Cablegate: Scenesetter for Visit to Egypt of Acting a/S Of

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 CAIRO 007466

SIPDIS

SENSITIVE

AMMAN PLEASE PASS TO VISITING TREASURY ACTING A/S GLASER

E.O. 12958: N/A
TAGS: ECON EFIN PTER EG
SUBJECT: SCENESETTER FOR VISIT TO EGYPT OF ACTING A/S OF
TREASURY DANIEL GLASER

This message is sensitive, please protect accordingly.

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Summary
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1. (SBU) In May 2002, Egypt passed a law criminalizing money
laundering, which included terrorist financing within the
scope of crimes covered by the law. The GOE has also used
restrictions on NGO financing to combat terrorist financing.
These restriction, however, have also impeded legitimate NGO
activities supporting by the USG, such as building civil
society and combating Islamic extremism. The anti-money
laundering law established a financial intelligence unit
(FIU), the Money Laundering Combating Unit (MLCU), which
became fully operational in March 2003. The MLCU has worked
with the Financial Action Task Force (FATF) over the past two
years to remove Egypt from the latter,s list of
Non-Cooperative Countries and Territories (NCCT). Egypt does
not have a large money laundering problem, and the MLCU has
only prosecuted three cases since 2003. However, potential
avenues for undetected money laundering still exist,
including under invoicing of imports/exports and the un
official "hawala" funds transfer system. The MLCU has
identified its future training needs and the USG has provided
various training/assistance programs in the past two years.
With anti-money laundering procedures in place, post does not
anticipate Egypt becoming a money laundering center. End
summary.

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Anti-Money Laundering
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2. (U) Money laundering has been a crime in Egypt since May
2002, when the GOE passed Anti-Money Laundering Law No. 80.
The law, which closely paralleled FATF guidelines,
criminalized money laundering from narcotics trafficking,
prostitution and other immoral acts, terrorism, antiquities
theft, arms dealing, organized crime, and numerous other
activities. It mandated the "know your customer" policy,
requiring banks to keep all records for five years; required
"suspicious transactions reports" (STR) from the full range
of financial institutions; and prohibited the opening of
numbered or anonymous financial accounts. It did not repeal
Egypt's law on bank account secrecy, but provided legal
justification for provision of account information to civil
and criminal authorities.

3. (U) The anti-money laundering law also contained
provisions protecting "whistle blowers" and holding financial
managers responsible for money laundering activities
involving their organizations. It stipulated that
importation of more than $20,000 in cash must be documented,
but placed no restriction on export of currency (Note: The
executive regulations are ambiguous on this point, as they
state that travelers with the equivalent of $20,000 in cash
are subject to specific reporting requirements. End note).
The law also provided for fines, prison sentences, and asset
forfeiture, with the possibility of sharing forfeited assets
with other jurisdictions on the basis of bilateral or
multilateral agreements. It implied, but did not explicitly
state, that such forfeiture applied to money and property.

4. (U) The law also created the MLCU, an FIU that officially
began operating March 1, 2003. The MLCU is an independent
entity within CBE, with it own budget, staff and authority to
examine STRs and conduct investigations with counterpart law
enforcement agencies. In June 2003, Egypt's parliament
amended Article 17 of the law, closing a loophole that
offered broad immunity for certain money laundering-related
offenses if the defendant turned state's evidence. The
executive regulations of the amendment identified predicate
crimes associated with money laundering (including those
originating outside Egypt); defined the role of supervisory
authorities and financial institutions; and allowed for
exchange of information with other countries to combat money
laundering. The regulations also created a Board of Trustees
for the MCLU, headed by Deputy Minister of Justice Serry
Seyam and including representatives from various GOE
ministries.

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Terrorist Finance
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5. (U) As noted above, Egypt's anti money laundering law
specifically criminalized money laundering from terrorism and
terrorist financing (as defined in Article 86 of Egypt's
penal code). Because of its own problems with domestic
terrorism, the GOE is eager for closer international
cooperation to counter terrorism and terrorist finance.
Egyptian authorities have cooperated in U.S. efforts to seek
and freeze terrorist assets, circulating to all of their
financial institutions lists provided by the U.S. under E.O.
13224. While the MLCU still lacks experience, the GOE is
very eager to work with the U.S. and other countries via UN
resolutions to combat the financing of terrorism.

6. (SBU) For the past decade the GOE has had restrictions on
receipt of or disbursement of financial donations from
Egyptian NGOs to or from foreign entities. While such
restrictions may help the GOE control terrorism, they have
also impeded advancement of other USG priorities in Egypt,
such as building civil society and combatting Islamic
extremism. The GOE has used an overly restrictive NGO law to
control the actions of legitimate civil society
organizations. While supporting the GOE on their successful
control of terrorism, the USG also needs to emphasize its
objection to GOE measure that hamper efforts to fulfill
President Bush's goal of expanding freedom and democracy in
Egypt.

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International Cooperation
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7. (U) The FATF reviewed Egypt,s anti money laundering
regime in January 2004 and removed Egypt from its list of
Non-Cooperating Countries or Territories in February 2004.
The U.S. FinCen provided the MLCU with an orientation visit
to the U.S in 2004 and sponsored the MCLU's entry into the
Egmont Group in June 2004. Egypt is now sponsoring Algeria
and Qatar for membership in Egmont and is co-sponsoring Yemen
with the U.S. Egypt also played an important role in the
founding of the MENA FATF. Egypt has a number of bilateral
cooperative agreements, including one with the UK, and is a
party to most international conventions aimed at blocking
terrorists' access to funds. It has signed but not yet
ratified the Vienna Convention, the Convention for the
Suppression of Financing of Terrorism, and the Palermo
Convention.

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Egypt's Money Laundering Problem Small
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8. (SBU) Information about financial and other assets frozen
and/or seized in connection with money laundering
investigations is not generally a matter of public record in
Egypt. According to officials at the MLCU, three money
laundering cases have been prosecuted since 2003. One case
was related to drug trafficking and the other two involving
antiquities smuggling. Post is aware of only one instance
(reported in 2002) of the GOE freezing assets discovered in
connection with one of our terrorist lists. The CBE has an
STR link on its website, but according to officials at the
MLCU, no banks have submitted STRs.

9. (SBU) There is no evidence of official involvement in or
encouragement of money laundering. Some observers estimate
that, of the small amount of money laundering present in
Egypt, most is related to domestic narcotics traffickers,
while the rest is attributed to other domestic organized
crime or political extremist groups. In the last few years
the level of non-performing loans (NPLs, or bad debt) in the
Egyptian banking system has become a major economic and
political issue. Several well-known businessmen and at least
two bank chairmen have been arrested and charged with having
given or received loans on the basis of fraudulent requests,
with the money then allegedly funneled into bank accounts
overseas. It is not clear how much, if any, is linked to
money laundering.

10. (SBU) The GOE says that under invoicing of imports and
exports by Egyptian businessmen is a relatively common
practice. The primary goal for these businessmen appears to
be avoidance of taxes/customs fees. It is unclear to what
extent these price manipulations may be used for laundering
the proceeds of other crimes. Worker remittances also form a
potential area for financial transactions outside the formal,
regulated financial system. Numerous Egyptian expatriates
living and working in the Gulf and elsewhere send earnings
back to Egypt. Post suspects that some portion of this is
done through informal channels such as "Hawala" rather than
through the banking system, because of lack of trust or lack
of familiarity with banking procedures and the lower
transaction costs in the informal systems. Neither the GOE
nor most bankers in Egypt appear to be well acquainted with
the term (or even the concept) of "Hawala," although some
suggest it may exist to a limited extent.

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MCLU Training Needs
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11. (SBU) The MCLU has identified a three-pronged approach
to improving anti-money laundering capacity in the banking
system:

- CBE,s Egyptian Banking Institute (EBI) is designing an
Anti-Money Laundering Regional Certificate Program that will
be a six month training course for bank officials. EBI plans
to invite lecturers/trainers from international financial
institutions and would like to include visits to FIUs,
including the U.S. FinCEN, in the course;

- Training for Egyptian officials from various government
agencies (Ministries of Interior and Justice, the
Administrative Control Authority, the National Security
Agency, etc.) involved in the tracking and prosecution of
financial crimes and enforcement of financial crime
legislation. The MCLU envisions this training primarily in
the form of visits to the FIUs of other countries.

- Purchase of software to allow tracking and reporting of
suspicious financial transaction and connect the MCLU to
international FIUs.

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U.S. Assistance to Egypt
------------------------

12. (U) After the FATF conducted an assessment of the GOE's
training assistance needs in March 2004, the USG committed to
funding a resident legal advisor to assist in getting Egypt's
FIU. A legal advisor was never identified or funded, but the
following training has been provided:

- Federal Deposit Insurance Corporation: Provided one week
training course in Washington in March 2005 on money
laundering/financial transaction tracking. Attendees
included two reps from MLCU and 4 reps from CBE's Financial
Control Unit.

- Internal Revenue Service: Provided, through Federal Law
Enforcement Training Center, an in-country training course in
September 2004 on enforcement of anti-money
laundering/narcotics/financial crime laws. Attendees
included Ministry of Interior officials and police officers.

- Federal Reserve Bank: Provided assistance (lecturers,
training material) to bank management/regulation courses
conducted by the Egyptian Banking Institute (EBI). The most
recent course was held in autumn of 2004.
Attendees at EBI courses include banking and government
regulatory officials from the Middle East/North Africa
region.

- USAID: Through Capital Market Authority Development
Program provided various in-country and Washington-based
training courses from 2002-2004. Attendees included judges
and prosecutors handling money laundering and other financial
crime cases.

13. (SBU) Comment: Egypt is neither a regional financial
center nor a major center for money laundering and has no
offshore financial sector. Its economy is largely cash-based
and despite recent easing of financial regulations, still has
too many restrictions to make it a preferred destination of
money launderers. With a money laundering law and
regulations in place, a functioning FIU and close cooperation
with other countries on combating of terrorist financing,
post does not anticipate Egypt become a money laundering
center even as it continues to reform its financial sector.
End comment.

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JONES

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