US embassy cable - 05KUWAIT3831

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 003831 
 
SIPDIS 
 
STATE FOR EB/ESC/TFS IKRUM, S/CT TKUSHNER, NEA/ARPI 
SWALKER, NEA/ELA SSONTY, NEA/IPA GLOGERFO, EB/JBLOOM, NSC 
FOR JZARATE, TREASURY FOR DGLASER, OFAC DIRECTOR RWERNER, 
JUSTICE FOR JSILVERWOOD, 
 
E.O. 12958: DECL: 08/27/2015 
TAGS: EFIN, ETTC, KTFN, KVPR, PTER, PINR, CVIS, KU, TERRORISM 
SUBJECT: KUWAIT CENTRAL BANK GOVERNOR OPTIMISTIC ABOUT NEW 
TERROR FINANCE LAW, KUWAIT'S ECONOMY AND PROSPECTS FOR A 
REGIONAL FINANCIAL CENTER 
 
REF: STATE 3774 
 
Classified By: Ambassador Richard LeBaron: Reasons 1.4 (b) and (d) 
 
1. (C) Summary. In an August 24 meeting with the Ambassador, 
Sheikh Salem Abdulaziz Al-Sabah, Governor of the Central Bank 
of Kuwait made the following key points: (1) GOK remains 
committed to enacting comprehensive legal reform on terror 
finance and money laundering; (2) an independent auditing 
firm should assess Kuwaiti charities; (3) economic reform is 
on hold as a result of the booming economy; (4) powerful 
politicians and poor management can derail prospects for a 
Kuwaiti Securities and Exchange Commission; (5) Kuwait has 
the makings of a regional financial center; and (6) Kuwait's 
expatriate laborers need better laws to protect their rights. 
 End Summary 
 
 
Comprehensive Terror Finance Law 
-------------------------------- 
 
 2.  (C) On August 24, Ambassador met with Sheikh Salem 
Abdulaziz Al-Sabah, Governor of the Central Bank of Kuwait. 
The Ambassador stressed the importance of maintaining 
dialogue on terrorist financing (TF) and anti-money 
laundering (AML) initiatives to ensure continued success in 
these two increasingly important arenas of cooperation.  The 
Ambassador called for sustained and urgent action to ensure 
timely implementation of TF/AML measures.  The Ambassador 
also mentioned the upcoming visit by Treasury's OFAC Director 
Robert Werner to Kuwait as an important opportunity to 
discuss TF/AML issues (Note: Al-Sabah will be in Bahrain for 
the GCC Central Bank Governors meeting in mid-September and 
recommended Mr. Werner meet Deputy Governor Nabeel Al-Mannae 
in his absence.) 
 
3.  (SBU) Al-Sabah reaffirmed the Government of Kuwait's 
(GOK) continued commitment to combating TF/AML as part of its 
ongoing efforts to enact legal reform and strengthen its 
relevant institutions.  Al-Sabah pointed out that the 
National Committee to Combat Terror Finance and Money 
Laundering has as its main objective the amendment of the 
current AML law.  Al-Sabah said the draft law will be ready 
in December and will be submitted to the Council of Ministers 
(cabinet) for approval and subsequently to the National 
Assembly for adoption.  Al-Sabah agreed with the Ambassador 
to "exchange notes" on the draft before it is submitted for 
approval and adoption. 
 
4.  (SBU) Al-Sabah explained that the National Assembly was 
aware of the pending law and its comprehensive nature 
intended to address shortfalls in the country's TF/AML 
regime.  He admitted that the country's TF/AML efforts should 
be centralized under one authority to ensure a streamlined 
process.  He commented that the struggle against TF and ML 
would be a long-term endeavor for Kuwait and the region. 
 
 
Independent Audit Firm for Charity Oversight 
--------------------------------------------- ------ 
 
5.  (C) With regard to charity oversight, Al-Sabah offered an 
alternative solution to the current Cabinet decree requiring 
the Ministry of Social and Labor Affairs' (MSLA) approval of 
all charity fund transfers abroad.  In an effort to further 
strengthen the current system, Al-Sabah proposed that an 
independent non-governmental auditing firm, hired by the 
MSLA, provide quarterly reports on charities to the ministry 
for review and appropriate action.  Al-Sabah noted that he 
seemed to have convinced the Minister of Social and Labor 
Affairs but needed to follow-up with him on the matter.  The 
Ambassador offered to follow-up with the minister as well to 
advance the idea. 
 
6. (C) The Ambassador took the opportunity to mention the 
ongoing efforts of U.S. customs advisors assigned to the 
Kuwaiti Customs Agency to strengthen customs enforcement and 
launch new anti-money laundering initiatives.  The Ambassador 
called for continued GOK support for their efforts as part of 
the broader TF/AML program.  Al-Sabah was familiar with this 
cooperation and voiced support for the effort. 
 
Another Great Year for the Kuwaiti Economy 
------------------------------------------ 
 
7. (SBU) On the Kuwait economy, Al-Sabah voiced enthusiasm 
with continued record growth rates (20 percent nominal GDP; 
10 percent real GDP growth) but cautioned against the excess 
liquidity in the economy spurred by increased government 
spending, the oil boom, and repatriated Kuwaiti capital.  He 
added that export of capital was lower than import capital 
(for this traditionally capital exporting country) and that 
the Central Bank had increased its interventions in the 
market to control inflation, which is at 2.3 percent 
(annualized) in comparison to its typical range of 0.7 and 
1.5 percent.  Al-Sabah was less optimistic about the 
prospects of economic reform given GOK officials' 
unwillingness to tackle the issue amidst unprecedented 
economic growth. 
 
 
8. (C) The Ambassador asked about the possibility of 
establishing a Securities and Exchange Commission for Kuwait 
to help regulate the country's stock market.  Al-Sabah agreed 
on its utility but cautioned that without good corporate 
governance, the SEC would fall prey to mismanagement and the 
whims of powerful politicians.  The Ambassador emphasized the 
need for electoral reform to resolve the current districting 
problems.  He explained that Kuwait's current districting 
laws bind parliamentarians to a select constituency in small 
districts rather than to broader and more diverse 
constituencies and issues of national interest. 
 
 
Looking Ahead: Kuwait as Regional Financial Hub 
--------------------------------------------- -- 
 
9. (C) Al-Sabah said he was not attending the World Bank/IMF 
meetings in Washington because he was recently assigned to 
head a government committee to explore the prospects of 
Kuwait becoming a regional financial center.  He pointed out 
that Kuwait's infrastructure, communications system, and 
extensive laws provided the key ingredients for a successful 
outcome and that a key missing ingredient was  incentives for 
foreign banks.  He dismissed the notion of Dubai serving as a 
financial model, remarking that the lack of oversight of the 
country's financial institutions made it an "imprudent 
market" plagued by excessive freedom and lack of appropriate 
regulations.  With regard to foreign banks entry into the 
Kuwait market, Al-Sabah noted that Citibank had finally 
completed its application to begin operations, joining BNP 
Paribas and HSBC which are already operational. 
 
 
Rights of Kuwait's Expat Laborers 
-------------------------------- 
 
10. (C) The Ambassador urged the Governor to take into 
account the rights of expatriate laborers within the context 
of labor laws and the assessment for a Kuwaiti financial 
center, stressing the importance of addressing the needs and 
rights of the country's laborers.  The Ambassador explained 
that the problem had become a growing human rights concern 
with the potential to impact the bilateral relationship. 
Al-Sabah accepted the criticism and expressed dismay with the 
manner in which many expatriate laborers are treated.  He 
said a stronger legal framework is required to regulate this 
part of the economy. 
 
 
Bio Note 
-------- 
 
11. (U) Sheikh Salem Abdulaziz Al-Sabah was born on November 
1, 1951.  He received his Bachelor of Arts in Economics at 
the American University of Beirut.  He has been Governor of 
the Central Bank of Kuwait and Chairman of the Board of 
Directors since October 1, 1986.  Al-Sabah serves on the 
board of a number of financial institutions including the 
Institute of Banking Studies, the Kuwait Investment 
Authority, the Higher Petroleum Council, the Higher Council 
on Planning and Development and as Alternate Governor of the 
State of Kuwait at the IMF and Arab Monetary Fund.  One of 
his sons is currently employed by BNP Paribas and another by 
the Social Services Endowment. 
 
 
LEBARON