US embassy cable - 03OTTAWA1866

UNCLAS SECTION 01 OF 02 OTTAWA 001866 
 
SIPDIS 
 
SENSITIVE 
 
FOR EB 
DEPARTMENT PLEASE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ECON, ECIN, EFIN, ETRD, EINV, ETTC, PREL, PTER, PINR, YM, ZR, Terrorist Finance 
SUBJECT: A/S WAYNE'S MEETING WITH AHMED MOHAMED ALI 
AL-KHAWI, CHAIRMAN, YEMEN BANKING ASSOCIATION 
 
1.  (SBU)  Summary:  During a bilateral meeting held June 25 
on the margins of the International Arab Banking Summit in 
Montreal, A/S Anthony Wayne and Ahmed Mohamed Ali al-Khawi, 
Chairman of the Yemen Banking Association (YBA), discussed 
the fight against terrorist financing and Yemen's economic 
situation, with a focus on the need to strengthen Yemen's 
commercial court system.  End summary. 
 
USG Action 
---------- 
 
2.  (U) Action requests for Mr. Al-Khawi are in para 4 on 
creating a facility for sharing information on bank clients, 
and para 9 on ways to support reform of the commercial court 
system under the Middle East Partnership Initiative (MEPI). 
 
Procedures to Counter Terrorist Financing are in Place 
--------------------------------------------- --------- 
 
3.  (U) A/S Wayne commended Yemen on its help thus far in the 
war on terrorism and asked how the new procedures to combat 
terrorist financing are working.  Al-Khawi responded that the 
restrictions on transfers were initially difficult but now 
are going well.  He confirmed that Yemeni bank implementation 
of "know-your-customer" efforts is proceeding fairly well. 
Banks are very pleased with the system, as it is helping them 
to avoid many bad debts.  However, many of Yemen's banks are 
not well versed in how to implement this and other elements 
of the new anti-money laundering law, and their personnel 
will need assistance. 
 
4. (U) Al-Khawi said the YBA and the Central Bank are 
thinking of creating an information sharing facility for 
banks, as some of the smaller banks have difficulty 
collecting information.  Although there is overall support 
for the idea, a few banks are reluctant to share customer 
information.  A/S Wayne asked if Yemen has a financial 
intelligence unit, and said he thought the USG could provide 
guidance on establishing information sharing procedures to 
facilitate know-your-customer efforts.   Perhaps Yemen's 
banks could link into a regional information-sharing 
arrangement?   Al-Khawi said the YBA is planning to introduce 
checks and rial-denominated credit cards, initiatives that 
will also support know-your-customer initiatives. 
 
Anti-Money Laundering Law being Implemented 
------------------------------------------- 
 
5. (U) When asked about other aspects of the banks' ability 
to implement the new anti-money laundering regime, al-Khawi 
noted that the Union of Arab Banks is conducting courses on 
implementing the law.   A/S Wayne reiterated the USG's desire 
to be helpful, saying it is important that both sides 
understand the difference in procedures and noting that he 
encourages USG officials to visit Yemen.  Al-Khawi thought 
that would be useful. 
 
Financial Intermediation Still Weak 
---------------------------------- 
6.  (U) A/S Wayne asked about the availability of capital, 
especially for small and medium firms.  Al-Khawi acknowledged 
the problem, but said the World Bank has been supporting 
establishment of an institution making loans to SMEs for the 
past 6 years, and it is doing very well. 
 
No Increase in Informal Transfers 
-------------------------------- 
 
7. (U) There are hawalas in Yemen, but use of the system is 
not growing.  It peaked before the first Gulf War, and most 
transfers now come through banks.  Most Yemeni workers that 
repatriated in the early 1990s have not returned to jobs 
abroad. 
 
8. (U) Al-Khawi said Yemen's economy is improving slowly. 
The Yemeni rial is strong and there is no deficit in the ROYG 
balance sheet.  Yemen has 16 banks, three of which (including 
Saba) are Islamic. 
 
Commercial Court Reform is Essential 
------------------------------------ 
 
9. (SBU) When asked how the USG could be helpful, al-Khawi 
stressed the urgent need for experts in Arab law to assist in 
reforming the commercial courts.  A visiting Sudanese expert 
was effective for several years, but the system reverted when 
he left.  Since then, Yemen has endured four years of failed 
efforts to reform the courts.  Resistance to improving the 
commercial court system is probably due to corruption, and 
change will require political commitment from the top.  The 
uncertain legal system means banks try to minimize risk by 
lending only to large, well-known clients.  A/S Wayne 
mentioned the possibility of a program run by the Commerce 
department, using Arab-American experts, that has been 
successful in Algeria, Egypt and Tunisia.  The program could 
be included as part of the Middle East Partnership Initiative. 
 
Financial Infrastructure still Shaky 
------------------------------------ 
 
10. (SBU) Al-Khawi identified the lack of a land title system 
as a major obstacle to investment.  Yemenis abroad have 
funds, but hesitate to invest.  On a related topic, long-time 
efforts to introduce a financial market (stock exchange) are 
stalled and even he, as head of the technical committee to 
establish the market, does not know why the ROYG has stopped 
the initiative cold.  Some say it is too early to establish a 
stock exchange in Yemen, but he does not know the source of 
the sudden high-level opposition. 
 
Bio 
--- 
11.  (U)  Al-Khawi was head of the Yemen Bank for 
Reconstruction and Development and is now one of its 
advisors.  His English is fluent but restrained, and he 
weighs his words. 
 
12. (U)  A/S Wayne cleared this cable. 
 
 
CELLUCCI