MENAFATF NOVEMBER 2009 BEIRUT LEBANON PLENARY

UNCLAS SECTION 01 OF 04 BEIRUT 001353 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON PTER PGOV LE SUBJECT: MENAFATF NOVEMBER 2009 BEIRUT LEBANON PLENARY REPORTING CABLE ¶1. (SBU) Summary: The Middle East and North Africa Financial Action Task Force (MENAFATF) held a plenary session (MENAFATF X) and working group meetings from November 8-12 at the Riviera Hotel in Beirut. Treasury Terrorist Financing and Financial Crimes Director for Global Affairs Brian Grant headed the U.S. delegation, and the terror finance reporting officer from US Embassy Beirut attended. During this Plenary, the MENAFATF adopted the mutual evaluation (ME) report of Lebanon and the follow-up reports of Tunisia, Mauritania, Syria, and Morocco; adopted the second MENAFATF strategic plan for 2010-2012 and the 2010 work plan; discussed concerns related to member countries that are late in paying their contributions and appropriate mechanisms to address this issue; discussed details for a second ministerial meeting; discussed the MENAFATF,s review of the Arab Interior Ministers Council,s draft indicative anti-money laundering/countering the financing of terrorism (AML/CFT) law; adopted the Mutual Evaluation Working Group,s (MEWG) revised follow-up process, the updated schedule for MENAFATF country mutual evaluations and the revised mutual evaluation procedures; adopted the Technical Assistance and Typologies Working Group (TATWG) reports and approved the proposal to form a MENAFATF Financial Intelligence Unit (FIU) Forum; and, discussed the joint MENAFATF-FATF Plenary scheduled for February 2010. End summary. MUTUAL EVALUATION REPORTS -------------- ¶2. (SBU) The Plenary discussed and adopted the MENAFATF-drafted ME of Lebanon. The evaluation was conducted using the FATF 2004 Methodology and summarizes the AML/CFT measures in place in Lebanon at the time of the on-site visit (February 2009). Lebanon received a rating of either compliant (C) or largely compliant (LC) on 23 out of 49 Recommendations and received ratings of either partially compliant (PC) or non-compliant (NC) on 26 of the Recommendations. During the face-to-face meetings the day before the Plenary, Lebanon received upgrades on Recommendations 25 (from PC to LC) and 26 (from PC to LC). ¶3. (SBU) During the Plenary discussions, Lebanon argued for upgrades on: Recommendation 23: Lebanon received a PC on Recommendation 23 (adequate supervision and regulation of financial institutions and ensuring that they implement the FATF recommendations) because of the failure to adequately monitor the insurance sector with regard to money laundering (ML) and terrorist financing (TF). Lebanon explained that the insurance sector is subject to AML/CFT supervision by the Special Investigation Commission's (SIC (Lebanon's FIU)) Compliance Unit; however, there have been no on-site visits because the sector is low-risk, constituting less than one percent of financial operations in Lebanon. Though Lebanon was unable to provide an official assessment, it noted that only 11 out of the 54 insurance firms in Lebanon provide life insurance. The assessment team had not received any information related to either the prudential or ML/TF-related monitoring of the insurance sector before the Plenary. Regardless of the additional information, the team noted that given the SIC,s lack of explicit legal authority to investigate TF in the financial sector (including insurance), the PC grade should remain. The MENAFATF Plenary agreed, however, to support an upgrade from PC to LC on Recommendation 23. Special Recommendation VI: Lebanon received a PC on SR VI (licensing and registering alternative remittance providers, and subjecting them to the FATF recommendations). Lebanon argued against the assessment team's observation that Lebanon lacks effectiveness in implementing SR VI by noting that the reason sanctions have not been imposed on this sector is because there have been no violations and because the money service business sector in Lebanon is very small (9 authorized companies). The team explained that the rating for SR VI is also related to cross-referencing the ratings on the recommendations for preventive measures (4-LC; 5-PC; 6-NC; 7-NC; 8-NC; 9-PC; 13-PC; 15-PC; 21-NC; 22-PC),which affected Lebanon,s PC rating for SR VI. The Plenary agreed to support the assessment team, but to also include a note in the margins of the report explaining how the ratings of the other recommendations affected the rating for SR VI. Lebanon did not receive an upgrade on this recommendation. FOLLOW-UP REPORTS -------------- ¶4. (SBU) Follow-up Report of Tunisia: The Secretariat BEIRUT 00001353 002 OF 004 explained that Tunisia has addressed many of the deficiencies highlighted in its 2007 ME through new and amended legislation and relevant circulars and resolutions. Tunisia,s recently amended AML/CFT law accomplishes the following: 1) extends the scope of persons subject to the law; 2) imposes specific obligations on non-banking institutions related to updating data and obtaining information on the purpose and nature of a business relationship; 3) imposes explicit obligations with regards to politically exposed persons (PEP); 4) imposes obligations on all institutions regarding the application of customer due diligence (CDD) measures; 5) extends the definition and identifies obligations related to verifying the identity of beneficial owners; 6) distinguishes between unusual and suspicious transactions and creates a new obligation to report attempts to perform suspicious transactions; 7) ensures that CTAF employees (Tunisia,s FIU) work independently from their original departments/agencies; and, 8) establishes measures and procedures to freeze funds in implementation of relevant United Nations Security Council Resolutions (UNSCR). ¶5. (SBU) The Secretariat highlighted that there continue to be some deficiencies in Tunisia,s AML/CFT regime. Namely, Tunisia has not yet established a system for mutual legal assistance related to confiscating and freezing funds of criminals, Tunisia has not fully ensured the independence and autonomy of the CTAF, and it has not regulated financial institutions with regards to identifying the source of funds that are electronically transferred. Given the Plenary,s interest in a detailed analysis of the recently amended AML/CFT law and subsequent implementation, it was decided that Tunisia would submit a second follow-up report in two years. The report was adopted. ¶6. (SBU) Second Follow-up Report of Mauritania: Mauritania had submitted its first follow-up report in May 2009, which had indicated that major gaps remained in Mauritania,s AML/CFT regime since its 2005 ME, including: 1) failure to criminalize TF attempts; 2) no guidance with regards to transactions with residents of countries that do not implement the FATF recommendations; 3) no obligation for designated non-financial businesses and professions (DNFBP) to implement CDD measures or keep records; 4) no system to freeze and confiscate assets of individuals and entities listed under relevant UNSCRs; 5) no instructions to the moneychanger and insurance sectors on how to implement AML/CFT controls; 6) no instructions related to using third parties; 7) no requirement for CDD procedures for PEPs; 8) no guidance related to obtaining information for wire transfers; 9) no monitoring of alternative remittance providers or the non-profit sector in the context of AML/CFT. The Secretariat noted that these deficiencies remain. Mauritania explained that it is currently working on issuing guidance/rules and relevant legislation related to enhanced CDD, PEPs, correspondent banking and unusual transactions, alternative remittance providers, and wire transfers. Given the remaining deficiencies and Maurtania,s ongoing progress, the Plenary decided that Mauritania would submit another report to the May 2010 Plenary. The Plenary also urged Mauritania to expedite the issuance of relevant legislation and regulations. The report was adopted. ¶7. (SBU) Follow-up report of Syria: Syria had submitted its first follow-up report in May 2009, which had indicated that major gaps remained in Syria,s AML/CFT regime since its 2006 ME, including: 1) deficiencies regarding the ML and TF offenses; 2) deficiencies regarding suspicious transaction reporting related to ML and TF; 3) no legislation obligating financial institutions to apply CDD; 4) failure to obligate DNFBPs to implement AML/CFT controls; and, 5) no official declaration/disclosure system for cross-border currency and the movement of negotiable instruments. The Secretariat noted that since its last follow-up report, Syria has established a declaration system for liquid funds and bearer financial instruments as well as an oversight mechanism for money exchangers. Additionally, Syria issued guidance related to brokers and clients and placed AML/CFT controls on securities transactions. Syria also noted that it has worked with the IMF and World Bank to draft a new decree that would amend the current AML/CFT law and that would remedy many of the deficiencies highlighted in Syria,s 2006 ME. This law should be passed soon and before the May 2010 Plenary. Given the Plenary,s interest in an analysis of this law, it was decided that Syria would submit another follow-up report to the May 2010 Plenary. The Plenary also urged Syria to expedite the issuance of the draft decree. The report was adopted. BEIRUT 00001353 003 OF 004 ¶8. (SBU) Follow-up report of Morocco: In its presentation, the Secretariat noted that Morocco has addressed some of the deficiencies identified in its 2007 ME. Notably, Morocco established an FIU (the UTRF),which began operating in April 2009 and has issued several decisions/materials. In addition, the Central Bank of Morocco issued a circular detailing CDD obligations for credit institutions and established cooperative agreements with the Central Bank of Tunisia and the Central Bank for Western African Countries. The Secretariat noted that Morocco is in the process of revising its penal code and has prepared draft legislation related to the supervision of capital markets and the insurance sector, as well as a draft law amending the current AML law. The Secretariat explained that major deficiencies remain, in particular with regard to: 1) obligating financial institutions to report ML attempts; 2) establishing obligations related to due diligence measures when verifying the customers, identity, revoking the limitation of unusual and complex transactions to a minimum threshold and doing business with PEPs; 3) extending the scope of entities subject to the AML law and requiring those entities to establish internal AML/CFT controls; 4) forbidding financial institutions to establish or continue correspondent relationships with shell banks; 5) providing feedback to financial and non-financial institutions; 6) reporting suspicious transactions; 7) lack of a legal system to freeze funds and properties of persons listed in relevant UNSCRs; 8) not including DNFBPs in AML/CFT legislation; and, 9) no declaration or disclosure system for cross-border currency and the movement of financial instruments. Morocco noted that the draft law that would amend the current AML law would correct these deficiencies. Given these deficiencies and Morocco,s ongoing work to pass relevant legislation, the Plenary decided that Morocco would submit another follow-up report to the May 2010 Plenary. The report was adopted. MISCELLANEOUS ITEMS -------------- ¶9. (SBU) Contributions of Member Countries: The Plenary urged MENAFATF member countries that are late in paying their dues to immediately do so. With regards to establishing a system to address member countries that are late in paying their dues, the Plenary approved the formation of a strategic reserve out of the MENAFATF,s budget surplus. If the reserve is not able to accumulate enough funds, the Plenary will consider asking member states to add an additional five percent of their dues to their annual contributions. Given the number of comments and concerns raised by member countries, the Plenary decided to raise this issue again at the next Plenary meeting. ¶10. (U) Second Strategic Plan for 2010-2012 and the MENAFATF 2010 Work Plan: The Plenary decided to adopt the second strategic plan for 2010-2012 as well as the MENAFATF 2010 work plan. Member countries voiced their concerns about the amount of resources the two plans may commit given the MENAFATF,s limited budget. ¶11. (SBU) Proposal to hold a Ministerial Meeting: It was agreed that the Secretariat would propose a tentative date and prepare a draft agenda for the Ministerial meeting for discussion at the Plenary meeting in Tunisia in May 2010. The Plenary also decided that each member country would confirm the potential participation of its Ministers, Central Bank Governors, and Presidents of National AML/CFT Committees. ¶12. (U) MENAFATF Remarks on the Indicative Arab AML/CFT Law: The Plenary decided to send the Plenary,s concerns and the Secretariat,s comments on the Arab Justice Ministers Council,s &Indicative Arab AML/CFT Law8 to the Arab Center for Legal and Judicial Research (affiliated with the Arab Justice Ministers Council). This law is meant to serve as guidance to MENA countries when establishing or implementing their own AML/CFT laws. The Secretariat,s suggested edits to the indicative law help place it in compliance with international standards. ¶13. (U) Mutual Evaluation Working Group Items: The Plenary adopted and agreed to immediately implement a revised follow-up process. It was also decided that an intercessional meeting would be held to finalize the review of mutual evaluation procedures for discussion and approval at the next Plenary. ¶14. (U) Timeline of the Mutual Evaluation Process: The updated schedule of MENAFATF country mutual evaluations was BEIRUT 00001353 004 OF 004 approved. The ME of Oman will be postponed (date of on-site visit to be determined) and will be presented at the May 2011 Plenary. The ME of Kuwait will now be led by the IMF (date of on-site visit to be determined) and will also be presented at the May 2011 Plenary. The ME of Saudi Arabia will be discussed at the May 2010 Plenary. Upcoming on-site visits include Algeria (December 2009 ) to be presented in October 2010) and Sudan (June 2010 ) to be presented in May 2011). The FATF expressed concern with the new timeline for mutual evaluations, given the number of postponed MEs and with the timing for discussion of the Saudi ME. FATF urged the Secretariat/Plenary to schedule the discussion for the MENAFATF-FATF Joint Plenary in February 2010. FATF also explained to the MENAFATF that should it decide to discuss the Saudi ME later than the joint Plenary, formal notification to the FATF Secretariat would be required. ¶15. (SBU) Technical Assistance & Typologies Working Group (TATWG): With regards to the development of a MENAFATF "technical assistance provision mechanism," the Plenary agreed that each member country would indicate its TA needs for the 2010-2012 period on a matrix. Member countries will receive this matrix from the Secretariat shortly and will have three months to send their information. Once the matrix is filled in, the Secretariat will coordinate bilateral meetings between member countries and TA providers to discuss TA and training opportunities. ¶16. (SBU) Report on the Law Enforcement Agencies (LEA) Seminar: The Plenary adopted the TATWG,s report on the LEAs Seminar held in Manama, Bahrain, on May 21, 2009, and decided that the MENAFATF should hold regular LEA seminars in order to help monitor member countries, improvements in the LEA sector and to provide opportunities for member countries to discuss their experiences and best practices. ¶17. (U) World Bank/MENAFATF Workshop on "risk-based AML/CFT supervision": The Plenary agreed to hold a World Bank/MENAFATF workshop on the risk-based approach on the margins of the MENAFATF Plenary in Tunisia in May 2010. Member countries and observers will be sent an agenda and an invitation to attend and to nominate speakers for the workshop shortly. ¶18. (U) Typologies: The Plenary agreed to nominate individuals to participate in a typologies workshop to be held in Qatar from January 10-11 on "ML/TF Trends and Indicators." The Plenary also agreed to have the Secretariat organize a second assessors training (date and location to be determined). ¶19. (U) Proposal on Forming a MENAFATF FIUs Forum: The Plenary agreed to establish a forum in which the FIUs of the MENA region could discuss current ML/TF trends, concerns, and experiences and how to enhance their roles in their respective jurisdictions. The first of these forums will take place on the margins of the MENAFATF Plenary in Tunisia in May 2010. ¶20. (SBU) First Private Sector Dialogue (PSD): The MENAFATF President and Executive Secretary held the first MENAFATF PSD with private sector representatives from MENAFATF Member countries the day after the Plenary meeting (November 12). Unlike the previous US-MENA PSD, MENAFATF members and observers are not invited to participate in this dialogue, the goals of which are to raise awareness and exchange ideas regarding AML/CFT issues of concern and implementation of AML/CFT controls. ¶21. (SBU) Joint MENAFATF-FATF Plenary: It was confirmed that there would be a joint MENAFATF-FATF Plenary ("Meeting") in Abu Dhabi, UAE, from February 15-19, 2010. The FATF expressed its concerns about the joint Plenary and reminded the MENAFATF that it needed to be a joint Plenary and not a joint Meeting (the MENAFATF Secretariat continued to use this term). After much deliberation, the MENAFATF agreed that the first day would be a joint MENAFATF-FATF Plenary and that the remainder of the week would only be a FATF Plenary (based on the format for the APG-FATF joint Plenary). The MENAFATF Secretariat will continue to discuss details of the Plenary with the FATF Secretariat. ¶22. (U) The next MENAFATF Plenary meeting will be held the week of May 2-6, 2010, in Tunisia. SISON