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

UNCLAS SECTION 01 OF 04 CAIRO 009387 
 
SIPDIS 
 
STATE FOR INL, NEA/ELA, NEA/RA, AND EB/ESC/TFS 
TREASURY FOR FINCEN 
JUSTICE FOR OIA AND AFMLS 
 
E.O.  12958: N/A 
TAGS: EFIN KCRM KTFN PTER SNAR EG
SUBJECT: EGYPT:  2006 INTERNATIONAL NARCOTICS CONTROL 
STRATEGY REPORT (INCSR) PART II 
 
REF:  CAIRO 9167 
 
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Summary 
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¶1.  Egypt is not a significant destination for money 
laundering or terrorist financing, due to its antiquated and 
cumbersome financial system.  The Government of Egypt (GOE) 
has implemented reforms in the financial sector in 2005, but 
this modernization has not made Egypt more attractive to 
money launderers.  Informal remittance systems, however, 
remain unregulated and are a potential means for money 
laundering.  Egypt does not have an offshore banking sector 
or free trade zones.  An Anti-Money Laundering Law passed in 
2002 criminalized laundering of funds from a variety of 
predicate crimes, including terrorism.  The law also created 
the Money Laundering Combating Unit (MLCU), Egypt's 
Financial Intelligence Unit (FIU).  The MLCU shares 
responsibility with the Central Bank of Egypt (CBE) for 
monitoring of financial sector compliance with the Anti- 
Money Laundering Law and regulations.  Various other GOE law 
enforcement agencies assist in money laundering 
investigations, depending on the predicate crime.  The GOE 
cooperates with international efforts to stem terrorist 
financing, and monitors non-governmental organizations 
(NGOs), including charities, to prevent use of such entities 
to finance terrorism.  End summary. 
 
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General Questions 
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¶2.  Egypt is not considered a regional financial center, as 
its cumbersome, antiquated financial system makes it 
unattractive for banking and/or investment services.  Egypt 
is therefore not a significant locus of money laundering. 
In 2005 the GOE continued financial sector reforms begun in 
2004, with the aim of streamlining the financial sector. 
These reforms, however, have not produced an increase in the 
level of financial crime.  Despite banking sector reform, 
Egypt is still largely a cash economy, and many financial 
transactions do not enter the banking system at all. 
 
¶3.  Of the three cases of money laundering that have reached 
the court system in Egypt, one was for proceeds from drug 
smuggling, and the other two were for proceeds from 
antiquities smuggling.  All of these cases stemmed from 
domestic rather than foreign criminal activity, and involved 
individuals rather than groups. 
 
¶4.  While there is no significant market for illicit or 
smuggled goods in Egypt, authorities say that under- 
invoicing of imports and exports by Egyptian businessmen is 
a relatively common practice. The primary goal for 
businessmen who engage in such activity is the avoidance of 
taxes and customs fees. It is unclear to what extent price 
manipulation may be used for laundering the proceeds of 
other crimes.  According to the Ministry of Finance, 
however, cuts in tariffs in September 2004, followed by cuts 
in income and business taxes in June 2005, have encouraged 
businesses to begin following proper procedures and 
regulations. 
 
¶5.  As noted above, money laundering/terrorist financing is 
not a significant phenomenon in Egypt, but informal 
remittance systems are unregulated and therefore a potential 
means for laundering funds.  Egyptian authorities claim that 
informal remittances are not widespread in Egypt, but the 
number of remittances officially recorded by banks does not 
match the large number of Egyptians working overseas, in the 
Gulf and elsewhere.  Many overseas workers may therefore use 
informal means to remit earnings, due to either lack of 
trust in or familiarity with banking procedures or to the 
lower costs associated with informal remittance systems. 
Due to the unregulated nature of informal remittance 
systems, it is unclear if and to what extent money 
laundering actually occurs through these systems.  One 
conventional non-bank money transfer systems, Western Union, 
is starting to draw more customers.  As noted above, despite 
reform in the financial sector, Egypt is not experiencing an 
increase in other types of financial crime, such as fraud or 
counterfeiting. 
 
¶6.  Post is not aware of any Egyptian financial institutions 
that engage in currency transactions involving international 
narcotics trafficking proceeds in U.S. currency or currency 
derived from illegal drug sales in the U.S. or that 
otherwise affect the U.S. 
 
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Offshore Financial Centers 
-------------------------- 
 
¶7.  Egypt is not an offshore financial center.  Offshore 
banks, international business companies and other forms of 
exempt or shell companies are not permitted in Egypt. 
 
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Free Trade Zones 
---------------- 
 
¶8.  Egypt has two types of free zones: 
 
 - Public free zones, which are specific geographic 
districts administered by the GOE.   Public free zones house 
both state-owned and/or private enterprises, which receive 
duty-free status on imported inputs used in the 
manufacturing of goods for re-export.  Currently there are 
ten public free zones in operation:  Alexandria, Nasr City, 
Port Said, Suez, Ismailia, Damietta, The Media Zone, Shebin 
el Kom, Koft, and East Port Said. 
 
- Private free zones, which are established for a specific 
project or company to undertake operations such as mixing, 
repackaging, assembly, and manufacturing for re-export.  The 
current number of private free zones is not available, but 
as many as 177 companies have been designated as private 
free zones in recent years. 
 
¶9.  There is no indication that Egypt's free zones are being 
used for trade-based money laundering schemes or for 
financing terrorism.  Companies in the public free zones are 
registered by the General Authority for Free Zones and 
Investment and monitored by the Ministry of Foreign Trade 
and Industry.  The private free zones are under the 
direction and supervision of a special non-governmental 
Board of Directors. 
 
--------------------------------------------- --- 
Laws and Regulations to Prevent Money Laundering 
--------------------------------------------- --- 
 
¶10.  In May 2002, Egypt passed the Anti-Money Laundering Law 
(Law No. 80 of 2002).  The law does not take an "all serious 
crimes" approach, but criminalizes the laundering of funds 
from narcotics trafficking, prostitution and other immoral 
acts, terrorism, antiquities theft, arms dealing, organized 
crime, and numerous other activities.  The law did not 
repeal Egypt's existing law on secrecy of bank accounts, but 
provided the legal justification for providing account 
information to responsible civil and criminal authorities. 
The law also provided for the establishment of the MLCU as 
Egypt's FIU, which officially began operating on March 1, 
¶2003.  In June 2003, the administrative regulations of the 
Anti-Money Laundering Law were issued as Prime Ministerial 
Decree No. 951/2003.  The regulations provided the legal 
basis by which the MLCU derives its authority, spelled out 
the predicate crimes associated with money laundering, 
established a board of trustees to govern the MLCU, defined 
the role of supervisory authorities and financial 
institutions, and allowed for the exchange of information 
with foreign competent authorities. 
 
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Financial Sector 
---------------- 
 
¶11. Upon its creation, the MLCU began to share 
responsibility with CBE's Bank Supervision Unit for 
supervising and examining compliance in the financial sector 
with anti-money laundering/terrorist financing regulations. 
In 2001, before passage of Egypt's Anti-Money Laundering 
Law, the CBE Banking Supervision Unit and other financial 
regulatory bodies issued a number of anti-money laundering 
instructions, including "know your customer" and "suspicious 
transaction reporting" (STR) requirements.  With passage of 
the Anti-Money Laundering Law, banks were also required to 
keep all records for five years and numbered or anonymous 
financial accounts were prohibited.  In March 2004, the CBE 
issued instructions requiring banks to establish internal 
systems enabling them to comply with the anti-money 
laundering laws.  In addition, banks are now required to 
submit quarterly reports showing the progress made with 
respect to their anti-money laundering responsibilities. 
 
¶12. The CBE also monitors closely bureaux de change and 
money transmission companies for foreign exchange control 
purposes, with close scrutiny of accounts with transactions 
above certain limits.  The Capital Market Authority (CMA), 
which is responsible for regulating the securities markets, 
has also undertaken inspection of firms under its 
jurisdiction.  The inspections were aimed at explaining and 
discussing anti-money laundering regulations and 
obligations, as well as at evaluating the implementation of 
systems and procedures, including checking for an internal 
procedures manual and ensuring the appointment of compliance 
officers.  An independent insurance regulatory authority is 
on the GOE's drawing board, and authorizing legislation will 
likely be submitted to parliament in 2006. 
 
¶13. The executive regulations of the Anti-Money Laundering 
Law lowered the threshold for declaring foreign currency at 
borders from the equivalent of $20,000 to $10,000.  The 
declaration requirement was also extended to travelers 
leaving as well as entering the country.  Enforcement of 
this provision is uneven, but the Ministry of Finance claims 
that the terrorist attacks of the past year have given extra 
impetus to law enforcement agencies to thoroughly scrutinize 
currency imports/exports. 
 
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Financial Intelligence Unit 
--------------------------- 
 
¶14. The MLCU, Egypt's FIU, is an independent entity within 
the CBE, and has its own budget and staff, and full legal 
authority to examine all STRs and conduct investigations 
with the assistance of counterpart law enforcement agencies, 
including the Ministry of Interior.  Presidential Decree No. 
164/2002, issued in June 2002, delineates the structure, 
functions, and procedures of the MLCU.  The unit handles 
implementation of the Anti-Money Laundering Law, including 
publishing the executive directives.  The MLCU takes 
direction from a five-member council, chaired by the 
Assistant Minister of Justice for Legislative Affairs. Other 
members include the chairman of the CMA, the Deputy Governor 
of the CBE, a representative from the Egyptian Banking 
Federation, and an expert in financial and banking affairs. 
In June 2004 the MLCU was admitted to the Egmont Group of 
FIUs. 
 
¶15. On the administrative side, the Executive Director of 
the MLCU is responsible for the operation of the FIU and the 
implementation of the policy drafted by the Council of 
Trustees.  His responsibilities include proposing procedures 
and rules to be observed by different entities involved in 
combating money laundering, and presenting them to the 
Chairman of the Council of Trustees; reviewing the 
regulations issued by supervisory authorities for 
consistency with legal obligations and to ensure they are up 
to date; ensuring the capability and readiness of the Unit's 
database; exchanging information with supervisory entities 
abroad; acting as point of contact within the GOE; preparing 
periodic and annual reports on the operational status of the 
Unit; and taking necessary action on STRs recommended to be 
reported to the office of the Public Prosecution. 
 
¶16. Since its inception, the MLCU has received over a 
thousand STRs from financial institutions and has 
successfully brought three cases to court, one involving 
proceeds from drug smuggling and the other two involving 
proceeds from antiquities smuggling. 
 
¶17. Money laundering investigations are carried out by one 
of the three law enforcement agencies in Egypt, according to 
the type of predicate offense involved.  The Ministry of 
Interior, which has general jurisdiction for the 
investigation of money laundering crimes, has established a 
separate anti-money laundering (AML) department, which 
includes a contact person for the MLCU who coordinates with 
other departments within the ministry.  The AML department 
works closely with the MLCU during investigations.  It has 
established its own database to record all the information 
it received, including STRs, cases, and treaties.  The 
Administrative Control Authority has specific responsibility 
for investigating cases involving the public sector or 
public funds.  It also has a close working relationship with 
the MLCU.  The third law enforcement entity, the National 
Security Agency, plays a more limited role in the 
investigation of money laundering cases, where the predicate 
offense threatens national security.  The GOE established a 
national committee for coordinating issues regarding anti- 
money laundering, which held its first meetings in late 
¶2005. 
 
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Terrorist Financing 
------------------- 
 
¶18. As noted above, the Anti-Money Laundering Law 
criminalized money laundering related to terrorism.  The GOE 
is in the process of replacing the Emergency Law, in place 
since 1981, with an anti-terrorism law, which according to 
the MLCU, will include specific measures against terrorist 
financing. 
 
¶19. The CBE circulates to all financial institutions the 
list of individuals and entities that have been included in 
the UN 1267 Sanctions Committee's consolidated list as being 
linked to Osama bin Laden, members of Al Qa'ida or the 
Taliban, and that the USG has designated under relevant 
authorities.  No related assets have been identified, 
frozen, seized and/or forfeited in 2005. 
 
¶20. In 2002, the GOE passed the Law on Civil Associations 
and Establishments (Law No. 84 of 2002), which governs the 
procedures for setting up NGOs, including their internal 
regulations, activities, and financial records. The law 
places restrictions on accepting foreign donations without 
prior permission from the proper authorities.  Both the 
Ministry of Social Affairs and the CBE continually monitor 
the operations of domestic NGOs and charities to forestall 
funding of domestic and foreign terrorist groups.  The GOE 
has signed, but not yet ratified, the UN International 
Convention for the Suppression of the Financing of 
Terrorism. 
 
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International Cooperation 
------------------------- 
 
¶21. Because of its own historical problems with domestic 
terrorism, the GOE has sought closer international 
cooperation to counter terrorism and terrorist financing. 
The GOE has shown willingness to cooperate with foreign 
authorities in criminal investigations, whether they are 
related to terrorism or narcotics.  In April 2004, citing 
the importance of the role that the FIU plays in fighting 
serious financial crimes, the GOE, pursuant to Prime 
Minister Decree No. 676/2004, decided to grant 
representatives from the MLCU membership in the Egyptian 
National Committee for International Cooperation in 
Combating Terrorism, which was established in 1998.  The 
other members of the Commission are the Ministry of Justice, 
Ministry of Foreign Affairs, Ministry of Interior, and the 
National Security Agency. 
 
¶22. The United States and Egypt have a Mutual Legal 
Assistance Treaty, which entered into force November 2001. 
Egyptian authorities have cooperated with U.S. efforts to 
seek and freeze terrorist assets, circulating to each of 
their financial institutions the list of Specially 
Designated Global Terrorists designated by the U.S. pursuant 
to E.O. 13224.  Information about financial and other assets 
frozen and/or seized in connection with money laundering and 
terrorist financing investigations is not a matter of public 
record in Egypt. 
 
¶23. Egypt was one of the founding members the Middle East 
and North Africa Financial Action Task Force (MENA/FATF), a 
FATF-style regional body that promotes best practices to 
combat money laundering and terrorist financing in the 
region.  In November 2004, Egypt was elected to a one-year 
term as the first Vice-President of MENA/FATF, which was 
inaugurated on November 30 in Bahrain by 14 Arab countries. 
Egypt is a party to the 1988 UN Drug Convention.  In March 
2004, it ratified the UN Convention against Transnational 
Organized Crime. 
 
¶24.  The GOE has continued implementing reforms in 2005 to 
address domestic and international concerns regarding 
deficiencies in its banking system and monetary policy. 
However, many financial institutions are still in need of 
further strengthening.  The GOE must seek more law 
enforcement and judicial training in order to enhance its 
ability to follow suspicious activities through the entire 
investigative and judicial process; consider ways of 
improving MLCU feedback on STRs to reporting financial 
institutions; and more evenly enforce cross-border currency 
controls, including reporting requirements.  Egypt should 
also become a party to the UN International Convention for 
the Suppression of the Financing of Terrorism. 
JONES