US embassy cable - 05KUWAIT2927

S E C R E T SECTION 01 OF 04 KUWAIT 002927 
 
SIPDIS 
 
NOFORN 
 
E.O. 12958: DECL: 06/27/2015 
TAGS: PTER, EFIN, ETTC, PGOV, KU 
SUBJECT: POST INPUT FOR GULF STRATEGY PAPER TO COMBAT 
TERRORIST FINANCING  AND STRENGTHEN AML/CTF EFFORTS 
 
REF: A. SLACK (NEA/ARP)/BROWN EMAIL 06/24/05 
     B. KUWAIT 2265 
     C. KUWAIT 2229 
     D. KUWAIT 2228 
     E. KUWAIT 2003 
     F. KUWAIT 1733 
     G. KUWAIT 1731 
     H. KUWAIT 1730 
     I. KUWAIT 806 
     J. KUWAIT 669 
     K. KUWAIT 638 
     L. KUWAIT 594 
     M. KUWAIT 417 
     N. KUWAIT 76 
     O. 03 KUWAIT 4840 
 
Classified By: CDA Matthew H. Tueller, Reasons 1.4 (b), (c), 
(d) and (e) 
 
1.  (S/NF)  Post read with interest the Kuwait portion of the 
"Strategy for the Gulf Region to Combat Terrorist Financing 
And Strengthen Overall AML/CTF Efforts" paper (Ref A).  While 
we endorse the action points for Kuwait as well-targeted and 
appropriate, we are concerned that the background portrayal 
of TF in Kuwait selectively cites rumor or poorly sourced 
intel.  Our overall assessment is that weaknesses in Kuwait's 
TF record are largely the result of inattentiveness to the 
scope of the problem and not a conscious policy to overlook 
terrorist fundraising.  As the discovery of terrorist cells 
early this year led to greater focus on CT efforts, the GOK 
has begun to close gaps in laws and procedures.  We provide 
the information below on Kuwait's anti-money laundering and 
counter-terrorist finance (AML/TF) efforts, as an 
on-the-ground assessment. 
 
Terrorist Finance Legislation Needed 
------------------------------------ 
 
2.  (SBU) In the wake of January's violent confrontations 
between extremists and Kuwaiti security forces, the 
Government of Kuwait began to view terrorist finance as an 
issue of real concern.  Although Kuwait has not been a 
primary entrepot for terrorist financing, there are gaps in 
the GOK's ability to prevent terrorist finance. 
 
3.  (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 
L). 
 
4.  (C) The GOK also formed a working group to draft a new 
piece of legislation that would specifically criminalize 
terrorist finance and strengthen Kuwait's anti-money 
laundering/terrorist finance (AML/TF) regime.  As of June, 
the working group (a subset of the National Committee to 
Combat Money Laundering and Terrorist Finance) had finished 
its initial draft, which must be submitted to various 
government agencies for review.  According to committee 
member Talal Alsayegh, the Head of the Central Bank's 
Anti-Money Laundering Unit (strictly protect), the draft 
legislation a) criminalizes terrorist finance; b) permits 
financial institutions to refer suspicious activity reports 
(SARs) directly to the Financial Intelligence Unit (FIU) 
rather than to the Public Prosecutor's Office; c) allows the 
FIU to share intelligence directly with other FIUs, and 
without prior approval from the Public Prosecutor's Office; 
d) imposes restrictions on cash couriers (NFI); and e) makes 
the definition of money laundering more precise.  Alsayegh 
said that the draft is based on a TF legislation prototype 
provided by the IMF and draws on other countries' TF laws as 
well.  Once key government agencies have reviewed the draft 
legislation, the committee plans to seek external reviews to 
determine its appropriateness.  The USG has offered, and the 
GOK has accepted, USDOJ OPDAT assistance.  According to 
Alsayegh, the GOK might also ask the IMF and FinCEN for 
assistance.   Following external review, the legislation 
would need to be approved by the National Assembly. 
 
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. 
 
6.  (C) Post has urged the GOK to revise its legislation 
governing the FIU so that the unit can function independently 
and effectively.  The draft TF legislation described in para 
4 would address this serious shortcoming.  The draft 
legislation would also permit bank examiners to refer all 
suspicious activity reports (SARs) to the FIU instead of the 
Public Prosecutor's Office, as the current law requires. 
Alsayegh told us that bank examiners are somewhat reluctant 
at present to refer marginally suspicious transactions for 
investigation, out of a fear that their clients might be 
unfairly targeted by the prosecutor's office.  Furthermore, 
the prosecutor's office, which is already overwhelmed, has 
had difficulty investigating the reports in a timely and 
appropriate manner.  Stipulating that the FIU (which has 
expertise in SARs) would review all SARs first and then refer 
seriously questionable transactions to the prosecutor would 
be more effective and efficient, said Alsayegh. 
 
Frozen Assets and Terrorist Financiers 
-------------------------------------- 
 
7.  (C) Kuwait's legal restrictions on financial 
information-sharing have slowed U.S. attempts to obtain data 
on assets freezes imposed by Kuwait.  At last report (Ref B), 
however, the MFA indicated that the GOK had frozen three 
accounts belonging to Lajnat al-Dawa al-Islamiyya containing 
about $4.2 million, and one account belonging to Suleiman Bu 
Ghaith containing 60,855 Kuwait dinar ($207,000).  (Note. 
Two accounts identified as being linked to entities on the UN 
1267 Consolidated List were frozen by the Central Bank, but 
contained no funds.  End Note.) 
 
8.  (C) The GOK has also frozen an account belonging to 
terrorist financier Muhsin Al-Fadhli containing 5300 Kuwaiti 
dinar (approximately $18,000, Refs B and F).  Although on 
February 16 a Kuwaiti appeals court upheld a lower court 
ruling absolving Al-Fadhli of financing terrorism in Iraq, 
its verdict is not final and the government has the option of 
referring the case of the Court of Cessation.  This ruling 
was also separate from another charge against Fadhli 
concerning his alleged connection with the 2000 attack on the 
USS Cole; that case is still pending.  On May 24, the Prime 
Minister told the Ambassador that Kuwait State Security (KSS) 
was actively seeking Al-Fadhli (Ref C), and Interior Minister 
Shaykh Nawaf Al-Ahmed Al-Jaber Al-Sabah said that he had 
asked KSS Chief Athbi Al-Fahd Al-Sabah to redouble efforts to 
capture Al-Fadhli and other militants (Ref D). 
 
Supervision of Islamic Financial Institutions and Banks 
--------------------------------------------- ---------- 
 
9.  (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 N). 
 
10. (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 K).   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 J).  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 Charitable Institutions 
----------------------------------- 
 
11. (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 O). 
 
12. (C) In mid-February, several bankers told the Ambassador 
of their discomfort with the relative lack of supervision 
over charitable kiosks (Ref K).  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 late January/early 
February 2005 terrorist confrontations would provide the 
government with the excuse it needed to impose more stringent 
controls.  Indeed, the Charitable Oversight Office made 
headlines in late January 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 
shut down unlicensed kiosks, much as they did in 2003 (Ref 
M).  According to local media, the Ministry warned the 
charities that should they fail to comply with regulations, 
the Ministry would take "all necessary legal measures" 
against them (although these measures were not specified). 
 
13. (C) As reported Ref H, visiting Treasury DAS Daniel 
Glaser asked Ministry of Social Affairs and Labor Assistant 
Undersecretary Adnan Al-Omar about SRS, RIHS and Al-Najat 
during their April meeting. Al-Omar reiterated that the 
Charities Department was concerned about these charities and 
kept a close watch over their transactions. One of the main 
concerns, he added, were the numerous unlicensed 
subcommittees created under the licensed charity's name, 
which were the source of much of the charity's illegal 
activities.  Al-Omar said that no charities were allowed to 
transfer funds outside of Kuwait without the permission of 
the Ministry of Social Affairs, adding that the Ministry had 
not given these three charities such permission.  In a candid 
exchange, al-Omar said that his preference would be to 
"dissolve" one of these questionable charities to serve as an 
example to all.  However, he said, the decision to dissolve a 
charity would be a political decision made at the Ministerial 
level.  Al-Omar was not optimistic that the Charitable 
Oversight Committee would allow this to happen due to 
political pressures within the GOK. 
 
14. (C) Al-Omar also spoke to Glaser about the removal of 
unlicensed charitable cash collection kiosks.  Al-Omar 
explained that a Charitable Oversight Committee had been 
formed to address the concerns that the GOK has with illegal 
charitable collections (the Committee is comprised of 
representatives from the Ministries of Social Affairs, 
Interior, Finance, Islamic Affairs and the Central Bank). 
With the full support of the Council of Ministers, the 
Committee agreed to the forcible removal of all unregistered 
charity "cash-boxes" in Kuwait, al-Omar said.  He explained 
that the unprecedented terrorist attacks that took place in 
Kuwait at the beginning of 2005 had awakened the GOK to the 
seriousness of the threat that terrorism poses to the 
country.  The removal of these charity boxes is a reactive 
step that the GOK is taking in an effort to curtail one 
source of support to the extremists in Kuwait, al-Omar said. 
 
15. (C) The challenge, al-Omar continued, is that as soon as 
one charity cash-box is taken down, more are put up.  He also 
said that new methods of collections are being used.  As 
examples, he cited (a) a door-to-door cash-collecting system 
using small fast-food type delivery trucks, and (b) 
collecting clothing for charity, then using the money gained 
by selling the clothes to fund illegal activities.  The 
Ministry of the Interior is currently working with the 
Charities Department to identify the owners of the trucks in 
an effort to trace the illegal collections, he said. 
However, no solution has been identified to stop the clothing 
collection.  He explained that the goal is to identify the 
charities accepting illegal donations and to track them, 
rather than "provoke them into going underground," by taking 
stronger initial actions against them. 
 
16. (C) Prior to the kiosk-removal crackdown on charities, 
al-Omar said, it was easy to follow the known routes for the 
disbursements of charitable collections.  Now, he said, the 
channels have changed in response to the government's actions 
and it's "impossible" to track all the new routes.  Once the 
money leaves Kuwait, he added, there is no easy way to track 
where it goes. (Note: During the MENA FATF plenary attended 
by DAS Glaser in Bahrain prior to his visit to Kuwait, the 
Kuwaiti delegate and Head of Supervision at the Central Bank 
of Kuwait mentioned that Kuwait tries to follow the money 
through its embassies abroad. End Note).  The Charities 
Department has little experience in detecting 
money-laundering, for example, and al-Omar said that the GOK 
could use more support from experienced sources to address 
this problem. To help address these weaknesses, post would 
advocate providing technical assistance for charitable 
oversight in Kuwait, perhaps using the new MENA-FATF as a 
vehicle. 
 
17.  (C) Our overall assessment is that gaps and lax 
enforcement on TF issues are due to inattention, inadequate 
professionalism, and competing priorities.  As TF has been 
raised on the priority scale for the GOK, progress is being 
made, albeit at the halting pace that characterizes much 
official action in the Gulf states.  We have seen no evidence 
that GOK officials have countenanced terrorist fundraising 
and when evidence of questionable fundraising has been 
uncovered, officials have moved to take appropriate action. 
 
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TUELLER