VZCZCXYZ0006
RR RUEHWEB

DE RUEHYN #1425/01 2051009
ZNR UUUUU ZZH
R 241009Z JUL 07
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 7669
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMCSUU/FBI WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SANAA 001425 
 
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 FOUR OF FOUR:  RESULTS OF FINANCIAL SYSTEMS 
ASSESSMENT TEAM VISIT TO YEMEN MAR 1-7, 2007 
 
REF: A. SANAA 1418 
     ¶B. SANAA 1423 
     ¶C. SANAA 1424 
 
¶1.  Summary.  A multi-agency Financial Systems Assessment 
Tean (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 
fourth and final section of the FSAT Team's report focuses on 
the ROYG's Customs Authority and Tax Authority. 
 
¶2.  Summary continued.  This section also contains the 
conclusion of the FSAT Team's report and recommendations for 
training.  The FSAT Team concluded that Yemen is at the 
initial stages of developing an anti-money laundering and 
counter-terrorist financing regime and Yemen needs to closely 
monitor the money exchange service, NGO, and non-bank 
informal sectors.  The FSAT Team recommended training the 
Central Bank and the Anti-Money Laundering Information Unit 
(AMLIU) on legal drafting, anti-money laundering financial 
examinations, and detection/reporting of suspicious 
transactions.  End summary 
 
------- 
CUSTOMS 
------- 
 
¶3.  The Customs Authority (CA) is responsible for controlling 
all persons and goods entering and leaving Yemen.  The CA has 
inspection, detention and investigative authorities, which is 
unique in the region.  The CA's Inspection Directorate is 
responsible for smuggling, money laundering and other related 
issues. 
 
¶4.  The CA, however, does not have a specialized Inspector 
Corps; rather, Customs officers are rotated through various 
positions and directorates.  While the CA has the authority 
to detain goods, it currently does not use financial tools or 
investigations to pursue bulk cash smuggling or trade-based 
money laundering, which were both identified as areas of high 
risk.  Most investigations are initiated from tipoffs, and in 
many cases officers are subjected to bribery attempts. 
 
¶5.  The CA does not currently have either an inbound or 
outbound reporting requirement, but it does collect standard 
trade and shipping data. 
 
¶6.  Yemen has 1,906 km (1,184 miles) of sea borders and 1,746 
km (1,085 miles) of land borders with Saudi Arabia and Oman. 
The borders are largely unguarded and smuggling is rampant. 
While the CA, with 2,100 employees, maintains 25 entry points 
(by air, land and sea), it is clear that its reach is 
extremely limited.  Smuggling is rampant along Yemen's sea 
border with Oman, across the Red Sea from the Horn of Africa 
and along the land border with Saudi Arabia. 
 
¶7.  Yemen engages in both bilateral and multilateral 
agreements with its neighbors to share information on 
regional security concerns (e.g., Arab Convention on the 
Suppression of Terrorism, and the Convention of the 
Organization of the Islamic Conference on Combating 
International Terrorism).  In addition, the CA claims to keep 
particular watch on specific individuals of concern, as well 
as monitoring flows of money and goods to and from specific 
countries of concern. 
 
¶8.  The intelligence service, the Political Security 
Organization, and CA agree that the threat of terrorist 
financing and money laundering exists largely through cash 
couriers.  At present, Yemen has no cash declarations or 
disclosure requirements into or out of the country. 
According to the CA, a cash declaration form exists, but it 
is used only after money has been discovered by Customs 
authorities at the border. 
 
¶9.  Corruption and bribery are rampant in Yemen.  The CA is 
encouraged by the idea of providing incentives for border 
seizures, but given the high levels of corruption across all 
levels of Yemeni society, it is unclear how such a system can 
be conducted in a transparent manner. 
 
 
Training Opportunities 
---------------------- 
 
 
¶10.  If and when Yemen institutes outbound and inbound 
reporting of cash and bulk couriers, training should be 
considered.  Alternatively, training could be conducted on 
how to set up a cash courier regime. 
 
¶11.  Joint training would be most beneficial for CA, with 
other agencies such as the Coast Guard working border control 
issues.  They could benefit from training in interviewing and 
basic investigative techniques.  In particular, the CA could 
benefit from training on how to identify "red flags" for 
individuals who should be selected for closer scrutiny either 
entering or departing Yemen. 
 
¶12.  The CA also requested information regarding incentive 
programs for officers to apply the law properly and to 
encourage citizens to report violations. 
 
 
------------- 
TAX AUTHORITY 
------------- 
 
¶13.  The Tax Authority (TA) includes a directorate 
responsible for tax evasion.  The TA noted that Yemen has 
both a corporate income tax and a sales tax.  The TA has been 
working to reduce tax evasion through a program of reducing 
overall tax rates, instituting exemptions, and increasing the 
tax requirements on businesses, who pay the bulk of Yemeni 
taxes. 
 
¶14.  As in the case of other ROYG law enforcement agencies, 
the TA does not currently have the capacity to conduct 
financial investigations or apply financial tools in its 
efforts to combat tax evasion.  For example, the TA noted 
that in the case of tax evasion related to cigarettes, it 
will intervene only at the last point of sale (after 
receiving a tip).  For a first offense, a warning will be 
issued.  Afterwards, a series of graduated fines is applied 
(e.g., four times the tax).  Although the law provides for a 
jail term of six months, this penalty has never been applied. 
 
¶15.  There is no current capability in the TA to conduct 
financial investigations to determine who else might be 
associated with tax evasion, locate the illicit proceeds, or 
identify, freeze, and seize assets related to tax evasion. 
 
 
Training Opportunities 
---------------------- 
 
¶16.  The TA would benefit from forensic accounting and 
financial investigative training (including the use of net 
worth analysis). 
 
----------------------------------- 
CONCLUSION AND RECOMMENDED TRAINING 
----------------------------------- 
 
¶17.  Yemen is currently in the initial stages of developing 
an anti-money laundering and counter-terrorist financing 
regime.  A number of other factors must also be considered in 
considering AML/CTF training for Yemen.  These include the 
lack of a law that meets international standards, the need 
for systemic legal reform and limited AML/CTF institutions. 
 
¶18.  In addition, the FSAT team noted a number of areas of 
concern that should continue to be monitored.  These include: 
 a largely unregulated money exchange service sector 
including both currency exchange and fund transfer services; 
limited capacity to monitor and control risks in the NGO 
sector to terrorist financing and financial fraud; and a 
non-bank informal banking sector that is in the beginning 
stages of increasing bank penetration.  In addition, there 
are bureaucratic delays in implementing UNSCR 1267. 
 
¶19.  Resources permitting, the FSAT team, however, believes 
that training at the appropriate level is both feasible and 
recommended.  The FSAT believes that initial efforts should 
focus on the Central Bank and the AMLIU.  In particular, FSAT 
recommends that initial training should be concentrated on 
the areas outlined below. 
 
¶20.  Legal Drafting Assistance:  Several interlocutors stated 
that they would welcome U.S. comments on the proposed new law 
 
to ensure that it meets international standards.  Comments 
could be sent from Washington via official channels, with an 
additional on-site consultation/stakeholder meeting if 
necessary. 
 
¶21.  Financial Examinations:  Additional training on how to 
conduct anti-money laundering examinations for the Central 
Bank and the AMLIU would be extremely beneficial in promoting 
ROYG's overall AML/CTF efforts (this is an intensive one-week 
practical examination-based course designed to train 
trainers).  Training is conducted in Washington and is 
generally limited to 4-6 persons per country. 
 
¶22.  Training in Detection and Reporting Suspicious 
Transactions:  This training could be conducted as either a 
stand-alone course or as part of the Financial Examination 
course referenced above. 
 
¶23.  In addition, the Government of Spain and the EU may be 
receptive to a similar visit to the Spanish Financial 
Intelligence Unit (SEPBLAC).  This should be pursued in 
addition to the FinCEN visit. 
 
BRYAN