This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 MUSCAT 002192 
 
SIPDIS 
 
DEPT FOR INL, NEA/RA, NEA/ARPI, AND DS/IP/NEA 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN AND OASIA 
ISLAMABAD FOR DEA 
 
E.O. 12958: N/A 
TAGS: KTFN KCRM PTER SNAR EFIN MU
SUBJECT: 2004-05 INCSR SUBMISSION FOR OMAN 
 
REF: A. SECSTATE 254401 
 
     ¶B. MUSCAT 1196 
     ¶C. MUSCAT 500 
 
¶1. Oman is not a regional or offshore financial center and 
does not have a significant money laundering problem. Its 
small banking sector is supervised by the Central Bank of 
Oman (CBO), which has the authority to suspend or reorganize 
a bank's operations. In 2004, Oman had a total of 17 banks 
with 353 branches.  The banking system consisted of five 
local commercial banks with 304 Omani and 11 foreign 
branches, three local specialized banks with 26 local 
branches, and nine foreign incorporated banks with 23 
branches in the country. Smuggling trade goods across Oman's 
long borders and coastline is becoming an increasing concern. 
Oman may also be vulnerable to instances of trade-based money 
laundering and customs fraud as well as unregulated lending 
schemes that fall outside government purview. 
 
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Legislation and Enforcement 
--------------------------- 
 
¶2. In March 2002, Royal Decree No. 34/2002 was issued 
promulgating "The Law of Money Laundering." This new law 
strengthened the existing money laundering regulations by 
detailing bank responsibilities, widening the definition of 
money laundering to include funds obtained through any 
criminal means, and providing for the seizure of assets and 
other penalties. The new law applies to other types of 
non-bank financial institutions as well.  In a 2003 report, 
Omani officials stated that "the legal freezing measures 
designated by the Money-Laundering Act are applied to both 
residents and non-residents holding funds, financial assets, 
or other economic resources in the Sultanate of Oman if they 
are linked to terrorist-related activities."  In addition to 
an interagency committee for Anti-Money Laundering, the 
Sultanate has established a senior-level National Committee 
for Combating Terrorist Finance. 
 
¶3. Royal Decree 72/2004 of July 7, 2004 promulgated the 
implementing regulations for the Law of Money Laundering (ref 
B). These regulations include, inter alia, the following 
provisions: 
 
-- a requirement that financial institutions "take steps to 
obtain information on customers who open accounts in an 
indirect way" and "keep electronic data on e-transactions." 
-- guidelines in the area of profiling, requiring 
institutions to "check and double-check" certain classes of 
transactions (e.g., "customers getting loans from foreign 
institutions" and the "keeping of accounts that do not match 
the business nature." 
-- requirements for government authorities to investigate all 
"suspicious dealings" using internal and external reporting 
mechanisms. 
-- authorization for the attorney general to freeze disputed 
assets upon the request of investigators. 
-- protection of "secret" information. 
-- an extensive training program, with introductory courses 
supplemented by instruction in international best practices 
and effective investigation techniques. 
-- definition of the organizational structure of the National 
Committee for Combating Money Laundering. 
-- cooperation with international organizations and 
information exchange with other countries, including 
collaboration on extradition issues. 
 
¶4. The Royal Oman Police (ROP), in coordination with the CBO, 
is responsible for investigating money laundering activities. 
Banks are required to know their customers and report all 
suspicious transactions.  Compliance personnel are now 
present in all banks. Oman established a Financial 
Intelligence Unit (FIU) in 2002 to review suspicious 
transactions and help coordinate resulting investigations. 
As of the end of 2004, there had been no arrests under the 
new law.  No formal mechanism exists for information sharing 
among the GCC Central Banks or FIUs, although a banking 
supervision committee within the GCC does issue broad 
guidelines for financial institution oversight. 
 
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Charitable Organizations 
------------------------ 
 
¶5. Oman regulates charitable organizations under the 
Non-Governmental Organizations Act promulgated 
pursuant to Royal Decree 14/2000.  Under this act, the 
Minister of Social Development is responsible for approving 
and monitoring all charitable contributions and fundraising 
activities.  There is a government-registered charity (the 
Oman Charitable Organization, or OCO), and all citizens and 
entities are encouraged to use this official channel for 
donations.  The Ministry of Social Development recently 
registered a charity fund run by a prominent local 
businessman. 
 
¶6. At various times, charitable donations have been collected 
through individual accounts in local banks and sent abroad by 
individuals to support the Palestinian Intifada and for the 
building of schools or mosques in Africa and South Asia.  The 
local Shia minority is believed to transfer money to support 
their religious imams, mainly in Iraq and Iran.  Apart from 
monthly remittances by expatriate laborers, local Indian 
businessmen have also been reported to channel funds in 
support of Hindu religious groups.  In all of these cases, 
the CBO possesses the authority and ability to check on these 
accounts as all banks and moneychangers have the obligation 
to report on transactions as noted above. 
 
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Informal Lending Societies 
-------------------------- 
 
¶7. Informal lending societies reportedly have emerged in 
recent years as a popular alternative to formal banking in 
Oman.  These societies provide interest free loans as a means 
for young Omanis to purchase homes and cars or service bank 
debts.  The societies became the target of three separate 
warnings from the Ministry of Social Development calling on 
Omanis to avoid these unregulated and unregistered financial 
entities. Nevertheless, many Omanis flocked to these 
societies in solidarity with members of their tribes and in 
protest against double-digit interest rates being charged by 
commercial banks.  Later, as membership numbered in the 
thousands, serious problems emerged as several founding 
members absconded with funds from their societies. 
Suspicious members withdrew from the schemes, causing the 
collapse of many societies. 
 
¶8. Reports of excess liquidity in the Omani financial system 
and the demonstrated popularity of informal societies lend 
credence to the view that hundreds of thousands if not 
millions of dollars are circulating outside the formal 
financial system and its strict regulations, auditing 
requirements, and accountability to the CBO.  In addition, 
some informal societies reportedly are run by Islamic groups, 
ostensibly with ties to the Ministry of Awqaf and Religious 
Affairs, who make trips to various destinations abroad. 
Transactions in these societies are made in cash, and the 
societies are not registered with any government agency or 
institution.  While such practices constitute only a fraction 
of overall financial transactions in Oman, they merit greater 
scrutiny on the part of ROP and CBO authorities. 
 
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International Accords 
--------------------- 
 
¶9. Oman is a party to the 1988 UN Drug Convention, and is a 
member of the Gulf Cooperation Council (GCC), which itself is 
a member of the Financial Action Task Force (FATF). Oman 
supported the creation of a regional FATF-style body in 
Bahrain, and sent top government officials to the MENA FATF 
inauguration in November 2004. Although not yet a party to 
the 1999 International Convention for the Suppression of the 
Financing of Terrorism, Omani officials insist that Oman will 
soon accede (ref C). 
 
¶10. Oman has responded to terrorist asset freeze lists from 
the UN 1267 Committee by distributing the lists to all banks 
and other financial institutions in the country for checking 
against their accounts. Thus far, the Government has reported 
negative results. 
 
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Comment 
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¶11. Overall, Oman maintains a strong and effective regulatory 
regime with respect to its formal financial institutions. 
Oman should continue to implement its anti-money laundering 
program, specifically dedicating adequate resources to its 
FIU and training criminal investigators to initiate money 
laundering investigations from the field. Oman also should 
become more aware of the dangers of alternative remittance 
systems and unregulated lending societies to launder money 
and sidestep formal government oversight of financial 
transactions.  Applying the careful lessons learned in its 
tight regulation of the formal sector, Oman must now 
recognize that informal money transfer and cash-based lending 
societies represent vulnerabilities that must be addressed. 
BALTIMORE