POST INPUT FOR GULF STRATEGY PAPER TO COMBAT

S E C R E T SECTION 01 OF 04 KUWAIT 002927

SIPDIS

NOFORN

E.O. 12958: DECL: 06/27/2015
TAGS: PTER EFIN ETTC PGOV KU
SUBJECT: POST INPUT FOR GULF STRATEGY PAPER TO COMBAT
TERRORIST FINANCING AND STRENGTHEN AML/CTF EFFORTS

REF: A. SLACK (NEA/ARP)/BROWN EMAIL 06/24/05

B. KUWAIT 2265

C. KUWAIT 2229

D. KUWAIT 2228

E. KUWAIT 2003

F. KUWAIT 1733

G. KUWAIT 1731

H. KUWAIT 1730

I. KUWAIT 806

J. KUWAIT 669

K. KUWAIT 638

L. KUWAIT 594

M. KUWAIT 417

N. KUWAIT 76

O. 03 KUWAIT 4840

Classified By: CDA Matthew H. Tueller, Reasons 1.4 (b),(c),
(d) and (e)


1. (S/NF) Post read with interest the Kuwait portion of the
"Strategy for the Gulf Region to Combat Terrorist Financing
And Strengthen Overall AML/CTF Efforts" paper (Ref A). While
we endorse the action points for Kuwait as well-targeted and
appropriate, we are concerned that the background portrayal
of TF in Kuwait selectively cites rumor or poorly sourced
intel. Our overall assessment is that weaknesses in Kuwait's
TF record are largely the result of inattentiveness to the
scope of the problem and not a conscious policy to overlook
terrorist fundraising. As the discovery of terrorist cells
early this year led to greater focus on CT efforts, the GOK
has begun to close gaps in laws and procedures. We provide
the information below on Kuwait's anti-money laundering and
counter-terrorist finance (AML/TF) efforts, as an
on-the-ground assessment.

Terrorist Finance Legislation Needed
--------------


2. (SBU) In the wake of January's violent confrontations
between extremists and Kuwaiti security forces, the
Government of Kuwait began to view terrorist finance as an
issue of real concern. Although Kuwait has not been a
primary entrepot for terrorist financing, there are gaps in
the GOK's ability to prevent terrorist finance.


3. (U) At present, Kuwait has no law specifically
criminalizing terrorist finance. Some GOK officials have
contended that such a law is not necessary since Kuwait's
2002 anti-money laundering statute ostensibly covers
terrorist finance (although it should be noted that Financial
Action Task Force guidelines, to which Kuwait is a party,
call for criminalization of terrorist finance). To raise
U.S. concerns about this deficiency, the Ambassador has
pressed a wide range of GOK officials to pass anti-terrorist
finance legislation. On February 7, the Council of Ministers
agreed that Kuwait should become a party to the UN Convention
on the Suppression of Financing of Terrorism, and referred
its decision to the National Assembly for ratification (Ref
L).


4. (C) The GOK also formed a working group to draft a new
piece of legislation that would specifically criminalize
terrorist finance and strengthen Kuwait's anti-money
laundering/terrorist finance (AML/TF) regime. As of June,
the working group (a subset of the National Committee to
Combat Money Laundering and Terrorist Finance) had finished
its initial draft, which must be submitted to various
government agencies for review. According to committee
member Talal Alsayegh, the Head of the Central Bank's
Anti-Money Laundering Unit (strictly protect),the draft
legislation a) criminalizes terrorist finance; b) permits
financial institutions to refer suspicious activity reports
(SARs) directly to the Financial Intelligence Unit (FIU)
rather than to the Public Prosecutor's Office; c) allows the
FIU to share intelligence directly with other FIUs, and
without prior approval from the Public Prosecutor's Office;
d) imposes restrictions on cash couriers (NFI); and e) makes
the definition of money laundering more precise. Alsayegh
said that the draft is based on a TF legislation prototype
provided by the IMF and draws on other countries' TF laws as
well. Once key government agencies have reviewed the draft
legislation, the committee plans to seek external reviews to
determine its appropriateness. The USG has offered, and the
GOK has accepted, USDOJ OPDAT assistance. According to
Alsayegh, the GOK might also ask the IMF and FinCEN for
assistance. Following external review, the legislation
would need to be approved by the National Assembly.

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


5. (U) Kuwait's Financial Intelligence Unit (FIU),which is
housed within the Central Bank, was established in 2003.
However, its efficacy is limited by an inability to share
information without prior approval from the Public
Prosecutor's Office; this approval must be granted on a
case-by-case basis. As a result, the U.S. has been unable to
move ahead with its plan to sponsor Kuwait for membership in
the Egmont Group, an international network designed to
facilitate information-sharing among FIUs.


6. (C) Post has urged the GOK to revise its legislation
governing the FIU so that the unit can function independently
and effectively. The draft TF legislation described in para
4 would address this serious shortcoming. The draft
legislation would also permit bank examiners to refer all
suspicious activity reports (SARs) to the FIU instead of the
Public Prosecutor's Office, as the current law requires.
Alsayegh told us that bank examiners are somewhat reluctant
at present to refer marginally suspicious transactions for
investigation, out of a fear that their clients might be
unfairly targeted by the prosecutor's office. Furthermore,
the prosecutor's office, which is already overwhelmed, has
had difficulty investigating the reports in a timely and
appropriate manner. Stipulating that the FIU (which has
expertise in SARs) would review all SARs first and then refer
seriously questionable transactions to the prosecutor would
be more effective and efficient, said Alsayegh.

Frozen Assets and Terrorist Financiers
--------------


7. (C) Kuwait's legal restrictions on financial
information-sharing have slowed U.S. attempts to obtain data
on assets freezes imposed by Kuwait. At last report (Ref B),
however, the MFA indicated that the GOK had frozen three
accounts belonging to Lajnat al-Dawa al-Islamiyya containing
about $4.2 million, and one account belonging to Suleiman Bu
Ghaith containing 60,855 Kuwait dinar ($207,000). (Note.
Two accounts identified as being linked to entities on the UN
1267 Consolidated List were frozen by the Central Bank, but
contained no funds. End Note.)


8. (C) The GOK has also frozen an account belonging to
terrorist financier Muhsin Al-Fadhli containing 5300 Kuwaiti
dinar (approximately $18,000, Refs B and F). Although on
February 16 a Kuwaiti appeals court upheld a lower court
ruling absolving Al-Fadhli of financing terrorism in Iraq,
its verdict is not final and the government has the option of
referring the case of the Court of Cessation. This ruling
was also separate from another charge against Fadhli
concerning his alleged connection with the 2000 attack on the
USS Cole; that case is still pending. On May 24, the Prime
Minister told the Ambassador that Kuwait State Security (KSS)
was actively seeking Al-Fadhli (Ref C),and Interior Minister
Shaykh Nawaf Al-Ahmed Al-Jaber Al-Sabah said that he had
asked KSS Chief Athbi Al-Fahd Al-Sabah to redouble efforts to
capture Al-Fadhli and other militants (Ref D).

Supervision of Islamic Financial Institutions and Banks
-------------- --------------


9. (C) Beginning January 1, 2004, the Central Bank of Kuwait
assumed licensing and supervisory responsibility for Kuwait's
Islamic financial institutions, Kuwait Finance House (KFH)
and Bubiyan Bank, making them subject to the same regulatory
guidelines as all other banks in Kuwait. KFH executives
report that although the amount of client information
required by "Know Your Customer" rules makes some clients
uncomfortable, KFH continues to comply (Ref N).


10. (C) Most GOK and banking interlocutors believe that
current anti-money laundering laws are adequate to monitor
financial transactions carried out through regulated
institutions (Ref K). For example, Minister of Finance
Mahmoud Al-Nouri told Ambassador and Treasury Undersecretary
John Taylor that he was more concerned about the small
amounts of cash needed to purchase weapons and explosives,
rather than larger transactions that can easily be traced
(Ref J). The National Bank of Kuwait's CEO, however,
disagrees that existing legislation is adequate, as does Gulf
Bank's CEO, who lamented the absence of criminal penalties
for terrorist finance during his meeting with the Ambassador.

Monitoring Charitable Institutions
--------------


11. (C) After the September 11 terrorist attacks, Kuwait
established an Office of Charitable Oversight and Supervision
within the Ministry of Social Affairs and Labor, to ensure
that funds raised by Kuwaiti charities would not be used to
finance terror abroad. To regulate fundraising, all
charities were required to obtain permission from the
Ministry of Social Affairs and Labor before transferring
money abroad, and only certain individuals from each charity
were authorized to make the transactions (the Office of
Oversight provided the Central Bank of Kuwait with a list of
all licensed charities and the names of individuals
authorized to carry out transfers, which was then provided to
all Kuwaiti banks). In the weeks before Ramadan began in
fall 2003 -- typically a time of heavy charitable giving --
the Ministry launched a crackdown against unlicensed charity
kiosks and sent inspectors into the field to ensure that
charities were acting within the law. The government also
outlawed the taking of collections in mosques (Ref O).


12. (C) In mid-February, several bankers told the Ambassador
of their discomfort with the relative lack of supervision
over charitable kiosks (Ref K). According to one, "conflict
within the ruling family has allowed the rise of religious
parties and their influence," and has made the GOK
disinclined to regulate charitable giving more consistently.
They hoped, nevertheless, that the late January/early
February 2005 terrorist confrontations would provide the
government with the excuse it needed to impose more stringent
controls. Indeed, the Charitable Oversight Office made
headlines in late January when it revealed that of the five
Kuwaiti charities licensed to conduct charity work outside of
Kuwait, four had violated the Ministry's rules governing
fundraising. Specifically, the Ministry alleged, the Revival
of Islamic Heritage Society (RIHS),the Social Reform Society
(SRS),the Abdullah Al-Nouri Charity, and the Al-Najat
Society used unlicensed kiosks and then attempted to evade
government supervision of these funds. In response, the GOK
shut down unlicensed kiosks, much as they did in 2003 (Ref
M). According to local media, the Ministry warned the
charities that should they fail to comply with regulations,
the Ministry would take "all necessary legal measures"
against them (although these measures were not specified).


13. (C) As reported Ref H, visiting Treasury DAS Daniel
Glaser asked Ministry of Social Affairs and Labor Assistant
Undersecretary Adnan Al-Omar about SRS, RIHS and Al-Najat
during their April meeting. Al-Omar reiterated that the
Charities Department was concerned about these charities and
kept a close watch over their transactions. One of the main
concerns, he added, were the numerous unlicensed
subcommittees created under the licensed charity's name,
which were the source of much of the charity's illegal
activities. Al-Omar said that no charities were allowed to
transfer funds outside of Kuwait without the permission of
the Ministry of Social Affairs, adding that the Ministry had
not given these three charities such permission. In a candid
exchange, al-Omar said that his preference would be to
"dissolve" one of these questionable charities to serve as an
example to all. However, he said, the decision to dissolve a
charity would be a political decision made at the Ministerial
level. Al-Omar was not optimistic that the Charitable
Oversight Committee would allow this to happen due to
political pressures within the GOK.


14. (C) Al-Omar also spoke to Glaser about the removal of
unlicensed charitable cash collection kiosks. Al-Omar
explained that a Charitable Oversight Committee had been
formed to address the concerns that the GOK has with illegal
charitable collections (the Committee is comprised of
representatives from the Ministries of Social Affairs,
Interior, Finance, Islamic Affairs and the Central Bank).
With the full support of the Council of Ministers, the
Committee agreed to the forcible removal of all unregistered
charity "cash-boxes" in Kuwait, al-Omar said. He explained
that the unprecedented terrorist attacks that took place in
Kuwait at the beginning of 2005 had awakened the GOK to the
seriousness of the threat that terrorism poses to the
country. The removal of these charity boxes is a reactive
step that the GOK is taking in an effort to curtail one
source of support to the extremists in Kuwait, al-Omar said.


15. (C) The challenge, al-Omar continued, is that as soon as
one charity cash-box is taken down, more are put up. He also
said that new methods of collections are being used. As
examples, he cited (a) a door-to-door cash-collecting system
using small fast-food type delivery trucks, and (b)
collecting clothing for charity, then using the money gained
by selling the clothes to fund illegal activities. The
Ministry of the Interior is currently working with the
Charities Department to identify the owners of the trucks in
an effort to trace the illegal collections, he said.
However, no solution has been identified to stop the clothing
collection. He explained that the goal is to identify the
charities accepting illegal donations and to track them,
rather than "provoke them into going underground," by taking
stronger initial actions against them.


16. (C) Prior to the kiosk-removal crackdown on charities,
al-Omar said, it was easy to follow the known routes for the
disbursements of charitable collections. Now, he said, the
channels have changed in response to the government's actions
and it's "impossible" to track all the new routes. Once the
money leaves Kuwait, he added, there is no easy way to track
where it goes. (Note: During the MENA FATF plenary attended
by DAS Glaser in Bahrain prior to his visit to Kuwait, the
Kuwaiti delegate and Head of Supervision at the Central Bank
of Kuwait mentioned that Kuwait tries to follow the money
through its embassies abroad. End Note). The Charities
Department has little experience in detecting
money-laundering, for example, and al-Omar said that the GOK
could use more support from experienced sources to address
this problem. To help address these weaknesses, post would
advocate providing technical assistance for charitable
oversight in Kuwait, perhaps using the new MENA-FATF as a
vehicle.


17. (C) Our overall assessment is that gaps and lax
enforcement on TF issues are due to inattention, inadequate
professionalism, and competing priorities. As TF has been
raised on the priority scale for the GOK, progress is being
made, albeit at the halting pace that characterizes much
official action in the Gulf states. We have seen no evidence
that GOK officials have countenanced terrorist fundraising
and when evidence of questionable fundraising has been
uncovered, officials have moved to take appropriate action.

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