US embassy cable - 05MANAMA1432

S E C R E T SECTION 01 OF 03 MANAMA 001432 
 
SIPDIS 
 
PASS TO EB/ESC/TFS FOR BADKINS, 
S/CT FOR TKUSHNER AND NICHOLS, 
EUR/PGI FOR LREASOR, EUR/WE FOR NFETCHKO, NEA/ARPI, 
IO/PSC FOR BFITZGERALD, NSC FOR JZARATE, 
TREASURY FOR DGLASER AND OFAC FOR RWERNER 
 
E.O. 12958: DECL: 09/27/2015 
TAGS: ETTC, KTFN, EFIN, PTER, BA 
SUBJECT: OFAC DIRECTOR WERNER'S MEETINGS WITH FINANCE 
MINISTER, MINISTER OF SOCIAL AFFAIRS, CENTRAL BANK GOVERNOR 
 
 
Classified By: Ambassador William T. Monroe, reasons 1.4 (b) and d). 
 
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SUMMARY 
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1. (S) Office of Foreign Assets Control (OFAC) Director 
Robert Werner met with the Minister of Finance Sheikh Ahmed 
bin Mohammed Al Khalifa, Minister of Social Affairs (MSA) Dr. 
Fatima Belooshi and the Governor of the Bahrain Monetary 
Agency (BMA) Rasheed Al-Maraj in Bahrain September 14-15. 
Topics discussed included reports of irregular transactions 
by International Islamic Relief Organization (IIRO)  which 
circumvented Bahraini regulations on charities and their 
financial transactions.  Shaikh Ahmed and Governor Al-Maraj 
expressed their commitment to investigate the transactions 
and recognized the immediate importance of enhancing GOB 
monitoring of charity financing.  The BMA later reported that 
the IIRO accounts had been identified and closed and that the 
BMA was assessing what action should be taken against the 
bank. Shaikh Ahmed provided an update on the status of 
Bahrain's Terrorism Finance Law, stating that the Cabinet 
passed a draft law but it had not yet been submitted to 
Parliament.  Governor Al-Maraj described the current GCC 
focus on terrorism finance issues.  Dr. Belooshi agreed to 
look into the issue of IIRO transactions, but thought the BMA 
would be the enforcing authority on the matter.  Dr. Belooshi 
also described organizational changes planned for the MSA. 
End Summary. 
 
2. (U) During his visit to Bahrain on September 14-15, OFAC 
Director Robert Werner, accompanied by the Ambassador, called 
on the Minister of Finance Sheikh Ahmed and BMA Governor 
Al-Maraj in separate meetings.  On September 14 Werner, 
accompanied by the DCM, also met with Minister of Social 
Affairs Dr. Belooshi. Director Werner was accompanied 
throughout by a delegation which included OFAC Associate 
Director Jamal El-Hindi, Treasury Office of Intelligence and 
Analysis Middle East Unit Chief Howard Mendelsohn, NEA/ARPI 
Arabian Peninsula Econ Off Reese Smyth, OFACAtt and Econoff. 
 
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SUSPICIOUS IIRO TRANSACTIONS RAISED 
----------------------------------- 
 
3. (S/Rel Bahrain) Director Werner informed Shaikh Ahmed, Dr. 
Belooshi and Governor Al-Maraj that, according to information 
available to the U.S. Government, during the first half of 
2005, IIRO headquarters provided over $7 million from an 
account in Shamil Bank of Bahrain in Manama to 18 different 
IIRO satellite offices.  Among these transactions, IIRO 
provided funds from the Bahrain account to three Saudi 
Embassies.  Director Werner noted that the second largest 
single recipient of these funds was IIRO's Djibouti office. 
(Note: This information was also shared with the Bahraini 
Financial Intelligence Unit (FIU).  End Note.) 
 
4. (C) Shaikh Ahmed and Governor Al-Maraj each expressed 
surprise upon learning about the transactions and each said 
he placed great importance on protecting the corruption-free 
reputation of Bahrain's financial system.  Shaikh Ahmed said 
that this was the first instance since 9/11 that he had 
learned of any problems, noting the Ministry's strong 
relationship with banks operating in Bahrain.  He quickly 
added, "That doesn't mean there couldn't be something," and 
assured Director Werner and the Ambassador that the matter 
would be investigated. 
 
5. (C) Neither Shaikh Ahmed nor Governor Al-Maraj appeared 
familiar with IIRO and each initially suggested that the 
issue would not be as serious if the IIRO turned out to be a 
legitimate charity.  Shaikh Ahmed said he would seek 
additional information on IIRO. 
 
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IIRO Account Positively Identified 
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6. (C) Twelve days after releasing the IIRO account 
information to the Bahrainis, the BMA told the embassy that 
the IIRO account had been positively identified. Shamil Bank 
had failed to comply with account opening instructions, and 
had failed to comply with regulations on reporting 
significant transfers by a charity.  BMA officials added that 
the account was not frozen because IIRO is not a designated 
entity but that the account has been closed, and the balance 
of the funds returned to IIRO.  The BMA Governor  will decide 
what action to take against Shamil bank upon completion of 
the ongoing investigation.   According to a BMA official, the 
Agency could issue an official warning letter, fine the bank 
BD 20,000 ($53,000) and/or close the account. 
 
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SCRUTINY OF CHARITIES EMPHASIZED 
-------------------------------- 
 
7. (S) Director Werner pointed out that there was no 
indication that the specific IIRO transactions described were 
associated with terrorist activity and emphasized that the 
issue was the vulnerability to abuse that these 
charity-related transactions seemed to expose which made it 
important to identify and address any possible weaknesses in 
enforcement of regulations.  The Ambassador observed that 
terrorist tactics are constantly evolving in search of new 
weaknesses to exploit.  Financing through charities is a 
case-in-point.  Director Werner noted that combating 
terrorist financing is often difficult because transactions 
supporting terrorist activity may be intermingled among 
legitimate charity projects. 
 
8. (S) Governor Al-Maraj acknowledged that IIRO transactions 
represented a breach in policy, since banks were required to 
report any transactions greater than BD 3,000 (roughly 
$8,000) and the IIRO transactions had not likely been 
reported.  (Note: The BMA reduced the reporting requirements 
from BD 20,000 to BD 3,000 on July 21, 2005)  OFACAtt pointed 
out that, since IIRO is a Saudi entity, the transactions 
represented a violation of the KSA ban on Saudi charities 
engaging in extraterritorial financial activity and added 
that IIRO was not registered as a charitable organization in 
Bahrain.  Governor Al-Maraj acknowledged that the 
organization should not have a bank account in Bahrain, and 
would not have been authorized to retransmit funds abroad. 
He also said IIRO should have notified the Ministry of Social 
Affairs before initiating the transactions. 
 
9. (C) Governor Al-Maraj said he would raise the need for 
increased scrutiny of charity financing with Minister of 
Social Affairs.  Shaikh Ahmed said he would advocate a 
redoubling of intelligence sharing between bankers, Ministry 
of Interior public security resources, and other governments. 
 (Note: The BMA is reportedly providing the Ministry of 
Social Affairs with monthly reports of overseas transactions. 
 End Note.) 
 
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Terrorism Finance Law 
--------------------- 
 
10. (C) Turning to Bahrain's Terrorism Finance Law, Sheikh 
Ahmed said a draft had been approved by the Cabinet, but it 
had not yet been presented to Parliament.  It had been 
hung-up by debate over the Terrorism Law, which is necessary 
to define terrorism as a predicate offense.  Nevertheless, he 
expected a final product modeled after terror finance 
legislation in the U.K. and Singapore, and said the GOB was 
pushing hard for it. 
 
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GCC Terrorist Finance Efforts 
------------------------------ 
 
11. (SBU) Governor Al-Maraj noted that he had recently 
attended a GCC Central Bankers Conference and observed that 
each of his colleagues was genuinely focused on the 
importance of countering terrorist financing systems.  He 
said the topic was regularly discussed at various GCC 
meetings throughout the year.  Governor Al-Maraj added, while 
terrorist finance legislation common to all GCC countries 
would be unworkable, GCC Central Bankers were committed to 
harmonizing their banking procedures to better address the 
threat.  He said a GCC sub-committee dedicated to this end 
had been formed and met on a regular basis. 
 
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Minister of Social Affairs 
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12. (SBU) During the meeting with the Minister of Social 
Affairs, Director Werner stressed the importance of oversight 
of charitable organizations.  Dr. Belooshi responded that the 
MSA had sent a letter recently to remind the charities that 
no money could be transferred abroad without permission from 
the MSA.  She noted that the Charities couldn,t open an 
account without an MSA license and that a charity could only 
have one account.  Additionally, she noted that the BMA now 
gives the MSA a monthly report on overseas transfers and that 
the MSA maintains a file with information on each charity. 
 
13. (SBU) Dr. Belooshi was surprised by the information on 
the IIRO account because the organization was not registered 
in Bahrain, so it should not have been able to open an 
account or transfer money.  She promised to look into the 
allegations but thought that the issue should be handled by 
the BMA and not the MSA. 
 
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Changing the MSA's name and reorganizing 
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14. (SBU) Dr. Belooshi also described her plans to reorganize 
the MSA.  This included changing the Ministries name to the 
"Ministry of Social Development" and creating an entire 
directorate to cover NGO,s.  The new directorate would have 
a department to review NGO financing and a division that 
would help develop NGOs. 
MONROE