TREASURY DAS PRESSES TERROR FINANCE COOPERATION IN

S E C R E T RIYADH 000828 NOFORN U.S. DEPARTMENT OF THE TREASURY FOR JANICE GARDNER AND DANIEL GLASER E.O. 12958: DECL: 06/14/2019 TAGS: ECON EINV EFIN KTFN SA SUBJECT: TREASURY DAS PRESSES TERROR FINANCE COOPERATION IN RIYADH Classified By: A/DCM Eric Madison for reasons 1.4 (B) and (D) ¶1. (S) Summary: On 16-17 May 2009, Treasury Deputy Assistant Secretary Daniel Glaser visited Riyadh to advance counter terror finance cooperation with Saudi government and private sector officials. DAS Glaser explored developments pertaining to the Saudi charities commission, encouraged an active partnership between the Saudi FIU and the Treasury Department, challenged Saudi officials on Taliban fundraising in the Kingdom and sought support for international measures to financially isolate Iran. Glaser met with Deputy Finance Minister Hamad al Bazai, Deputy Islamic Affairs Minister for Mosques Dr. Tawfiq al Sudairi, Brigadier General Ahmad al Issa from the Ministry of Interior (MOI),Saudi Arabia Financial Investigative Unit (Unit) Director Brigadier General Fahad al Maghlooth, Saudi Arabia Monetary Authority (SAMA) Deputy Governor Abdulrahman al Humaidy, Al Rajhi Bank CEO Abdullah bin Sulieman al Rajhi, and Riyad Bank Chairman Rashed al Rashed. End Summary. SAFIU BUILDING CAPACITY, REPEATS REQUEST FOR TRAINING -------------- -------------- ¶2. (S) SAFIU Director Maghlooth confirmed his agency's commitment to combating terror finance in the Kingdom and expressed appreciation for Treasury's support for the SAFIU joining the Egmont Group. Glaser noted the three FIU requests submitted by FinCEN to the SAFIU and commended Maghlooth for generating prompt and substantive responses. Glaser urged Maghlooth to build an active partnership with the Treasury Attaches based in Riyadh. Glaser and Maghlooth agreed the SAFIU and the Treasury Attaches would meet weekly to exchange information and otherwise strengthen counter terror finance cooperation. ¶3. (C) Maghlooth called Glaser's attention to the SAFIU's request for training from Treasury and asked about a response from the USG. Glaser stated the request for training is impressive, affirmed the USG's commitment to assist, and promised a response would be forthcoming soon. He explained the USG is still figuring out how it would be done, what agency would lead the training, and other relevant details. Maghlooth highlighted the SAFIU's interest in gaining more analytic expertise in particular. ¶4. (C) ACTION REQUEST: Post requests that Treasury deliver a response to the SAFIU's Training Request document and offer dates for assessment visits as soon as possible. SAG PROCEEDS WITH CAUTION ON LIFTING CHARITY RESTRICTIONS -------------- -------------- ¶5. (S) When asked about charities regulation in the Kingdom, Maghlooth and MOI's General Issa separately explained that since 2005, the Saudi Government (SAG) has prohibited charities in Saudi Arabia from transferring money outside the country. Maghlooth highlighted it was also made illegal to gather money in mosques for charitable purposes, but noted the difficulty in controlling fundraising during the Hajj season. SAMA Deputy Governor Humaidy also confirmed that charities in the KSA are prohibited from transferring money overseas and noted the Ministry of Social Affairs gave these charities ATM cards so that all cash retrieved can be monitored. ¶6. (S) Maghlooth explained the ban on transferring money overseas was intended to be short term, until the SAG could establish an effective regulatory structure (a 'Charities Commission') to ensure that charitable funds from the Kingdom were not supporting terrorism overseas. Several years later, some charities have evaded the restriction, according to Maghlooth, by using cash couriers. Given that many Saudi charities have previously supported legitimate humanitarian work overseas, some in the media decry a 'USG / SAG alliance working against Islamic charities.' ¶7. (S) Issa explained the Iranians have stepped up support and are filling the gap created by the termination of Saudi charitable support, thereby increasing Iranian influence in countries such as Lebanon, Pakistan, Syria, Yemen, and Nigeria. He described Iran as a major threat that is 'taking over the region,' and gave the example of Iran giving scholarships for individuals to adopt the extreme Shiite ideology. He also stressed the SAG would like to restore legitimate charitable flows as charitable giving is deeply rooted in Saudi culture. DAS Glaser asked how to strike the right balance. ¶8. (S) Maghlooth offered the World Assembly of Muslim Youth (WAMY) as an example of a problematic organization for the SAG. Although WAMY is international in reach, the SAG only deals with it on a local level. Among other options, the SAG is currently studying the idea of issuing checks directly to external recipients to reduce the risk of funds being misappropriated to terrorism. With regard to branches of Saudi charities outside the KSA, he added the SAG is considering a variety of options for oversight, including host country and/or SAG involvement. ¶9. (S) Issa stated that while most donors and charities are good, the 'bad guys' infiltrate all of them and so the Ministry of Interior is working on due diligence processes, screening individuals that work in charities, and conducting on-site visits, among other oversight practices. Issa noted, however, the SAG was not planning to monitor Saudi charity branches abroad and suggested host countries overseas should monitor them instead. DAS Glaser responded that while the host country has a responsibility to regulate charities operating within its borders, the SAG must also take responsibility for the activities of Saudi-based charities overseas. Issa agreed and stated the SAG could stop the flow of money to a Saudi branch or remove the Saudi individual in charge of an overseas branch if the charity was found to be providing money to terrorists. ¶10. (S) Deputy Minister for Mosques Dr. Tawfiq al Sudairi suggested Saudi Arabia could benefit from U.S. experience with charities oversight and regulation. He stated he had just been in the UK and had visited various UK charities and the UK Charities Commission to better understand how oversight is conducted, the procedures in place, and other monitoring mechanisms. He stressed that charity is deeply rooted in Saudi culture, and that setting up an oversight mechanism remains a work in progress, but that the KSA is committed to put a system in place to prevent abuse. DAS Glaser responded by noting that Saudi Arabia could play a very important role in an upcoming regional charities conference, tentatively scheduled for October 2009. THE HAJJ, HAMAS, AND TALIBAN FINANCE -------------- ¶11. (S/NF) When asked what the biggest problem is with regard to terrorism finance in the KSA, Issa pointed to Mecca and Medina and the SAG obligation to host religious pilgrims. He bluntly acknowledged that "we are sure terrorists use it as a meeting point...they tend to use the pilgrimage as an opportunity to raise funds." It is not done in public and these individuals already have contacts. Issa explained that the MOI can arrest or monitor such individuals when it has pertinent information and a point of observation, such as a phone number, or the individual is in contact with a subject the MOI is monitoring, but it can be difficult. He stated that "those we know about, we monitor" and encouraged the USG to pass as much information as possible to aid MOI efforts. ¶12. (S/NF) Issa pointed to MOI arrests of HAMAS fundraisers in the Kingdom spurred by information provided by the USG through intelligence channels. He said the MOI will act on any terror finance leads that contain sufficient detail, including on HAMAS, as it is illegal to finance HAMAS in the KSA. When asked if SAG efforts to mediate between Palestinian factions interfered with MOI's ability to target HAMAS, Issa said no. Any SAG contact with, or support of, HAMAS was a separate issue from MOI's ability to take action against HAMAS fundraisers. ¶13. (S/NF) When asked how money is usually moved for terrorists, Issa explained that most money comes through cash couriers and not much through the formal banking system. He noted there have been many arrests in the KSA of Saudi individuals trying to go to Pakistan and Iraq for jihad. The MOI has found most are self-financed. When they are arrested, their cash is seized. Issa also noted he sees al Qaida currently fighting over resources, a sign of their financial straits. ¶14. (S/NF) Issa believes the majority of Taliban funding is derived from the sale of opium and hashish, although he also pointed to Afghanis in the KSA as a source of support. DAS Glaser acknowledged proceeds from drugs also financed the Taliban, but noted he had been hearing that much of its funding comes from the Gulf region. Issa explained that the sale of drugs from Afghanistan into Europe, Russia, and Iran generates large profits for the Taliban and are definitely used for terrorism finance. The Taliban taxes the drug lords in Afghanistan as the Afghan government does not really control the country. He stated that many Saudi arrests are also related to drugs, with the SAG confiscating about 400 kilos of heroin per week. ¶15. (S) NOTE. During the initial meeting, Issa made reference to the formerly strained relationship between Treasury and the SAG on terror finance issues, and in particular the 'outspokenness' of Under Secretary Levey. During a more informal evening gathering, Issa sought out DAS Glaser to apologize for his earlier intemperate comments regarding Levey. He shared 'had Levey not pushed us, we would not have made the progress we have today on terror finance in the Kingdom.' Issa welcomed future Treasury and Levey cooperation with Saudi Arabia on CTF. END NOTE. SAMA ON TERROR FINANCE & FATF COUNTERMEASURES ON IRAN -------------- -------------- ¶16. (S/NF) SAMA Deputy Governor Humaidy stated that all illicit finance issues are important to SAMA as the KSA does not want its system to be used for money laundering or terrorism finance. He noted the Central Bank has taken measures to monitor wire transfers and ensure the KSA's financial institutions are not being abused. He confirmed charities cannot transfer money outside the KSA without approval. Humaidy explained that Saudi banks are required to screen accounts and transactions against the UN 1267 list. He highlighted that the KSA participates in the FATF, is a founding member of MENAFATF, and that FATF statements are communicated to banks. He also said the KSA has criminalized money laundering and terrorist financing and the KSA underwent a 'full scope examination' in 2007. He stated SAMA has a section dedicated to AML/CFT, SAMA inspectors ensure legislation is being implemented effectively, and that banks, moneychangers, and insurance companies are not being abused. ¶17. (S/NF) Humaidy stated that the first AML training in the KSA was on Know Your Customer (KYC) - and that because of the banks' implementation of KYC measures, clients became aware of their responsibilities with regards to conducting financial transactions. He noted the overseas branches of Saudi banks are also likely implementing the same compliance measures, regardless of local requirements. He stated that from a supervisory standpoint, SAMA needs to ensure banks implement the rules, which is why a full scope examination was conducted. He added SAMA also conducts annual supervisory visits, each bank has an internal audit committee and compliance unit, and SAMA meets annually with the chairman of each Saudi bank to ensure there are no gaps between SAMA regulations and the banks' implementation. ¶18. (S/NF) DAS Glaser raised the FATF's call for countermeasures targeting Iran and encouraged Humaidy to consider several possible steps, to include mandating that all Saudi financial institutions cut off correspondent banking ties with Iran. Glaser noted that because there is little financial activity linking KSA and Iran, the move would have little cost for KSA, and may embolden the UAE to take a similar step -- Iran's primary trading partner in the Gulf. Humaidy identified such a step as a POLITICAL decision and promised to raise it with the SAMA Governor, although he expressed uneasiness about publicly 'picking on' the Emiratis. RIYAD BANK EXPLAINS IRAN BANKING TIES -------------- ¶19. (S) DAS Glaser pressed Riyad Bank Chairman Rashed al Rashed on his bank's correspondent relationships with Iranian financial institutions. Rashed explained that most of the financial activity with respect to Iran was in facilitation of Hajj travel by Iranians. Senior Vice President of Risk Management David Letts stated that all transactions related to Iran are automatically flagged by filtering software, and require special approval by his compliance department. He reiterated that most all activity is related to religious pilgrims, as there is very little trade or investment activity between Iran and Saudi Arabia. He stated that Iran is on an extremely high risk screening system as the value of the relationship is insignificant compared to reputational risk to Riyad Bank. Chairman Rashed stated that he would gladly terminate the related correspondent relationships, but would need instruction from SAMA as the decision has political and religious implications. ¶20. (S) Rashed welcomed a close and regular dialogue with U.S. officials as the most successful way to make progress on complex issues of mutual concern. He noted that while Saudi is largely a cash-based economy, in recent years it has made progress transitioning to a non-cash-based system, with electronic transaction up 8-9 fold. He pointed to international business and creating links to the U.S. financial sector as the most effective approaches to harmonizing standards and transferring best practices. AL RAJHI BANK DISCUSSES AML/CTF, CHARITIES -------------- ¶21. (S) Al Rajhi Bank CEO Abdullah bin Sulieman al Rajhi stated that over the past few years, 'there has been quite an investment in (compliance) programs.' He explained that in recent years the bank has built up its staff and systems to improve compliance and ensure the bank is providing the authorities with the right information in order to adhere to SAMA requirements. Abdullah stated that 'things are better now as the KSA had suffered from terrorism so institutions know these systems are for the good.' He added his bank reports more frequently, has more training, and sends more reminders to risk teams to look for suspicious activity than in the past. ¶22. (S) Regarding charities, Abdullah al Rajhi confirmed Saudi banks are under instruction to not transfer funds overseas on behalf of Saudi-based charities without a specific government license. He said the funds transfer ban met stiff resistance from the charitable sector and he received many phone calls from NGO heads who tried to push Al Rajhi to send money abroad, but he refused. When originally implemented, several charities tried to evade the restrictions, but al Rajhi and SAMA were able to detect the activity and adapt. DAS Glaser asked if the restrictions applied to organizations that the Saudi Government considers to be 'international,' such as WAMY and IIRO. Abdullah said 'yes, WAMY and IIRO are treated as charities. ¶23. (S) COMMENT: Brigadier Ahmed al-Issa's conciliatory remarks regarding RELATIONS with Treasury are very encouraging. The ultimate test of an improvement in relations, however, will be broader cooperation from the Saudi side. END COMMENT. ERDMAN