U/S LEVEY BILATS ADDRESS ARAB BANK AND AML LAW

S E C R E T SECTION 01 OF 04 AMMAN 001356

SIPDIS

NOFORN

E.O. 12958: DECL: 02/16/2015
TAGS: ECON EFIN PREL ETTC KTFN PINR JO IZ
SUBJECT: U/S LEVEY BILATS ADDRESS ARAB BANK AND AML LAW

REF: 02 AMMAN 6852

Classified By: Charge d'Affaires David Hale for reasons 1.4 (b) and (d)


1. (C) SUMMARY: In bilateral meetings held in Amman February
16, a multi-agency delegation led by Under Secretary of
Treasury for the Office of Terrorism and Financial
Intelligence Stuart Levey heard GOJ and Arab Bank concerns
about the impending regulatory action against Arab Bank. In
response Levey acknowledged the important role played by Arab
bank in Jordan and the region, but communicated that the Bank
had real systemic problems - at least in its Ney York City
branch - that required resolution. While unable to intervene
directly in the pending action, Levey underscored that Arab
Bank's following through on its stated intent to reform its
worldwide anti-money laundering compliance would be the best
course for the Bank in the long term and also for USG-GOJ
relations. In his meetings with GOJ officials, he also noted
the importance of swift passage of the pending draft
anti-money laundering legislation. END SUMMARY.


2. (U) U/S Levey's delegation, which also included Office of
Terrorism and Financial Crime Director Daniel Glaser and
Financial Crimes Enforcement Network (FinCEN) Director
William Fox, met on February 16 with Central Bank of Jordan
(CBJ) Governor Umayya Touqan, Finance Minister Mohammed Abu
Hammour, and Minister of Royal Court Samir Rifai in
successive meetings. He also met on that day with Arab Bank
CEO Abdulhameed Shoman, Arab Bank Director of Banking Shukri
Bishara, and several other top officials from the bank's
operations, compliance, and legal departments. On February
17, the delegation met with Minister of Justice Salah
al-Bashir, Foreign Minister Hani al-Mulqi, and Prime Minister
Faisal al-Fayez. Charge joined all meetings.

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CENTRAL BANK OF JORDAN
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3. (S) Governor Touqan, accompanied by CBJ Deputy Governors
Mohammed Said Shahin and Faris Sharaf, laid out the current
CBJ position on the Arab Bank case. According to the CBJ,
the OCC had notified it in late January of problems at the
New York City branch of the Arab Bank. While the CBJ
appreciated the OCC's courtesy in informing the CBJ of these
problems; this was the first that the CBJ had heard of a
problem after nine years of receiving "top marks" from the
OCC. Touqan said that the apparent lack of due process was
particularly disturbing to the CBJ. Deputy Governor Sharaf
would travel to DC, he said, with senior Arab Bank staff to
discuss the case in more detail and to find out what the
particular alleged problems had been in order to ensure that
such problems were not being duplicated elsewhere in the Arab
Bank's network, over which the CBJ has supervisory authority.
The CBJ officials once again noted that the bank is the base
of the largest financial network in the Arab world, as well
as being by far the most important bank in Jordan, and said
that as a healthy bank, Arab Bank would be an irreplaceable
partner in anti-money laundering and counter-terrorist
finance (AML/CFT) cooperation - after all, no one knew the
clientele better. Nonetheless, if the OCC felt the need to
take any regulatory action, the CBJ would support it as long
as Arab Bank received due process.


4. (S/NF) Levey responded by praising Jordan for its
counter-terrorist cooperation with the U.S., but noted his
concern over what seemed to be "significant systemic
problems" in the AML/CFT procedures in place in Arab Bank
branches. He drew special attention to the West Bank Arab
Bank branches, whose director had previously admitted to the
delegation that none of the branches for which he was
responsible had ever filed a suspicious activity report on a
transaction. Touqan responded by noting the obstacles to the
filing of such reports - the lack of any regulators under the
Palestinian Authority and the difficulties for the CBJ
regulators to gain entrance to the West Bank since the
beginning of the intifada. Touqan also complained of
unhelpful behavior on the part of the Palestinian Authority -
Palestinian Monetary Authority Governor Amin Haddad, he
insinuated, had not been fully forthcoming when he had
earlier told the delegation that the CBJ regulators were free
to inspect West Bank Arab Bank branches. Levey, Fox, and
Glaser reiterated that Arab Bank was not being singled out,
drawing attention to the recent Riggs Bank and AmSouth cases.
Touqan revealed that Arab Bank had earlier in the week
requested a statement of support from the CBJ, but that the
CBJ had refused to give such a statement (significant, given
the long history of CBJ statements of support subsequent to
each of the three civil suits that have been filed against
the bank over the past year). He also revealed that Arab
Bank was considering firing the manager of its New York City
branch, a step which the CBJ had advised the bank's
management not to take at this time.


5. (C) On other areas of regulatory activity, Touqan noted
that the passing of the draft AML law was at this point out
the CBJ's hands, but said that the CBJ is moving forward even
in the absence of an AML law to improve its AML/CFT
infrastructure. Sharaf stated that the FIU in Jordan, which
under the AML law would have expansive powers, would be under
the authority of the CBJ and that the CBJ was already
prospectively looking for sponsorship from Lebanon or Cyprus
for membership in the Egmont Group for its FIU. In the
absence of the bill, a proto-FIU had already been set up.
Fox said that FinCEN is ready to offer support, and Sharaf
responded that he would take FinCEN up on this offer. Touqan
addressed concerns about cash flowing in from Iraq, saying
that CBJ guidelines required that any bank receiving deposits
of over $10,000 from previously unknown customers was
required to report such deposits and that the CBJ had just
finished drafting new guidelines on requiring reporting of
cash over $10,000 when it crossed a Jordanian border, though
the Jordan Tourism Board would present the guidelines in
order not to raise fears that the measure was a sign of
currency weakness.

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ARAB BANK
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6. (S/NF) Shoman and Bishara, in their meetings with U/S
Levey, forcefully expressed arguments by now familiar to
post. Bishara noted once again the clean record that Arab
Bank's New York City branch had enjoyed prior to January,
noting that had the OCC given Arab Bank's head office any
notice at all of the problems with the branch's AML/CFT
compliance, "we would have descended upon (the branch) with
the wrath of God." He added that he felt that the tone of
the OCC's "overreaction" might be driven in part by what he
felt was its previous failure to adequately supervise the
bank. Bishara complained that Arab Bank was not being given
adequate time to respond to the OCC's charges and had been
coerced into signing an interim consent agreement "that
paralyzes our branches." He reiterated the importance of the
Arab Bank to Jordan's economy and society, adding that the
GOJ, through its quasi-governmental entities such as the
Social Security Corporation, had a large (20%) financial
stake in the Arab Bank as well. Fox noted that for its part,
FinCEN was aware that Arab Bank might have "mitigating or
negating information" to answer some of the charges against
its NYC branch, and that FinCEN is genuinely interested in
evaluating the case on its merits and had by no means
prejudged the outcome of its enforcement action. Bishara
replied that Arab Bank did not expect favorable treatment;
only due process. However, "we have not been treated fairly
by the OCC."


7. (S/NF) Bishara said, however, that the OCC's action had
been a "wake-up call" for the Arab Bank, and that it was
planning to revamp its AML/CFT systems and controls
accordingly. Bishara also felt that Arab Bank was trying to
make changes at the NYC branch that would make a closure
unnecessary. According to Bishara, the Arab Bank had closed
its wire transfer room and was doing its best to outsource
the wiring of money to another bank. The Arab Bank would
wind up the individual accounts at the NYC branch and
henceforth only handle corporate finance and credit, an area
in which Arab Bank would be a perhaps irreplaceable asset to
blue-chip U.S. companies wishing to do business in the Middle
East. Though the shift in the NYC's business model would
eliminate the vast majority of the AML/CFT risk, according to
Bishara, Arab Bank would still invest in AML/CFT expertise to
assure that its branch followed all current best practices.
Arab Bank was, however, facing obstacles in moving forward
constructively to address its problems. It had come to an
agreement with the Bank of New York (BONY),but now that
bank, frightened by press leaks on the OCC's action against
Arab Bank, was threatening to cut off the Arab Bank unless
they heard from either Treasury, the OCC or the Federal
Reserve that one of these bodies had no objection to BONY's
continuing to handle Arab Bank's money-wiring operations.
Bishara asked specifically that Treasury send this signal to
BONY, and Levey declined to give any assurances.

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MINISTRY OF FINANCE
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8. (C) Finance Minister Abu Hammour told the delegation that
the GOJ is moving against terrorism through a variety of
financial means. He primarily mentioned the AML draft
legislation, which he said had been debated in the previous
day's Cabinet meeting and would be approved in the following
week's meeting. (Abu Hammour later reiterated this statement
at a joint press conference that he held with Levey following
his meeting.) Abu Hammour also noted other ways in which the
GOJ was moving against terrorism through its financial
sector. He stated that he had used part of last year's
increase in the general sales tax rate to provide free health
insurance for the poor, alluding to the GOJ's fear that had
they not done so, the Muslim Brotherhood's charity network
would have filled the void. He also noted that at the same
time that the GOJ had put stricter restrictions on the
content of mosque sermons, it had doubled the salaries of
imams to give them an incentive to comply. It was by
measures like these, he said, that the "root causes of
terrorism" could be fought. Levey agreed that such measures
were useful against terrorism and good things even if
terrorism was not considered; however, the AML law was a
critical keystone both to US-Jordanian bilateral law
enforcement cooperation and to King Abdullah's vision of
Jordan as a regional center for trade and finance, and the
law should be passed as soon as possible.


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ROYAL COURT
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9. (C) Royal Court Minister Rifai reiterated the concerns
already expressed by other GOJ officials about the action
against Arab Bank, including its importance to the Jordanian
economy. Rifai expressed serious concern about possible
repercussions to the Bank from the negative publicity
emerging from an OCC action and the private lawsuits. Levey
acknowledged that negative public attention was likely, but
affirmed that he would "stick to the facts" in his handling
and public discussion of this case and would not gratuitously
"fan the flames." Rifai replied that the GOJ understood the
need to take corrective action if there were real violations.
Levey clarified, however, that he had no influence over
either the OCC or the private plaintiffs in the civil suits
against the Arab Bank, and that the GOJ and the Arab
bankshould brace themselves for a lot of negative publicity
regarding Arab Bank over the next several months. Levey
again stated that the passage of the AML draft law would be a
strong step in the right direction for Jordan.

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MINISTRY OF JUSTICE
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10. (C) Justice Minister Bashir told the delegation that the
AML bill could be sent to Parliament next week or the
following week, but that given the long time required for the
bill to undergo all required readings in both the upper and
lower houses, he was not optimistic that it could be fully
passed before the end of the session. Levey stressed the
importance of the law, a "missing piece" in Jordan's
otherwise modernizing legal and financial systems. Bashir
reiterated the GOJ's solid commitment to the law's passage.
He noted, however, that in his previous position (as Minister
of Industry and Trade),he had opposed the AML law, and that
he still had concerns about the Ministry of Justice's ability
to enforce it. Both Fox and Charge assured Bashir that
FinCEN and USAID (respectively) stood ready to offer any
technical assistance that the Ministry might require in
implementing the law. Bashir thanked them for this
assurance, but said that any such assistance should come from
new money - he didn't want his ministry's current aid budget
diverted to AML/CFT assistance. Bashir also closely
questioned the delegation on the USG experience with its AML
laws, particularly flagging his concerns that other
countries' governments might use the law to capture tax
evaders, that the AML procedures might generally slow down
the flow of commerce, and that the inherently political
nature of much money laundering and terrorist finance would
draw the Ministry of Justice, charged with enforcing the law,
into political battles. Glaser noted that other Middle
Eastern countries had had similar concerns prior to passing
their AML laws, but that these had proved to be unfounded; he
suggested that Bashir talk to his Egyptian counterpart about
Egypt's experience. The delegation also implied that in
terms of AML legal infrastructure, Jordan was superior only
to Syria among Middle Eastern countries.

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FOREIGN MINISTRY
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11. (C) Levey congratulated Foreign Minister Mulqi on the
positive messages that he had previously received on AML/CFT
cooperation from other GOJ ministers and reiterated the
importance of passage of the AML draft law. Mulqi replied
that the Cabinet would approve the law prior to King
Abdullah's visit to the United States. He cautioned,
however, that appearing to "shove the bill down Parliament's
throat" would backfire. He proposed instead that the
government submit the bill quietly and then propose it as a
temporary law if Parliament did not pass it while it was in
session. Hale thanked Mulqi for the Foreign Ministry's
leadership in putting together an interministerial committee
to facilitate judicial requests.


12. (C/NF) Mulqi also expressed his fears about the political
repercussions of an OCC action against the Arab Bank,
singling out two primary fears. First, such a step would at
very least greatly increase the cost of sending remittances
to the West Bank, increasing the discontent of people living
primarily off of remittances at a critical time in the peace
process. Second, the death of Hariri had further
destabilized the bank's internal situation, leaving the
future handling of Hariri's large (13%) stake in the bank
uncertain. The conjunction of the two events might well
create a crisis of confidence in the bank. Levey reassured
Mulqi that he was sensitive to the importance and role of the
Bank, but reiterated that he had no control over the actions
of the OCC.

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PRIME MINISTRY
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13. (C) Levey once again underscored to Prime Minister Fayez
the importance and urgency of passing the draft AML law.
Fayez agreed, reiterating the full commitment of the GOJ to
move for passage and implementation of the law at the
earliest possible time; if not by the end of the current
Parliamentary session, then certainly during the
extraordinary session. Fayez also voiced many of the
concerns mentioned earlier by other ministers about the
potential effects of an OCC action against the Arab Bank,
reiterating the GOJ's concerns about the publicity that such
an action might be given. Levey warned that the coming
months would be difficult for the Arab Bank, but that with
cooperation between the USG and GOJ - and ifthe Arab bank
followed through with promised improvements, our relationship
could be strengthened by the experience. Fayez expressed his
gratitude for the close relationship between the U.S. and
Jordan and for all of the aid that Jordan had received from
the USG.


14. (U) This cable was cleared by Under Secretary Levey.
HALE