VZCZCXRO1157
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHTRO RUEHVK
RUEHYG
DE RUEHPG #0338/01 1681153
ZNR UUUUU ZZH
P 171153Z JUN 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1470
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBS/USEU BRUSSELS
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHDC
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RHMFIUU/FBI WASHINGTON DC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHINGTON DC
RUEKJCS/DOD WASHDC
RUEADRO/HQ ICE DRO WASHINGTON DC

UNCLAS SECTION 01 OF 05 PRAGUE 000338 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/ESC, EUR/ERA, LA/EBA/BRIAN EVANS 
TREASURY FOR GLOBAL AFFAIRS, TFFC, OFAC AND OSP 
ICE FOR  TF INVESTIGATIONS - JOINT VETTING UNIT/DAVID KANE 
 
E.O.12958: N/A 
TAGS: EFIN ETTC EAID KTFN KWBG KPAL KJUS KCRM KNNP PREL
PTER, UNSC, SNAR, EZ, EUN, IR 
SUBJECT: PART 1: U.S.-EU COUNTER-TERRORIST FINANCING WORKSHOP 
(PRAGUE MAY 27-28): NON-PROFIT ORGANIZATIONS 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (SBU) SUMMARY.  This is the first of two cables reporting on the 
U.S.-EU Terrorism Finance Workshop held in Prague on May 27-28.  In 
response to U.S. diplomatic efforts, the Czech Presidency of the 
European Union (EU), in partnership with the upcoming Swedish 
Presidency, hosted the eighth in a series of expert-level U.S.-EU 
workshops on combating terrorism finance.  About 120 participants 
from EU member states and institutions, the U.S., and the UN 
Monitoring Team attended the workshop, which focused on 
opportunities for U.S.-EU cooperation in three new areas: wire 
transfers, non-profit organizations and new payment methods.  While 
recognizing differences between the U.S. and EU legal framework and 
practice, workshop participants focused on commonalities and agreed 
to prepare a common outreach paper to be approved by the U.S. and EU 
member states.  The next workshop will take place under the Spanish 
EU Presidency during the first half of 2010.  This cable reports on 
discussions relating to non-profits organizations (Part 2 (septel) 
addresses wire transfers, new payment methods and ideas for U.S. - 
EU future cooperation).  The European Commission is exploring 
possible measures to decrease NPO vulnerability to terrorist 
financing abuse, and would welcome coordination with the USG on how 
to approach third states (e.g. Yemen and the Gulf countries).  EU 
participants expressed interest and reservations about the U.S. 
Alternative Relief Mechanism pilot project in Gaza.  Treasury also 
highlighted U.S. efforts against Hamas and Hezbollah, which continue 
to receive active support from the Ilamic Republic of Iran.  END 
SUMMARY. 
 
-------------------- 
¶I. Trends and Emerging Threats in Terrorist Financing 
-------------------- 
 
¶2.  (SBU) Workshop participants recognized that while a single 
terrorist attack may be relatively inexpensive to carry out, 
terrorist groups have high operating costs relating to preparation 
and personnel development.  The U.S. speakers identified couriers 
and hawalas, criminal and illicit activities, personal bank 
accounts, and charities and non-profit organizations (NPOs) as al 
Qaida and its affiliates' most common funding mechanisms. 
Terrorists often find ways to exploit new technology.  U.S. 
presenters expressed particular concern over e-payments/e-currency, 
online gaming and pornography sites, stored-value cards, and mobile 
payments. 
 
-------------------- 
II. Implementation of FATF SR VIII: Non-Profit Organizations 
-------------------- 
 
¶3.  (SBU) For the first time in the workshops history, an entire 
session was devoted to implementation of FATF SR VIII for non-profit 
organizations.  Recognizing that NPOs are particularly vulnerable to 
terrorist abuse through both diversion and exploitation of funds, SR 
VIII sets out an international standard for compliance.  U.S. 
Treasury's DeAnna Fernandez and Katherine Leahy - both Policy 
Advisors at the U.S. Treasury's Office of Global Affairs/Office of 
Terrorist Financing and Financial Crimes, chaired this session and 
discussed the U.S. experience and efforts in implementing SR VIII. 
In particular, Katherine Leahy noted that in the U.S. Treasury's 
experience, exploitation is the more commonly observed practice of 
the two, aimed at radicalizing vulnerable populations through the 
provision of legitimate social services.  Leahy underscored the 
importance of SR VIII not only in the U.S.-EU context, but also in a 
variety of regions including South Asia, which recently hosted its 
first regional conference on the subject through a USG initiative. 
 
¶4. (SBU) Turning to the U.S. approach to SR VIII implementation, 
Leahy explained the American four-prong strategy:  oversight, 
investigation, outreach and international cooperation.  The 
U.S.-model relies on a combination of supervision at the federal, 
state, and local levels, as well as on self-regulation.  Leahy noted 
that U.S. investigations require coordination among government 
agencies, as they are largely driven by intelligence. 
Investigations may feed into prosecutions for criminal acts, but 
 
PRAGUE 00000338  002 OF 005 
 
 
also use other measures such as sanctioning through domestic 
designation. 
 
¶5.  (SBU) Leahy particularly highlighted the outreach component as 
vitally important in raising awareness of the threat, creating 
buy-in among the sector, and maintaining a dialogue aimed at 
minimizing these risks.  She noted that while the bulk of funding 
comes from the U.S. and Europe, many other countries remain 
vulnerable to exploitation.  Finally, she introduced the concept of 
"alternative relief mechanisms" (covered in more detail in Session 
III), which aim to provide a vehicle for donors to give more safely 
to vulnerable communities. 
 
¶6.  (SBU) Ben Evans of the Charity Commission for England and Wales 
presented one EU member state's approach to the regulation of the 
non-profit sector.  Evans outlined the Commission's oversight duties 
with respect to approximately 200 registered charities, including: 
registration, monitoring, and investigating allegations of abuse. 
He stressed that the commission does not have authority to pursue 
criminal investigations and must depend on law enforcement agencies 
when criminal activity is suspected.  In the UK example, the 
commission relies on the Terrorism Act of 2000, which outlawed 
raising, holding or using funds for terrorism. 
 
¶7.  (SBU) Evans agreed with Leahy that the charitable sector does 
not generally recognize the risks it faces, and emphasized the 
importance of public outreach.  He stated that no domestic charities 
had been definitively implicated in attack planning, but that 
according to authorities, a "significant proportion" of CFT 
investigations involved charities.  Recognizing the danger, the 
commission helps charities conduct effective due diligence and 
coordinate more effectively with law enforcement, as part of its CFT 
strategy "to identify, disrupt and prevent terrorist and other 
serious abuse of the charitable sector." 
 
¶8.  (SBU) In the discussion following the presentation, questions 
centered primarily on the intersection of charitable oversight and 
law enforcement.  Participants sought clarification on whether 
investigations into charities have resulted in criminal 
prosecutions, the relationship between NPOs and national Financial 
Intelligence Units (FIUs), and, in the U.S. example, judicial 
challenges to domestic designations of charities.  In the course of 
discussion it became apparent that in the U.S., investigations into 
possible terrorist abuse of charities are largely driven by 
intelligence, whereas the UK relies primarily on tips from the 
public or NPO staff.  Both the U.S. and the UK presenters noted the 
need for enhanced public outreach, and in particular the need to 
explain more clearly government actions taken in response to 
allegations of abuse or exploitation of NPOs. 
 
-------------------- 
III: Development of Alternative Relief Mechanisms for High Risk 
Regions (Private-Public Partnership) 
-------------------- 
 
¶9.  (SBU) In certain regions, charitable works run a particularly 
high risk of inadvertent involvement with terrorists.  The USG 
relies heavily on enforcement to protect the nonprofit sector from 
terrorist financing abuse, but USG designations inevitably shut down 
charities that were also providing legitimate services.  To mitigate 
unintended consequences and meet urgent basic needs, the USG is 
developing ways to "backfill" the provision of services independent 
of terrorist-linked channels.  U.S. Treasury's Leahy presented an 
overview of USAID's work to develop Alternative Relief Mechanisms in 
high-risk regions, noting that this is a work-in-progress and faces 
considerable challenges.  Treasury issues guidance on oversight, 
enforcement, and best practices via its Web site and through 
targeted outreach conferences. 
 
¶10.  (SBU) In one pilot project that Leahy described, USAID has 
entered into an MOU with the American Charities for Palestine (ACP), 
an NGO looking to fund education services outside of Hamas channels. 
 In that model, ACP raises money in the U.S., then works with 
USAID-vetted NGOs on the ground in the West Bank and Gaza.  The goal 
 
PRAGUE 00000338  003 OF 005 
 
 
is not to create a "white list" of government approved NGOs, which 
could introduce another set of potential hazards and possibly 
increase their risk of terrorist exploitation.  Rather, the goal is 
to steer ACP to NGOs that have at least been cleared to work with 
USAID from a counter-terrorism angle, with the overall objective of 
promoting a neutral, de-politicized space for humanitarian aid.  In 
another project, USAID and other U.S. agencies are working to map 
the providers of aid in Bangladesh.  This project could reveal gaps 
in services, which could then be matched with known providers. 
 
¶11.  (SBU) Expressing interest in Treasury's overview of the 
USAID-ACP pilot project, EU participants: 
 
-- commended the U.S. for recognizing the importance of humanitarian 
aid and the complications arising from certain terrorist 
designations; 
 
-- requested more information about USAID and other U.S. agencies' 
criteria for choosing potential beneficiaries and the vetting 
process for both NGOs on the ground and U.S. donors; 
 
-- cautioned that not all EU member states (EUMS) could legally 
"pre-approve" or guide certain charities due to their limited 
administrative authority; 
 
-- wondered if NGOs faced political consequences when receiving 
U.S.-derived funding in lieu of Hamas; and 
 
-- cautioned against "mission creep," worrying that the ACP-USAID 
model could undermine the diversity of NGOs if applied to areas 
beyond the unique context in Gaza. 
 
¶12.  (SBU) The participants agreed that the U.S. and EU should 
continue to explore ways to address the challenge of preventing 
terrorist abuse of charities, while ensuring that vulnerable 
populations obtain charitable relief if their local charity is 
designated and sanctioned for its alleged link 
 
-------------------- 
IV. Transparency and Accountability of NPOs 
-------------------- 
 
¶13.  (SBU) Participants acknowledged that recent cases of NPOs' 
abuse by terrorist financiers highlighted the need for the sector's 
integrity, credibility, and awareness in protecting itself.  In 
recognition that transparency and accountability of the non-profit 
sector are critical to preventing its misuse for terrorist financing 
and other financial crimes, Ingo Weustenfeld of the European 
Commission Counter-Terrorism Policy Office and Oldrich Krulik of the 
Czech Interior Ministry reported on their institutions' respective 
efforts to advance those goals such as commissioning studies, doing 
outreach and issuing guidelines for NPOs.  According to Weustenfeld, 
who reported on the Commission's February 12, 2009 conference with 
leaders from the European Non-Profit Associations sector, no EUMS is 
fully compliant with FATF SR VIII despite the Commission's support 
for reaching such compliance. 
 
¶14.  (SBU) Though an important step forward, the studies conducted 
so far have not always demonstrated expected results.  For example, 
following the December 2005 EU Council meeting that adopted five 
principles for NGOs conduct and their interactions with respective 
governments, the Commission initiated two studies of the sector to 
assess vulnerabilities and examine NPO exploitation for criminal 
purposes, including terrorist financing.  The first study, already 
completed, fell short of providing comprehensive information or 
conclusive results.  The second, to be published by summer 2009, 
attempts to map the 27 EUMS self- and government-regulatory 
frameworks for the NPO sector.  Its preliminary findings call for 
information and best practices sharing, increasing guidance to NPOs 
and cooperation between stakeholders and NPOs. 
 
¶15.  (SBU) Many NPOs insist that a "one-size fits all" EU regulatory 
solution will not work, given the diversity of individual member 
state legal and regulatory systems affecting the sector.  The 
 
PRAGUE 00000338  004 OF 005 
 
 
Commission indicated that it will continue work on this area under 
the 5-year "Stockholm Program" on Justice, Freedom and Security, to 
be adopted by the Council under the Swedish Presidency.  Drawing 
from U.S. practices, the FATF methodology, and EUMS experiences, the 
Commission is drafting guidelines for voluntary best practices by 
NPOs, and intends to continue the dialogue.  EUMS will ultimately 
decide on the nature of actions to apply EU-wide, as the Commission 
does not have the authority to initiate binding legislation on the 
EU's charitable sector.  (Note:  Separately, EU Counterterrorism 
Coordinator Gilles de Kerchove asserted that he will push EUMS to be 
forward leaning on the Commission initiative.)  Another Commission 
official, Michael Merker, EC Counter Terrorism Representative to the 
EUMS Civ/Mil Cell, Security Policy Unit, recommended that the U.S. 
and EU exchange expertise over efforts to engage third countries, 
e.g. Yemen and the GCC, in the effort to control terrorist 
financing. 
 
¶16.  (SBU) Workshop participants agreed that outreach to NPOs is 
key, but controversial.  NPOs are often offended by the implication 
that they could be used for terrorist purposes.  The Czech Interior 
Ministry noted, however, that after an initial negative reaction, 
some NPOs came forward with information that could prove useful to 
law enforcement and counter-terrorism officials.  The Commission and 
the Czech Republic will continue to study how to reduce the 
opportunity for misuse of funds from the NPO sector. 
 
-------------------- 
¶V. Cases of Iran, Hezbollah, and Hamas Financing 
-------------------- 
 
¶17.  (SBU) U.S. Treasury's Chip Poncy delivered an informal working 
lunch presentation on Hezbollah and Hamas financing. He explained 
USG views on these groups, the justifications for their U.S. 
designations, and our perception of the EU's position vis-`-vis 
Hezbollah and Hamas.  While both the U.S. and the EU agree that the 
overwhelming percentage of funds raised by Hamas or Hezbollah are 
used to provide social services in areas where local governments 
fail to supply them, the U.S. views these activities as the means to 
gain support for terrorist activities among vulnerable populations 
by creating dependence upon their social services. However, these 
organizations social and terrorist activities cannot be divided into 
distinct units. Thus, the U.S. approaches Hamas and Hezbollah as 
united entities and seeks to disrupt their global support networks 
through domestic designations (under E.O. 13224) and engagement with 
jurisdictions that actively support these organizations. 
 
¶18.  (SBU) Throughout the workshop, Poncy repeatedly underscored 
that any counter-terrorist financing efforts must be considered 
within the context of broader counter-terrorism efforts.  When 
viewed through this lens, it becomes impossible to distinguish 
between the "legitimate" activities and terrorist actions of Hamas 
or Hezbollah, as they pursue a common purpose.  The U.S. 
"organizational" approach to Hamas and Hezbollah contrasts with the 
EU approach, which generally requires demonstrating a direct link 
between financing and a terrorist act or activity.  Poncy noted that 
when the EU designated Hamas as a terrorist organization, the U.S. 
interpreted this action as perhaps a sign the EU was coming closer 
to the U.S. "organizational" approach and was disappointed when it 
turned out not to be the case.  The U.S. would like the EU to 
designate Hezbollah as a whole. 
 
¶19.  (SBU) Poncy flagged that Iran remains a state sponsor of 
terrorism that provides hundreds of millions of dollars a year to 
Hezbollah, increasingly supports Hamas, and fuels terrorist activity 
in Iraq.  Iran's lack of any form of CFT controls led to its 
designation by FATF as country of concern.  When combined with its 
ongoing weapons of mass destruction threat and financial obligations 
under various UNSCRs (e.g., targeted sanctions, activity-based 
financial prohibitions and vigilance against Iranian banks inside or 
outside the country), Iran presents unparalleled illicit financing 
risk to the international financial system.  Consequently, Poncy 
urged the EU to take the strongest measures possible in implementing 
FATF's call for financial countermeasures against Iran, including 
obligations under UNSCRs 1737, 1747, and 1803.  He noted that the 
 
PRAGUE 00000338  005 OF 005 
 
 
international community has worked collaboratively to inform 
financial institutions of the serious risks of Iran's deficient 
AML/CFT regime as identified by FATF, and how best to make decisions 
based on FATF guidelines to protect financial systems. 
 
-------------------- 
Comment:  Workshop Next Steps 
-------------------- 
 
¶20.  (SBU) This practitioners workshop series, the only one of its 
kind in the U.S.-EU relationship, provides the main outlet for 
transatlantic experts to bilaterally explore challenges in 
addressing terrorist financing.  Following agreement reached during 
a U.S.-EU meeting under the 2004 Dutch EU Presidency, the U.S. and 
EU have held eight practitioner workshops focused on countering 
terrorist financing from 2005-2009.  Previous sessions focused on 
FATF SR III issues regarding TF sanctions and asset freezing.  This 
workshop was the first to explore new territory, overcoming great EU 
reluctance in recent years to fulfill the commitment (see 2004 
U.S.-EU Summit Declaration on Combating Terrorism) to discuss the 
challenge of terrorist misuse of the nonprofit sector.  This topic 
will remain internally divisive to the EU in coming months as they 
debate any future EU regulatory approach.  However, we have made 
progress in raising European awareness of the urgency of this issue 
and the fact that the U.S. does not primarily view the solution 
through a regulatory lens.  The U.S. and EU should continue to look 
for ways to engage on this topic, although the traditional TF 
workshop participants lack expertise or authority for charities. 
 
¶21.  (SBU) EU institutional treaty and bureaucratic structures will 
continue to frustrate our best efforts to translate these expert 
discussions into operational or policy action.  Yet, providing a 
private space for open, expert-level discussion of what is (or is 
not) working in this field is invaluable to laying the groundwork 
for long term adjustments to EU and national level decision-making 
and implementation.  The USG should identify areas that could 
provide the best possible added value for this unique forum, as 
opposed to FATF (whose membership includes just half of the EU), the 
TF and terrorism U.S.-EU troikas, public conferences, or other 
possible venues.  End Comment. 
 
¶22.  (U) Part 2 of this cable (septel) is being transmitted 
separately and reports on wire transfers, new payment methods and 
ideas for U.S.-EU future cooperation. 
 
ThompsonJones