BMA ISSUES WARNING LETTER TO SHAMIL BANK FOR

S E C R E T MANAMA 001830

SIPDIS

PASS TO EB/ESC/TFS FOR BADKINS, S/CT FOR VNICHOLS,
EUR/PGI FOR LREASOR, EUR/WE FOR NFETCHKO, NEA/ARPI,
IO/PSC FOR BFITZGERALD, NSC FOR JZARATE,
TREASURY FOR DGLASER AND OFAC FOR RWERNER

E.O. 12958: DECL: 12/06/2015
TAGS: ETTC KTFN EFIN PTER KSEP CVIS KVPR BA ECTRD CTR
SUBJECT: BMA ISSUES WARNING LETTER TO SHAMIL BANK FOR
OPENING IIRO ACCOUNT

REF: A. MANAMA 1432


B. JEDDAH 4965

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


1. (S) Summary. Ambassador and OFAC Attache met with Bahrain
Monetary Agency (BMA) Governor November 20, 2005 to discuss
the International Islamic Relief Organization (IIRO) account
at Shamil Bank (Ref A). The BMA Governor stated that the
IIRO account was ordered closed and Shamil Bank had received
a warning letter. The BMA rulebook would be clarified since
Shamil Bank claimed to interpret the regulations governing
charitable accounts to only apply to local charities.
Ambassador stressed the need for strong public action to
curtail any further violations. During subsequent
conversations with a BMA legal advisor, he indicated that
given this was Shamil Bank's first offense, they were given a
less stringent punishment. End Summary.


2. (S) Ambassador and OFAC Attache met with BMA Governor
Rasheed Al Maraj on November 20, 2005 to discuss the outcome
of the investigation into the IIRO accounts at Shamil Bank.
The BMA Governor reiterated that the IIRO account had been
closed according to BMA instructions and noted that the BMA
had sent a warning letter to Shamil Bank as a "measured
response" to the bank's violation. (Note: Shamil Bank
Bahrain opened an account for the IIRO despite the
organization not being a charity registered in Bahrain.
According to BMA regulations regarding Charity Organizations
in Bahrain, dated May 3, 2002, "Licensed banks may not open
an account for charity funds or societies until an original
certificate authenticated by the Ministry of Social Affairs
confirming their identities and authorizing them to open an
account has been obtained." IRO reported to USG officials
November 2005 that it had not sent any money overseas in the
"past six months" (Ref. B),indicating it had ceased using
the Shamil Bank Bahrain account not later than May 2005. End
note.) Al Maraj reported that during the investigation,
Shamil Bank defended opening the account of IIRO because they
interpreted the rule to only apply to local charities and
IIRO is not a local charity. The BMA Governor stated that
Shamil Bank had been advised that this rule applied to all
charities, local and international, and indicated that the
rulebook was being changed to reflect this clarification.


3. (C) Ambassador stressed the importance of strong public
action, like a public announcement, to ensure that Bahrain,s
financial sector was fully aware of the clarification. He
said it was important for the Bahraini marketing reputation
that the BMA address any vulnerability in the regulations.
The Governor said the BMA did not issue a separate circular
to highlight this change, but he thought the rulebook change
addressed the problem.


4. (C) BMA legal advisor told Econoff November 28 that
neither he nor his colleagues had found the bank's excuse
compelling. He told Econoff that in issuing a warning letter
to Shamil Bank, the BMA was not acknowledging any ambiguity
or shortcoming in the existing rulebook. However, he
confirmed that, pursuant to the Governor's November 20
assurances to the Ambassador, the BMA would revise the
rulebook to clarify that the regulations in question apply to
all charities - domestic and international. The advisor also
told Econoff that November 30 was Shamil Bank's deadline for
reporting whether or not a self-audit had revealed any other
violations. He said confidentiality guidelines would prevent
the BMA from sharing these results or the specific findings
of the BMA,s investigation of Shamil. He did say he would
pursue the possibility of providing a substantive summary.

MONROE