The Cables

41524: OFAC discusses WMD, terror financing with UAEG, banks






Classified By: Ambassador Michele J. Sison for reasons 1.5 (b) and (d).

1. (S) Summary. The Director of the Department of Treasury's Office of Foreign Assets Control (OFAC), Bob Werner, discussed OFAC's WMD, counter terrorism, and counter narcotics sanctions programs with UAEG officials at the Central Bank, Ministry of Interior, and Dubai Ports Authority, and with banking officials and exchange house representatives. UAEG officials pledged their cooperation on cases of mutual interest, but Central Bank Governor Sultan Nasser al-Suweidi noted his frustration with the USG over the frozen assets of A.Q. Khan's daughter, Dina Khan. Commercial bank compliance officers expressed their desire to be compliant with the U.S. sanctions program against Iran, but had many detailed questions about the mechanics of implementing the sanctions. The UAE's money exchange houses described their stringent Know-Your-Customer program, and the discussion at the Dubai Financial Services Authority (DFSA) highlighted questions about the competing role between the DFSA and the UAE Central Bank in monitoring banks within the free zone for anti-money laundering compliance. End summary.

2. (C) The Director of the Department of Treasury's Office of Foreign Assets Control (OFAC), Bob Werner, traveled to the UAE September 17-19 to discuss OFAC's sanctions programs with the UAEG and industry officials. Werner was accompanied by Jamal El-Hindi, Associate Director of OFAC; Howard Mendelsohn, Middle East Unit Chief, Office of Intelligence and Analysis; Clay Stevenson, International Programs Officer; Jason Beal, OFAC Middle East Regional Attache; and Reece Smyth, NEA/ARPI Economic Officer. Werner and his delegation met with Central Bank Governor Sultan Nasser al-Suweidi, Minister of Interior (MOI) Undersecretary Major General Saif Abdullah al Shaafar, General Manager of the Abu Dhabi Investment Authority (ADIA) Sheikh Ahmed bin Zayed, and Technical Director of Dubai Port Authority Mohammed Muallam. The delegation also held separate roundtable discussions with bank compliance officers, representatives of the UAE Exchange Houses, officials from the Dubai Financial Services Authority (DFSA), the Executive Board of the Dubai American Business Council, and with the U.S., British, and Australian Drug Liaison Officers (DLOs). (Note: The meeting with ADIA General Manager Ahmed bin Zayed will be reported septel. See ref A for a readout of Iran issues from the DLO roundtable. End note.)

UAEG Pledges Cooperation, Needs More Information on Cases

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3. (C) During his meetings with Central Bank Governor al-Suweidi and Ministry of Interior Undersecretary al-Shaafar, Werner raised a number of outstanding cases, including the ABN Amro investigation, narco-traffickers Haji Bashir Noorzai and Iqbal Mirchi, the wedding of Dawood Ibrahim's daughter at the Grand Hyatt in Dubai, and the continuing use of Sharjah by UN-designated arms proliferator Viktor Bout's smuggling network. Both the Central Bank Governor and MOI Undersecretary pledged their cooperation on these matters and requested additional information and details on each of the issues. Werner passed Al-Shaafar the list of hotels used by Iqbal Mirchi, and Al-Shaafar said he would look into the matter. To aid the UAE's efforts to investigate and shut down Viktor Bout's network, Werner offered to send the analyst most familiar with Viktor Bout to the UAE to go over detailed information with Central Bank and Ministry of Interior officials. Al-Shaafar also noted that he is interested in sending Abu Dhabi police officers to the U.S. for seminars and training to help increase their understanding of our system and to build personal relationships with their American counterparts. He would like to send some officers in November or December, after Ramadan, but had not identified any specific program. Undersecretary al-Shaafar stressed that the UAE must ensure that its businesses and financial system are not abused -- "the UAE cannot be a soil where bad seeds are allowed to grow" -- and he stated that his department would continue to work with the U.S. and share information with us.

4. (S) The Central Bank Governor noted that the UAE is very near "countries of concern," and that it has been able to maintain its security by not "harming anyone and by understanding their needs." The Governor stated, "Please do not involve us in the 'name and shame' of certain countries, because it would make our life very difficult. We know that you mean good, so we will help as we can, but hopefully it will be in other ways that will not harm us." Stating that the UAE must coexist with its neighbors, he emphasized that the UAE must avoid engaging in conduct that could be viewed as a "declaration of war." (Comment: The Governor did not state which countries he was referring to, but he likely meant Iran and Saudi Arabia, and possibly North Korea. End comment.)

Need to Justify Freeze of WMD Proliferators' Assets

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5. (S) Werner discussed in detail three of OFAC's sanctions programs -- the Counter Terrorism Executive Order, the Counternarcotics Kingpin Program, and the new Executive Order 13382 on blocking property of WMD proliferators and their supporters -- with both the Central Bank Governor and Ministry of Interior Undersecretary. During a discussion of E.O. 13382, the Central Bank Governor noted his concern that the U.S. designates "too quickly", without always ensuring that the individuals or entities are complicit in the activities. He stated, "no one wants the proliferation of weapons of mass destruction, but also, no innocent people should be defined as perpetrators of proliferation activities...Giving the wrong medicine for a disease does not help cure the disease." He pointed out that due diligence is essential to be sure that a mistake is not made. Ambassador assured the Governor that the USG conducted due diligence. The Governor responded positively to this, noting "the reason I ask is so that we can support and defend these efforts. That way, if we are asked how it works, we will know how to answer."

6. (S/NF) The Central Bank's experience with accounts connected to the A.Q. Khan network has clearly colored how the UAE perceives the U.S. actions against WMD proliferators. Al-Suweidi quoted an Arabic saying that is roughly translated, "if you want to be obeyed, ask for the achievable" as a way to illustrate his concerns with certain U.S. requests for asset freezes. The Governor also raised the example of the frozen bank account of A.Q. Khan's daughter, Dina Khan. In response to a U.S. request, the UAE froze Dina Khan's UAE bank account in the spring of 2004. The account remains frozen; however the UAE Central Bank has been told by the Dubai Attorney General that there is not enough evidence to justify continuing the freeze. Dina Khan has hired a British lawyer and is threatening to sue the UAE Central Bank in the UK for "physical and emotional" damages. Through her attorney, she submitted an affidavit to the Central Bank claiming that the money was an inheritance from her grandmother, and that it had nothing to do with her father's activities (although Central Bank officials noted that she did not provide any corroborating documentation, such as bank records, to prove this). The affidavit also notes that she is not under a travel ban in any country and that she has no other accounts frozen -- including those in the UK. The affidavit further states that she owns property in Pakistan that is leased by the USG, and she claims that if she were connected to her father's network, the USG would not be leasing her property. (Note: At Embassy Abu Dhabi's request, Embassy Islamabad has checked its 157 property leases held for Islamabad, Lahore, Peshawar, and Karachi. None of them lists Dina Khan as the property owner. Of the 157 leases checked, 13 show someone with the surname "Khan" as the owner of the property; but that is a common surname in Pakistan, and none of those 13 owners have given names that track with any of Dina Khan's immediate family members. There is the possibility that Dina Khan may be owner of an Embassy-leased property and had an agent or lawyer sign the lease on her behalf, but Embassy Islamabad has no knowledge of that being the case. Embassy Abu Dhabi will advise the Central Bank of this at the earliest opportunity. End note.)

7. (S/NF) The Central Bank is very concerned that it does not have legal "cover" on the Dina Khan case and that it may be sued. In the fall of 2004, the Central Bank Governor asked U/S Juan Zarate for the USG to provide it with a letter of "indemnification" that would provide the bank with some cover; however, Zarate noted that this would not be possible. During the meeting with OFAC Director Werner, the Central Bank Governor said, "I personally recommend that Dina Khan be eliminated from the list because there is not enough evidence to justify continuing the freeze...In absence of a green light to unfreeze the account, we would demand indemnity." Werner responded that he did not believe indemnity was possible. Werner also noted that the U.S. believes that UNSCR 1540 provides the UAE with the authority to freeze accounts of suspected proliferators. The Governor responded that he would like for the U.S. to provide a legal opinion of exactly how 1540 is relevant in this case. (Note: Embassy has drawn from points provided Ref B several times in the past few months to try to convince the Governor that UNSCR 1540 indeed provides such authority.)

8. (S) The Central Bank Governor also briefly mentioned the case of North Korean Tanchon Commercial Bank, which is one of the eight entities designated by Executive Order 13382 in June 2005 to counter proliferators of weapons of mass destruction. Back in 2004, the UAE Central Bank froze Tanchon's UAE accounts, also as a part of the A.Q. Khan investigation. These accounts remain frozen, and Tanchon has also threatened to sue the UAEG. In July, when the Embassy provided the Central Bank with the annex to E.O. 13382 that lists the eight designated entities, Central Bank officials recognized Tanchon Commercial Bank, but they did not comment on whether this E.O. would help give them any additional legal or political cover should the bank actually sue.

Exchange Houses Discuss KYC Procedures


9. (C) In the spring of 2005, the UAE's 110 licensed money exchange houses formed a Steering Committee to work with the UAE Central Bank and international financial institutions in order to address some international banks' concerns that exchange houses (or money service businesses - MSBs) are not regulated as stringently as other financial institutions. Werner and his delegation met representatives from ten of the exchange houses on the Steering Committee, and they discussed the stringent Know-Your-Customer (KYC) guidelines that UAE MSBs adhere to. MSBs examine and copy identification for all transactions over 2,000 dirhams (approximately $546); they record identifying information of the remitter and the beneficiary; they check to be sure that the remittance is consistent with the person's means; and they keep the ID and transaction records for a minimum of five years. Most of the large exchange houses issue an ID card to repeat customers. This card contains each customer's identifying information, and it allows the exchange house to keep track of all of the customer's transactions. Additionally, exchange house officials make site visits to the companies of commercial customers to ensure that they are engaged in the business they claimed when they make their transactions. Attesting to the exchange houses' due diligence, Ray Ferguson, Chief Executive of Standard and Chartered, stated during the bank compliance officer roundtable that he has been "blown away" by the due diligence of the UAE's exchange houses, even on small transactions -- "I think they would not be in business today if they hadn't been so diligent in implementing the UAE's anti-money laundering regulations."

10. (C) Essentially, the UAE's MSBs are regulated the same as banks, and in addition to the Central Bank's yearly AML/CFT compliance and security and soundness audits, MSBs have a yearly external money laundering audit. Each exchange house has at least one compliance officer, they all attend KYC and anti-money laundering (AML) and counter-terror finance (CTF) training programs, and they use the OFAC list in addition to the Central Bank's list of designated individuals and organizations. After outlining the details of the MSB KYC regime, Mohammed al-Ansari of Al-Ansari Exchange, noted "I do not believe it is fair to put all exchange houses in the same category of "high risk" - as many banking institutions are prone to do," and he noted that the Steering Committee hopes that the FATF will recommend to categorize MSBs as low, medium, or high risk, based on each country's MSB oversight and regulation and on each institution's KYC policies. Acknowledging that some of the small UAE exchange houses may not have the capabilities to be as thorough and as diligent as those large exchange houses represented at the roundtable, Akbar Dadarkar of the Wall Street Exchange Center, noted that the Central Bank does not license the smaller exchange houses to transfer money overseas -- they are only licensed to exchange currency -- "90 percent of the money exchange business, ie: transfers, are conducted by the 10-15 large exchange houses represented here."

11. (C) Several of the MSB representatives noted their concern about people making multiple transactions at multiple exchange houses to conceal the total amount. They said they are encouraging the Central Bank to create a central database that would detect this type of activity. They also noted that to aid checking names against the Central Bank and OFAC lists, it would be helpful if the names were listed in the native language. For example, in addition to listing a transliterated Arabic name in English, also list the name in Arabic. They also indicated interest in U.S. AML/CTF training materials, and Werner encouraged them to download such material from FINCEN's website.

DFSA - Question of Regulatory Overlap Remains


12. (C) The Dubai Financial Services Authority (DFSA) regulates the Dubai International Financial Center (DIFC), Dubai's offshore banking center, and DFSA officials maintain that their regulatory system holds banking institutions to an international standard. DFSA's officials come from internationally recognized regulatory bodies; though ostensibly independent they ultimately report to Dubai Crown Prince Sheikh Mohammed bin Rashed. Werner's meeting with DFSA officials focused in part on gaps and overlaps in regulation with the UAE Central Bank. The federal law allowing the creation of financial free zones within the UAE "disapplied" all federal commercial and civil law, but criminal laws still apply. In this regard, financial institutions within the DIFC, like those elsewhere in the UAE, are required to abide by the Central Bank's AML/CTF regulations. However, the DFSA requires DIFC institutions to abide by a more stringent "parallel" set of AML/CTF requirements, which incorporate all of the Central Bank regulations and then expand upon them in many areas.

13. (C) The legal relationship between the DFSA and the UAE Central Bank has not been codified yet -- the two bodies are in the process of negotiating an MOU. Marc Hambach, the Assistant Director of DFSA's Banking Supervision Department, noted that the DFSA is required to refer all suspected AML/CTF cases to the Central Bank on AML/CTF cases, and that if DFSA officials feel the Central Bank's response is slow or inadequate, the DFSA has the authority to independently freeze assets. Jane Coakley, the Managing Director of the Authorization Department inquired as to whether OFAC could vet or share intelligence with DFSA on individuals or entities seeking to open accounts or operate within the DIFC. Werner replied that these types of inquiries should be channeled through formal FIU channels (ie: from the UAE's Anti-Money Laundering and Suspicious Cases Unit (AMLSCU) to FINCEN). Noting that communication from the UAE Central Bank to DFSA is sometimes slow, DFSA officials indicated they would appreciate it if the U.S. could "cc" the DFSA when it sends information to the AMLSCU that relates to institutions within the DIFC. (Comment: The discussion with DFSA highlights the stresses between two regulatory bodies in the UAE. DFSA regulators have consistently stressed the high quality of their regulation, whereas the Central Bank has expressed concerns about the need for it to monitor the DIFC, since any problems would reflect back on the UAE. The current dispute over jurisdiction is creating potential loopholes and overlapping jurisdiction that could cause problems for the DIFC and the UAE in general. Early concerns over governance and the very public firing of the former head of the DFSA increases the pressure on both the DFSA and the Central Bank to "get it right." End Comment.)

"Cash is King"


14. (C) In the roundtable discussion with U.S., British, and Australian Drug Liaison Officers (DLOs), the DLOs noted that investigating money-laundering cases in the UAE is challenging due to the cash-based nature of the society. As British DLO Cameron Walker noted, "with so many cash transactions here, how do you see the wood through the trees?" The DLOs also expressed frustration with getting the Central Bank to share information with foreign law enforcement officials like themselves. Werner suggested going through FINCEN, since FINCEN and the AMLSCU have a close working relationship. Additionally, Werner pointed out that OFAC does not need a U.S. link to designate individuals or entities under the narcotics Kingpin program, and he encouraged them to work with OFAC and use this tool to aid their efforts to shut down the networks of narco-traffickers.

Iran Sanctions Affect Dubai Banks, American Businessmen

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15. (C) During a roundtable discussion with 13 compliance officers from major UAE banks and a dinner with the American Business Council's Executive Board, Werner discussed OFAC's role in implementing U.S. sanctions programs. Participants asked many targeted questions about Iranian sanctions, and several of the U.S. businessmen expressed frustration with the sanctions limiting their ability to do business in the region. With Dubai serving as Iran's largest non-oil trading partner, the bankers wanted to know details of OFAC requirements to ensure that they stay compliant.

Dubai Ports - Exercises Reactive Due Diligence

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16. (C) During a meeting with Mohammed Muallam, Technical Director of Dubai Port Authority in the Jebel Ali Free Trade Zone, Muallam emphasized that Dubai Port Authorities work closely with Dubai Police and the State Security Organization (SSO) to be sure that "what flows through our ports is only cargo." With 50 percent of the ports' 3.6 million containers being trans-shipped to other locations each year, Muallam said that Dubai Port authorities recognize that they must be diligent in monitoring the cargo for illegal or dual-use items. He noted that his officials cooperate closely with other UAEG agencies, and that they detain cargo when the SSO provides information on suspect shipments. (Note: Dubai Ports Authority is a part of the Container Security Initiative (CSI), which is aimed at preventing terrorist organizations from utilizing shipping containers to transport WMD and/or related components from Dubai ports to the United States. CSI became operational in March 2005, with the arrival of three U.S. Customs and Border Protection Officers and one ICE Special Agent. The CSI team reviews bills of lading and regularly refers shipping containers for examination prior to departure for the United States. End note.)

17. (U) This cable was cleared by OFAC Director Werner.


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Printable version | Nov 23, 2021 6:04:54 AM |

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