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Cablegate: Part Four of Four: Results of Financial Systems

VZCZCXYZ0006
RR RUEHWEB

DE RUEHYN #1425/01 2051009
ZNR UUUUU ZZH
R 241009Z JUL 07
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 7669
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMCSUU/FBI WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SANAA 001425

SIPDIS

SIPDIS

STATE FOR S/CT (NOVIS/GALER), INL (BRANDOLINO/RINDLER),
NEA/ARP

E.O. 12958: N/A
TAGS: KTFN KCRM PREL PTER SNAR EFIN YM
SUBJECT: PART FOUR OF FOUR: RESULTS OF FINANCIAL SYSTEMS
ASSESSMENT TEAM VISIT TO YEMEN MAR 1-7, 2007

REF: A. SANAA 1418
B. SANAA 1423
C. SANAA 1424

1. Summary. A multi-agency Financial Systems Assessment
Tean (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. This
fourth and final section of the FSAT Team's report focuses on
the ROYG's Customs Authority and Tax Authority.

2. Summary continued. This section also contains the
conclusion of the FSAT Team's report and recommendations for
training. The FSAT Team concluded that Yemen is at the
initial stages of developing an anti-money laundering and
counter-terrorist financing regime and Yemen needs to closely
monitor the money exchange service, NGO, and non-bank
informal sectors. The FSAT Team recommended training the
Central Bank and the Anti-Money Laundering Information Unit
(AMLIU) on legal drafting, anti-money laundering financial
examinations, and detection/reporting of suspicious
transactions. End summary

-------
CUSTOMS
-------

3. The Customs Authority (CA) is responsible for controlling
all persons and goods entering and leaving Yemen. The CA has
inspection, detention and investigative authorities, which is
unique in the region. The CA's Inspection Directorate is
responsible for smuggling, money laundering and other related
issues.

4. The CA, however, does not have a specialized Inspector
Corps; rather, Customs officers are rotated through various
positions and directorates. While the CA has the authority
to detain goods, it currently does not use financial tools or
investigations to pursue bulk cash smuggling or trade-based
money laundering, which were both identified as areas of high
risk. Most investigations are initiated from tipoffs, and in
many cases officers are subjected to bribery attempts.

5. The CA does not currently have either an inbound or
outbound reporting requirement, but it does collect standard
trade and shipping data.

6. Yemen has 1,906 km (1,184 miles) of sea borders and 1,746
km (1,085 miles) of land borders with Saudi Arabia and Oman.
The borders are largely unguarded and smuggling is rampant.
While the CA, with 2,100 employees, maintains 25 entry points
(by air, land and sea), it is clear that its reach is
extremely limited. Smuggling is rampant along Yemen's sea
border with Oman, across the Red Sea from the Horn of Africa
and along the land border with Saudi Arabia.

7. Yemen engages in both bilateral and multilateral
agreements with its neighbors to share information on
regional security concerns (e.g., Arab Convention on the
Suppression of Terrorism, and the Convention of the
Organization of the Islamic Conference on Combating
International Terrorism). In addition, the CA claims to keep
particular watch on specific individuals of concern, as well
as monitoring flows of money and goods to and from specific
countries of concern.

8. The intelligence service, the Political Security
Organization, and CA agree that the threat of terrorist
financing and money laundering exists largely through cash
couriers. At present, Yemen has no cash declarations or
disclosure requirements into or out of the country.
According to the CA, a cash declaration form exists, but it
is used only after money has been discovered by Customs
authorities at the border.

9. Corruption and bribery are rampant in Yemen. The CA is
encouraged by the idea of providing incentives for border
seizures, but given the high levels of corruption across all
levels of Yemeni society, it is unclear how such a system can
be conducted in a transparent manner.


Training Opportunities
----------------------


10. If and when Yemen institutes outbound and inbound
reporting of cash and bulk couriers, training should be
considered. Alternatively, training could be conducted on
how to set up a cash courier regime.

11. Joint training would be most beneficial for CA, with
other agencies such as the Coast Guard working border control
issues. They could benefit from training in interviewing and
basic investigative techniques. In particular, the CA could
benefit from training on how to identify "red flags" for
individuals who should be selected for closer scrutiny either
entering or departing Yemen.

12. The CA also requested information regarding incentive
programs for officers to apply the law properly and to
encourage citizens to report violations.


-------------
TAX AUTHORITY
-------------

13. The Tax Authority (TA) includes a directorate
responsible for tax evasion. The TA noted that Yemen has
both a corporate income tax and a sales tax. The TA has been
working to reduce tax evasion through a program of reducing
overall tax rates, instituting exemptions, and increasing the
tax requirements on businesses, who pay the bulk of Yemeni
taxes.

14. As in the case of other ROYG law enforcement agencies,
the TA does not currently have the capacity to conduct
financial investigations or apply financial tools in its
efforts to combat tax evasion. For example, the TA noted
that in the case of tax evasion related to cigarettes, it
will intervene only at the last point of sale (after
receiving a tip). For a first offense, a warning will be
issued. Afterwards, a series of graduated fines is applied
(e.g., four times the tax). Although the law provides for a
jail term of six months, this penalty has never been applied.

15. There is no current capability in the TA to conduct
financial investigations to determine who else might be
associated with tax evasion, locate the illicit proceeds, or
identify, freeze, and seize assets related to tax evasion.


Training Opportunities
----------------------

16. The TA would benefit from forensic accounting and
financial investigative training (including the use of net
worth analysis).

-----------------------------------
CONCLUSION AND RECOMMENDED TRAINING
-----------------------------------

17. Yemen is currently in the initial stages of developing
an anti-money laundering and counter-terrorist financing
regime. A number of other factors must also be considered in
considering AML/CTF training for Yemen. These include the
lack of a law that meets international standards, the need
for systemic legal reform and limited AML/CTF institutions.

18. In addition, the FSAT team noted a number of areas of
concern that should continue to be monitored. These include:
a largely unregulated money exchange service sector
including both currency exchange and fund transfer services;
limited capacity to monitor and control risks in the NGO
sector to terrorist financing and financial fraud; and a
non-bank informal banking sector that is in the beginning
stages of increasing bank penetration. In addition, there
are bureaucratic delays in implementing UNSCR 1267.

19. Resources permitting, the FSAT team, however, believes
that training at the appropriate level is both feasible and
recommended. The FSAT believes that initial efforts should
focus on the Central Bank and the AMLIU. In particular, FSAT
recommends that initial training should be concentrated on
the areas outlined below.

20. Legal Drafting Assistance: Several interlocutors stated
that they would welcome U.S. comments on the proposed new law

to ensure that it meets international standards. Comments
could be sent from Washington via official channels, with an
additional on-site consultation/stakeholder meeting if
necessary.

21. Financial Examinations: Additional training on how to
conduct anti-money laundering examinations for the Central
Bank and the AMLIU would be extremely beneficial in promoting
ROYG's overall AML/CTF efforts (this is an intensive one-week
practical examination-based course designed to train
trainers). Training is conducted in Washington and is
generally limited to 4-6 persons per country.

22. Training in Detection and Reporting Suspicious
Transactions: This training could be conducted as either a
stand-alone course or as part of the Financial Examination
course referenced above.

23. In addition, the Government of Spain and the EU may be
receptive to a similar visit to the Spanish Financial
Intelligence Unit (SEPBLAC). This should be pursued in
addition to the FinCEN visit.

BRYAN

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