US embassy cable - 05CAIRO7466

UNCLAS SECTION 01 OF 03 CAIRO 007466 
 
SIPDIS 
 
SENSITIVE 
 
AMMAN PLEASE PASS TO VISITING TREASURY ACTING A/S GLASER 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PTER, EG 
SUBJECT: SCENESETTER FOR VISIT TO EGYPT OF ACTING A/S OF 
TREASURY DANIEL GLASER 
 
This message is sensitive, please protect accordingly. 
 
------- 
Summary 
------- 
 
1.  (SBU) In May 2002, Egypt passed a law criminalizing money 
laundering, which included terrorist financing within the 
scope of crimes covered by the law.  The GOE has also used 
restrictions on NGO financing to combat terrorist financing. 
These restriction, however, have also impeded legitimate NGO 
activities supporting by the USG, such as building civil 
society and combating Islamic extremism.  The anti-money 
laundering law established a financial intelligence unit 
(FIU), the Money Laundering Combating Unit (MLCU), which 
became fully operational in March 2003.  The MLCU has worked 
with the Financial Action Task Force (FATF) over the past two 
years to remove Egypt from the latter,s list of 
Non-Cooperative Countries and Territories (NCCT).  Egypt does 
not have a large money laundering problem, and the MLCU has 
only prosecuted three cases since 2003.  However, potential 
avenues for undetected money laundering still exist, 
including under invoicing of imports/exports and the un 
official "hawala" funds transfer system.  The MLCU has 
identified its future training needs and the USG has provided 
various training/assistance programs in the past two years. 
With anti-money laundering procedures in place, post does not 
anticipate Egypt becoming a money laundering center.  End 
summary. 
 
--------------------- 
Anti-Money Laundering 
--------------------- 
 
2.  (U) Money laundering has been a crime in Egypt since May 
2002, when the GOE passed Anti-Money Laundering Law No. 80. 
The law, which closely paralleled FATF guidelines, 
criminalized money laundering from narcotics trafficking, 
prostitution and other immoral acts, terrorism, antiquities 
theft, arms dealing, organized crime, and numerous other 
activities.  It mandated the "know your customer" policy, 
requiring banks to keep all records for five years; required 
"suspicious transactions reports" (STR) from the full range 
of financial institutions; and prohibited the opening of 
numbered or anonymous financial accounts.  It did not repeal 
Egypt's law on bank account secrecy, but provided legal 
justification for provision of account information to civil 
and criminal authorities. 
 
3.  (U) The anti-money laundering law also contained 
provisions protecting "whistle blowers" and holding financial 
managers responsible for money laundering activities 
involving their organizations.  It stipulated that 
importation of more than $20,000 in cash must be documented, 
but placed no restriction on export of currency (Note:  The 
executive regulations are ambiguous on this point, as they 
state that travelers with the equivalent of $20,000 in cash 
are subject to specific reporting requirements.  End note). 
The law also provided for fines, prison sentences, and asset 
forfeiture, with the possibility of sharing forfeited assets 
with other jurisdictions on the basis of bilateral or 
multilateral agreements.  It implied, but did not explicitly 
state, that such forfeiture applied to money and property. 
 
4.  (U) The law also created the MLCU, an FIU that officially 
began operating March 1, 2003.  The MLCU is an independent 
entity within CBE, with it own budget, staff and authority to 
examine STRs and conduct investigations with counterpart law 
enforcement agencies.  In June 2003, Egypt's parliament 
amended Article 17 of the law, closing a loophole that 
offered broad immunity for certain money laundering-related 
offenses if the defendant turned state's evidence.  The 
executive regulations of the amendment identified predicate 
crimes associated with money laundering (including those 
originating outside Egypt); defined the role of supervisory 
authorities and financial institutions; and allowed for 
exchange of information with other countries to combat money 
laundering.  The regulations also created a Board of Trustees 
for the MCLU, headed by Deputy Minister of Justice Serry 
Seyam and including representatives from various GOE 
ministries. 
 
----------------- 
Terrorist Finance 
----------------- 
 
5.  (U) As noted above, Egypt's anti money laundering law 
specifically criminalized money laundering from terrorism and 
terrorist financing (as defined in Article 86 of Egypt's 
penal code).  Because of its own problems with domestic 
terrorism, the GOE is eager for closer international 
cooperation to counter terrorism and terrorist finance. 
Egyptian authorities have cooperated in U.S. efforts to seek 
and freeze terrorist assets, circulating to all of their 
financial institutions lists provided by the U.S. under E.O. 
13224.  While the MLCU still lacks experience, the GOE is 
very eager to work with the U.S. and other countries via UN 
resolutions to combat the financing of terrorism. 
 
6.  (SBU) For the past decade the GOE has had restrictions on 
receipt of or disbursement of financial donations from 
Egyptian NGOs to or from foreign entities.  While such 
restrictions may help the GOE control terrorism, they have 
also impeded advancement of other USG priorities in Egypt, 
such as building civil society and combatting Islamic 
extremism.  The GOE has used an overly restrictive NGO law to 
control the actions of legitimate civil society 
organizations.  While supporting the GOE on their successful 
control of terrorism, the USG also needs to emphasize its 
objection to GOE measure that hamper efforts to fulfill 
President Bush's goal of expanding freedom and democracy in 
Egypt. 
 
------------------------- 
International Cooperation 
------------------------- 
 
7.  (U) The FATF reviewed Egypt,s anti money laundering 
regime in January 2004 and removed Egypt from its list of 
Non-Cooperating Countries or Territories in February 2004. 
The U.S. FinCen provided the MLCU with an orientation visit 
to the U.S in 2004 and sponsored the MCLU's entry into the 
Egmont Group in June 2004.  Egypt is now sponsoring Algeria 
and Qatar for membership in Egmont and is co-sponsoring Yemen 
with the U.S.  Egypt also played an important role in the 
founding of the MENA FATF.  Egypt has a number of bilateral 
cooperative agreements, including one with the UK, and is a 
party to most international conventions aimed at blocking 
terrorists' access to funds.  It has signed but not yet 
ratified the Vienna Convention, the Convention for the 
Suppression of Financing of Terrorism, and the Palermo 
Convention. 
 
-------------------------------------- 
Egypt's Money Laundering Problem Small 
-------------------------------------- 
 
8.  (SBU) Information about financial and other assets frozen 
and/or seized in connection with money laundering 
investigations is not generally a matter of public record in 
Egypt.  According to officials at the MLCU, three money 
laundering cases have been prosecuted since 2003.  One case 
was related to drug trafficking and the other two involving 
antiquities smuggling.  Post is aware of only one instance 
(reported in 2002) of the GOE freezing assets discovered in 
connection with one of our terrorist lists.  The CBE has an 
STR link on its website, but according to officials at the 
MLCU, no banks have submitted STRs. 
 
9.  (SBU) There is no evidence of official involvement in or 
encouragement of money laundering.  Some observers estimate 
that, of the small amount of money laundering present in 
Egypt, most is related to domestic narcotics traffickers, 
while the rest is attributed to other domestic organized 
crime or political extremist groups.  In the last few years 
the level of non-performing loans (NPLs, or bad debt) in the 
Egyptian banking system has become a major economic and 
political issue.  Several well-known businessmen and at least 
two bank chairmen have been arrested and charged with having 
given or received loans on the basis of fraudulent requests, 
with the money then allegedly funneled into bank accounts 
overseas.  It is not clear how much, if any, is linked to 
money laundering. 
 
10.  (SBU) The GOE says that under invoicing of imports and 
exports by Egyptian businessmen is a relatively common 
practice.  The primary goal for these businessmen appears to 
be avoidance of taxes/customs fees.  It is unclear to what 
extent these price manipulations may be used for laundering 
the proceeds of other crimes.  Worker remittances also form a 
potential area for financial transactions outside the formal, 
regulated financial system.  Numerous Egyptian expatriates 
living and working in the Gulf and elsewhere send earnings 
back to Egypt.  Post suspects that some portion of this is 
done through informal channels such as "Hawala" rather than 
through the banking system, because of lack of trust or lack 
of familiarity with banking procedures and the lower 
transaction costs in the informal systems.  Neither the GOE 
nor most bankers in Egypt appear to be well acquainted with 
the term (or even the concept) of "Hawala," although some 
suggest it may exist to a limited extent. 
 
------------------- 
MCLU Training Needs 
------------------- 
 
11.  (SBU) The MCLU has identified a three-pronged approach 
to improving anti-money laundering capacity in the banking 
system: 
 
- CBE,s Egyptian Banking Institute (EBI) is designing an 
Anti-Money Laundering Regional Certificate Program that will 
be a six month training course for bank officials.  EBI plans 
to invite lecturers/trainers from international financial 
institutions and would like to include visits to FIUs, 
including the U.S. FinCEN, in the course; 
 
- Training for Egyptian officials from various government 
agencies (Ministries of Interior and Justice, the 
Administrative Control Authority, the National Security 
Agency, etc.) involved in the tracking and prosecution of 
financial crimes and enforcement of financial crime 
legislation.  The MCLU envisions this training primarily in 
the form of visits to the FIUs of other countries. 
 
- Purchase of software to allow tracking and reporting of 
suspicious financial transaction and connect the MCLU to 
international FIUs. 
 
------------------------ 
U.S. Assistance to Egypt 
------------------------ 
 
12.  (U) After the FATF conducted an assessment of the GOE's 
training assistance needs in March 2004, the USG committed to 
funding a resident legal advisor to assist in getting Egypt's 
FIU.  A legal advisor was never identified or funded, but the 
following training has been provided: 
 
- Federal Deposit Insurance Corporation:  Provided one week 
training course in Washington in March 2005 on money 
laundering/financial transaction tracking.  Attendees 
included two reps from MLCU and 4 reps from CBE's Financial 
Control Unit. 
 
- Internal Revenue Service:  Provided, through Federal Law 
Enforcement Training Center, an in-country training course in 
September 2004 on enforcement of anti-money 
laundering/narcotics/financial crime laws.  Attendees 
included Ministry of Interior officials and police officers. 
 
- Federal Reserve Bank:  Provided assistance (lecturers, 
training material) to bank management/regulation courses 
conducted by the Egyptian Banking Institute (EBI).  The most 
recent course was held in autumn of 2004. 
Attendees at EBI courses include banking and government 
regulatory officials from the Middle East/North Africa 
region. 
 
- USAID:  Through Capital Market Authority Development 
Program provided various in-country and Washington-based 
training courses from 2002-2004.  Attendees included judges 
and prosecutors handling money laundering and other financial 
crime cases. 
 
13.  (SBU) Comment:  Egypt is neither a regional financial 
center nor a major center for money laundering and has no 
offshore financial sector.  Its economy is largely cash-based 
and despite recent easing of financial regulations, still has 
too many restrictions to make it a preferred destination of 
money launderers.  With a money laundering law and 
regulations in place, a functioning FIU and close cooperation 
with other countries on combating of terrorist financing, 
post does not anticipate Egypt become a money laundering 
center even as it continues to reform its financial sector. 
End comment. 
 
 
Visit Embassy Cairo's Classified Website: 
http://www.state.sgov.gov/p/nea/cairo 
 
You can also access this site through the 
State Department's Classified SIPRNET website. 
 
JONES