VZCZCXYZ0005
RR RUEHWEB

DE RUEHYN #1424/01 2051002
ZNR UUUUU ZZH
R 241002Z JUL 07
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 7666
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 001424 
 
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 THREE OF FOUR: RESULTS OF FINANCIAL SYSTEMS 
ASSESSMENT TEAM VISIT TO YEMEN MAR 1-7, 2007 
 
REF: A. SANAA 1418 
     ¶B. SANAA 1423 
 
¶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 
third section of the FSAT Team's report focuses on Yemen's 
NGO sector.  End summary 
 
----- 
NGO,S 
----- 
 
¶2.  Act. No. 1 of 2001 governs non-governmental organizations 
(NGO,s) under the Authority of the Ministry of Social 
Affairs and Labor (MOSAL), the ministry responsible for 
oversight of charitable NGOs in Yemen.  MOSAL has four 
directorates:  Associations, Institutions, Cooperatives and 
Finance.  MOSAL also has 22 regional offices in Yemen.  These 
offices conduct site field visits and regular inspections, 
request reports and occasionally attend NGO meetings. 
 
¶3.  In Yemen, all NGOs belong to one of two categories.  The 
first is an association.  An association is open and has 
elections.  The second type of NGO is a private foundation. 
A foundation is created by a donor or group of donors using 
their own funding sources.  In the case of a foundation, the 
donors control the operation of the NGO.  The financier 
controls the sponsored NGO. 
 
¶4.  According to the law, contributions, gifts, and aid 
require prior approval following verification of the legal 
source.  Penalties for infractions may range from fines to 
imprisonment and are theoretically imposed on any individual 
that misrepresents the licensed mission and mandate of the 
organization or engages in fraud.  Act No. 1 places 
responsibility for NGO oversight throughout Yemen in the 
hands of MOSAL.  NGOs are required to submit an annual report 
on their financial activities to MOSAL.  Periodic field 
surveys are also conducted by the Ministry.  NGOs are subject 
to auditing by the Central Organization for Control and Audit 
(COCA) under Act No. 38 of 1992.  NGOs with accounts in 
excess of one million Yemeni Riyals (USD 50,000) yearly must 
be audited by a certified independent legal accountant under 
the implementing regulations of Act 1. 
 
¶5.  The CBY, in cooperation with MOSAL, has adopted 
precautionary procedures with regards to opening and 
management of charitable accounts.  These procedures were 
passed to NGOs in the form of Circular No. 33989 (June 2002) 
and Circular No. 91737 (November 2004). 
 
¶6.  MOSAL, however, only has modest control over the NGOs in 
Yemen.  The current laws are very open and don,t provide for 
centralized oversight and controls over NGOs by MOSAL. 
Amendments to the current law are being considered which 
would provide for more centralized oversight and control by 
MOSAL.  For the amendments to be effective, they will have to 
receive the support of Parliament, which has been problematic 
in the past as several MPs are also involved in 
charities/NGOs.  In addition, MOSAL is constrained by limited 
staff (15-20 personnel devoted to compliance/monitoring). 
The staff must vet dozens of requests for the establishment 
of new NGOs every month.  Timeliness of vetting is an issue, 
since by law these requests have to be addressed within 30 
days or the NGO will automatically be granted legal status. 
 
¶7.  Yemen has not designated HAMAS or Palestinian Islamic 
Jihad as foreign terrorist organizations.  Both organizations 
maintain offices in Yemen and use them as bases to conduct 
fundraising.  In conversations with the ROYG Parliament,s 
Foreign Affairs Committee and Post, Yemen remains vigilant in 
its support for the resistance in the West Bank and Gaza.  It 
is unlikely that Yemen will take any actions to uproot the 
presence of such organizations in the near future. 
 
Financial Aspects of NGO operations 
----------------------------------- 
 
¶8.  Foreign nationals are not permitted to establish/register 
NGOs in Yemen.  International NGOs, however, are allowed to 
operate in Yemen.  In addition, foreign nationals can 
coordinate with international NGOs and foreign donors to gain 
 
financial support for local initiatives.  According to MOSAL, 
the majority of contributions to NGOs in Yemen come from 
foreign donors, who mostly contribute through payment in kind 
and not cash.  MOSAL believes only a small portion of 
donations is diverted from NGOs for nefarious purposes. 
Without accurate control measures or staff to conduct proper 
audits, it is hard to substantiate this claim. 
 
¶9.  Currently, NGOs can freely transfer funds into or out of 
Yemen; the only requirement is that NGOs must notify MOSAL. 
(NGOs do not need the permission of MOSAL to transfer funds.) 
 Yemeni charities are required to have one bank account 
opened through MOSAL.  Persons with signature authority are 
also coordinated through MOSAL. 
 
¶10.  MOSAL cannot freeze or close accounts when violations 
occur.  They must go through judicial channels to freeze or 
close accounts.  Over a year ago, it was determined that 
1,500 NGOs violated their legal status.  MOSAL has filed 
paperwork to have these NGOs dissolved, but this has not yet 
occurred. 
 
¶11.  MOSAL has a database where all information is stored. 
Currently, this database can communicate only between the 
main office of MOSAL and five regional offices. 
 
¶12.  Training: 
 
--  MOSAL could benefit from training on the legal and 
operational aspects of international money transfers as well 
as from auditing and financial investigative training for its 
compliance and control staff. 
 
--  MOSAL could also benefit from technical assistance in 
completing its centralized database. 
 
--  NGOs need to be educated and trained on their financial 
auditing and reporting requirements. 
 
--  MOSAL may benefit from the translated version of U.S. 
Treasury,s revised "Best Practices for NGOs and Charities 
for Distribution." 
 
--  MOSAL would also benefit from translated copies of the 
FATF,s and the MENA FATF,s best practices papers on NGOs. 
 
---------------------- 
MONEY EXCHANGE BUREAUS 
---------------------- 
 
¶13.  There are approximately 448 registered money exchange 
businesses in Yemen, who primarily serve to exchange 
currencies and transfer funds.  According to informal 
discussions, obtaining a business permit to open and operate 
a money exchange business is extremely easy.  The process 
involves filling out an application and then undergoing some 
type of review before the permit is issued.  There are two 
types of money transfer businesses.  One type is used by 
individuals and the other type is for commercial customers. 
The money transfer businesses can register for one permit 
type, but can open offices at several locations.  The 
transfer of funds over USD 10,000 or more requires the 
permission of the Central Bank. 
 
¶14.  The official who oversees regulation of the money 
exchange businesses maintained that there was no problem in 
regulating this sector.  However, the Central Bank noted that 
it has not yet begun to examine this sector for AML 
compliance. 
 
¶15.  Estimates suggest that somewhere between 60-80 percent 
of the population does not use the formal banking system.  As 
a result, the majority of individuals use the informal 
banking system, specifically, alternative remittance systems 
and money exchangers.  The CBY has issued circulars to money 
exchangers outlining policies for all transfers over USD 
$10,000. 
 
¶16.  Over three million Yemenis live outside of Yemen and 
rely on various informal value transfer systems to transmit 
money back to Yemen.  These remittances are extremely 
important in supporting the Yemeni economy, but it is unclear 
if and how most of them are regulated.  The CBY claims to 
have oversight over the 20 largest money exchangers and will 
conduct spot inspections.  The CBY also requires that money 
 
exchangers file financial reports to them annually. 
 
¶17.  Given the fact that the CBY has not yet begun systematic 
examinations of this sector for compliance and the risks that 
the money exchange sector presents globally, it is important 
to ensure that the CBY is properly trained and begins to 
conduct examinations and audits of this sector. 
 
BRYAN