US embassy cable - 04KUWAIT4419

UNCLAS SECTION 01 OF 03 KUWAIT 004419 
 
SIPDIS 
 
STATE FOR INL, NEA/ARP 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN, PTER, SNAR, KTFN, KCRM, KU 
SUBJECT: KUWAIT'S 2004-2005 INSCR, PART II 
 
REF: SECSTATE 254401 
 
1.  (U) Post's input for Part II of the 2004-2005 INSCR 
follows in para 2.  Key changes include: 
 
Para 1:  Kuwait has nine commercial banks, including two 
Islamic banks.  One of Kuwait,s two specialized banks, the 
Kuwait Real Estate Bank, will soon convert into an Islamic 
bank. 
 
Para 3:  Currency smuggling into Kuwait is banned under Law 
No. 35, but reporting requirements are not enforced at ports 
of entry.  The law does not require individuals to make a 
customs declaration when carrying cash out of Kuwait. 
 
Para 5:  The Central Bank is currently updating its 
anti-money laundering instructions. 
 
Para 6:  Insurance companies, exchange bureaus, gold and 
precious metals shops, brokers in the Kuwait Stock Exchange, 
and all other financial brokers were always supervised by the 
Ministry of Commerce and Industry.  What changed in September 
2002 was that these organizations were compelled to abide by 
all regulations concerning customer identification, record 
keeping of all transactions for five years, internal control 
systems, and the reporting of suspicious transactions from 
that point on. 
 
Para 8:  Kuwait has two Islamic banks now, both of which are 
supervised by the Central Bank. 
 
Para 9:  Post recommends -- as we did last year -- that the 
final two sentences be deleted.  These were unsubstantiated 
allegations that may have been politically motivated. 
 
Para 11:  The national anti-money laundering committee is now 
headed by the Central Bank Governor, and a representative 
from the Ministry of Social Affairs and Labor has been added. 
 
2.  (U) BEGIN TEXT OF REPORT. 
 
Kuwait is not a major regional financial sector.  It has nine 
commercial banks, including two Islamic banks, all of which 
provide banking services comparable to those of Western-style 
commercial banks.  Kuwait also has two additional specialized 
banks, the Kuwait Real Estate Bank (which will soon convert 
into an Islamic bank) and the government-owned Industrial 
Bank of Kuwait, that provide medium and long-term financing. 
Regulators do not believe that money laundering is a 
significant problem, and most laundered funds are generated 
as a byproduct of local drug and alcohol smuggling. Funds and 
assets generated by criminal activity are subject to 
forfeiture. 
 
On March 10, 2002, the Emir (Head of State) of Kuwait signed 
Law No. 35, which criminalizes money laundering. The law 
stipulates that banks and financial institutions may not keep 
or open any anonymous accounts or accounts in fictitious or 
symbolic names and banks must require proper identification 
of regular and occasional clients. The law also requires 
banks to keep all records of transactions and customer 
identification information for a minimum of five years, 
perform training and establish internal control systems, and 
report any suspicious transactions. Smuggling currency into 
Kuwait is also outlawed, although reporting requirements are 
not enforced at ports of entry.  The law does not required 
individuals to make a customs declaration when carrying cash 
out of Kuwait. 
 
Law No. 35 designates the Public Prosecution Department (PPD) 
as the sole authority to receive reports on money laundering 
operations, and to take the necessary actions. Reports of 
suspicious transactions are referred from PPD to the Central 
Bank,s financial intelligence unit (FIU) for analysis. The 
law provides for a penalty of up to seven years, 
imprisonment in addition to fines and asset confiscation. The 
penalty is doubled if an organized group commits the crime, 
or if the offender took advantage of his influence or his 
professional position. The law includes articles on 
international cooperation, and on monitoring cash and 
precious metals transactions. Provisions of Article 4 of Law 
No. 35 state that every person shall, upon entering the 
country, inform the customs authorities of any national or 
foreign currency, gold bullion, or any other precious 
materials in his/her possession valued in excess of Kuwait 
dinar 3,000 (about $ 10,000). There are no similar reporting 
requirements for outbound currency or precious metals.  The 
law authorizes the Minister of Finance to set forth the 
resolutions necessary to ensure its implementation. The 
Minister of Finance can issue resolutions to enhance 
combating money laundering operations without the need to 
amend the legislation. Moreover, banks and financial 
institutions may face a steep fine (approximately $3.3 
million) if found in violation of the law. 
In addition to Law No. 35, anti-money laundering reporting 
requirements and other rules are contained in the Central 
Bank of Kuwait,s (CBK,s) instructions no. (2/sb/92/2002), 
which took effect on December 1, 2002, superseding 
instructions no. (2/sb/50/97). The revised instructions 
provide for, inter alia: customer identification and the 
prohibition of anonymous or fictitious accounts (articles 
1-5), the requirement to keep records of all banking 
transactions for five years (article 7), electronic 
transactions (article 8), the requirement to investigate 
transactions that are unusually large or have no apparent 
economic or lawful purpose (article 10), the requirement to 
establish internal controls and policies to combat money 
laundering and terrorism finance, including the establishment 
of internal units to oversee compliance with relevant 
regulations (article 14 and 15), and the requirement to 
report to the CBK all cash transactions in excess of KD3,000 
(article 20). A detailed appendix to the instructions has 
guidelines to help bank employees identify suspicious 
transactions. The Central Bank is currently working on 
updates to its anti-money laundering instructions. 
 
In September 2002, insurance companies, exchange bureaus, 
gold and precious metals shops, brokers in the Kuwait Stock 
Exchange, and all other financial brokers (all of which are 
supervised by the Ministry of Commerce and Industry) were 
compelled to abide by all regulations concerning customer 
identification, record keeping of all transactions for five 
years, internal control systems, and the reporting of 
suspicious transactions. 
 
In addition, CBK issued circular no. (2/sb/95/2003) in 2003, 
which was directed toward money changing companies and which 
contained similar instructions with respect to combating 
money laundering and suspicious activities reporting 
guidelines. A similar order (31/2003) was issued by the 
Kuwait Stock Market to all companies under its jurisdiction. 
 
Kuwait,s two Islamic banks, Kuwait Finance House (KFH) and 
Bubiyan Bank, are licensed and supervised by the Central Bank 
of Kuwait. 
 
Following the September 11, 2001, attacks against the United 
States, certain Islamic charity organizations such as the 
Revival of Islamic Heritage Society (RIHS) and its 
subsidiary, the Afghan Support Committee (ASC), which operate 
from Kuwait and have branches in Pakistan and Afghanistan, 
were suspected of providing funds to al-Qaida. U.S. 
authorities have designated the branches in Pakistan and 
Afghanistan as being used to funnel funds to terrorist 
organizations. There is no indication that such activities 
occurred with the knowledge of the Kuwaiti head office, which 
thus remains undesignated. 
 
In August 2002, the Kuwaiti Ministry of Social Affairs and 
Labor issued a ministerial decree to create a Department of 
Charitable Organizations. The primary responsibilities of the 
new department are to receive applications of registration 
from charitable organizations, monitor their operations, and 
establish a new accounting system to insure that such 
organizations comply with the law both at home and abroad. 
The Department has established guidelines explaining how 
charities must collect donations and finance their 
activities. The new Department is also charged with 
conducting periodic inspections to insure that they maintain 
administrative, accounting, and organizational standards 
according to Kuwaiti law. 
 
On June 23, 2003, the Central Bank of Kuwait issued 
resolution no. 1/191/2003 establishing the Kuwaiti Financial 
Intelligence Unit (KFIU) as an independent entity within the 
Central Bank. The goals of KFIU are to receive and analyze 
reports of suspected money laundering from the public 
prosecution department, to establish a database of suspicious 
transactions, to conduct anti-money laundering training, and 
to carry out domestic and international exchanges of 
information in cooperation with the PPD. KFIU has a staff of 
seven. 
 
Several cases have been opened under Law No. 35. but the 
majority of them were closed after investigations did not 
disclose prosecutable offenses. 
 
The 2002 law on money laundering does not cite terrorist 
financing as a crime; however, the definition of criminal 
activity is broad. Kuwait established a national committee to 
follow up on all issues concerning terrorism; the Central 
Bank,s Governor is the committee chair, and all interested 
ministries are included (a representative from the Ministry 
of Social Affairs and Labor, which supervises charitable 
societies and donations, was added to the committee in 2004). 
Two terrorist suspects were charged in late 2002 with 
"gathering funds for, and financing the establishment of, 
military training camps abroad." 
The Gulf Cooperation Council represents Kuwait on the 
Financial Action Task Force (FATF). Kuwait is a party to the 
1988 UN Drug Convention. It has signed, but not yet ratified, 
the UN Convention against Transnational Organized Crime. 
Kuwait should become a party to the UN International 
Convention for the Suppression of the Financing of Terrorism. 
 
Kuwait is making progress in enforcing its domestic 
anti-money laundering program. The passage of the CBK,s 
anti-money laundering clarifying instructions represents a 
significant step forward. However, KFIU needs to gain 
experience in dealing with suspicious transactions. The KFIU 
also needs to assemble and automate various financial 
databases. Kuwait should also make outbound currency and 
precious metals declarations mandatory. More interagency 
cooperation and coordination between KFIU and other concerned 
parties could yield significant improvements in proactive 
investigations and international information exchange. A 
specific counterterrorism finance law should also be enacted. 
 
END TEXT OF REPORT. 
LEBARON