REQUESTING COUNTERTERRORISM FINANCE ASSISTANCE TO THE

UNCLAS SECTION 01 OF 09 STATE 083662 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN PGOV PREL KTFN KCRM PTER SNAR IZ SUBJECT: REQUESTING COUNTERTERRORISM FINANCE ASSISTANCE TO THE KURDISTAN REGION OF IRAQ ¶1. (U) This is an action request. See para 4. ¶2. (SBU) Action Request: Department requests that Posts approach host governments at an appropriate level, share the Financial System Assessment Team (FSAT) report provided in Paras 5-58 below, and make the following points and requests: -- Urge host governments to provide additional training, technical assistance, and material support to the Kurdistan Regional Government's (KRG) police, Central Bank and border and customs personnel, consistent with the needs identified in the FSAT report. -- Encourage states to assist and share all relevant financial intelligence with Iraq's Financial Intelligence Unit (FIU) -- known as the Money Laundering Reporting Office (MLRO). -- Inform host governments that the USG is planning additional cash courier training, tailored financial regulatory training, financial investigative training and a judicial orientation seminar on money laundering and terrorist finance, as well as other work with Iraq's MLRO. In light of this aid, posts should encourage coordination with the U.S. and other assistance providers when drawing up plans for additional aid to the KRG. End Action Request. ¶3. (SBU) Questions concerning this action request may be directed to Brett Yellen, S/CT Regional Affairs, (202) 647-3773 or Gary Novis S/CT, CTF Programs, (202) 647-1521. Background -------------- ¶4. (SBU) A USG interagency Financial System Assessment Team (FSAT) conducted an onsite visit to the Kurdish Region of Iraq December 4-18, 2007. Team members included representatives of the following Departments and offices: Department of State, Office of the Coordinator for Counterterrorism Department of Justice, Asset Forfeiture and Money Laundering Section Department of Treasury, Office of the Comptroller of the Currency Department of Defense, Iraq Threat Finance Cell Regional Reconstruction Team, Erbil, Iraq. ¶5. The team met with a wide array of government and private sector entities in the Kurdish Region, including representatives from the Kurdistan Regional Government's (KRG) Ministries of finance, interior and justice, as well as central bank branch leaders, police and airport security officials, bankers, money exchangers and money transmitters. By necessity, the FSAT was limited in both duration and geographic scope and therefore this assessment should be seen in this context. The FSAT team, however, did note the near universal desire for counterterrorist finance and anti-money laundering training and technical assistance in the Kurdish Region of Iraq. ¶6. (SBU) As a result of the recommendations from the FSAT visit, a team of trainers deployed to N. Iraq April 21-24 to provide bulk cash courier training to KRG representatives. The training exceeded expectations in terms of student attendance, engagement, and interaction across interagency lines. Fifty-seven officials took part from a wide swath of agencies - including police, customs, and intelligence personnel. Notwithstanding the success of the training, in order to consolidate gains from the course and address the KRG's other systemic CT finance needs, the U.S. needs to engage other capable parties in providing assistance. End Background. Executive Summary -------------- ¶7. (SBU) The KRG understands the serious nature of money laundering and terrorist financing and acknowledges the need for training, particularly given its history of internal and external isolation. The KRG is primarily focused on combating Al Qaeda in Iraq (AQI) and its affiliated groups, as well as groups supported by Iran, as they are seen as the primary terrorist threat to Iraq and the Kurdish Region. While Kurdish Region's economy is primarily cash based, this is likely to change as energy sector development increases the need for the development of a more robust formal financial sector that is integrated into the international financial community. Therefore, development of sound anti-money laundering and counterterrorist financing (AML/CTF) regimes that are well integrated into the overall AML/CTF system of Iraq, are critical in reducing the risk of STATE 00083662 002 OF 009 terrorist financing and money laundering in the Kurdish Region and Iraq. ¶8. (U) The KRG governs three provinces - Erbil, Sulaimaniyah, and Dohuk. In 2006, the KRG absorbed several ministries in Sulaimaniyah that had previously functioned somewhat independently. The KRG has not yet absorbed the Sulaimaniyah ministries of finance, interior and peshmerga affairs. Likewise, there are two branches of the Central Bank of Iraq (CBI) in the Kurdish Region - a branch in Erbil and a branch in Sulaimaniyah. ¶9. (SBU) The FSAT noted a number of areas of concern and vulnerabilities in which training and technical assistance could help reduce the KAR's vulnerability to terrorist financing and money laundering. For example, the FSAT noted the lack of connectivity and communication between the Central Bank branches both within the KAR and with the Central Bank of Iraq, as well as a lack of an institutionalized AML/CTF framework. There was also a significant disconnect between the Central Bank branches and Iraq's financial intelligence unit (FIU),the Money Laundering Reporting Office (MLRO). Additionally, representatives from the Kurdish Region's Central Bank Branches stated that the basic knowledge level of their employees relating to financial and regulatory matters is quite low and needs to be raised. ¶10. (SBU) In the judicial sector there appears to be a lack of continuity in the application of the Anti-Money Laundering law, and there are no specialized courts or professional skills development for the complex crimes of money laundering and terrorist financing. In addition, while law enforcement authorities vigorously pursue leads for terrorism and terrorist financing, they could benefit from additional investigative training, and particularly from financial "follow the money" investigative training. Finally, the team noted that Bulk Cash Smuggling training should be pursued as a means of strengthening the implementation of Iraq's cross border currency reporting requirements. Financial Sector Development -------------- ¶11. (SBU) The rudimentary financial sector in the Kurdish Region functions within a largely cash-based economy. Most transactions are conducted via a "hawala" type system of money exchangers and money transmitters. Integration of the formal financial sector with other parts of Iraq and the international financial system remains very limited. This situation, while likely to change as the oil sector becomes more developed and the need for standard international transactions increases, is a major cause for concern, as different interests both inside and outside of Iraq vie for financial influence and control. The Financial Sector -------------- ¶12. (U) The financial sector in the Kurdish Region consists of public and private banks, as well as money exchangers and money transmitters. Banks in the Kurdish Region are responsible for providing banking services to both the general public and, through public banks, to government entities as well. As noted earlier the Central Bank of Iraq (CBI) is responsible for licensing all public and private banks in Iraq. Representatives from the banking community noted that they are still in the early stages of attracting both individuals and business customers, as years of economic instability and numerous bank failures have led many to distrust banks. The banking community in the Kurdish Region has also suffered both technologically and experientially as a result of both international and internal isolation during the regime of Saddam Hussein. ¶13. (SBU) The FSAT held discussions with representatives from several money exchange and money transmitter businesses. They confirmed that most transactions, foreign exchange operations, and money remittances take place through these businesses and not through the banking sector. Most international remittances are done via related offices in Amman or Dubai. While simple funds transfers can take weeks to accomplish through the banking sector, the same transactions can be done very rapidly and at lower cost through money exchange and transfer sectors. Financial Sector Challenges and Vulnerabilities -------------- -- ¶14. (U) The financial sector in the Kurdish Region faces a number of challenges with respect to terrorist financing and money laundering. Kurdish bankers' professional skills atrophied and remained underdeveloped during the regime of Saddam Hussein. The overall STATE 00083662 003 OF 009 level of banking expertise is limited, especially among the area's Iraqi-owned banks that possess little knowledge or expertise with regard to execution of international transactions. The banking sector in general lacks sufficient technology to function effectively domestically, let alone internationally. There is a lack of modern banking technology, in particular a complete absence of an electronic payment system and wire transfer capability. As the financial sector is relatively new, there is little institutional knowledge with respect to AML/CTF issues. there is poor communication with the Central Bank, particularly with respect to addressing potential money laundering, suspected terrorist financing and other potential risks. ¶15. (SBU) The banking sector believes that terrorist financing and money laundering risks lie primarily with the money exchange/transfer service sector. They advocate and are lobbying for a legal ban against such services. Based on our experiences, the FSAT does not advocate this approach. Given the low-level of development of the banking sector, such a policy would likely prove counter-productive, difficult to enforce, and remove incentives for the money exchangers and transmitters to cooperate with authorities. The FSAT recommends that the KRG authorities look at alternative solutions, such as more stringent licensing of the money exchangers and transmitters and a requirement to report suspicious transactions, as more effective means of reducing vulnerabilities relating to terrorist financing and money laundering in this sector. ¶16. (SBU) Although financial institutions are required to report suspicious transactions, including potential money laundering and terrorist financing under the anti-money laundering ordinance, in practice they do not. This is due to a lack of training, technology and the isolation of the MLRO. ¶17. (SBU) The banking sector as a whole will benefit from training and technical assistance in all areas of banking. The acquisition and implementation of modern banking technology will not only improve the effectiveness of the banking sector overall, it will also provide banks with increased capability to collect and report data, such as suspicious transactions. This will help reduce the banking sector's money laundering and terrorist financing risks. ¶18. (SBU) As the MLRO becomes more established and experienced it should engage in a public outreach program in the KurdishRegion and the rest of Iraq, to educate the banking sector and general public on the risks of money laundering and terrorist financing and the benefits in reporting suspicious transactions. The Central Bank of Iraq -------------- ¶19. (U) The CBI has four branches; two of these branches are in the Kurdish Region (in Erbil and Sulaimaniyah). A third branch is in Basra, and the fourth is in Mosul. The CBI also houses Iraq's financial intelligence unit, the MLRO. In the Kurdish Region, the branch offices of the CBI have, contrary to Iraqi law, assumed responsibility for licensing and examining private and public banks, and money exchangers and transmitters. Currently the Central Bank of Iraq branch in Erbil licenses a total of 45 private banks and branches and 22 public banks and branches. The Central Bank in Sulaimaniyah licenses 12 private banks and branches and 16 public banks and branches. ¶20. (U) Both Central Bank branches are required to conduct periodic examinations of the banks. For public banks this occurs every 6 months and every three months for private banks. The Central Bank branch in Erbil currently has ten examiners (five of which are money laundering examiners) while the Central Bank of Sulaimaniyah has nine examiners (three of which are money laundering examiners). At this time, there have been no meaningful examinations or visitations by employees of the Central Banks to any of the banks or branches they are charged with overseeing. Central Bank Challenges and Vulnerabilities -------------- ¶21. (SBU) CBI oversight and control of the Kurdish Region's post-2003 banking system remains inadequate. The FSAT believes the CBI could become even less adept at fulfilling its regulatory oversight responsibilities, given the expected petrodollar-fueled development and expansion of the Kurdish Region's commercial banking system. In other words, the CBI's slowly improving regulatory capabilities will likely not match the expected faster pace of development in the banking sector. One of the most significant challenges facing the two Central Bank branches in the Kurdish Region is the lack of communication between the branches themselves and and the Central Bank of Iraq in Baghdad. In addition, CBI branch leaders in Erbil and Sulaimaniyah remain adamantly independent of CBI headquarters in Baghdad with respect to addressing money laundering, terrorist financing and other illegal financial activities. STATE 00083662 004 OF 009 ¶22. (SBU) The FSAT noted the strong interest in the Central Bank branches for increased training to address a number of challenges and vulnerabilities that they face with respect to money laundering and terrorist financing. One of the challenges confronting the Central Bank is the lack of trust and confidence in the formal financial sector due to the history of misuse and abuses of this sector during the Saddam Hussein regime. The Central Bank branches also acknowledged a lack of communication between the central bank branches in the Kurdish Region and headquarters in Baghdad. This lack of communication makes the Central Bank of Iraq particularly vulnerable to those who can and will exploit this vulnerability to engage in money laundering and terrorist finance activity. ¶23. (SBU) An additional vulnerability lies in the largely unregulated money exchange and money transmitter businesses. Although they are required to be licensed, the level of supervision is at best nominal. Currently, the licensing of the money exchange and money transmitter business is carried out by the Ministry of Finance. However, this responsibility is being transferred back to the Central Bank. Due to the lack of oversight by the Central Bank relating to the formal financial sector, this transfer will not by itself reduce the level of vulnerability in this sector. The money exchanges are not subject to the same examination process as banks nor are they required to report suspicious transactions. ¶24. (SBU) Central Bank branch officials acknowledge that the current training on AML/CTF and banking examination practices is inadequate. In addition, the MLRO, which should assist in the training and monitoring for ML/TF, is not developed enough yet to execute its core mission. Additionally, the lack of substantive communication with Central Banks branches outside of Baghdad continues to hinder any efforts in the area of AML/CTF. Recommendations for Central Bank Training and Technical Assistance -------------- ¶25. (SBU) Although it falls somewhat outside the scope of the AML/CTF assistance, the FSAT highlights the need for improved technology to assist the Central Bank branches in conducting their core responsibilities, particularly in the areas of fund transfers, analysis (cash and credit positions) and prudent safety and soundness examinations. Communication standards need to be developed and implemented (via technological/IT solutions) so the Central Bank branches can communicate and with each other, with the Central Bank headquarters in Baghdad, and the MLRO. Effective communication will reduce exposure and the risks associated with financial fraud, money laundering and terrorist financing. ¶26. (SBU) With respect to anti-money laundering, the FSAT believes the Central Bank employees will benefit from regulatory training that focuses on banking processes, electronic funds transfers, bank examination policy and procedures and AML/CTF techniques. As time progresses, and the MLRO becomes more capable (or experienced), consideration should be given to the concept of placing a MLRO representative in each of the Central Bank branches. This would facilitate communication and enhance the Central Bank branches' AML/CTF knowledge and capabilities. Ministry of Finance -------------- ¶27. (U) The KRG Ministries of Finance in Erbil and Sulaimaniyah are primarily responsible for disbursing funds to the various government ministries once the Kurdistan National Assembly (KNA) has passed an approved budget. The Ministries of Finance also have an audit and control function that is responsible for ensuring the ministries are operating within their respective budgets. In addition to these general responsibilities, these ministries are supposed to maintain a list of all licensed money exchangers and transmitters. Currently, there is no such list. ¶28. (SBU) The Ministries of Finance are currently not capable of effectively and efficiently performing their overall mission due to a lack of financial and budgeting processes. In addition, their employees do not have the necessary expertise to perform critical audits of the monies being disbursed to the various government agencies. ¶29. (SBU) The FSAT recommends that such information (i.e., license applications and approvals, owner and operator information, etc.) associated with all money exchangers and transmitters collected into a database and shared with the appropriate authorities such as the STATE 00083662 005 OF 009 Central Bank branches and the MLRO. ¶30. (SBU) The FSAT also recommends that the Ministries of Finance commence a robust training program to enhance their audit and control functions. Currently no one effectively audits or investigates discrepancies in the various ministries' budget and payment systems. Justice Sector -------------- ¶31. (U) The FSAT met with members of the Judiciary and the Ministry of Justice. Basic Structure and Criminal Procedure -------------- ¶32. (U) There are three levels of courts: the court of first degree, the court of appeal, and the court of assignation. The court of first degree includes criminal courts, civil courts, investigative courts, juvenile courts, labor courts, and secular courts for non-Muslims. A few days prior to the arrival of the FSAT, the President of the KRG approved a new law that creates a Judicial Council, thus making the courts independent of the KRG's Ministry of Justice (MOJ) and the executive branch. Criminal Procedure -------------- ¶33. (SBU) A criminal case must go through a series of phases before it can be brought to the court of first instance. During the initial investigative phase of the case, law enforcement initiates an investigation, approved by the MOJ, during which law enforcement entities collect evidence pertaining to the crime that allegedly occurred. The case is then submitted to an investigative judge in the investigative court. If the investigative judge believes that the evidence is sufficient to proceed, s/he will refer the case to the public prosecutor, who can then refer the case to the criminal court. The prosecutor reviews the investigative judge's decision and advises the criminal court whether to take the case. The prosecutor can also refer the case back to the investigative judge if s/he thinks there are gaps in the case. If the investigative judge does not believe the evidence meets the burden to refer the case to the criminal court, s/he can dismiss the case and release the individual. The investigative judge has six months to review a case. If s/he needs more time to conclude the investigation, s/he can petition the court for an extension. If the case makes it to the court of first degree, a three judge panel hears the case, with two judges acting as reserves. Of the three judges, one may be the President of the Court, and only he addresses the participants in the proceedings. Should the defense or prosecutor have a question of a witness, s/he must ask the judge to ask the question. The trials are bifurcated for guilt and penalty. If the court finds the defendant guilty, it will then issue a separate ruling on the penalty. Should the court issue a death sentence, the defendant gets an automatic appeal to the Court of Cassation. In all other cases, the parties must request an appeal and have 30 days to do so from the time the court issues its opinion. ¶34. (SBU) The Public Prosecutor acts like a monitor in criminal trials, and is permitted to raise issues or questions. If the court does not address the issue(s) the prosecutor raises, s/he may appeal the court's decision. At the conclusion of the trial, the prosecutor writes a report about the trial. ¶35. (SBU) There was little to no discussion about money laundering cases that have made their way through the courts. It appears to be safe to say that KRG officials have not prosecuted anyone under the AML law implemented by the CPA. The courts can order confiscation of property, but it appears they can only do so if directly related to the crime, including drug proceeds. According to the Iraqi Penal Code, a person must pay the government back for any property s/he stole from the government, even if the person must do so at his/her own expense. In other cases of theft, restitution is made to the victim(s). Any property forfeited to the state becomes state property and goes into the general treasury. Should the government confiscate perishables, it can sell them off while the case is on-going and if the defendant is acquitted, the government returns the money it realized from the sale of the goods to the defendant. While the case is on-going, the government appoints a judicial guardian to supervise and maintain the property pending the outcome of the case. ¶36. (SBU) The Kurdish Region does not have any special courts dedicated to trying a narrow set of cases, (e.g., a court dedicated to trying only terrorism cases). But, according to some officials, there is a special investigative court dedicated to examining terrorism cases. The Public Prosecutor does not have prosecutors who specialize in prosecuting certain types of cases, (i.e., there are no STATE 00083662 006 OF 009 prosecutors devoted to prosecuting only financial crimes). Justice Sector and Vulnerabilities -------------- ¶37. (SBU) Based upon the discussions the FSAT had with MOJ and judicial authorities, several challenges and vulnerabilities were noted. As with other institutions, the MOJ and judicial authorities in the Kurdish Region have been hampered by international and domestic isolation. In addition, there was a lack of independence of the judiciary as well as some reported cases of political influence over the administration of justice. As mentioned above, however, the KRG just passed a new law granting the judiciary independence. This may help to alleviate some of these issues, but training on an independent judiciary is of the utmost importance. ¶38. (SBU) One specific concern noted by the FSAT was the lack of the application of the anti-money laundering law within the Kurdish Region. There is confusion amongst KRG officials as to how the law is applied. Some believe that the CPA AML law is not in effect in the Kurdish Region because the Kurdistan National Assembly never approved it. Other officials believe the law is in effect in the Kurdish Region and should be applied, but they noted the lack of will amongst officials in the region to apply the law. While there is no question that AML training is absolutely necessary for all KRG law enforcement officials, prosecutors and judges, there are other, more basic issues that first must be addressed via training. Due to the lack of a strong Central Bank, inadequate technology employed by banks, and a deeply rooted distrust of the banking sector, comprehensive AML training at this time may be premature. However, if the training were tailored and specific, AML training would be beneficial in the regulation, investigation and prosecution of cases involving money exchange houses. ¶39. (SBU) The KRG has prosecuted a number of terrorist cases. The KRG judicial officials noted that security at terrorism trials remains an issue. There have been no terrorist financing cases. Officials also noted that Iraq does not have a stand alone terrorist financing law. ¶40. (SBU) Based on these discussions the FSAT team recommends a number of training initiatives. First the FSAT recommends training, perhaps in the form of a legal symposium on the Anti-Money Laundering law and its application. Second, if amenable, we can provide comments on the new law creating an independent judiciary. The judiciary is also in need of training to address its new-found independence. The FSAT believes that the Kurdish Region's prosecutors could benefit from specialized basic and general training on financial crimes tailored to the current specific needs in Iraq. Furthermore, the FSAT believes that joint judicial and prosecutorial training in case management techniques would help improve the efficiency of the Kurdish Region's legal system. Finally, the Iraqis are in desperate need of training to combat corruption Ministry of Interior ¶41. (SBU) The Ministries of Interior (MOI) in Erbil and Sulaimaniyah are primarily responsible for general law enforcement operations, with the exception of drugs and terrorism, which is the purview of the Asayeesh (Security Police),with whom they cooperate. The MOIs, however, have a significant law enforcement training function. ¶42. (SBU) There is a Ministry of Interior in Erbil as well as in Sulaimaniyah, with the MOI in Erbil covering both Erbil and Dohuk provinces. The Ministries informed the FSAT that they are working on a draft law to combine the two ministries. It appears as though the MOI in Erbil has more state of the art equipment, because the MOI in Sulaimaniyah stated that when they have an issue they cannot resolve in their small lab in Sulaimaniyah, they turn to the lab in Erbil for assistance. The police under the control of the MOI have the ability to conduct undercover operations and controlled deliveries, but do not have the equipment to conduct surveillance. ¶43. (SBU) In order to join the police forces under the purview of the MOI, one must attend a college for police. If one is a high school graduate, s/he would attend the college for three years. If one is a college graduate, s/he would only have to attend the college for 8-9 months. Courses at the college include physical training, law, human rights, and democracy. The MOI in Erbil told the FSAT that they are building a new police academy in Dohuk that would be ready in six months, with classrooms that will hold 30-40 students and will accommodate computer presentations. The MOI in Sulaimaniyah told the FSAT that they also have their own police college that is better than the academy in Baghdad, but not as good as the one in Dohuk. ¶44. (SBU) Almost all of the police force is armed with AK-47's. According to the MOI in Erbil, about one-third of the police force is armed with pistols. Police officers can only arrest with a warrant, STATE 00083662 007 OF 009 unless they witnessed someone committing a crime. The MOI police also need the permission of the MOJ in order to conduct an investigation. ¶45. (SBU) Both MOI's admitted they need training in investigating money laundering and financial crimes. While there appears to be good communication between the ministries in the KRG, there appears to be poor communication with the central government. The MOI in Erbil claims to have a good relationship with police in Mosul and Kirkuk, but no one claims to have good communication with Baghdad. MOI Challenges and Vulnerabilities -------------- ¶46. (SBU) MOI officers and personnel could benefit from additional training in basic investigative techniques as well as financial investigative training. Communication between local law enforcement throughout Iraq must improve, and the central government in Baghdad must provide the necessary information to the various law enforcement groups throughout the country, including sharing Interpol notices, developing a criminal database, and communication with the MLRO. Not only would the MOI benefit from a more uniform training of its cadets in Erbil, Dohuk and Sulaimaniyah, but so would all of Iraq. Training appears to be disjointed and better in some parts of the country than in others. It is important that a national, federalized police force be able to function with the same skill level regardless of its location. Perhaps the central government needs to develop a national curriculum and should look towards the training grounds in the Kurdish Region as a starting point for training all national law enforcement. MOI officials noted that they do not conduct surveillance because they lack the necessary equipment. Asayeesh (Special Police) -------------- ¶47. (SBU) The Asayeesh (Special Police) has jurisdiction over crimes such as terrorism and terrorist financing. The Asayeesh is set up to be somewhat self-contained so that it can conduct its investigations without alerting a large group of people. Where the Asayeesh have a presence, such as at a station, they have investigative judges devoted to the Asayeesh that follow and coordinate the legal process with felony courts. Prosecutors do not get involved until the case gets to the investigative judge. The Asayeesh also has its own legal department with judicial investigators, who can file for warrants with the investigative courts. There are some senior officers within the Asayeesh who can file for the warrants directly with the court. There are also officers who went to college and studied law who can also file directly with the court. There is also a special economic section within the Asayeesh who coordinates investigations related to terrorist financing. ¶48. (SBU) The Asayeesh noted that terrorist financing in the Kurdish Region had some unique characteristics. Because of a lack of sympathy by the local population to AQI and related groups, it is difficult for these groups to conduct meaningful fundraising in the Kurdish Region. According to the Asayeesh, the primary funding and support sources, including weapons, for these groups are foreign intelligence services, with secondary contributions from Zakat (mostly from individuals in Saudi Arabia). The Asayeesh noted that AQ had a strong financial structure under Zarqawi, but that it is less effective now, with AQ relying more on alternate sources including kidnappings, zakat and the smuggling of cash. ¶49. (SBU) The Asayeesh noted a shift away from the use of cash towards the use of goods to raise and move value. The Asayeesh also noted that former regime members abroad often provided funding through this mechanism. Basically, the terrorists and other criminal entities will ship goods into Iraq legally. The goods are whatever is desired on the market, and profit is not the ultimate goal. Rather, the goods are purchased elsewhere, shipped into Iraq, sold inside of Iraq and the money from the sale goes to supporting terrorists or other criminal groups. Because of the connection with Zakat and the increased use of goods, the Asayeesh is increasingly concerned with charities and front companies as vehicles for the movement of terrorist funds. ¶50. (SBU) The Asayeesh noted that it had a cooperative relationship with the money exchangers and transmitters and that this relationship had helped the Asayeesh prevent a number of terrorist attacks including at least two major terrorist operations. This relationship also assisted in the investigation of the May 9th 2007 bombing of the KRG Ministry of Interior in Erbil. ¶51. (SBU) The Asayeesh noted that while the money transmitters were cooperative in this investigation, their efforts were hampered by the lack of customer identification records, as well as multiple transfers and exchange transactions. The Asayeesh was able to obtain valuable information, but it had to obtain and analyze a great deal of transactional information from the money exchangers because of the STATE 00083662 008 OF 009 lack of customer identification requirements. The money changers and transmitters were unable to verify the identities of the end users of the money they were moving. The Asayeesh has asked the MOI to close down money remitters and exchangers, in the hopes that the public will then use the formal banking sector to conduct money movements, where it will be easier to track said movements, at least in theory. ¶52. (SBU) According to the Asayeesh sources, most of the funding for the PKK is cash smuggled in from Europe and to a lesser extent from Turkey and Iran. Asayeesh Challenges and Vulnerabilities -------------- ¶53. (SBU) The Asayeesh clearly understands the terrorist threat and investigates terrorist financing. While the Asayeesh has developed a beneficial rapport with the money exchange/transmitter sector, they do not have a similar relationship with the MLRO. The Asayeesh could also benefit from formal financial "follow the money" investigative training, but geared more towards a cash-based society, given the current limitations of the Kurdish Region's banking sector. Intelligence Sector -------------- ¶54. (SBU) The KRG intelligence community is spread across several areas. The Parastin and Zanyari are mainly responsible for external intelligence operations while the Asayeesh is mainly responsible for internal intelligence operations. However, the lines between internal and external are not absolute - the Parastin and Zanyari do collect intelligence inside the Kurdish Region. ¶55. (SBU) All components of the KRG intelligence community recognize the usefulness of financial intelligence - as noted elsewhere in this paper, the KRG intelligence community used financial intelligence to track down the perpetrators of the May 9th MOI attack. ¶56. (SBU) The KRG intelligence community has demonstrated that it has well-developed sources in and outside Iraq. They, like all other sectors of the KRG, would benefit from additional equipment and training - especially Threat Finance training. Ports of Entry (POEs) -------------- ¶57. (SBU) The FSAT did not have the opportunity to visit the primary land ports of entry. The FSAT did, however, have the opportunity to visit the Erbil International Airport (EIA),the primary air port of entry in the Kurdish Region. The FSAT was able to meet with the EIA representatives responsible for security. The FSAT noted that the EIA was modern, had trained staff and modern security equipment and procedures. Furthermore, there is a major construction project currently underway to build a substantially larger new terminal that will augment the current terminal. It will allow for more planes and handle many more flights in a year. The new terminal is scheduled to be completed by early 2009. The FSAT believes that specialized training on the identification, prevention, and investigation of bulk cash smuggling would be beneficial to selected security and border personnel at POEs throughout Iraq. Conclusion and Recommended Training -------------- ¶58. (SBU) The Kurdish Region of Iraq is currently in the infancy of developing a modern financial sector. The FSAT notes the KRG's strong political will to combat terrorist financing, particularly involving terrorist groups such as AQI , Ansar Al Sunna, and related groups, as well as a strong desire for training and technical assistance. The current disconnects between entities within the Kurdish Region and between the KRG and the Government of Iraq (GOI), hamper overall efforts to combat terrorist financing and money laundering throughout all of Iraq, including the KAR. The FSAT recommends giving serious attention to using technology to create stronger communication among these entities. Most importantly, the Central Bank must re-evaluate its policies and approach to creating a situation in which the public is willing to use the banking sector as its primary way to move and store funds. ¶59. (SBU) Based on our assessment the FSAT team would recommend that priority consideration be given to the following training initiatives: 1) Basic Financial and Regulatory training for the Central Bank employees from both the branches and headquarters; this should include fundamental banking, credit analysis, compliance (anti-money laundering and counterterrorist financing) and information technology courses; 2) Training on the AML law and the AML prosecutions for judges and prosecutors; 3) basic financial crimes investigations training for the MOI and Asayeesh; and 4) Bulk Cash Smuggling training; 5) Threat Finance training for the STATE 00083662 009 OF 009 intelligence community (Note: Because the KRG's training facilities are located in a relatively more secure environment, we strongly urge that training initiatives utilize those facilities. Invitations for training should be extended to both KRG personnel and officials from other parts of Iraq, in order to help reduce the Iraq-wide threat of cash smuggling for terrorist financing and money laundering. ¶60. (U) Department thanks posts for their assistance with this action request. RICE