US embassy cable - 05ABUDHABI2741

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 002741 
 
SIPDIS 
 
STATE FOR NEA/ARPI RSMYTH, S/CT MMILLER, TKUSHNER 
MANAMA FOR OFAC ATTACHE 
NSC FOR PHEFFERNAN, JHERRING, MRUPERT 
TREASURY FOR ZARATE, GLASNER, MURDEN 
 
E.O. 12958: DECL: 06/18/2015 
TAGS: PTER, KTFN, EAID, EFIN, TC, UAE Banking and Charities Regulation 
SUBJECT: INCONSISTENT UAE CHARITY OVERSIGHT, A SYSTEM 
VULNERABLE TO ABUSE 
 
REF: A. A) 2005 ABU DHABI 02169 
     B. B) 2005 DUBAI 02004 
     C. C) 2003 ABU DHABI 01904 
     D. D) 2005 ABU DHABI 00864 
     E. E) 2004 ABU DHABI 04218 
 
Classified By: Ambassador Michele J. Sison for reasons 1.4 (b) and (d). 
 
1. (C) Summary.  The UAE Government, aware that mechanisms of 
charitable giving could be used to provide a cover for the 
financing of terror, has established regulations and 
procedures to try to ensure that charitable funds are not 
diverted for terrorist purposes.  The regulatory regime for 
licensing and monitoring UAE charities is robust; however, 
implementation and enforcement of the laws are inconsistent. 
Significant gaps in the monitoring of charities make it 
possible they could wittingly or unwittingly serve as a cover 
for illicit activity; however we do not have a way to assess 
whether individuals or charities are exploiting these gaps. 
The most glaring gap is that less than half of UAE charities 
are federally licensed and regulated; the rest are licensed 
by local emirates and operate largely independent of federal 
guidelines.  Federal law stipulates that charities are not 
allowed to undertake any activity abroad without prior 
permission from the Ministry of Labor and Social Affairs, and 
it requires that all charitable donations directed overseas 
be channeled through one of three government-approved 
charities.  Anecdotal information suggests that charities in 
Abu Dhabi abide by the regulations, but outside of Abu Dhabi, 
the effectiveness of the federal regulatory regime is less 
clear.  End Summary. 
 
Federal vs. Emirate-Level Oversight 
----------------------------------- 
 
2. (C) UAE Federal law No. 6 of 1974 stipulates that the 
Ministry of Labor and Social Affairs is to license and 
supervise UAE charities and NGOs; however, many charities are 
licensed by local emirates and do not come under the purview 
of the Ministry's regulation and oversight requirements. 
According to a booklet on NGOs issued by the Ministry of 
Labor and Social Affairs, there are eleven federally licensed 
charities.  At least eighteen other charities are locally 
licensed, but we do not have concrete information to indicate 
exactly how many additional locally licensed charities 
operate in the UAE.  Two of the three largest UAE charities 
are locally licensed: the Mohammed Bin Rashid Foundation (MBR 
Foundation, licensed in Dubai) and Human Appeal International 
(HAI, licensed in Ajman; ref A).  A member of the MBR 
Foundation Board of Trustees told Econoff that since the MBR 
Foundation is licensed by the Government of Dubai, "there is 
no need to be registered or have any interaction with the 
Ministry of Labor."  Mariam Al Roumi, Undersecretary for 
Social Affairs at the Ministry of Labor and Social Affairs, 
told Econoff that locally licensed charities can only operate 
within their "home" emirate.  In order to conduct activities 
in any other emirates, they have to get permission from the 
Ministry, but officials from locally licensed charities do 
not seem to be aware of this requirement. 
 
3. (C) In addition to the federally and locally licensed 
charities, there is a separate category of charitable 
organizations present in the UAE -- those in Dubai Aid City 
(DAC) and Dubai Humanitarian City (DHC) (ref B).  DAC and DHC 
are free zones, which offer 100 percent import/export tax 
exemptions, and house offices and warehouses for local and 
international NGOs.  The charities within DAC and DHC are 
licensed as businesses by Dubai's free zone authorities, and 
do not come under the purview of any federal or municipal 
regulations for charitable organizations. According to 
Barbara Castek, head of DAC, the financial transactions of 
NGOs in DAC and DHC are monitored by the Central Bank, the 
same as all other financial transactions in the UAE, as per 
the federal guidelines for anti-money laundering and counter 
terror finance.  However, DAC and DHC do not independently 
monitor the activities of organizations operating within the 
free zone.  According to Peter Casier, the Director of the 
United Nations World Food Program Support Office in DHC, 
Humanitarian City does carefully vet organizations that apply 
to operate within DHC, but he is aware that several NGOs 
inside DHC had solicited charitable donations and sent funds 
abroad without permission from the Ministry of Labor and 
Social Affairs. 
 
Federal Ministry's Oversight Role...Administrative 
--------------------------------------------- ----- 
 
4. (C) UAE federal law governs charities and non-governmental 
organizations (NGOs) in the same manner and does not 
distinguish between NGOs and charities.  The Ministry of 
Labor and Social Affairs licenses and monitors 106 
non-governmental social welfare associations, of which only 
eleven are charities.  As a result, the 32 Ministry staff 
members responsible for licensing and auditing NGOs do not 
focus specifically on monitoring the activities of the 
charities that the Ministry licenses.  Moreover, the staff is 
administrative in nature and does not have investigative or 
enforcement capabilities.  According to the law governing NGO 
activity, the Ministry must approve all meetings or 
activities before they can be held, and it has the authority 
to conduct site visits to review the organizations' records. 
However, according to a former executive of Dubai Aid City, 
the Ministry staff simply grants licenses and examines the 
NGOs' yearly financial and administrative reports.  Al Roumi 
stated that if the Ministry suspects a charity is engaged in 
potentially illegal activity, Ministry officials first warn 
the charity.  If the activity continues, the Ministry reports 
them to the police, and may revoke their license and shut 
them down.  "We have never had to refer a charity to Ministry 
of Interior for investigation.  Eighteen years ago, we closed 
a Pakistani charity, but that was the last time." 
 
International Restrictions...Not Uniformly Enforced 
--------------------------------------------- ------ 
 
5. (C) According to the law, charities are not allowed to 
undertake any activity abroad -- to include transferring 
money, establishing offices, collecting donations, or 
participating in activities -- without prior permission from 
the Ministry of Labor and Social Affairs.  UAE officials have 
told us that charities in Abu Dhabi abide by these 
regulations, and our own interactions with Abu Dhabi 
charities indicates this is true; however, charities licensed 
in other emirates often do not. 
 
6. (C) In 1994 the UAE passed a resolution requiring 
charities to make international donations through the UAE Red 
Crescent Society, and Ministry officials have told us that 
they also allow charities to send funds through the Sheikh 
Zayed Charitable and Humanitarian Foundation and the Mohammed 
Bin Rashid Charitable and Humanitarian Foundation (refs C and 
D).  However, according to Central Bank Governor Sultan 
Nasser Al Suwaidi, "There is nothing to prevent charities 
from transferring money overseas."  He told Econoff that he 
believes the system works in Abu Dhabi and Dubai, but 
charities in the other emirates "may not" send their money 
through one of the three approved charities.  Officials at 
the Ministry of Labor and Social Affairs have told us that 
banks are aware that they cannot send funds from charities 
overseas, but many of our financial contacts are not aware of 
this regulation.  John Williams, COO and Chief Compliance 
Officer of Standard Chartered in the UAE, said that his bank 
"had received no written guidance (from the Central Bank) on 
charities sending money abroad and there's no policy on it." 
 
7. (C) The UAEG trusts that the three government-approved 
charities' efforts and initiatives are all above-board, and 
our interactions with them tend to confirm this.  Sana 
Derwish Al Kitbi, Secretary General of the UAE Red Crescent 
Society, described the Red Crescent's 3-fold security checks 
to ensure projects are legitimate and needed: the Red 
Crescent works with the UAE Embassy in the recipient country, 
they consult the country's Embassy and other Government 
officials, and the Red Crescent conducts its own in-house 
research.  The MBR Foundation, which supervises and finances 
relief programs of recipient country NGOs (as opposed to 
actually implementing the projects itself), uses six criteria 
to determine that the local charity's activities are 
legitimate.  Abdurahman Bin Sobeih, a member of the MBR 
Foundation board of trustees, told Econoff, "We conduct these 
checks because we believe it is essential to ensure security 
while encouraging aid.  Donors trust that a donation to our 
foundation is a safe donation."  The General Manager of the 
Sheikh Zayed Charitable Foundation told Econoff that the 
Foundation conducts its own programs and works independently 
in foreign countries to build needed projects (particularly 
schools and hospitals), and in this manner the Foundation is 
able to ensure that its funds are used for legitimate 
projects. 
 
8. (C) The Red Crescent's Al Kitbi told Econoff that older 
charities, whose existence predates the requirements 
restricting external operations, have resisted bringing their 
international activities under the umbrella of one of the 
government-approved charities.  She said that, over time, 
more and more have begun using the Red Crescent (particularly 
the smaller charities and those located in Abu Dhabi), but 
there are still many charities that prefer to conduct their 
own activities abroad.  Bin Sobeih told Econoff that many 
Dubai charities use the MBR Foundation as a conduit for 
sending money and supplies to other countries, but that not 
all of the charities go through the MBR Foundation.  As an 
example, Ajman-based Human Appeal International, which was 
established in 1984, has offices in twelve different 
countries.  According to Secretary General of HAI, Salem 
Ahmed Abdul Rahman Al Nuaimi, HAI's only federally-approved 
branch is in Iraq, and it works with the Red Crescent and MBR 
Foundation only occasionally for discreet aid and relief 
programs (ref A). 
 
Financial Regulations...But Who Is Checking? 
-------------------------------------------- 
 
9. (C) According to the law, charities are only allowed to 
have one bank account, and before a bank can open an account 
for a charitable society, the organization is required to 
present its license (signed by the Minister of Labor and 
Social Affairs) to the bank.  The UAE Central Bank has widely 
publicized the requirement to show the Ministry of Labor 
license upon opening a bank account, but charities themselves 
may not be aware of the restriction against having more than 
one account.  For example, HAI's Al Nuaimi told Econoff that 
HAI has 30 bank accounts in the UAE so as to avoid incurring 
fees when money is transferred from one bank to another. 
 
10. (C) Charities are required to provide their bank account 
information to the Ministry of Labor and Social Affairs, but 
Ministry officials have told us that it is up to the Central 
Bank to track an organization's transactions.  However, it is 
unclear whether the Central Bank's examiners focus on charity 
transactions as a specific category during their bank 
examinations.  Governor Al Suwaidi told Econoff that he does 
not know whether the bank's examiners are looking at 
charitable transactions more stringently than any other bank 
transaction. 
 
11. (C) The Ministry of Labor also requires charities to 
submit records identifying the donor, amount, and beneficiary 
for all charitable donations, even those for causes in the 
UAE, but Al Roumi acknowledges that the staff reviewing the 
annual reports is administrative in nature, and it is not 
clear that the Ministry has the capability to examine 
charities' yearly reports with an eye toward detecting 
diversionary activity.  Additionally, only charities licensed 
by the Ministry adhere to this reporting requirement -- the 
Sheikh Zayed Charitable Foundation, which is funded by a 
trust established by former President Sheikh Zayed and not 
licensed by the Ministry, submits its annual audit report to 
the UAE Ministry of Foreign Affairs, and the locally licensed 
charities submit their annual reports to the entity that 
issued their licenses. 
 
Comment 
------- 
 
12. (C) Mid-level UAE officials tend to indicate that their 
system of monitoring and regulating charities is effective. 
They do not acknowledge that their system has gaps; however 
in her meetings with Econoff, Al Roumi indicated she would be 
interested in U.S. suggestions on practical ways to monitor 
charities. 
 
13. (C) Despite the legal and regulatory requirements, UAE 
authorities do not have the capacity to monitor charities 
carefully.  The lack of enforcement mechanisms for 
noncompliance and the absence of a uniform, federal licensing 
and monitoring system open up the possibility that UAE 
charities could wittingly or unwittingly be used as cover for 
illicit activity.  While the federal law regulating charities 
is strict, inconsistent application and a lack of enforcement 
expertise open the system up for abuse. 
SISON