STAFFEDL FISCHER EXPLORES UAE REGULATIONS ON

UNCLAS SECTION 01 OF 04 ABU DHABI 000864

SIPDIS

SENSITIVE

STATE FOR S/CT, EB/ESC/TFS, INL/C/CP, H, NEA/ARPI
TREASURY FOR ZARATE, GLESER, AND MURDEN
NSC FOR PHEFFERNAN

E.O. 12958: N/A
TAGS: PTER KTFN EFIN ETTC TC
SUBJECT: STAFFEDL FISCHER EXPLORES UAE REGULATIONS ON
TERROR FINANCE, MONEY LAUNDERING

REF: ABU DHABI 4218


1. (SBU) Begin summary. Visiting Senate Banking Committee
Staffdel met with UAE Minister for Economy Sheikha Lubna
Al-Qasimi and officials from the Central Bank for briefings
on the regulatory regime for all financial institutions in
the UAE -- including money changers, hawaladars, stock
exchanges, and the Dubai International Financial Center
(DIFC). The Central Bank Governor also discussed UAE
training programs designed to help financial institutions
identify and track suspicious transactions. The Central Bank
examines all financial institutions yearly and requires them
to submit detailed records of incoming and outgoing
remittances. To date, the UAE has registered 155 hawaladars.



2. (SBU) (Summary continued.) The Staffdel also met UAE's
Ministry of Labor Undersecretary for Social Affairs, who
described how UAE regulatory requirements for charities
ensure that UAE charitable contributions go to legitimate
causes. Among the regulations, the UAEG allows only three
designated charities to send contributions out of the
country, and it requires all Zakat donations in mosques be
made in the form of bank transfers, not cash donations. End
summary.


3. (U) Staffers Dr. Walter Fischer, John O'Hara, and Steve
Kroll from the United States Senate Banking, Housing, and
Urban Affairs Committee met with UAE officials on February 19
to discuss UAE efforts to combat money laundering and terror
financing. They met with Minister of Economy and Planning
Sheikha Lubna Al-Qasimi, MFA Undersecretary for Foreign
Affairs Abdullah Rashid Al-Noaimi, Central Bank Governor
Sultan Nasser Al-Suwaidi, and Ministry of Labor
Undersecretary for Social Affairs Mariam Al-Roumi. The UAE
officials explained the UAE's systems for stopping terror
finance and money laundering, and requested more U.S.
sponsored training and intelligence information. February 20
meetings in Dubai with bankers will be reported septel.

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Regulating Financial Institutions and Transactions
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4. (SBU) In a detailed discussion about UAE efforts to combat
money laundering and terror financing, Al-Suwaidi outlined
the Central Bank,s mechanisms for monitoring UAE financial
systems. He stressed, "We have to be leaders in regulating
our banking system because we are the gateway to another
world" (ie: between countries with well regulated financial
systems and those with more lax regulatory systems). In
response to the UAE's obligations under UNSCR 1267 to freeze
assets belonging to or associated with the Taliban or
Al-Qaida, the UAE Central Bank has frozen 17 accounts
totaling over $1 million. There are 47 banks in the UAE (21
national and 26 foreign),106 money changers, and 155
registered hawalas, and each of these institutions is
required to submit to yearly examinations, provide quarterly
reports on remittances, and abide by "Know Your Customer"
(KYC) policies. The Central Bank provides training and
technology to help financial institutions abide by these
regulations.

-- Examinations. The Central Bank has 85 examiners on 15
teams, and each team is responsible for monitoring a
designated set of banks, money changers, and hawalas. The
teams use a "risk-based" examination model developed and
implemented by the Central Bank three years ago. Imbedded in
this model are checks to uncover possible money laundering
activities. The Central Bank examines each financial
institution at least once a year, but the teams are
responsible for monitoring their designated institutions
throughout the year. After every examination, the Bank
issues a report highlighting problem areas and offers
suggestions for improvement. The financial institutions are
expected to take positive steps to resolve the Central Bank's
concerns. The Central Bank holds CEOs personally liable for
transactions processed through their institutions. If an
organization does not comply with reporting requirements, the
Central Bank can impose fines and/or recommend the case to
the Attorney General for prosecution. The Governor stated
that administrative penalties (such as fines) have been
assessed more often than criminal penalties.

-- Remittance Reporting/Know Your Customer. All financial
institutions are immediately required to report any
suspicious transactions, and every three months they are
required to submit detailed records itemizing incoming and
outgoing remittances. Additionally, the Bank holds all
financial institutions to strict KYC standards (including the
requirement to maintain customer records for a minimum of
five years and periodically update the records as long as the
account is open.)

-- Training Programs. The Governor stressed that the Central
Bank is interested in quality, not quantity of suspicious
transaction reports (STRs). In order to help financial
institutions recognize when a report should be filed, the
Bank offers free training sessions. Additionally, the
Central Bank conducts one-on-one training sessions with every
registered hawaladar to ensure they understand their
reporting requirements. According to Governor Al-Suwaidi,
the objective of the training is twofold: "to convince them
that we want only genuinely suspicious cases reported -- not
rubbish -- and to make the players emotionally involved and
sympathetic to the cause" of stopping money laundering and
terror finance.

-- Technology. The Central Bank is in the process of
implementing a computer system for money changers that will
automatically send a record of each transaction to the
Central Bank at the time the transaction is conducted, and
Governor Al-Suwaidi said he plans to eventually provide
computers to hawaladars so they can use the system.


5. (U) The four year old UAE stock market system is evolving
and developing. The Securities and Commodities Authority
(SCA) supervises the country's two national stock markets
(the Dubai Financial Market and the Abu Dhabi Securities
Market). Minister of Economy and Planning Sheikha Lubna
Al-Qasimi explained that in 2004, the SCA issued reporting
requirements and regulations to the stock markets that mirror
those the Central Bank uses for other financial institutions.
The two stock exchanges consist of 55 companies, and
according to Sheikha Lubna, the SCA is looking to eventually
merge the two markets into one national stock exchange.
Foreign companies are allowed to list on either the DFM or
the ADSM if they are dual listed in their home country and
meet certain profitability criteria. Sheikha Lubna expressed
interested in visiting the U.S. to see how the stock market
and securities and exchange commissions are structured and
regulated.


6. (U) UAEG interlocutors also briefly discussed Dubai's
"financial free zone," the Dubai International Financial
Center (DIFC),which is subject to UAE laws against money
laundering and terror finance. Although the DIFC has its own
regulatory body, the Dubai Financial Services Authority, the
UAE Central Bank is playing an active role in monitoring the
DIFC. According to Governor Al-Suwaidi, the Central Bank
currently has an examination team at DIFC that will submit a
report to the Cabinet on its findings. MFA Undersecretary
Abdullah Rashid said, "DIFC is part of one UAE system. The
Central Bank will license, monitor, and follow-up to ensure
that transactions are smooth and controlled, just like the
Bank does for the other banks in the country." February 20
meetings in Dubai with officials from the Dubai Financial
Services Authority will be reported septel.

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UAE Addresses Challenges Unique to Hawala Regulation
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7. (U) In 2002, the UAEG began requiring all hawala dealers
(hawaladars) to register with the Central Bank, and as of
February 2005, 155 hawaladars have registered (131 of which
have been examined and issued "non-objection certificates").
The Bank is aware that not all hawaladars have engaged in
this process, but its officials do not have an estimate of
how many unregistered hawaladars continue to operate in the
country. In a discussion about the challenge of persuading
hawaladars to register, MFA Undersecretary Abdullah Rashid
said, "we must convince them that it is in their best
interest to submit to the registration."


8. (SBU) The Central Bank Governor noted that people feel
comfortable using the hawala system, and that he has not seen
a decrease in their usage since the establishment of
registration requirements. The Governor did acknowledge that
very few hawaladars have submitted STRs, but he said that
whenever remittance reports denote a large transaction, an
examiner asks the hawaladar for more information.


9. (SBU) The UAE serves as an example to other countries in
the region on how to regulate informal flows of remittances.
Abdullah Rashid said that other countries have asked the UAE
to show them how to regulate their hawaladars. (Note: the
UAE will host the 3rd annual International Hawala Conference
April 2-3 in Abu Dhabi. The conference is designed to share
best-practices and work toward creating international
standards for hawaladar regulation.)

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Money Laundering, Use a Different Rubric
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10. (SBU) Governor Al-Suwaidi believes that the United States
and the international community need to adopt separate
approaches for halting the flow of money laundering versus
terror financing. "You can't use the same yardstick," he
said, because in money laundering the crime occurs first,
then the money is filtered in a way that makes it "clean,"
and then it is re-circulated into the financial system. With
terror financing, said al-Suwaidi, originally "clean" money
is being used to fund illegal activities.


11. (SBU) The Central Bank Governor categorized the influx of
laundered money into three subsets -- the largest source is
from wire transfers into the UAE, the middle source is from
cash couriers entering the country, and the smallest is
generated in the local economy. He said that the Bank is
aggressively working to identify and stop the wire transfers,
but since the UAE economy is so reliant on international
transactions, it is not feasible to require real-time
reporting for all cross-border wire transfers. Instead, the
Bank monitors the end-use of transfers and considers
transactions suspicious if incoming money is immediately
wired out of the country.


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Strict Monitoring of Charitable Giving
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12. (SBU) The UAE Ministry of Labor registers and monitors
all charitable organizations within the UAE (there are
currently 18 registered charities),and the UAEG requires
that all charitable donations directed overseas be channeled
through one of three government-approved charities for
international contributions (the UAE Red Crescent Authority,
the Sheikh Zayed Charitable Foundation, and the Mohammed bin
Rashid Al-Maktoum Charitable and Humanitarian Foundation,
reftel). According to Ministry of Labor U/S for Social
Affairs Mariam Al-Roumi, these three organizations ensure
that overseas transfers go to legitimate parties. All of the
other charitable organizations fund causes only within the
UAE or send their donations through the above three
charities. The Ministry of Labor has a staff of 32 people
who are responsible for licensing and auditing charities.
They submit quarterly reports on charities' activities, and
at least one Ministry official must attend every charitable
function held in the UAE, said al-Roumi.


13. (U) The Ministry of Labor requires charities to submit
records identifying the donor, amount, and beneficiary for
all charitable donations, even those for causes in the
country. Additionally, mosques are not allowed to collect
cash contributions. In the UAE, all zakat donations are
bank-to-bank transfers. People who wish to donate fill out
transfer forms and place them in zakat boxes located in the
mosques.


14. (SBU) According to Al-Roumi, people have responded
favorably to the donation regulations, because they want to
ensure their donations go to legitimate causes and are not
diverted, even though Islamic charitable giving has
historically been anonymous. She also stated that the
reporting requirements have not caused a decrease in
charitable giving overall. Charities' yearly financial
reports show that people are donating the same amount of
money as they did prior to September 11, 2001, but the
majority of it stays in the UAE, as opposed to being sent out
of the country for international causes. "We don't want
problems like those of Saudi Arabia. We believe it is
important to have a settled society, and regulating
charitable giving is one element of ensuring that stability."


15. (U) There is no regional umbrella for regulating
charities, but Al-Roumi believes it is a good idea. The
countries in the region meet and exchange ideas, but to date,
the coordination has been informal and there is no regional
standard.

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What Can the U.S. Do? - Provide Training and Intelligence
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16. (SBU) UAE officials stated that the most useful way the
United States can assist the UAE is to provide more training
and intelligence information. Abdullah Rashid stated that
the UAE could benefit from our reservoir of knowledge,
experience, and technology, and he asked us to continue to
train UAE officials. He also said that UAE officials would
like the United States to share more intelligence
information, and noted that sometimes information provided by
the U.S. is not detailed enough to be useful, and that
sometimes the USG never responds to requests for additional
information.


17. (SBU) The Central Bank Governor also appealed for more
information and training, noting that the UAE is a small
country with small intelligence resources. According to
Central Bank statistics, from December 2000 to January 31,
2005, the Anti-Money Laundering and Suspicious Cases Unit
(which serves as the UAE's financial intelligence unit)
reviewed 2,273 STRs, and 48 of those cases were referred to
the Attorney General for prosecution. Governor Al-Suwaidi
noted that one reason for so few prosecutions is because the
evidence is often not provided in channels that can be used
in court. Additionally, Al-Suwaidi said that he would like
early notification when the U.S. is investigating persons
suspected of money laundering or terror financing activities
(before they are placed on an official watchlist).
SISON