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P R 042030Z AUG 08
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TO RUEHAK/AMEMBASSY ANKARA PRIORITY 5302
RUEHBS/USEU BRUSSELS PRIORITY
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
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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.
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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
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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
STATE 00083662 008 OF 009
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
STATE 00083662 009 OF 009
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