Identifier
Created
Classification
Origin
04KUWAIT4419
2004-12-20 08:03:00
UNCLASSIFIED
Embassy Kuwait
Cable title:  

KUWAIT'S 2004-2005 INSCR, PART II

Tags:  EFIN PTER SNAR KTFN KCRM KU 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 KUWAIT 004419 

SIPDIS

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

E.O. 12958: N/A
TAGS: EFIN PTER SNAR KTFN KCRM KU
SUBJECT: KUWAIT'S 2004-2005 INSCR, PART II

REF: SECSTATE 254401

UNCLAS SECTION 01 OF 03 KUWAIT 004419

SIPDIS

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

E.O. 12958: N/A
TAGS: EFIN PTER SNAR KTFN KCRM KU
SUBJECT: KUWAIT'S 2004-2005 INSCR, PART II

REF: SECSTATE 254401


1. (U) Post's input for Part II of the 2004-2005 INSCR
follows in para 2. Key changes include:

Para 1: Kuwait has nine commercial banks, including two
Islamic banks. One of Kuwait,s two specialized banks, the
Kuwait Real Estate Bank, will soon convert into an Islamic
bank.

Para 3: Currency smuggling into Kuwait is banned under Law
No. 35, but reporting requirements are not enforced at ports
of entry. The law does not require individuals to make a
customs declaration when carrying cash out of Kuwait.

Para 5: The Central Bank is currently updating its
anti-money laundering instructions.

Para 6: Insurance companies, exchange bureaus, gold and
precious metals shops, brokers in the Kuwait Stock Exchange,
and all other financial brokers were always supervised by the
Ministry of Commerce and Industry. What changed in September
2002 was that these organizations were compelled to abide by
all regulations concerning customer identification, record
keeping of all transactions for five years, internal control
systems, and the reporting of suspicious transactions from
that point on.

Para 8: Kuwait has two Islamic banks now, both of which are
supervised by the Central Bank.

Para 9: Post recommends -- as we did last year -- that the
final two sentences be deleted. These were unsubstantiated
allegations that may have been politically motivated.

Para 11: The national anti-money laundering committee is now
headed by the Central Bank Governor, and a representative
from the Ministry of Social Affairs and Labor has been added.


2. (U) BEGIN TEXT OF REPORT.

Kuwait is not a major regional financial sector. It has nine
commercial banks, including two Islamic banks, all of which
provide banking services comparable to those of Western-style
commercial banks. Kuwait also has two additional specialized
banks, the Kuwait Real Estate Bank (which will soon convert
into an Islamic bank) and the government-owned Industrial
Bank of Kuwait, that provide medium and long-term financing.
Regulators do not believe that money laundering is a
significant problem, and most laundered funds are generated
as a byproduct of local drug and alcohol smuggling. Funds and

assets generated by criminal activity are subject to
forfeiture.

On March 10, 2002, the Emir (Head of State) of Kuwait signed
Law No. 35, which criminalizes money laundering. The law
stipulates that banks and financial institutions may not keep
or open any anonymous accounts or accounts in fictitious or
symbolic names and banks must require proper identification
of regular and occasional clients. The law also requires
banks to keep all records of transactions and customer
identification information for a minimum of five years,
perform training and establish internal control systems, and
report any suspicious transactions. Smuggling currency into
Kuwait is also outlawed, although reporting requirements are
not enforced at ports of entry. The law does not required
individuals to make a customs declaration when carrying cash
out of Kuwait.

Law No. 35 designates the Public Prosecution Department (PPD)
as the sole authority to receive reports on money laundering
operations, and to take the necessary actions. Reports of
suspicious transactions are referred from PPD to the Central
Bank,s financial intelligence unit (FIU) for analysis. The
law provides for a penalty of up to seven years,
imprisonment in addition to fines and asset confiscation. The
penalty is doubled if an organized group commits the crime,
or if the offender took advantage of his influence or his
professional position. The law includes articles on
international cooperation, and on monitoring cash and
precious metals transactions. Provisions of Article 4 of Law
No. 35 state that every person shall, upon entering the
country, inform the customs authorities of any national or
foreign currency, gold bullion, or any other precious
materials in his/her possession valued in excess of Kuwait
dinar 3,000 (about $ 10,000). There are no similar reporting
requirements for outbound currency or precious metals. The
law authorizes the Minister of Finance to set forth the
resolutions necessary to ensure its implementation. The
Minister of Finance can issue resolutions to enhance
combating money laundering operations without the need to
amend the legislation. Moreover, banks and financial
institutions may face a steep fine (approximately $3.3
million) if found in violation of the law.
In addition to Law No. 35, anti-money laundering reporting
requirements and other rules are contained in the Central
Bank of Kuwait,s (CBK,s) instructions no. (2/sb/92/2002),
which took effect on December 1, 2002, superseding
instructions no. (2/sb/50/97). The revised instructions
provide for, inter alia: customer identification and the
prohibition of anonymous or fictitious accounts (articles
1-5),the requirement to keep records of all banking
transactions for five years (article 7),electronic
transactions (article 8),the requirement to investigate
transactions that are unusually large or have no apparent
economic or lawful purpose (article 10),the requirement to
establish internal controls and policies to combat money
laundering and terrorism finance, including the establishment
of internal units to oversee compliance with relevant
regulations (article 14 and 15),and the requirement to
report to the CBK all cash transactions in excess of KD3,000
(article 20). A detailed appendix to the instructions has
guidelines to help bank employees identify suspicious
transactions. The Central Bank is currently working on
updates to its anti-money laundering instructions.

In September 2002, insurance companies, exchange bureaus,
gold and precious metals shops, brokers in the Kuwait Stock
Exchange, and all other financial brokers (all of which are
supervised by the Ministry of Commerce and Industry) were
compelled to abide by all regulations concerning customer
identification, record keeping of all transactions for five
years, internal control systems, and the reporting of
suspicious transactions.

In addition, CBK issued circular no. (2/sb/95/2003) in 2003,
which was directed toward money changing companies and which
contained similar instructions with respect to combating
money laundering and suspicious activities reporting
guidelines. A similar order (31/2003) was issued by the
Kuwait Stock Market to all companies under its jurisdiction.

Kuwait,s two Islamic banks, Kuwait Finance House (KFH) and
Bubiyan Bank, are licensed and supervised by the Central Bank
of Kuwait.

Following the September 11, 2001, attacks against the United
States, certain Islamic charity organizations such as the
Revival of Islamic Heritage Society (RIHS) and its
subsidiary, the Afghan Support Committee (ASC),which operate
from Kuwait and have branches in Pakistan and Afghanistan,
were suspected of providing funds to al-Qaida. U.S.
authorities have designated the branches in Pakistan and
Afghanistan as being used to funnel funds to terrorist
organizations. There is no indication that such activities
occurred with the knowledge of the Kuwaiti head office, which
thus remains undesignated.

In August 2002, the Kuwaiti Ministry of Social Affairs and
Labor issued a ministerial decree to create a Department of
Charitable Organizations. The primary responsibilities of the
new department are to receive applications of registration
from charitable organizations, monitor their operations, and
establish a new accounting system to insure that such
organizations comply with the law both at home and abroad.
The Department has established guidelines explaining how
charities must collect donations and finance their
activities. The new Department is also charged with
conducting periodic inspections to insure that they maintain
administrative, accounting, and organizational standards
according to Kuwaiti law.

On June 23, 2003, the Central Bank of Kuwait issued
resolution no. 1/191/2003 establishing the Kuwaiti Financial
Intelligence Unit (KFIU) as an independent entity within the
Central Bank. The goals of KFIU are to receive and analyze
reports of suspected money laundering from the public
prosecution department, to establish a database of suspicious
transactions, to conduct anti-money laundering training, and
to carry out domestic and international exchanges of
information in cooperation with the PPD. KFIU has a staff of
seven.

Several cases have been opened under Law No. 35. but the
majority of them were closed after investigations did not
disclose prosecutable offenses.

The 2002 law on money laundering does not cite terrorist
financing as a crime; however, the definition of criminal
activity is broad. Kuwait established a national committee to
follow up on all issues concerning terrorism; the Central
Bank,s Governor is the committee chair, and all interested
ministries are included (a representative from the Ministry
of Social Affairs and Labor, which supervises charitable
societies and donations, was added to the committee in 2004).
Two terrorist suspects were charged in late 2002 with
"gathering funds for, and financing the establishment of,
military training camps abroad."
The Gulf Cooperation Council represents Kuwait on the
Financial Action Task Force (FATF). Kuwait is a party to the
1988 UN Drug Convention. It has signed, but not yet ratified,
the UN Convention against Transnational Organized Crime.
Kuwait should become a party to the UN International
Convention for the Suppression of the Financing of Terrorism.

Kuwait is making progress in enforcing its domestic
anti-money laundering program. The passage of the CBK,s
anti-money laundering clarifying instructions represents a
significant step forward. However, KFIU needs to gain
experience in dealing with suspicious transactions. The KFIU
also needs to assemble and automate various financial
databases. Kuwait should also make outbound currency and
precious metals declarations mandatory. More interagency
cooperation and coordination between KFIU and other concerned
parties could yield significant improvements in proactive
investigations and international information exchange. A
specific counterterrorism finance law should also be enacted.

END TEXT OF REPORT.
LEBARON