US embassy cable - 04ABUDHABI1026

C O N F I D E N T I A L SECTION 01 OF 04 ABU DHABI 001026 
 
SIPDIS 
 
STATE FOR NEA/ARP - HEFFERNAN, NEA/RA -SUTPHIN, 
EB/ESC/ESP, INL/C, INL/ENT - NOVIS, AND S/CT - REALUYO 
TREASURY FOR ENFORCEMENT DAS JUAN ZARATE AND IEA DIRECTOR 
BOYLAN, ALSO FOR LONERGAN 
TREASURY PASS FINCEN 
TREASURY PASS OTA FOR N. WORTHINGTON 
TREASURY PASS OFAC FOR NEWCOMB 
JUSTICE FOR ASSET FORFEITURE AND ML UNIT  EPUTY CHIEF 
DAVITT, ALSO TED GREENBERG 
JUSTICE PASS OPDAT FOR SILVERWOOD 
NSC FOR GARY PETERS 
 
E.O. 12958: DECL: 04/06/09 
TAGS: PTER, EFIN, ETTC, PREL, PGOV, TC 
SUBJECT:  SECOND INTERNATIONAL HAWALA CONFERENCE, APRIL 3-5 
 
REFS: A) 02 ABU DHABI 2522 
      B) ABU DHABI 1000 
 
1.  (U) Classified by Deputy Chief of Mission Richard A. 
Albright for reasons 1.5 (B) and (C). 
 
2.  (C) Summary and comment: More than 350 participants 
from Latin America, Asia, Europe and the United States 
attended the Second International Hawala Conference, April 
3-5 in Abu Dhabi, sponsored by the UAE Central Bank and in 
collaboration with the IMF.  The Second Hawala Conference 
followed the very successful First Hawala Conference in May 
2002 (ref A).  At the close of this week's forum, the UAE 
Central Bank Governor and other UAEG officials urged the 
participants to consider drafting "best practices" or 
international guidelines for the regulation of the hawala 
sector.  It was clear from discussions earlier during the 
week, however, that many governments continue to grapple 
with the definition and scope of hawala within their 
respective territories, as well as with the modalities and 
legalities of regulating informal transfer systems.  As in 
the first Hawala Conference, no current or former 
hawaladars spoke at the forum. 
 
3.  (C) Summary and comment continued: A U.S. delegate who 
attended the first Hawala Conference noted that this week's 
event represented a huge leap forward in the UAEG's 
acknowledgment of its own hawala problem.  Only three years 
ago, the UAEG was reluctant to admit that terrorists could 
exploit the country's formal and informal banking networks. 
The Second Hawala Conference, although it fell short of 
producing international standards, demonstrates that the 
UAEG intends to take an active role in the international 
effort to examine and regulate informal remittance systems. 
End summary and comment. 
 
--------------------------------------------- ------- 
Presentations: Central Banks, Police, Private Sector 
--------------------------------------------- ------- 
 
4.  (SBU) FinCEN Senior Policy Adviser William Langford led 
the U.S. delegation consisting of representatives from 
State, IRS, and ICE.  Mr. Langford provided an overview of 
U.S. anti-money laundering regulations in a session on "The 
Experience of Hawala Remitting Countries."  In a subsequent 
session, Department of Homeland Security Program Manager 
for Financial Investigations David Eoff, likewise, 
described the challenges U.S. law enforcement authorities 
face combating money launderers and hawaladars. 
Interestingly, during the same panel discussion, Dubai 
General Police official Younes Al-Muallem claimed that 
Dubai bankers believe the Central Bank's anti-money 
laundering regulations are ineffectual and administratively 
burdensome. 
 
5.  (SBU) The UAE Central Bank moderated a relatively 
contentious panel of representatives from the UAE's largest 
exchange houses and private bankers.  While the private 
sector reps acknowledged the need to monitor hawala, they 
suggested that the Central Bank's administrative 
requirements for hawaladars only serve to drive them 
further underground.  The CEO of the UAE Exchange House 
boasted about his organization's compliance with UAE 
Central Bank regulations, and described UAE Exchange's 
award program (similar to a frequent flyer program) that 
stores a repeat customer's biographic data and transaction 
history for 10 years.  He said that the cost of 
transferring money through formal remittance systems has 
decreased, making the hawala system less attractive to 
foreign workers.  UAE Exchange will send money anywhere in 
the world -- even to a private residence -- for 25 dirhams 
(USD 6.82).  He claims Western Union's commissions are now 
less than 8 percent, and competitive with many local 
hawaladars. 
 
6.  (SBU) The UAE Central Bank described the UAE hawala 
regulation system at the close of the conference.  Based on 
the Abu Dhabi Declaration (ref A), the current hawala 
regulation system seeks to identify hawaladars, encourage 
them to submit records of all financial transactions, and 
forward suspicious transaction reports (STRs) to the 
Central Bank, as appropriate.  It is noteworthy that, while 
many countries gave presentations on their national anti- 
money laundering regulations, the UAE was the only country 
to describe a regulatory system aimed specifically at 
hawala brokers.  The UAE Central Bank has received 118 
registration applications from hawaladars since April 2003, 
and issued 101 certificates.  Ninety hawaladars submitted 
reports to the Central Bank during the same time period, 
but no STRs have been filed.  Some audience members claimed 
that the lack of STR filing by hawaladars here is evidence 
that the UAE system doesn't work, and does nothing to 
reduce the potential for abuse of the system by terrorists. 
The Central Bank did not offer any estimate on the number 
of unregistered hawaldars that operate outside the purview 
of UAE authorities. 
 
7.  (U) Other presentations included an overview of the 
money laundering systems in various East Asian, South 
Asian, and Latin American countries, and the perspective 
from multilateral institutions, such as the IMF/WB, FATF, 
the United Nations Office on Drugs and Crime, and BIS. 
 
------------------------- 
Abu Dhabi Declaration II? 
------------------------- 
 
8.  (C) On April 5, the Central Bank Governor and other 
UAEG officials urged the participants to consider drafting 
"best practices" or international guidelines for the 
regulation of the hawala sector.  The FATF representative 
privately told Econoff that his organization would oppose 
such an effort.  "FATF should be the only organization to 
draft international standards for hawala." 
 
9.  (C) It also was clear from the previous two days of 
presentations and discussions that governments continue to 
grapple with the definition and scope of hawala within 
their respective territories.  Brazil, notably, refused to 
agree to any statement that recommended additional 
regulation of the hawala industry because hawala is illegal 
in Brazil and, therefore, "does not exist."  Nevertheless, 
the general consensus of all the participants (which also 
is reflected in the conference statement) was that a single 
approach to regulating hawala may not be appropriate -- 
"one size does NOT fit all," said the delegate from Egypt. 
 
10.  (U) Begin text of declaration. 
 
The conference acknowledged and reaffirmed the important 
achievements of the First International Conference on 
Hawala as set out in the Abu Dhabi Declaration On Hawala 
(May 2002). 
 
The conference recognized the key role that hawala and 
other informal funds transfer (IFT) systems play in 
facilitating remittances, particularly those of migrant 
workers.  It noted, as well, the significance of IFT 
systems as an integral part of the international financial 
system. 
 
A major outcome of the conference was its contribution in 
increasing awareness of the role of IFT systems. 
Participants emphasized that IFT systems need to be 
understood against the diversity of socio-cultural, legal 
and economic contexts.  Nevertheless, IFT systems, like 
other parts of the financial system, can also me misused 
for illegal purposes, and participants therefore re- 
emphasized the need for transparency and traceability of 
financial transactions.  Furthermore, to acknowledge the 
work of the Financial Action Task Force (FATF) in 
development standards and best practices in this area, the 
conference highlighted the range of experience, practices 
and approaches that could apply. 
 
The conference identified the following challenges in 
implementing IFT regulatory regimes: 
 
-- Overcoming imperfect information on the functioning IFT 
systems; 
 
-- Ensuring authorities have adequate resources in dealing 
with this issue; 
 
-- Designing regulatory solutions that are proportionate to 
the risks and sensitive to possible unintended 
consequences. 
 
-- Avoiding over-regulation that might drive IFT operations 
underground; and 
 
-- Demonstrating to the participants in IFT systems that 
the benefits of regulation outweigh the costs. 
 
With the aim of addressing these challenges, the conference 
concluded that there was a need to: 
 
-- Gather and analyze information on IFT systems and their 
operations; 
 
-- Engage in a dialogue with IFT providers and users to 
develop constructive solutions; 
 
-- Conduct outreach to raise the awareness of the regulated 
community and public to IFT issues; and 
 
-- Remove any impediments to cost-effective, reliable and 
convenient transmission of funds in the regulated financial 
sector. 
 
Where IFT systems are permitted, countries should as a 
first step register and/or license IFT operators.  Further 
anti-money laundering and combating the financing of 
terrorism (AML/CFT) requirements should then be implemented 
in the IFT sector by countries according to their capacity. 
 
Finally, the conference encouraged the FATF and the 
international financial institutions to take note of the 
conclusions of this conference and work to develop further 
guidance. 
The conference expressed its gratitude to the Government 
and Central Bank of the United Arab Emirates, and the 
International Monetary Fund for organizing this conference. 
 
End text. 
 
Wahba