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RUEHSW/AMEMBASSY BERN PRIORITY 4528
INFO RUEHGB/AMEMBASSY BAGHDAD 0023
IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 09 STATE 083662 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL KTFN KCRM PTER SNAR IZ
SUBJECT: REQUESTING COUNTERTERRORISM FINANCE ASSISTANCE TO THE 
KURDISTAN REGION OF IRAQ 
 
¶1. (U)   This is an action request. See para 4. 
 
¶2. (SBU) Action Request:  Department requests that Posts approach 
host governments at an appropriate level, share the Financial System 
Assessment Team (FSAT) report provided in Paras 5-58 below, and make 
the following points and requests: 
 
-- Urge host governments to provide additional training, technical 
assistance, and material support to the Kurdistan Regional 
Government's (KRG) police, Central Bank and border and customs 
personnel, consistent with the needs identified in the FSAT report. 
 
-- Encourage states to assist and share all relevant financial 
intelligence with Iraq's Financial Intelligence Unit (FIU) -- known 
as the Money Laundering Reporting Office (MLRO). 
 
--  Inform host governments that the USG is planning additional cash 
courier training, tailored financial regulatory training, financial 
investigative training and a judicial orientation seminar on money 
laundering and terrorist finance, as well as other work with Iraq's 
MLRO.   In light of this aid, posts should encourage coordination 
with the U.S. and other assistance providers when drawing up plans 
for additional aid to the KRG.    End Action Request. 
 
¶3.  (SBU) Questions concerning this action request may be directed to 
Brett Yellen, S/CT Regional Affairs, (202) 647-3773 or Gary Novis 
S/CT, CTF Programs, (202) 647-1521. 
 
Background 
----------- 
¶4.  (SBU) A USG interagency Financial System Assessment Team (FSAT) 
conducted an onsite visit to the Kurdish Region of Iraq December 
4-18, 2007.  Team members included representatives of the following 
Departments and offices: 
 
Department of State, Office of the Coordinator for Counterterrorism 
 
Department of Justice, Asset Forfeiture and Money Laundering Section 
 
Department of Treasury, Office of the Comptroller of the Currency 
 
Department of Defense, Iraq Threat Finance Cell Regional 
Reconstruction Team, Erbil, Iraq. 
 
¶5. The team met with a wide array of government and private sector 
entities in the Kurdish Region, including representatives from the 
Kurdistan Regional Government's (KRG)  Ministries of finance, 
interior and justice, as well as central bank branch leaders, police 
and airport security officials, bankers, money exchangers and money 
transmitters.  By necessity, the FSAT was limited in both duration 
and geographic scope and therefore this assessment should be seen in 
this context.  The FSAT team, however, did note the near universal 
desire for counterterrorist finance and anti-money laundering 
training and technical assistance in the Kurdish Region of Iraq. 
 
¶6. (SBU) As a result of the recommendations from the FSAT visit, a 
team of trainers deployed to N. Iraq April 21-24 to provide bulk cash 
courier training to KRG representatives.  The training exceeded 
expectations in terms of student attendance, engagement, and 
interaction across interagency lines.  Fifty-seven officials took 
part from a wide swath of agencies - including police, customs, and 
intelligence personnel.  Notwithstanding the success of the training, 
in order to consolidate gains from the course and address the KRG's 
other systemic CT finance needs, the U.S. needs to engage other 
capable parties in providing assistance.  End Background. 
 
 
Executive Summary 
----------------- 
 
¶7. (SBU) The KRG understands the serious nature of money laundering 
and terrorist financing and acknowledges the need for training, 
particularly given its history of internal and external isolation. 
The KRG is primarily focused on combating Al Qaeda in Iraq (AQI) and 
its affiliated groups, as well as groups supported by Iran, as they 
are seen as the primary terrorist threat to Iraq and the Kurdish 
Region.  While Kurdish Region's economy is primarily cash based, this 
is likely to change as energy sector development increases the need 
for the development of a more robust formal financial sector that is 
integrated into the international financial community.  Therefore, 
development of sound anti-money laundering and counterterrorist 
financing (AML/CTF) regimes that are well integrated into the overall 
AML/CTF system of Iraq, are critical in reducing the risk of 
 
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terrorist financing and money laundering in the Kurdish Region and 
Iraq. 
 
¶8. (U) The KRG governs three provinces - Erbil, Sulaimaniyah, and 
Dohuk.  In 2006, the KRG absorbed several ministries in Sulaimaniyah 
that had previously functioned somewhat independently.  The KRG has 
not yet absorbed the Sulaimaniyah ministries of finance, interior and 
peshmerga affairs.  Likewise, there are two branches of the Central 
Bank of Iraq (CBI) in the Kurdish Region - a branch in Erbil and a 
branch in Sulaimaniyah. 
 
¶9. (SBU) The FSAT noted a number of areas of concern and 
vulnerabilities in which training and technical assistance could help 
reduce the KAR's vulnerability to terrorist financing and money 
laundering.  For example, the FSAT noted the lack of connectivity and 
communication between the Central Bank branches both within the KAR 
and with the Central Bank of Iraq, as well as a lack of an 
institutionalized AML/CTF framework.  There was also a significant 
disconnect between the Central Bank branches and Iraq's financial 
intelligence unit (FIU), the Money Laundering Reporting Office 
(MLRO).  Additionally, representatives from the Kurdish Region's 
Central Bank Branches stated that the basic knowledge level of their 
employees relating to financial and regulatory matters is quite low 
and needs to be raised. 
 
¶10. (SBU) In the judicial sector there appears to be a lack of 
continuity in the application of the Anti-Money Laundering law, and 
there are no specialized courts or professional skills development 
for the complex crimes of money laundering and terrorist financing. 
In addition, while law enforcement authorities vigorously pursue 
leads for terrorism and terrorist financing, they could benefit from 
additional investigative training, and particularly from financial 
"follow the money" investigative training.  Finally, the team noted 
that Bulk Cash Smuggling training should be pursued as a means of 
strengthening the implementation of Iraq's cross border currency 
reporting requirements. 
 
Financial Sector Development 
---------------------------- 
 
¶11. (SBU) The rudimentary financial sector in the Kurdish Region 
functions within a largely cash-based economy. Most transactions are 
conducted via a "hawala" type system of money exchangers and money 
transmitters.  Integration of the formal financial sector with other 
parts of Iraq and the international financial system remains very 
limited.  This situation, while likely to change as the oil sector 
becomes more developed and the need for standard international 
transactions increases, is a major cause for concern, as different 
interests both inside and outside of Iraq vie for financial influence 
and control. 
 
The Financial Sector 
-------------------- 
 
¶12. (U) The financial sector in the Kurdish Region consists of public 
and private banks, as well as money exchangers and money 
transmitters.  Banks in the Kurdish Region are responsible for 
providing banking services to both the general public and, through 
public banks, to government entities as well.  As noted earlier the 
Central Bank of Iraq (CBI) is responsible for licensing all public 
and private banks in Iraq.  Representatives from the banking 
community noted that they are still in the early stages of attracting 
both individuals and business customers, as years of economic 
instability and numerous bank failures have led many to distrust 
banks.  The banking community in the Kurdish Region has also suffered 
both technologically and experientially as a result of both 
international and internal isolation during the regime of Saddam 
Hussein. 
 
¶13. (SBU) The FSAT held discussions with representatives from several 
money exchange and money transmitter businesses.  They confirmed that 
most transactions, foreign exchange operations, and money remittances 
take place through these businesses and not through the banking 
sector.  Most international remittances are done via related offices 
in Amman or Dubai.  While simple funds transfers can take weeks to 
accomplish through the banking sector, the same transactions can be 
done very rapidly and at lower cost through money exchange and 
transfer sectors. 
 
 
 
Financial Sector Challenges and Vulnerabilities 
--------------------------------------------- -- 
 
¶14. (U) The financial sector in the Kurdish Region faces a number of 
challenges with respect to terrorist financing and money laundering. 
Kurdish bankers' professional skills atrophied and remained 
underdeveloped during the regime of Saddam Hussein.  The overall 
 
STATE 00083662  003 OF 009 
 
 
level of banking expertise is limited, especially among the area's 
Iraqi-owned banks that possess little knowledge or expertise with 
regard to execution of international transactions.  The banking 
sector in general lacks sufficient technology to function effectively 
domestically, let alone internationally.  There is a lack of modern 
banking technology, in particular a complete absence of an electronic 
payment system and wire transfer capability.  As the financial sector 
is relatively new, there is little institutional knowledge with 
respect to AML/CTF issues.  there is poor communication with the 
Central Bank, particularly with respect to addressing potential money 
laundering, suspected terrorist financing and other potential risks. 
 
¶15. (SBU) The banking sector believes that terrorist financing and 
money laundering risks lie primarily with the money exchange/transfer 
service sector.  They advocate and are lobbying for a legal ban 
against such services.  Based on our experiences, the FSAT does not 
advocate this approach.  Given the low-level of development of the 
banking sector, such a policy would likely prove counter-productive, 
difficult to enforce, and remove incentives for the money exchangers 
and transmitters to cooperate with authorities.  The FSAT recommends 
that the KRG authorities look at alternative solutions, such as more 
stringent licensing of the money exchangers and transmitters and a 
requirement to report suspicious transactions, as more effective 
means of reducing vulnerabilities relating to terrorist financing and 
money laundering in this sector. 
 
¶16. (SBU) Although financial institutions are required to report 
suspicious transactions, including potential money laundering and 
terrorist financing under the anti-money laundering ordinance, in 
practice they do not.  This is due to a lack of training, technology 
and the isolation of the MLRO. 
 
¶17. (SBU) The banking sector as a whole will benefit from training 
and technical assistance in all areas of banking.  The acquisition 
and implementation of modern banking technology will not only improve 
the effectiveness of the banking sector overall, it will also provide 
banks with increased capability to collect and report data, such as 
suspicious transactions.  This will help reduce the banking sector's 
money laundering and terrorist financing risks. 
 
¶18. (SBU) As the MLRO becomes more established and experienced it 
should engage in a public outreach program in the KurdishRegion and 
the rest of Iraq, to educate the banking sector and general public on 
the risks of money laundering and terrorist financing and the 
benefits in reporting suspicious transactions. 
 
The Central Bank of Iraq 
------------------------ 
 
¶19. (U) The CBI has four branches; two of these branches are in the 
Kurdish Region (in Erbil and Sulaimaniyah).  A third branch is in 
Basra, and the fourth is in Mosul.  The CBI also houses Iraq's 
financial intelligence unit, the MLRO.  In the Kurdish Region, the 
branch offices of the CBI have, contrary to Iraqi law, assumed 
responsibility for licensing and examining private and public banks, 
and money exchangers and transmitters.  Currently the Central Bank of 
Iraq branch in Erbil licenses a total of 45 private banks and 
branches and 22 public banks and branches.  The Central Bank in 
Sulaimaniyah licenses 12 private banks and branches and 16 public 
banks and branches. 
 
¶20. (U) Both Central Bank branches are required to conduct periodic 
examinations of the banks.  For public banks this occurs every 6 
months and every three months for private banks.  The Central Bank 
branch in Erbil currently has ten examiners (five of which are money 
laundering examiners) while the Central Bank of Sulaimaniyah has nine 
examiners (three of which are money laundering examiners).  At this 
time, there have been no meaningful examinations or visitations by 
employees of the Central Banks to any of the banks or branches they 
are charged with overseeing. 
 
Central Bank Challenges and Vulnerabilities 
------------------------------------------- 
 
¶21. (SBU) CBI oversight and control of the Kurdish Region's post-2003 
banking system remains inadequate.  The FSAT believes the CBI could 
become even less adept at fulfilling its regulatory oversight 
responsibilities, given the expected petrodollar-fueled development 
and expansion of the Kurdish Region's commercial banking system.  In 
other words, the CBI's slowly improving regulatory capabilities will 
likely not match the expected faster pace of development in the 
banking sector. One of the most significant challenges facing the two 
Central Bank branches in the Kurdish Region is the lack of 
communication between the branches themselves and and the Central 
Bank of Iraq in Baghdad.  In addition, CBI branch leaders in Erbil 
and Sulaimaniyah remain adamantly independent of CBI headquarters in 
Baghdad with respect to addressing money laundering, terrorist 
financing and other illegal financial activities. 
 
STATE 00083662  004 OF 009 
 
 
 
¶22. (SBU) The FSAT noted the strong interest in the Central Bank 
branches for increased training to address a number of challenges and 
vulnerabilities that they face with respect to money laundering and 
terrorist financing.  One of the challenges confronting the Central 
Bank is the lack of trust and confidence in the formal financial 
sector due to the history of misuse and abuses of this sector during 
the Saddam Hussein regime.  The Central Bank branches also 
acknowledged a lack of communication between the central bank 
branches in the Kurdish Region and headquarters in Baghdad.  This 
lack of communication makes the Central Bank of Iraq particularly 
vulnerable to those who can and will exploit this vulnerability to 
engage in money laundering and terrorist finance activity. 
 
¶23. (SBU) An additional vulnerability lies in the largely unregulated 
money exchange and money transmitter businesses.  Although they are 
required to be licensed, the level of supervision is at best nominal. 
 Currently, the licensing of the money exchange and money transmitter 
business is carried out by the Ministry of Finance.  However, this 
responsibility is being transferred back to the Central Bank.  Due to 
the lack of oversight by the Central Bank relating to the formal 
financial sector, this transfer will not by itself reduce the level 
of vulnerability in this sector.  The money exchanges are not subject 
to the same examination process as banks nor are they required to 
report suspicious transactions. 
 
¶24. (SBU) Central Bank branch officials acknowledge that the current 
training on AML/CTF and banking examination practices is inadequate. 
In addition, the MLRO, which should assist in the training and 
monitoring for ML/TF, is not developed enough yet to execute its core 
mission.  Additionally, the lack of substantive communication with 
Central Banks branches outside of Baghdad continues to hinder any 
efforts in the area of AML/CTF. 
 
 
 
 
 
Recommendations for Central Bank 
Training and Technical Assistance 
--------------------------------- 
 
¶25. (SBU) Although it falls somewhat outside the scope of the AML/CTF 
assistance, the FSAT highlights the need for improved technology to 
assist the Central Bank branches in conducting their core 
responsibilities, particularly in the areas of fund transfers, 
analysis (cash and credit positions) and prudent safety and soundness 
examinations.  Communication standards need to be developed and 
implemented (via technological/IT solutions) so the Central Bank 
branches can communicate and with each other, with the Central Bank 
headquarters in Baghdad, and the MLRO.  Effective communication will 
reduce exposure and the risks associated with financial fraud, money 
laundering and terrorist financing. 
 
¶26. (SBU) With respect to anti-money laundering, the FSAT believes 
the Central Bank employees will benefit from regulatory training that 
focuses on banking processes, electronic funds transfers, bank 
examination policy and procedures and AML/CTF techniques.  As time 
progresses, and the MLRO becomes more capable (or experienced), 
consideration should be given to the concept of placing a MLRO 
representative in each of the Central Bank branches.  This would 
facilitate communication and enhance the Central Bank branches' 
AML/CTF knowledge and capabilities. 
 
Ministry of Finance 
------------------- 
 
¶27. (U) The KRG Ministries of Finance in Erbil and Sulaimaniyah are 
primarily responsible for disbursing funds to the various government 
ministries once the Kurdistan National Assembly (KNA) has passed an 
approved budget.  The Ministries of Finance also have an audit and 
control function that is responsible for ensuring the ministries are 
operating within their respective budgets.  In addition to these 
general responsibilities, these ministries are supposed to maintain a 
list of all licensed money exchangers and transmitters.  Currently, 
there is no such list. 
 
¶28. (SBU) The Ministries of Finance are currently not capable of 
effectively and efficiently performing their overall mission due to a 
lack of financial and budgeting processes.  In addition, their 
employees do not have the necessary expertise to perform critical 
audits of the monies being disbursed to the various government 
agencies. 
 
¶29. (SBU) The FSAT recommends that such information (i.e., license 
applications and approvals, owner and operator information, etc.) 
associated with all money exchangers and transmitters collected into 
a database and shared with the appropriate authorities such as the 
 
STATE 00083662  005 OF 009 
 
 
Central Bank branches and the MLRO. 
 
¶30. (SBU) The FSAT also recommends that the Ministries of Finance 
commence a robust training program to enhance their audit and control 
functions.  Currently no one effectively audits or investigates 
discrepancies in the various ministries' budget and payment systems. 
 
Justice Sector 
-------------- 
 
¶31. (U) The FSAT met with members of the Judiciary and the Ministry 
of Justice. 
 
Basic Structure and Criminal Procedure 
-------------------------------------- 
 
¶32. (U) There are three levels of courts: the court of first degree, 
the court of appeal, and the court of assignation.  The court of 
first degree includes criminal courts, civil courts, investigative 
courts, juvenile courts, labor courts, and secular courts for 
non-Muslims.  A few days prior to the arrival of the FSAT, the 
President of the KRG approved a new law that creates a Judicial 
Council, thus making the courts independent of the KRG's Ministry of 
Justice (MOJ) and the executive branch. 
 
Criminal Procedure 
------------------ 
 
¶33. (SBU) A criminal case must go through a series of phases before 
it can be brought to the court of first instance.  During the initial 
investigative phase of the case, law enforcement initiates an 
investigation, approved by the MOJ, during which law enforcement 
entities collect evidence pertaining to the crime that allegedly 
occurred.  The case is then submitted to an investigative judge in 
the investigative court.  If the investigative judge believes that 
the evidence is sufficient to proceed, s/he will refer the case to 
the public prosecutor, who can then refer the case to the criminal 
court.  The prosecutor reviews the investigative judge's decision and 
advises the criminal court whether to take the case.  The prosecutor 
can also refer the case back to the investigative judge if s/he 
thinks there are gaps in the case.  If the investigative judge does 
not believe the evidence meets the burden to refer the case to the 
criminal court, s/he can dismiss the case and release the individual. 
 The investigative judge has six months to review a case.  If s/he 
needs more time to conclude the investigation, s/he can petition the 
court for an extension.  If the case makes it to the court of first 
degree, a three judge panel hears the case, with two judges acting as 
reserves.  Of the three judges, one may be the President of the 
Court, and only he addresses the participants in the proceedings. 
Should the defense or prosecutor have a question of a witness, s/he 
must ask the judge to ask the question.  The trials are bifurcated 
for guilt and penalty.  If the court finds the defendant guilty, it 
will then issue a separate ruling on the penalty.  Should the court 
issue a death sentence, the defendant gets an automatic appeal to the 
Court of Cassation.  In all other cases, the parties must request an 
appeal and have 30 days to do so from the time the court issues its 
opinion. 
 
¶34. (SBU) The Public Prosecutor acts like a monitor in criminal 
trials, and is permitted to raise issues or questions.  If the court 
does not address the issue(s) the prosecutor raises, s/he may appeal 
the court's decision.  At the conclusion of the trial, the prosecutor 
writes a report about the trial. 
 
¶35. (SBU) There was little to no discussion about money laundering 
cases that have made their way through the courts.  It appears to be 
safe to say that KRG officials have not prosecuted anyone under the 
AML law implemented by the CPA.  The courts can order confiscation of 
property, but it appears they can only do so if directly related to 
the crime, including drug proceeds.  According to the Iraqi Penal 
Code, a person must pay the government back for any property s/he 
stole from the government, even if the person must do so at his/her 
own expense.  In other cases of theft, restitution is made to the 
victim(s).  Any property forfeited to the state becomes state 
property and goes into the general treasury.  Should the government 
confiscate perishables, it can sell them off while the case is 
on-going and if the defendant is acquitted, the government returns 
the money it realized from the sale of the goods to the defendant. 
While the case is on-going, the government appoints a judicial 
guardian to supervise and maintain the property pending the outcome 
of the case. 
 
¶36. (SBU) The Kurdish Region does not have any special courts 
dedicated to trying a narrow set of cases, (e.g., a court dedicated 
to trying only terrorism cases).  But, according to some officials, 
there is a special investigative court dedicated to examining 
terrorism cases.  The Public Prosecutor does not have prosecutors who 
specialize in prosecuting certain types of cases, (i.e., there are no 
 
STATE 00083662  006 OF 009 
 
 
prosecutors devoted to prosecuting only financial crimes). 
 
Justice Sector and Vulnerabilities 
---------------------------------- 
 
¶37. (SBU) Based upon the discussions the FSAT had with MOJ and 
judicial authorities, several challenges and vulnerabilities were 
noted.  As with other institutions, the MOJ and judicial authorities 
in the Kurdish Region have been hampered by international and 
domestic isolation.  In addition, there was a lack of independence of 
the judiciary as well as some reported cases of political influence 
over the administration of justice.  As mentioned above, however, the 
KRG just passed a new law granting the judiciary independence.  This 
may help to alleviate some of these issues, but training on an 
independent judiciary is of the utmost importance. 
 
¶38. (SBU) One specific concern noted by the FSAT was the lack of the 
application of the anti-money laundering law within the Kurdish 
Region.  There is confusion amongst KRG officials as to how the law 
is applied.  Some believe that the CPA AML law is not in effect in 
the Kurdish Region because the Kurdistan National Assembly never 
approved it.  Other officials believe the law is in effect in the 
Kurdish Region and should be applied, but they noted the lack of will 
amongst officials in the region to apply the law.  While there is no 
question that AML training is absolutely necessary for all KRG law 
enforcement officials, prosecutors and judges, there are other, more 
basic issues that first must be addressed via training.  Due to the 
lack of a strong Central Bank, inadequate technology employed by 
banks,  and a deeply rooted distrust of the banking sector, 
comprehensive AML training at this time may be premature.  However, 
if the training were tailored and specific, AML training would be 
beneficial in the regulation, investigation and prosecution of cases 
involving money exchange houses. 
 
¶39. (SBU) The KRG has prosecuted a number of terrorist cases.  The 
KRG judicial officials noted that security at terrorism trials 
remains an issue. There have been no terrorist financing cases. 
Officials also noted that Iraq does not have a stand alone terrorist 
financing law. 
 
¶40. (SBU) Based on these discussions the FSAT team recommends a 
number of training initiatives.  First the FSAT recommends training, 
perhaps in the form of a legal symposium on the Anti-Money Laundering 
law and its application.  Second, if amenable, we can provide 
comments on the new law creating an independent judiciary.  The 
judiciary is also in need of training to address its new-found 
independence.  The FSAT believes that the Kurdish Region's 
prosecutors could benefit from specialized basic and general training 
on financial crimes tailored to the current specific needs in Iraq. 
Furthermore, the FSAT believes that joint judicial and prosecutorial 
training in case management techniques would help improve the 
efficiency of the Kurdish Region's  legal system.  Finally, the 
Iraqis are in desperate need of training to combat corruption 
 
Ministry of Interior 
 
¶41. (SBU) The Ministries of Interior (MOI) in Erbil and Sulaimaniyah 
are primarily responsible for general law enforcement operations, 
with the exception of drugs and terrorism, which is the purview of 
the Asayeesh (Security Police), with whom they cooperate.  The MOIs, 
however, have a significant law enforcement training function. 
 
¶42. (SBU) There is a Ministry of Interior in Erbil as well as in 
Sulaimaniyah, with the MOI in Erbil covering both Erbil and Dohuk 
provinces.  The Ministries informed the FSAT that they are working on 
a draft law to combine the two ministries.  It appears as though the 
MOI in Erbil has more state of the art equipment, because the MOI in 
Sulaimaniyah stated that when they have an issue they cannot resolve 
in their small lab in Sulaimaniyah, they turn to the lab in Erbil for 
assistance.  The police under the control of the MOI have the ability 
to conduct undercover operations and controlled deliveries, but do 
not have the equipment to conduct surveillance. 
 
¶43. (SBU) In order to join the police forces under the purview of the 
MOI, one must attend a college for police.  If one is a high school 
graduate, s/he would attend the college for three years.  If one is a 
college graduate, s/he would only have to attend the college for 8-9 
months.  Courses at the college include physical training, law, human 
rights, and democracy.  The MOI in Erbil told the FSAT that they are 
building a new police academy in Dohuk that would be ready in six 
months, with classrooms that will hold 30-40 students and will 
accommodate computer presentations.  The MOI in Sulaimaniyah told the 
FSAT that they also have their own police college that is better than 
the academy in Baghdad, but not as good as the one in Dohuk. 
 
¶44. (SBU) Almost all of the police force is armed with AK-47's. 
According to the MOI in Erbil, about one-third of the police force is 
armed with pistols.  Police officers can only arrest with a warrant, 
 
STATE 00083662  007 OF 009 
 
 
unless they witnessed someone committing a crime.  The MOI police 
also need the permission of the MOJ in order to conduct an 
investigation. 
 
¶45. (SBU) Both MOI's admitted they need training in investigating 
money laundering and financial crimes.  While there appears to be 
good communication between the ministries in the KRG, there appears 
to be poor communication with the central government.  The MOI in 
Erbil claims to have a good relationship with police in Mosul and 
Kirkuk, but no one claims to have good communication with Baghdad. 
MOI Challenges and Vulnerabilities 
---------------------------------- 
 
¶46. (SBU) MOI officers and personnel could benefit from additional 
training in basic investigative techniques as well as financial 
investigative training.  Communication between local law enforcement 
throughout Iraq must improve, and the central government in Baghdad 
must provide the necessary information to the various law enforcement 
groups throughout the country, including sharing Interpol notices, 
developing a criminal database, and communication with the MLRO.  Not 
only would the MOI benefit from a more uniform training of its cadets 
in Erbil, Dohuk and Sulaimaniyah, but so would all of Iraq.  Training 
appears to be disjointed and better in some parts of the country than 
in others.  It is important that a national, federalized police force 
be able to function with the same skill level regardless of its 
location.  Perhaps the central government needs to develop a national 
curriculum and should look towards the training grounds in the 
Kurdish Region as a starting point for training all national law 
enforcement.  MOI officials noted that they do not conduct 
surveillance because they lack the necessary equipment. 
 
Asayeesh (Special Police) 
------------------------- 
 
¶47. (SBU) The Asayeesh (Special Police) has jurisdiction over crimes 
such as terrorism and terrorist financing.  The Asayeesh is set up to 
be somewhat self-contained so that it can conduct its investigations 
without alerting a large group of people.  Where the Asayeesh have a 
presence, such as at a station, they have investigative judges 
devoted to the Asayeesh that follow and coordinate the legal process 
with felony courts.  Prosecutors do not get involved until the case 
gets to the investigative judge.  The Asayeesh also has its own legal 
department with judicial investigators, who can file for warrants 
with the investigative courts.  There are some senior officers within 
the Asayeesh who can file for the warrants directly with the court. 
There are also officers who went to college and studied law who can 
also file directly with the court.  There is also a special economic 
section within the Asayeesh who coordinates investigations related to 
terrorist financing. 
 
¶48. (SBU) The Asayeesh noted that terrorist financing in the Kurdish 
Region had some unique characteristics.  Because of a lack of 
sympathy by the local population to AQI and related groups, it is 
difficult for these groups to conduct meaningful fundraising in the 
Kurdish Region.  According to the Asayeesh, the primary funding and 
support sources, including weapons, for these groups are foreign 
intelligence services, with secondary contributions from Zakat 
(mostly from individuals in Saudi Arabia).  The Asayeesh noted that 
AQ had a strong financial structure under Zarqawi, but that it is 
less effective now, with AQ relying more on alternate sources 
including kidnappings, zakat and the smuggling of cash. 
 
¶49. (SBU) The Asayeesh noted a shift away from the use of cash 
towards the use of goods to raise and move value.  The Asayeesh also 
noted that former regime members abroad often provided funding 
through this mechanism.  Basically, the terrorists and other criminal 
entities will ship goods into Iraq legally.  The goods are whatever 
is desired on the market, and profit is not the ultimate goal. 
Rather, the goods are purchased elsewhere, shipped into Iraq, sold 
inside of Iraq and the money from the sale goes to supporting 
terrorists or other criminal groups.  Because of the connection with 
Zakat and the increased use of goods, the Asayeesh is increasingly 
concerned with charities and front companies as vehicles for the 
movement of terrorist funds. 
 
¶50. (SBU) The Asayeesh noted that it had a cooperative relationship 
with the money exchangers and transmitters and that this relationship 
had helped the Asayeesh prevent a number of terrorist attacks 
including at least two major terrorist operations.  This relationship 
also assisted in the investigation of the May 9th 2007 bombing of the 
KRG Ministry of Interior in Erbil. 
 
¶51. (SBU) The Asayeesh noted that while the money transmitters were 
cooperative in this investigation, their efforts were hampered by the 
lack of customer identification records, as well as multiple 
transfers and exchange transactions.  The Asayeesh was able to obtain 
valuable information, but it had to obtain and analyze a great deal 
of transactional information from the money exchangers because of the 
 
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lack of customer identification requirements.  The money changers and 
transmitters were unable to verify the identities of the end users of 
the money they were moving.  The Asayeesh has asked the MOI to close 
down money remitters and exchangers, in the hopes that the public 
will then use the formal banking sector to conduct money movements, 
where it will be easier to track said movements, at least in theory. 
 
¶52. (SBU) According to the Asayeesh sources, most of the funding for 
the PKK is cash smuggled in from Europe and to a lesser extent from 
Turkey and Iran. 
 
Asayeesh Challenges and Vulnerabilities 
--------------------------------------- 
 
¶53. (SBU) The Asayeesh clearly understands the terrorist threat and 
investigates terrorist financing.  While the Asayeesh has developed a 
beneficial rapport with the money exchange/transmitter sector, they 
do not have a similar relationship with the MLRO.  The Asayeesh could 
also benefit from formal financial "follow the money" investigative 
training, but geared more towards a cash-based society, given the 
current limitations of the Kurdish Region's banking sector. 
 
Intelligence Sector 
------------------- 
 
¶54. (SBU) The KRG intelligence community is spread across several 
areas.  The Parastin and Zanyari are mainly responsible for external 
intelligence operations while the Asayeesh is mainly responsible for 
internal intelligence operations.  However, the lines between 
internal and external are not absolute - the Parastin and Zanyari do 
collect intelligence inside the Kurdish Region. 
 
¶55. (SBU) All components of the KRG intelligence community recognize 
the usefulness of financial intelligence - as noted elsewhere in this 
paper, the KRG intelligence community used financial intelligence to 
track down the perpetrators of the May 9th MOI attack. 
 
¶56. (SBU) The KRG intelligence community has demonstrated that it has 
well-developed sources in and outside Iraq.  They, like all other 
sectors of the KRG, would benefit from additional equipment and 
training - especially Threat Finance training. 
 
Ports of Entry (POEs) 
--------------------- 
 
¶57. (SBU) The FSAT did not have the opportunity to visit the primary 
land ports of entry.  The FSAT did, however, have the opportunity to 
visit the Erbil International Airport (EIA), the primary air port of 
entry in the Kurdish Region.  The FSAT was able to meet with the EIA 
representatives responsible for security.  The FSAT noted that the 
EIA was modern, had trained staff and modern security equipment and 
procedures.  Furthermore, there is a major construction project 
currently underway to build a substantially larger new terminal that 
will augment the current terminal.  It will allow for more planes and 
handle many more flights in a year.  The new terminal is scheduled to 
be completed by early 2009.  The FSAT believes that specialized 
training on the identification, prevention, and investigation of bulk 
cash smuggling would be beneficial to selected security and border 
personnel at POEs throughout Iraq. 
 
Conclusion and Recommended Training 
----------------------------------- 
 
¶58. (SBU) The Kurdish Region of Iraq is currently in the infancy of 
developing a modern financial sector.  The FSAT notes the KRG's 
strong political will to combat terrorist financing, particularly 
involving terrorist groups such as AQI , Ansar Al Sunna, and related 
groups, as well as a strong desire for training and technical 
assistance.  The current disconnects between entities within the 
Kurdish Region and between the KRG and the Government of Iraq (GOI), 
hamper overall efforts to combat terrorist financing and money 
laundering throughout all of Iraq, including the KAR.  The FSAT 
recommends giving serious attention to using technology to create 
stronger communication among these entities.  Most importantly, the 
Central Bank must re-evaluate its policies and approach to creating a 
situation in which the public is willing to use the banking sector as 
its primary way to move and store funds. 
 
¶59. (SBU) Based on our assessment the FSAT team would recommend that 
priority consideration be given to the following training 
initiatives:  1) Basic Financial and Regulatory training for the 
Central Bank employees from both the branches and headquarters; this 
should include fundamental banking, credit analysis, compliance 
(anti-money laundering and counterterrorist financing) and 
information technology courses; 2) Training on the AML law and the 
AML prosecutions for judges and prosecutors; 3) basic financial 
crimes investigations training for the MOI and Asayeesh;  and 4) Bulk 
Cash Smuggling training; 5) Threat Finance training for the 
 
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intelligence community  (Note:  Because the KRG's  training 
facilities are located in a relatively more secure environment, we 
strongly urge that training initiatives utilize those facilities. 
Invitations for training should be extended to both KRG personnel and 
officials from other parts of Iraq, in order to help reduce the 
Iraq-wide threat of cash smuggling for terrorist financing and money 
laundering. 
 
¶60. (U) Department thanks posts for their assistance with this action 
request. 
RICE