GULF STRATEGY TO COMBAT TERRORIST FINANCING -

S E C R E T SECTION 01 OF 05 ABU DHABI 003565

SIPDIS

NOFORN

STATE FOR NEA/ARPI RSMYTH, EB/ESC/TFS FOR DNELSON,
JUNDERRINER, S/CT TKUSHNER, IO/PSC JSCHWEITZER
NSC FOR ZARATE, HEFFERNAN, HERRING, RUPERT
OFAC FOR WERNER, LANGFORD
MANAMA FOR BEAL
TREASURY FOR GLASER, MURDEN

E.O. 12958: DECL: 08/14/2015
TAGS: PTER KTFN EFIN ETTC TC
SUBJECT: GULF STRATEGY TO COMBAT TERRORIST FINANCING -
PREPARING FOR A JTFCC

REF: A. 2005 ABU DHABI 720

B. 2005 ABU DHABI 2684

C. 2005 ABU DHABI 356

D. 2005 ABU DHABI 2741

E. 2005 DUBAI 836

F. 2005 DUBAI 1700

Classified By: Ambassador Michele J. Sison for reasons 1.5 (b) and (d).


1. (S/NF) Summary. Embassy supports the priorities and
initiatives for the UAE as outlined in the Gulf Strategy to
Combat Terrorist Financing. Establishing a Joint Terrorist
Finance Coordination Committee (JTFCC) will feed into the
paper's priorities of enhancing charity regulation,
monitoring and regulating the transit of cash couriers
through the UAE, and stemming the flow of funding to
extremists in Iraq. As we move forward with plans to propose
a JTFCC to the UAEG, examining the current state of play in
the UAE regarding terror finance will help the U.S. steer the
mission of the JTFCC. In the aftermath of the September 11th
attacks, in which the UAE banking system was used by the
hijackers, the UAE became seized with the issue of terrorism
financing and has enacted a stringent anti-money laundering
(AML) and counter terror finance (CFT) laws. However, the
UAE faces challenges in interagency cooperation and
coordination that often affect its ability to investigate
AML/CFT cases. Historically, cooperation between the U.S.
and the UAE on terror financing has been good, but we hope
that establishment of the JTFCC will deepen those ties and
provide a mechanism through which the UAEG's own interagency
communication is enhanced. Paragraphs 2-4 provide Embassy's
suggestions on how to present the proposal so as to gain the
most productive UAEG buy-in, and paragraphs 5-12 discuss the
UAE's current AML/CFT issues so as to frame what the JTFCC
will be faced with upon its inception. End Summary.

Pitching the JTFCC
--------------


2. (S/NF) In order for the JTFCC to operate effectively,
buy-in by senior UAE leaders will be essential, and they must
communicate to JTFCC participants the importance of full
participation. Embassy recommends that a senior USG official
-- such as Deputy National Security Advisor for Combating
Terrorism, Juan Zarate -- come to the UAE in early or mid
September to present the proposal. Key players include Abu
Dhabi Crown Prince Mohammed bin Zayed (MbZ),Dubai Crown
Prince Mohammed bin Rashid (MbR),Central Bank Governor
Sultan Nasser Al Suwaidi, Minister of Interior Sheikh Saif,
Minister of Justice Mohammed Al Dhahiri, State Security
Director Hazza bin Zayed, and the Director of Dubai's State
Security Organization Mohammed Al Qemzi. Having a senior USG
official make the formal pitch will convey to the Emiratis
the importance we place on this initiative, and OFAC Director
Bob Werner can use his September 23-26 visit to follow-up on
and reinforce this message.


3. (S/NF) When Homeland Security Advisor Fran Townsend
visited the UAE in February, she suggested to Central Bank
Governor Al Suwaidi establishing a joint terrorism finance
task force (Ref A). Governor Al Suwaidi was initially
skeptical that a task force would improve what he
characterized as already good cooperation between the UAEG
and the USG and between different agencies within the UAEG.
However, he stated that the UAEG would benefit from a task
force if it enabled the UAEG to learn of U.S. terfin concerns
earlier in designation process. Townsend and Al-Suwaidi
agreed the USG would provide the UAEG with a written
proposal.


4. (S/NF) Comment/Recommendation: Governor Al Suwaidi reacts
defensively to any hint that the UAE is not doing enough in
the fight against terror financing, and as a result, it is
important that the U.S. frame the formal pitch of the JTFCC
in a way that indicates the JTFCC will enhance an already
strong bilateral relationship. We expect the UAE will react
favorably to the training mechanism within the JTFCC, and
officials will likely want to know if the committee will
allow for increased information sharing on specific cases.
Convincing MbZ and MbR of the value-added the JTFCC will
bring to the U.S./UAE relationship is the most critical step.
End Comment/Recommendation.

Comprehensive Laws...
--------------


5. (U) The two laws that serve as the foundation for the
UAE's AML/CFT efforts are the Anti-Money Laundering Law (Law
No. 4/2002),and the Counterterrorism Law (Law No. 1/2004),
and both authorize the freezing and confiscation of assets.
Although the Anti-Money Laundering Law criminalizes money
laundering, it is Administrative Regulation No. 24/2000 that
provides the guidelines for how financial institutions are to
monitor for money laundering activity. Pursuant to the
Financial Action Task Force (FATF) recommendations, banks and
financial institutions (including the UAE's 106 money
exchange houses) must maintain records of their customers
(including copies of identification) and transactions, for as
long as an account remains open and for five years after its
closure, for the purpose of reconstructing transactions.
Identity must be verified and transaction details (including
name and address of originator and beneficiary) must be
maintained for all exchange house transactions over $545 (one
of the lowest thresholds in the world) and for all
non-account holder bank transactions over $10,900. The
regulation also outlines types of transactions that could
constitute money laundering and requires financial
institutions immediately report them to the Central Bank's
Financial Intelligence Unit, the Anti-Money Laundering and
Suspicious Cases Unit (AMLSCU).


6. (U) Law No. 1/2004 is a broad Counterterrorism Law that
specifically criminalizes terror finance, and sets a maximum
punishment of life in prison. The law authorizes the Central
Bank Governor to freeze accounts for up to seven days if he
suspects the funds will be used to fund or commit any of the
crimes listed in the law, but it stipulates that the Central
Bank provide evidence to the Attorney General for prosecution
in order to maintain the freeze beyond seven days. The law
gives the overall authority to seize or freeze assets to the
Attorney General's office that has jurisdiction over the case
(Note: Although the federal penal code is applied throughout
the country, the UAE has three judicial systems -- federal,
Emirate of Dubai, and Emirate of Ras al Khaimah -- and thus
three separate Attorney General offices. End note.) It
authorizes the Attorney General's office to order the
investigation of activities the Attorney General has
"sufficient evidence to believe" are related to the funding
or committing of a terror activity stated in the law.


7. (C) In practice, the Central Bank holds freezes longer
than seven days, even if no evidence has been provided to the
Attorney General. The Central Bank Governor, Sultan Nasser
Al Suwaidi, is proactive and would rather keep accounts
frozen extra-judicially than to allow individuals access to
suspect funds. However, Central Bank officials have
expressed frustration when the USG has asked the Bank to
freeze funds but has not provided evidence that could be used
in a court of law. Central Bank officials have told us on
multiple occasions they are concerned that courts could force
them to release frozen assets based on a lack of evidence,
which would seriously damage the credibility and
effectiveness of the Central Bank.

...Weak Interagency Coordination
--------------


8. (C) Despite having a strong legal mechanism in place to
combat terror financing, the loose federal structure of the
UAE results in obstacles to interagency coordination. The
UAE is made up of seven semi-autonomous Emirates and three
separate judicial systems, and communication between (and
among) federal and emirate-level agencies is overly
formalized and often proprietary. The Central Bank, which
has the capability to examine accounts, follow wire
transfers, and ensure banks follow appropriate Know Your
Customer procedures, does not have the law enforcement
expertise to determine if there is underlying illegal
activity. Although the UAE National Anti-Money Laundering
Committee has representatives from the Ministries of Foreign
Affairs, Interior, Justice, Finance, and Economy, the Central
Bank, the Federal Customs Authority, and emirate-level
customs authorities, Embassy and Consulate officers have
observed that the Central Bank and law enforcement officials
responsible for investigating suspicious activity do not
communicate effectively. In the spring of 2004, the U.S.
Department of Justice conducted an anti-money laundering
conference that brought together officials from the AMLSCU,
prosecutors and judges, and law enforcement officers to
discuss investigative and prosecution techniques and how to
improve coordination between the relevant elements, and the
DOJ will conduct a similar regional training in Abu Dhabi
September 17-19. Embassy officers have observed that, even
with trainings aimed at enhancing cooperation and
coordination, the underlying problem continues (and yet,
Central Bank and Ministry of Interior officials continue to
request more training, ref B). Recognizing that his
financial investigators need experience in the banking
sector, Minister of Interior Saif has told Ambassador that
five Abu Dhabi police officers are working at the Central
Bank to give them a better understanding of the banking
world, which will aide them in conducting financial
investigations.

Actions Against Terror Finance
--------------


9. (SBU) As of the end of 2004, the UAE Central Bank had
frozen 17 accounts totaling $1,348,381 under UNSCR 1267,
according to Central Bank documents provided to the Embassy.
As a member of the Egmont Group and a participant in the
Middle East North Africa/Financial Action Task Force
(MENA/FATF),the AMLSCU's International Division is
responsible for cooperating and coordinating with Financial
Intelligence Units (FIUs) around the world and shares
information on AML/CFT cases on the basis of reciprocity and
international obligations. In addition to freezes under
UNSCR 1267, the Central Bank has frozen 23 accounts based on
information and requests from other countries, and it has
referred 88 cases to counterparts in other countries for
investigation and asset freezing (ref C). Additionally, the
UAE cooperated closely with the U.S. on its investigation of
Moussaoui and 9/11, and the Central Bank has allowed the
FBI/Terrorist Financing Operations Section (TFOS) access to
information and documents relating to the case. Although the
process was difficult and time-consuming, the Central Bank
provided U.S. officials with certified documents for use in
federal court for the Moussaoui case.


10. (SBU) From December 2000 through the May 2005, 2,571
Suspicious Transaction Reports (STR) were submitted to the
Central Bank's Anti-Money Laundering and Suspicious Cases
Unit (AMLSCU),which serves as the UAE's Financial
Intelligence Unit (FIU). The Central Bank Governor has told
us that he stresses the importance of reporting "quality"
suspicious transactions, not just "quantity" (however, in
order to gain a perspective of the order of magnitude, the
UAE Exchange conducts 20,000 transactions per day -- last
year the exchange submitted 25 STRs). Out of the submitted
STRs, the AMLSCU, the Central Bank, or law enforcement
authorities reviewed and/or investigated 2,273 STRs,
according to a document provided by the Central Bank. In 28
cases, freezing orders were issued and the case was reported
to the public prosecutor in order to initiate legal action.
As of May, 16 of those cases were in the process of
prosecution (4 of these for customs violations),and 9 of
them are in the "process of judgment," and have been for at
least six months. We do not know if any of those 16 cases
resulted in convictions. (Note: The AMLSCU's authority also
covers anti-money laundering activity, and we do not have a
breakdown of which cases are straight criminal cases, and
which are related to terror finance. End note.)

Risk Factors
--------------


11. (C) Despite the relatively well supervised financial
system, risk factors remain in both the formal and informal
financial sectors. We remain concerned that extremists could
exploit the UAE's hawala system and charities to funnel money
to terrorists, and we continue to impress upon Emirati
customs officials the importance of monitoring large amounts
of cash flowing into and out of the country.

-- Hawala. In 2002, UAE began registering hawala dealers
(hawaladars) through the Central Bank, but there is no
enforcement or punishment for hawaladars that do not
register. To date, over 160 hawalas have submitted
registration applications, and so far, the Central Bank has
not denied any hawaladar a license to operate. The Central
Bank conducts a background check on hawaladar registrants,
but AMLSCU official Ahmed Al Qamzi (protect) admitted the
checks are sometimes perfunctory. He said that they look
closely at the background of hawaladars from places like
Somalia and other countries of concern (NFI),but that the
Central Bank accepts the work permit issued by the Ministry
of Labor as sufficient due diligence on most hawaladars.

Central Bank officials acknowledge they do not know how many
unregistered hawalas continue to operate. The Central Bank
finds out about unregistered hawaladars in two ways: a)
registered hawaladars report them to the Central Bank; b) by
examining STRs from banks and exchange houses and noting
individuals making transactions significantly above their
means. (Note: Many hawaladars eventually use the formal
financial system to settle their accounts with hawaladars in
other countries. If, for example, a dry cleaner suddenly
sends an amount of money significantly above his means, the
bank or exchange house will submit an STR, in essence
notifying the Central Bank that the person may be operating
an unlicensed hawala. End note.) Central Bank officials
tell us they have made it difficult for unregistered
hawaladars to send money through the banks and exchange
houses. When a known or suspected hawaladar goes to a bank
or exchange house, he is required to show his license before
he can transfer money.

Registered hawaladars are required to submit records of every
incoming and outgoing remittance to the Central Bank every
quarter. Additionally, hawaladars are required to
immediately report any suspicious transaction, but Central
Bank officials tell us that none have done so yet. Central
Bank officials tell us they will eventually raise the
reporting requirements for registered hawaladars and begin to
more actively seek out unregistered hawaladars. But for now,
the bank does not want to be too aggressive and risk driving
hawaladars further underground. According to one of the
hawaladar examiners, the Central Bank wants hawaladars to
trust that their transaction information will be held in
confidence and not disclosed to countries like Bahrain, Saudi
Arabia, and India, where hawala is illegal.

-- Charities. The UAE Ministry of Labor and Social Affairs
is responsible for licensing and monitoring UAE charities;
however, less than half of UAE charities are federally
licensed. The rest are licensed by local emirates and
operate largely independent to federal guidelines. UAE law
stipulates that all international charitable donations be
channeled through one of three government approved charities:
the UAE Red Crescent Authority, the Sheikh Zayed Charitable
and Humanitarian Foundation, or the Mohammed bin Rashid
Charitable and Humanitarian Foundation; however there is no
mechanism in place to ensure that charities abide by this
requirement, and we have been told that it is not universally
abided by. Federally licensed charities are required to
submit records of donor, amount, and beneficiary for all
charitable donations to the Ministry of Labor and Social
Affairs. However, the staff reviewing charities is
administrative in nature, and does not have the capability to
examine yearly reports with an eye toward detecting
diversionary activity. (For a thorough discussion of UAE
charity regulation, see ref D).

-- Cash Couriers. Legislation specifically requires cash in
excess of $10,800 be declared when it is brought into the
UAE, and the Central Bank is in the process of revising the
law to also require declaring exported cash. We note,
however, that the requirement to report cash only creates a
record of its movement and UAE authorities may not use the
information to begin an investigation. According to
documents from the Central Bank, customs officials only
submitted 111 STRs to the AMLSCU between December 2000 and
January 2005. The UAE is seeing large sums of cash coming
from India and Pakistan, and the Central Bank has highlighted
the problem of cash couriers as an area of concern. In one
instance, Dubai Police arrested an Indian man who had taken
multiple trips to and from India and smuggled the proceeds of
illegal activity, and the case is pending prosecution.
Overall, customs officials appear to not aggressively enforce
the cash reporting requirement and tell us they do not view
it as a tool for combating money laundering. If they
discover someone carrying undeclared cash, customs officials
have them declare the money, but they tell us they do not
necessarily consider it a criminal case. As a senior customs
official told an Embassy officer, "But he might be a business
man using the money for legitimate purposes." DHS/ICE
recently held a training session on detecting bulk-cash
smuggling for Dubai Customs officials.


12. (C) In September 2004, the Dubai International Financial
Center (DIFC) opened as a "financial free zone." The DIFC is
owned by the Government of Dubai and reports to the office of
Crown Prince Mohammed bin Rashid (MbR). It has a legally
independent regulatory body, the Dubai Financial Services
Authority (DFSA),which also reports to MbR's office. UAE law
governing free zones exempts the DIFC from federal civil and
commercial laws, but it remains subject to criminal laws --
including the Anti-Money Laundering and Counterterrorism
laws. Federal Law No. 8/2004, the Financial Free Zone law,
gives Central Bank examiners the authority to "conduct
inspections of a Financial Free Zone to ascertain its
compliance with this law" and submit their findings to the
UAE Cabinet; however the DFSA has established its own set of
AML/CFT regulations (above and beyond those of the UAE
Central Bank) (ref E). Financial institutions within DIFC
are required to submit suspicious transaction reports to the
AMLSCU and the DFSA (ref F),with any investigations to be
carried out by the AMLSCU. The AMSCLU maintains that Law No.
8/2004 gives it the authority to randomly inspect the books
of DIFC international member institutions, but DFSA
regulators -- expatriates hired from UK, Australia, and other
western regulatory agencies -- are keen to preserve the DIFC
as an independent entity run according to western standards
and are thus reluctant to grant the Central Bank this
authority. While they do not dispute the fact that the
Central Bank has the legal authority to inspect DFSA and its
records, they are reluctant to grant it the authority to
examine the books of individual institutions within DIFC
absent a formal investigation request. As a result, a
long-awaited MOU between DIFC/UAEG spelling out precise
authorities has not/not been finalized.
SISON