US embassy cable - 05KUWAIT806

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000806 
 
SIPDIS 
 
NEA/ARP FOR REECE SMYTH 
NSC FOR PATRICK HEFFERNAN 
 
E.O. 12958: DECL: 02/23/2015 
TAGS: EFIN, PTER, ETTC, KU, TERRORISM 
SUBJECT: SYNOPSIS OF KUWAIT'S ACTIONS TO COMBAT TERRORIST 
FINANCE 
 
REF: A. KUWAIT 669 
     B. KUWAIT 638 
     C. KUWAIT 594 
     D. KUWAIT 417 
     E. KUWAIT 76 
     F. 03 KUWAIT 4840 
 
Classified By: CDA Matthew H. Tueller, Reasons 1.4(b) and (d) 
 
1.  (U) Summary.  In the wake of January's violent 
confrontations between extremists and Kuwaiti security 
forces, the Government of Kuwait has begun to view terrorist 
finance as an issue of real concern.  Although Kuwait is not 
a major financial center and has not been a primary entrepot 
for terrorist financing, there are gaps in the GOK's ability 
to prevent terrorist finance.  At present, Kuwait has no law 
specifically criminalizing terrorist finance, but the Council 
of Ministers recently agreed that Kuwait should become a 
party to the UN Convention on the Suppression of Financing of 
Terrorism.  Kuwait's Financial Intelligence Unit (FIU) is not 
permitted to share information without prior approval from 
the Public Prosecutor's Office, making it ineligible for 
membership in the Egmont Group. 
 
2.  (C) With regard to banking, Islamic financial 
institutions now fall under the Central Bank's regulatory 
authority and most GOK and banking interlocutors believe that 
current anti-money laundering laws are adequate to monitor 
financial transactions carried out through regulated 
institutions (Islamic and traditional).  The GOK is 
tightening up its supervision of charitable organizations, 
following revelations that four of the five charities 
licensed to do charity work outside of Kuwait have violated 
the GOK's rules governing fundraising.   In other news, local 
papers reported that a Kuwaiti appeals court upheld a lower 
court ruling absolving Muhsin Al-Fadhli of financing 
terrorism in Iraq.  This ruling is separate from another 
charge against Fadhli concerning his alleged connection with 
the 2000 attack on the USS Cole; that case is still pending. 
End Summary. 
 
Terrorist Finance Legislation Needed 
------------------------------------ 
 
3.  (SBU) In the wake of January's violent confrontations 
between extremists and Kuwaiti security forces, the 
Government of Kuwait has begun to view terrorist finance as 
an issue of real concern.  Although Kuwait is not a major 
financial center and has not been a primary entrepot for 
terrorist financing, there are gaps in the GOK's ability to 
prevent terrorist finance. 
 
4.  (U) At present, Kuwait has no law specifically 
criminalizing terrorist finance.  Some GOK officials have 
contended that such a law is not necessary since Kuwait's 
2002 anti-money laundering statute ostensibly covers 
terrorist finance (although it should be noted that Financial 
Action Task Force guidelines, to which Kuwait is a party, 
call for criminalization of terrorist finance).  To raise 
U.S. concerns about this deficiency, the Ambassador has 
pressed a wide range of GOK officials to pass anti-terrorist 
finance legislation.  On February 7, the Council of Ministers 
agreed that Kuwait should become a party to the UN Convention 
on the Suppression of Financing of Terrorism, and referred 
its decision to the National Assembly for ratification (Ref 
C). 
 
Financial Intelligence Unit 
--------------------------- 
 
5.  (U) Kuwait's Financial Intelligence Unit (FIU), which is 
housed within the Central Bank, was established in 2003. 
However, its efficacy is limited by an inability to share 
information without prior approval from the Public 
Prosecutor's Office; this approval must be granted on a 
case-by-case basis.  As a result, the U.S. has been unable to 
move ahead with its plan to sponsor Kuwait for membership in 
the Egmont Group, an international network designed to 
facilitate information-sharing among FIUs.  Post is urging 
the GOK to revise its legislation governing the FIU so that 
the unit can function independently and effectively. 
 
Supervision of Islamic Financial Institutions and Banks 
--------------------------------------------- ---------- 
 
6.  (C) Beginning January 1, 2004, the Central Bank of Kuwait 
assumed licensing and supervisory responsibility for Kuwait's 
Islamic financial institutions, Kuwait Finance House (KFH) 
and Bubiyan Bank, making them subject to the same regulatory 
guidelines as all other banks in Kuwait.  KFH executives 
report that although the amount of client information 
required by "Know Your Customer" rules makes some clients 
uncomfortable, KFH continues to comply (Ref E). 
 
7.  (C) Most GOK and banking interlocutors believe that 
current anti-money laundering laws are adequate to monitor 
financial transactions carried out through regulated 
institutions (Ref B).   For example, Minister of Finance 
Mahmoud Al-Nouri told Ambassador and Treasury Undersecretary 
John Taylor that he was more concerned about the small 
amounts of cash needed to purchase weapons and explosives, 
rather than larger transactions that can easily be traced 
(Ref A).  The National Bank of Kuwait's CEO, however, 
disagrees that existing legislation is adequate, as does Gulf 
Bank's CEO, who lamented the absence of criminal penalties 
for terrorist finance during his meeting with the Ambassador. 
 
Monitoring of Charitable Institutions 
------------------------------------- 
 
8.  (C) After the September 11 terrorist attacks, Kuwait 
established an Office of Charitable Oversight and Supervision 
within the Ministry of Social Affairs and Labor, to ensure 
that funds raised by Kuwaiti charities would not be used to 
finance terror abroad.  To regulate fundraising, all 
charities were required to obtain permission from the 
Ministry of Social Affairs and Labor before transferring 
money abroad, and only certain individuals from each charity 
were authorized to make the transactions (the Office of 
Oversight provided the Central Bank of Kuwait with a list of 
all licensed charities and the names of individuals 
authorized to carry out transfers, which was then provided to 
all Kuwaiti banks).  In the weeks before Ramadan began in 
fall 2003 -- typically a time of heavy charitable giving -- 
the Ministry launched a crackdown against unlicensed charity 
kiosks and sent inspectors into the field to ensure that 
charities were acting within the law.  The government also 
outlawed the taking of collections in mosques (Ref F). 
 
9.  (SBU) However, the Charitable Oversight Office made 
headlines recently when it revealed that of the five Kuwaiti 
charities licensed to conduct charity work outside of Kuwait, 
four had violated the Ministry's rules governing fundraising. 
 Specifically, the Ministry alleged, the Revival of Islamic 
Heritage Society (RIHS), the Social Reform Society (SRS), the 
Abdullah Al-Nouri Charity, and the Al-Najat Society used 
unlicensed kiosks and then attempted to evade government 
supervision of these funds.  In response, the GOK has begun 
shutting down unlicensed kiosks this month, much as they did 
in 2003 (Ref D).  According to local media, the Ministry has 
warned the charities that should they fail to comply with 
regulations, the Ministry will take "all necessary legal 
measures" against them (athough these measures were not 
specified). 
 
10. (C) Several bankers told the Ambassador of their 
discomfort with the relative lack of supervision over 
charitable kiosks (Ref B).  According to one, "conflict 
within the ruling family has allowed the rise of religious 
parties and their influence," and has made the GOK 
disinclined to regulate charitable giving more consistently. 
They hoped, nevertheless, that the recent terrorist 
confrontations would provide the government with the excuse 
it needed to impose more stringent controls. 
 
Lower Court's Dismissal of Charges Against Al-Fadhli Upheld 
--------------------------------------------- -------------- 
 
11. (U) Local newspapers reported that on February 16, a 
Kuwaiti appeals court upheld a lower court ruling absolving 
Muhsin Al-Fadhli of financing terrorism in Iraq.  The ruling 
came one day after Fadhli was designated by the U.S. as a 
supporter of terrorism.  The appeals court's verdict, 
however, is not final and the government has the option of 
referring the case of the Court of Cassation.  This ruling is 
also separate from another charge against Fadhli concerning 
his alleged connection with the 2000 attack on the USS Cole; 
that case is still pending. 
TUELLER