US embassy cable - 05SANAA2151

C O N F I D E N T I A L SECTION 01 OF 03 SANAA 002151 
 
SIPDIS 
 
E.O. 12958: DECL: 08/03/2015 
TAGS: KVPR, ETTC, EFIN, PTER, PREL, CVIS, YM, COUNTER TERRORISM, TERFIN 
SUBJECT: YEMEN FIGHTS TERRORIST FINANCING WITH LIMITED 
RESOURCES 
 
REF: A. SANAA 04 380 
     B. SANAA 2115 
 
Classified By: DCM Nabeel Khoury for reasons 1.4 b and d. 
 
1. (C) Summary.  Yemen has a strong legal framework and 
considerable political will to combat terrorist financing, 
but is hampered by insufficient resources and a poorly 
organized banking sector.  Although the volume of 
transactions is low, terrorists take advantage of the largely 
unregulated Yemeni banking system to support terrorist 
organizations.  Banks in Yemen report suspicious activities 
mostly on a voluntary basis, and the anti-Money Laundering 
Unit at the Central Bank does not have the capacity to 
investigate effectively foreign currency transfers and hawala 
houses.  Despite a difference of opinion regarding the 
listing of Zindani on the Terrorist Watch List, the ROYG has 
a strong interest in strengthening its oversight capacity and 
requires extensive assistance to do so.  End summary. 
 
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The Legal and Political Framework 
--------------------------------- 
 
2. (SBU) Law 38 for Money Laundering (and Highway Robbery) 
was issued in 2003, and serves as the legal basis for ROYG 
efforts in combating Terrorist Financing (TF).  The law gives 
the Central Bank of Yemen (CBY) authority to create an 
Anti-Money Laundering Unit, which gathers information from 
public and private banks.  The unit also handles TF, but 
avoids the term "terrorist financing" due to public 
sensitivity, which also makes it unlikely that they ROYG will 
pass specific TF legislation in the near future. The law 
established the Higher Committee on Money Laundering in 2004, 
chaired by the Minister of Finance, which includes key 
ministries and representatives of the private sector.  The 
committee serves as the primary link to MENA FATF (Financial 
Action Task Force) in Bahrain, as well as to the IMF and 
other international organizations.  A separate Terrorist 
Financing Committee, headed by the Ministry of Foreign 
Affairs, has been in existence since 2000.  It meets at least 
once every two months, circulates blacklists from the UNSC to 
banks, and responds to UN questions.  The two committees 
often meet jointly. 
 
3. (C) Abdullah al-Olafi, Sub-Governor for Banking 
Supervision at the CBY, believes that TF activity is limited 
in Yemen.  It is not a common safe haven for illegal funds, 
said Olafi, as the banking system is small and large 
transactions would be easy to detect.  Olafi suggested that 
terrorists in Yemen are more likely to operate in the 
informal sector, using hawalas or cash.  In a veiled 
reference to Zindani's accounts in commercial banks, Olafi 
said it was not the job of the CBY to make political 
decisions about which accounts to investigate, only to carry 
out directives from the ROYG (ref A).  Nevertheless, said 
Olafi, the political will exists in the ROYG to improve 
oversight -- there just are not enough resources to do so 
effectively at this time.  The CBY has circulated all TF 
lists from FATF and the ML unit is gathering information on 
these individuals. 
 
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Mechanics of Fighting Money Laundering 
-------------------------------------- 
 
4. (C) All commercial banks are required to establish 
internal anti-money laundering (ML) units, and must inform 
the CBY of any suspicious transactions.  Due to limited 
resources at the CBY, this operates on a voluntary basis and 
few suspicious activities are referred in practice.  When a 
report is filed, the form is completed by hand and delivered 
to the CBY.  A report triggers action from the Anti-ML Unit, 
which to date has turned up six cases of fraud and one person 
on the CBY blacklist.  All investigated cases to date 
occurred at privately owned banks. 
 
5. (C) By law, banks are required to report any transaction 
exceeding 10,000 USD or any suspicious activity, but in 
practice this rarely occurs.  According to Abdu Hizam, head 
of the Anti-ML Unit, there are currently three ML cases under 
investigation.  The unit currently has no supervision 
authority over foreign currency transactions, and banks are 
not required to report such activities.  Pending amendments 
to the CBY Law may remedy this, but Hizam said the unit is 
too overwhelmed to handle additional responsibilities.  The 
law does restrict export of over 10,000 USD. 
 
6. (C) Banking oversight is conducted as part of the CBY's 
annual on-site bank inspection, when CBY staff review the 
banks' balance of payments.  There are a total of 18 field 
inspectors and three employees at the main office (one of 
whom is abroad pursuing an advanced degree).  The inspectors 
are responsible for monitoring all commercial banks, as well 
between 300-400 hawalas.  The unit also draws on the broader 
CBY staff for expertise, including legal and IT.  The 
Ministry of Labor and Social Affairs is responsible for 
oversight of NGOs, and there is little communication between 
MOL and the CBY.  The Higher Council of Parties supervises 
the activities of political parties.  The Bank is technically 
able to monitor NGOs and parties by accessing their bank 
accounts, but has never done so. 
 
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Beyond the Central Bank 
----------------------- 
 
7. (C) There is a separate ML division at the Ministry of 
Interior that has a "special security focus."  Officially, 
MOI is required to report its findings to the CBY, and 
Mustafa Qaid, General Manager for Legal Affairs at the CBY, 
reported one case currently under investigation at MOI.  The 
Ministry of Finance also has a Financial Information Unit, 
headed by former Deputy Director Ahmed Ghaleb, which 
functions as a technical sub-committee to the Higher 
Committee and drafts ML and TF legislation. 
 
8. (SBU) Yemen is a founding member and regular participant 
in MENA-FATF, and has directed all commercial banks and 
hawalas to comply with the organization's recommendations. To 
this end, the CBY offered training to government employees, 
as well as NGOs and insurance companies, on monitoring 
sources of financing.  At a November 30 MENA-FATF meeting in 
Bahrain, Ahmad al-Bashari, head of the FIU at the Department 
of Treasury, promised to include Yemen in the Egmont Group. 
According to Qaid, Yemen seeks to host a MENA-FATF conference 
in 2006. (Note.  The Egmont Group was established in 1995 as 
an informal group of Financial Intelligence Units to 
encourage cooperation between countries in investigating 
financial crimes.  End note.) 
 
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Working Under Primitive Conditions 
---------------------------------- 
 
9. (SBU) The ML Unit is seeking assistance in a number of 
areas.  The staff is severely limited by their technology, 
working from laptops they received from the IMF eight years 
ago, and has no database or network.  The unit also requires 
help with organization structure, information management, and 
specific training for staff on supervision of electronic 
transactions.  The IMF has promised limited training, but not 
equipment. 
 
10. (SBU) The CBY itself is computerized, using an Oracle 
database with COBAL interface, but its branches are not 
connected.  Most internal communication is still done by fax 
and employees use dial-up internet connections.  At this 
time, the CBY tracks all payments by hand, which is 
manageable as Yemen clears only 2000 checks per day.  In the 
long run, however, the CBY seeks to reach an agreement on a 
central switch to link all banking transactions and link 
branches electronically.  This would allow all commercial 
bank reports to be provided electronically and offer the CBY 
improved oversight of suspicious transactions. (Note: The 
U.S. Treasury Regional Office in Abu Dhabi is initiating a 
project on August 14 to improve the CBY payments system.  End 
note). 
 
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Comment:  Chaos of System Invites Abuse 
--------------------------------------- 
 
11. (C) In terms of pure volume, Yemen is likely a smaller 
arena for TF than other countries in the region. 
Nevertheless, the anarchy of the banking system makes it easy 
to abuse.  Despite President Saleh's protestations to the 
contrary, it is highly likely that Zindani and the al-Iman 
University that he supports conduct significant banking 
business in Yemen.  There is also evidence that Shiekh 
Mohammed Ali Hassn al-Moayad, sentenced on July 28 to 75 
years in prison for conspiracy to provide material support to 
Hammas, used the Yemeni banking system for TF transfers (ref 
B). The hawala houses, which must use commercial banks to 
reconcile balance sheets, remain easy targets for TF.  The 
Yemeni financial system is attractive for TF because of 
sympathetic tendencies among some bank officials and 
proximity to terrorist activity. 
 
12. (C) The CBY is very interested in increasing its 
oversight capacity, and both the MFA and MOF take the issue 
seriously.  Membership in MENA FATF is considered a bright 
spot in relations with the GCC, and one area where Yemen can 
build support for full membership.  The ROYG continues to 
resist U.S. requests to impose a travel ban on Zindani or to 
seize his accounts, insisting that they must have evidence of 
his links to terror.  The Zindani case is particularly 
volatile for the ROYG, however, and does not represent a 
categorical refusal to cooperate on TF.  The ROYG is seeking 
support for an effective monitoring system, without which 
there is little chance of identifying TF activity in Yemen. 
End Comment. 
Krajeski