US embassy cable - 05ABUDHABI3565

S E C R E T SECTION 01 OF 05 ABU DHABI 003565 
 
SIPDIS 
 
NOFORN 
 
STATE FOR NEA/ARPI RSMYTH, EB/ESC/TFS FOR DNELSON, 
JUNDERRINER, S/CT TKUSHNER, IO/PSC JSCHWEITZER 
NSC FOR ZARATE, HEFFERNAN, HERRING, RUPERT 
OFAC FOR WERNER, LANGFORD 
MANAMA FOR BEAL 
TREASURY FOR GLASER, MURDEN 
 
E.O. 12958: DECL: 08/14/2015 
TAGS: PTER, KTFN, EFIN, ETTC, TC 
SUBJECT: GULF STRATEGY TO COMBAT TERRORIST FINANCING - 
PREPARING FOR A JTFCC 
 
REF: A. 2005 ABU DHABI 720 
     B. 2005 ABU DHABI 2684 
     C. 2005 ABU DHABI 356 
     D. 2005 ABU DHABI 2741 
     E. 2005 DUBAI 836 
     F. 2005 DUBAI 1700 
 
Classified By: Ambassador Michele J. Sison for reasons 1.5 (b) and (d). 
 
 1. (S/NF) Summary. Embassy supports the priorities and 
initiatives for the UAE as outlined in the Gulf Strategy to 
Combat Terrorist Financing.  Establishing a Joint Terrorist 
Finance Coordination Committee (JTFCC) will feed into the 
paper's priorities of enhancing charity regulation, 
monitoring and regulating the transit of cash couriers 
through the UAE, and stemming the flow of funding to 
extremists in Iraq.  As we move forward with plans to propose 
a JTFCC to the UAEG, examining the current state of play in 
the UAE regarding terror finance will help the U.S. steer the 
mission of the JTFCC.  In the aftermath of the September 11th 
attacks, in which the UAE banking system was used by the 
hijackers, the UAE became seized with the issue of terrorism 
financing and has enacted a stringent anti-money laundering 
(AML) and counter terror finance (CFT) laws.  However, the 
UAE faces challenges in interagency cooperation and 
coordination that often affect its ability to investigate 
AML/CFT cases.  Historically, cooperation between the U.S. 
and the UAE on terror financing has been good, but we hope 
that establishment of the JTFCC will deepen those ties and 
provide a mechanism through which the UAEG's own interagency 
communication is enhanced.  Paragraphs 2-4 provide Embassy's 
suggestions on how to present the proposal so as to gain the 
most productive UAEG buy-in, and paragraphs 5-12 discuss the 
UAE's current AML/CFT issues so as to frame what the JTFCC 
will be faced with upon its inception.  End Summary. 
 
Pitching the JTFCC 
------------------ 
 
2. (S/NF) In order for the JTFCC to operate effectively, 
buy-in by senior UAE leaders will be essential, and they must 
communicate to JTFCC participants the importance of full 
participation.  Embassy recommends that a senior USG official 
-- such as Deputy National Security Advisor for Combating 
Terrorism, Juan Zarate -- come to the UAE in early or mid 
September to present the proposal.  Key players include Abu 
Dhabi Crown Prince Mohammed bin Zayed (MbZ), Dubai Crown 
Prince Mohammed bin Rashid (MbR), Central Bank Governor 
Sultan Nasser Al Suwaidi, Minister of Interior Sheikh Saif, 
Minister of Justice Mohammed Al Dhahiri, State Security 
Director Hazza bin Zayed, and the Director of Dubai's State 
Security Organization Mohammed Al Qemzi.  Having a senior USG 
official make the formal pitch will convey to the Emiratis 
the importance we place on this initiative, and OFAC Director 
Bob Werner can use his September 23-26 visit to follow-up on 
and reinforce this message. 
 
3. (S/NF) When Homeland Security Advisor Fran Townsend 
visited the UAE in February, she suggested to Central Bank 
Governor Al Suwaidi establishing a joint terrorism finance 
task force (Ref A).  Governor Al Suwaidi was initially 
skeptical that a task force would improve what he 
characterized as already good cooperation between the UAEG 
and the USG and between different agencies within the UAEG. 
However, he stated that the UAEG would benefit from a task 
force if it enabled the UAEG to learn of U.S. terfin concerns 
earlier in designation process.  Townsend and Al-Suwaidi 
agreed the USG would provide the UAEG with a written 
proposal. 
 
4. (S/NF) Comment/Recommendation: Governor Al Suwaidi reacts 
defensively to any hint that the UAE is not doing enough in 
the fight against terror financing, and as a result, it is 
important that the U.S. frame the formal pitch of the JTFCC 
in a way that indicates the JTFCC will enhance an already 
strong bilateral relationship.  We expect the UAE will react 
favorably to the training mechanism within the JTFCC, and 
officials will likely want to know if the committee will 
allow for increased information sharing on specific cases. 
Convincing MbZ and MbR of the value-added the JTFCC will 
bring to the U.S./UAE relationship is the most critical step. 
 End Comment/Recommendation. 
 
Comprehensive Laws... 
--------------------- 
 
5. (U) The two laws that serve as the foundation for the 
UAE's AML/CFT efforts are the Anti-Money Laundering Law (Law 
No. 4/2002), and the Counterterrorism Law (Law No. 1/2004), 
and both authorize the freezing and confiscation of assets. 
Although the Anti-Money Laundering Law criminalizes money 
laundering, it is Administrative Regulation No. 24/2000 that 
provides the guidelines for how financial institutions are to 
monitor for money laundering activity.  Pursuant to the 
Financial Action Task Force (FATF) recommendations, banks and 
financial institutions (including the UAE's 106 money 
exchange houses) must maintain records of their customers 
(including copies of identification) and transactions, for as 
long as an account remains open and for five years after its 
closure, for the purpose of reconstructing transactions. 
Identity must be verified and transaction details (including 
name and address of originator and beneficiary) must be 
maintained for all exchange house transactions over $545 (one 
of the lowest thresholds in the world) and for all 
non-account holder bank transactions over $10,900.  The 
regulation also outlines types of transactions that could 
constitute money laundering and requires financial 
institutions immediately report them to the Central Bank's 
Financial Intelligence Unit, the Anti-Money Laundering and 
Suspicious Cases Unit (AMLSCU). 
 
6. (U) Law No. 1/2004 is a broad Counterterrorism Law that 
specifically criminalizes terror finance, and sets a maximum 
punishment of life in prison.  The law authorizes the Central 
Bank Governor to freeze accounts for up to seven days if he 
suspects the funds will be used to fund or commit any of the 
crimes listed in the law, but it stipulates that the Central 
Bank provide evidence to the Attorney General for prosecution 
in order to maintain the freeze beyond seven days.  The law 
gives the overall authority to seize or freeze assets to the 
Attorney General's office that has jurisdiction over the case 
(Note: Although the federal penal code is applied throughout 
the country, the UAE has three judicial systems -- federal, 
Emirate of Dubai, and Emirate of Ras al Khaimah -- and thus 
three separate Attorney General offices. End note.)  It 
authorizes the Attorney General's office to order the 
investigation of activities the Attorney General has 
"sufficient evidence to believe" are related to the funding 
or committing of a terror activity stated in the law. 
 
7. (C) In practice, the Central Bank holds freezes longer 
than seven days, even if no evidence has been provided to the 
Attorney General.  The Central Bank Governor, Sultan Nasser 
Al Suwaidi, is proactive and would rather keep accounts 
frozen extra-judicially than to allow individuals access to 
suspect funds.  However, Central Bank officials have 
expressed frustration when the USG has asked the Bank to 
freeze funds but has not provided evidence that could be used 
in a court of law.  Central Bank officials have told us on 
multiple occasions they are concerned that courts could force 
them to release frozen assets based on a lack of evidence, 
which would seriously damage the credibility and 
effectiveness of the Central Bank. 
 
...Weak Interagency Coordination 
--------------------------------- 
 
8. (C) Despite having a strong legal mechanism in place to 
combat terror financing, the loose federal structure of the 
UAE results in obstacles to interagency coordination.  The 
UAE is made up of seven semi-autonomous Emirates and three 
separate judicial systems, and communication between (and 
among) federal and emirate-level agencies is overly 
formalized and often proprietary.  The Central Bank, which 
has the capability to examine accounts, follow wire 
transfers, and ensure banks follow appropriate Know Your 
Customer procedures, does not have the law enforcement 
expertise to determine if there is underlying illegal 
activity.  Although the UAE National Anti-Money Laundering 
Committee has representatives from the Ministries of Foreign 
Affairs, Interior, Justice, Finance, and Economy, the Central 
Bank, the Federal Customs Authority, and emirate-level 
customs authorities, Embassy and Consulate officers have 
observed that the Central Bank and law enforcement officials 
responsible for investigating suspicious activity do not 
communicate effectively.  In the spring of 2004, the U.S. 
Department of Justice conducted an anti-money laundering 
conference that brought together officials from the AMLSCU, 
prosecutors and judges, and law enforcement officers to 
discuss investigative and prosecution techniques and how to 
improve coordination between the relevant elements, and the 
DOJ will conduct a similar regional training in Abu Dhabi 
September 17-19.  Embassy officers have observed that, even 
with trainings aimed at enhancing cooperation and 
coordination, the underlying problem continues (and yet, 
Central Bank and Ministry of Interior officials continue to 
request more training, ref B).  Recognizing that his 
financial investigators need experience in the banking 
sector, Minister of Interior Saif has told Ambassador that 
five Abu Dhabi police officers are working at the Central 
Bank to give them a better understanding of the banking 
world, which will aide them in conducting financial 
investigations. 
 
Actions Against Terror Finance 
------------------------------ 
 
9. (SBU) As of the end of 2004, the UAE Central Bank had 
frozen 17 accounts totaling $1,348,381 under UNSCR 1267, 
according to Central Bank documents provided to the Embassy. 
As a member of the Egmont Group and a participant in the 
Middle East North Africa/Financial Action Task Force 
(MENA/FATF), the AMLSCU's International Division is 
responsible for cooperating and coordinating with Financial 
Intelligence Units (FIUs) around the world and shares 
information on AML/CFT cases on the basis of reciprocity and 
international obligations.  In addition to freezes under 
UNSCR 1267, the Central Bank has frozen 23 accounts based on 
information and requests from other countries, and it has 
referred 88 cases to counterparts in other countries for 
investigation and asset freezing (ref C).  Additionally, the 
UAE cooperated closely with the U.S. on its investigation of 
Moussaoui and 9/11, and the Central Bank has allowed the 
FBI/Terrorist Financing Operations Section (TFOS) access to 
information and documents relating to the case.  Although the 
process was difficult and time-consuming, the Central Bank 
provided U.S. officials with certified documents for use in 
federal court for the Moussaoui case. 
 
10. (SBU) From December 2000 through the May 2005, 2,571 
Suspicious Transaction Reports (STR) were submitted to the 
Central Bank's Anti-Money Laundering and Suspicious Cases 
Unit (AMLSCU), which serves as the UAE's Financial 
Intelligence Unit (FIU).  The Central Bank Governor has told 
us that he stresses the importance of reporting "quality" 
suspicious transactions, not just "quantity" (however, in 
order to gain a perspective of the order of magnitude, the 
UAE Exchange conducts 20,000 transactions per day -- last 
year the exchange submitted 25 STRs).  Out of the submitted 
STRs, the AMLSCU, the Central Bank, or law enforcement 
authorities reviewed and/or investigated 2,273 STRs, 
according to a document provided by the Central Bank.  In 28 
cases, freezing orders were issued and the case was reported 
to the public prosecutor in order to initiate legal action. 
As of May, 16 of those cases were in the process of 
prosecution (4 of these for customs violations), and 9 of 
them are in the "process of judgment," and have been for at 
least six months.  We do not know if any of those 16 cases 
resulted in convictions.  (Note: The AMLSCU's authority also 
covers anti-money laundering activity, and we do not have a 
breakdown of which cases are straight criminal cases, and 
which are related to terror finance.  End note.) 
 
Risk Factors 
------------ 
 
11. (C) Despite the relatively well supervised financial 
system, risk factors remain in both the formal and informal 
financial sectors.  We remain concerned that extremists could 
exploit the UAE's hawala system and charities to funnel money 
to terrorists, and we continue to impress upon Emirati 
customs officials the importance of monitoring large amounts 
of cash flowing into and out of the country. 
 
-- Hawala.  In 2002, UAE began registering hawala dealers 
(hawaladars) through the Central Bank, but there is no 
enforcement or punishment for hawaladars that do not 
register.  To date, over 160 hawalas have submitted 
registration applications, and so far, the Central Bank has 
not denied any hawaladar a license to operate.  The Central 
Bank conducts a background check on hawaladar registrants, 
but AMLSCU official Ahmed Al Qamzi (protect) admitted the 
checks are sometimes perfunctory.  He said that they look 
closely at the background of hawaladars from places like 
Somalia and other countries of concern (NFI), but that the 
Central Bank accepts the work permit issued by the Ministry 
of Labor as sufficient due diligence on most hawaladars. 
 
Central Bank officials acknowledge they do not know how many 
unregistered hawalas continue to operate.  The Central Bank 
finds out about unregistered hawaladars in two ways: a) 
registered hawaladars report them to the Central Bank; b) by 
examining STRs from banks and exchange houses and noting 
individuals making transactions significantly above their 
means. (Note: Many hawaladars eventually use the formal 
financial system to settle their accounts with hawaladars in 
other countries.  If, for example, a dry cleaner suddenly 
sends an amount of money significantly above his means, the 
bank or exchange house will submit an STR, in essence 
notifying the Central Bank that the person may be operating 
an unlicensed hawala.  End note.)  Central Bank officials 
tell us they have made it difficult for unregistered 
hawaladars to send money through the banks and exchange 
houses.  When a known or suspected hawaladar goes to a bank 
or exchange house, he is required to show his license before 
he can transfer money. 
 
Registered hawaladars are required to submit records of every 
incoming and outgoing remittance to the Central Bank every 
quarter.  Additionally, hawaladars are required to 
immediately report any suspicious transaction, but Central 
Bank officials tell us that none have done so yet.  Central 
Bank officials tell us they will eventually raise the 
reporting requirements for registered hawaladars and begin to 
more actively seek out unregistered hawaladars.  But for now, 
the bank does not want to be too aggressive and risk driving 
hawaladars further underground.  According to one of the 
hawaladar examiners, the Central Bank wants hawaladars to 
trust that their transaction information will be held in 
confidence and not disclosed to countries like Bahrain, Saudi 
Arabia, and India, where hawala is illegal. 
 
-- Charities.  The UAE Ministry of Labor and Social Affairs 
is responsible for licensing and monitoring UAE charities; 
however, less than half of UAE charities are federally 
licensed.  The rest are licensed by local emirates and 
operate largely independent to federal guidelines.  UAE law 
stipulates that all international charitable donations be 
channeled through one of three government approved charities: 
the UAE Red Crescent Authority, the Sheikh Zayed Charitable 
and Humanitarian Foundation, or the Mohammed bin Rashid 
Charitable and Humanitarian Foundation; however there is no 
mechanism in place to ensure that charities abide by this 
requirement, and we have been told that it is not universally 
abided by.  Federally licensed charities are required to 
submit records of donor, amount, and beneficiary for all 
charitable donations to the Ministry of Labor and Social 
Affairs.  However, the staff reviewing charities is 
administrative in nature, and does not have the capability to 
examine yearly reports with an eye toward detecting 
diversionary activity.  (For a thorough discussion of UAE 
charity regulation, see ref D). 
 
-- Cash Couriers. Legislation specifically requires cash in 
excess of $10,800 be declared when it is brought into the 
UAE, and the Central Bank is in the process of revising the 
law to also require declaring exported cash.  We note, 
however, that the requirement to report cash only creates a 
record of its movement and UAE authorities may not use the 
information to begin an investigation.  According to 
documents from the Central Bank, customs officials only 
submitted 111 STRs to the AMLSCU between December 2000 and 
January 2005.  The UAE is seeing large sums of cash coming 
from India and Pakistan, and the Central Bank has highlighted 
the problem of cash couriers as an area of concern.  In one 
instance, Dubai Police arrested an Indian man who had taken 
multiple trips to and from India and smuggled the proceeds of 
illegal activity, and the case is pending prosecution. 
Overall, customs officials appear to not aggressively enforce 
the cash reporting requirement and tell us they do not view 
it as a tool for combating money laundering.  If they 
discover someone carrying undeclared cash, customs officials 
have them declare the money, but they tell us they do not 
necessarily consider it a criminal case.  As a senior customs 
official told an Embassy officer, "But he might be a business 
man using the money for legitimate purposes."    DHS/ICE 
recently held a training session on detecting bulk-cash 
smuggling for Dubai Customs officials. 
 
12. (C) In September 2004, the Dubai International Financial 
Center (DIFC) opened as a "financial free zone."  The DIFC is 
owned by the Government of Dubai and reports to the office of 
Crown Prince Mohammed bin Rashid (MbR).  It has a legally 
independent regulatory body, the Dubai Financial Services 
Authority (DFSA), which also reports to MbR's office. UAE law 
governing free zones exempts the DIFC from federal civil and 
commercial laws, but it remains subject to criminal laws -- 
including the Anti-Money Laundering and Counterterrorism 
laws.  Federal Law No. 8/2004, the Financial Free Zone law, 
gives Central Bank examiners the authority to "conduct 
inspections of a Financial Free Zone to ascertain its 
compliance with this law" and submit their findings to the 
UAE Cabinet; however the DFSA has established its own set of 
AML/CFT regulations (above and beyond those of the UAE 
Central Bank) (ref E).  Financial institutions within DIFC 
are required to submit suspicious transaction reports to the 
AMLSCU and the DFSA (ref F), with any investigations to be 
carried out by the AMLSCU.  The AMSCLU maintains that Law No. 
8/2004 gives it the authority to randomly inspect the books 
of DIFC international member institutions, but DFSA 
regulators -- expatriates hired from UK, Australia, and other 
western regulatory agencies -- are keen to preserve the DIFC 
as an independent entity run according to western standards 
and are thus reluctant to grant the Central Bank this 
authority.  While they do not dispute the fact that the 
Central Bank has the legal authority to inspect DFSA and its 
records, they are reluctant to grant it the authority to 
examine the books of individual institutions within DIFC 
absent a formal investigation request.  As a result, a 
long-awaited MOU between DIFC/UAEG spelling out precise 
authorities has not/not been finalized. 
SISON