U/S LEVEY DISCUSSES DUBAI CHARITY REGULATIONS, DIFC

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 000440 SIPDIS SIPDIS STATE FOR EB (A/S WAYNE),EB/ESC/TFS (JSALOOM),NEA/ARPI (RSMYTH) TREASURY FOR U/S LEVEY, PHEFFERNAN, RLEBENSON FBI FOR FWAIKART, MMOREHART, JHERRING CIA FOR CTC/FINO E.O. 12958: DECL: 08/13/2015 TAGS: PTER KTFN AE SUBJECT: U/S LEVEY DISCUSSES DUBAI CHARITY REGULATIONS, DIFC REF: A. ABU DHABI 409 ¶B. 05 ABU DHABI 2741 Classified By: AMBASSADOR MICHELE J. SISON FOR REASONS 1.4 B & D. ¶1. (C) Summary. During Undersecretary Stuart Levey's trip to the UAE, Levey and his delegation met with the Dubai Department of Islamic Affairs and Charitable Organizations (DDIA) to discuss charity oversight in Dubai. DDIA explained that charities can be licensed to operate in an individual emirate without receiving a license from the federal Ministry of Labor and Social Affairs. The DDIA officials also explained that they work with Dubai's security services to vet employees and board members of charities in Dubai. They explained that they are most concerned about ensuring that Dubai-based charities' international contributions do not go to illegitimate purposes, and they indicated that it is possible for charities to transfer funds abroad without going through one of the three "government approved charities" as long as the charities secure the permission of the DDIA. U/S Levey also met with officials from the Dubai Financial Services Authority to discuss the regulation of the Dubai International Financial Center. Noting that the reputation of the DIFC is vulnerable to what happens in the UAE banking system, DFSA officials stressed their desire to cooperate with the United States and international financial institutions. The JTFCC meeting is reported in Ref A. End summary. Dubai Charity Regulator - What It Does, What It Doesn't Do -------------- -------------- ¶2. (SBU) On January 25, U/S Levey and his delegation met with Chairman of the Dubai Department of Islamic Affairs and Charitable Organizations (DDIA),Hamad Al Shibani, and Deputy Director General Sami al Gargash to discuss the way charities in Dubai are regulated. In addition to the Treasury Delegation, FBI TFOS Chief Michael Morehart and FBI Special Advisor to the NSC Frank Waikurt, were in attendance. ¶3. (C) The DDIA licenses, audits, and develops charities in Dubai. Currently, there are 10 charities licensed by DDIA, and they must renew their licenses annually. Al Gargash noted that one of the 10 charities is the combined Dubai Aid City/Dubai Humanitarian City, and he explained that DDIA is in the process of determining how to monitor the charities operating in Dubai's charity free zone. He explained that, since international charities operate in the free zones, there is no easy way to regulate their activities. "We worry about where the money goes, but we do not know how to address it yet." ¶4. (C) Al Gargash provided an overview of the intersection between UAE federal law governing charitable organizations and emirate-level laws. He said that Federal Law #6 of 1974 governs all NGOs, but each emirate can create its own laws for local charities. Charities established and licensed by the individual emirate do not fall under the guidelines of the federal law. Only charities licensed by the MLSA fall under the requirements of the federal law (ref B). A charity licensed federally by the UAE Ministry of Labor and Social Affairs (MLSA) must also get a license from the DDIA in order to operate in the emirate of Dubai. Likewise, a charity licensed by DDIA must have an MLSA license to operate in any emirate outside of Dubai. Al Gargash also said that social organizations (for example, an NGO for the handicapped) are licensed by the Ministry of Labor. He said that if they want to raise money in Dubai, then they must first get a license from DDIA for that specific fundraising activity. ¶5. (C) Al Gargash noted that DDIA's main concern is working to be sure that charities, activities abroad are legitimate. He explained that the UAEG's oft-touted requirement that charities funnel international donations through one of three government approved charities is not strictly applied. He said that DDIA asks charities to tell them which charities they are working with abroad but that as long as they consult with DDIA in advance, Dubai charities may work (and send money) internationally. Al Gargash was open that monitoring a charity's books cannot ensure that funds are not committed to illegitimate causes, and as such, DDIA relies on the security services to help confirm the legitimacy of a given foreign charity. He also said that the SSO checks the names of all ABU DHABI 00000440 002 OF 003 charity employees and board members to be sure that none have objectionable connections. In the last 3 years, the security services have reported only 1 case to the DDIA of objectionable activity. Al Gargash said that the charities provide the DDIA with minutes from the board meetings and reports that document how the charity's money is disbursed. The Dubai Ruler's Office conducts an annual audit of each of the charities and submits the report to the DDIA. Additionally, charities must renew their licenses annually. ¶6. (C) In response to a question from U/S Levey about Islamic Law, Al Gargash said that it is perfectly acceptable for the DDIA to know the identity of the donor (even if the recipient does not know). Al Gargash also said that the DDIA is working with Dubai e-Government to create a database that will electronically track all charitable programs and donations in Dubai. In addition to serving as an oversight and auditing tool for DDIA, charities will have the ability to search the database to see if a donor has contributed to other charities. ¶7. (C) Al Gargash and Al Shibhani were very responsive to the questions and comments of U/S Levey's team, and they indicated they would be more than willing to check the OFAC list of designated individuals and entities when charities contribute to international charities. OFAC Attache Jason Beal will provide the DDIA with a copy of the OFAC list. U/S Levey also passed Al Gargash a Treasury document on voluntary best practices for U.S.-based charities. Dubai Financial Services Authority - DIFC's Regulator -------------- -------------- ¶8. (C) U/S Levey and the Treasury team met with representatives from the Dubai Financial Services Authority (DFSA),which regulates the Dubai International Financial Center (DIFC) (Dubai's Financial Free Zone). In attendance were Nial Coburn, Director of Enforcement, Jane Coakley, Managing Director of Authorization, Marc Hambach, Associate Director of Supervision, and Joyce Maykut, General Council. DFSA officials stressed their desire to cooperate with the United States and international financial institutions, and they explained that the DFSA has provided information to the UK's Financial Services Authority and the U.S. Department of Homeland Security. ¶9. (SBU) Hambach gave a background of the DFSA's regulatory regime, as it relates to AML/CTF procedures for the 14 firms that are presently authorized to operate in the DIFC. With respect to federal law, all UAE criminal laws apply to the DIFC, but it is exempt from commercial and civil UAE law. Hambach stated that the DFSA examined the FATF's Special Recommendations, the Patriot Act, and other international regulatory frameworks to select the best guidelines for the DFSA's AML/CTF compliance regime. In response to Policy Advisor Rachel Lebenson's question about how DFSA interprets the applicability of the FATF recommendations in its free zone, Hambach said he would be more than willing to consult with the U.S. Department of Treasury as to how the recommendations fit into the environment of the DIFC. ¶10. (C) Clients must have $1 million liquid assets in order to operate in the DIFC. Coburn reported that only one firm in the DIFC has filed a suspicious transaction report (STR) with the UAE's Anti Money Laundering and Suspicious Cases Unit (AMLSCU). Out of concern that only one STR had been filed, he said that the DFSA recently conducted an STR review to be sure that the firms were appropriately applying the AML/CFT procedures. As a part of this review, the DFSA provided additional AML education to the firms. Hambach noted that if DFSA comes across suspicious activity, it can ask the firm to file an STR. If the firm does not comply, DFSA has the authority to file it themselves. He told the delegation that firms submit the STRs to the AMLSU, and that they are required to copy the DFSA. Coburn also stressed that if DFSA discovers that an account is being investigated, the DFSA would notify the Central Bank that it intends to freeze the account. Under its law, the DFSA has the authority to freeze accounts as long as the investigation is underway, or as long as the judge authorizes the freeze. ¶11. (C) The DFSA regulators are aware that the reputation of the DIFC is vulnerable to any problems in the UAE banking ABU DHABI 00000440 003 OF 003 system. The DFSA representatives reported their concern that the Emiratis conducting AML/CFT investigations simply do not have the requisite skill sets to carry out their duties, which was a matter, ultimately, of political will. "We face reputational risks, because if money laundering occurs across the street at the Bank of Dubai, no one internationally will know the difference between them and DIFC." For this reason, the DFSA believes it is in their interest that the UAE authorities (including the Central Bank) do all they can to protect the UAE's system against money laundering and terror finance. In this vein, the DFSA wanted to participate in the MENA/FATF, but Hambach said that UAE Central Bank prevented them from doing so. Coburn observed that fixing the problems will require instructions coming from the top. "The leadership needs to give the authority for interagency cooperation." U/S Levey suggested that the DFSA use its channels within the government to raise its concerns about the importance of the UAE,s AML reputation. SISON