DJIBOUTI - 2004-2005 INTERNATIONAL NARCOTICS

UNCLAS SECTION 01 OF 02 DJIBOUTI 001601

SIPDIS

STATE FOR AF/E AND INL

JUSTICE FOR OIA AND AFMLS

TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN KCRM KSEP PTER SNAR KTFN DJ
SUBJECT: DJIBOUTI - 2004-2005 INTERNATIONAL NARCOTICS
CONTROL STRATEGY REPORT INSTRUCTIONS PART II, FINANCIAL
CRIMES AND MONEY LAUNDERING

REF: STATE 254401

INTRODUCTION
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1. Much of the information included in Post's 2003-2004
report remains the same. Djibouti is still the most stable
country in the Horn of Africa. It is a financial hub in the
sub-region, thanks to its US dollar-pegged currency and its
unrestricted foreign exchange. Officials from the Central
Bank indicate that there were no recent instances of money
laundering. The informal market remains important, and
smuggled goods consist primarily of highly taxed cigarettes
and alcohol. The Djibouti Free Zone (DFZ),managed by
Dubai's Jebel Ali Free Zone, was inaugurated in June 2004.
Once operational, the DFZ will approve and deliver licenses
for up to 85 companies. Djibouti is not considered an
offshore financial center but offshore institutions are
permitted, and even encouraged, to settle at the DFZ. Two
existing commercial banks handle the bulk of financial
transactions. The remainder of the demand is met by a
growing number of hawalas. The Central Bank makes efforts
to closely monitor the activities of both the commercial
banks and hawalas.

Anti-money laundering legislation
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2. On February 22nd, 2001, Djibouti signed the United
Nations International Convention against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances, which entered
into force on May 23rd, 2001. Legislation criminalizing the
financing of terrorism, as requested by UN Security Council
Resolution 1373, is included in the Anti-Money Laundering
Law passed in December 2002 as Law No. 196/AN/02/4emeL.
Drafted by the three-year-old National Committee on
Terrorism, this document contains provisions for prevention
of, and punishment for, money laundering.


3. The Anti-Money Laundering Law applies to financial
institutions of all forms as well as professionals involved
in financial matters. Regulated activities include money
deposits, insurance, investment, real estate, casinos and
entertainment. The legislation also addresses international
cooperation and allows for the freezing or seizing of assets
in suspected terrorist finance cases. The government
regularly circulates the names of individuals and entities
included on the UN 1267 sanctions committee's consolidated
list. The law also requires financial institutions to
verify customer information, including current residence.
This verification process promotes rigorous transparency and
strict control of transactions. Furthermore, it imposes
criteria for the following: customer identification;
communication of information; documentation related to
international cooperation; surveillance procedures for
suspect accounts; and legal protection of professional
secrecy for individuals reporting suspect transactions.


4. Professionals convicted of facilitating money laundering
or terrorist financing can face five to ten years in jail
and a fine of DF 25 to 50 million ($141,283 to 282,566). A
finance professional that fails to report suspect
transactions is liable for fines ranging from DF 10 to 25
million ($56,513 to 141,283). The Department of Treasury
receives the proceeds of any assets seized or forfeited in
terrorist financing cases.

International Cooperation
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5. Djibouti has not officially reached an agreement with the
United States government on money laundering, but Central
Bank officials have repeatedly indicated they would fully
cooperate if requested. Djibouti has a formal, bilateral
agreement with Ethiopia for exchange of information and
extradition in money-laundering cases. Furthermore, the anti-
money laundering legislation stipulates that Djibouti will
cooperate with other countries by exchanging information,
assisting in investigations, providing mutual technical
assistance and facilitating the extradition process in money
laundering cases. In addition, the Central Bank plans to set
up an investigation bureau designed to monitor for money
laundering and to provide expertise to the banking community
concerning counterfeit money, including US bills.


COMMENTS
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6. DJIBOUTI'S MONEY LAUNDERING AND TERRORIST FINANCING
STRATEGY TOOK A POSITIVE STEP WITH THE APPROVAL OF THE ANTI-
MONEY LAUNDERING LEGISLATION; HOWEVER ENFORCEMENT OF THIS
LAW REMAINS A MAJOR CHALLENGE. THOUGH THE GOVERNMENT MAKES
AN EFFORT TO CONTROL ALL FORMAL TRANSACTION POINTS, A LARGE
NUMBER OF INFORMAL HAWALAS ESCAPE CENTRAL BANK REGULATION.
IN ADDITION, CORRUPT CUSTOMS AGENTS CAN EASILY BE TEMPTED TO
PERMIT LARGE AMOUNTS OF MONEY TO COME THROUGH THE BORDERS
WITHOUT ANY DECLARATION. FINALLY, THERE IS A HISTORY OF
POWERFUL, "UNTOUCHABLE" INDIVIDUALS PROTECTING SUSPICIOUS
FINANCIAL INSTITUTIONS. AS FOR THE DFZ, POST WILL MONITOR
AND REPORT ON ANY MONEY LAUNDERING ACTIVITIES WHEN THE DFZ
BECOMES FULLY OPERATIONAL.

RAGSDALE