PART 1: U.S.-EU COUNTER-TERRORIST FINANCING WORKSHOP

UNCLAS SECTION 01 OF 05 PRAGUE 000338

SENSITIVE
SIPDIS

STATE FOR EEB/ESC, EUR/ERA, LA/EBA/BRIAN EVANS
TREASURY FOR GLOBAL AFFAIRS, TFFC, OFAC AND OSP
ICE FOR TF INVESTIGATIONS - JOINT VETTING UNIT/DAVID KANE

E.O.12958: N/A
TAGS: EFIN ETTC EAID KTFN KWBG KPAL KJUS KCRM KNNP PREL
PTER, UNSC, SNAR, EZ, EUN, IR
SUBJECT: PART 1: U.S.-EU COUNTER-TERRORIST FINANCING WORKSHOP
(PRAGUE MAY 27-28): NON-PROFIT ORGANIZATIONS

NOT FOR INTERNET DISTRIBUTION


1. (SBU) SUMMARY. This is the first of two cables reporting on the
U.S.-EU Terrorism Finance Workshop held in Prague on May 27-28. In
response to U.S. diplomatic efforts, the Czech Presidency of the
European Union (EU),in partnership with the upcoming Swedish
Presidency, hosted the eighth in a series of expert-level U.S.-EU
workshops on combating terrorism finance. About 120 participants
from EU member states and institutions, the U.S., and the UN
Monitoring Team attended the workshop, which focused on
opportunities for U.S.-EU cooperation in three new areas: wire
transfers, non-profit organizations and new payment methods. While
recognizing differences between the U.S. and EU legal framework and
practice, workshop participants focused on commonalities and agreed
to prepare a common outreach paper to be approved by the U.S. and EU
member states. The next workshop will take place under the Spanish
EU Presidency during the first half of 2010. This cable reports on
discussions relating to non-profits organizations (Part 2 (septel)
addresses wire transfers, new payment methods and ideas for U.S. -
EU future cooperation). The European Commission is exploring
possible measures to decrease NPO vulnerability to terrorist
financing abuse, and would welcome coordination with the USG on how
to approach third states (e.g. Yemen and the Gulf countries). EU
participants expressed interest and reservations about the U.S.
Alternative Relief Mechanism pilot project in Gaza. Treasury also
highlighted U.S. efforts against Hamas and Hezbollah, which continue
to receive active support from the Ilamic Republic of Iran. END
SUMMARY.

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I. Trends and Emerging Threats in Terrorist Financing
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2. (SBU) Workshop participants recognized that while a single
terrorist attack may be relatively inexpensive to carry out,
terrorist groups have high operating costs relating to preparation
and personnel development. The U.S. speakers identified couriers
and hawalas, criminal and illicit activities, personal bank
accounts, and charities and non-profit organizations (NPOs) as al
Qaida and its affiliates' most common funding mechanisms.
Terrorists often find ways to exploit new technology. U.S.
presenters expressed particular concern over e-payments/e-currency,
online gaming and pornography sites, stored-value cards, and mobile
payments.

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II. Implementation of FATF SR VIII: Non-Profit Organizations
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3. (SBU) For the first time in the workshops history, an entire
session was devoted to implementation of FATF SR VIII for non-profit
organizations. Recognizing that NPOs are particularly vulnerable to
terrorist abuse through both diversion and exploitation of funds, SR
VIII sets out an international standard for compliance. U.S.
Treasury's DeAnna Fernandez and Katherine Leahy - both Policy
Advisors at the U.S. Treasury's Office of Global Affairs/Office of
Terrorist Financing and Financial Crimes, chaired this session and
discussed the U.S. experience and efforts in implementing SR VIII.
In particular, Katherine Leahy noted that in the U.S. Treasury's
experience, exploitation is the more commonly observed practice of
the two, aimed at radicalizing vulnerable populations through the
provision of legitimate social services. Leahy underscored the
importance of SR VIII not only in the U.S.-EU context, but also in a
variety of regions including South Asia, which recently hosted its
first regional conference on the subject through a USG initiative.


4. (SBU) Turning to the U.S. approach to SR VIII implementation,
Leahy explained the American four-prong strategy: oversight,
investigation, outreach and international cooperation. The
U.S.-model relies on a combination of supervision at the federal,
state, and local levels, as well as on self-regulation. Leahy noted
that U.S. investigations require coordination among government
agencies, as they are largely driven by intelligence.
Investigations may feed into prosecutions for criminal acts, but

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also use other measures such as sanctioning through domestic
designation.


5. (SBU) Leahy particularly highlighted the outreach component as
vitally important in raising awareness of the threat, creating
buy-in among the sector, and maintaining a dialogue aimed at
minimizing these risks. She noted that while the bulk of funding
comes from the U.S. and Europe, many other countries remain
vulnerable to exploitation. Finally, she introduced the concept of
"alternative relief mechanisms" (covered in more detail in Session
III),which aim to provide a vehicle for donors to give more safely
to vulnerable communities.


6. (SBU) Ben Evans of the Charity Commission for England and Wales
presented one EU member state's approach to the regulation of the
non-profit sector. Evans outlined the Commission's oversight duties
with respect to approximately 200 registered charities, including:
registration, monitoring, and investigating allegations of abuse.
He stressed that the commission does not have authority to pursue
criminal investigations and must depend on law enforcement agencies
when criminal activity is suspected. In the UK example, the
commission relies on the Terrorism Act of 2000, which outlawed
raising, holding or using funds for terrorism.


7. (SBU) Evans agreed with Leahy that the charitable sector does
not generally recognize the risks it faces, and emphasized the
importance of public outreach. He stated that no domestic charities
had been definitively implicated in attack planning, but that
according to authorities, a "significant proportion" of CFT
investigations involved charities. Recognizing the danger, the
commission helps charities conduct effective due diligence and
coordinate more effectively with law enforcement, as part of its CFT
strategy "to identify, disrupt and prevent terrorist and other
serious abuse of the charitable sector."


8. (SBU) In the discussion following the presentation, questions
centered primarily on the intersection of charitable oversight and
law enforcement. Participants sought clarification on whether
investigations into charities have resulted in criminal
prosecutions, the relationship between NPOs and national Financial
Intelligence Units (FIUs),and, in the U.S. example, judicial
challenges to domestic designations of charities. In the course of
discussion it became apparent that in the U.S., investigations into
possible terrorist abuse of charities are largely driven by
intelligence, whereas the UK relies primarily on tips from the
public or NPO staff. Both the U.S. and the UK presenters noted the
need for enhanced public outreach, and in particular the need to
explain more clearly government actions taken in response to
allegations of abuse or exploitation of NPOs.

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III: Development of Alternative Relief Mechanisms for High Risk
Regions (Private-Public Partnership)
--------------


9. (SBU) In certain regions, charitable works run a particularly
high risk of inadvertent involvement with terrorists. The USG
relies heavily on enforcement to protect the nonprofit sector from
terrorist financing abuse, but USG designations inevitably shut down
charities that were also providing legitimate services. To mitigate
unintended consequences and meet urgent basic needs, the USG is
developing ways to "backfill" the provision of services independent
of terrorist-linked channels. U.S. Treasury's Leahy presented an
overview of USAID's work to develop Alternative Relief Mechanisms in
high-risk regions, noting that this is a work-in-progress and faces
considerable challenges. Treasury issues guidance on oversight,
enforcement, and best practices via its Web site and through
targeted outreach conferences.


10. (SBU) In one pilot project that Leahy described, USAID has
entered into an MOU with the American Charities for Palestine (ACP),
an NGO looking to fund education services outside of Hamas channels.
In that model, ACP raises money in the U.S., then works with
USAID-vetted NGOs on the ground in the West Bank and Gaza. The goal

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is not to create a "white list" of government approved NGOs, which
could introduce another set of potential hazards and possibly
increase their risk of terrorist exploitation. Rather, the goal is
to steer ACP to NGOs that have at least been cleared to work with
USAID from a counter-terrorism angle, with the overall objective of
promoting a neutral, de-politicized space for humanitarian aid. In
another project, USAID and other U.S. agencies are working to map
the providers of aid in Bangladesh. This project could reveal gaps
in services, which could then be matched with known providers.


11. (SBU) Expressing interest in Treasury's overview of the
USAID-ACP pilot project, EU participants:

-- commended the U.S. for recognizing the importance of humanitarian
aid and the complications arising from certain terrorist
designations;

-- requested more information about USAID and other U.S. agencies'
criteria for choosing potential beneficiaries and the vetting
process for both NGOs on the ground and U.S. donors;

-- cautioned that not all EU member states (EUMS) could legally
"pre-approve" or guide certain charities due to their limited
administrative authority;

-- wondered if NGOs faced political consequences when receiving
U.S.-derived funding in lieu of Hamas; and

-- cautioned against "mission creep," worrying that the ACP-USAID
model could undermine the diversity of NGOs if applied to areas
beyond the unique context in Gaza.


12. (SBU) The participants agreed that the U.S. and EU should
continue to explore ways to address the challenge of preventing
terrorist abuse of charities, while ensuring that vulnerable
populations obtain charitable relief if their local charity is
designated and sanctioned for its alleged link

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IV. Transparency and Accountability of NPOs
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13. (SBU) Participants acknowledged that recent cases of NPOs'
abuse by terrorist financiers highlighted the need for the sector's
integrity, credibility, and awareness in protecting itself. In
recognition that transparency and accountability of the non-profit
sector are critical to preventing its misuse for terrorist financing
and other financial crimes, Ingo Weustenfeld of the European
Commission Counter-Terrorism Policy Office and Oldrich Krulik of the
Czech Interior Ministry reported on their institutions' respective
efforts to advance those goals such as commissioning studies, doing
outreach and issuing guidelines for NPOs. According to Weustenfeld,
who reported on the Commission's February 12, 2009 conference with
leaders from the European Non-Profit Associations sector, no EUMS is
fully compliant with FATF SR VIII despite the Commission's support
for reaching such compliance.


14. (SBU) Though an important step forward, the studies conducted
so far have not always demonstrated expected results. For example,
following the December 2005 EU Council meeting that adopted five
principles for NGOs conduct and their interactions with respective
governments, the Commission initiated two studies of the sector to
assess vulnerabilities and examine NPO exploitation for criminal
purposes, including terrorist financing. The first study, already
completed, fell short of providing comprehensive information or
conclusive results. The second, to be published by summer 2009,
attempts to map the 27 EUMS self- and government-regulatory
frameworks for the NPO sector. Its preliminary findings call for
information and best practices sharing, increasing guidance to NPOs
and cooperation between stakeholders and NPOs.


15. (SBU) Many NPOs insist that a "one-size fits all" EU regulatory
solution will not work, given the diversity of individual member
state legal and regulatory systems affecting the sector. The

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Commission indicated that it will continue work on this area under
the 5-year "Stockholm Program" on Justice, Freedom and Security, to
be adopted by the Council under the Swedish Presidency. Drawing
from U.S. practices, the FATF methodology, and EUMS experiences, the
Commission is drafting guidelines for voluntary best practices by
NPOs, and intends to continue the dialogue. EUMS will ultimately
decide on the nature of actions to apply EU-wide, as the Commission
does not have the authority to initiate binding legislation on the
EU's charitable sector. (Note: Separately, EU Counterterrorism
Coordinator Gilles de Kerchove asserted that he will push EUMS to be
forward leaning on the Commission initiative.) Another Commission
official, Michael Merker, EC Counter Terrorism Representative to the
EUMS Civ/Mil Cell, Security Policy Unit, recommended that the U.S.
and EU exchange expertise over efforts to engage third countries,
e.g. Yemen and the GCC, in the effort to control terrorist
financing.


16. (SBU) Workshop participants agreed that outreach to NPOs is
key, but controversial. NPOs are often offended by the implication
that they could be used for terrorist purposes. The Czech Interior
Ministry noted, however, that after an initial negative reaction,
some NPOs came forward with information that could prove useful to
law enforcement and counter-terrorism officials. The Commission and
the Czech Republic will continue to study how to reduce the
opportunity for misuse of funds from the NPO sector.

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V. Cases of Iran, Hezbollah, and Hamas Financing
--------------


17. (SBU) U.S. Treasury's Chip Poncy delivered an informal working
lunch presentation on Hezbollah and Hamas financing. He explained
USG views on these groups, the justifications for their U.S.
designations, and our perception of the EU's position vis-`-vis
Hezbollah and Hamas. While both the U.S. and the EU agree that the
overwhelming percentage of funds raised by Hamas or Hezbollah are
used to provide social services in areas where local governments
fail to supply them, the U.S. views these activities as the means to
gain support for terrorist activities among vulnerable populations
by creating dependence upon their social services. However, these
organizations social and terrorist activities cannot be divided into
distinct units. Thus, the U.S. approaches Hamas and Hezbollah as
united entities and seeks to disrupt their global support networks
through domestic designations (under E.O. 13224) and engagement with
jurisdictions that actively support these organizations.


18. (SBU) Throughout the workshop, Poncy repeatedly underscored
that any counter-terrorist financing efforts must be considered
within the context of broader counter-terrorism efforts. When
viewed through this lens, it becomes impossible to distinguish
between the "legitimate" activities and terrorist actions of Hamas
or Hezbollah, as they pursue a common purpose. The U.S.
"organizational" approach to Hamas and Hezbollah contrasts with the
EU approach, which generally requires demonstrating a direct link
between financing and a terrorist act or activity. Poncy noted that
when the EU designated Hamas as a terrorist organization, the U.S.
interpreted this action as perhaps a sign the EU was coming closer
to the U.S. "organizational" approach and was disappointed when it
turned out not to be the case. The U.S. would like the EU to
designate Hezbollah as a whole.


19. (SBU) Poncy flagged that Iran remains a state sponsor of
terrorism that provides hundreds of millions of dollars a year to
Hezbollah, increasingly supports Hamas, and fuels terrorist activity
in Iraq. Iran's lack of any form of CFT controls led to its
designation by FATF as country of concern. When combined with its
ongoing weapons of mass destruction threat and financial obligations
under various UNSCRs (e.g., targeted sanctions, activity-based
financial prohibitions and vigilance against Iranian banks inside or
outside the country),Iran presents unparalleled illicit financing
risk to the international financial system. Consequently, Poncy
urged the EU to take the strongest measures possible in implementing
FATF's call for financial countermeasures against Iran, including
obligations under UNSCRs 1737, 1747, and 1803. He noted that the

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international community has worked collaboratively to inform
financial institutions of the serious risks of Iran's deficient
AML/CFT regime as identified by FATF, and how best to make decisions
based on FATF guidelines to protect financial systems.

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Comment: Workshop Next Steps
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20. (SBU) This practitioners workshop series, the only one of its
kind in the U.S.-EU relationship, provides the main outlet for
transatlantic experts to bilaterally explore challenges in
addressing terrorist financing. Following agreement reached during
a U.S.-EU meeting under the 2004 Dutch EU Presidency, the U.S. and
EU have held eight practitioner workshops focused on countering
terrorist financing from 2005-2009. Previous sessions focused on
FATF SR III issues regarding TF sanctions and asset freezing. This
workshop was the first to explore new territory, overcoming great EU
reluctance in recent years to fulfill the commitment (see 2004
U.S.-EU Summit Declaration on Combating Terrorism) to discuss the
challenge of terrorist misuse of the nonprofit sector. This topic
will remain internally divisive to the EU in coming months as they
debate any future EU regulatory approach. However, we have made
progress in raising European awareness of the urgency of this issue
and the fact that the U.S. does not primarily view the solution
through a regulatory lens. The U.S. and EU should continue to look
for ways to engage on this topic, although the traditional TF
workshop participants lack expertise or authority for charities.


21. (SBU) EU institutional treaty and bureaucratic structures will
continue to frustrate our best efforts to translate these expert
discussions into operational or policy action. Yet, providing a
private space for open, expert-level discussion of what is (or is
not) working in this field is invaluable to laying the groundwork
for long term adjustments to EU and national level decision-making
and implementation. The USG should identify areas that could
provide the best possible added value for this unique forum, as
opposed to FATF (whose membership includes just half of the EU),the
TF and terrorism U.S.-EU troikas, public conferences, or other
possible venues. End Comment.


22. (U) Part 2 of this cable (septel) is being transmitted
separately and reports on wire transfers, new payment methods and
ideas for U.S.-EU future cooperation.

ThompsonJones