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

UNCLAS SECTION 01 OF 02 SANAA 003577 
 
SIPDIS 
 
PLEASE PASS TO INL; JUSTICE FOR OIA AND AFMLS; TREASURY FOR 
FINCEN; EB/ESC/TFS. 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PTER KCRM KTFN YM TERFIN
SUBJECT: 2005-2006 INSCR REPORT FOR YEMEN: FINANCIAL CRIMES 
AND MONEY LAUNDERING 
 
REF: SECSTATE 210346 
 
¶1.  The following is the text of Embassy Sanaa's update to 
Part II of the 2005-2006 INSCR report on financial crimes and 
money laundering. 
 
---------- 
Begin Text 
---------- 
 
The Yemeni financial system is not yet well developed; thus, 
the extent of money laundering is not known. The prevalence 
of alternative remittance systems, such as hawala, makes 
financial institutions vulnerable to money laundering, 
although they are technically subject to limited monitoring 
by the Central Bank of Yemen (CBY), and renders commercial 
banking largely irrelevant to most Yemenis. The banking 
sector is relatively small with 17 commercial banks, 
including four Islamic banks (one was recently taken over by 
the CBY and may be liquidated). The CBY supervises the banks. 
Local banks account for approximately 62 percent of the total 
banking activities, while foreign banks cover the other 38 
percent. 
 
Yemen,s parliament passed a comprehensive anti-money 
laundering legislation (Law 35) in April 2003. The 
legislation criminalizes money laundering for a wide range of 
crimes, including narcotics offenses, kidnapping, 
embezzlement, bribery, fraud, tax evasion, illegal arms 
trading, and monetary theft, and imposes penalties of three 
to five years of imprisonment. Yemen currently has no 
specific legislation relating to terrorist financing, but 
Cabinet decision 247 issued in 2005 directs the CBY and the 
Ministry of Legal Affairs to amend Law 35 to include 
terrorist financing.   The Ministry of Interior (MOI) also 
has a unit to investigate terrorist financing.  According to 
the law, both the MOI and CBY report their findings to the 
Attorney General for enforcement. 
 
Law 35 requires banks, financial institutions, and precious 
commodity dealers to verify the identity of persons and 
entities that open accounts (or in the case of the dealers 
for those who execute a commercial transaction), to keep 
records of transactions for up to ten years, and to report 
suspicious transactions. In addition, the law requires that 
reports be submitted to an information-gathering unit within 
the CBY. The unit acts as the Financial Intelligence Unit 
(FIU), which in turn reports to the Anti-Money Laundering 
Committee (AMLC). 
 
The FIU is severely understaffed, with a total of three 
employees at the main office.  Eighteen field inspectors for 
banking supervision, who also serve as investigators for the 
FIU, work with laptop computers provided by the IMF over 
eight years ago.  The FIU has no database and is not 
networked internally or to the rest of the CBY.  The CBY 
provides training to other members of the government to 
assist in elements of anti-money laundering enforcement, but 
lack of capacity severely hampers any attempts by the FIU to 
control illicit activity.  The supervision department of the 
CBY has submitted requests for foreign assistance to the 
Department of Treasury, the IMF, and others. 
 
The AMLC is composed of representatives from the Ministries 
of Finance, Foreign Affairs, Justice, Interior, and Industry 
and Trade, the Central Accounting Office, the General Union 
of Chambers of Commerce and Industry, the CBY, and the 
Association of Banks. The AMLC is authorized to issue 
regulations and guidelines and provide training workshops 
related to combating money laundering efforts.  It reports 
its findings to the Prime Minister every three months.  In 
addition, Law 35 grants the AMLC the right to exchange 
information with foreign entities. The head of the AMLC is 
empowered by law to ask local judicial authorities to enforce 
foreign court verdicts based on reciprocity. Also, the law 
permits the extradition of non-Yemeni criminals in accordance 
with international treaties or bilateral agreements.  A 
separate inter-ministerial Terrorist Finance Committee, 
headed by the Ministry of Foreign Affairs, was created in 
2000 and takes the lead in engaging the UN Security Council 
and other international bodies. 
 
Prior to passage of the anti-money laundering law, the CBY 
issued Circular 22008 in April 2002, instructing banks and 
financial institutions that they must verify the legality of 
all proceeds deposited in or passing through the Yemeni 
banking system. The circular stipulates that financial 
institutions must positively identify the place of residence 
of all persons and businesses that establish relationships 
with them. The circular also requires that banks verify the 
identity of persons or entities that wish to transfer more 
than $10,000, when they have no accounts at the banks in 
question. The law also prohibits the transfer of more than 
$10,000 cash in or out of the country without permission from 
the CBY, although this is rarely enforced.  The same 
provision applies to beneficiaries of such transfers. Banks 
must also take every precaution when transactions appear 
suspicious, and report such activities to the CBY. The 
circular was distributed to the banks along with a copy of 
the Basel Committee,s "Customer Due Diligence for Banks," 
concerning "know your customer" procedures and "Core 
Principles for Effective Banking Supervision". The CBY issued 
Circular No. 4 on December 9, 2003, ordering banks to set up 
intelligence gathering units specializing in investigating 
and monitoring suspicious funds and transactions in their 
regulatory structures. In 2005, however, no reports were 
filed with the FIU by commercial banks and there were no 
prosecutions. 
 
In response to the UNSCR 1267 Sanctions Committee,s 
consolidated list and the list of Specially Designated Global 
Terrorists designated by the United States pursuant to E.O. 
13224, and Yemen,s Council of Ministers, directives, CBY 
issues  regular circulars to all banks operating in Yemen, 
directing them to freeze accounts of designated persons, 
companies, and organizations, and to report any finding to 
CBY. No accounts were frozen and no assets were seized in 
¶2005.  Since the February 2004 addition of Sheikh Abdul Majid 
Zindani to the UNSCR 1267 Sanctions Committee,s consolidated 
list, the Yemeni government has made no known attempt to 
enforce the sanctions and freeze his assets.  In such cases, 
information sharing is limited by a lack of political will, 
as well as a lack of enforcement capacity. 
 
A law was passed in 2001 governing charitable organizations. 
This law entrusts the Ministry of Labor and Social Affairs 
with overseeing their activities. The law also imposes 
penalties of fines and/or imprisonment on any society or its 
members convicted of carrying out activities or spending 
funds for other than the stated purpose for which the society 
in question was established. In 2005, 21 charities were 
questioned as part of continuous supervision in coordination 
with the Ministry of Labor and Social Affairs, but there were 
no prosecutions.  Cabinet decision 378 gave the FIU authority 
to investigate gold shops, insurance companies, and real 
estate brokers in order to enhance procedures to combat 
terrorist financing.  The FIU also has legal authority to 
investigate transactions in the Aden Free Zone, but has never 
had cause to test these powers in what is a relatively small 
area of activity. 
 
Yemen is one of the original signatories of the memorandum of 
understanding governing the establishment of the Middle East 
and North Africa Financial Action Task Force (MENAFATF). The 
MENAFATF is a FATF-styled regional body that promotes best 
practices to combat money laundering and terrorist financing 
in the region. It was inaugurated in November 2004 in Bahrain 
by 14 Arab countries. Yemen is a party to the 1988 UN Drug 
Convention and the UN Convention Against Corruption, and has 
signed, but not yet ratified, the UN Convention against 
Transnational Organized Crime and the UN International 
Convention for the Suppression of the Financing of Terrorism. 
Yemen is a party to the Arab Convention for the Suppression 
of Terrorism. 
 
The Government of Yemen is making progress in enforcing its 
domestic anti-money laundering program. The passage of the 
2003 anti-money laundering legislation represents a 
significant first step in meeting international standards. 
However, development of the FIU and international cooperation 
with criminal investigations are still in the initial stages. 
The CBY is still organizing its enforcement mechanism and is 
in dire need of technical and financial assistance. Its 
effectiveness will demonstrate the authorities, commitment 
to ending money laundering. Yemen should also consider 
expanding oversight of alternative remittance systems such as 
hawala and trade-based money laundering. As a next step, 
Yemen should follow through on plans to enact specific 
legislation with respect to terrorist financing and 
forfeiture of the assets of those suspected of terrorism. It 
should ratify the UN Convention against Transnational 
Organized Crime and the UN International Convention for the 
Suppression of the Financing of Terrorism. 
Krajeski