YEMEN 2003-2004 INSCR REPORT

UNCLAS SECTION 01 OF 02 SANAA 003002

SIPDIS


STATE FOR INL AND NEA/ARP HEFFERNAN AND KEARY
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN

SENSITIVE

E.O. 12958: N/A
TAGS: EFIN PTER SNAR KCRM KSEP YM TERFIN
SUBJECT: YEMEN 2003-2004 INSCR REPORT

REF A) STATE 328024



1. (SBU) EMBASSY SANAA SUBMITS ITS UPDATE FOR THE 2003-2004
INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT (INCSR) AT
PARA TWO. COMMENT: WHILE THE ROYG MUST IMPROVE ITS
ENFORCEMENT OF FINANCIAL CRIMES, THE PASSAGE OF ANTI-MONEY
LAUNDERING LEGISLATION REPRESENTS A SIGNIFICANT STEP FORWARD
IN MEETING INTERNATIONAL BANKING STANDARDS. END COMMENT.


2. (U) Begin Text:

The extent of money laundering in Yemen is not known. Yemen's
Parliament passed anti-money laundering legislation in April

2003. However, the inexperience of the Central Bank of Yemen
(CBY) in enforcing new money laundering legislation and the
prevalence of hawala (informal money transfers) make Yemen
vulnerable to money laundering. The CBY supervises Yemen's
relatively small banking sector, which consists of 14
commercial banks, including three Islamic banks. Domestic
banks account for approximately 60 percent of the total
banking activities, while foreign banks cover the other 40
percent.
The 2003 legislation criminalizes money laundering for a wide
range of crimes including narcotics offenses, kidnapping,
embezzlement, bribery, fraud, tax evasion, illegal arms
trading, and money theft, and imposes penalties of three to
five years imprisonment. There is no specific legislation
relating to counter-terrorist financing in Yemen, but
terrorism is covered in various pieces of legislation that
treat terrorism and its financing as serious crimes.
The law requires banks, financial institutions, and precious
commodity dealers to verify the identity of persons and
entities that want to open accounts or deal with them, to keep
records of transactions for up to ten years and to report
suspicious transactions. In addition, the law requires that
reports be submitted to an information-gathering unit within
the CBY. The unit acts as the Financial Intelligence Unit
(FIU),which in turn will report to the Anti-Money Laundering
Committee (AMLC). The AMLC is composed of representatives
from the Ministries of Finance, Justice, Interior, and
Industry and Commerce, the CBY, and the Board of Banks is
authorized to issue regulations and guidelines and provide
training workshops related to combating money laundering
efforts. Several training workshops have been conducted by
the CBY in 2003 on the new legislation.
The law grants the AMLC the right to exchange information with
foreign entities. The head of the committee can ask local
judicial authorities to enforce foreign court verdicts based
on reciprocity. Also, the law permits the extradition of
criminals in accordance with international treaties or
bilateral agreements. (Note: The Yemeni Constitution
prohibits the extradition of Yemeni citizens. End note.)
In April 2002, the CBY issued Circular 22008, informing banks
and financial institutions that they must verify the legality
of all proceeds deposited in or passing through the Yemeni
banking system. The circular stipulates that financial
institutions must positively identify the place of residence
of all persons and businesses that establish relationships
with them. The circular also requires that banks verify the
identity of persons or entities that wish to transfer more
than $10,000 through banks at which they have no account. The
same provision applies to beneficiaries of such transfers.
Banks must also take every precaution when transactions appear
suspicious, and report such activities to the CBY. The
circular was distributed to the banks along with a copy of the
Basel Committee's "Customer Due Diligence for Banks,"
concerning "Know Your Customer" procedures.
In response to UNSCR 1267/1390 and Yemen's Council of
Ministers directives, CBY issued a number of circulars to all
banks operating in Yemen directing them to freeze accounts of
144 persons, companies, and organizations, and to report any
finding to CBY. As a result, one account was immediately
frozen with a balance equal to $33.
A LAW WAS PASSED IN 2001 GOVERNING CHARITABLE ORGANIZATIONS,
ENTRUSTING THE MINISTRY OF PENSIONS AND SOCIAL AFFAIRS WITH
OVERSEEING THEIR ACTIVITIES. THE LAW IMPOSES PENALTIES OF
FINES AND/OR IMPRISONMENT ON ANY SOCIETY OR ITS MEMBERS FOR
CARRYING OUT ACTIVITIES OR SPENDING FUNDS FOR OTHER THAN THE
STATED PURPOSE FOR WHICH THE SOCIETY WAS ESTABLISHED.
Yemen is a party to the 1988 UN Drug Convention and has
signed, but not yet ratified, the UN Convention against
Transnational Organized Crime, which is not yet in force
internationally. Yemen is a member of the Arab Convention for
the Suppression of Terrorism.
The Government of Yemen is making progress in enforcing its
domestic anti-money laundering program. However,
international cooperation with criminal investigations is
nascent. As of the writing of this report, the CBY is still
organizing its enforcement mechanism; its effectiveness will
demonstrate the ROYG's commitment to ending money laundering.
As a next step, Yemen should also enact specific legislation
with respect to the financing of terrorism and pass a law
giving the ROYG executive authority to freeze assets of those
they believe are involved in terrorism.

End Text.