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. ******************************************** Visit Embassy Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ******************************************** TUELLER