DJIBOUTI - 2005-2006

UNCLAS SECTION 01 OF 02 DJIBOUTI 001238

SIPDIS

STATE FOR AF/E AND INL

JUSTICE FOR OIA AND AFMLS

TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN KCRM KSEP PTER SNAR KTFN DJ
SUBJECT: DJIBOUTI - 2005-2006
INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT INSTRUCTIONS PART II, FINANCIAL
CRIMES AND MONEY LAUNDERING

REF: STATE 210691

Introduction
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1. Much of the information included in Post's
2004-2005 report remains the same with the
exception that Djibouti intends to have an
operational Financial Intelligence Unit by February

2006. Djibouti is still the most stable country in
the Horn of Africa. It is a financial hub in the
sub-region, thanks to its US dollar-pegged currency
and its unrestricted foreign exchange. Officials
from the Central Bank indicate that there were no
recent instances of money laundering. The informal
market remains important, and smuggled goods
consist primarily of highly taxed cigarettes and
alcohol. The Djibouti Free Zone (DFZ),managed by
Dubai's Jebel Ali Free Zone, has approved and
delivered several licenses to companies mainly from
Gulf Countries. Djibouti is not considered an
offshore financial center but offshore institutions
are permitted, and even encouraged, to settle at
the DFZ but Post is not aware of any existing
offshore bank at the DFZ. Two existing commercial
banks handle the bulk of financial transactions.
The remainder of the demand is met by a growing
number of "hawalas." The Central Bank makes
efforts to monitor closely the activities of both
the commercial banks and "hawalas."

Anti-Money Laundering Legislation
--------------

2. On February 22nd, 2001, Djibouti signed the
United Nations International Convention against
Illicit Traffic in Narcotic Drugs and Psychotropic
Substances, which went into force on May 23rd,

2001. Legislation criminalizing the financing of
terrorism, as requested by UN Security Council
Resolution 1373, is included in the Anti-Money
Laundering Law passed in December 2002 as Law No.
196/AN/02/4emeL. Drafted by the three-year-old
National Committee on Terrorism, this document
contains provisions for prevention of, and
punishment for, money laundering.


3. The Anti-Money Laundering Law applies to
financial institutions of all forms as well as
professionals involved in financial matters.
Regulated activities include money deposits,
insurance, investment, real estate, casinos and
entertainment. The legislation also addresses
international cooperation and allows for the
freezing or seizing of assets in suspected
terrorist finance cases. The government regularly
circulates the names of individuals and entities
included on the UN 1267 sanctions committee's
consolidated list. The law also requires financial
institutions to verify customer information,
including current residence. This verification
process promotes rigorous transparency and strict
control of transactions. Furthermore, it imposes
criteria for the following: customer
identification; communication of information;
documentation related to international cooperation;
surveillance procedures for suspect accounts; and
legal protection of professional secrecy for
individuals reporting suspect transactions.


4. Professionals convicted of facilitating money
laundering or terrorist financing can face five to
ten years in jail and a fine of DF 25 to 50 million
($141,283 to 282,566). A finance professional that
fails to report suspect transactions is liable for
fines ranging from DF 10 to 25 million ($56,513 to
$141,283). The Department of Treasury receives the
proceeds of any assets seized or forfeited in
terrorist financing cases.

International Cooperation
--------------

5. Djibouti has not officially reached an
agreement with the United States government on
money laundering, but Central Bank officials have
repeatedly indicated they would fully cooperate if
requested. Djibouti has a formal, bilateral
agreement with Ethiopia for exchange of information
and extradition in money-laundering cases.
Furthermore, the anti-money laundering legislation
stipulates that Djibouti will cooperate with other
countries by exchanging information, assisting in
investigations, providing mutual technical
assistance and facilitating the extradition process
in money laundering cases. In addition, the
Central Bank plans to set up a small financial
intelligence unit (FIU) in February 2006.

Financial Intelligence Unit
--------------

6. The FIU will be housed within the Central Bank
compound and staffed with the Central Bank senior
employees who will come under the Governor's direct
supervision. The purpose of the FIU is to collect
information on potential clandestine or criminal
financial networks and to become the expert office
on identifying money laundering. The FIU may
obtain any record or databank upon request from
government entities or financial institutions. It
will perform analytical duties and assist the
Ministry of Interior (Police) and the Ministry of
Justice in any financial criminal investigation.
The FIU may enter into agreement with foreign FIUs
to share information if the foreign FIUs are bound
by similar rules of confidentiality and secrecy.
Finally, the FIU will provide guidance to the
banking community in the fight against counterfeit
money, including US bills.

Comment
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7. Djibouti's money laundering and terrorist
financing strategy took a positive step with the
approval of the anti-money laundering legislation;
however enforcement of this law remains a major
challenge. Though the government makes an effort
to control all formal transaction points, a large
number of informal "hawalas" escape central bank
regulation but the FIU is expected to impose more
control on "hawalas." In addition, corrupt customs
agents can be easily tempted to permit large
amounts of money to come through the borders
without any declaration. Finally, there is a
history of powerful, "untouchable" individuals
protecting suspicious financial institutions. As
for the DFZ, post will monitor and report on any
money laundering activities. End Comment.

RAGSDALE