US embassy cable - 04KUWAIT495

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000495 
 
SIPDIS 
 
STATE FOR EB/ESC/TFS FOR GGLASS AND NROTHSTEIN 
STATE FOR S/CT SFOX; IO/PHO FOR APEREZ 
NSC FOR GPETERS; TREASURY GENERAL COUNSEL DAUFHAUSER; 
TREASURY FOR OFAC DIRECTOR RNEWCOMB; TREASURY FOR JZARATE 
TREASURY TASK FORCE ON TERRORIST FINANCING 
PARIS FOR PETER KUJAWINSKI AND UZRA ZEYA 
TUNIS FOR NATALIE BROWN 
 
E.O. 12958: DECL: 02/04/2014 
TAGS: EFIN, ECON, ETTC, PTER, PREL, KU 
SUBJECT: (C) KUWAIT FINANCE HOUSE OPENS UP TO OFAC 
 
Classified By: CDA Frank C. Urbancic for reasons 1.4 (b) and (d) 
 
1. (C) Summary: On January 19 OFAC Director Richard Newcomb 
met with Kuwait Finance House (KFH) General Manager Jassar 
Al-Jassar and officials from the KFH Anti-Money Laundering 
and Terrorist Finance Unit (AML).  KFH officials described in 
detail to OFAC representatives their efforts to combat 
terrorist financing and money laundering.  KFH told Newcomb 
that Lajnat al-Dawa al-Islamiya (LDI) closed its accounts 
with KFH after the bank had frozen LDI assets.  KFH provided 
inconsistent answers as to when exactly it froze LDI 
accounts.  KFH subsequently required all charities to 
consolidate their accounts under their parent organizations. 
KFH continues to hold accounts for LDI's parent organization, 
the Social Reform Society (SRS). End Summary. 
 
2. (C) OFAC Director Richard Newcomb met with KFH General 
Manager Jassar Al-Jassar, Director ) Business Consultancy K. 
Salman Younis and Manager ) AML & Terrorist Finance Unit 
Medhat A. Al-Kharashi January 19 meeting KFH headquarters. 
The KFH officials reviewed in detail what they described as 
their organization's extensive measures to ensure the bank 
did not facilitate terrorist financing or money laundering 
operations. 
 
3. (C) K. Salman Younis said KFH had moved quickly to freeze 
LDI assets after the US designated the organization a 
supporter of terrorism. Salman said KFH's quick response to 
the US announcement was part of an overall plan the bank had 
introduced to strengthen its anti-terrorist policies after a 
post 9/11 Central Bank of Kuwait (CBK) request to do so. 
(Note: KFH later stated that the freeze took effect February 
6, four weeks after the US designation but before the UN 
designation was made. End note.) Salman said the Board of 
Directors and senior management had empowered the AML and 
Terrorist Finance Unit to take all necessary measures to 
ensure the bank does not facilitate terrorist financing.  He 
said the Chairman has challenged the Unit to make the bank 
the "best in the world" with respect to anti-terror policies. 
 
4. (C) Accordingly, Salman said, the bank has developed the 
following policies: 
 
--The bank writes and implements an annual AML and 
anti-terrorism plan. 
 
--The bank is using OFAC Tracker software to monitor all 
transactions, and is currently evaluating additional software 
packages; a decision on the additional software will be made 
by March 31st. 
 
--An AML officer has been designated in each of the bank's 
units; the officer is responsible for reviewing all 
transactions for AML compliance. 
 
--AML and anti-terrorist finance training is mandatory for 
all new KFH employees; employees are encouraged to bring 
suspicious account activity to the attention of managers. 
 
--KFH is bringing in anti-money laudering/anti-terrorist 
finance speakers in on a quarterly basis; Citibank, Barings 
and HSBC staff members are among the current invitees. 
 
--AML Unit staff review each unit's transaction reports on a 
weekly basis. 
 
Salman said KFH plans to distribute a monthly AML newsletter 
providing tips on suspicious activity. Additionally, he said 
that a top ten 'warning signs' for money laundering bulletin 
was to be distributed on the KFH intranet that week. 
 
KFH DISCUSSES LDI ACCOUNT 
 
5. (C) When asked about the status of LDI accounts, KFH 
officials gave conflicting answers on when KFH froze LDI 
assets. Younis first stated that it froze LDI accounts in 
December 2002, prior to USG designation of LDI on January 9, 
2003. Later, he stated that KFH became aware of the USG 
designation of LDI on January 28, 2003, and by February 6 had 
taken the necessary steps to freeze LDI assets.  (Note: From 
the discussion, it was unclear at what point exactly KFH 
became aware of USG action and when KFH chose to implement 
freezing of LDI accounts. End Note.) 
 
6. (C) Also during the discussion, Younis asserted that LDI 
was not a legal or separate entity, but a committee within 
SRS ) the two were one and the same.  As such, KFH officials 
asked why the USG had only designated LDI and not SRS. 
 
7. (U) In addition to freezing LDI accounts, KFH has taken 
further steps to control suspicious activity by requiring 
charities to consolidate their accounts under the name of the 
parent organization, rather than allowing committees under 
the parent to hold separate accounts. Al-Jassar said KFH has 
since prohibited the opening of accounts for subsidiary 
charity organizations.  When asked which charities KFH 
currently provides services to, Al-Jassar said the bank only 
does business with the five Kuwaiti charities officially 
endorsed by the Ministry of Social Affairs and Labor. They 
are: Social Reform Society, Revival of Islamic Heritage 
Society, Al-Najat Society, Al-Awn Al-Mubasher Society and 
Sheik Abdulla Al-Nouri Society.  In addition, Al-Jassar added 
that KFH will not open accounts for shell banks or high risk 
individuals. 
 
8. (C) KFH Background: KFH is currently the only licensed 
Islamic Bank in Kuwait.  The company has 27 branch offices 
and owns banks in both Bahrain and Turkey (Kuwait Turkish 
Financial Bank). The KFH advisory board contains several 
former SRS officials. This relationship with SRS makes its 
oversight of SRS and its subsidiary LDI a possible conflict 
of interest. Two additional Islamic banks ) one converting 
from a commercial bank and the other starting anew ) are 
slated to begin operation within the next few months. 
 
9. (U) This message was cleared in MemCon format by OFAC 
Director Richard Newcomb. 
URBANCIC