OFAC DISCUSSES WMD, TERFIN WITH UAEG, BANKS

S E C R E T SECTION 01 OF 05 ABU DHABI 004103



SIPDIS



NOFORN



STATE FOR NEA/ARPI RSMYTH, EB/ESC/TFS FOR JSALOOM

TREASURY FOR WERNER

NSC FOR ZARATE

MANAMA FOR BEAL



E.O. 12958: DECL: 09/28/2020

TAGS: KTFN, PTER, EFIN, SNAR, PK, KN, IR, TC

SUBJECT: OFAC DISCUSSES WMD, TERFIN WITH UAEG, BANKS



REF: A. DUBAI 4650

B. SECSTATE 13956 (NOTAL)



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



1. (S) Summary. The Director of the Department of Treasury's

Office of Foreign Assets Control (OFAC),Bob Werner,

discussed OFAC's WMD, counter terrorism, and counter

narcotics sanctions programs with UAEG officials at the

Central Bank, Ministry of Interior, and Dubai Ports

Authority, and with banking officials and exchange house

representatives. UAEG officials pledged their cooperation on

cases of mutual interest, but Central Bank Governor Sultan

Nasser al-Suweidi noted his frustration with the USG over the

frozen assets of A.Q. Khan's daughter, Dina Khan. Commercial

bank compliance officers expressed their desire to be

compliant with the U.S. sanctions program against Iran, but

had many detailed questions about the mechanics of

implementing the sanctions. The UAE's money exchange houses

described their stringent Know-Your-Customer program, and the

discussion at the Dubai Financial Services Authority (DFSA)

highlighted questions about the competing role between the

DFSA and the UAE Central Bank in monitoring banks within the

free zone for anti-money laundering compliance. End summary.



2. (C) The Director of the Department of Treasury's Office of

Foreign Assets Control (OFAC),Bob Werner, traveled to the

UAE September 17-19 to discuss OFAC's sanctions programs with

the UAEG and industry officials. Werner was accompanied by

Jamal El-Hindi, Associate Director of OFAC; Howard

Mendelsohn, Middle East Unit Chief, Office of Intelligence

and Analysis; Clay Stevenson, International Programs Officer;

Jason Beal, OFAC Middle East Regional Attache; and Reece

Smyth, NEA/ARPI Economic Officer. Werner and his delegation

met with Central Bank Governor Sultan Nasser al-Suweidi,

Minister of Interior (MOI) Undersecretary Major General Saif

Abdullah al Shaafar, General Manager of the Abu Dhabi

Investment Authority (ADIA) Sheikh Ahmed bin Zayed, and

Technical Director of Dubai Port Authority Mohammed Muallam.

The delegation also held separate roundtable discussions with

bank compliance officers, representatives of the UAE Exchange

Houses, officials from the Dubai Financial Services Authority

(DFSA),the Executive Board of the Dubai American Business

Council, and with the U.S., British, and Australian Drug

Liaison Officers (DLOs). (Note: The meeting with ADIA

General Manager Ahmed bin Zayed will be reported septel. See

ref A for a readout of Iran issues from the DLO roundtable.

End note.)



UAEG Pledges Cooperation, Needs More Information on Cases

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3. (C) During his meetings with Central Bank Governor

al-Suweidi and Ministry of Interior Undersecretary

al-Shaafar, Werner raised a number of outstanding cases,

including the ABN Amro investigation, narco-traffickers Haji

Bashir Noorzai and Iqbal Mirchi, the wedding of Dawood

Ibrahim's daughter at the Grand Hyatt in Dubai, and the

continuing use of Sharjah by UN-designated arms proliferator

Viktor Bout's smuggling network. Both the Central Bank

Governor and MOI Undersecretary pledged their cooperation on

these matters and requested additional information and

details on each of the issues. Werner passed Al-Shaafar the

list of hotels used by Iqbal Mirchi, and Al-Shaafar said he

would look into the matter. To aid the UAE's efforts to

investigate and shut down Viktor Bout's network, Werner

offered to send the analyst most familiar with Viktor Bout to

the UAE to go over detailed information with Central Bank and

Ministry of Interior officials. Al-Shaafar also noted that

he is interested in sending Abu Dhabi police officers to the

U.S. for seminars and training to help increase their

understanding of our system and to build personal

relationships with their American counterparts. He would

like to send some officers in November or December, after

Ramadan, but had not identified any specific program.

Undersecretary al-Shaafar stressed that the UAE must ensure

that its businesses and financial system are not abused --

"the UAE cannot be a soil where bad seeds are allowed to

grow" -- and he stated that his department would continue to

work with the U.S. and share information with us.



4. (S) The Central Bank Governor noted that the UAE is very

near "countries of concern," and that it has been able to

maintain its security by not "harming anyone and by

understanding their needs." The Governor stated, "Please do

not involve us in the 'name and shame' of certain countries,

because it would make our life very difficult. We know that

you mean good, so we will help as we can, but hopefully it

will be in other ways that will not harm us." Stating that

the UAE must coexist with its neighbors, he emphasized that

the UAE must avoid engaging in conduct that could be viewed

as a "declaration of war." (Comment: The Governor did not

state which countries he was referring to, but he likely

meant Iran and Saudi Arabia, and possibly North Korea. End

comment.)



Need to Justify Freeze of WMD Proliferators' Assets

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5. (S) Werner discussed in detail three of OFAC's sanctions

programs -- the Counter Terrorism Executive Order, the

Counternarcotics Kingpin Program, and the new Executive Order

13382 on blocking property of WMD proliferators and their

supporters -- with both the Central Bank Governor and

Ministry of Interior Undersecretary. During a discussion of

E.O. 13382, the Central Bank Governor noted his concern that

the U.S. designates "too quickly", without always ensuring

that the individuals or entities are complicit in the

activities. He stated, "no one wants the proliferation of

weapons of mass destruction, but also, no innocent people

should be defined as perpetrators of proliferation

activities...Giving the wrong medicine for a disease does not

help cure the disease." He pointed out that due diligence is

essential to be sure that a mistake is not made. Ambassador

assured the Governor that the USG conducted due diligence.

The Governor responded positively to this, noting "the reason

I ask is so that we can support and defend these efforts.

That way, if we are asked how it works, we will know how to

answer."



6. (S/NF) The Central Bank's experience with accounts

connected to the A.Q. Khan network has clearly colored how

the UAE perceives the U.S. actions against WMD proliferators.

Al-Suweidi quoted an Arabic saying that is roughly

translated, "if you want to be obeyed, ask for the

achievable" as a way to illustrate his concerns with certain

U.S. requests for asset freezes. The Governor also raised

the example of the frozen bank account of A.Q. Khan's

daughter, Dina Khan. In response to a U.S. request, the UAE

froze Dina Khan's UAE bank account in the spring of 2004.

The account remains frozen; however the UAE Central Bank has

been told by the Dubai Attorney General that there is not

enough evidence to justify continuing the freeze. Dina Khan

has hired a British lawyer and is threatening to sue the UAE

Central Bank in the UK for "physical and emotional" damages.

Through her attorney, she submitted an affidavit to the

Central Bank claiming that the money was an inheritance from

her grandmother, and that it had nothing to do with her

father's activities (although Central Bank officials noted

that she did not provide any corroborating documentation,

such as bank records, to prove this). The affidavit also

notes that she is not under a travel ban in any country and

that she has no other accounts frozen -- including those in

the UK. The affidavit further states that she owns property

in Pakistan that is leased by the USG, and she claims that if

she were connected to her father's network, the USG would not

be leasing her property. (Note: At Embassy Abu Dhabi's

request, Embassy Islamabad has checked its 157 property

leases held for Islamabad, Lahore, Peshawar, and Karachi.

None of them lists Dina Khan as the property owner. Of the

157 leases checked, 13 show someone with the surname "Khan"

as the owner of the property; but that is a common surname in

Pakistan, and none of those 13 owners have given names that

track with any of Dina Khan's immediate family members.

There is the possibility that Dina Khan may be owner of an

Embassy-leased property and had an agent or lawyer sign the

lease on her behalf, but Embassy Islamabad has no knowledge

of that being the case. Embassy Abu Dhabi will advise the

Central Bank of this at the earliest opportunity. End note.)





7. (S/NF) The Central Bank is very concerned that it does not

have legal "cover" on the Dina Khan case and that it may be

sued. In the fall of 2004, the Central Bank Governor asked

U/S Juan Zarate for the USG to provide it with a letter of

"indemnification" that would provide the bank with some

cover; however, Zarate noted that this would not be possible.

During the meeting with OFAC Director Werner, the Central

Bank Governor said, "I personally recommend that Dina Khan be

eliminated from the list because there is not enough evidence

to justify continuing the freeze...In absence of a green

light to unfreeze the account, we would demand indemnity."

Werner responded that he did not believe indemnity was

possible. Werner also noted that the U.S. believes that

UNSCR 1540 provides the UAE with the authority to freeze

accounts of suspected proliferators. The Governor responded

that he would like for the U.S. to provide a legal opinion of

exactly how 1540 is relevant in this case. (Note: Embassy

has drawn from points provided Ref B several times in the

past few months to try to convince the Governor that UNSCR

1540 indeed provides such authority.)



8. (S) The Central Bank Governor also briefly mentioned the

case of North Korean Tanchon Commercial Bank, which is one of

the eight entities designated by Executive Order 13382 in

June 2005 to counter proliferators of weapons of mass

destruction. Back in 2004, the UAE Central Bank froze

Tanchon's UAE accounts, also as a part of the A.Q. Khan

investigation. These accounts remain frozen, and Tanchon has

also threatened to sue the UAEG. In July, when the Embassy

provided the Central Bank with the annex to E.O. 13382 that

lists the eight designated entities, Central Bank officials

recognized Tanchon Commercial Bank, but they did not comment

on whether this E.O. would help give them any additional

legal or political cover should the bank actually sue.



Exchange Houses Discuss KYC Procedures

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9. (C) In the spring of 2005, the UAE's 110 licensed money

exchange houses formed a Steering Committee to work with the

UAE Central Bank and international financial institutions in

order to address some international banks' concerns that

exchange houses (or money service businesses - MSBs) are not

regulated as stringently as other financial institutions.

Werner and his delegation met representatives from ten of the

exchange houses on the Steering Committee, and they discussed

the stringent Know-Your-Customer (KYC) guidelines that UAE

MSBs adhere to. MSBs examine and copy identification for all

transactions over 2,000 dirhams (approximately $546); they

record identifying information of the remitter and the

beneficiary; they check to be sure that the remittance is

consistent with the person's means; and they keep the ID and

transaction records for a minimum of five years. Most of the

large exchange houses issue an ID card to repeat customers.

This card contains each customer's identifying information,

and it allows the exchange house to keep track of all of the

customer's transactions. Additionally, exchange house

officials make site visits to the companies of commercial

customers to ensure that they are engaged in the business

they claimed when they make their transactions. Attesting to

the exchange houses' due diligence, Ray Ferguson, Chief

Executive of Standard and Chartered, stated during the bank

compliance officer roundtable that he has been "blown away"

by the due diligence of the UAE's exchange houses, even on

small transactions -- "I think they would not be in business

today if they hadn't been so diligent in implementing the

UAE's anti-money laundering regulations."



10. (C) Essentially, the UAE's MSBs are regulated the same as

banks, and in addition to the Central Bank's yearly AML/CFT

compliance and security and soundness audits, MSBs have a

yearly external money laundering audit. Each exchange house

has at least one compliance officer, they all attend KYC and

anti-money laundering (AML) and counter-terror finance (CTF)

training programs, and they use the OFAC list in addition to

the Central Bank's list of designated individuals and

organizations. After outlining the details of the MSB KYC

regime, Mohammed al-Ansari of Al-Ansari Exchange, noted "I do

not believe it is fair to put all exchange houses in the same

category of "high risk" - as many banking institutions are

prone to do," and he noted that the Steering Committee hopes

that the FATF will recommend to categorize MSBs as low,

medium, or high risk, based on each country's MSB oversight

and regulation and on each institution's KYC policies.

Acknowledging that some of the small UAE exchange houses may

not have the capabilities to be as thorough and as diligent

as those large exchange houses represented at the roundtable,

Akbar Dadarkar of the Wall Street Exchange Center, noted that

the Central Bank does not license the smaller exchange houses

to transfer money overseas -- they are only licensed to

exchange currency -- "90 percent of the money exchange

business, ie: transfers, are conducted by the 10-15 large

exchange houses represented here."



11. (C) Several of the MSB representatives noted their

concern about people making multiple transactions at multiple

exchange houses to conceal the total amount. They said they

are encouraging the Central Bank to create a central database

that would detect this type of activity. They also noted

that to aid checking names against the Central Bank and OFAC

lists, it would be helpful if the names were listed in the

native language. For example, in addition to listing a

transliterated Arabic name in English, also list the name in

Arabic. They also indicated interest in U.S. AML/CTF

training materials, and Werner encouraged them to download

such material from FINCEN's website.



DFSA - Question of Regulatory Overlap Remains

--------------



12. (C) The Dubai Financial Services Authority (DFSA)

regulates the Dubai International Financial Center (DIFC),

Dubai's offshore banking center, and DFSA officials maintain

that their regulatory system holds banking institutions to an

international standard. DFSA's officials come from

internationally recognized regulatory bodies; though

ostensibly independent they ultimately report to Dubai Crown

Prince Sheikh Mohammed bin Rashed. Werner's meeting with DFSA

officials focused in part on gaps and overlaps in regulation

with the UAE Central Bank. The federal law allowing the

creation of financial free zones within the UAE "disapplied"

all federal commercial and civil law, but criminal laws still

apply. In this regard, financial institutions within the

DIFC, like those elsewhere in the UAE, are required to abide

by the Central Bank's AML/CTF regulations. However, the DFSA

requires DIFC institutions to abide by a more stringent

"parallel" set of AML/CTF requirements, which incorporate all

of the Central Bank regulations and then expand upon them in

many areas.



13. (C) The legal relationship between the DFSA and the UAE

Central Bank has not been codified yet -- the two bodies are

in the process of negotiating an MOU. Marc Hambach, the

Assistant Director of DFSA's Banking Supervision Department,

noted that the DFSA is required to refer all suspected

AML/CTF cases to the Central Bank on AML/CTF cases, and that

if DFSA officials feel the Central Bank's response is slow or

inadequate, the DFSA has the authority to independently

freeze assets. Jane Coakley, the Managing Director of the

Authorization Department inquired as to whether OFAC could

vet or share intelligence with DFSA on individuals or

entities seeking to open accounts or operate within the DIFC.

Werner replied that these types of inquiries should be

channeled through formal FIU channels (ie: from the UAE's

Anti-Money Laundering and Suspicious Cases Unit (AMLSCU) to

FINCEN). Noting that communication from the UAE Central Bank

to DFSA is sometimes slow, DFSA officials indicated they

would appreciate it if the U.S. could "cc" the DFSA when it

sends information to the AMLSCU that relates to institutions

within the DIFC. (Comment: The discussion with DFSA

highlights the stresses between two regulatory bodies in the

UAE. DFSA regulators have consistently stressed the high

quality of their regulation, whereas the Central Bank has

expressed concerns about the need for it to monitor the DIFC,

since any problems would reflect back on the UAE. The

current dispute over jurisdiction is creating potential

loopholes and overlapping jurisdiction that could cause

problems for the DIFC and the UAE in general. Early concerns

over governance and the very public firing of the former head

of the DFSA increases the pressure on both the DFSA and the

Central Bank to "get it right." End Comment.)



"Cash is King"

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14. (C) In the roundtable discussion with U.S., British, and

Australian Drug Liaison Officers (DLOs),the DLOs noted that

investigating money-laundering cases in the UAE is

challenging due to the cash-based nature of the society. As

British DLO Cameron Walker noted, "with so many cash

transactions here, how do you see the wood through the

trees?" The DLOs also expressed frustration with getting the

Central Bank to share information with foreign law

enforcement officials like themselves. Werner suggested

going through FINCEN, since FINCEN and the AMLSCU have a

close working relationship. Additionally, Werner pointed out

that OFAC does not need a U.S. link to designate individuals

or entities under the narcotics Kingpin program, and he

encouraged them to work with OFAC and use this tool to aid

their efforts to shut down the networks of narco-traffickers.





Iran Sanctions Affect Dubai Banks, American Businessmen

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15. (C) During a roundtable discussion with 13 compliance

officers from major UAE banks and a dinner with the American

Business Council's Executive Board, Werner discussed OFAC's

role in implementing U.S. sanctions programs. Participants

asked many targeted questions about Iranian sanctions, and

several of the U.S. businessmen expressed frustration with

the sanctions limiting their ability to do business in the

region. With Dubai serving as Iran's largest non-oil trading

partner, the bankers wanted to know details of OFAC

requirements to ensure that they stay compliant.



Dubai Ports - Exercises Reactive Due Diligence

-------------- -



16. (C) During a meeting with Mohammed Muallam, Technical

Director of Dubai Port Authority in the Jebel Ali Free Trade

Zone, Muallam emphasized that Dubai Port Authorities work

closely with Dubai Police and the State Security Organization

(SSO) to be sure that "what flows through our ports is only

cargo." With 50 percent of the ports' 3.6 million containers

being trans-shipped to other locations each year, Muallam

said that Dubai Port authorities recognize that they must be

diligent in monitoring the cargo for illegal or dual-use

items. He noted that his officials cooperate closely with

other UAEG agencies, and that they detain cargo when the SSO

provides information on suspect shipments. (Note: Dubai

Ports Authority is a part of the Container Security

Initiative (CSI),which is aimed at preventing terrorist

organizations from utilizing shipping containers to transport

WMD and/or related components from Dubai ports to the United

States. CSI became operational in March 2005, with the

arrival of three U.S. Customs and Border Protection Officers

and one ICE Special Agent. The CSI team reviews bills of

lading and regularly refers shipping containers for

examination prior to departure for the United States. End

note.)



17. (U) This cable was cleared by OFAC Director Werner.

SISON