US embassy cable - 05ABUDHABI864

UNCLAS SECTION 01 OF 04 ABU DHABI 000864 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR S/CT, EB/ESC/TFS, INL/C/CP, H, NEA/ARPI 
TREASURY FOR ZARATE, GLESER, AND MURDEN 
NSC FOR PHEFFERNAN 
 
E.O. 12958: N/A 
TAGS: PTER, KTFN, EFIN, ETTC, TC 
SUBJECT: STAFFEDL FISCHER EXPLORES UAE REGULATIONS ON 
TERROR FINANCE, MONEY LAUNDERING 
 
REF: ABU DHABI 4218 
 
1. (SBU) Begin summary.  Visiting Senate Banking Committee 
Staffdel met with UAE Minister for Economy Sheikha Lubna 
Al-Qasimi and officials from the Central Bank for briefings 
on the regulatory regime for all financial institutions in 
the UAE -- including money changers, hawaladars, stock 
exchanges, and the Dubai International Financial Center 
(DIFC).  The Central Bank Governor also discussed UAE 
training programs designed to help financial institutions 
identify and track suspicious transactions.  The Central Bank 
examines all financial institutions yearly and requires them 
to submit detailed records of incoming and outgoing 
remittances.  To date, the UAE has registered 155 hawaladars. 
 
 
2. (SBU) (Summary continued.) The Staffdel also met UAE's 
Ministry of Labor Undersecretary for Social Affairs, who 
described how UAE regulatory requirements for charities 
ensure that UAE charitable contributions go to legitimate 
causes.  Among the regulations, the UAEG allows only three 
designated charities to send contributions out of the 
country, and it requires all Zakat donations in mosques be 
made in the form of bank transfers, not cash donations.  End 
summary. 
 
3. (U) Staffers Dr. Walter Fischer, John O'Hara, and Steve 
Kroll from the United States Senate Banking, Housing, and 
Urban Affairs Committee met with UAE officials on February 19 
to discuss UAE efforts to combat money laundering and terror 
financing.  They met with Minister of Economy and Planning 
Sheikha Lubna Al-Qasimi, MFA Undersecretary for Foreign 
Affairs Abdullah Rashid Al-Noaimi, Central Bank Governor 
Sultan Nasser Al-Suwaidi, and Ministry of Labor 
Undersecretary for Social Affairs Mariam Al-Roumi.  The UAE 
officials explained the UAE's systems for stopping terror 
finance and money laundering, and requested more U.S. 
sponsored training and intelligence information.  February 20 
meetings in Dubai with bankers will be reported septel. 
 
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Regulating Financial Institutions and Transactions 
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4. (SBU) In a detailed discussion about UAE efforts to combat 
money laundering and terror financing, Al-Suwaidi outlined 
the Central Bank,s mechanisms for monitoring UAE financial 
systems.  He stressed, "We have to be leaders in regulating 
our banking system because we are the gateway to another 
world" (ie: between countries with well regulated financial 
systems and those with more lax regulatory systems).  In 
response to the UAE's obligations under UNSCR 1267 to freeze 
assets belonging to or associated with the Taliban or 
Al-Qaida, the UAE Central Bank has frozen 17 accounts 
totaling over $1 million.  There are 47 banks in the UAE (21 
national and 26 foreign), 106 money changers, and 155 
registered hawalas, and each of these institutions is 
required to submit to yearly examinations, provide quarterly 
reports on remittances, and abide by "Know Your Customer" 
(KYC) policies.  The Central Bank provides training and 
technology to help financial institutions abide by these 
regulations. 
 
-- Examinations.  The Central Bank has 85 examiners on 15 
teams, and each team is responsible for monitoring a 
designated set of banks, money changers, and hawalas.  The 
teams use a "risk-based" examination model developed and 
implemented by the Central Bank three years ago.  Imbedded in 
this model are checks to uncover possible money laundering 
activities.  The Central Bank examines each financial 
institution at least once a year, but the teams are 
responsible for monitoring their designated institutions 
throughout the year.  After every examination, the Bank 
issues a report highlighting problem areas and offers 
suggestions for improvement.  The financial institutions are 
expected to take positive steps to resolve the Central Bank's 
concerns.  The Central Bank holds CEOs personally liable for 
transactions processed through their institutions.  If an 
organization does not comply with reporting requirements, the 
Central Bank can impose fines and/or recommend the case to 
the Attorney General for prosecution.  The Governor stated 
that administrative penalties (such as fines) have been 
assessed more often than criminal penalties. 
 
-- Remittance Reporting/Know Your Customer.  All financial 
institutions are immediately required to report any 
suspicious transactions, and every three months they are 
required to submit detailed records itemizing incoming and 
outgoing remittances.  Additionally, the Bank holds all 
financial institutions to strict KYC standards (including the 
requirement to maintain customer records for a minimum of 
five years and periodically update the records as long as the 
account is open.) 
 
-- Training Programs.  The Governor stressed that the Central 
Bank is interested in quality, not quantity of suspicious 
transaction reports (STRs).  In order to help financial 
institutions recognize when a report should be filed, the 
Bank offers free training sessions.  Additionally, the 
Central Bank conducts one-on-one training sessions with every 
registered hawaladar to ensure they understand their 
reporting requirements.  According to Governor Al-Suwaidi, 
the objective of the training is twofold: "to convince them 
that we want only genuinely suspicious cases reported -- not 
rubbish -- and to make the players emotionally involved and 
sympathetic to the cause" of stopping money laundering and 
terror finance. 
 
-- Technology.  The Central Bank is in the process of 
implementing a computer system for money changers that will 
automatically send a record of each transaction to the 
Central Bank at the time the transaction is conducted, and 
Governor Al-Suwaidi said he plans to eventually provide 
computers to hawaladars so they can use the system. 
 
5. (U) The four year old UAE stock market system is evolving 
and developing.  The Securities and Commodities Authority 
(SCA) supervises the country's two national stock markets 
(the Dubai Financial Market and the Abu Dhabi Securities 
Market).  Minister of Economy and Planning Sheikha Lubna 
Al-Qasimi explained that in 2004, the SCA issued reporting 
requirements and regulations to the stock markets that mirror 
those the Central Bank uses for other financial institutions. 
 The two stock exchanges consist of 55 companies, and 
according to Sheikha Lubna, the SCA is looking to eventually 
merge the two markets into one national stock exchange. 
Foreign companies are allowed to list on either the DFM or 
the ADSM if they are dual listed in their home country and 
meet certain profitability criteria.  Sheikha Lubna expressed 
interested in visiting the U.S. to see how the stock market 
and securities and exchange commissions are structured and 
regulated. 
 
6. (U) UAEG interlocutors also briefly discussed Dubai's 
"financial free zone," the Dubai International Financial 
Center (DIFC), which is subject to UAE laws against money 
laundering and terror finance.  Although the DIFC has its own 
regulatory body, the Dubai Financial Services Authority, the 
UAE Central Bank is playing an active role in monitoring the 
DIFC.  According to Governor Al-Suwaidi, the Central Bank 
currently has an examination team at DIFC that will submit a 
report to the Cabinet on its findings.  MFA Undersecretary 
Abdullah Rashid said, "DIFC is part of one UAE system.  The 
Central Bank will license, monitor, and follow-up to ensure 
that transactions are smooth and controlled, just like the 
Bank does for the other banks in the country."  February 20 
meetings in Dubai with officials from the Dubai Financial 
Services Authority will be reported septel. 
 
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UAE Addresses Challenges Unique to Hawala Regulation 
--------------------------------------------- ------- 
 
7. (U) In 2002, the UAEG began requiring all hawala dealers 
(hawaladars) to register with the Central Bank, and as of 
February 2005, 155 hawaladars have registered (131 of which 
have been examined and issued "non-objection certificates"). 
The Bank is aware that not all hawaladars have engaged in 
this process, but its officials do not have an estimate of 
how many unregistered hawaladars continue to operate in the 
country.  In a discussion about the challenge of persuading 
hawaladars to register, MFA Undersecretary Abdullah Rashid 
said, "we must convince them that it is in their best 
interest to submit to the registration." 
 
8. (SBU) The Central Bank Governor noted that people feel 
comfortable using the hawala system, and that he has not seen 
a decrease in their usage since the establishment of 
registration requirements.  The Governor did acknowledge that 
very few hawaladars have submitted STRs, but he said that 
whenever remittance reports denote a large transaction, an 
examiner asks the hawaladar for more information. 
 
9. (SBU) The UAE serves as an example to other countries in 
the region on how to regulate informal flows of remittances. 
Abdullah Rashid said that other countries have asked the UAE 
to show them how to regulate their hawaladars.  (Note: the 
UAE will host the 3rd annual International Hawala Conference 
April 2-3 in Abu Dhabi.  The conference is designed to share 
best-practices and work toward creating international 
standards for hawaladar regulation.) 
 
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Money Laundering, Use a Different Rubric 
---------------------------------------- 
 
10. (SBU) Governor Al-Suwaidi believes that the United States 
and the international community need to adopt separate 
approaches for halting the flow of money laundering versus 
terror financing.  "You can't use the same yardstick," he 
said, because in money laundering the crime occurs first, 
then the money is filtered in a way that makes it "clean," 
and then it is re-circulated into the financial system.  With 
terror financing, said al-Suwaidi, originally "clean" money 
is being used to fund illegal activities. 
 
11. (SBU) The Central Bank Governor categorized the influx of 
laundered money into three subsets -- the largest source is 
from wire transfers into the UAE, the middle source is from 
cash couriers entering the country, and the smallest is 
generated in the local economy.  He said that the Bank is 
aggressively working to identify and stop the wire transfers, 
but since the UAE economy is so reliant on international 
transactions, it is not feasible to require real-time 
reporting for all cross-border wire transfers.  Instead, the 
Bank monitors the end-use of transfers and considers 
transactions suspicious if incoming money is immediately 
wired out of the country. 
 
 
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Strict Monitoring of Charitable Giving 
-------------------------------------- 
 
12. (SBU) The UAE Ministry of Labor registers and monitors 
all charitable organizations within the UAE (there are 
currently 18 registered charities), and the UAEG requires 
that all charitable donations directed overseas be channeled 
through one of three government-approved charities for 
international contributions (the UAE Red Crescent Authority, 
the Sheikh Zayed Charitable Foundation, and the Mohammed bin 
Rashid Al-Maktoum Charitable and Humanitarian Foundation, 
reftel).  According to Ministry of Labor U/S for Social 
Affairs Mariam Al-Roumi, these three organizations ensure 
that overseas transfers go to legitimate parties.  All of the 
other charitable organizations fund causes only within the 
UAE or send their donations through the above three 
charities.  The Ministry of Labor has a staff of 32 people 
who are responsible for licensing and auditing charities. 
They submit quarterly reports on charities' activities, and 
at least one Ministry official must attend every charitable 
function held in the UAE, said al-Roumi. 
 
13. (U) The Ministry of Labor requires charities to submit 
records identifying the donor, amount, and beneficiary for 
all charitable donations, even those for causes in the 
country.  Additionally, mosques are not allowed to collect 
cash contributions.  In the UAE, all zakat donations are 
bank-to-bank transfers.  People who wish to donate fill out 
transfer forms and place them in zakat boxes located in the 
mosques. 
 
14. (SBU)  According to Al-Roumi, people have responded 
favorably to the donation regulations, because they want to 
ensure their donations go to legitimate causes and are not 
diverted, even though Islamic charitable giving has 
historically been anonymous.  She also stated that the 
reporting requirements have not caused a decrease in 
charitable giving overall.  Charities' yearly financial 
reports show that people are donating the same amount of 
money as they did prior to September 11, 2001, but the 
majority of it stays in the UAE, as opposed to being sent out 
of the country for international causes.  "We don't want 
problems like those of Saudi Arabia.  We believe it is 
important to have a settled society, and regulating 
charitable giving is one element of ensuring that stability." 
 
15. (U) There is no regional umbrella for regulating 
charities, but Al-Roumi believes it is a good idea.  The 
countries in the region meet and exchange ideas, but to date, 
the coordination has been informal and there is no regional 
standard. 
 
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What Can the U.S. Do? - Provide Training and Intelligence 
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16. (SBU) UAE officials stated that the most useful way the 
United States can assist the UAE is to provide more training 
and intelligence information.  Abdullah Rashid stated that 
the UAE could benefit from our reservoir of knowledge, 
experience, and technology, and he asked us to continue to 
train UAE officials.  He also said that UAE officials would 
like the United States to share more intelligence 
information, and noted that sometimes information provided by 
the U.S. is not detailed enough to be useful, and that 
sometimes the USG never responds to requests for additional 
information. 
 
17. (SBU) The Central Bank Governor also appealed for more 
information and training, noting that the UAE is a small 
country with small intelligence resources.  According to 
Central Bank statistics, from December 2000 to January 31, 
2005, the Anti-Money Laundering and Suspicious Cases Unit 
(which serves as the UAE's financial intelligence unit) 
reviewed 2,273 STRs, and 48 of those cases were referred to 
the Attorney General for prosecution.  Governor Al-Suwaidi 
noted that one reason for so few prosecutions is because the 
evidence is often not provided in channels that can be used 
in court.  Additionally, Al-Suwaidi said that he would like 
early notification when the U.S. is investigating persons 
suspected of money laundering or terror financing activities 
(before they are placed on an official watchlist). 
SISON