US embassy cable - 03SANAA677

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000677 
 
SIPDIS 
 
E.O. 12958: DECL: 04/06/2013 
TAGS: EFIN, KCRM, PTER, YM, TERFIN, ECON/COM 
SUBJECT: ANTI-MONEY LAUNDERING LAW SIGNED, ENFORCEMENT 
QUESTIONED 
 
Classified By: Classified by CDA Alan G. Misenheimer for reasons 1.5 b. 
 and d. 
 
1. Summary: President Saleh signed the ROYG's anti-money 
laundering legislation into law on April 5. The law was 
written in consultation with the World Bank. While not 
specifically mentioning terrorism, the law criminalizes money 
laundering for the first time and requires banks to verify 
names of their account holders.  One local banking official 
credits the law as a solid first step, but has strong 
concerns about the Central Bank's ability to enforce it. The 
Central Bank has recently intervened to shore up the sagging 
riyal. End Summary. 
 
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Anti-Money Laundering Law Passed 
-------------------------------- 
 
 2. (U) The official newspaper al-Thawra ran a front page 
story announcing that President Saleh signed Law 35 of 2003, 
the Anti-Money Laundering Law, on April 5.  The new law 
requires banks to verify the names and documents of account 
holders and criminalizes money laundering. To coordinate 
enforcement and unify reporting procedures, the law 
establishes a committee composed of members of the banking 
community and representatives from the Ministries of Foreign 
Affairs and Finance under the oversight of the Central Bank. 
The law also encourages international cooperation, 
facilitates information exchange with other nations, and 
includes provisions allowing the extradition of non-Yemenis 
convicted under the law. (Note: Yemeni law does not allow for 
the extradition of Yemeni citizens.) 
 
3. (U) According to press reports, the law defines money 
laundering as the illegitimate hiding of revenue generated 
from such crimes as kidnapping, drug smuggling, and illegal 
arms trade. The law does not specifically mention terrorism, 
but many of the acts associated with the funding of terrorism 
would be covered by this law. Those convicted of money 
laundering could face up to five years in prison and 
confiscation of any assets used illegally.  Ibrahim 
Al-Nahari, Director of External Relations at the Ministry of 
Finance, who had flown to Washington last December to discuss 
provisions of the law with the World Bank, told Pol/Econoff 
that all of the Bank's suggestions were incorporated into the 
law. 
 
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Enforcement 
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4. (C) Regional Manager of the Arab Bank in Yemen, Mahdi 
Alawi (please protect), called the new money laundering law a 
good step forward in the evolution of banking in Yemen. 
Noting that the Arab Bank already follows many of the 
provisions under the law because it makes good business 
sense, he said this law will force domestic banks in Yemen to 
know their customers -- a practice, he said, that is not 
common in Yemen. 
 
5. (C)  Government ministries and organizations are mandated 
by law to use the Yemen Central Bank for accounting and money 
disbursal.  According to Alawi, former Prime Minister Abdul 
Karim Al-Iryani guided this restriction into law, hoping that 
the government would have more control over transactions. 
However, Alawi said, the exact opposite has happened, and 
there is less control over the way the Ministries spend their 
funds because the Central Bank is unable to investigate 
discrepancies and has no financial intelligence operation to 
review unjust accounting practices. 
 
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Transparency Laws Still Needed 
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6. (C) An even greater problem, according to Alawi, is that 
Ministers and other high-ranking officials are allowed to 
have personal accounts in banks and are not required to 
report their financial holdings to the government or the 
public. (Comment: This problem will likely persist because 
the anti-money laundering law has no provision for financial 
reporting by government officials. End Comment.)  Alawi said 
that the corruption in Yemen involves small amounts of money, 
and that Yemen compared favorably to what he saw in Nigeria. 
However, he cautioned, in the banking industry, misuse of 
small funds is even harder to discover and report to 
regulatory officials. 
 
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Central Bank's Fiscal Policy is Sound 
------------------------------------- 
 
7. (C) Alawi praised the Central Bank's tight control of 
fiscal policy, noting positively that the recent injection of 
approximately fifty million USD to keep the riyal strong 
against selling related to fears the Yemeni economy would be 
hurt as the war in Iraq began.  However, he noted that the 
Central Bank was walking a fine line between keeping the 
currency stable and market pressures that are pushing the 
riyal down. Alawi expects that the riyal will drop slightly 
in the coming year because most experts, including the 
Economist Intelligence Unit, expect economic growth to slow 
because of an expected drop in the price of oil. 
 
8. (C) Comment: The Anti-Money Laundering law is a 
significant step forward for the Republic of Yemen.  However, 
enforcement issues will be the true test of Yemeni commitment 
to having a well-regulated banking industry. Colleagues in 
the banking industry and at the World Bank have praised the 
Central Bank for its tight control of fiscal policy.  The 
next question is if they will be given the means and 
authority to enforce the new law. Yemen has a pattern of 
passing laws that are generally praised by the international 
community, but falls short on enforcement. End Comment. 
 
MISENHEIMER