VZCZCXYZ0002
RR RUEHWEB

DE RUEHYN #1423/01 2050908
ZNR UUUUU ZZH
R 240908Z JUL 07
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 7661
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHMCSUU/FBI WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SANAA 001423 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR S/CT (NOVIS/GALER), INL (BRANDOLINO/RINDLER), 
NEA/ARP 
 
E.O. 12958: N/A 
TAGS: KTFN KCRM PREL PTER SNAR EFIN YM
SUBJECT: PART TWO OF FOUR: RESULTS OF FINANCIAL SYSTEMS 
ASSESSMENT TEAM VISIT TO YEMEN MAR 1-7, 2007 
 
REF: SANAA 1418 
 
¶1.  Summary.  A multi-agency Financial Systems Assessment 
Team (FSAT) conducted a week-long, in-country evaluation of 
Yemen,s capacity to combat money laundering and terrorist 
financing, in order to determine its most critical training 
and technical assistance needs on March 1-7, 2007. This 
second section of the FSAT Team's report focuses on the 
ROYG's Anti-Money Laundering Information Unit, the 
development of Yemen's financial sector, and the Central Bank 
of Yemen.  End summary 
 
-------------------------------------- 
ANTI-MONEY LAUNDERING INFORMATION UNIT 
-------------------------------------- 
 
¶2.  Law No. 35/2003 created the Anti-Money Laundering 
Information Unit  (AMLIU) as Yemen,s financial intelligence 
unit (FIU).  The AMLIU consists of three members:  a 
chairman, a legal expert and a technical expert for 
verifications. 
 
¶3.  The AMLIU is housed within the Central Bank of Yemen 
(CBY), and provides the CBY with both financial and 
administrative support, including legal and regulatory 
personnel.  However, the AMLIU claims that it is technically 
independent from the Central Bank since it is not required to 
report to the CBY.  According to its organizational 
structure, the AMLIU can share information with, but does not 
necessarily report to, the following three entities:  the 
Central Bank Governor, the National Anti-Money Laundering 
Committee (NAMLC), and the Deputy Governor for Banks. 
 
¶4.  The AMLIU receives suspicious transaction reports (STRs) 
from banks, money exchangers, insurance companies, stocks and 
bonds companies, and financial real estate leasing companies. 
 STRs are delivered to the AMLIU by a courier, with an 
authorized signature required upon receipt.  There is no 
specified time limit for filing STRs to the AMLIU. 
 
¶5.  The AMLIU received two STRs from financial institutions 
in 2005, and three STRs in 2006.  In 2007, the AMLIU has so 
far forwarded one suspicious case to the Office of Public 
Prosecution for suspected money laundering.  Once the AMLIU 
receives the STR, it reviews all the information and 
supporting documentation contained within the report.  If 
there are any missing data from the STR or supporting 
documents, the AMLIU may request additional information 
directly from the bank or conduct an onsite visit.  The AMLIU 
then determines whether the case is of a criminal nature. 
The AMLIU forwards criminal cases to the Office of Public 
Prosecution for further investigation.  The AMLIU itself does 
not have an investigative capacity.  The AMLIU has one member 
with investigative experience, but needs additional 
capacity-building training. 
 
¶6.  The AMLIU is divided into three separate divisions: 
investigations, analysis and legal monitoring, and 
information technology.  The investigations division serves 
more as a verification function, rather than an investigative 
function, and conducts field visits to financial 
institutions.  The analysis and legal monitoring division 
receives and analyzes the STRs, and reports those cases to 
the Office of Public Prosecution.  The information technology 
division collects and compiles all data received into an 
electronic database, and shares information with other 
government agencies. 
 
¶7.  The AMLIU faces several challenges with its efforts to 
combat money laundering and terrorist financing.  The general 
lack of AML/CTF awareness, as well as formal training in 
AML/CTF detection, are its foremost challenges, for which the 
AMLIU has requested immediate assistance.  Other challenges 
that impede the AMLIU,s efforts include:  (1) the corruption 
and embezzlement of public funds, which they claim are 
rampant throughout the country; and (2) terrorist acts 
conducted by highly skilled terrorist groups.  Another 
challenge to the effectiveness of Yemen,s AML/CTF regime is 
the high degree of cash being circulated in the informal 
banking sector (approximately 60-80% of total funds). 
 
¶8.  The AMLIU is in need of fundamental training and 
technical assistance in the following areas:  (1) detecting 
suspicious activity in financial transactions; (2) analyzing 
suspicious transaction reports once they are received; and 
 
(3) creating an electronic database of all STRs and related 
information within the AMLIU in order to conduct future link 
analysis.  As a first step, an analytic exchange with FinCEN 
is recommended in the near future in order to provide the 
Yemenis with a better understanding of a fully functional 
AMLIU, as well as a general overview of AMLIU operations in 
each of these specified areas. 
 
----------------------------------- 
DEVELOPMENT OF THE FINANCIAL SECTOR 
----------------------------------- 
 
¶9.  Yemen,s financial sector is rudimentary as Yemen is 
predominantly a cash-based society.  Officials insist that 
the financial sector is not conducive to money laundering due 
to the poor economic factors and the limited capital of 
Yemeni banks.  However, officials also reported a 35% growth 
rate in domestic bank deposits in 2006 compared to a 28.5% 
growth rate by Arab and foreign banks operating in country. 
Also, reports indicate that Yemen banks, revenues were 360 
billion Yemeni Riyals (USD 1.8 billion) in 2006; and deposits 
reached 214 Yemeni Riyals (USD 1.1 billion), with capital of 
854 Yemeni Riyals (USD 4.3 billion) by year-end 2006. 
 
¶10.  Officials indicated that several initiatives have been 
planned in order to attract more of the population into the 
formal financial system:  deposit insurance on accounts; 
direct deposit of ROYG payroll into bank accounts; expansion 
of the ATM network; and the offering of Treasury Bills.  On 
03/06/2007, members of the team accepted an invitation from 
the Chairman of the Cooperative & Agricultural Credit Bank 
(CAC Bank) to view its state-of-the-art Visa Card operations 
facility at the main branch in Sana,a.  The bank,s 
initiative to expand services to the non-banking community 
and promote trust and reliance in electronic payments systems 
indicates a degree of financial sophistication and progress. 
All of these trends indicate increased penetration by the 
financial sector into the cash economy as the banks and 
others begin to pursue the non-bank market.  It is therefore 
critical that anti-money laundering regulations and controls 
be implemented at a similar pace to avoid the risk of an 
unregulated sector. 
 
Regulatory Framework 
-------------------- 
 
¶11.  The current AML law established a number of institutions 
such as the AMLIU and the National AML Committee, and listed 
various money laundering offenses, which do not include 
terrorist financing or tax evasion.  The AML law levies a 
number of regulatory and other requirements on financial 
institutions (i.e. banks; money exchanges; and companies - 
funding, insurance, securities, financial leasing, and real 
estate) although the CBY,s supervision is limited to banks 
and money exchanges.  Financial institutions are required to 
develop formal procedures that address the following: 
 
--  A formal compliance program that includes training, 
testing for compliance, and the designation of an experienced 
individual responsible for ensuring compliance (i.e., the 
Compliance Officer). 
 
--  Customer identification.  Financial institutions are 
required to record, verify, and retain customer 
identification/basic information in order to determine the 
true beneficiary.  The required form of identification to 
open a bank account and apply for other social benefits is 
the National Identification Card.  It contains a person,s 
photograph and fingerprint, and reportedly is difficult to 
duplicate.  Accounts include deposit/transaction accounts, 
loan and credit accounts, and safe deposit boxes.  Customers 
include individuals, legal persons, public companies, and 
non-profit organizations (e.g., NGOs). 
 
--  Prohibitions on opening anonymous accounts and foreign 
correspondence accounts for any person prior to ratification 
of the signature from the correspondent bank in the country 
at which said person resides. 
 
--  Payable upon proper identification (PUPID). 
Non-customers or PUPIDs initiating or receiving funds 
transfers exceeding USD 10,000 or its equivalent in any other 
currency are required to provide proper identification, 
address, occupation, and information on the true beneficiary. 
 
--  Retention of certain financial records for five years. 
 
--------------------------- 
CENTRAL BANK OF YEMEN (CBY) 
--------------------------- 
 
¶12.  The CBY was established in 1971 and merged with the Bank 
of Yemen when the north and south united in 1990.  Its main 
functions include monetary policy; currency issues; 
management of the official reserves; serving as the bankers, 
bank and bank to the ROYG; and supervision of the banking 
system.  It supervises 17 commercial banks in the country, 
four of which are Islamic.  Staffing includes 20 examiners. 
In addition, the CBY has authority over the 448 money 
exchanges that reportedly consist of 20 major exchanges. 
However, the supervision of money exchanges is limited to 
off-site reviews of financial and compliance records provided 
by the money exchanges to the CBY.  Typically, CBY examiner 
on-site reviews are limited to banks. 
 
¶13.  The banks are examined at least once annually and 
reports are issued after each examination.  Technically, the 
CBY has the authority to implement enforcement action, but in 
practice, it provides training to improve inadequacies noted. 
 CBY admitted that banks/money exchanges still need time to 
implement compliance requirements.  A meeting with a group of 
private bankers indicated that compliance with the AML laws 
has been a slow process.  Compliance programs have been 
developed and implemented one at a time such as the "Know 
Your Customer" programs, which are designed to ensure 
customer identification and basic information is recorded, 
verified and retained.  The bankers admitted that developing 
effective suspicious activity programs and procedures has 
been difficult as more training is needed to better 
understand the concept of suspicious activity.  In addition, 
the bankers indicated that the Bankers Association has done 
little to assist with AML compliance issues to date. 
 
¶14.  The formal examination procedures used to test the 
bank,s compliance with the AML laws are too limited to be 
effective.  The procedures consist of approximately 12 
questions relating to the existence of a compliance program, 
compliance officers, training programs, and reports of cash 
transactions over USD 10,000.  The procedures are not 
comprehensive and do not provide for an assessment of the 
aforementioned elements and transaction testing to quantify 
the level of compliance. 
 
UNSCR 1267 Compliance 
--------------------- 
 
¶15.  In response to UNSCR 1267 in September 2003 and the 
Yemen,s Council of Ministers, directives, the CBY has 
issued a number of circulars (most notably 75304 and 75305) 
to all banks operating in Yemen, directing them to freeze the 
accounts of 144 persons, companies and organizations on the 
1267 consolidated list, and to report any findings to the 
CBY.  The CBY has issued updated circulars to banks after 
updated 1267 information is passed from the Yemeni Embassy in 
Washington or Consulate in New York through the Ministry of 
Foreign Affairs and is voted on by the Cabinet.  However, it 
takes approximately one month for the list to be distributed 
by the Yemeni Embassy in Washington, D.C., reviewed by 
various ministries in Yemen, and received by the CBY.  The 
CBY hand delivers the list to its financial institutions.  To 
date, only one report on a blocked account has been filed, 
which was hand delivered by the bank to the CBY.  In 
addition, Yemen has yet to take any action against or freeze 
the assets of Sheikh Abdul Majid Zindani, despite his 
February 2004 addition to the 1267 list. 
 
------------------------------------ 
CBY,S CHALLENGES AND VULNERABILITIES 
------------------------------------ 
 
¶16.  The primary challenge affecting the CBY,s ability to 
ensure compliance with AML laws is the lack of adequate 
technical training.  The CBY indicated that it provides bank 
and money exchange training in an attempt to improve 
compliance and in lieu of implementing enforcement action for 
non-compliance.  However, it is alarming that the individuals 
providing the training are not adequately trained and do not 
appear to have sufficient expertise to conduct the training. 
In addition, the current AML laws are not comprehensive, and 
the implementation of existing AML laws and minimum 
 
international standards on AML/CTF (i.e., FATF 
recommendations and UNSC resolutions) are ineffective.  Banks 
are still in the process of implementing and understanding 
AML issues.  The CBY lacks proven enforcement authority, and 
the level of non-compliance with AML laws has not been 
quantified. 
 
¶17.  The financial sector appears vulnerable to exposure to 
ML/TF schemes from certain persons and entities of heightened 
risk and through the use of certain products/services, 
specifically funds transfers.  There are no requirements to 
declare currency and its equivalent at border crossings or to 
report large currency transactions, and no safe-harbor 
provision exists relative to the filing of STRs. 
 
¶18.  The CBY indicated it is vulnerable to corruption and 
terrorism.  The embezzlement of public funds is rampant, and 
terrorist groups have a myriad of ways to smuggle funds 
across the country,s porous land and sea borders. 
Enforcement of the AML laws is questionable based on the 
level of corruption. 
 
¶19.  Other identified weaknesses include the following: 
 
¶20.  The AML laws are not comprehensive and do not address 
international minimum standards.  For example, the AML laws 
do not incorporate the following: 
a)  All provisions of Recommendation 5 from the Financial 
Action Task Force on Money Laundering's List of 
Recommendations, specifically conducting on-going due 
diligence on business account relationships and scrutiny of 
transactions to ensure that the transactions are consistent 
with the customer,s known risk profile. 
b)  Recommendation 6 relating to Politically Exposed Persons 
(PEPs). 
c)  Recommendation 7 relating to correspondent bank 
relationships. 
d)  Recommendation 14 relating to confidentiality of STRs. 
Although the AML laws address the recommendation, in practice 
the STR form allows for the subject,s signature in 
contravention of the AML laws. 
e)  Recommendation 15 relating to compliance programs to 
combat terrorist financing. 
f)  Recommendation 18 relating to the prohibition of shell 
banks. 
 
¶21.  There are no CTF laws.  According to the Committee, a 
law has been drafted and needs to be vetted by several 
ministries before it is presented to Parliament.  The 
Committee recognizes the proposed CTF law will not be 
approved before the mutual evaluation in July 2007, and 
indicated it would not likely be approved for another six 
months after that.  Although there is some indication that 
Yemen has provided for international cooperation and review 
of non-profit organizations to some degree, the FATF Special 
Recommendations on Terrorist Financing have not been 
implemented.  In addition, UNSCRs 1267 and 1373 are not 
addressed in statute, although the CBY did issue a circular 
relative to UNSC resolution 1267.  However, the procedure in 
place does not appear to satisfy the "freeze without delay" 
provisions, due to delays in notification.  Abdo Hezam Saif, 
Head of the Central Bank's AMLIU, told AMEMB Yemen on July 
22, 2007 that a joint technical committee (which was formed 
from the National Anti-Money Laundering Committee and the 
Central Bank's AMLIU) completed the draft CTF law, is making 
minor amendments to it, and will forward it to the Cabinet by 
mid-August 2007, which will later forward it to Parliament 
when Parliament reconvenes in mid-October 2007 at the 
earliest. 
 
¶22.  The training provided has not been effective.  Two CBY 
members attended the International AML/CTF Training in 
Arlington, VA in September 2006.  Conversations with the CBY 
confirmed that these individuals did not subsequently train 
other CBY personnel and the banking and money exchange 
communities.  However, CBY indicated that at least one of the 
individuals will serve as a training instructor at the Yemen 
Bankers Association.  One of the individuals works in the 
AMLIU and the other works in Supervision.  CBY indicated that 
the individuals were overwhelmed by the scope and complexity 
of the training course, and also expressed difficulty in 
comprehending the materials in English. 
 
¶23.  Money exchanges are largely unregulated.  Although they 
are required to be licensed by the CBY, the level of 
 
 
supervision is nominal.  The money exchanges are not subject 
to the same examination process as banks. 
 
¶24.  There are no reporting requirements for currency 
transactions, currency exchanges, monetary instruments, and 
funds transfers that are conducted by customers of the 
financial institutions. 
 
¶25.  Suspicious activity and reporting thresholds are not 
defined. 
 
¶26.  The number of STRs filed is not commensurate with the 
perceived AML risks.  Since the inception of the AML laws, 
the financial institutions have filed only six STRS:  two in 
2005; three in 2006; and one year-to-date.  Although the 
latter STR is in the process of review, the other STRs were 
not referred to the Public Prosecutor and none were filed by 
the money exchanges. 
 
¶27.  Customer due diligence is limited to identification 
procedures.  There are no requirements to record and 
understand the customer,s source of funds and expected 
transactions, which would enable the financial institution to 
detect patterns and trends of suspicious activity. 
 
¶28.  Potentially high-risk persons/entities and 
products/services are not addressed.  The identification, 
enhanced due diligence, and on-going monitoring of certain 
customers (e.g., Politically Exposed Persons, Professional 
Service Providers, cash-intensive businesses) and 
products/services (e.g., private banking accounts, funds 
transfers) would better enable the financial institutions to 
detect patterns and trends of suspicious activity. 
 
--------------------------------------------- 
RECOMMENDED TRAINING AND TECHNICAL ASSISTANCE 
--------------------------------------------- 
 
Training 
-------- 
 
¶29.  Basic AML/CTF training is required.  Training should be 
provided to CBY examiners, AMLIU employees, and perhaps to 
representatives of the National AML Committee and Yemen 
Bankers Association.  The training should be disseminated to 
the financial community to ensure they are aware of AML/CTF 
efforts and best practices. 
 
¶30.  CBY indicated its two primary training needs relate to 
cyber crimes and terrorist financing detection and techniques 
used by groups.  The Committee indicated its two primary 
training needs relate to investigating and tracking funds and 
AMLIU systems development. 
 
¶31.  The content of the STRs was discussed with the CBY in a 
follow-up meeting held on 03/06/2007.  AMEMB Yemen provided 
the CBY with a copy of FinCEN,s Suspicious Activity Report 
form and instructions in an attempt to assist in developing a 
new enhanced STR form.  In addition, a copy of the Federal 
Financial Institutions Examination Council,s Bank Secrecy 
Act/AML Examination Manual was provided to illustrate the 
extent to which examination procedures should be developed 
and implemented. 
 
¶32.  An offer should be extended to review the CBY,s AML/CTF 
examination compliance program (i.e., procedures and 
workpapers) to ensure it is comprehensive and effectively 
implemented through analyses, assessments, transaction 
testing, and sampling techniques. 
 
¶33.  The AML Committee was interested in having the newly 
drafted AML/CTF decree reviewed before it is presented to 
Parliament.  Upon translation and study, the USG should 
provide comments with respect to how well the legislation 
comports with international standards, as well as 
recommendations to bring legislation into compliance with 
international standards. 
 
BRYAN