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Report by the US Department of State – A Headache for Georgian Law Enforcers, National Bank and Commercial Banks

The US Department of State has published a 2018 report on drug control international strategy, where the Georgian case is concerned.

The second part of the report covers money laundering and financial crime, and details  the major part of illegal revenues relates to swindling in bank transactions, cybercrime, and the illegal appropriation of money.

“There is a domestic market for illegal drugs in Georgia, and drugs transit route also crosses this country. The Georgian government cannot control Russian-occupied South Ossetia and Abkhazia, and these territories cannot be monitored. Georgian law enforcers have to pay more attention to exposing connections with organized crime and money laundering. Georgian law enforcers should develop a tactical approach to help monitoring information exchange and cooperation between the corresponding bodies,” the report reads.

Illegal revenues basically come from swindling and cybercrimes.

“Georgia-based banking institutions are used for making money transfers from one jurisdiction to another. Frequently, these transactions are carried out through forged documents or trading information. Georgia-based commercial banks try to attract nonresident depositors, and a lot of offshore companies”, the report reads.

According to economic expert Akaki Tsomaia, this statement by the US Department of State signifies that they have specific evidence and this is an alarming situation. Seemingly, Georgia is considered a country with potential for money laundering. Money legalization in offshore companies is not a rare practice in Georgia, Akaki Tsomaia explained.

For instance, the suspension of Progress Bank. According to behind-the-scenes information, Progress Bank was involved in money laundering schemes. The legalization of illegal money, which was carried out through offshore zones, is a genuine problem, because the US Department of State registered similar cases in its reports, and this means that we have an alarming situation.

I do not rule out that this is a deep-rooted process, and that’s why this case has been mentioned in the report of the US Department of State. There is always fertile ground for illegal revenues in a fragile, developing, unstable country. This problem was always relevant in Georgia, but this problem had been never reported by the US Department of State. And why now? We can suppose that these crimes are lobbied today by government officials in Georgia. Seemingly, the US Department of State has obtained this information and made a similar, strict statement, Tsomaia said.

Financier Temur Basilia says that the US Department of State has provided quite critical, but unbiased appraisals. Regretfully, all these critical assessments have real grounds.

According to the report, various international money transactions are carried out throughout Georgian banking institutions by use of forged documents. The issue also relates to suspicious relations with nonresident depositors and offshore companies, Temur Basilia noted.

“When talking about the banking sector, this criticism refers not only to the National Bank of Georgia (NBG) and the Georgian authorities, but also the owners of Georgian commercial banks. We know that major stakeholders of major Georgian commercial banks are famous international organizations and financial institutions. This means that these major stakeholders represented by major influential international organizations, and cannot or do not control the management of Georgian commercial banks, who, according to the report by the US Department of State, make unlawful transactions.

The silence kept by NBG and the Georgian Banks Association regarding this issue means that they do not have arguments with the relevant accusations. Therefore, the question is: what will the NBG do to dismiss these accusations, and neutralize the criminal element, and will it do anything at all? The same question may be asked of the authorities regarding other critical aspects, Basilia said.

Investors analyze such reports, and similar critical reports cannot persuade them to make investments in this country. Therefore, the NBG and the authorities in general should take bold steps to eradicate the aforementioned problems, as the investors’ confidence depends on these decisions, he said.

Irakli Iashvili asserts that it is not a crime when Georgia-based commercial banks take efforts to attract nonresident depositors, and many offshore companies. In this case, commercial banks should be banned from opening bank accounts to nonresidents, and this is the wrong way, Iashvili noted.

“This is a mechanism for attracting long-term assets. There is nothing criminal in the case of short-term transactions with correct papers, contracts and invoices. This is the practice adopted around the world. However, if the transactions are money laundering, and this is confirmed by evidence, this is another issue. Commercial banks have inspection bodies, and there are international organizations, too and they will definitely react to similar cases.

If commercial banks detect something suspicious, they must notify law enforcement. The US Department of State has included this issue in its report, and this is a signal for Georgian law enforcement to show more attention to factors preventing illegal transactions, and money laundering attempts, Iashvili said.

In general, this report means that there were a lot of transactions, which raised questions at the US Department of State, Iashvili added.

“If they warn us, and they have detected questionable circumstances, supposedly, there are genuine grounds for suspicion. Therefore, we should analyze assessments by the US Department of State with more attention, because these appraisals have an influence on the reputation of Georgia. At the same time, this does not mean that we should cease international transactions”, Iashvili noted.

Businessman, the former top bank manager Lasha Papashvili notes regarding the report by the US Department of State, and says that Georgian law enforcement, the NBG and commercial banks should make conclusions from the part of the report where the Georgian case is analyzed.

“When the US Department of State points to signs of criminality, various government offices should provide the necessary reaction to save the reputation of our country”, Lasha Papashvili noted.


In response to the questions about whether the report accuses top managers of Georgia-based commercial banks with promoting criminal banking transactions, Papashvili noted:

“The report indicates that Georgia is located in a region which is crossed  by international trafficking and narcotrafficking routes. This is a global problem, and the USA knows this issue very well. We should make a corresponding analysis of this report if we want to shape a genuine banking system hub in the region and make the country an arbitration center”, Papashvili said.