OFAC DIRECTOR WERNER'S MEETINGS WITH FINANCE

S E C R E T SECTION 01 OF 03 MANAMA 001432

SIPDIS

PASS TO EB/ESC/TFS FOR BADKINS,
S/CT FOR TKUSHNER AND NICHOLS,
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TREASURY FOR DGLASER AND OFAC FOR RWERNER

E.O. 12958: DECL: 09/27/2015
TAGS: ETTC KTFN EFIN PTER BA
SUBJECT: OFAC DIRECTOR WERNER'S MEETINGS WITH FINANCE
MINISTER, MINISTER OF SOCIAL AFFAIRS, CENTRAL BANK GOVERNOR


Classified By: Ambassador William T. Monroe, reasons 1.4 (b) and d).

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SUMMARY
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1. (S) Office of Foreign Assets Control (OFAC) Director
Robert Werner met with the Minister of Finance Sheikh Ahmed
bin Mohammed Al Khalifa, Minister of Social Affairs (MSA) Dr.
Fatima Belooshi and the Governor of the Bahrain Monetary
Agency (BMA) Rasheed Al-Maraj in Bahrain September 14-15.
Topics discussed included reports of irregular transactions
by International Islamic Relief Organization (IIRO) which
circumvented Bahraini regulations on charities and their
financial transactions. Shaikh Ahmed and Governor Al-Maraj
expressed their commitment to investigate the transactions
and recognized the immediate importance of enhancing GOB
monitoring of charity financing. The BMA later reported that
the IIRO accounts had been identified and closed and that the
BMA was assessing what action should be taken against the
bank. Shaikh Ahmed provided an update on the status of
Bahrain's Terrorism Finance Law, stating that the Cabinet
passed a draft law but it had not yet been submitted to
Parliament. Governor Al-Maraj described the current GCC
focus on terrorism finance issues. Dr. Belooshi agreed to
look into the issue of IIRO transactions, but thought the BMA
would be the enforcing authority on the matter. Dr. Belooshi
also described organizational changes planned for the MSA.
End Summary.


2. (U) During his visit to Bahrain on September 14-15, OFAC
Director Robert Werner, accompanied by the Ambassador, called
on the Minister of Finance Sheikh Ahmed and BMA Governor
Al-Maraj in separate meetings. On September 14 Werner,
accompanied by the DCM, also met with Minister of Social
Affairs Dr. Belooshi. Director Werner was accompanied
throughout by a delegation which included OFAC Associate
Director Jamal El-Hindi, Treasury Office of Intelligence and
Analysis Middle East Unit Chief Howard Mendelsohn, NEA/ARPI
Arabian Peninsula Econ Off Reese Smyth, OFACAtt and Econoff.

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SUSPICIOUS IIRO TRANSACTIONS RAISED
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3. (S/Rel Bahrain) Director Werner informed Shaikh Ahmed, Dr.
Belooshi and Governor Al-Maraj that, according to information
available to the U.S. Government, during the first half of
2005, IIRO headquarters provided over $7 million from an
account in Shamil Bank of Bahrain in Manama to 18 different
IIRO satellite offices. Among these transactions, IIRO
provided funds from the Bahrain account to three Saudi
Embassies. Director Werner noted that the second largest
single recipient of these funds was IIRO's Djibouti office.
(Note: This information was also shared with the Bahraini
Financial Intelligence Unit (FIU). End Note.)


4. (C) Shaikh Ahmed and Governor Al-Maraj each expressed
surprise upon learning about the transactions and each said
he placed great importance on protecting the corruption-free
reputation of Bahrain's financial system. Shaikh Ahmed said
that this was the first instance since 9/11 that he had
learned of any problems, noting the Ministry's strong
relationship with banks operating in Bahrain. He quickly
added, "That doesn't mean there couldn't be something," and
assured Director Werner and the Ambassador that the matter
would be investigated.


5. (C) Neither Shaikh Ahmed nor Governor Al-Maraj appeared
familiar with IIRO and each initially suggested that the
issue would not be as serious if the IIRO turned out to be a
legitimate charity. Shaikh Ahmed said he would seek
additional information on IIRO.

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IIRO Account Positively Identified
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6. (C) Twelve days after releasing the IIRO account
information to the Bahrainis, the BMA told the embassy that
the IIRO account had been positively identified. Shamil Bank
had failed to comply with account opening instructions, and
had failed to comply with regulations on reporting
significant transfers by a charity. BMA officials added that
the account was not frozen because IIRO is not a designated
entity but that the account has been closed, and the balance
of the funds returned to IIRO. The BMA Governor will decide
what action to take against Shamil bank upon completion of
the ongoing investigation. According to a BMA official, the
Agency could issue an official warning letter, fine the bank
BD 20,000 ($53,000) and/or close the account.

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SCRUTINY OF CHARITIES EMPHASIZED
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7. (S) Director Werner pointed out that there was no
indication that the specific IIRO transactions described were
associated with terrorist activity and emphasized that the
issue was the vulnerability to abuse that these
charity-related transactions seemed to expose which made it
important to identify and address any possible weaknesses in
enforcement of regulations. The Ambassador observed that
terrorist tactics are constantly evolving in search of new
weaknesses to exploit. Financing through charities is a
case-in-point. Director Werner noted that combating
terrorist financing is often difficult because transactions
supporting terrorist activity may be intermingled among
legitimate charity projects.


8. (S) Governor Al-Maraj acknowledged that IIRO transactions
represented a breach in policy, since banks were required to
report any transactions greater than BD 3,000 (roughly
$8,000) and the IIRO transactions had not likely been
reported. (Note: The BMA reduced the reporting requirements
from BD 20,000 to BD 3,000 on July 21, 2005) OFACAtt pointed
out that, since IIRO is a Saudi entity, the transactions
represented a violation of the KSA ban on Saudi charities
engaging in extraterritorial financial activity and added
that IIRO was not registered as a charitable organization in
Bahrain. Governor Al-Maraj acknowledged that the
organization should not have a bank account in Bahrain, and
would not have been authorized to retransmit funds abroad.
He also said IIRO should have notified the Ministry of Social
Affairs before initiating the transactions.


9. (C) Governor Al-Maraj said he would raise the need for
increased scrutiny of charity financing with Minister of
Social Affairs. Shaikh Ahmed said he would advocate a
redoubling of intelligence sharing between bankers, Ministry
of Interior public security resources, and other governments.
(Note: The BMA is reportedly providing the Ministry of
Social Affairs with monthly reports of overseas transactions.
End Note.)

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Terrorism Finance Law
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10. (C) Turning to Bahrain's Terrorism Finance Law, Sheikh
Ahmed said a draft had been approved by the Cabinet, but it
had not yet been presented to Parliament. It had been
hung-up by debate over the Terrorism Law, which is necessary
to define terrorism as a predicate offense. Nevertheless, he
expected a final product modeled after terror finance
legislation in the U.K. and Singapore, and said the GOB was
pushing hard for it.

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GCC Terrorist Finance Efforts
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11. (SBU) Governor Al-Maraj noted that he had recently
attended a GCC Central Bankers Conference and observed that
each of his colleagues was genuinely focused on the
importance of countering terrorist financing systems. He
said the topic was regularly discussed at various GCC
meetings throughout the year. Governor Al-Maraj added, while
terrorist finance legislation common to all GCC countries
would be unworkable, GCC Central Bankers were committed to
harmonizing their banking procedures to better address the
threat. He said a GCC sub-committee dedicated to this end
had been formed and met on a regular basis.

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Minister of Social Affairs
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12. (SBU) During the meeting with the Minister of Social
Affairs, Director Werner stressed the importance of oversight
of charitable organizations. Dr. Belooshi responded that the
MSA had sent a letter recently to remind the charities that
no money could be transferred abroad without permission from
the MSA. She noted that the Charities couldn,t open an
account without an MSA license and that a charity could only
have one account. Additionally, she noted that the BMA now
gives the MSA a monthly report on overseas transfers and that
the MSA maintains a file with information on each charity.


13. (SBU) Dr. Belooshi was surprised by the information on
the IIRO account because the organization was not registered
in Bahrain, so it should not have been able to open an
account or transfer money. She promised to look into the
allegations but thought that the issue should be handled by
the BMA and not the MSA.

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Changing the MSA's name and reorganizing
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14. (SBU) Dr. Belooshi also described her plans to reorganize
the MSA. This included changing the Ministries name to the
"Ministry of Social Development" and creating an entire
directorate to cover NGO,s. The new directorate would have
a department to review NGO financing and a division that
would help develop NGOs.
MONROE