INCONSISTENT UAE CHARITY OVERSIGHT, A SYSTEM

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 002741

SIPDIS

STATE FOR NEA/ARPI RSMYTH, S/CT MMILLER, TKUSHNER
MANAMA FOR OFAC ATTACHE
NSC FOR PHEFFERNAN, JHERRING, MRUPERT
TREASURY FOR ZARATE, GLASNER, MURDEN

E.O. 12958: DECL: 06/18/2015
TAGS: PTER KTFN EAID EFIN TC UAE
SUBJECT: INCONSISTENT UAE CHARITY OVERSIGHT, A SYSTEM
VULNERABLE TO ABUSE

REF: A. A) 2005 ABU DHABI 02169

B. B) 2005 DUBAI 02004

C. C) 2003 ABU DHABI 01904

D. D) 2005 ABU DHABI 00864

E. E) 2004 ABU DHABI 04218

Classified By: Ambassador Michele J. Sison for reasons 1.4 (b) and (d).


1. (C) Summary. The UAE Government, aware that mechanisms of
charitable giving could be used to provide a cover for the
financing of terror, has established regulations and
procedures to try to ensure that charitable funds are not
diverted for terrorist purposes. The regulatory regime for
licensing and monitoring UAE charities is robust; however,
implementation and enforcement of the laws are inconsistent.
Significant gaps in the monitoring of charities make it
possible they could wittingly or unwittingly serve as a cover
for illicit activity; however we do not have a way to assess
whether individuals or charities are exploiting these gaps.
The most glaring gap is that less than half of UAE charities
are federally licensed and regulated; the rest are licensed
by local emirates and operate largely independent of federal
guidelines. Federal law stipulates that charities are not
allowed to undertake any activity abroad without prior
permission from the Ministry of Labor and Social Affairs, and
it requires that all charitable donations directed overseas
be channeled through one of three government-approved
charities. Anecdotal information suggests that charities in
Abu Dhabi abide by the regulations, but outside of Abu Dhabi,
the effectiveness of the federal regulatory regime is less
clear. End Summary.

Federal vs. Emirate-Level Oversight
--------------


2. (C) UAE Federal law No. 6 of 1974 stipulates that the
Ministry of Labor and Social Affairs is to license and
supervise UAE charities and NGOs; however, many charities are
licensed by local emirates and do not come under the purview
of the Ministry's regulation and oversight requirements.
According to a booklet on NGOs issued by the Ministry of
Labor and Social Affairs, there are eleven federally licensed
charities. At least eighteen other charities are locally
licensed, but we do not have concrete information to indicate
exactly how many additional locally licensed charities
operate in the UAE. Two of the three largest UAE charities
are locally licensed: the Mohammed Bin Rashid Foundation (MBR
Foundation, licensed in Dubai) and Human Appeal International
(HAI, licensed in Ajman; ref A). A member of the MBR
Foundation Board of Trustees told Econoff that since the MBR
Foundation is licensed by the Government of Dubai, "there is
no need to be registered or have any interaction with the
Ministry of Labor." Mariam Al Roumi, Undersecretary for
Social Affairs at the Ministry of Labor and Social Affairs,
told Econoff that locally licensed charities can only operate
within their "home" emirate. In order to conduct activities
in any other emirates, they have to get permission from the
Ministry, but officials from locally licensed charities do
not seem to be aware of this requirement.


3. (C) In addition to the federally and locally licensed
charities, there is a separate category of charitable
organizations present in the UAE -- those in Dubai Aid City
(DAC) and Dubai Humanitarian City (DHC) (ref B). DAC and DHC
are free zones, which offer 100 percent import/export tax
exemptions, and house offices and warehouses for local and
international NGOs. The charities within DAC and DHC are
licensed as businesses by Dubai's free zone authorities, and
do not come under the purview of any federal or municipal
regulations for charitable organizations. According to
Barbara Castek, head of DAC, the financial transactions of
NGOs in DAC and DHC are monitored by the Central Bank, the
same as all other financial transactions in the UAE, as per
the federal guidelines for anti-money laundering and counter
terror finance. However, DAC and DHC do not independently
monitor the activities of organizations operating within the
free zone. According to Peter Casier, the Director of the
United Nations World Food Program Support Office in DHC,
Humanitarian City does carefully vet organizations that apply
to operate within DHC, but he is aware that several NGOs
inside DHC had solicited charitable donations and sent funds
abroad without permission from the Ministry of Labor and
Social Affairs.

Federal Ministry's Oversight Role...Administrative
-------------- --------------


4. (C) UAE federal law governs charities and non-governmental
organizations (NGOs) in the same manner and does not
distinguish between NGOs and charities. The Ministry of
Labor and Social Affairs licenses and monitors 106
non-governmental social welfare associations, of which only
eleven are charities. As a result, the 32 Ministry staff
members responsible for licensing and auditing NGOs do not
focus specifically on monitoring the activities of the
charities that the Ministry licenses. Moreover, the staff is
administrative in nature and does not have investigative or
enforcement capabilities. According to the law governing NGO
activity, the Ministry must approve all meetings or
activities before they can be held, and it has the authority
to conduct site visits to review the organizations' records.
However, according to a former executive of Dubai Aid City,
the Ministry staff simply grants licenses and examines the
NGOs' yearly financial and administrative reports. Al Roumi
stated that if the Ministry suspects a charity is engaged in
potentially illegal activity, Ministry officials first warn
the charity. If the activity continues, the Ministry reports
them to the police, and may revoke their license and shut
them down. "We have never had to refer a charity to Ministry
of Interior for investigation. Eighteen years ago, we closed
a Pakistani charity, but that was the last time."

International Restrictions...Not Uniformly Enforced
-------------- --------------


5. (C) According to the law, charities are not allowed to
undertake any activity abroad -- to include transferring
money, establishing offices, collecting donations, or
participating in activities -- without prior permission from
the Ministry of Labor and Social Affairs. UAE officials have
told us that charities in Abu Dhabi abide by these
regulations, and our own interactions with Abu Dhabi
charities indicates this is true; however, charities licensed
in other emirates often do not.


6. (C) In 1994 the UAE passed a resolution requiring
charities to make international donations through the UAE Red
Crescent Society, and Ministry officials have told us that
they also allow charities to send funds through the Sheikh
Zayed Charitable and Humanitarian Foundation and the Mohammed
Bin Rashid Charitable and Humanitarian Foundation (refs C and
D). However, according to Central Bank Governor Sultan
Nasser Al Suwaidi, "There is nothing to prevent charities
from transferring money overseas." He told Econoff that he
believes the system works in Abu Dhabi and Dubai, but
charities in the other emirates "may not" send their money
through one of the three approved charities. Officials at
the Ministry of Labor and Social Affairs have told us that
banks are aware that they cannot send funds from charities
overseas, but many of our financial contacts are not aware of
this regulation. John Williams, COO and Chief Compliance
Officer of Standard Chartered in the UAE, said that his bank
"had received no written guidance (from the Central Bank) on
charities sending money abroad and there's no policy on it."


7. (C) The UAEG trusts that the three government-approved
charities' efforts and initiatives are all above-board, and
our interactions with them tend to confirm this. Sana
Derwish Al Kitbi, Secretary General of the UAE Red Crescent
Society, described the Red Crescent's 3-fold security checks
to ensure projects are legitimate and needed: the Red
Crescent works with the UAE Embassy in the recipient country,
they consult the country's Embassy and other Government
officials, and the Red Crescent conducts its own in-house
research. The MBR Foundation, which supervises and finances
relief programs of recipient country NGOs (as opposed to
actually implementing the projects itself),uses six criteria
to determine that the local charity's activities are
legitimate. Abdurahman Bin Sobeih, a member of the MBR
Foundation board of trustees, told Econoff, "We conduct these
checks because we believe it is essential to ensure security
while encouraging aid. Donors trust that a donation to our
foundation is a safe donation." The General Manager of the
Sheikh Zayed Charitable Foundation told Econoff that the
Foundation conducts its own programs and works independently
in foreign countries to build needed projects (particularly
schools and hospitals),and in this manner the Foundation is
able to ensure that its funds are used for legitimate
projects.


8. (C) The Red Crescent's Al Kitbi told Econoff that older
charities, whose existence predates the requirements
restricting external operations, have resisted bringing their
international activities under the umbrella of one of the
government-approved charities. She said that, over time,
more and more have begun using the Red Crescent (particularly
the smaller charities and those located in Abu Dhabi),but
there are still many charities that prefer to conduct their
own activities abroad. Bin Sobeih told Econoff that many
Dubai charities use the MBR Foundation as a conduit for
sending money and supplies to other countries, but that not
all of the charities go through the MBR Foundation. As an
example, Ajman-based Human Appeal International, which was
established in 1984, has offices in twelve different
countries. According to Secretary General of HAI, Salem
Ahmed Abdul Rahman Al Nuaimi, HAI's only federally-approved
branch is in Iraq, and it works with the Red Crescent and MBR
Foundation only occasionally for discreet aid and relief
programs (ref A).

Financial Regulations...But Who Is Checking?
--------------


9. (C) According to the law, charities are only allowed to
have one bank account, and before a bank can open an account
for a charitable society, the organization is required to
present its license (signed by the Minister of Labor and
Social Affairs) to the bank. The UAE Central Bank has widely
publicized the requirement to show the Ministry of Labor
license upon opening a bank account, but charities themselves
may not be aware of the restriction against having more than
one account. For example, HAI's Al Nuaimi told Econoff that
HAI has 30 bank accounts in the UAE so as to avoid incurring
fees when money is transferred from one bank to another.


10. (C) Charities are required to provide their bank account
information to the Ministry of Labor and Social Affairs, but
Ministry officials have told us that it is up to the Central
Bank to track an organization's transactions. However, it is
unclear whether the Central Bank's examiners focus on charity
transactions as a specific category during their bank
examinations. Governor Al Suwaidi told Econoff that he does
not know whether the bank's examiners are looking at
charitable transactions more stringently than any other bank
transaction.


11. (C) The Ministry of Labor also requires charities to
submit records identifying the donor, amount, and beneficiary
for all charitable donations, even those for causes in the
UAE, but Al Roumi acknowledges that the staff reviewing the
annual reports is administrative in nature, and it is not
clear that the Ministry has the capability to examine
charities' yearly reports with an eye toward detecting
diversionary activity. Additionally, only charities licensed
by the Ministry adhere to this reporting requirement -- the
Sheikh Zayed Charitable Foundation, which is funded by a
trust established by former President Sheikh Zayed and not
licensed by the Ministry, submits its annual audit report to
the UAE Ministry of Foreign Affairs, and the locally licensed
charities submit their annual reports to the entity that
issued their licenses.

Comment
--------------


12. (C) Mid-level UAE officials tend to indicate that their
system of monitoring and regulating charities is effective.
They do not acknowledge that their system has gaps; however
in her meetings with Econoff, Al Roumi indicated she would be
interested in U.S. suggestions on practical ways to monitor
charities.


13. (C) Despite the legal and regulatory requirements, UAE
authorities do not have the capacity to monitor charities
carefully. The lack of enforcement mechanisms for
noncompliance and the absence of a uniform, federal licensing
and monitoring system open up the possibility that UAE
charities could wittingly or unwittingly be used as cover for
illicit activity. While the federal law regulating charities
is strict, inconsistent application and a lack of enforcement
expertise open the system up for abuse.
SISON