Identifier
Created
Classification
Origin
05KUWAIT5141
2005-12-16 11:25:00
UNCLASSIFIED
Embassy Kuwait
Cable title:  

2005-2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY

Tags:  KTFN ETTC EFIN PTER PREL KU 
pdf how-to read a cable
VZCZCXYZ0007
OO RUEHWEB

DE RUEHKU #5141/01 3501125
ZNR UUUUU ZZH
O 161125Z DEC 05
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2173
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE IMMEDIATE
RUEAWJA/DEPT OF JUSTICE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
UNCLAS KUWAIT 005141 

SIPDIS

SIPDIS

DEPT FOR INL
DEPT FOR NEA/ARPI SWALKER, NEA/RA
DEPT FOR EB/ESC/TFS,
DEPT FOR S/CT TKUSHNER, ,
DEPT FOR IO/PSC BFITZGERALD
JUSTICE FOR OIA , AFMLS,
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: KTFN ETTC EFIN PTER PREL KU
SUBJECT: 2005-2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT (INCSR) INSTRUCTIONS PART II, FINANCIAL CRIMES AND
MONEY LAUNDERING-KUWAIT COUNTRY REPORT

REF: STATE 210324

UNCLAS KUWAIT 005141

SIPDIS

SIPDIS

DEPT FOR INL
DEPT FOR NEA/ARPI SWALKER, NEA/RA
DEPT FOR EB/ESC/TFS,
DEPT FOR S/CT TKUSHNER, ,
DEPT FOR IO/PSC BFITZGERALD
JUSTICE FOR OIA , AFMLS,
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: KTFN ETTC EFIN PTER PREL KU
SUBJECT: 2005-2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT (INCSR) INSTRUCTIONS PART II, FINANCIAL CRIMES AND
MONEY LAUNDERING-KUWAIT COUNTRY REPORT

REF: STATE 210324


1. (U) Post's input for Part II of the 2005-2006 INCSR
follows in para 2. An updated redlined country write-up has
been emailed to rindlerep (AT) state.gov per reftel
instructions.

2.(U) BEGIN TEXT OF REPORT.

Kuwait
The Government of Kuwait should significantly accelerate its
ongoing efforts to revise its 2002 anti-money laundering law
(Law No. 35/2002),improve the sharing of financial
information, strengthen its Financial Intelligence Unit's
structure and responsibilities, including obtaining
membership in the Egmont Group, and criminalize terrorist
financing. Kuwait should expand the practice of in-bound
currency reporting beyond its Abdaly Port on the Iraqi
border to include all other ports of entry. Kuwait should
also make outbound currency and precious metals declarations
mandatory. More interagency cooperation, technical
assistance, and coordination between the Kuwaiti Financial
Intelligence Unit (KFIU) and other concerned parties,
including Kuwait Customs, could yield significant
improvements in proactive investigations and international
information exchange. The KFIU's role and organizational
structure should be enhanced to include full-time members
representing relevant GOK agencies, including those from the
National Committee. The KFIU should be allowed to
independently share financial information with its foreign
counterparts, and receive, analyze, and disseminate
suspicious transaction reports without obtaining prior
authorization from the Office of the Public Prosecutor
(OPP). Kuwait should continue to enhance its charity
oversight efforts, including increased coordination and
diligence with third countries and organizations receiving
assistance from Kuwaiti charities. Kuwait should also
become a party to both the UN International Convention for
the Suppression of the Financing of Terrorism and the UN

Convention against Transnational Organized Crime.
Kuwait, although not a major regional financial sector, is
experiencing unprecedented economic growth that is
increasing the country's regional financial influence. The
Central Bank of Kuwait regulates banks, investment
companies, exchange companies and mutual funds.

Kuwait's banking sector is comprised of specialized, Islamic
and commercial banks. There are two specialized banks:
Kuwait Real Estate Bank (KREB),undergoing conversion into
an Islamic bank, and the government-owned Industrial Bank of
Kuwait. Both of these banks provide medium and long-term
financing. With the conversion of KREB, there will be three
Islamic banks to include Kuwait Finance House (1977) and
Boubyan Bank (2004). The seven Kuwaiti commercial banks
include National Bank of Kuwait (1952),Commercial Bank of
Kuwait (1960),Gulf Bank (1960),Al-Ahli Bank of Kuwait
(1967),The Bank of Kuwait and the Middle East (1971),
Burgan Bank (1976) and Branch Bank of Bahrain and Kuwait
(1977),all of which provide traditional banking services
comparable to Western-style commercial banks.

The banking sector was opened to foreign competition under
the 2001 Direct Foreign Investment Law and the Central Bank
has already granted licenses to four foreign banks.
However, while foreign banks may now operate in Kuwait, they
are restricted to opening only one branch. BNP Paribas,
National Bank of Abu Dhabi and HSBC are already doing
business in Kuwait, while Citibank expects to begin
operations in 2006.

On March 10, 2002, the Emir (Head of State) of Kuwait signed
Law No. 35, which criminalizes money laundering. The law
stipulates that banks and financial institutions may not
keep or open any anonymous accounts or accounts in
fictitious or symbolic names, and that banks must require
proper identification of regular and occasional clients. The
law also requires banks to keep all records of transactions
and customer identification information for a minimum of
five years, conduct training and establish internal control
systems, and report any suspicious transactions. Regulators
do not believe that money-laundering is a serious problem,


and most money laundering operations are generated as a
byproduct of local alcohol and drug smuggling into the
country. Revenue from the sale of counterfeit goods,
including narcotics, is considered to be significant.
Law No. 35/2002 designates the OPP as the sole authority to
receive reports, including suspicious transaction reports
(STRs),and take appropriate investigative action on money
laundering operations. The law provides for a penalty of up
to seven years' imprisonment in addition to fines and asset
confiscation. The penalty is doubled if an organized group
commits the crime, or if the offender took advantage of his
influence or his professional position. Moreover, banks and
financial institutions may face a steep fine (approximately
$3.3 million) if found in violation of the law. Law 35/2002
does not cite terrorist financing as a crime; however, the
definition of criminal activity is broad.
The law includes articles on international cooperation, and
on monitoring cash and precious metals transactions.
Currency smuggling into Kuwait is also outlawed under Law
No. 35/2002, although reporting requirements are not
enforced at ports of entry. Provisions of Article 4 of Law
No. 35/2002 state that every person shall, upon entering the
country, inform the customs authorities of any national or
foreign currency, gold bullion, or any other precious
materials in his/her possession, valued in excess of Kuwait
dinars 3,000 (about $10,000). However, the law does not
require individuals to file customs declarations when
carrying cash or precious metals out of Kuwait. The law
authorizes the Minister of Finance to set forth the
resolutions necessary to ensure its implementation. The
Minister of Finance, as stipulated by Law No. 35/2002, has
issued resolutions to enhance combating money laundering
operations, without actually amending the legislation.
Several cases have been opened under Law No. 35/2002, but
the majority of them were closed after investigations did
not disclose prosecutable offenses. Only two cases have gone
to courts. The OPP's AML bureau can benefit from technical
assistance and training. The Department of Homeland
Security's Immigration and Customs Enforcement office is
considering providing training to the OPP's AML office to
enhance the Prosecutor's legal awareness and methodology to
result in successful prosecutions of AML cases.
In addition to Law No. 35/2002, anti-money laundering
reporting requirements and other rules are contained in the
Central Bank's instructions No. (2/sb/92/2002),which took
effect on December 1, 2002, superseding instructions No.
(2/sb/50/97). The revised instructions provide for, inter
alia, customer identification and the prohibition of
anonymous or fictitious accounts (Articles 1-5); the
requirement to keep records of all banking transactions for
five years (Article 7); electronic transactions (Article 8);
the requirement to investigate transactions that are
unusually large or have no apparent economic or lawful
purpose (Article 10); the requirement to establish internal
controls and policies to combat money laundering and
terrorism finance, including the establishment of internal
units to oversee compliance with relevant regulations
(Article 14 and 15); and, the requirement to report to the
Central Bank all cash transactions in excess of $10,000
(Article 20). In addition, the Central Bank distributed
detailed instructions and guidelines to help bank employees
identify suspicious transactions. At the Central Bank's
instructions, banks are no longer required to block assets
for 48 hours on suspected accounts in an effort to avoid
"tipping off" suspected accountholders. The Central Bank,
upon notification from the Ministry of Foreign Affairs
(MFA),will issue circulars to units subject to supervision
requiring them to freeze the assets of individuals and/or
organizations designated under Presidential Executive Order
13224 or the UN 1267 Committee. Financial units freeze
assets immediately for an indefinite period of time pending
further instructions from the Central Bank, which in turn
receives its designation guidance from the MFA.
Kuwait has two Islamic banks, Kuwait Finance House (KFH) and
Boubiyan Bank, which are both licensed and supervised by the
Central Bank. As of May 31, 2004, KFH came fully under the
supervision of the Central Bank, and has been cooperative
with its offices, as have all other Islamic investment
companies. Boubiyan Bank was established by the Kuwaiti
Investment authority (KIA) and is in the process of being
formed, after its May 2004 initial public offering. The
E


Kuwait Real Estate Bank, which has been one of Kuwait's two
"specialized banks," is in the process of converting to an
Islamic bank. The Central Bank has been working on bringing
Islamic financial institutions under its supervision since
before the terrorist attacks of September 11, 2001. In
addition, the Central Bank issued circular No.
(2/sb/95/2003) in 2003, which is directed toward money
changing companies (can engage in wire transfers, selling
and buying drafts and travelers checks),and which contains
similar instructions with respect to combating money
laundering and suspicious activities reporting guidelines.
Also, the Central Bank recently issued updated AML/CFT
regulations directed toward Investment Companies. A similar
order (31/2003) was issued by the Kuwait Stock Market to all
companies under its jurisdiction. There are about 130 money
exchange businesses (MEBs) operating in Kuwait (authorized
only to exchange foreign currency),none of which are
companies, and therefore, are not under the supervision of
the Central Bank but rather under the Ministry of Commerce
and Industry. The Central Bank has reached an agreement with
the Ministry of Commerce and Industry to enforce all anti-
money laundering (AML) laws and regulations in supervising
such businesses. Furthermore, the Ministry will work
diligently to encourage the MEBs to apply for and obtain
company licenses and register with the Central Bank.
The Ministry of Commerce and Industry, through its AML
bureau, supervises insurance companies, exchange bureaus,
gold and precious metals shops, brokers in the Kuwait Stock
Exchange, and all other financial brokers. Since September
2002, these firms must abide by all regulations concerning
customer identification, record keeping of all transactions
for five years, establishment of internal control systems,
and the reporting of suspicious transactions.
In April 2004, the Ministry of Finance issued Ministerial
Decision No. 11 (MD No. 11/224),which transferred the
chairmanship of the National Committee for Anti-Money
Laundering and the Combating of the Financing of Terrorism,
formerly headed by the Minister of Finance, to the Governor
of the Central Bank. The Committee is comprised of
representatives of the Ministries of Interior, Foreign
Affairs, Commerce and Industry, Social Affairs and Labor,
and Finance; Office of Public Prosecution; Kuwait Stock
Exchange; General Customs Authority; the Union of Kuwaiti
Banks; and the Central Bank. Since its inception, the
National Committee has been gradually pursuing its mandate
of drawing up the country's strategy and policy with regard
to anti-money laundering and terrorist financing; drafting a
new law that, when completed, is expected to criminalize
terrorist financing along with other pertinent regulations;
coordinating between the concerned ministries and agencies
in matters related to combating money laundering and
terrorist financing; following up on domestic, regional, and
international developments, and making needed
recommendations in this regard; setting up appropriate
channels of communication with regional and international
institutions and organizations; and representing Kuwait in
domestic, regional, and international meetings and
conferences. In addition, Article Seven entrusts the
Chairman of the Committee with issuing regulations and
procedures that he deems appropriate for the Committee
duties and responsibilities and the organization of its
activities.
Following the September 11, 2001, attacks against the United
States, certain Islamic charity organizations such as the
Revival of Islamic Heritage Society (RIHS) and its
subsidiary, the Afghan Support Committee (ASC),which
operate from Kuwait and have branches in Pakistan and
Afghanistan, were suspected of providing funds to al-Qaida.
However, there is no indication that such activities
occurred with the knowledge of the Kuwaiti head office,
which remains undesignated; U.S. authorities have only
designated the branches in Pakistan and Afghanistan as
having been used to funnel funds to terrorist organizations.
The RIHS, like other charitable organizations, is under the
supervision of the Ministry of Labor and Social Affairs.
In August 2002, the Kuwaiti Ministry of Social Affairs and
Labor issued a ministerial decree creating the Department of
Charitable Organizations. The primary responsibilities of
the department are to receive applications of registration
from charitable organizations, monitor their operations, and
establish a new accounting system to insure that such



organizations comply with the law both at home and abroad.
The Department has established guidelines to charities
explaining donation collection procedures and regulating
financial activities. The new Department is also charged
with conducting periodic inspections to ensure that they
maintain administrative, accounting, and organizational
standards according to Kuwaiti law. Further, the Department
mandates the certification of charities' financial
activities by external auditors and limits the ability to
transfer funds abroad to select charities approved by the
Ministry. The Ministry also requires all fund transfers
abroad to be made between authorized charity officials.
Banks and Exchange Companies are not allowed to transfer any
charity money outside of Kuwait without prior permission
from the Ministry. In addition, such wire transactions must
be reported to the Central Bank, which maintains a monthly
database of all transactions conducted by charities.
Unauthorized public donation kiosks and zakat (alms)
collection in mosques are also prohibited. During the 2005
Ramadan season, the Ministry introduced a new pilot program
requiring charities to raise donations through the sale of
government-provided coupons.
On June 23, 2003, the Central Bank issued Resolution No.
1/191/2003, establishing the Kuwaiti Financial Inquiries
Unit (KFIU) as an independent entity within the Central
Bank. The KFIU is comprised of seven part-time Central Bank
officials and headed by the Central Bank Governor. The
responsibilities of the KFIU are to receive and analyze
reports of suspected money laundering from the OPP, to
establish a database of suspicious transactions, to conduct
anti-money laundering training, and to carry out domestic
and international exchanges of information in cooperation
with the OPP. Law No. 35/2002 did not establish the FIU as
the central unit for the receipt, analysis, and
dissemination of the suspicious transaction reports (STR)
information; instead, these critical functions were divided
between the KFIU and OPP. Unlike the United States, banks
in Kuwait are required to file STRs with the OPP, rather
than directly with the KFIU. Based on an MOU with the
Central Bank, STRs are referred from the OPP to the KFIU for
analysis. The KFIU conducts analysis and reports any
findings to the OPP for the initiation of a criminal case,
if necessary. The KFIU's access to information is limited
by its lack of membership in the Egmont Group, resulting
mainly from the KFIU's inability to share information abroad
without the approval of the OPP. Kuwaiti officials agree
that the current limits on information sharing by the FIU
are a problem that requires amending of the law, currently
under revision by the National Committee.
Kuwait is a member of the Gulf Cooperation Council (GCC),
which is itself a member of the Financial Action Task Force
(FATF). In November 2004, Kuwait signed the memorandum of
understanding governing the establishment of the Middle East
and North Africa Financial Action Task Force (MENAFATF).
Kuwait is one of the fourteen charter members of this FATF-
style regional body that was inaugurated in Bahrain to
promote best practices to combat money laundering and
terrorist financing in the region. Kuwait has increasingly
taken on a leadership role in the MENA/FATF through its
active participation and initiative in co-drafting documents
on charities oversight, among others. The Central Bank will
also host a MENA/FATF seminar in December 2005 in Kuwait to
train assessors to evaluate countries' compliance with
AML/CFT regulates based on WB/IMF methodology.
Kuwait has signed the 1988 UN Drug Convention. It has
signed, but not yet ratified, the UN Convention against
Transnational Organized Crime. Kuwait, although a
signatory, has not yet ratified the UN International
Convention for the Suppression of the Financing of
Terrorism.
Kuwait is making progress in enforcing its anti-money
laundering program, including the pending legal reform of
Law No. 35/2002. The issuance of the Ministry of Finance
Decree 11/2004 concerning the new duties of the National
Committee for Anti-Money Laundering and the Combating of the
Financing of Terrorism represents an important development.
The National Committee is expected to approve the long-
anticipated draft law in early 2006 with subsequent approval
and adoption by the Council of Ministers (Cabinet) and
National Assembly. Efforts should be made by Kuwaiti
officials to expedite this important process. Kuwaiti


officials acknowledge and welcome extensive training for all
involved sectors to strengthen internal policies and
procedures. In December 2005, the Kuwait General
Administration of Customs hosted a conference, in
conjunction with the Department of Homeland Security's
Immigration and Customs Enforcement division, focusing on
measures to combat cash smuggling.

END OF TEXT OF REPORT.

Lebaron