SECOND INTERNATIONAL HAWALA CONFERENCE, APRIL 3-5

C O N F I D E N T I A L SECTION 01 OF 04 ABU DHABI 001026

SIPDIS

STATE FOR NEA/ARP - HEFFERNAN, NEA/RA -SUTPHIN,
EB/ESC/ESP, INL/C, INL/ENT - NOVIS, AND S/CT - REALUYO
TREASURY FOR ENFORCEMENT DAS JUAN ZARATE AND IEA DIRECTOR
BOYLAN, ALSO FOR LONERGAN
TREASURY PASS FINCEN
TREASURY PASS OTA FOR N. WORTHINGTON
TREASURY PASS OFAC FOR NEWCOMB
JUSTICE FOR ASSET FORFEITURE AND ML UNIT EPUTY CHIEF
DAVITT, ALSO TED GREENBERG
JUSTICE PASS OPDAT FOR SILVERWOOD
NSC FOR GARY PETERS

E.O. 12958: DECL: 04/06/09
TAGS: PTER EFIN ETTC PREL PGOV TC
SUBJECT: SECOND INTERNATIONAL HAWALA CONFERENCE, APRIL 3-5

REFS: A) 02 ABU DHABI 2522
B) ABU DHABI 1000


1. (U) Classified by Deputy Chief of Mission Richard A.
Albright for reasons 1.5 (B) and (C).


2. (C) Summary and comment: More than 350 participants
from Latin America, Asia, Europe and the United States
attended the Second International Hawala Conference, April
3-5 in Abu Dhabi, sponsored by the UAE Central Bank and in
collaboration with the IMF. The Second Hawala Conference
followed the very successful First Hawala Conference in May
2002 (ref A). At the close of this week's forum, the UAE
Central Bank Governor and other UAEG officials urged the
participants to consider drafting "best practices" or
international guidelines for the regulation of the hawala
sector. It was clear from discussions earlier during the
week, however, that many governments continue to grapple
with the definition and scope of hawala within their
respective territories, as well as with the modalities and
legalities of regulating informal transfer systems. As in
the first Hawala Conference, no current or former
hawaladars spoke at the forum.


3. (C) Summary and comment continued: A U.S. delegate who
attended the first Hawala Conference noted that this week's
event represented a huge leap forward in the UAEG's
acknowledgment of its own hawala problem. Only three years
ago, the UAEG was reluctant to admit that terrorists could
exploit the country's formal and informal banking networks.
The Second Hawala Conference, although it fell short of
producing international standards, demonstrates that the
UAEG intends to take an active role in the international
effort to examine and regulate informal remittance systems.
End summary and comment.

-------------- --------------
Presentations: Central Banks, Police, Private Sector
-------------- --------------


4. (SBU) FinCEN Senior Policy Adviser William Langford led
the U.S. delegation consisting of representatives from
State, IRS, and ICE. Mr. Langford provided an overview of
U.S. anti-money laundering regulations in a session on "The
Experience of Hawala Remitting Countries." In a subsequent
session, Department of Homeland Security Program Manager
for Financial Investigations David Eoff, likewise,
described the challenges U.S. law enforcement authorities
face combating money launderers and hawaladars.
Interestingly, during the same panel discussion, Dubai
General Police official Younes Al-Muallem claimed that
Dubai bankers believe the Central Bank's anti-money
laundering regulations are ineffectual and administratively
burdensome.


5. (SBU) The UAE Central Bank moderated a relatively
contentious panel of representatives from the UAE's largest
exchange houses and private bankers. While the private
sector reps acknowledged the need to monitor hawala, they
suggested that the Central Bank's administrative
requirements for hawaladars only serve to drive them
further underground. The CEO of the UAE Exchange House
boasted about his organization's compliance with UAE
Central Bank regulations, and described UAE Exchange's
award program (similar to a frequent flyer program) that
stores a repeat customer's biographic data and transaction
history for 10 years. He said that the cost of
transferring money through formal remittance systems has
decreased, making the hawala system less attractive to
foreign workers. UAE Exchange will send money anywhere in
the world -- even to a private residence -- for 25 dirhams
(USD 6.82). He claims Western Union's commissions are now
less than 8 percent, and competitive with many local
hawaladars.


6. (SBU) The UAE Central Bank described the UAE hawala
regulation system at the close of the conference. Based on
the Abu Dhabi Declaration (ref A),the current hawala
regulation system seeks to identify hawaladars, encourage
them to submit records of all financial transactions, and
forward suspicious transaction reports (STRs) to the
Central Bank, as appropriate. It is noteworthy that, while
many countries gave presentations on their national anti-
money laundering regulations, the UAE was the only country
to describe a regulatory system aimed specifically at
hawala brokers. The UAE Central Bank has received 118
registration applications from hawaladars since April 2003,
and issued 101 certificates. Ninety hawaladars submitted
reports to the Central Bank during the same time period,
but no STRs have been filed. Some audience members claimed
that the lack of STR filing by hawaladars here is evidence
that the UAE system doesn't work, and does nothing to
reduce the potential for abuse of the system by terrorists.
The Central Bank did not offer any estimate on the number
of unregistered hawaldars that operate outside the purview
of UAE authorities.


7. (U) Other presentations included an overview of the
money laundering systems in various East Asian, South
Asian, and Latin American countries, and the perspective
from multilateral institutions, such as the IMF/WB, FATF,
the United Nations Office on Drugs and Crime, and BIS.

--------------
Abu Dhabi Declaration II?
--------------


8. (C) On April 5, the Central Bank Governor and other
UAEG officials urged the participants to consider drafting
"best practices" or international guidelines for the
regulation of the hawala sector. The FATF representative
privately told Econoff that his organization would oppose
such an effort. "FATF should be the only organization to
draft international standards for hawala."


9. (C) It also was clear from the previous two days of
presentations and discussions that governments continue to
grapple with the definition and scope of hawala within
their respective territories. Brazil, notably, refused to
agree to any statement that recommended additional
regulation of the hawala industry because hawala is illegal
in Brazil and, therefore, "does not exist." Nevertheless,
the general consensus of all the participants (which also
is reflected in the conference statement) was that a single
approach to regulating hawala may not be appropriate --
"one size does NOT fit all," said the delegate from Egypt.


10. (U) Begin text of declaration.

The conference acknowledged and reaffirmed the important
achievements of the First International Conference on
Hawala as set out in the Abu Dhabi Declaration On Hawala
(May 2002).

The conference recognized the key role that hawala and
other informal funds transfer (IFT) systems play in
facilitating remittances, particularly those of migrant
workers. It noted, as well, the significance of IFT
systems as an integral part of the international financial
system.

A major outcome of the conference was its contribution in
increasing awareness of the role of IFT systems.
Participants emphasized that IFT systems need to be
understood against the diversity of socio-cultural, legal
and economic contexts. Nevertheless, IFT systems, like
other parts of the financial system, can also me misused
for illegal purposes, and participants therefore re-
emphasized the need for transparency and traceability of
financial transactions. Furthermore, to acknowledge the
work of the Financial Action Task Force (FATF) in
development standards and best practices in this area, the
conference highlighted the range of experience, practices
and approaches that could apply.

The conference identified the following challenges in
implementing IFT regulatory regimes:

-- Overcoming imperfect information on the functioning IFT
systems;

-- Ensuring authorities have adequate resources in dealing
with this issue;

-- Designing regulatory solutions that are proportionate to
the risks and sensitive to possible unintended
consequences.

-- Avoiding over-regulation that might drive IFT operations
underground; and

-- Demonstrating to the participants in IFT systems that
the benefits of regulation outweigh the costs.

With the aim of addressing these challenges, the conference
concluded that there was a need to:

-- Gather and analyze information on IFT systems and their
operations;

-- Engage in a dialogue with IFT providers and users to
develop constructive solutions;

-- Conduct outreach to raise the awareness of the regulated
community and public to IFT issues; and

-- Remove any impediments to cost-effective, reliable and
convenient transmission of funds in the regulated financial
sector.

Where IFT systems are permitted, countries should as a
first step register and/or license IFT operators. Further
anti-money laundering and combating the financing of
terrorism (AML/CFT) requirements should then be implemented
in the IFT sector by countries according to their capacity.

Finally, the conference encouraged the FATF and the
international financial institutions to take note of the
conclusions of this conference and work to develop further
guidance.
The conference expressed its gratitude to the Government
and Central Bank of the United Arab Emirates, and the
International Monetary Fund for organizing this conference.

End text.

Wahba