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P 231340Z JUN 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1490
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
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RUEADRO/HQ ICE DRO WASHINGTON DC

UNCLAS SECTION 01 OF 05 PRAGUE 000348 
 
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: CORRECTED VERSION OF PRAGUE 338 -- PART 1: U.S.-EU 
COUNTER-TERRORIST FINANCING WORKSHOP: NON-PROFIT ORGANIZATIONS 
 
Ref: A. PRAGUE 338 
     ¶B. PRAGUE 339 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (SBU) SUMMARY.  This cable contains significant revisions to 
Prague 338 and should be regarded as replacing that cable.  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 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 some reservations about the U.S. Alternative Relief Mechanism 
pilot project in the West Bank.  Treasury also highlighted U.S. 
efforts against Hamas and Hezbollah, which continue to receive 
active support from the Islamic 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 related to preparation, 
infrastructure development, and social services.  The U.S. speakers 
identified cash couriers and hawalas, criminal and illicit 
activities, personal bank accounts, and charities and non-profit 
organizations (NPOs) as some of al Qaida and its affiliates' most 
common funding mechanisms at the current time.  Terrorists also 
often find ways to exploit new technology.  U.S. presenters 
expressed particular concern over e-payments/e-currency, online 
gaming and pornography websites, stored-value cards, and mobile 
payments. 
 
-------------------- 
II. Implementation of FATF SR VIII: Non-Profit Organizations 
-------------------- 
 
¶3.  (SBU) For the first time in the US-EU TF workshop 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 and 
charitable services.  Leahy underscored the importance of stronger 
efforts towards global implementation of SR VIII not only in the 
U.S.-EU context, but in all regions including South Asia, noting the 
first regional conference on the SRVIII in South Asia hosted in New 
Delhi in April, 2009, through a USG initiative. 
 
¶4. (SBU) Turning to the U.S. approach to SR VIII implementation, 
 
PRAGUE 00000348  002 OF 005 
 
 
Leahy explained how the U.S. implements the four-prong approach 
conveyed in SRVIII, which includes (i) oversight, (ii) 
investigation/enforcement actions, (iii) outreach and (iv) 
international engagement.  The U.S. model for oversight relies on a 
combination of supervision at the federal, state, and local levels, 
as well as on self-regulation within the NPO sector.  However, Leahy 
noted that targeted sanctions and other enforcement actions are 
usually the most effective tool of this 4-pillar approach to 
identify and take action against charities and/or officials 
supporting terrorist organizations.  Leahy noted that investigations 
and enforcement actions require coordination among government 
agencies, and sanctions in particular are largely driven by 
intelligence.  Investigations may feed into prosecutions for 
criminal acts, but also use other measures such as sanctioning 
through domestic and/or UN designation. 
 
¶5.  (SBU) Leahy particularly highlighted the outreach component as 
vitally important in raising awareness of the terrorist threat among 
donors and NPOs, creating buy-in among the sector to cooperate on 
countering this threat, and maintaining a dialogue aimed at 
minimizing these risks.  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 in high risk regions. 
 
¶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 risk of terrorist abuse it faces, and 
emphasized the importance of public outreach.  He stated that no 
domestic UK 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 charities commission helps charities conduct more 
effective due diligence and is working within the UK government to 
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 investigations of NPOs and 
national Financial Intelligence Units (FIUs), and, challenges to 
domestic designations of charities.  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 or deliberate involvement with terrorists 
organizations.  The USG relies heavily on enforcement actions to 
protect the nonprofit sector from abuse by terrorist organizations, 
but most designations inevitably shut down charities that were also 
providing some legitimate social services.  To mitigate unintended 
consequences and meet urgent basic needs, the USG is currently 
exploring ways to "backfill" the provision of social and/or 
charitable services independent of terrorist-linked organizations. 
U.S. Treasury presented an overview of USAID's work in the West Bank 
 
PRAGUE 00000348  003 OF 005 
 
 
and in particular a recent public-private partnership to develop an 
alternative relief mechanisms in such one such high-risk region, 
noting that this partnership is a work-in-progress and faces 
considerable challenges.  Treasury also issues guidance on 
oversight, enforcement, and best practices via its Web site and 
through numerous outreach conferences. 
 
¶10.  (SBU) In the pilot project that Leahy described, USAID has 
entered into an MOU with the American Charities for Palestine (ACP), 
an NGO looking to fund education and health services outside of 
Hamas-supported 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 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 
social services and aid in Bangladesh.  This project could reveal 
gaps in such 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 terrorism 
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 
sanctioned for its link to terrorist organizations. 
 
-------------------- 
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 
 
PRAGUE 00000348  004 OF 005 
 
 
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 
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 counter 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 terrorist abuse of the NPO sector. 
 
¶17.  (SBU) Many workshop participants also noted that one of the 
most important yet most under-utilized tools of FATF SRVIII is the 
enforcement prong, in particular identifying terrorist-related 
targets for designation and implementation of sanctions against NPOs 
and their officials who are shown to support a terrorist 
organization.  One of the current roadblocks to more governments 
taking such enforcement actions is governments' ability to use and 
protect intelligence in identifying targets and developing 
designations.  Another hurdle is the political will necessary to 
take such actions that would more effectively protect the charitable 
sector from terrorist abuse than relying largely on oversight 
mechanisms. 
 
-------------------- 
¶V. Cases of Iran, Hezbollah, and Hamas Financing 
-------------------- 
 
¶18.  (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 the U.S. 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 organizations among vulnerable 
populations by creating dependence upon their social services. 
However, the social and terrorist activities of these terrorist 
organizations 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. 
 
 
PRAGUE 00000348  005 OF 005 
 
 
¶19.  (SBU) Throughout the workshop, Poncy repeatedly underscored 
that any counter-terrorist financing effort 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.  The U.S. would 
like the EU to designate Hezbollah as a whole. 
 
¶20.  (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 
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 
-------------------- 
 
¶21.  (SBU) This practitioners workshop series, the only one to 
address such a wide range of CFT topics in the U.S.-EU CFT 
relationship, provides the main outlet for transatlantic experts to 
regularly explore challenges in countering 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 bringing about greater implementation 
of FATF SR III on targeted financial sanctions and asset freezing. 
This May 2009 workshop was turned to new CFT topics, 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 abuse 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 solution should not involve solely a 
regulatory approach but rather a comprehensive 4-prong approach to 
include enforcement actions.  The U.S. and EU should continue to 
look for ways to engage on this topic. 
 
¶22.  (SBU) Begin comment: 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), such as additional CT and CFT U.S.-EU troikas, public 
conferences, or other possible venues.  End Comment. 
 
¶23.  (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. 
 
¶24.  (U) This cable has been cleared by the members of the U.S. 
Delegation. 
 
ThompsonJones