Cablegate: Part One of Four: Results of Financial Systems

Published: Tue 24 Jul 2007 07:39 AM
DE RUEHYN #1418/01 2050739
R 240739Z JUL 07
E.O. 12958: N/A
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. Yemen is
in the early stages of developing its capacity to control
money laundering. Interlocutors noted that the
cash-intensive nature of the economy, significant levels of
corruption and problems in the judicial system would be
important factors to consider when developing training and
technical assistance programs related to terrorist financing,
money laundering and financial crimes.
2. Summary continued. The FSAT Team believes that there are
a number of training initiatives that should be pursued,
particularly in light of the risks and vulnerabilities
related to the money-exchange service sector, the NGO sector,
corruption, and increased evidence of narcotics trafficking.
The team therefore recommends the following training
initiatives: (1) legal drafting assistance to ensure that
the proposed new law meets international standards and
addresses the vulnerabilities identified in this report; (2)
additional training for the Central Bank,s Anti-Money
Laundering Information Unit and field examiners in anti-money
laundering examinations and the detection of suspicious
transactions, and (3) basic Anti-Money Laundering Information
Unit training and a technical assistance visit by the
Financial Crimes Enforcement Network (FinCEN), followed by an
exchange visit between the Central Bank,s Anti-Money
Laundering Information Unit and FinCEN and/or the unit's
Spanish Counterpart, SEPBLAC (the Bank of Spain's Executive
Service of the Commission for Monitoring Exchange Control
3. The first section of the FSAT Team's report follows.
This section gives an overview of the FSAT Team and the
ROYG's National Anti-Money Laundering Committee and Justice
Sector. End summary
4. A Financial System Assessment Team (FSAT), consisting of
Gary Novis (State S/CT-Head of Delegation), Robert Stapleton
(Department of Justice, Asset Forfeiture and Money Laundering
Section), Patricia Handley (Federal Deposit Insurance
Corporation), Jill Murphy (FBI- Terrorist Finance Operations
Section), Yamam Fadl (U.S. Treasury,s Financial Crimes
Enforcement Network-FinCEN), Daniel Harris (U.S. Treasury,s
Office of Terrorist Finance and Financial Crimes), and
Eugenio Garcia Jimenez (Spanish National Police- representing
the European Union) visited Yemen to determine its most
critical training and technical assistance needs to combat
money laundering and terrorist financing. The team met with
a wide array of government and private sector entities in
Yemen, including: The Central Bank, the Anti-Money
Laundering Information Unit, the Cabinet,s National
Anti-Money Laundering Committee, the Political Security
Organization (PSO), the Anti-Narcotics Department at the
Ministry of the Interior, the Attorney General,s Office, the
Customs Authority, the Ministry of Social Affairs and Labor,
the Yemen Parliamentarians Against Corruption (Yemen PAC),
the Tax Authority, private financial institutions, the Yemen
Bankers' Association, and representatives of the Foreign
Affairs and Constitutional Committees of the Yemen Parliament.
5. The ROYG Cabinet,s National Anti-Money Laundering
Committee was established in accordance with the provision of
Anti-Money Laundering (AML) Law No. 35. It is charged with
combating money laundering and has specific responsibilities
established by Republican Decree No. 89 of 2006 regarding the
Executive Writ for AML Law No. 35 of 2003 (AML laws). The
Committee meets three-to-four times a month. The Committee
is comprised of one representative nominated by each of the
-- Ministry of Finance, who serves as Chairman
-- Central Bank of Yemen Governor, who serves as Deputy
-- Ministry of Justice
-- Ministry of Interior
-- Ministry of Foreign Affairs
-- Central Organization for Control and Audit (COCA)
-- Ministry of Industry and Trade
-- Yemen Bankers Association
-- General Union of Chambers of Commerce and Industry
6. Basic responsibilities of the Committee include
developing AML-related regulations, procedures and the
suspicious transaction report (STR) format; coordinating the
exchange of information with the AML Information Unit,
Central Bank of Yemen (CBY), and international parties on AML
efforts; sponsoring training seminars and workshops for the
financial community; and representing Yemen in international
Anti-Money Laundering/Counter-Terrorist Financing (AML/CTF)
fora, such as the Middle East and North African Financial
Action Task Force (MENAFATF).
7. According to the Committee, sources of money laundering
in Yemen are derived from corruption, arms smuggling, tax
evasion, and child trafficking. The extent of the hawala
network or informal value transfer system was assumed to be
limited based on the marginal number of expatriates. (The
FSAT, however, was not able to quantify the extent of the
hawala network during any of our discussions.)
8. The Committee also has responsibility for legal drafting
and as such has drafted a counter-terrorist financing (CTF)
law that reportedly combines both AML and CTF elements and
addresses all of the FATF 40 9 recommendations. The new law
will criminalize terrorist financing by individuals and
organizations. The Committee indicated that the draft, once
approved, will supersede the existing AML laws. The draft
was reviewed by the Committee's legal team and
representatives from the United Nations to ensure it complied
with international standards. The draft needs to be further
vetted and is expected to be presented to Parliament for
approval in mid-October 2007 at the earliest. The Committee
indicated that the UN resolution on narcotics trafficking and
organized crime was presented to Parliament for ratification.
The Parliament ratified the narcotics trafficking and
organized crime resolution on June 18, 2007.
9. In general, the Committee appears actively involved in
advancing the financial sector,s ability to address
potential risks associated with money laundering and
terrorist financing. However, it appears that the
Committee,s efforts are not always effective. Specifically,
the STR form it developed does not appear to be effective.
The STR form contradicts the confidentiality requirement of
the AML laws and includes a section for the subject,s
signature; the form does not provide a narrative section for
describing the nature of the suspicious activity and
pertinent information relative to suspicious activity that
would be critical to the AML Information Unit (AMLIU) and law
enforcement; and the form requires limited information on the
identification of the subject be recorded. Apparently, the
inclusion of the subject,s signature was an oversight and
the banks were instructed not to obtain the signature. Based
on discussions with the Central Bank and AMLIU staff, it
appears that a revised STR form will be issued which will
address the shortcomings of the current form.
10. In addition to its current duties and responsibilities,
the National Anti-Money Laundering Committee is ideally
placed to conduct a more strategic approach to developing
Yemen,s AML/CTF regime. In particular, it could develop a
national strategic action plan for AML/CTF which could
provide productive guidance for the wide variety of public
and private sector entities that are responsible for reducing
the vulnerabilities and risks of money laundering, as they
develop their institutions, regulations, procedures and
11. The FSAT met with members of the Attorney General,s
Office, the Public Prosecutor,s Office, Yemen
Parliamentarians Against Corruption (Yemen PAC), and the
Parliament,s Foreign Affairs Committee to discuss the
justice sector,s role in Yemen,s AML/CTF regime.
Basic Structure and Criminal Procedure
12. The Yemeni legal system represents a mixture of shari'a
law and civil code legal structure. There are three levels
of courts: the court of first instance, an appellate court
and a supreme court.
Criminal Procedure
13. 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 entities collect evidence pertaining to the
alleged crime. The case is then referred to the Public
Prosecutor, who continues the investigation. (Prosecutors
are considered judges. During this phase of the case, they
act as prosecutors and investigating judges.) If the
prosecutor believes he needs additional evidence to continue
the case, he can refer the case back to law enforcement
authorities for further investigation. If the prosecutor
believes there is sufficient evidence to go to trial, he
issues a charging instrument, much like an indictment.
Limited Police Arrest Authorities
14. Unless a crime is committed in plain view of a law
enforcement agent, Yemeni law enforcement authorities cannot
arrest a suspect until a prosecutor issues an arrest warrant.
However, this rarely happens until the Prosecutor issues the
charging instrument, which charges a person with committing a
criminal offense. Once the charging instrument/indictment is
issued, the case goes before a trial judge for a hearing.
15. After the trial, either the prosecution or the defense
may appeal a judge,s ruling in a criminal case, but must do
so within 15 days of the judge,s decision. A party may
appeal procedural or substantive law issues. It is up to the
appellant to identify issues for appeal. If a party
undertakes a second appeal, the Supreme Court would hear that
case. The Supreme Court has the ability to decline to hear a
case only where it is permitted by law. In some instances,
cases are referred by law to the Supreme Court without either
party appealing a ruling.
Justice Sector,s Role
16. The Public Prosecutor does have a few specialized units,
such as one for terrorist crimes, public funds (corruption),
juvenile, traffic, and jail administration; however, there is
not a specialized unit that handles money laundering or other
financial crimes outside of corruption.
17. The ROYG enacted Law Number 35 criminalizing money
laundering in 2003. This law, however, does not meet many
international standards. To date, no one has been prosecuted
for money laundering under this law. Currently, there is no
law that criminalizes terrorist financing. Yemeni officials
told the FSAT that the ROYG is currently working on a draft
anti-money laundering and counter-terrorist financing law
with the help of the United Nations Office on Drugs and Crime
(UNODC), the IMF and the World Bank. The National Anti-Money
Laundering Committee (NAMLC) is responsible for drafting this
law. Once it submits the draft to the Parliament, three
committees will review it: the Foreign Affairs Committee,
the Financial Affairs Committee and the Constitutional
Committee. ROYG officials asked the FSAT to review the
current drafts and stated that they are open to any
recommendations or suggestions that may help the law meet
international standards.
18. Under the current legal regime, there is no law
enforcement agency with specialized skills or authorities to
pursue money laundering investigations. It appears that any
law enforcement agency may initiate a money laundering
investigation, although most Yemeni officials appear to think
that such investigations will not be initiated through law
enforcement investigations, but rather through work and
initiatives of the AML Information Unit.
19. In terms of technical assistance and training needs, the
Yemeni legal system could benefit from assistance with regard
to ethics training for employees, enhanced administrative
techniques, case development, and interagency cooperation.
It was patently clear that, at the time of this assessment,
money laundering was a very difficult concept for most legal
staff to comprehend fully.
20. One systemic problem with respect to AML/CTF is that
under the current legal system, Yemeni defendants can be
charged with numerous offenses, but they can only be
convicted of one crime. The conviction is usually for the
crime with the harshest penalty, whereas money laundering and
similar offenses are most effective when they can be charged
separately or as an additional offense. The FSAT was not
able to determine whether under the current AML law the
prosecution must first obtain a conviction for a predicate
offense before gaining a conviction for money laundering.
This may be a moot point, however, because the defendant can
only be convicted of one crime arising from the same set of
21. Due to the lack of experience, adequate infrastructure
and widespread corruption throughout the law enforcement and
legal system, it does not appear the ROYG understands how to
initiate a money laundering investigation. Indeed, it
appears that ROYG authorities rely heavily on received
accusations, rather than pro-active law enforcement activity.
All investigators, prosecutors and judges could, therefore,
benefit from basic (i.e. anti-money laundering) investigative
22. The ROYG has a forfeiture system in place, but a judge
must order the forfeiture for the items involved in or
proceeds from the crime for which the defendant was
convicted. Forfeiture is available for all crimes and
extends to funds and property. Authorities deposit forfeited
funds into the general treasury, unless the funds are the
proceeds from a drug offense, in which case the proceeds go
to law enforcement authorities, who can use the proceeds to
buy vehicles or other equipment. If the court orders a
defendant to forfeit property, the judge issues an order to
auction off the property to the public, with the funds from
the auction going into the general treasury. ROYG
authorities said they could forfeit real property because
there are no laws prohibiting them from doing so, but
admitted they have not yet done so. In some instances,
however, the courts can order real property, such as a
dwelling, to be closed for one year before the owner may use
it again.
23. The FSAT also met with Yemen PAC, a group of
Parliamentarians working to combat corruption in Yemen. They
are currently working to improve the Anti-Corruption Law in
Yemen and are in the process of creating an Anti-Corruption
Board. There is also a new law that will soon go into effect
that will require ROYG officials and employees to provide
financial disclosures, but these disclosures will not be
available to the public. This group is devoted to conquering
the problem of corruption in Yemen and is quite aware of the
problems Yemen faces with regards to corruption. In this
respect, an AML law that meets international standards, and
that includes provisions for financial investigations, a
functioning AML Information Unit, and an improved asset
forfeiture system could help Yemen PAC and ROYG officials to
reduce corruption.
24. The FSAT also met with the Parliament,s Foreign Affairs
Committee to discuss the importance of the draft AML/CTF bill
it will soon receive for review and approval. The Committee
was very keen on discussing issues related to the
ratification of the UN Convention to Suppress Terrorist
Financing and the number of problems they have with the
Convention. The FSAT relayed to the Committee the need for
passage and implementation of an AML/CTF law that meets
international standards and the positive effects such a law
could have on Yemen,s economy.
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