US embassy cable - 05KUWAIT4230

UNCLAS SECTION 01 OF 03 KUWAIT 004230 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/ESC/TFS LLAMBERT, S/CT TKUSHNER, NEA/ARPI 
SWALKER, NEA/ARPI RSMYTH, NEA/RA LLEE, IO/PSC BFITZGERALD, 
TREASURY FOR TFFC DGLASER AND OFAC FOR RWERNER, NSC FOR 
JZARATE AND THINNEN, LONDON FOR LTSOU, MANAMA FOR JBEAL 
 
E.O. 12958: N/A 
TAGS: EFIN, ETTC, KTFN, PTER, CVIS, KVPR, KU 
SUBJECT: TERRORIST FINANCE: SUMMARY OF OFAC DIRECTOR 
WERNER'S MEETINGS WITH KUWAITI BANKS 
 
REF: KUWAIT 4214 
 
1. (U) Summary. On September 22, OFAC Director Robert Werner 
met separately with officials from the National Bank of 
Kuwait, the Union of Kuwaiti Banks and the Kuwait Finance 
House to discuss ways in which OFAC and the Kuwaiti banking 
sector can further cooperate on combating terrorist financing 
and money laundering (CTF/AML).  Banking officials reaffirmed 
their commitment to pursuing stringent CTF/AML policies, 
described coordination and accountability policies 
administered by the Central Bank of Kuwait (CBK), offered 
suggestions on revising OFAC English name designations and 
recommended convening annual CTF/AML conferences for 
government and industry officials to facilitate information 
exchange.  (Post endorses the idea of annual regional 
conferences on CTF/AML for USG and industry officials.  Post 
will consult with Treasury on details and report septel with 
suggestions.)  End Summary. 
 
2.  (U)  On September 22, OFAC Director Robert Werner, 
accompanied by Embassy and Treasury officers, met separately 
with the representatives from the National Bank of Kuwait 
(NBK), Kuwait Finance House (KFH) and the Union of Kuwaiti 
Banks (UKB) to discuss OFAC responsibilities and exchange 
insights on the latest banking sector efforts to combat 
terror financing and money laundering (CTF/AML).  (Reftel 
reports on Werner delegation meetings with GOK officials.) 
 
Meeting with National Bank of Kuwait 
------------------------------------ 
 
3.  (U) In his meeting with Essam Al-Sager, Vice Chairman of 
the National Bank of Kuwait (NBK), Werner provided an 
overview of OFAC responsibilities, including the new 
sanctions program to combat the support networks of 
proliferators of weapons of mass destruction, and solicited 
Al-Sager's input on NBK policies and procedures on terror 
finance name designations and coordination with the Central 
Bank of Kuwait (CBK).  Al-Sager informed Werner that NBK 
updated its lists based on CBK, OFAC, and Bank of England 
listings.  He explained that NBK maintained an automated 
software system that performed primary and secondary checks 
on names to minimize false alarms.  Any suspicious 
activities, although very limited in number, were promptly 
reported to the CBK and Public Prosecutor's Office (PPO), in 
accordance with GOK regulations.  Al-Sager noted that NBK had 
daily contact with the PPO and CBK on these and other 
regulatory matters. 
 
4. (U) Werner underscored the importance of direct contact 
between the government and banks, and explained that OFAC's 
interaction with U.S. banks was mutually beneficial, helping 
banks avoid risk and promoting USG sanctions.  Werner 
encouraged continued risk management and compliance, 
particularly when dealing with vulnerable organizations like 
charities and exchange houses.  Al-Sager asserted that NBK 
had closed the accounts of its exchange house clients as a 
precautionary measure and provided monthly reports on 
charities' accounts to the CBK.  He commented that charities 
were becoming "increasingly frustrated" with the new control 
measures being imposed by the regulators.  Al-Sager welcomed 
Werner's suggestion that NBK subscribe to OFAC's automated 
alert system and make use of its "hotline" to address any 
CTF/AML-related questions or concerns (Note: Embassy will 
follow-up on this issue with NBK.) 
 
Meeting with Union of Kuwaiti Banks 
----------------------------------- 
 
5.  (U) Werner's meeting with the Union of Kuwaiti Banks 
(UKB) included the organization's Secretary General, Yousef 
Al-Jassem, the Assistant Secretary General, Nabil Al-Saqabi, 
and other UKB members including the head of AML at Kuwait 
Finance House (KFH) Medhat Al-Kharashi, head of Compliance at 
the Commercial Bank of Kuwait (CB) Hanan Al-Kazemi, and the 
head of AML at Boubyan Bank (BB) Waleed Al-Awadi.  Werner 
conveyed his organization's shared objectives and commitment 
to a lasting partnership with Kuwaiti banks.  He welcomed the 
UKB's feedback and insights on OFAC policies, the Kuwaiti 
banking sector's programs, including the filing of Suspicious 
Transaction Reports (STRs), new terror finance designations, 
and coordination between Kuwaiti banks and the CBK. 
 
6.  (U) Al-Jassem reaffirmed Kuwait's shared objectives with 
the U.S. in the war on terrorism, noting that Kuwait itself 
"was a victim of terrorism."  He expressed confidence in the 
Kuwaiti banks' efforts to implement CTF/AML regulations.  The 
head of Compliance at the CB and UKB, Hanan Al-Kazemi, 
asserted that Kuwaiti banks are in compliance with FATF and 
CBK regulations, through due diligence and monthly 
transaction reporting and notification of STRs to the PPO and 
CBK.  She said that coordination with both GOK entities was 
good and that a CBK representative, the head of the FIU, 
served as a liaison officer in the UKB.  She explained that 
any account suspected of an STR is blocked by banks for two 
days pending further notification from the PPO.  The KFH 
representative, Medhat Al-Kharashi, pointed out that the 
Kuwaiti banking sector's relatively small size made it easier 
for colleagues to exchange information informally on a timely 
basis.  Al-Kazemi added that accounts can be blocked on PPO 
direction for an indefinite period of time pending PPO 
investigation and that bank officers are legally protected 
from lawsuits or retribution from their own banks for 
blocking suspicious accounts.  She explained that even 
non-account holders can be reported by banks for suspicious 
activities, but that Kuwaiti banks in general were more 
conservative than their U.S. counterparts and filed fewer 
STRs. 
 
7. (U) Boubyan Bank's Waleed Al-Awadi said that Kuwaiti banks 
consulted OFAC lists for "red flags" on potential STRs and 
not for blocking accounts, clarifying that only CBK 
notifications based on UN designations were used for blocking 
purposes.  KFH's Al-Kharashi noted that most banks manage 
their risks by minimizing business transactions with high 
risk nationalities or countries.  All of the representatives 
voiced concern with the current practice of listing Arabic 
names in English, urging OFAC to consider "Arabizing" the 
names by listing them in the original Arabic to avoid 
mistaken identities.  Werner expressed similar concern and 
promised to follow-up on the issue (Note: this issue was also 
raised by GOK officials reported reftel.) 
 
8.  (U) Werner expressed concern with the Ministry of Social 
Affairs and Labor's seeming reliance on third-country 
regulations for monitoring charity fund transfers abroad. 
Secretary General Al-Jassem asserted that from a banking 
 
SIPDIS 
perspective "charity activities were under control."  He 
explained that charities are not authorized to open bank 
accounts without proper licenses from the Ministry of Social 
Affairs and approval from the CBK.  He added that all charity 
banking transactions are approved by the government and 
reported to the CBK on a monthly basis.  Al-Kharashi urged 
Werner to consider organizing annual conferences (twice a 
year) for regional bankers and regulators to discuss "the 
latest and best methods" on CTF/AML affecting the Middle 
East.  Werner was receptive to the idea and offered to 
explore it further with other USG colleagues. 
 
Meeting with Kuwait Finance House 
--------------------------------- 
 
9.  (U) In his meeting with KFH Deputy General Manager 
Mohammad Al-Omar, Werner solicited the KFH's input on the 
bank's CTF/AML efforts, including reporting on charity 
transactions, and welcomed feedback on OFAC's name 
designation process.  Al-Omar said his organization had 
practiced long-standing diligence against terror finance and 
money laundering.  He noted that KFH's stringent practices 
preceded September 11, 2001 and were rated among the best in 
the region.  KFH's Director of Business Consultancy, Salman 
Younis, pointed out that as a prior Citibank official he had 
in 2001 reviewed and determined KFH CTF/AML measures to be 
"better than most in the region."  Al-Omar explained that KFH 
has an established CTF/AML unit, headed by Medhat Al-Kharashi 
(member of UKB) tasked with developing and implementing the 
bank's CTF/AML policies in accordance with CBK and 
international regulations.  Al-Kharashi described the bank's 
control process as "robust," explaining that the bank did not 
accept walk-in customers and was in the process of installing 
an automated name-checking private sector software "NET 
ECONOMY/ERASE" to review and create customer profiles for 
increased security.  Al-Jassem noted that banks were busy 
educating their respective customers on the new policies and 
regulations, a process that was gradually winning more 
support from the Kuwaiti public. 
 
10. (U) Al-Kharashi said that all KFH systems were connected 
to OFAC lists and that the bank received OFAC advisory alerts 
on a regular basis, at times even earlier than the CBK. 
Al-Omar and his staff were receptive to OFAC's description of 
the USG terror finance name designation process and 
reiterated the need to "Arabize" designated names for easier 
identification.  On charity monitoring, Al-Omar explained 
that while KFH had in place stringent accounting procedures, 
including monthly audited reports to the CBK, ultimate 
responsibility for overseas fund transfers lay with the GOK 
to ensure proper oversight and accountability.  Al-Kharashi 
said that charities have GOK-designated signatories 
authorized to sign for transfers and that KFH confirms those 
signatures prior to authorizing transfers.  Al-Omar welcomed 
continued dialogue with OFAC as part of Kuwait's broader 
commitment to the war on terror. 
 
Background on Banks 
------------------- 
 
11. (U) National Bank of Kuwait (NBK): Largest bank in Kuwait 
by assets, 49 branches, 2004 profits of $515 million.  The 
third largest bank in the Arab world, with the highest credit 
rating in the Middle East.  NBK has branches, offices, or 
partnerships in Iraq, Qatar, Jordan, Lebanon, London, New 
York, Paris, Geneva, Bahrain, Singapore, Vietnam and 
Thailand. 
 
--  Kuwait Finance House (KFH): Market leader in Islamic 
banking, second largest financial institution in Kuwait with 
profits of $200 million in 2003.  As of 2005, KFH officially 
came under the same regulatory and oversight 
structure as other Kuwaiti banks.  Previously did not have to 
comply with commercial banking regulations and enjoyed 
"unfair advantages," according to some commercial bankers. 
(Note: KFH is usually not ranked with the commercial banks, 
but is second only to NBK in the size of its assets.) 
 
--  Commercial Bank of Kuwait (CBK): Third largest bank in 
Kuwait, 39 branches, 2004 profit of $214 million. 
 
--  Boubyan Bank (BB): Kuwait's newest Islamic bank, 
established in 2004.   Recently acquired 20% stake in 
Indonesia's largest Islamic bank, Bank Muamalat Indonesia. 
Plans underway to expand operations in the Gulf, Iran and 
Turkey. 
 
--  Union of Kuwaiti Banks (UKB): Formal association of 
Kuwait banks, established in 2001 and comprised of 10 
committee members representing the GOK, Kuwaiti banks and 
financial institutions.  Head of Central Bank's AML unit 
serves as GOK liaison. 
 
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LEBARON