Identifier
Created
Classification
Origin
05SANAA2151
2005-08-06 14:38:00
CONFIDENTIAL
Embassy Sanaa
Cable title:  

YEMEN FIGHTS TERRORIST FINANCING WITH LIMITED

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C O N F I D E N T I A L SECTION 01 OF 03 SANAA 002151 

SIPDIS

E.O. 12958: DECL: 08/03/2015
TAGS: KVPR ETTC EFIN PTER PREL CVIS YM COUNTER TERRORISM TERFIN
SUBJECT: YEMEN FIGHTS TERRORIST FINANCING WITH LIMITED
RESOURCES

REF: A. SANAA 04 380

B. SANAA 2115

Classified By: DCM Nabeel Khoury for reasons 1.4 b and d.

C O N F I D E N T I A L SECTION 01 OF 03 SANAA 002151

SIPDIS

E.O. 12958: DECL: 08/03/2015
TAGS: KVPR ETTC EFIN PTER PREL CVIS YM COUNTER TERRORISM TERFIN
SUBJECT: YEMEN FIGHTS TERRORIST FINANCING WITH LIMITED
RESOURCES

REF: A. SANAA 04 380

B. SANAA 2115

Classified By: DCM Nabeel Khoury for reasons 1.4 b and d.


1. (C) Summary. Yemen has a strong legal framework and
considerable political will to combat terrorist financing,
but is hampered by insufficient resources and a poorly
organized banking sector. Although the volume of
transactions is low, terrorists take advantage of the largely
unregulated Yemeni banking system to support terrorist
organizations. Banks in Yemen report suspicious activities
mostly on a voluntary basis, and the anti-Money Laundering
Unit at the Central Bank does not have the capacity to
investigate effectively foreign currency transfers and hawala
houses. Despite a difference of opinion regarding the
listing of Zindani on the Terrorist Watch List, the ROYG has
a strong interest in strengthening its oversight capacity and
requires extensive assistance to do so. End summary.

--------------
The Legal and Political Framework
--------------


2. (SBU) Law 38 for Money Laundering (and Highway Robbery)
was issued in 2003, and serves as the legal basis for ROYG
efforts in combating Terrorist Financing (TF). The law gives
the Central Bank of Yemen (CBY) authority to create an
Anti-Money Laundering Unit, which gathers information from
public and private banks. The unit also handles TF, but
avoids the term "terrorist financing" due to public
sensitivity, which also makes it unlikely that they ROYG will
pass specific TF legislation in the near future. The law
established the Higher Committee on Money Laundering in 2004,
chaired by the Minister of Finance, which includes key
ministries and representatives of the private sector. The
committee serves as the primary link to MENA FATF (Financial
Action Task Force) in Bahrain, as well as to the IMF and
other international organizations. A separate Terrorist
Financing Committee, headed by the Ministry of Foreign
Affairs, has been in existence since 2000. It meets at least
once every two months, circulates blacklists from the UNSC to

banks, and responds to UN questions. The two committees
often meet jointly.


3. (C) Abdullah al-Olafi, Sub-Governor for Banking
Supervision at the CBY, believes that TF activity is limited
in Yemen. It is not a common safe haven for illegal funds,
said Olafi, as the banking system is small and large
transactions would be easy to detect. Olafi suggested that
terrorists in Yemen are more likely to operate in the
informal sector, using hawalas or cash. In a veiled
reference to Zindani's accounts in commercial banks, Olafi
said it was not the job of the CBY to make political
decisions about which accounts to investigate, only to carry
out directives from the ROYG (ref A). Nevertheless, said
Olafi, the political will exists in the ROYG to improve
oversight -- there just are not enough resources to do so
effectively at this time. The CBY has circulated all TF
lists from FATF and the ML unit is gathering information on
these individuals.

--------------
Mechanics of Fighting Money Laundering
--------------


4. (C) All commercial banks are required to establish
internal anti-money laundering (ML) units, and must inform
the CBY of any suspicious transactions. Due to limited
resources at the CBY, this operates on a voluntary basis and
few suspicious activities are referred in practice. When a
report is filed, the form is completed by hand and delivered
to the CBY. A report triggers action from the Anti-ML Unit,
which to date has turned up six cases of fraud and one person
on the CBY blacklist. All investigated cases to date
occurred at privately owned banks.


5. (C) By law, banks are required to report any transaction
exceeding 10,000 USD or any suspicious activity, but in
practice this rarely occurs. According to Abdu Hizam, head
of the Anti-ML Unit, there are currently three ML cases under
investigation. The unit currently has no supervision
authority over foreign currency transactions, and banks are
not required to report such activities. Pending amendments
to the CBY Law may remedy this, but Hizam said the unit is
too overwhelmed to handle additional responsibilities. The
law does restrict export of over 10,000 USD.


6. (C) Banking oversight is conducted as part of the CBY's
annual on-site bank inspection, when CBY staff review the
banks' balance of payments. There are a total of 18 field
inspectors and three employees at the main office (one of
whom is abroad pursuing an advanced degree). The inspectors
are responsible for monitoring all commercial banks, as well
between 300-400 hawalas. The unit also draws on the broader
CBY staff for expertise, including legal and IT. The
Ministry of Labor and Social Affairs is responsible for
oversight of NGOs, and there is little communication between
MOL and the CBY. The Higher Council of Parties supervises
the activities of political parties. The Bank is technically
able to monitor NGOs and parties by accessing their bank
accounts, but has never done so.

--------------
Beyond the Central Bank
--------------


7. (C) There is a separate ML division at the Ministry of
Interior that has a "special security focus." Officially,
MOI is required to report its findings to the CBY, and
Mustafa Qaid, General Manager for Legal Affairs at the CBY,
reported one case currently under investigation at MOI. The
Ministry of Finance also has a Financial Information Unit,
headed by former Deputy Director Ahmed Ghaleb, which
functions as a technical sub-committee to the Higher
Committee and drafts ML and TF legislation.


8. (SBU) Yemen is a founding member and regular participant
in MENA-FATF, and has directed all commercial banks and
hawalas to comply with the organization's recommendations. To
this end, the CBY offered training to government employees,
as well as NGOs and insurance companies, on monitoring
sources of financing. At a November 30 MENA-FATF meeting in
Bahrain, Ahmad al-Bashari, head of the FIU at the Department
of Treasury, promised to include Yemen in the Egmont Group.
According to Qaid, Yemen seeks to host a MENA-FATF conference
in 2006. (Note. The Egmont Group was established in 1995 as
an informal group of Financial Intelligence Units to
encourage cooperation between countries in investigating
financial crimes. End note.)

--------------
Working Under Primitive Conditions
--------------


9. (SBU) The ML Unit is seeking assistance in a number of
areas. The staff is severely limited by their technology,
working from laptops they received from the IMF eight years
ago, and has no database or network. The unit also requires
help with organization structure, information management, and
specific training for staff on supervision of electronic
transactions. The IMF has promised limited training, but not
equipment.


10. (SBU) The CBY itself is computerized, using an Oracle
database with COBAL interface, but its branches are not
connected. Most internal communication is still done by fax
and employees use dial-up internet connections. At this
time, the CBY tracks all payments by hand, which is
manageable as Yemen clears only 2000 checks per day. In the
long run, however, the CBY seeks to reach an agreement on a
central switch to link all banking transactions and link
branches electronically. This would allow all commercial
bank reports to be provided electronically and offer the CBY
improved oversight of suspicious transactions. (Note: The
U.S. Treasury Regional Office in Abu Dhabi is initiating a
project on August 14 to improve the CBY payments system. End
note).

--------------
Comment: Chaos of System Invites Abuse
--------------


11. (C) In terms of pure volume, Yemen is likely a smaller
arena for TF than other countries in the region.
Nevertheless, the anarchy of the banking system makes it easy
to abuse. Despite President Saleh's protestations to the
contrary, it is highly likely that Zindani and the al-Iman
University that he supports conduct significant banking
business in Yemen. There is also evidence that Shiekh
Mohammed Ali Hassn al-Moayad, sentenced on July 28 to 75
years in prison for conspiracy to provide material support to
Hammas, used the Yemeni banking system for TF transfers (ref
B). The hawala houses, which must use commercial banks to
reconcile balance sheets, remain easy targets for TF. The
Yemeni financial system is attractive for TF because of
sympathetic tendencies among some bank officials and
proximity to terrorist activity.


12. (C) The CBY is very interested in increasing its
oversight capacity, and both the MFA and MOF take the issue
seriously. Membership in MENA FATF is considered a bright
spot in relations with the GCC, and one area where Yemen can
build support for full membership. The ROYG continues to
resist U.S. requests to impose a travel ban on Zindani or to
seize his accounts, insisting that they must have evidence of
his links to terror. The Zindani case is particularly
volatile for the ROYG, however, and does not represent a
categorical refusal to cooperate on TF. The ROYG is seeking
support for an effective monitoring system, without which
there is little chance of identifying TF activity in Yemen.
End Comment.
Krajeski