UAE: 2003-2004 INTERNATIONAL NARCOTICS

UNCLAS SECTION 01 OF 11 ABU DHABI 005380

SIPDIS

DEPT FOR INL AND NEA/ARP
ISLAMABAD FOR DEA
JUSTICE FOR OIA, AFMLS, AND NDDS
TREASURY FOR FINCEN
DEA FOR OILS AND OFFICE OF DIVERSION CONTROL

E.O. 12958: N/A
TAGS: SNAR EFIN TC
SUBJECT: UAE: 2003-2004 INTERNATIONAL NARCOTICS
CONTROL STRATEGY REPORT

REFS: A) STATE 324347 B) STATE 328024


PART I. Summary:

Although not a narcotics producing nation, the UAE is
believed to be a transshipment point for traffickers
moving illegal drugs from the major drug-producing
countries, including Afghanistan, Iran, Pakistan, and
India, westward. Frequent reports of seizures of
illegal drugs in the UAE during the past year
underscore this conclusion, although most seizures have
been of "soft" drugs like hashish, not "hard" drugs
like heroin. News stories about drug smuggling,
dealing, and usage were reported in the local press in

2003. Besides the country's general laissez-faire
attitude toward trade -- although not drugs -- there
are several other factors that lend the UAE to this
role of way-station, including its proximity to major
drug cultivation regions in South Asia; a long (700
kilometers) coastline; and relative affluence among the
local population.

Published statistics on narcotics seizures and domestic
addiction reveal a growing drug problem among UAE and
third-country nationals, which while not significant by
American standards, is notable given the country's
harsh drug laws. A Ministry of Health report in late
1998 asserts that there were approximately 12,500 drug
addicts in the country of 3.1 million people.

All seven emirates that comprise the UAE sponsored a
variety of public activities with an anti-drugs theme
during International Drug Awareness Day in June. The
Ministry of Interior's Federal Higher Anti-Drugs
Committee is tasked with coordinating drug enforcement
efforts for the seven emirates, as well as executing
the country's anti-drug strategy. The UAEG Government
(UAEG) is committed to the fight against international
narcotics trafficking and narcotics abuse and is a
signatory to the 1988 UN Drug Convention.

The UAEG has sought to crackdown on potential
vulnerabilities in the financial markets and has
provided outstanding cooperation in the international
effort to prevent money laundering, particularly by
terrorists. The UAEG implemented a law to criminalize
money laundering, to include terrorist financing, in
January 2002. End summary.


PART II. Status Of Country:

A major regional financial center and hub for
commercial shipping and trade, the UAE is a
transshipment point for illegal narcotics from the
drug-cultivating regions of south and southwest Asia,
to Europe and the United States. Illicit narcotics
originating from these points have reached the United
States, although Western Europe is the principal market
for these drugs.

Statistics on drug-related cases released by the UAEG
indicate that the majority of arrests for illegal
trafficking occur in the northern emirates. Factors
that contribute to the prominence of the northern
emirates are the emergence of Dubai and Sharjah as
regional centers in the transportation of passengers
and cargo, a porous land border with Oman, and the fact
that a number of ports in the UAE are de facto "free
ports" -- transshipped cargo are not subject to
inspection, as are other goods that enter the country.

To mark the occasion of International Anti-Narcotics
Day on June 26, the UAEG released a report outlining
the drug problem in the UAE. The report noted that the
majority of UAE drug users take their first dose
abroad, primarily because of peer pressure. Statistics
reveal that 75 percent of drug users in the UAE prefer
hashish, 13 percent use heroin, while 6 percent use
morphine. The report illustrates a clear relationship
between drug abuse and level of education -- 75 percent
of arrested drug users in 2002 were high school
graduates, but only 2 percent were university
graduates.

The UAE's Federal Supreme Court made an important
ruling in 2003 regarding proof that drug-offenders
actually consume drugs in the UAE before they can be
prosecuted. The Supreme Court decided that UAE courts
could not prosecute drug-users if the consumption took
place in another country. A positive blood test for
drugs is considered evidence of consumption, but does
not determine whether the drug-taking occurred in the
UAE or abroad. The Supreme Court affirmed the legal
principle in September after a GCC citizen arrested in
a hotel room in Ajman tested positive for drugs, but
argued that he had consumed the drugs abroad and was
not liable under UAE law.

The United Nations selected the UAE in 2003 to sit on
the Economic and Social Council's Anti-Narcotics Panel
for a four-year term. The 53-member panel is
responsible for drafting international anti-drug
agreements, assisting the Council with the
implementation of these agreements, and providing
recommendations on international narcotic control rules
and regulations. The United Nations also acknowledged
the Emirate of Dubai's outstanding achievements in
combating the flow of drugs through its territory in

2003.

The UAE increased cooperation with neighboring
countries in 2003, and focused on expanding law
enforcement agreements with South Asian drug-producing
countries -- including Pakistan, Iran and India. The
UAE signed a landmark anti-narcotics agreement with
Iran in 2003 providing for cooperation against
production, distribution and smuggling of illicit drugs
across the UAE-Iran sea border. Press reports note
that UAE and Iranian border forces will work together
to identify smuggling routes, and jointly conduct some
counter-narcotics training in 2004. UAE police
attended a series of UN-sponsored anti-narcotics
training in Iran in 2003.

UAE authorities continue to participate in
international anti-drug fora. The UAEG has been
receptive to State Department, DEA, U.S. Coast Guard,
and other agency-sponsored training on money
laundering, drug education, treatment, and prevention
programs.

Organized crime is not a major security threat in the
UAE, but the very public assassination of an infamous
Indian gangster and suspected drug-runner in Dubai in
January forced the UAE authorities to acknowledge the
existence of Mafioso in the UAE. Further anecdotal
evidence suggests that a Russian mafia is growing
increasingly influential in prostitution and the
narcotics trade. In 2003, UAE authorities worked to
dismantle the activities of Indian and Russian gangs,
and extradited a number of henchmen back to their
native countries to stand trial.


PART III. Country Actions Against Drugs:

--------------
23.1. Policy Initiatives
--------------

The UAE continued in 2003 to advance its national drug
strategy based on intensifying security at the
country's air and sea ports and patrols along the
coastline, reducing demand of illegal drugs through
educational campaigns, enforcing harsh penalties, and
rehabilitating drug addicts. The UAEG is studying a
proposal to establish a federal General Directorate to
replace the existing federal committee for fighting
drugs. This reorganization, if approved, would mean
additional manpower and a larger budget to wage the war
on drugs.

Other initiatives that remain in place include the
continued training of the UAE's anti-narcotics units
and the formation of special units for maritime anti-
drug operations; the establishment of laws to better
monitor precursor chemicals; and the enhancement of
cooperation with UNDCP and countries expert in anti-
drug efforts.

Ongoing efforts include public statements by senior UAE
officials, including the Commandant General of Dubai
Police Dhahi Khalfan Tamim, who urged the UAEG to fight
drug traffickers with the same intensity the USG is
fighting terrorism. He has described narcotics in the
UAE as "our deadliest foe." The UAEG has focused on
designing programs to ensure that the unemployed and
those released from prison are provided jobs and
receive incentives through the Marriage Fund to lead
stable family-oriented lives.

The emirate-level customs authorities in the UAE have
worked during the last year to improve their abilities
to identify and apprehend drug smugglers at the UAE
borders. Fujairah Customs Department and Abu Dhabi
Customs Department sponsored a five-day training course
in March on the evaluation and inspection of prohibited
items, including drugs.

Punishment for drug offenses is severe; a 1995 law
stipulates capital punishment as the penalty for drug
trafficking. No executions, however, have ever taken
place, and sentences usually are commuted to life
imprisonment. In November, the Dubai Supreme Court
handed a death sentence to two of six drug smugglers
who set fire to a boat containing cannabis, as the
Anti-Narcotics Squad approached them off the Dubai
coast. The rest of the gang received life sentences.
According to police, the six smugglers were carrying
more than 800 kilos of cannabis on board their boat.

--------------
23.2. Accomplishments
--------------


A. Illicit cultivation -- No local cultivation.


B. Production -- No local production.


C. Distribution -- Several high-profile seizures in
2003 indicate that UAE authorities continue to take
seriously their responsibility to interdict drug
smuggling and distribution. In June, Dubai authorities
seized a shipment of 350 kilos of opium from a dhow
belonging to an Iranian trader. International news
wire services reported the event as "the largest ever"
seizure of opium in the UAE. (See 03 Dubai 4220 for
more information on this seizure.) As of mid-2003, 525
people had been arrested in the UAE on drug-related
charges.


D. Sale, transport, and financing -- Local press
reports the street value of one kilogram of Pakistani
hashish to be an approximate 5,000 dirhams (USD 1,362)
in Abu Dhabi and about 4,500 dirhams (USD 1,226) in
Dubai. The price is said to be highest in Abu Dhabi
and Dubai because the customer base in these two
emirates tends to be more affluent.


E. Money laundering -- See section VI.


F. Asset seizure -- See section VI.


G. Extradition -- The United States does not and is
unlikely to have in the foreseeable future an
extradition treaty with the UAE. Renditions however
are possible and are handled on a case-by-case basis.


H. Mutual Legal Assistance -- The United States and
the UAE continue to share information on exchanging
records in connection with terrorist financing and
other money-laundering cases on an ad hoc basis; we
currently are negotiating, and the UAE has commented
on, a draft MLAT treaty that would codify such
cooperation.

I. Law enforcement and drug-transit cooperation -- The
UAEG cooperates extensively with U.S. law enforcement
on a case-by-case basis. In light of UAE connections
to the terrorist attacks on Washington, New York and
Pennsylvania on 9/11 (two of the 9/11 hijackers were
UAE nationals, and terrorist funding for the 9/11
attacks moved through financial institutions based in
the Emirates),this cooperation has intensified
significantly and become much broader and deeper.

In 2002, the FBI partnered with the Dubai police in the
Middle East Law Enforcement Training Center to offer
training to UAE and Gulf Cooperation Council (GCC) law
enforcement agencies alike as part of an ongoing five-
year effort. The FBI sponsored continuing training in
drug investigations, money laundering, and other
coursework that assists in the combating of illicit
drugs in 2003.


J. Precursor chemical control -- In 2003, the UAEG
began registration and inspection of chemical firms in
preparation for implementation of the Chemical Weapons
Convention (CWC). The National Chemical Weapons
Committee (established last year under the aegis of the
Ministry of Foreign Affairs) tasked the UAE military to
register all chemical companies and establish a base
line of firms that legitimately use certain controlled
chemicals. Firms are required to indicate whether they
import, export, or manufacture any of the chemicals on
a set list of controlled substances. The military also
inspects firms to ensure the veracity of these reports.
Formal domestic legislation on chemical controls is
still pending, and it is not clear whether firms that
transship chemicals (or re-export them via the free
zones) would be subject to the registration
requirements.


K. Demand reduction -- The focus of the UAEG's
domestic program is to reduce demand through public
awareness campaigns directed at young people and the
establishment of rehabilitation centers. UAE officials
believe that adherence to Muslim religious mores as
well as imposing severe prison sentences for
individuals convicted of drug offenses are an effective
deterrent to narcotics abuse.

--------------
23.3. Law Enforcement Efforts
--------------

In 2003, the UAE Ministry of Interior established a
countrywide database that is accessible to emirate-
level police departments. This is a major step forward
in coordinating narcotics-related information
throughout the UAE.

UAE authorities acknowledge that narcotics consumption
is an increasing problem among the local population.
Government statistics reveal that the number of arrests
in drugs-related cases surged from 1,210 in 2001 to 1,
603 in 2002. In Dubai alone, 976 narcotics cases were
recorded last year. Five hundred and sixty people were
arrested for distributing drugs. Of the 416 people
arrested for drug use, 244 were UAE citizens -- the
majority of whom were youths.

An affluent country, the UAE has established an
extensive treatment and rehabilitation program for its
citizens. There is a rehab center in Abu Dhabi, two in
Dubai, and one each in Ajman and Sharjah for those
identified as addicts. In accordance with federal law
no. 1511995, UAE nationals who are addicted can present
themselves to the police or a rehabilitation center and
be exempted from criminal prosecution. Those nationals
who do not turn themselves into local authorities are
referred to the courts for prosecution. Third-country
nationals or "guest workers," who make up approximately
80 percent of the UAE's population, generally receive
prison sentences upon conviction of narcotics offenses
and are deported upon completing their sentences.

--------------
23.4. Corruption
--------------
UAE officials aggressively pursue and arrest
individuals involved in illegal narcotics trafficking
and/or abuse. There is no evidence that corruption of
public officials is a systemic problem; however, a UAE
Central Bank official was arrested in November for
embezzling 4.1 million dirhams (USD 1.1 million) and
sentenced to seven years in prison. Press reports
indicate that the defendant used the stolen funds to
buy cars, land, buildings, and restaurants in the GCC.

There is no evidence that the UAE Government or any UAE
official engages in, encourages, or facilitates the
illicit production and distribution of illegal drugs or
the laundering of proceeds from illegal drug
transactions.

-------------- --------------
-
23.5. Agreements And Treaties (With The U.S. And
Others)
-------------- --------------
-


A. No extradition or Mutual Legal Assistance treaties
(MLAT) exist between the United States and the UAE,
although the two countries are in the process of
negotiating an MLAT.


B. The UAE is party to the 1988 UN Drug Convention and
all other UN agreements aimed at fighting drug
trafficking.


C. The UAE is party to other multilateral or bilateral
counter-narcotics conventions, including agreements
with Iran, Pakistan, and India. The UAEG has also
signed a number of memoranda of understanding with
other governments, including the United States and the
United Kingdom.

--------------
23.6. Cultivation/Production
--------------

There is no evidence of drug cultivation and/or
production in the UAE.

--------------
23.7. Drug Flow/Transit
--------------

Press reports of several seizures of large quantities
of illegal drugs by UAE authorities during the past
year indicate that narcotics smuggling from south and
southwest Asia continues to Europe and -- to a
significantly lesser degree -- the United States via
the UAE. Hashish, heroin, and opium shipments
originate in Pakistan, Afghanistan, and Iran and are
smuggled in cargo containers, via small vessels and
powerboats, and/or sent overland via Oman.

The UAE, and Dubai in particular, is a major regional
transportation and shipping hub. High volumes render
the UAE vulnerable to exploitation by narcotics
traffickers. UAE authorities recognize that the number
of human carriers of illicit narcotics transiting local
airports is also on the rise. Dubai police foiled 83
attempts to smuggle drugs through Dubai International
Airport in 2002. The police also caught a number of
traffickers trying to smuggle drugs over the UAE land
border by truck and horseback.

Recognizing the need for increased monitoring at its
commercial shipping ports, airports, and borders, the
UAEG is making an effort to tighten inspections of
cargo containers as well as passengers transiting the
UAE. Customs officials and inspectors received
specialized training on ferreting out prohibited items
from DHS and Commerce's Bureau of Industrial Security
in December 2003. Customs officials randomly search
containers and follow-up leads of suspicious cargo.
Dubai Ports Authority purchased state-of-the-art
equipment for rapid, thorough searches of shipping
containers and vehicles.

--------------
23.8. Domestic Programs (Demand Reduction)
--------------

The focus of the UAEG's domestic program is to reduce
demand through public awareness campaigns directed at
young people and rehabilitation centers. Most
recently, senior government officials in Al-Ain, a
number of hospitals, and the local police sponsored a
10-day festival called "Decision is Yours," to inform
local school children of the dangers of drugs and AIDS.

In August, Abu Dhabi Police launched a two-week
intensive campaign to curb the use and distribution of
illicit drugs. The roving exhibition of slogans,
posters, and pamphlets visited police stations and
schools to raise awareness of the penalties for using
drugs, and encourage youngsters to report any cases of
drug abuse to the authorities.

Most UAE nationals arrested on drug charges are placed
in one of the UAE's drug treatment programs. They
undergo a two-year drug rehabilitation program, which
includes family counseling/therapy. The Emirate of Ras
Al-Khaimah announced in June that it would require
former addicts to undergo a weekly blood test for an
additional two years upon completing the drug treatment
program. Ras Al-Khaimah authorities discovered that
some resume taking drugs, even after completing the
rehabilitation program. The police issue a search
warrant for the drug addict if he or she misses a
scheduled blood test.


PART IV. U.S. Policy Initiatives And Programs

-------------- ---
24.1. U.S. Policy Initiatives (Strategies, Etc.)
-------------- ---

The U.S. Mission to the UAE seeks continued and
enhanced participation by the UAEG in programs dealing
with narcotics trafficking, precursor chemicals
diversion, border/export control, and money laundering.
The U.S. Embassy in Abu Dhabi and the Consulate in
Dubai in 2003 organized, in conjunction with
Washington-based agencies, additional training
initiatives related to money laundering, border/export
control, and the investigation and prosecution of
related crimes.

Among these initiatives is the FBI-Dubai police
partnership in the Middle East Law Enforcement Training
Center, which provides training to UAE as well as GCC
law enforcement agencies. The Center's training
schedule for 2003 included segments on drug
investigations and transnational crimes, both of which
aid the UAE in combating illegal drugs. Additional
USG-sponsored training and exchange programs on export
controls, money laundering, prosecutorial assistance,
banking examination, and drug interdiction are
scheduled for 2004.

--------------
24.2. Bilateral Cooperation (Accomplishments)
--------------

Although the UAE has no bilateral narcotics agreement
with the United States, the UAE authorities cooperate
with U.S. investigative efforts to the full extent
possible in accordance with UAE law. UAE officials
have actively engaged with DEA and FBI personnel in
exchanging information during this past year.

--------------
24.3. Road Ahead
--------------
The U.S. Mission in the UAE will continue to support
the UAEG's efforts to devise and employ bilateral/
multilateral strategies against illicit narcotics
trafficking and money laundering. Embassy Abu Dhabi is
actively negotiating an MLAT treaty, which would
facilitate the exchange of information related to drug
and financial crimes. The USG will encourage the UAEG
to focus enforcement efforts on dismantling major
trafficking organizations and prosecuting their
leaders, and to enact export control and border
security legislation.


PART V. Statistical Tables:

The following are publicly released UAE Ministry of
Interior statistics.

--------------
Drug Seizures
--------------

Mid
2003 2002 2001 2000

Hashish 2064.8 kg 3127.6 kg 6115.9 kg 945.4
kg
Heroin 30.3 kg 115.4 kg 40.1 kg 82.2
kg
Opium 7.5 kg 21.7 kg 8.9 kg 27.2
kg
Cannabis 1.2 kg 1.5 kg 360 g 431.0
g
Capsules 29,201 29,201 1,457,792
23,246

Illicit labs destroyed by type? not reported

Domestic consumption of illegal drugs? not reported

--------------
Arrests For Drug-Related Crimes
--------------

Mid-2003: 1055 persons
2002: 1603 persons
2001: 1558 persons
2000: 1210 persons

--------------
Number of addicts arrested
--------------

2003: Not Reported
2002: 726 persons
2001: Not Reported
2000: 415 persons

How many are nationals? Not Reported


PART VI. Money Laundering


A. General -- The UAE, which remains a cash-based
society, is considered an important regional financial
center for the Gulf region. Dubai, in particular, is a
major banking center. Because of the UAE's role as the
primary transportation and trading hub for the Gulf
states, East Africa and South Asia, and expanding trade
ties with the countries of the former Soviet Union, the
UAE has the potential to be a major center for money
laundering. That potential is exacerbated by the large
number of resident expatriates from these areas, many
of whom are engaged in legitimate trade with their
homelands. Following the 9/11 terrorist attacks in the
United States, and revelations that terrorists had
moved funds through the UAE, the Emirati authorities
acted swiftly to address potential vulnerabilities and,
in close concert with the United States, to freeze the
funds of groups with terrorist links, including the Al-
Barakat organization, which was headquartered in Dubai.
Both federal and emirate-level officials have gone on
record as recognizing the threat money laundering
activities in the UAE pose to the nation's security and
have taken significant steps in 2003 to better monitor
cash flows through the UAE financial system.

While the laundering of narcotics funds may take place
in the UAE given the country's close proximity to
Afghanistan -- where 70 percent of the world's opium is
produced -- the potential exploitation of the UAE
financial system by foreign terrorists and terrorist
financing groups is the primary concern.

Money laundering may take place within the formal
banking system, including the numerous money exchange
houses, but is believed to be largely confined to the
informal and largely undocumented "hawala" remittance
system. New regulations to improve oversight of the
hawala system were implemented in 2002.

The UAE government has sought to crackdown on potential
vulnerabilities in the financial markets and has
provided outstanding cooperation in the international
effort to prevent money laundering, particularly by
terrorists.

There is no evidence that the UAE Government or any UAE
official engages in, encourages, or facilitates the
laundering of proceeds from illegal drug transactions,
from other serious crimes, or from terrorist financing.
Although a UAE Central Bank official was arrested in
November for embezzling 4.1 million dirhams (USD 1.1
million) and sentenced to seven years in prison, there
is no indication that the official attempted to launder
the money or use it for any illicit activity other than
personal gain.

The Central Bank conducted 58 workshops on money
laundering and terrorist finance for banks and other
financial institutions in 2003.


B. Law and regulations to prevent money laundering --
The UAEG implemented legislation in January 2002
criminalizing money laundering, to include terrorist
financing, and included stringent reporting
requirements for wire transfers exceeding USD 545 and
currency importation/exportation limits set roughly at
USD 11,700. The law imposes stiff criminal penalties
(up to seven years in prison, a fine of up to 300,000
dirhams (USD 81,700) as well as seizure of assets if
found guilty) for money laundering and also provides
safe harbor provisions for those who report such
crimes. Banks and other financial institutions
supervised by the Central Bank (exchange houses,
investment companies, and brokerages) are required to
follow strict "know your customer" guidelines; all
financial transactions over USD 54,000, regardless of
their nature, must be reported to the UAE Central Bank.
Financial institutions also are required to maintain
records on transactions for five years.

The Central Bank announced that it received 633
suspicious transaction reports from August 2001 to
August 2003, of which 497 were from banks, 49 from
money changers, and 87 from customs departments.
Thirteen accounts have been frozen as a result of these
STRs.

A suspicious transactions and cases unit was
established in 1998 within the Central Bank to perform
the functions of a financial intelligence unit (FIU).
The UAE FIU, renamed the Anti-Money Laundering and
Suspicious Cases Unit (AMLSCU) in 2002, joined the
prestigious Egmont Group of FIUs -- the first Arab
country to do so -- in 2002. This membership was the
basis of a number of memoranda of understanding the
AMLSCU signed with other countries' FIUs to facilitate
information sharing and case processing. Banks,
customs officials, and other relevant personnel are
required to file suspicious transaction reports with
the unit.
The UAEG formally established the National Anti-Money
Laundering Committee in 2002 to develop and steer the
country's overall anti-money laundering strategy. The
Central Bank Governor is the Chairman of the committee
and each of the following organizations are represented
in its membership: the AMLSCU, Ministry of Interior,
Ministry of Justice, Ministry of Finance, Ministry of
Economy, National Customs Board, Secretary General of
the Municipalities, Federation of the Chambers of
Commerce, and five major banks and money exchange
houses (as observers).

The UAE authorities demonstrated their commitment to
enforcing the money laundering legislation in 2003 by
arresting two men on suspicion of money laundering.
This is the first time that the UAE has arrested
suspected money launderers since the legislation went
into effect, however, the UAEG has frozen financial
assets under the law. Post will report the outcome of
the court proceedings septel. Likewise, 23 other
suspected money laundering cases have been referred to
the public prosecutors office for further review.


C. Terrorist Finance Section -- The UAEG implemented a
law to criminalize money laundering, to include
terrorist financing, in January 2002. The Central Bank
has circulated to all financial institutions under its
supervision the lists of individuals and entities
suspected of terrorism and terrorist financing included
in UN Security Council resolutions. To date, the
Central Bank has frozen a total of USD 3.13 million in
18 bank accounts in the UAE since 9/11. Additionally,
the AMLSCU has provided international organizations and
its counterpart FIUs data on 172 cases related to
terrorist financing.

In 2002, the UAEG worked in partnership with the United
States to block terrorist financing and froze the
assets of more than 150 named terrorist entities --
including significant assets in the UAE belonging to
the Al-Barakat terrorist financing group.

There is no accurate estimate of the number of UAE-
based hawala brokers. The UAEG sponsored a conference
on the "hawala" system and other alternate remittance
systems in May 2002. More than 300 representatives --
experts from international and regional law enforcement
agencies, as well as bankers and moneychangers --
attended the conference in Abu Dhabi. The Central Bank
Governor has told the Ambassador that he intends to
sponsor a follow-up conference on hawala in April 2004
to assess the effectiveness of hawala registration and
documentation requirements that went into effect in
November 2002.

The Central Bank now supervises 61 hawala brokers,
which -- like other financial institutions in the UAE -
- are now required to submit sheets containing names
and addresses of transferors and beneficiaries to the
Central Bank and complete suspicious transaction
reports. The new attention on hawala is encouraging
more people to use regulated exchange houses in the
UAE. Traders in Dubai's Central Souk said hawala
exchange rates are now only 3 percent cheaper than
formal exchange houses, persuading many to use the
formal, and more secure, banking network.

The UAEG also has admitted the need to better regulate
the burgeoning gold and diamond markets in Dubai and
items considered to be "near-cash" -- including gold,
jewelry, and gemstones. The UAE acceded to the
Kimberley Process (KP) in November 2002 and began
certifying rough diamonds exported from the UAE on
January 1, 2003 -- the UAE is the only Middle Eastern
country to have implemented the KP to date, according
to press reports. The Dubai Metals And Commodities
Center (DMCC) is the quasi-governmental organization
charged with issuing KP certificates in the UAE, and
employs four individuals full-time to administer the KP
program. Prior to January 1, 2003, the DMCC circulated
a sample UAE certificate to all KP member states and
embarked on a public relations campaign to educate the
estimated 50 diamond traders operating in Dubai of the
new KP requirements. It is not unusual for UAE customs
officials to delay or even confiscate diamonds entering
the UAE from a KP member country without the proper KP
certificate.

The UAEG carefully monitors registered charities in the
country and requires the organizations to keep records
of donations and beneficiaries. The Ministry of Labor
and Social Affairs regulates charities and charitable
organizations in the UAE. The UAEG is much more
sensitive post-9/11 to the oversight of charities and
accounting of transfers aboard. In 2002, the UAEG
mandated that all licensed charities here interested in
transferring funds overseas must do so via one of three
umbrella organizations: the Red Crescent Authority,
the Zayed Charitable Foundation, or the Muhammad Bin
Rashid Charitable Trust. These three quasi-
governmental bodies are properly managed, and in a
position to ensure that overseas financial transfers go
to legitimate parties. As an additional step, the UAEG
has contacted the governments in numerous aid receiving
countries to compile a list of recognized, acceptable
recipients for UAE charitable assistance.


D. Offshore Financial Centers -- The UAE is not an
offshore financial center; non-residents are not
permitted to open bank accounts here and offshore
banking is prohibited. However, more than 80 percent
of the UAE's population is comprised of expatriates,
mostly from South Asia, and these residents are allowed
to open bank accounts. Shell companies and trusts are
prohibited by law.


E. International Cooperation -- The United States and
the UAE continue to share information on exchanging
records in connection with terrorist financing and
other money laundering cases on an ad hoc basis; a
Mutual Legal Assistance Treaty, which will codify that
cooperation, is in the process of being negotiated.

Although the U.S. Mission perceives that our
relationship with the UAEG on money laundering and
terrorist finance is close and cooperative -- indeed,
the U.S. Customs Department intends to open offices in
Abu Dhabi and Dubai in 2004 to assist the UAE in
identifying trade-based money laundering -- the UAE
Central Bank Governor publicly criticized the United
States at the IMF/World Bank meetings in September
about failing to provide data, documents, and evidence
on cases of suspected money laundering to the UAEG.

The UAE has been an active participant in the Financial
Action Task Force (FATF) process and agreed to a mutual
evaluation in 2001 and a self-assessment in 2002. The
country is committed to full implementation of the
FATF's 40 recommendations, as well as the additional
eight recommendations on terrorist financing
established post-9/11.

The UAE has strongly endorsed the Basel Committee's
core principles for effective banking supervision. The
Central Bank Governor announced in March that the UAE
would be the first Arab state to implement the new
Basel II bank supervision guidelines (which go into
effect in 2006) requiring self-assessments by banks on
their market, credit, and operational risk areas
followed by a Central Bank review.


F. Asset forfeiture and seizure legislation art and
parcel of the UAE's 2002 money laundering and terrorist
finance legislation is the provision that the Central
Bank may freeze bank accounts in the UAE of suspected
money launderers for up to seven days. After seven
days, the Central Bank's AMLSCU must provide enough
evidence to the public prosecutor's office to warrant
the further freezing of those accounts. That said, the
UAEG in 2003 froze bank accounts related to suspected
terrorists or terrorist entities for an indefinite
period of time without warrant because the government
believed that it was in the "national security
interests" of the UAE to do so. Prior to the passage
of this legislation, there were no laws in the UAE
providing for the forfeiture or seizure of assets.
Wahba