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Cablegate: Results of Financial Systems Assessment Team Visit to The

VZCZCXRO2954
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #1348/01 1220957
ZNR UUUUU ZZH
R 010957Z MAY 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 7123
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 001348

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL KTFN KCRM PTER SNAR IZ
SUBJECT: RESULTS OF FINANCIAL SYSTEMS ASSESSMENT TEAM VISIT TO THE
KURDISTAN REGION OF IRAQ (SECOND OF TWO CABLES)

NOTE: This cable is Part II of a two-part report. See Reftel for
Part I. END NOTE

Asayeesh (Special Police)
-------------------------

43. (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.

44. (SBU) The Asayeesh noted that terrorist financing in the
Kurdistan 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
Kurdistan 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.

45. (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.

46. (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.

47. (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 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.

48. (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
---------------------------------------

49. (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 Kurdistan Region's
banking sector.

Intelligence Sector
-------------------

50. (SBU) The KRG intelligence community is spread across several
areas. The Parastin and Zanyari are mainly responsible for external

BAGHDAD 00001348 002 OF 002


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 Kurdistan Region.

51. (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.

52. (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)
---------------------

53. (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 Kurdistan 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
-----------------------------------

54. (SBU) The Kurdistan 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
Kurdistan 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.

55. (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
intelligence community (Note: Because the KRG's training
facilities are located in a relatively more secure environment, we
strongly urge that USG 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.

BUTENIS

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