SYNOPSIS OF KUWAIT'S ACTIONS TO COMBAT TERRORIST

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000806

SIPDIS

NEA/ARP FOR REECE SMYTH
NSC FOR PATRICK HEFFERNAN

E.O. 12958: DECL: 02/23/2015
TAGS: EFIN PTER ETTC KU TERRORISM
SUBJECT: SYNOPSIS OF KUWAIT'S ACTIONS TO COMBAT TERRORIST
FINANCE

REF: A. KUWAIT 669

B. KUWAIT 638

C. KUWAIT 594

D. KUWAIT 417

E. KUWAIT 76

F. 03 KUWAIT 4840

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


1. (U) Summary. In the wake of January's violent
confrontations between extremists and Kuwaiti security
forces, the Government of Kuwait has begun to view terrorist
finance as an issue of real concern. Although Kuwait is not
a major financial center and has not been a primary entrepot
for terrorist financing, there are gaps in the GOK's ability
to prevent terrorist finance. At present, Kuwait has no law
specifically criminalizing terrorist finance, but the Council
of Ministers recently agreed that Kuwait should become a
party to the UN Convention on the Suppression of Financing of
Terrorism. Kuwait's Financial Intelligence Unit (FIU) is not
permitted to share information without prior approval from
the Public Prosecutor's Office, making it ineligible for
membership in the Egmont Group.


2. (C) With regard to banking, Islamic financial
institutions now fall under the Central Bank's regulatory
authority and most GOK and banking interlocutors believe that
current anti-money laundering laws are adequate to monitor
financial transactions carried out through regulated
institutions (Islamic and traditional). The GOK is
tightening up its supervision of charitable organizations,
following revelations that four of the five charities
licensed to do charity work outside of Kuwait have violated
the GOK's rules governing fundraising. In other news, local
papers reported that a Kuwaiti appeals court upheld a lower
court ruling absolving Muhsin Al-Fadhli of financing
terrorism in Iraq. This ruling is separate from another
charge against Fadhli concerning his alleged connection with
the 2000 attack on the USS Cole; that case is still pending.
End Summary.

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


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


4. (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
C).

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. Post is urging
the GOK to revise its legislation governing the FIU so that
the unit can function independently and effectively.

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


6. (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 E).


7. (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 B). 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 A). 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 of Charitable Institutions
--------------


8. (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 F).


9. (SBU) However, the Charitable Oversight Office made
headlines recently 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 has begun
shutting down unlicensed kiosks this month, much as they did
in 2003 (Ref D). According to local media, the Ministry has
warned the charities that should they fail to comply with
regulations, the Ministry will take "all necessary legal
measures" against them (athough these measures were not
specified).


10. (C) Several bankers told the Ambassador of their
discomfort with the relative lack of supervision over
charitable kiosks (Ref B). 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 recent terrorist
confrontations would provide the government with the excuse
it needed to impose more stringent controls.

Lower Court's Dismissal of Charges Against Al-Fadhli Upheld
-------------- --------------


11. (U) Local newspapers reported that on February 16, a
Kuwaiti appeals court upheld a lower court ruling absolving
Muhsin Al-Fadhli of financing terrorism in Iraq. The ruling
came one day after Fadhli was designated by the U.S. as a
supporter of terrorism. The appeals court's verdict,
however, is not final and the government has the option of
referring the case of the Court of Cassation. This ruling is
also separate from another charge against Fadhli concerning
his alleged connection with the 2000 attack on the USS Cole;
that case is still pending.
TUELLER