaijan’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regime: Assessment and Recommendations

Risk Level

Azerbaijan is considered a high-risk country for money laundering and terrorism financing due to its strategic location as a transit country for drug trafficking. The National Risk Assessment (NRA) has identified domestic corruption, tax-related crimes, and drug smuggling as significant threats.

  • High-Risk Areas:
    • Drug trafficking
    • Domestic corruption
    • Tax-related crimes
    • Drug smuggling
  • Terrorism Financing (TF) Risk Level: Medium-high

Compliance with International Standards

Azerbaijan has made notable progress in complying with the Financial Action Task Force’s (FATF) six main Recommendations. However, technical improvements are still necessary to enhance supervision, sanctions, and transparency of legal persons.

  • Compliance Status:
    • Supervision: Needs improvement
    • Sanctions: Needs improvement
    • Transparency of legal persons: Needs improvement

Effectiveness of AML/CFT Regime

The Azerbaijani AML/CFT system is uneven in its effectiveness. While international cooperation has yielded satisfactory outcomes, there are areas that require significant improvement.

  • Effectiveness:
    • International cooperation: Satisfactory
    • Use of financial intelligence and other information: Needs major improvements

Coordination and Policy Setting

Azerbaijan’s Coordination Council is well-equipped to conduct national risk assessments, prepare action plans, and draft laws. However, operational-level cooperation among agencies could be enhanced.

  • Coordination Council:
    • Strengths: Range of expertise, beneficial for national risk assessments, action plans, and law drafting
    • Weaknesses: Limited operational-level cooperation

Financial Intelligence and ML Investigations

Law enforcement agencies (LEAs) gather financial intelligence during independent investigations on predicate crimes. However, the use of the Financial Monitoring System (FMS) is limited due to low-quality Suspicious Transaction Reports (STRs), varying LEA appetite, and limited understanding of FMS functionality.

  • Financial Intelligence:
    • Gathers own financial intelligence
    • Limited use of FMS due to:
      • Low-quality STRs
      • Varying LEA appetite
      • Limited understanding of FMS functionality

Conclusion

While Azerbaijan has made commendable progress in complying with international AML/CFT standards, there are areas that require improvement. The report highlights the need for technical improvements in supervision, sanctions, and transparency of legal persons. Additionally, enhancements to operational-level cooperation and the effective use of financial intelligence are necessary to achieve full effectiveness in the Azerbaijani AML/CFT regime.