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Viewing cable 05DAMASCUS6524, 2005 REPORT ON FINANCIAL CRIMES AND MONEY

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Reference ID Created Released Classification Origin
05DAMASCUS6524 2005-12-18 07:23 2011-08-24 01:00 UNCLASSIFIED Embassy Damascus
VZCZCXRO9028
OO RUEHBC RUEHDE RUEHKUK RUEHMOS
DE RUEHDM #6524/01 3520723
ZNR UUUUU ZZH
O 180723Z DEC 05
FM AMEMBASSY DAMASCUS
TO RUEAWJA/DEPT OF JUSTICE WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 6176
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHEE/ARAB LEAGUE COLLECTIVE IMMEDIATE
RHEHAAA/WHITE HOUSE WASHDC IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
UNCLAS SECTION 01 OF 04 DAMASCUS 006524 
 
SIPDIS 
 
SIPDIS 
 
NEA/ELA 
INL FOR RINDLER 
JUSTICE (RUEAWJA/DEPT OF JUSTICE WASHDC) 
TREASURY FOR GLASER/LEBENSON 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER SNAR
SUBJECT: 2005 REPORT ON FINANCIAL CRIMES AND MONEY 
LAUNDERING 
 
1. (U) Summary: Throughout 2005, Syria has enacted 
legislation to strengthen Anti-Money Laundering and Combating 
the Financing of Terror (AML/CFT) regulations in its 
financial sector, which has opened up in the last two years 
to include four private banks.  It has begun to develop a 
Financial Intelligence Unit (FIU) with investigative and 
sanctioning authority, and is working on integrating its 
AML/CFT efforts with other countries in the Middle East and 
North Africa branch of the Financial Action Task Force 
(MENA/FATF).  However, there remain significant AML/CFT 
vulnerabilities in Syria's financial and non-financial 
sectors that have not been addressed by necessary legislation 
or other government action.  The United States has designated 
the country's largest bank, the Commercial Bank of Syria 
(CBS), as an institution of primary money laundering concern 
for its involvement in the Iraqi oil-for-food scandal and the 
threat that it still may be exploited by criminal 
enterprises.  In addition, Syria's black market hawaladars 
are unregulated, and the country's borders remain porous. 
Most of the money laundering threat is of domestic origin and 
among Syria's political and business elite, whose corruption 
and extra-legal activities represent the biggest obstacle to 
Syria fully choking off money laundering and terrorist 
financing activities.  End summary. 
 
--------------------------------------------- ------- 
Syria's Weak but Growing Banking Sector 
--------------------------------------------- ------- 
 
2. (U) Syria is not an important regional or offshore 
financial center, due primarily to its still under-developed 
private banking sector and the fact that the Syrian Pound 
(SYP) is not a fully convertible currency.  Syria began 
taking steps to develop a private banking sector in April 
2001, with Law No. 28, which legalized private banking, and 
Law No. 29, which established rules on bank secrecy.  Bank of 
Syria and Overseas, a subsidiary of Lebanon's BLOM Bank, was 
the first private bank to open in Syria in January 2004, 
followed quickly by Banque BEMO Saudi Fransi and the 
International Bank for Trade and Finance.  Bank Audi became 
the fourth private bank in Syria, opening a Damascus branch 
in October 2005.  The sector's total capitalization is small, 
approximately $300 million USD, and while the banks report 
steady growth in their deposit accounts and are playing an 
increasing role in providing the business sector with foreign 
currency to finance imports, unnecessary regulations that do 
not allow banks to make money on their liquidity hamper the 
sector's continued development. 
 
3. (U) The banking sector is dominated by the CBS, which 
holds almost 90% of all deposits and controls most of the 
country's foreign currency reserves.  With the liberalization 
of the sector and competition from the private banks, the CBS 
is preparing to provide a range of retail services and more 
competitive interest rates.  However, the CBS and the 
country's four other specialized public banks- the 
Agricultural Cooperative Bank, the Industrial Bank, the Real 
Estate Bank, and the People's Credit Bank- still primarily 
focus on financing Syria's public enterprises.  In May 2004, 
the U.S. Department of the Treasury designated the CBS, along 
with its subsidiary, the Syrian Lebanese Commercial Bank, as 
a financial institution of "primary money laundering 
concern," pursuant to Section 311 of the USA Patriot Act. 
This designation remains in place due to continued concerns 
that the CBS may still be exploited by criminal enterprises. 
However, the final rulemaking on the implementation of the 
special measure against CBS has not been issued, pending 
further discussions between the U.S. Government and the 
government of the Syrian Arab Republic (SARG). 
 
--------------------------- 
Recent AML/CFT Legislation 
--------------------------- 
 
4. (U) Recent legislation has provided the Central Bank of 
Syria with new authority to oversee the banking sector and 
investigate financial crimes.  The SARG passed Decree 59 in 
September 2003 to criminalize money laundering and create an 
Anti-Money Laundering Commission, which was established in 
May 2004.  In response to international pressure to improve 
its AML/CFT regulations, the SARG passed Decree 33 in May 
2005, which strengthened the Commission and laid the 
foundation for a functioning FIU.  The Decree finalized the 
 
DAMASCUS 00006524  002 OF 004 
 
 
Commission's composition to include the Governor of the 
Central Bank, a Supreme Court Judge, the Deputy Minister of 
Finance, the Deputy Governor for Banking Affairs, the SARG's 
Legal Advisor, and will include the Chairman of the Syrian 
Financial Market once the Market is operational. 
 
5. (U) Under Decree 33, all banks and non-financial 
institutions are required to file Suspicious Activity Reports 
(SAR) with the Commission- which is acting as the FIU- for 
all transactions over $10,000 USD, as well as all suspicious 
transactions regardless of amount.  The chairmen of Syria's 
private banks report that they employ internationally 
recognized Know Your Customer (KYC) procedures to screen 
transactions and employ their own private investigators to 
check suspicious accounts.  In September 2005, the Commission 
informed banks that they must use KYC procedures to follow up 
on their customers every three years and maintain records on 
closed accounts for five years.  While non-financial 
institutions also are required to file SARs with the 
commission, the Central Bank candidly admits that most of 
them do not know about the requirements of the law.  The 
Syrian Chamber of Commerce has organized workshops for its 
membership about the law, but it will take some time for the 
information to penetrate the market. 
 
6. (U) Once a SAR has been filed, the Commission has the 
authority to conduct an investigation, waive bank secrecy on 
specific accounts in order to gather additional information, 
share information with the police and judicial authorities, 
and instruct the police to carry out a criminal 
investigation.  In addition, Decree 33 empowers the Governor 
of the Central Bank, who is the chairman of the Commission, 
to share information and sign Memoranda of Understanding 
(MOUs) with foreign FIUs.  In November 2005, the Prime 
Minister announced that the Commission had completed an 
internal reorganization, creating four specialized units to: 
oversee financial investigations; share information with 
other SARG entities including customs, police and the 
judiciary; produce AML/CFT guidelines and verify their 
implementation; and develop a financial crimes database. 
 
7. (U) Decree 33 provides the Commission with a relatively 
broad definition of what constitutes a crime of money 
laundering, but one that does not fully meet international 
standards.  The definition includes acts that attempt to 
conceal the proceeds of criminal activities, the act of 
knowingly helping a criminal launder funds, and the 
possession of money or property that resulted from the 
laundering of criminal proceeds.  In addition, the law 
specifically lists thirteen crimes that are covered under the 
AML legislation, including drug crimes, fraud, and the theft 
of material for weapons of mass destruction.  While a SAR is 
under investigation, the Commission can freeze accounts of 
suspected money launderers for a non-renewable period of up 
to eighteen days.  However, the Syrian judicial system is 
notoriously slow, and observers contend that this period is 
too short to hinder criminal activities.  The law also 
stipulates the sanctions for convicted money launderers, 
including a three to six-year jail sentence and a fine that 
is equal to or double the amount of money laundered. 
Further, the law allows the SARG to confiscate both the money 
and assets of the convicted money launderer. 
 
8. (U) The SARG has taken few meaningful steps in 2005 to 
combat terrorist financing (TF).  While President Asad signed 
Law #5 in March 2005 to formally make Syria a party to the 
1999 International Convention on the Suppression of the 
Financing of Terrorism, neither Law #5 nor Decree 33 are 
clear regarding the illegality of TF.  In addition, Decree 33 
is ambiguous as to whether TF is a predicate offense for 
money laundering.  The Anti-Money Laundering Commission does 
circulate among its private and public banks the UNSC 1267 
Committee's list of terrorists associated with Usama bin 
Laden, Al'Qaida and the Taliban.  The Commission, through the 
Ministry of Foreign Affairs, has informed Post of action it 
has taken to freeze the assets of individuals suspected of 
being on the list.  The total dollar amounts of frozen assets 
in 2005 were insignificant. 
 
9. (U) Syria is trying to develop its AML/CFT structure 
according to international standards.  Syria participated in 
the most recent meeting of MENA/FATF, which met in Beirut in 
September 2005, and hosted a team from the EGMONT Group, an 
 
DAMASCUS 00006524  003 OF 004 
 
 
international consortium of countries with fully-functioning 
FIUs, regarding the creation of its FIU.  Syria has stated 
its intention to join the EGMONT Group in the near future. 
In addition, Syria will host a legal team from FATF in early 
2006, which will assess its progress in enforcing AML/CFT 
statutes.  In addition, Syria is a party to the 1971 UN 
International Convention against Illicit Traffic in Narcotic 
Drugs and Psychotropic Substances,  and has signed but not 
ratified the UN Convention against Transnational Organized 
Crime. Syria is receiving significant offers of aid from the 
European Union to build the capacity of its financial, 
customs and judicial systems, and has queried Post about the 
possibility of receiving technical assistance from the USG. 
However, due to the current political situation, the SARG and 
the USG are not sharing significant amounts of information 
regarding AML/CFT issues.  What little communication there is 
focuses on the Commercial Bank of Syria's efforts to avoid 
sanctions associated with its designation as an institution 
of primary money laundering concern under Section 311 of the 
Patriot Act. 
 
----------------------------------------- 
Limited Results, and Systemic Weaknesses 
------------------------------------------ 
 
10. (U) Despite the legislative powers of the Commission, 
only 100 suspicious transactions were reported in 2005, 
including SARs from the police who identified suspected money 
laundering activities in the course of other investigations. 
There have been no convictions or arrests in 2005.  Since 
money laundering legislation is new, most judges are not 
aware of the law or understand the evidentiary requirements. 
The Commission has estimated that it will take at least a 
year before Syria's judicial system is fully capable of 
prosecuting money laundering cases.  The Commission further 
reported that it has not conducted investigations into any of 
the SARs filed over the past year, and that its ongoing 
investigations are into the financial activities of 
individuals who already were charged and imprisoned for 
financial crimes before Decree 33 went into effect.  The 
Commission itself is hampered by human resource constraints. 
It has a staff of six, and hopes to expand to fifteen by the 
end of 2006.  Most of the staff has not received extensive 
training in AML/CFT, although the European Commission has 
expressed its willingness to establish a training center in 
the Central Bank. 
 
11. (U) Although Decree 33 provides the Central Bank with a 
foundation to combat money laundering, most Syrians still do 
not maintain bank accounts.  Very few Syrians use checks or 
credit cards, and the use of ATM machines is relatively new. 
The Syrian economy is primarily cash-based, and Syrians use 
moneychangers, some of whom also act as hawaladars, for many 
financial transactions.  The informal financial sector is 
illegal and there is scarce information on its size or 
activities.  Estimates of the volume of business conducted in 
the black market by Syrian moneychangers range between $15-70 
million USD a day.  Due to the lack of hard data on this 
sector, the SARG admits that it does not have visibility into 
the amount of money that currently is in circulation.  The 
SARG has begun issuing new regulations to entice people to 
use the banking sector, including offering high interest 
Certificates of Deposit and allowing Syrians to access more 
foreign currency from banks when they are traveling abroad. 
In addition, the SARG has advertised a deadline of January 15 
by which it hopes to pass a Moneychangers Law to regulate the 
sector.  Once the Moneychangers Law is passed, the Commission 
will have the authority to monitor the sector under Decree 
33.  Until the SARG passes sufficient legislation and 
enforcement mechanisms, the hawaladars in Syria's black 
market remain a source of concern for money laundering and 
terrorist financing. 
 
12. (U) The SARG also has not updated its laws regarding 
charitable organizations to include strong AML/CFT language. 
While the SARG decided at the end of 2004 to restrict 
charitable organizations to only distributing non-financial 
assistance, the current laws do not require organizations to 
submit detailed financial information or information on their 
donors.  However, the Commission has stated its intention to 
cooperate with the Ministry of Social Affairs to deal with 
this issue. 
 
 
DAMASCUS 00006524  004 OF 004 
 
 
13. (U) While the SARG maintains strict controls on the 
amount of money that individuals can take with them out of 
the country, there is a high incidence of cash smuggling 
across the Lebanese and Jordanian borders.  Most of the 
smuggling involves SYP, as there are strong markets for 
Syrian currency among ex-pat workers and tourists in Lebanon, 
Jordan and the Gulf countries, although some of the smuggling 
may involve the proceeds of narcotics and other criminal 
activity as previously reported.  In addition to cash 
smuggling, there also is a high rate of commodity smuggling 
out of Syria, particularly of diesel, caused by individuals 
buying diesel domestically at the low subsidized rate of 
approximately 10 cents US per liter and selling it for much 
higher prices in neighboring countries.  There is evidence 
that the smuggling trade is occurring with the knowledge of 
or perhaps even under the authority of the Syrian security 
services. 
 
14. (U) The General Directorate of Customs has stated that it 
is under staffed and insufficiently resourced to effectively 
handle the problem of smuggling, and that it currently lacks 
the means to share information among border posts or other 
government agencies.  Customs recently announced that it 
plans to develop a special office to combat AML/CFT in 
coordination with the Ministry of Finance and Syria,s 
security services, and plans to place cameras at all border 
posts and link them with a unified database.  Customs 
currently lacks the infrastructure to effectively monitor or 
control even the legitimate movement of currency across its 
borders.  Tourists are not required to declare the amount of 
money they are bringing into Syria, for instance.  In order 
to combat corruption among customs officers, the General 
Directorate of Customs announced in December 2005 that it 
plans to ban all cash transactions at the borders, including 
the payment of customs duties, and will replace cash 
transactions with a system that utilizes pre-paid cards. 
However, most of the plans to unify and streamline customs 
procedures are far from being realized and depend upon 
technical and financial support from foreign donors. 
 
15. (U) Syria's free trade zones also may provide an easy 
entry or transit point for the proceeds of criminal 
activities.  There are seven free zones in Syria, serviced 
mostly by subsidiaries of Lebanese banks, including BLOM, 
BEMO and Bank of Beirut and Arab Countries (BBAC).  The 
volume of goods entering the free zones is estimated to be in 
the billions of dollars, since all automobiles and automotive 
parts enter the zones free of customs tariffs before being 
imported into Syria.  There also is a significant amount of 
trade that transits Syria through the zones, gaining Syrian 
value added before being shipped to foreign markets.  While 
all industries and financial institutions located in the free 
zones must be registered with the General Organization for 
Free Zones, which is located in the Ministry of Economy and 
Trade, the Syrian General Directorate of Customs does not 
have strong procedures to check country of origin 
certification or the resources to adequately monitor goods 
that enter Syria through the zones.  There are indications 
that Syrians have used the free zones to import goods into 
Syria in violation of USG sanctions under the Syrian 
Accountability and Lebanese Sovereignty Act. 
 
16. (U) Comment: While Syria has made strides throughout 2005 
in developing AML/CFT regulations that govern its financial 
sector, non-financial institutions and the unregulated black 
market remain very vulnerable to money laundering and 
terrorist financiers.  In addition, the General Directorate 
of Customs, the Central Bank and the judicial system in 
particular lack the resources to effectively implement 
AML/CFT legislation.  Although the SARG has stated its 
intention to create the technical foundation through which 
different government agencies can share information about 
financial crimes, this does not exist to date.  In addition 
to these logistical problems, there is serious concern that 
the SARG lacks the political will to make TF illegal, and to 
classify what it sees as legitimate resistance groups as 
terrorist organizations.  Further, corruption at the highest 
levels of government and business may represent the biggest 
obstacle to developing an effective and airtight AML/CFT 
regime. 
SECHE