TERRORIST FINANCE: SUMMARY OF OFAC DIRECTOR

UNCLAS SECTION 01 OF 03 KUWAIT 004230

SIPDIS

SENSITIVE

STATE FOR EB/ESC/TFS LLAMBERT, S/CT TKUSHNER, NEA/ARPI
SWALKER, NEA/ARPI RSMYTH, NEA/RA LLEE, IO/PSC BFITZGERALD,
TREASURY FOR TFFC DGLASER AND OFAC FOR RWERNER, NSC FOR
JZARATE AND THINNEN, LONDON FOR LTSOU, MANAMA FOR JBEAL

E.O. 12958: N/A
TAGS: EFIN ETTC KTFN PTER CVIS KVPR KU
SUBJECT: TERRORIST FINANCE: SUMMARY OF OFAC DIRECTOR
WERNER'S MEETINGS WITH KUWAITI BANKS

REF: KUWAIT 4214


1. (U) Summary. On September 22, OFAC Director Robert Werner
met separately with officials from the National Bank of
Kuwait, the Union of Kuwaiti Banks and the Kuwait Finance
House to discuss ways in which OFAC and the Kuwaiti banking
sector can further cooperate on combating terrorist financing
and money laundering (CTF/AML). Banking officials reaffirmed
their commitment to pursuing stringent CTF/AML policies,
described coordination and accountability policies
administered by the Central Bank of Kuwait (CBK),offered
suggestions on revising OFAC English name designations and
recommended convening annual CTF/AML conferences for
government and industry officials to facilitate information
exchange. (Post endorses the idea of annual regional
conferences on CTF/AML for USG and industry officials. Post
will consult with Treasury on details and report septel with
suggestions.) End Summary.


2. (U) On September 22, OFAC Director Robert Werner,
accompanied by Embassy and Treasury officers, met separately
with the representatives from the National Bank of Kuwait
(NBK),Kuwait Finance House (KFH) and the Union of Kuwaiti
Banks (UKB) to discuss OFAC responsibilities and exchange
insights on the latest banking sector efforts to combat
terror financing and money laundering (CTF/AML). (Reftel
reports on Werner delegation meetings with GOK officials.)

Meeting with National Bank of Kuwait
--------------


3. (U) In his meeting with Essam Al-Sager, Vice Chairman of
the National Bank of Kuwait (NBK),Werner provided an
overview of OFAC responsibilities, including the new
sanctions program to combat the support networks of
proliferators of weapons of mass destruction, and solicited
Al-Sager's input on NBK policies and procedures on terror
finance name designations and coordination with the Central
Bank of Kuwait (CBK). Al-Sager informed Werner that NBK
updated its lists based on CBK, OFAC, and Bank of England
listings. He explained that NBK maintained an automated
software system that performed primary and secondary checks
on names to minimize false alarms. Any suspicious
activities, although very limited in number, were promptly
reported to the CBK and Public Prosecutor's Office (PPO),in
accordance with GOK regulations. Al-Sager noted that NBK had
daily contact with the PPO and CBK on these and other
regulatory matters.


4. (U) Werner underscored the importance of direct contact
between the government and banks, and explained that OFAC's
interaction with U.S. banks was mutually beneficial, helping
banks avoid risk and promoting USG sanctions. Werner
encouraged continued risk management and compliance,
particularly when dealing with vulnerable organizations like
charities and exchange houses. Al-Sager asserted that NBK
had closed the accounts of its exchange house clients as a
precautionary measure and provided monthly reports on
charities' accounts to the CBK. He commented that charities
were becoming "increasingly frustrated" with the new control
measures being imposed by the regulators. Al-Sager welcomed
Werner's suggestion that NBK subscribe to OFAC's automated
alert system and make use of its "hotline" to address any
CTF/AML-related questions or concerns (Note: Embassy will
follow-up on this issue with NBK.)

Meeting with Union of Kuwaiti Banks
--------------


5. (U) Werner's meeting with the Union of Kuwaiti Banks
(UKB) included the organization's Secretary General, Yousef
Al-Jassem, the Assistant Secretary General, Nabil Al-Saqabi,
and other UKB members including the head of AML at Kuwait
Finance House (KFH) Medhat Al-Kharashi, head of Compliance at
the Commercial Bank of Kuwait (CB) Hanan Al-Kazemi, and the
head of AML at Boubyan Bank (BB) Waleed Al-Awadi. Werner
conveyed his organization's shared objectives and commitment
to a lasting partnership with Kuwaiti banks. He welcomed the
UKB's feedback and insights on OFAC policies, the Kuwaiti
banking sector's programs, including the filing of Suspicious
Transaction Reports (STRs),new terror finance designations,
and coordination between Kuwaiti banks and the CBK.


6. (U) Al-Jassem reaffirmed Kuwait's shared objectives with
the U.S. in the war on terrorism, noting that Kuwait itself
"was a victim of terrorism." He expressed confidence in the
Kuwaiti banks' efforts to implement CTF/AML regulations. The
head of Compliance at the CB and UKB, Hanan Al-Kazemi,
asserted that Kuwaiti banks are in compliance with FATF and
CBK regulations, through due diligence and monthly
transaction reporting and notification of STRs to the PPO and
CBK. She said that coordination with both GOK entities was
good and that a CBK representative, the head of the FIU,
served as a liaison officer in the UKB. She explained that
any account suspected of an STR is blocked by banks for two
days pending further notification from the PPO. The KFH
representative, Medhat Al-Kharashi, pointed out that the
Kuwaiti banking sector's relatively small size made it easier
for colleagues to exchange information informally on a timely
basis. Al-Kazemi added that accounts can be blocked on PPO
direction for an indefinite period of time pending PPO
investigation and that bank officers are legally protected
from lawsuits or retribution from their own banks for
blocking suspicious accounts. She explained that even
non-account holders can be reported by banks for suspicious
activities, but that Kuwaiti banks in general were more
conservative than their U.S. counterparts and filed fewer
STRs.


7. (U) Boubyan Bank's Waleed Al-Awadi said that Kuwaiti banks
consulted OFAC lists for "red flags" on potential STRs and
not for blocking accounts, clarifying that only CBK
notifications based on UN designations were used for blocking
purposes. KFH's Al-Kharashi noted that most banks manage
their risks by minimizing business transactions with high
risk nationalities or countries. All of the representatives
voiced concern with the current practice of listing Arabic
names in English, urging OFAC to consider "Arabizing" the
names by listing them in the original Arabic to avoid
mistaken identities. Werner expressed similar concern and
promised to follow-up on the issue (Note: this issue was also
raised by GOK officials reported reftel.)


8. (U) Werner expressed concern with the Ministry of Social
Affairs and Labor's seeming reliance on third-country
regulations for monitoring charity fund transfers abroad.
Secretary General Al-Jassem asserted that from a banking

SIPDIS
perspective "charity activities were under control." He
explained that charities are not authorized to open bank
accounts without proper licenses from the Ministry of Social
Affairs and approval from the CBK. He added that all charity
banking transactions are approved by the government and
reported to the CBK on a monthly basis. Al-Kharashi urged
Werner to consider organizing annual conferences (twice a
year) for regional bankers and regulators to discuss "the
latest and best methods" on CTF/AML affecting the Middle
East. Werner was receptive to the idea and offered to
explore it further with other USG colleagues.

Meeting with Kuwait Finance House
--------------


9. (U) In his meeting with KFH Deputy General Manager
Mohammad Al-Omar, Werner solicited the KFH's input on the
bank's CTF/AML efforts, including reporting on charity
transactions, and welcomed feedback on OFAC's name
designation process. Al-Omar said his organization had
practiced long-standing diligence against terror finance and
money laundering. He noted that KFH's stringent practices
preceded September 11, 2001 and were rated among the best in
the region. KFH's Director of Business Consultancy, Salman
Younis, pointed out that as a prior Citibank official he had
in 2001 reviewed and determined KFH CTF/AML measures to be
"better than most in the region." Al-Omar explained that KFH
has an established CTF/AML unit, headed by Medhat Al-Kharashi
(member of UKB) tasked with developing and implementing the
bank's CTF/AML policies in accordance with CBK and
international regulations. Al-Kharashi described the bank's
control process as "robust," explaining that the bank did not
accept walk-in customers and was in the process of installing
an automated name-checking private sector software "NET
ECONOMY/ERASE" to review and create customer profiles for
increased security. Al-Jassem noted that banks were busy
educating their respective customers on the new policies and
regulations, a process that was gradually winning more
support from the Kuwaiti public.


10. (U) Al-Kharashi said that all KFH systems were connected
to OFAC lists and that the bank received OFAC advisory alerts
on a regular basis, at times even earlier than the CBK.
Al-Omar and his staff were receptive to OFAC's description of
the USG terror finance name designation process and
reiterated the need to "Arabize" designated names for easier
identification. On charity monitoring, Al-Omar explained
that while KFH had in place stringent accounting procedures,
including monthly audited reports to the CBK, ultimate
responsibility for overseas fund transfers lay with the GOK
to ensure proper oversight and accountability. Al-Kharashi
said that charities have GOK-designated signatories
authorized to sign for transfers and that KFH confirms those
signatures prior to authorizing transfers. Al-Omar welcomed
continued dialogue with OFAC as part of Kuwait's broader
commitment to the war on terror.

Background on Banks
--------------


11. (U) National Bank of Kuwait (NBK): Largest bank in Kuwait
by assets, 49 branches, 2004 profits of $515 million. The
third largest bank in the Arab world, with the highest credit
rating in the Middle East. NBK has branches, offices, or
partnerships in Iraq, Qatar, Jordan, Lebanon, London, New
York, Paris, Geneva, Bahrain, Singapore, Vietnam and
Thailand.

-- Kuwait Finance House (KFH): Market leader in Islamic
banking, second largest financial institution in Kuwait with
profits of $200 million in 2003. As of 2005, KFH officially
came under the same regulatory and oversight
structure as other Kuwaiti banks. Previously did not have to
comply with commercial banking regulations and enjoyed
"unfair advantages," according to some commercial bankers.
(Note: KFH is usually not ranked with the commercial banks,
but is second only to NBK in the size of its assets.)

-- Commercial Bank of Kuwait (CBK): Third largest bank in
Kuwait, 39 branches, 2004 profit of $214 million.

-- Boubyan Bank (BB): Kuwait's newest Islamic bank,
established in 2004. Recently acquired 20% stake in
Indonesia's largest Islamic bank, Bank Muamalat Indonesia.
Plans underway to expand operations in the Gulf, Iran and
Turkey.

-- Union of Kuwaiti Banks (UKB): Formal association of
Kuwait banks, established in 2001 and comprised of 10
committee members representing the GOK, Kuwaiti banks and
financial institutions. Head of Central Bank's AML unit
serves as GOK liaison.

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

You can also access this site through the
State Department's Classified SIPRNET website
*********************************************












LEBARON