US embassy cable - 04DJIBOUTI1601

UNCLAS SECTION 01 OF 02 DJIBOUTI 001601 
 
SIPDIS 
 
STATE FOR AF/E AND INL 
 
JUSTICE FOR OIA AND AFMLS 
 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN, KCRM, KSEP, PTER, SNAR, KTFN, DJ 
SUBJECT: DJIBOUTI - 2004-2005 INTERNATIONAL NARCOTICS 
CONTROL STRATEGY REPORT INSTRUCTIONS PART II, FINANCIAL 
CRIMES AND MONEY LAUNDERING 
 
REF: STATE 254401 
 
INTRODUCTION 
------------ 
1. Much of the information included in Post's 2003-2004 
report remains the same. Djibouti is still the most stable 
country in the Horn of Africa. It is a financial hub in the 
sub-region, thanks to its US dollar-pegged currency and its 
unrestricted foreign exchange.  Officials from the Central 
Bank indicate that there were no recent instances of money 
laundering. The informal market remains important, and 
smuggled goods consist primarily of highly taxed cigarettes 
and alcohol. The Djibouti Free Zone (DFZ), managed by 
Dubai's Jebel Ali Free Zone, was inaugurated in June 2004. 
Once operational, the DFZ will approve and deliver licenses 
for up to 85 companies. Djibouti is not considered an 
offshore financial center but offshore institutions are 
permitted, and even encouraged, to settle at the DFZ.  Two 
existing commercial banks handle the bulk of financial 
transactions. The remainder of the demand is met by a 
growing number of hawalas.  The Central Bank makes efforts 
to closely monitor the activities of both the commercial 
banks and hawalas. 
 
Anti-money laundering legislation 
--------------------------------- 
2. On February 22nd, 2001, Djibouti signed the United 
Nations International Convention against Illicit Traffic in 
Narcotic Drugs and Psychotropic Substances, which entered 
into force on May 23rd, 2001. Legislation criminalizing the 
financing of terrorism, as requested by UN Security Council 
Resolution 1373, is included in the Anti-Money Laundering 
Law passed in December 2002 as Law No. 196/AN/02/4emeL. 
Drafted by the three-year-old National Committee on 
Terrorism, this document contains provisions for prevention 
of, and punishment for, money laundering. 
 
3. The Anti-Money Laundering Law applies to financial 
institutions of all forms as well as professionals involved 
in financial matters. Regulated activities include money 
deposits, insurance, investment, real estate, casinos and 
entertainment.  The legislation also addresses international 
cooperation and allows for the freezing or seizing of assets 
in suspected terrorist finance cases.  The government 
regularly circulates the names of individuals and entities 
included on the UN 1267 sanctions committee's consolidated 
list.  The law also requires financial institutions to 
verify customer information, including current residence. 
This verification process promotes rigorous transparency and 
strict control of transactions. Furthermore, it imposes 
criteria for the following: customer identification; 
communication of information; documentation related to 
international cooperation; surveillance procedures for 
suspect accounts; and legal protection of professional 
secrecy for individuals reporting suspect transactions. 
 
4.  Professionals convicted of facilitating money laundering 
or terrorist financing can face five to ten years in jail 
and a fine of DF 25 to 50 million ($141,283 to 282,566). A 
finance professional that fails to report suspect 
transactions is liable for fines ranging from DF 10 to 25 
million ($56,513 to 141,283).  The Department of Treasury 
receives the proceeds of any assets seized or forfeited in 
terrorist financing cases. 
 
International Cooperation 
------------------------- 
5. Djibouti has not officially reached an agreement with the 
United States government on money laundering, but Central 
Bank officials have repeatedly indicated they would fully 
cooperate if requested. Djibouti has a formal, bilateral 
agreement with Ethiopia for exchange of information and 
extradition in money-laundering cases. Furthermore, the anti- 
money laundering legislation stipulates that Djibouti will 
cooperate with other countries by exchanging information, 
assisting in investigations, providing mutual technical 
assistance and facilitating the extradition process in money 
laundering cases. In addition, the Central Bank plans to set 
up an investigation bureau designed to monitor for money 
laundering and to provide expertise to the banking community 
concerning counterfeit money, including US bills. 
 
 
COMMENTS 
-------- 
6. DJIBOUTI'S MONEY LAUNDERING AND TERRORIST FINANCING 
STRATEGY TOOK A POSITIVE STEP WITH THE APPROVAL OF THE ANTI- 
MONEY LAUNDERING LEGISLATION; HOWEVER ENFORCEMENT OF THIS 
LAW REMAINS A MAJOR CHALLENGE. THOUGH THE GOVERNMENT MAKES 
AN EFFORT TO CONTROL ALL FORMAL TRANSACTION POINTS, A LARGE 
NUMBER OF INFORMAL HAWALAS ESCAPE CENTRAL BANK REGULATION. 
IN ADDITION, CORRUPT CUSTOMS AGENTS CAN EASILY BE TEMPTED TO 
PERMIT LARGE AMOUNTS OF MONEY TO COME THROUGH THE BORDERS 
WITHOUT ANY DECLARATION. FINALLY, THERE IS A HISTORY OF 
POWERFUL, "UNTOUCHABLE" INDIVIDUALS PROTECTING SUSPICIOUS 
FINANCIAL INSTITUTIONS. AS FOR THE DFZ, POST WILL MONITOR 
AND REPORT ON ANY MONEY LAUNDERING ACTIVITIES WHEN THE DFZ 
BECOMES FULLY OPERATIONAL. 
 
RAGSDALE