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Diana T Fritz  12/17/2006 11:56:05 AM  From  DB/Inbox:  Diana T Fritz

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UNCLAS        ABU DHABI 04479

SIPDIS
CXABU:
    ACTION: ECON
    INFO:   TREAS OFAC P/M AMB DCM POL

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: CDA: MQUINN
DRAFTED: ECON: BDEMONTLUZIN
CLEARED: ECON: OJOHN, OFAC: JBEAL, P/E: TBRYS, P/E KMORRIS

VZCZCADI242
RR RUEHC RUEAWJA RUEATRS RUEHZM
DE RUEHAD #4479/01 3481458
ZNR UUUUU ZZH
R 141458Z DEC 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 7877
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 05 ABU DHABI 004479 
 
SIPDIS 
 
JUSTICE FOR AFMLS, OIA AND OPDAT 
TREASURY FOR FINCEN & EB/ESC/TFS 
STATE FOR INL, NEA/ARP, NEA/RA 
 
E.O. 12958: N/A 
TAGS: KCRM EFIN KTFN AE
SUBJECT: 2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT, 
UNITED ARAB EMIRATES: VOL. II: MONEY LAUNDERING & FINANCIAL CRIMES 
 
REF: 157136 
 
¶1. (U) The United Arab Emirates (UAE) is an important financial 
center in the Persian Gulf region. The UAE is still a largely 
cash-based society. However, the financial sector is modern and 
progressive. Dubai, in particular is a major international banking 
center. There is also a growing offshore sector. The UAE's robust 
economic development, political stability, and liberal business 
environment have attracted a massive influx of people and capital. 
Because of the UAE's geographic location and its role as the primary 
transportation and trading hub for the Gulf States, East Africa, and 
South Asia, and with its expanding trade ties with the countries of 
the former Soviet Union, the UAE has the potential to be a major 
center for money laundering. The large number of resident 
expatriates from the above regions, many of whom are engaged in 
legitimate trade with their homelands, or send remittances there, 
exacerbates that potential. Approximately 80 percent of the UAE 
population is comprised of non-nationals. Given the country's 
proximity to Afghanistan, where most of the world's opium is 
produced, narcotics traffickers are increasingly reported to be 
attracted to UAE's financial centers. 
 
¶2. (U) Following the September 11 terrorist attacks in the United 
States, and amid revelations that terrorists had moved funds through 
the UAE, the Emirates' authorities acted swiftly to address 
potential vulnerabilities. In close concert with the United States, 
the UAE imposed a freeze on the funds of groups with terrorist 
links, including the Al-Barakat organization, which was 
headquartered in Dubai. Both federal and Emirate-level officials 
have gone on record as recognizing the threat money laundering 
activities in the UAE pose to the nation's security. Since 2001, the 
UAE Government (UAEG) has taken steps to better monitor cash flows 
through the UAE financial system and to cooperate with international 
efforts to combat terrorist financing. The UAE has enacted two laws 
that serve as the foundation for the country's anti-money laundering 
(AML) and counterterrorist financing (CTF) efforts: Law No. 4/2002, 
the anti-money laundering law, and Law No. 1/2004, the 
counterterrorism law.  The UAE also enacted Law No. 2 of 2006 the 
Cybercrimes law, which has articles dealing with money laundering 
and terrorist finance. 
 
¶3. (U) Law No. 4 of 2002 criminalizes all forms of money laundering 
activities. The law calls for stringent reporting requirements for 
wire transfers exceeding $545 and currency imports above $10,900. 
The law imposes stiff criminal penalties (up to seven years in 
prison and a fine of up to 300,000 dirhams ($81,700), as well as 
seizure of assets if found guilty) for money laundering. It also 
provides safe harbor provisions for those who report such crimes. 
Although the anti-money laundering law criminalizes money 
laundering, it is administrative Regulation No. 24/2000 that 
provides guidelines for how financial institutions are to monitor 
for money laundering activity. 
 
¶4. (U) This regulation requires banks, money exchange houses, 
finance companies, and any other financial institutions operating in 
the UAE to follow strict know your customer guidelines. 
Additionally, financial institutions must verify the customer's 
identity and maintain transaction details (including name and 
address of originator and beneficiary) for all exchange house 
transactions over $545 and for all non-account holder bank 
transactions over $10,900. The regulation delineates the procedures 
to be followed for the identification of natural and juridical 
persons, the types of documents to be presented, and rules on what 
customer records must be maintained on file at the institution. 
Other provisions of Regulation 24/2000 call for customer records to 
be maintained for a minimum of five years and further require that 
they be periodically updated as long as the account is open. 
 
¶5. (U) On July 29, 2004, the UAE strengthened its legal authority to 
combat terrorism and terrorist financing, by passing Federal Law 
Number 1 of 2004 on Combating Terror Crimes (Law No. 1/2004). The 
law sets stiff penalties for the crimes covered, including life 
imprisonment and the death penalty. It also provides for asset 
seizure or forfeiture. Under the law, founders of terrorist 
organizations face up to life imprisonment. The law also penalizes 
the illegal manufacture, import, or transport of "non-conventional 
weapons" or their components, with the intent to use them in a 
terrorist activity. 
 
¶6. (U) Law No. 1/2004 specifically criminalizes the funding of 
terrorist activities or terrorist organizations. Article 12 provides 
that raising or transferring money with the "aim or with the 
knowledge" that some or all of this money will be used to fund 
terrorist acts is punishable by "life or temporary imprisonment," 
whether or not these acts occur. Law No. 1/2004 grants the Attorney 
General (or his deputies) the authority to order the review of 
information related to the accounts, assets, deposits, transfer, or 
property movements on which the Attorney General has "sufficient 
evidence to believe" are related to the funding or committing of a 
terror activity stated in the law. The law also provides for asset 
seizure and confiscation. Article 31 gives the Attorney General the 
authority to seize or freeze assets until the investigation is 
completed. Article 32 confirms the Central Bank's authority to 
freeze accounts for up to seven days if it suspects that the funds 
will be used to fund or commit any of the crimes listed in the law. 
The law also allows the right of appeal to "the competent court" of 
any asset freeze under the law. The court will rule on the complaint 
within 14 days of receiving the complaint. Through 2005, there are 
no reported criminal convictions for money laundering or terrorist 
financing under either the 2002 or the 2004 laws. 
 
¶7. (U) Law No. 1/2004 also sets up a "National Anti-Terror 
Committee" with representatives from the Ministries of Foreign 
Affairs, Interior, Justice, and Defense, the Central Bank, the State 
Security Department, and the Federal Customs Authority. The 
Committee serves as a UAE interagency liaison, implements UN 
Security Council Resolutions on terrorism, and shares information 
with its foreign counterparts as well as with the United Nations 
(UN). 
 
¶8. (U) The UAE's National Anti-Money Laundering Committee (NAMLC)was 
established in July 2000 and was codified into law by Law No. 
4/2002.  It is the body responsible for coordinating anti-money 
laundering policy. It is chaired by the Central Bank (CB) governor, 
with representatives from the Ministries of Interior, Justice, 
Finance, and Economy; the National Customs Board; the Secretary 
General of the Municipalities; the Federation of the Chambers of 
Commerce; and five major banks and money exchange houses (as 
observers). 
 
¶9. (U) In July 2006 there were several amendments to Regulation 
24/2000.  First, the phrase "terrorism financing" was added to 
references to money laundering in the regulation.  Terrorism 
financing is specifically criminalized in Law No. 1/2004 but this 
amendment added the term "terrorism financing" into the regulations. 
 Second, regulation 24/2000 was amended requiring financial 
institutions to freeze transactions and notify the financial 
intelligence unit in writing,  "in case of doubt" that it may be 
destined for terrorism, a terrorist organization or for terrorist 
purposes.   Finally, there was a change in the due diligence 
requirements on charities which specifically required banks to have 
a certificate from the Minister of Social Affairs to open or 
maintain a charitable account. 
 
¶10. (U) In 2006, the UAE also enacted Law No. 2 of 2006 -- the 
Cybercrimes law -- which has articles dealing with money laundering 
and terrorist finance.    Article 19 of the law makes it a crime for 
anyone to use the internet to transfer money or property traceable 
to criminal proceeds, or to conceal the true sources of such assets. 
 Violations are punishable by a term of imprisonment of up to 7 
years and a fine ranging between $8,174 - $54,495.  Article 21 of 
the law outlaws the use of the internet to finance terrorist 
activities, promote terrorist ideology, disseminate information on 
explosives or facilitate contact with terrorist leaders.  Any 
violation of Article 21 is punishable by a term of imprisonment up 
to 5 years. 
 
¶11. (U) The supervision of the UAE banking and financial sector 
(including banks, exchange houses, and investment companies) falls 
under the authority of the CB. The CB issues licenses to financial 
institutions under its supervision and can impose administrative 
sanctions for compliance violations. The CB issues instructions and 
recommendations as it deems appropriate and is permitted to take any 
necessary measures to ensure the integrity of the UAE's financial 
system. The CB has issued a number of circulars outlining the 
requirements for customer identification and providing for a basic 
suspicious transaction-reporting obligation. 
 
¶12. (U) Law 4/2002 provided for the establishment of the Anti-Money 
Laundering and Suspicious Case Unit (AMLSCU), which is the UAE's 
financial intelligence unit (FIU) and is housed within the CB. 
Financial institutions under the supervision of the CB are required 
to report suspicious transactions to the AMLSCU, which is charged 
with examining them and coordinating the release of information with 
law enforcement and judicial authorities. It has the authority to 
request information from foreign regulatory authorities in carrying 
out its preliminary investigation of suspicious transaction reports. 
The AMLSCU-a member of the Egmont Group since June 2002-exchanges 
information with foreign FIUs on a reciprocal basis, and has 
provided information relating to investigations carried out by the 
United States and other countries. Since December 2000, the CB has 
referred 109 cases to foreign FIUs. 
 
¶13. (U) From December 2000 to October 2006, the AMLSCU has received 
and investigated 3954 suspicious transactions reports (STRs). From 
December 2005 to October 2006, the AMLSCU received and investigated 
829 STRs. One freeze order was issued in 2006 based on STR 
submissions, and from December 2000 to October 2006, the CB has 
issued 27 freeze orders based on AMLSCU and law enforcement 
investigations. Nine of those cases are in the process of 
prosecution for money laundering and confiscation of proceeds. The 
CB circulates to all financial institutions under its supervision 
the UNSCR 1267 Sanctions Committee's consolidated list of suspected 
terrorists and terrorist organizations. Since 2000, it has frozen 
$1,348,381 in 17 accounts based on the UNSCR 1267 list. 
 
¶14. (U) Some money laundering in the UAE occurs in the formal 
banking system, including the numerous money exchange houses, but it 
is likely more prevalent in the informal and largely undocumented 
hawala remittance system. The fact that hawala is an undocumented 
and nontransparent system, and is highly resilient despite 
enforcement and regulatory efforts, makes it difficult to control 
and an attractive mechanism for terrorist and criminal exploitation. 
The UAE issued regulations to improve oversight of the hawala system 
in 2002, when the CB required hawala brokers to register with the 
CB, submit the names and addresses of senders and beneficiaries, and 
to file suspicious transaction reports on a monthly or quarterly 
basis. 
 
¶15. (U) As of November 30, 2006, the CB issued 201 licenses to 
hawaladars and another 38 applicants for hawala licenses are in the 
process of fulfilling Central Bank licensing requirements. The CB 
conducts one-on-one training sessions with each registered hawaladar 
to ensure the dealer understands the record-keeping and reporting 
obligations. There is no accurate estimate of the total number of 
UAE-based hawala brokers, and there is no penalty for failure of 
hawaladars to register. 
The UAE has hosted three international conferences on hawala, with 
delegates including government officials, executives of supervisory 
institutions, banking experts, and law enforcement officials from 
the Middle East, United States, Latin America, Asia, and Europe. 
Speakers discussed ways to ensure hawala is regulated, without 
driving the system further underground.  The Fourth International 
Conference on Hawala is expected to be held in the UAE in March 
¶2007.  This attention to hawala may be encouraging more people in 
the country to use regulated exchange houses. Representatives of 
money exchange business noted that their sector could transfer money 
anywhere, even to a private residence, for a fee competitive with 
hawala, persuading many to use the formal, and more secure, banking 
network. 
 
¶16. (U) The UAE has set no limits on how much cash can be imported 
into or exported from the country. However, the UAE Central Bank 
requires that individuals declare cash imports above $10,900. The 
regulations provide customs services with the authority to seize 
undeclared cash. However, there are no reporting requirements for 
cash leaving the country.  UAE authorities have the authority to 
seize undeclared cash and to investigate.  However, the UAE lacks 
any administrative procedure for cash forfeiture.  All cases must be 
dealt with through the courts. The UAE is a cash-based economy, and 
it is not unusual for people to carry significant sums of cash 
around. As such, customs officials, police, and judicial authorities 
tend to not regard large cash imports as suspicious or possibly 
criminal. 
 
¶17. (U) The UAEG also has admitted the need to better regulate 
"near-cash" items such as gold, jewelry, and gemstones, especially 
in the burgeoning markets in Dubai. The UAE has participated in the 
Kimberley Process Certification Scheme for Rough Diamonds (KPCS) 
since November 2002, and began certifying rough diamonds exported 
from the UAE on January 1, 2003. In 2004, the UAE was the first KPCS 
participant country to volunteer for a "peer review visit" on 
internal control mechanisms. 
 
¶18. (U) The Dubai Metals and Commodities Center (DMCC) is the 
quasi-governmental organization charged with issuing Kimberly 
Process (KP) certificates in the UAE, and employs four individuals 
full-time to administer the KP program. Prior to January 1, 2003, 
the DMCC circulated a sample UAE certificate to all KP member states 
and embarked on a public relations campaign to educate the estimated 
50 diamond traders operating in Dubai concerning the new KP 
requirements. UAE customs officials may delay or even confiscate 
diamonds entering the UAE from a KP member country without the 
proper certificate. 
 
¶19. (U) The Securities and Commodities Authority (SCA) supervises 
the country's two stock markets. In February 2004, it sent out 
anti-money laundering guidelines to brokers and the markets, 
instructing them to verify client information when opening accounts 
and created a reporting requirement for cash transactions above 
$10,900. The SCA also instructed the markets and brokers to file 
suspicious transaction reports for initial analysis before 
forwarding them to the AMLSCU for further action. The instructions 
also provide for a five-year record keeping requirement. 
 
¶20. (U) Dubai's booming property market is also susceptible to money 
laundering abuse. In 2002, Dubai began to allow three real estate 
companies to sell "freehold" properties to non-citizens. Several 
other emirates have followed suit. Abu Dhabi has passed a property 
law, which provides for a type of lease-hold ownership for 
non-citizens.  Citizens of GCC countries can own and trade land 
within designated investment areas.  Other expatriates can invest on 
a 99-year leasehold basis. The intense interest in these properties, 
and rumors of cash purchases, has sparked concerns about the 
potential for money laundering. As a result, developers have stopped 
accepting cash purchases, alleviating some of the concerns about 
money laundering activities in this sector of the economy. 
 
¶21. (U) The UAEG is much more sensitive since September 11 to the 
oversight of charities and accounting for transfers abroad. In 2002, 
the UAEG mandated that all licensed charities interested in 
transferring funds overseas must do so via one of three umbrella 
organizations: the Red Crescent Authority, the Zayed Charitable 
Foundation, or the Muhammad Bin Rashid Charitable Trust. These three 
quasi-governmental bodies are in a position to ensure that overseas 
financial transfers go to legitimate parties. As an additional step, 
the UAEG has contacted the governments in numerous aid receiving 
countries to compile a list of recognized acceptable recipients for 
UAE charitable assistance. 
 
¶22. (U) Oversight over charities has occurred on either a federal or 
emirate level.  The UAE Ministry of Social Affairs licenses and 
monitors registered charities in Abu Dhabi and the northern 
emirates.  Charities are required to keep records of donations and 
beneficiaries and submit annual reports to the Ministry.  Charities 
in Dubai meanwhile are licensed and monitored by the Dubai 
Department of Islamic Affairs and Charitable Activities.  However, 
there were charities, particularly in the Northern Emirates which 
registered with their local emirate and not the federal MSA. In July 
2006 Regulation 24/2000 was amended requiring charities from all 
emirates to obtain a certificate from the Minister of Social Affairs 
to open or maintain bank accounts in the UAE, effectively requiring 
all charities to be registered federally.  In November 2006 the UAE 
hosted a UK/GCC conference on charities and proposed holding 
biannual meetings with the UK and GCC on charities oversight.   . 
 
¶23. (U) The UAE has both free trade zones (FTZs) and financial free 
zones (FFZs). There are a growing number of free trade zones (FTZs), 
with 26 already in operation in Dubai and 6 other free zones in the 
other emirates.  Every emirate except Abu Dhabi has at least one 
functioning FTZ. The free trade zones are monitored by emirate-level 
(as opposed to federal) authorities. 
 
¶24. (U) There are over five thousand multinational companies located 
in the FTZs, with thousands of individual trading companies. The 
FTZs permit 100 percent foreign ownership, no import duties, full 
repatriation of capital and profits, no taxation, and easily 
obtainable licenses. Companies located in the free trade zones are 
treated as being offshore or outside the UAE for legal purposes. 
However, UAE law prohibits the establishments of shell companies and 
trusts, and does not permit non-residents to open bank accounts in 
the UAE. The larger FTZs in Dubai (such as Jebel Ali free zone) are 
well-regulated. Although it is not impossible that some trade-based 
money laundering occurs in the large FTZs, there is a higher 
potential for it in some of the smaller FTZs in the northern 
emirates. 
 
¶25. (U) In March 2004, the UAEG passed Federal Law No. 8 Regarding 
the Financial Free Zones (FFZs) (Law No. 8/2004). The new law 
exempts FFZs and their activities from UAE federal civil and 
commercial laws, but subjects them and their operations to federal 
criminal laws including the Anti-Money Laundering Law No. 4/2002 and 
the Anti-Terror Law No. 1/2004. The new law and a subsequent federal 
decree also allowed for the establishment, in September 2004, of the 
UAE's first financial free zone (FFZ), known as the Dubai 
International Financial Center (DIFC). In September 2005, the DIFC 
opened its securities market-the Dubai International Financial 
Exchange (DIFX). 
 
¶26. (U) Law No. 8/2004 limits licenses for banking activities in the 
FFZs to branches of companies, joint companies, and wholly owned 
subsidiaries, provided that they "enjoy a strong financial position 
and systems and controls, and are managed by persons with expertise 
and knowledge of such activity." The law prohibits companies 
licensed in the financial free zone from dealing in UAE currency 
(dirham) or taking "deposits from the state's markets." It further 
stipulates that the licensing standards of companies "shall not be 
less than those applicable in the state." The law empowers the 
Emirates Stocks and Commodities Authority to approve the listing of 
any company listed on any UAE stock market in the financial free 
zone and the licensing of any UAE licensed broker. The law limits 
any insurance activity in the UAE carried out by a financial free 
zone company to that of reinsurance. It further gives competent 
authorities in the Federal Government the power to inspect financial 
free zones and submit their findings to the UAE cabinet. According 
to DFSA regulators, the DFSA due diligence process is a risk-based 
assessment that examines a firm's competence, financial soundness, 
and integrity. 
 
¶27. (U) DIFC regulations provide for an independent regulatory body, 
the Dubai Financial Services Authority (DFSA), which reports to the 
office of Dubai Crown Prince and an independent Commercial Court. 
Observers called the independence of the DFSA into question in the 
summer of 2004, even prior to the inauguration of the DIFC, with the 
high profile firing of the chief regulator and the head of the 
regulatory council (the supervisory authority). Subsequent to the 
firing, Dubai passed laws which appear to give the DFSA more 
regulatory independence from the DIFC, although these laws have not 
yet been tested. The DFSA, whose regulatory regime is generally 
modeled after the United Kingdom system, is the only authority 
responsible for licensing firms providing financial services in the 
DIFC. 
 
¶28. (U) The DFSA has licensed 94 financial institutions to operate 
within the DIFC. The DFSA's rules prohibit offshore casinos or 
internet gaming sites in the UAE. The DFSA requires firms to send 
suspicious transaction reports to the AMLSCU (along with a copy to 
the DFSA). To date, there have been 9 suspicious transaction reports 
issued from firms operating in the DIFC (8 in 2006).  Although firms 
operating in the DIFC are subject to Law No. 4/2002, the DFSA has 
also issued its own anti-money laundering regulations and 
supervisory regime, creating some ambiguity as to the authority of 
the CB and AMLSCU within the DIFC. Discussions with the UAE Central 
Bank on a formal bilateral arrangement are ongoing. The DFSA has 
undertaken a campaign to reach out to other international regulatory 
authorities. As of December 2006, the DFSA has MOU's with 16 other 
regulatory bodies, including the UK's Financial Services Authority 
(FSA), the Emirates Securities and Commodities Authority, and the 
U.S. Commodity Futures Trading Commission (CFTC).   The UAE is a 
party to the 1988 UN Drug Convention. The UAE has signed and 
recently ratified the UN Convention against Corruption, but has not 
ratified the UN Convention against Transnational Organized Crime. It 
has entered into a series of bilateral agreements on mutual legal 
assistance. The UAE is a party to all 12 UN conventions and 
protocols relating to the prevention and suppression of 
international terrorism. The UAE was very active in supporting the 
creation of the Middle East and North Africa Financial Action Task 
Force (MENAFATF) that was inaugurated in Bahrain in November 2004; 
the UAE was one of the original charter signatories. 
 
¶29. (U) The UAEG has begun constructing a far-reaching anti-money 
laundering program, and it is considered a regional leader in these 
efforts. The UAE has sought to crack down on potential 
vulnerabilities in the financial markets and is cooperating in the 
international effort to prevent money laundering, particularly by 
terrorists. There has been a substantial improvement on behalf of 
the AMLSCU in the area of information sharing with other countries. 
 
 
¶30. (U) However, there remain areas requiring further action. Law 
enforcement and customs officials should begin to take the 
initiative to recognize money laundering activity and proactively 
develop cases without waiting for referrals from the AMLSCU. There 
needs to be closer cooperation between the Central Bank and the 
DFSA.  Additionally law enforcement and customs officials should 
conduct more thorough inquiries into large undeclared cash imports 
and required the declaration of exports from the country. UAE 
officials should give greater scrutiny to trade-based money 
laundering in all of its forms. The Central Bank should continue its 
efforts to encourage hawala dealers to participate in the 
registration program. The UAE should follow up with financial 
institutions and the MSA on recent tightening of the charities 
regulations to be sure that all the charities have registered, and 
it should continue its efforts to regionally promote sound 
charitable oversight and engage in a public campaign to ensure all 
local charities are aware of the requirements. It should ratify the 
UN Convention against Transnational Organized Crime. 
 
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