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Wednesday, January 25, 2017

Fuse paper – terrorist finance tracking in Europe

Money Laundering Bulletin



The pendulum of public sentiment swinging from concern for data privacy to security suggests now may be opportune for Europe to embark on a Terrorist Finance Tracking System (TFTS), says Paul Cochrane, whether independent or additive to the US Terrorist Finance Tracking Programme (TFTP). 


Concerns about the US-EU Terrorist Financing Tracking Programme (TFTP) have abated, notably regarding oversight and data-sharing issues. But the issue remains controversial, with a potential EU version of the system being debated within the EU executive, the European Commission, whether to be standalone or complementary to the USA-promoted TFTP. Meanwhile, with Britain voting to leave the EU, renegotiations may have to take place whatever is decided by the remaining members of the EU.

The Terrorist Financing Tracking Programme (TFTP) caused a lot of controversy when it was exposed by the media in 2006. The programme, secretly enacted post September 11 2001, provides data to the US through an agreement with the Brussels-based Society for Worldwide Interbank Financial Telecommunication (SWIFT). In 2010, the European Union (EU) legitimised the agreement. It was slated for renegotiation in 2015, but the EU did not amend the treaty, meaning it has remained unchanged since 2010, prolonging the agreement for another year.


To read more:  http://www.moneylaunderingbulletin.com/terroristfinancing/fuse-paper--terrorist-finance-tracking-in-europe--1.htm

(Image from theincidentaleconomist.com)

Tuesday, December 06, 2016

Arab bankers: US financial rules turn us into 'spies for the CIA'

Middle East Eye

Arab bankers say they have to comply with overly stringent 'War on Terror' regulations


(L-R) Mohamed Baasiri, Vice Governor of the Central Bank of Lebanon, Amr Moussa, former Secretary General of the Arab League, and Saad Azhari, Chairman BLOM Bank at a session at the Union of Arab Bankers conference (MEE/Paul Cochrane)

BEIRUT - Arab bankers have had enough of being at the receiving end of US regulatory diktats. After years of reluctant compliance, they are finally speaking out. In November, they proposed establishing an Arab banking lobby to try to have a say in US and international regulations.
Middle East and North African (MENA) banks have been under the US financial regulatory spotlight since the Patriot Act was rammed through Congress in 2001 and the onslaught of the open-ended "War on Terror".
The MENA financial sector has had to comply with a barrage of US rules and OECD "recommendations" to be in line with international norms on anti-money laundering (AML) and countering the financing of terrorism (CFT). Banks have also had to adhere to economic sanctions against certain countries (Syria, Sudan and Iran), and screen for thousands of names on regulatory blacklists.
On top of that, MENA banks, like everywhere else in the world, have had to adopt, at significant cost (some $8bn worldwide), US legislation like 2014’s Foreign Account Tax Compliance Act (FATCA). FATCA is an attempt to repatriate tax dollars and requires non-US financial institutions to provide information on US account holders to the Internal Revenue Service (IRS).
The cost of non-compliance? Being cut off from correspondent banks in the US, which means being denied US dollar transactions and access to the international banking system. That is significant as around 64 percent of all global foreign currency reserves are in US dollars.

'The regulator is the devil'

 

At the Union of Arab Bankers’ (UAB) annual conference in Beirut on 24-25 November, the atmosphere was different from previous years.
Gone was the attitude of resignation, that "we have no choice but to comply," and touting to the world that Arab banks are following the rules. Instead, the mood was one of assessing the collateral damage, with sessions on "The Impact of the Arab & International Political Developments on the Arab Banking Sector," and the "Impact of International Regulations on the Funding Policies of Arab Banks".
During one panel discussion, the MENA head of Reuters’ governance, risk and compliance services, Mohamed Daoud, asked delegates: "Who is your financial regulator?" One attendee, Osman El Toum El Hassan, general manager of Sudan’s El Nilein Bank, stood up and said, "Theoretically the central bank but in reality the regulator is the devil."
"The CIA," another banker shouted out.
There were laughs, nods and knowing looks in the audience, aware that their central banks were not to be as feared as the US Treasury. It was not what you would usually expect from the conservative banking community. Again and again, the bankers spoke out about the problem of being at the receiving end of foreign regulations, de-risking, and that the MENA region was being unduly singled out.
One attendee expressed his dislike of FATCA, saying: "We have to be spies for the US". Under the act banks have to effectively be agents of the IRS. It was a point emphasised by Abdullah al-Saudi, CEO of ASA Consultants. "Arab banks are spies on people with American passports," he said in a speech.
The driving force of discontent was the de-risking going on, with some six MENA banks having lost their correspondent banking relationships with the US over the past year. The prime reason is the lack of profitability for US banks. To not get fined by US regulators, American banks have to carry out strenuous due diligence and auditing to ensure the Arab bank has done its own compliance work.
Unless a major Arab bank, such effort is not financially worth it for the potential risk involved. The irony is that Arab banks have to abide by domestic US legislation to continue their own domestic operations, with US correspondent banks even scrutinising local transactions – which do not leave a country’s jurisdiction – in the advent of wider money laundering within the Arab bank.
In the case of Lebanon, due to the US’s Hezbollah International Financing Prevention Act of 2015 - which intends to "prevent Hezbollah's global logistics and financial network from operating in order to curtail funding of its domestic and international activities" - local banks cannot have accounts for Hezbollah members, even though the party is a legal entity in Lebanon and has 12 members of parliament.
Lebanese banks have also been under pressure to not deal with Syrians due to the 2011 sanctions by the US and European Union on Syria, which is a serious problem for the estimated 1.5 million Syrian refugees in Lebanon. Due to such regulations, Syrians complain of not having access to the financial sector. Legitimate businesses struggle to make regional and global transfers, and anyone with the name Mohammad, Ali or Osama gets extra scrutiny.
"We’re part of the international community, but we are never asked our opinion, it is imposed on us," El Hassan said. "Why is a Sudanese prevented from sending $100 from Saudi Arabia to his relative in Sudan? I will never support any law that deprives people of their basic human rights."

One-size-fits-all policies

 

As is often the case with international regulations, they are one-size-fits-all, not taking into consideration local cultures and ways of doing businesses.
For example, 88 percent of Sudanese do not have bank accounts, according to El Hassan, as Sudan is a cash-based society. He said clients do not grasp the concept of money laundering and are puzzled by Know Your Customer (KYC) questions asking if they are married, have kids, or rent or own a house when they want to buy a car.
"When we explain to people what money laundering is, no doubt one out of a 100 will now go and try it," he said. Over in Egypt, out of 91 million people, just 7 percent of Egyptians are estimated to have a bank account.
But despite such realities, there is minimal understanding of the issues on the ground.
"It is as if the MENA has become an embargoed region and outsiders have limited dealings with us. It is as if compliance is focused on Arab countries, and it is chaining the banking sector, not taking into account local cultures," said Dr Ali Hasan Ismail, governor of the Central Bank of Iraq, at the UAB conference.

De-risking undermines development

 

While compliance experts in the West have stated that AML and CFT regimes need to be overhauled to be more effective (as Chip Poncy, a former US Treasury official, said at 2013’s UAB conference), the rules have not changed. Instead, business has become harder in a region beset with political and economic turbulence.
Indeed, the phenomenon of de-risking can undermine development, which is exactly what the MENA region does not need in the current environment. According to a recent report from the United Nations Economic and Social Commission for Western Asia, the GDP economic losses from the conflicts in Yemen, Syria and Libya are around $425bn, while reconstruction costs in the MENA are estimated at $614bn.
Countering the US’s regulatory strength and the dollar’s hegemony by having even a small voice in the drafting of US and international regulations will not be easy. Conflict in the region is an obvious dampener for cooperation, while massive economic disparities exist between the hydrocarbon rich Gulf countries and the Levant and North Africa. The Gulf monarchies themselves do not see eye-to-eye, and the Arab League kicked Syria out of the organisation in 2011.
Previous attempts at cooperation have not panned out. In 2008, after 27 years of deliberations, the Gulf Cooperation Council (GCC) Common Market was announced to much fanfare but has been a damp squib, largely due to bickering over where a GCC central bank would be located.

'Utopian thinking'

 

Moreover, the region cannot resort to using oil as a bargaining chip for a place at the regulatory table, unable to repeat OPEC's oil embargo on the West for its support of Israel in the 1973 war.
What the region has is a degree of financial power, with the total assets of Arab banks estimated at $3.2 trillion, although that figure is less than the US Federal Reserve’s assets and the combined wealth of the 500 richest people, at $4.5 trillion each respectively.
Such realities did not prevent conference delegates arguing the need for a banking lobby to be a part of the decision-making process.
"Instead of the Arab world being on the receiving end, we must take part," said Mohamad Baasiri, Vice Governor of the Central Bank of Lebanon. Amr Moussa, former secretary general of the Arab League, proposed that a lobby should not consist of all 22 countries in the League but select countries, like Lebanon and Egypt, to be more effective.
But overall, despite attendees’ anger at their powerlessness in the face of US and international regulatory diktats, there was a resigned acceptance of the fact that the kind of unity needed was unlikely to happen. As one senior member of the Lebanese Central Bank who wished not to be identified said, the idea was "utopian thinking, it will never happen".
"We Arabs speak more than we act," one participant said to claps and attendees saying "true".

Alternatives to the US dollar

 

Yet there was also the macroeconomic view. "Could any country or region stop FATCA? Even the EU couldn’t," said El Hadi Chaibainou, general manager of the Groupement Professionnel des Banques du Maroc. Neither could Russia or the world’s rising superpower, China, for that matter.
In a time-will-tell approach, bankers talked of looking to alternatives to the US dollar, such as the Chinese RMB, which is growing in status as a global currency reserve.
Nevertheless, the fact that the idea of an Arab banking lobby was being discussed, and that the acceptance of US diktats is not what is was just a few years ago, is telling, especially in a seemingly changing global order and the question marks raised by the upcoming presidency of Donald Trump.

Thursday, July 21, 2016

Professional Coaching: Closing the Arabian Gulf

 Coaching at Work magazine

Coaching in the Middle East is growing in both scale and quality and its key base is in the United Arab Emirates. Paul Cochrane reports from Beirut

The professional coaching sector is booming in the Middle East. Over the past decade the region has become increasingly interconnected in the global business system, and has adopted international standards. This has driven the need for professional coaching and training. But with coaching modelled on US and European norms, there is a need for greater localisation, while more accreditation is necessary to develop further confidence in the fledgling sector.
Professional coaching started to take off in the Middle East following the global financial crisis of 2008. Demand was driven by multinational corporations (MNCs) based in the Gulf region, particularly in the United Arab Emirates (UAE), a popular location for coaching organisations wanting to cover the Middle East and North Africa (MENA) markets.
“When I arrived in 2009, I told people I was a professional executive coach and was asked: ‘What is that?’ There were only five credentialed coaches in the UAE listed on the International Coach Federation (ICF) website. Today there are hundreds of coaches, so the sector is definitely growing,” says Annette Kirby of Executive Coaching Connections; she is a Danish leadership coach in Abu Dhabi, with an ICF Professional Certified Coach (PCC) qualification.

Rising demand

The UAE’s most populous emirate, Dubai, is a good location for coaches, given that it is a key business hub for major companies operating in MENA. Coaching specialists estimate that there are around 1,000 coaches in the MENA region with varying qualifications, while there are only a few hundred Gulf-based members of the main coaching bodies, such as the European Mentoring & Coaching Council (EMCC), the ICF and the International Association of Coaching (IAC), according to Nigel Cumberland, an executive coach and leadership facilitator in Dubai, with an EMCC Accredited Coach–Senior Practitioner level qualification, among others.
“I would say the amount of coaching is what you might see in the UK per capita, as a large majority of coaches live here in Dubai. There are smaller groupings in Abu Dhabi, Doha [Qatar] and a smattering in Muscat [Oman], Riyadh and Jeddah [Saudi Arabia], and the Levant,” says Cumberland.
Dubai’s location as a business and tourism hub has enabled coaches to cover more than the Middle East. “Most of my coaching is now through the web – video coaching – but I like to encourage people to meet in person. Luckily, because of Dubai’s popularity, we can do that, with people flying in from, say, Islamabad [Pakistan] or Kabul [Afghanistan],” he adds.
While there is demand for coaching from numerous sectors, and for different purposes, the leading certified coaches are involved with MNCs and the Gulf’s sizeable state and state-linked companies.
“A large number of us are helping organisations and governments to coach either leaders, managers or aspiring talent, which often means locals – Emiratis, Saudis or Qataris. So we call ourselves leadership coaches, or maybe business coaches, used interchangeably,” says Cumberland.

Keep it local

Across the Gulf, governments have set targets to bolster the participation of locals in the workplace, known as nationalisation programmes – Saudisation, Emiratisation, Qatarisation and so on. Governments are particularly keen to have local nationals – a small minority of the population in ex-pat hubs the UAE and Qatar – in managerial and leadership positions, providing funding for study abroad at leading universities and business schools. But academic experience requires additional support once in the workplace, which is where leadership and executive coaching comes in.
“The region is realising the importance of coaching, which as a culture started with the MNCs, as well as large local companies and organisations since they didn’t trust local providers,” says Rawan Albina, a Lebanese coach based in Dubai, with a ICF-PCC qualification.
Until recently, coaches and leadership development experts would be brought in from outside the region, but organisations soon got wise to the higher costs. “It got to the point where they realised they were paying an arm and a leg for people that didn’t know the region or how people think. So [international] coaching firms would look for local talent instead. For me, this was the big wake-up call for regional coaching,” adds Albina.
Locally based coaches have the advantage of knowing the culture and society, as well as the particularities of the Gulf, such as the high proportion of foreign workers. “Multiculturalism is unique here as you can have 12 nationalities in a [business] team. And within the past couple of years there’s been more requests for coaching of multicultural and multidisciplinary teams,” explains Executive Coaching Connections’ Kirby.
“The cultural component of coaching is very important, to know what you can and can’t do, those unwritten codes of behaviour in the workplace, which is not something you can understand unless you live here for years,” she adds.
Another difference in Middle Eastern coaching compared to the West is the blending of coaching and mentoring, attributed to a general lack of knowledge about what coaching is. “What’s interesting is people’s understanding of coaching, confusing mentoring and advising. When I coach I’m often looked to for advice. That is entering mentoring territory, and I happen to think a lot of coaching is a combination, as in this part of the world people are keen to explore coaching as personal exploration, but also can’t help asking: ‘What would you do?’ ” says Cumberland.
Not being able to speak Arabic is not a major obstacle to being a coach in the region, with middle and upper management usually fluent in English. Albina said that around 30 per cent of her coaching is in Arabic, and 10 per cent in French. “Most clients have very good English. However, Arabic is important, and being a woman also, as it works well with Gulf women, since they prefer to be coached by a woman,” she says.
Nationalisation of the workforce is likely to trigger more demand for Arab coaches. “The more nationalisation increases, there will be more leaders getting to the top who are local, so there will be more need for Arabic speaking coaches,” adds Albina.
However, there is not as much interest in the profession from Arabic speakers in the Gulf, particularly men. “Coaching is labelled as a woman’s vocation. In every workshop I attend related to pure coaching skills, it is always 80 per cent women and 20 per cent men, and the men tend to be Western. It is still such a new industry that there needs to be a mindset shift,” says Albina.

Lebanese connection

Lebanese coaches have a particular advantage over their English-speaking peers, as they are typically fluent in Arabic, French and English, and as a result able to cater to the whole region, including the French-speaking parts – Morocco, Algeria, Tunisia and Lebanon.
“It is a strength of Lebanese coaches, and something you can’t really find in the Gulf. It is also what makes Lebanese coaches a bit different. For instance, a trend now is for NGOs [non-governmental organisations] in Lebanon to use coaches for capacity development projects, such as for people in stress, or to coach farmers, so Arabic is an important bonus,” says Nada Jreissati Daher, founder of coaching firm PragmaDoms and a master certified coach trainer in Beirut.
Thwarting the development of Arabic language coaching is the lack of translated material: “There is a need for courses in Arabic as values are really different, while in business there is a different culture, especially as most are family-run. The problem is that coaching was really tailored to Western societies, so we try to adapt as much as we can, although with an accredited programme there is a limit to what you can do,” she adds.
Driving the popularity of coaching as a profession is the potential income. In the UAE, professional coaching remuneration can be anywhere from US$500 to US$700 per hour, whereas in Lebanon, executive coaching starts at US$250, up to US$600 per hour, depending on length of engagement.

Let’s regulate

But the profession’s popularity has led to a large number of unaccredited coaches with minimal experience offering their services. This has undermined trust in the sector at the very time local firms and accredited professionals are trying to get the advantages of coaching better known in the marketplace, as well as to better compete with international coaching firms.
In Lebanon, this unwelcome situation has prompted Daher to set up a coaching syndicate to improve standards in the sector.
Over in the Gulf, it is a similar story, despite the presence of local chapters of international bodies such as the ICF: “People want to get into the coaching market and to make good money from the beginning. It’s a very opportunistic market as it is not mature and companies don’t know what to look for in experienced coaches,” says Kirby.
Albina thinks governments in the Middle East need to recognise the profession before any regional coaching bodies or regulators can be established.
“At a very simple level it would be great if governments considered coaching as a vocation. When I applied for my licence [in the UAE], coaching was not listed. It is not in the vocabulary, although you find training and development, and consulting,” she concludes

Monday, July 18, 2016

International outlook

Accounting & Business magazine - International edition

Award-winning CFO Moazam Shah FCCA describes the challenges of working for a key conglomerate in Saudi Arabia in the current economic climate.



Monday, July 04, 2016

Elusive Target – US vs Hibzullah




 Mugs of Hizbullah leader Hassan Nasrallah on sale in Beirut 
(Credit: Paul Cochrane)
 

Hizbullah has long been on the terrorism radar and despite current focus on Islamic State, the United States is attempting to maintain pressure on the group's finances through specific legislation. Paul Cochrane, in Beirut, explores the likely impact.

At a time when the world is regularly sickened by webcast beheadings and civilian bombings carried out by Islamic State (IS), it is perhaps hard to recall that Shia militant group Hizbullah was previously viewed as the world's most notorious terror organisation. Today, with 12 members of Lebanon's parliament (and two ministers in cabinet), a panopoly of social services, a TV station and even a museum, Hizbullah is an integral part of the country's political and social scene. However, it still operates a private army, which is fighting in Syria's civil war, and is regarded by the USA with undiminished hostility. It was also labelled a terrorist organisation by the Arab League as recently as 11 March this year, although critics have claimed this reflected tension between Sunni country governments and Shia forces in the region. The designation, supported by the Gulf Cooperation Council (GCC), could bring any transactions deemed to be with Hizbullah within the scope of anti-terror finance laws in Arab countries.


US antagonism legislated


In AML terms, it was the passage, in November, by the US Congress of the Hezbollah International Financing Prevention Act of 2015 that probably caused the most concern in Lebanon. Enactment was followed by a Drug Enforcement Administration (DEA) announcement, in February 2016, that it had evidence of a “massive Hizbullah drug and money laundering scheme” operated at a global level by Hizbullah's External Security Organisation's Business Affairs Component (BAC). The statement followed US Treasury accusations (in June 2015) against three Lebanese Shia businessmen and investors, citing direct links with Hizbullah. One casualty was Kassem Hejeij, the head of Middle East Africa (MEA) Bank; he resigned in favour of his son after being placed on a US sanctions list.


Local reaction

The new Act and these moves have caused widespread concern in the Lebanese financial sector, anxious lest it fall foul of US regulators in the wake of the Lebanese Canadian Bank (LCB) in 2011, which saw that institution identified as a launderer for Hizbullah. In response, two delegations, comprising Lebanese politicians and financial institutions, went to Washington, separately, earlier this year to ensure that the whole country was not caught in the US' dragnet, this despite Iranian-backed Hizbullah saying that they have no presence in the country's financial system.

We had good discussions with Treasury and the State Department. We were not going to argue why (they) did it, it was about making sure there's no collateral damage because of the law,” said Yassine Jaber, a member of the Lebanese Parliament for the Shia-based Amal Movement. “We made the case that Lebanon is compliant (with international regulations). The reaction was, what's the fuss? [The Act is] not implemented yet, in April, and the US officials said, over and over, that it was not about the local banking sector but to not allow Hizbullah funding to enter the US banking sector.”

Hizbullah was labelled as a terrorist organisation by the United States as long ago as 1997 (http://www.state.gov/j/ct/rls/other/des/123085.htm), a designation also applied by France, Israel, Australia, Canada, and the Netherlands. Meanwhile, Britain, the European Union (EU) and New Zealand differentiate between Hizbullah's political and military wings, labelling the latter a terrorist organisation, while acknowledging that it has 12 seats in the Lebanese Parliament.


Political dictation


The Act is considered a political move following the international deal with Iran. “The sanctions are a reward to the Gulf countries and the Israelis, that the US is still committed to their security. That is the real reason, as the US knows such sanctions will not have any real influence over Hizbullah's policies or agenda,” said Hussam Matar, a Lebanese researcher. Hizbullah having been under intense scrutiny for decades (it was founded in 1982), the new designation came was no great surprise. “The law against Hizbullah did not come with totally new provisions, as a good part of the provisions of the new law was possible under the US Patriot Act. But as usual, US law has far-reaching impact, and financial institutions are scrutinising [clients] more closely in order to not expose themselves as well as their correspondent banks,” said Abdul Hafiz Mansour, secretary of the Special Investigations Unit – the country's Financial Intelligence Unit (FIU).

Out of scope?

Hizbullah's secretary-general Hassan Nasrallah, gave a televised addressed following the US move, in which he said the party held no accounts in Lebanon. It is presumed that Hizbullah uses cash for its transactions, while the Act specifically concerns US dollars and not Lebanese Pounds.

Within Lebanon, with the party a legal entity, there is little AML authorities can or would do to restrict Hizbullah's finances in any case.

Mansour's explanation probably says it all: “The Financial Action Task Force (FATF) recommends the protection of the international financial system from being abused. Accordingly, the AML/CFT and financial regulators' realm of operation is the formal financial sector. In this regard, any dealings in cash outside the formal financial sector is outside the realm of the AML/CFT regulators, it falls within the scope of police work. The FIU does not have the capacity, by law or institutionally, to go after cash or financial operations outside the formal financial sector.”

Despite Nasrallah's claims, repeated at the FIU and by Jaber, Nicholas Noe, co-founder of regional newswire Mideastwire.com in Beirut, is more questioning of Hizbullah's financial operations. “Treasury's push back was that you had the LCB case, the (DEA) allegations of drug trafficking, and over the last year, the head of MEA Bank was charged by the US for links to Hizbullah, so it is not exactly true nothing is going through the financial system,” said Noe. “For a super secret party it is not just about the party, but supporters and informal networks moving cash, so inevitably money is in the financial system via people that materially support Hizbullah,” he said.


US intelligence report


The FIU and financial institutions are awaiting scheduled release of a report (within 120 days from 15 April 2016) from the White House into Hizbullah's activities; with expected accompanying regulations to “prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that the President determines”.

According to public statements by Nasrallah, the party's funding is primarily from Iran while weaponry is received from Syria. Funds are presumed to come via Syria. “There is an open border with Syria, so cash comes from there,” said a compliance officer who requested anonymity.
Other than the funding from narcotics and trade-based money laundering reported by the DEA, Hizbullah raises money domestically through donations and using proxies, added the compliance officer. According to a leaked US embassy cable from 2007, Hizbullah's social services and employment network spends an estimated US$600 million a year “in payments and services to supportive Shia, Sunnis, and Christians not receiving those services from the government,” which is not widely known for providing effective services to the people of Lebanon.

Matar said that as Hizbullah is well integrated into Lebanese society, the new sanctions would not have a major impact, and the party would leverage sanctions-busting knowledge from Iran. “The Iranians went through this, so Hizbullah will not find it a problem,” he added.


Viewing restrictions


Al Manar television channel, the party's mouthpiece, was specifically targeted under the Act, with the April regulations detailing “satellite, broadcast, Internet, or other providers that have knowingly entered into a contractual relationship with al-Manar TV and its affiliates”.

The US' designation led to Al Manar being dropped from Arab League-backed satellite provider ArabSat, and, on 6 April, by Egypt's NileSat. Most of the damage happened to Al Manar, targeted in a special paragraph, and we are waiting to see how it will be defined,” said Jaber.

The channel's website, almanar.com.lb, is not expected to be affected as the domain name was issued within Lebanon while the website itself is registered in the name of a journalist, not the channel, according to a member of domain registry, the Lebanese Internet Centre (LINC).

The journalist would have to be named by the US authorities for there to be any action, and a Lebanese court order would be required to shutdown the website, added the LINC member.

According to the compliance officer, Al Manar pays staff in cash, while purchases of broadcasting equipment is via intermediaries.


Neighbours lose patience


While the US move was not unexpected, regional action was, despite the long history of animosity between Sunni Muslim governments and Shia Iran and Hizbullah. The terrorist organisation designation was also made by the Gulf Cooperation Council (GCC) countries, with the Arab League designation supported by all members bar Lebanon and Iraq (both with significant Shia populations). “The GCC is trying to say to Lebanon, you are (collectively) paying the price of Hizbullah's regional actions in Syria and Yemen,” said Matar. The GCC is opposed to the Syrian regime, which Hizbullah and Iran are supporting militarily, while a GCC force, led by Saudi Arabia, is fighting the Iranian-backed Houthis in Yemen.

The GCC action could potentially have more of a negative impact on Lebanon, as the Gulf monarchies are less predictable than the US, but they do not have the specific financial regulatory means to enforce such a designation, said the compliance officer. However, given how “fragile and vulnerable” Lebanon is, the GCC also “toned down their attack after the US and EU talked to them”, Jaber noted.



Tuesday, June 28, 2016

Money Laundering: Pulling out the rug – Turkey slips back


 Turkey has major gaps in its AML regime - Construction of the new Golden Horn Metro Bridge, in Istanbul (2013).

Conflict rages just over the border in Syria yet Turkey goes slow (even backwards with recent amendments of its customs code) on terrorist financing. So, what is the agenda? asks Paul Cochrane.

Turkey may be on the frontline of the so-called 'war on terror,' but its new customs code asks no questions of incoming cash, while its definition of terrorism has been criticised for contrasting with international standards. Furthermore, judicial independence and reliability of the rule of law in the country are both often in issue.

Turkey's geographical positioning has always made it a crossroads between east and west. The country is a conduit for the heroin trade flowing to Europe from Afghanistan, a gray market exchange and trade hub for (sanctioned) Iran, and an entry point for fighters joining the ranks of the Islamic State (IS) and other radical groups in conflict-ridden Syria and Iraq. The country has also experienced multiple terrorist attacks over the past 12 months, including a devastating attack in the capital Ankara in March this year which killed 32 people.

Free cash flow

Yet despite myriad of problems, and removal from Financial Action Task Force (FATF) ongoing monitoring in 2014, Ankara has enacted legislation that would seem to be a gift to money launderers, organised crime and terrorism financiers.

In April, 2015, the Ministry of Customs and Trade amended the 2013 Customs Code, making it two pages shorter (now four), and allowing any amount of cash to enter or leave the country – the previous limit was US$50,000. “Frankly, why does it matter if the money comes in cash or through a bank as long as it is money earned from exports? If this is dirty money, it will not be allowed to enter the country. There are no changes with regard to unrecorded cash,” said the Minister of Customs and Trade, Nurettin Canikli, arguing that the newer code represented a simplification, as the previous version, albeit had been in line with EU regulations, was “unclear".

Canikli's statement, though, is not supported by the new code's text, which reads: “Revenues from the export of goods and services, revenues with regard to transit trade, cash from foreign capital and other resources are free to enter the country through custom gates. [The value of] the items is not required to be declared and passengers cannot be forced to make declarations.”

With the economy slowing down and the Lira having dropped by over 20 percent against the US dollar since 2014, the move is seen as a way to foster the return of much-needed Turkish cash. “It is more of an effort to repatriate holdings abroad than help terrorists or money launderers but, regardless of the intentions, it does open the door to these types of transactions,” said Atilla Yesilada, Istanbul-based analyst at Global Source Partners Inc, an international business advisory service. “As IS has a pernicious and pervasive network in Turkey, I speculate that there's no way to distinguish between legal money coming into the country and cash to help IS and other [designated terrorist groups] like Al Nusra Front. From a domestic viewpoint, it's a big problem.”

The new customs code is but one sign of Ankara's lacklustre approach to anti-money laundering (AML) and countering the financing of terrorism (CFT). “They were on the FATF gray list for several years, and were removed because they enacted laws that codified the approach to terrorist financing, but at the end-of-the-day it was a bureaucratic manoeuvre, as it didn't necessarily make the place safer from a AML and CFT perspective,” said Jonathan Schanzer, the vice president for research at the Foundation for Defense of Democracies, in Washington DC.

Gateway to the Front

On several fronts Turkey is not playing ball according to international AML/CTF rules say experts, frustrating international efforts to curb financing to the likes of IS. Its border with Syria and Iraq is “like Swiss cheese”, said Yesilada, and the country is still an entry point for Islamic fighters, over four years after the conflict started in Syria in 2011.

Even today for Westerners seeking to join IS, they get a one way ticket [to Turkey], and make their way east. Apparently crossing the border [into Syria] is not challenging. Border issues are among those tracked by FATF, and this one has gone rather undocumented. Turkey is due for an evaluation as the deficiencies are clear,” said Schanzer. However, FATF scrutiny will not happen any time soon – the country's next mutual evaluation report (MER) is slated for release in 2019.

Law and effect

CFT legislation that Ankara adopted to avoid an earlier threat of being expelled from FATF in 2013 – the Law on the Prevention of the Financing of Terrorism - included freezing and confiscation of assets, but the question of enforcement remains. The US State Department is among those with concerns – stating, in June 2015, that while the government “has issued freezing orders without delay (three to five days), it remains unknown whether any assets have actually been frozen”.
FATF and the US have also criticised Ankara for not having a wider and more international approach to combating terrorist financing. “Efforts to counter international terrorism are hampered by legislation that defines terrorism narrowly as a crime targeting the Turkish state or Turkish citizens,” stated the US State Department's 2015 country report.

A mute point

So it is odd that the Turkish government has avoided being flagged for its CFT deficiencies by FATF and other agencies. Some say this is because of Turkey's strategic importance to NATO, with the Incirlik air base being used for strikes against IS, and to the European Union (EU) in tackling the Syrian refugee crisis. Because Turkey is a NATO country and not a basket case like Sudan or Iran, they are able to get away with quite a bit. There is a sense among Western policy makers that its a bit dangerous to air [concerns] and tackle them head on, so instead they kick the can down the road on illicit activities in Turkey,” added Schanzer.

Reporting, supervision, prosecution

Meanwhile, evidence that concerns about Turkey's AML and CFT regime are warranted continue to pile up. According to a 2013 report by the country's interior, justice and finance ministries, no judicial investigations into terrorist financing had ever been conducted. But following FATF's threat to demote Ankara from the gray to the black list, the finance ministry’s Financial Crimes Investigation Board (MASAK) has been a bit more active. In its latest report, on fiscal year 2014, 0.4% of all suspicious activity reports (SARs) were related to terrorism, while out of 623 judicial notices issued, 10 were related to terrorist financing, compared to 117 related to tax evasion and 83 to fraud.
MASAK has fined banks for failing to have the necessary AML mechanisms in place, but not many, if any, individual convictions for financial crime have resulted from SARs or MASAK intelligence,” said a London-based financial crime researcher who focuses on Turkey and asked for anonymity. MASAK did not respond to interview requests from MLB.

Political influence

Disquiet over judicial inaction has also been fuelled by the dropping of a high-profile case that surfaced in December 2013, in which four ministers and the son of the then Prime Minister (and now President), Recep Erdoğan, were accused of being involved in a 'gas for gold' deal when an alleged US$13 billion was traded between Turkey and Iran, in breach of international sanctions.

“The judiciary has removed all the prosecutors and judges responsible for those trials from the profession. The parliament has also acquitted the four ministers named in the indictments,” said Yesilada.

Nor was any judicial action taken following a Turkish prosecutor's report in 2013 into some US$100 billion in illicit transfers from Turkey to Iran to circumvent the multilateral sanctions against Tehran. “The report was essentially scuttled,” said Schanzer. “The entire (judicial) process is completely devoid of transparency, so there are serious problems.”

Discontinuance of such cases is widely considered to be politically motivated, part of the ruling Justice and Development Party's (AKP) consolidation of power within the country which, since 2013, has included overhauling the judiciary to remove supporters of political leader Fethullah Gulen. The state has also been increasingly heavy handed with academics and media outlets speaking out against the AKP; in March, the government seized control of Zaman, one of the country's leading private newspapers.

The AKP has managed to have control over who it appoints. As a result you don't have the separation of powers in a democracy between the executive, legislative and the judicial branches. It doesn't necessarily exist in Turkey at the moment, so it's hard to talk of the rule of law. As a system, you don't see prosecutions in cases where the government or those affiliated are accused,” said the financial crime researcher.

Indeed, the overhauling of the judiciary extended to members of the police force as well as ministries and the central bank. On top of political meddling in the legal process, it has left government bodies without experienced personnel.

The purging of people from institutions has hurt institutions somehow. In their defence, I'm not saying they're not functioning, but they've lost a lot of human capital, experienced people who were not with the AKP. Now there's no one to replace them,” said Emre Deliveli, an independent economist based in Turkey.


Photo from Wikicommons, by Arild Vågen

Monday, June 13, 2016

Child labor in agriculture on the rise in Lebanon





The sun is rising over the Anti-Lebanon mountain range that borders Syria. Kowsa Ibrahim, a 12 year old refugee from Aleppo, is already at work pruning grape vines. She will work for the next several hours for 6,000 Lebanese Lira ($4), although she will not get that amount; an overseer, known as a “shawish,” will take 2,000 LL ($1.33) as a form of commission.

Kowsa prefers working the vines to collecting potatoes. “It’s better as there’s more shade. Potato work is out in the open fields under the sun, and it’s hard. I collect the potatoes in 20 kilogram sacks which I have to carry to the collection point,” she says.

Kowsa never had to do such back-breaking work in Aleppo, but for the past three years she has had to help support her family since fleeing Syria to Lebanon’s Bekaa valley. The war in Syria, now in its sixth year, has caused millions of refugees to flee their homes, putting significant strain on already stretched labor markets and services in neighboring countries.

“The number of working children has increased exponentially since the Syrian refugee crisis began. Because the country is struggling economically many families are relying on their children to contribute to their livelihood,” says Hayat Osseiran, a child labor consultant at the International Labor Organization (ILO).

In addition, international aid has been reduced. Last year, the World Food Program (WFP) was forced to cut its food voucher aid from $27 a month per refugee to just $13.50.

“It is a major problem, how can people live on that? But it is not only lowering the monetary amount, the targeted assistance program has been reducing the number of people it aids every year,” says Solange Matta Saade, Assistant Representative at the Food and Agricultural Organization (FAO) of the United Nations.

As a result of such cuts and the economic situation, refugee children are being forced to work as farm hands. But it is not just Syrian children working in the fields.

“We think only Syrians are being affected, but from 2009 to 2016, there has been an increase in the number of Lebanese child laborers,” says Carlos Bohorquez, a child protection specialist at UNICEF, referring to a study the agency carried out on child labor in the country. “There are three times more Lebanese (children) working than before, so the Lebanese are also being affected.”

Out of school, into the fields

There is a dearth of national data on child laborers, but an indication of the rise in their numbers can be gaged through school attendance.

“Last year there were around 10,000 Lebanese students that dropped out,” said Sonia Khoury, Director of the RACE project (Reaching All Children with Education) at the Ministry of Education and Higher Education (MEHE).

Among Syrian refugee children the numbers are even starker. Currently, out of the 482,034 school aged Syrian children, only 33 percent are enrolled in school. To bolster attendance among refugees, the MEHE’s RACE project implemented a second school shift in the afternoons to cater to the surge in students.

“Four months after starting the second shifts we lost 45,000 students,” says Khoury, attributing this to children being forced to work and the lack of affordable school transportation in the more rural areas. There is also a correlation between the picking season and school attendance.

“We are noticing 2,000 to 3,000 are absent during that time,” she adds.
However, the problem has moved beyond seasonal work. “Child labor in agriculture is classified as seasonal labor, but what we’re seeing now is that it is no longer the case as picking seasons vary, from potatoes to year-round greenhouses to picking flowers,” says the ILO’s Osseiran.

Hazardous work

It is not only the workload that Kowsa finds tough. She says she has been frequently exposed to pesticides. “I get a rash from the pesticides. Sometimes I get flu or breathing difficulties too as we get no protection,” she says.

Such exposure can lead to pesticide poisoning and long-term health problems, explains Rana Barazi-Tabbara, a public health lecturer at the American University of Beirut.

“For children it is especially dangerous as there will be immediate health effects from pesticide toxicity, which at the most acute level can cause vomiting and even death. In the long term, pesticides affect nearly all the organs in the body, from the neurological to the reproductive system, and results in cancer,” she says.

Raising awareness

Indeed, the ILO notes that agriculture is one of the three most dangerous sectors in terms of occupational safety and health, irrespective of the age of the worker, because – in addition to occupational diseases – it results in a high rate of work-related fatalities and non-fatal accidents, largely through use of motorized agricultural machinery.

To raise awareness of these dangers, the agency held a children’s funfair in the town of Saadnayel in the Bekaa, one of the areas with a high prevalence of child labor in agriculture.

“The fair was one of our ways to raise awareness, among both locals and refugees, on the very real dangers and risks children face when working in agriculture,” says Osseiran as the fair closes, which was held just ahead of World Day against Child Labor, marked globally on 12 June. “It also included artistic performances by working children and their parents, which provided them with a means to express some of the distress they feel due to their life of toil and hardship.”

Legal loopholes

Children have often been extra hands during harvesting time to pick olives and other cash crops in Lebanon. In fact, children as young as 10 are legally allowed to engage in family farming.

“Not all participation by children in agriculture is defined as child labor. It can be to acquire skills for the future, and is allowed as long as the children are not coming to harm, being abused, or their opportunity to get an education is denied,” says Faten Adada of the FAO’s Social Protection Focal Point.
Lebanon’s Decree No. 8987 of 2012 defines which forms of agricultural labor minors can engage in.

“It specifies which forms of hazardous work and which forms of agricultural work children should not be exposed to, which includes family farming. However, there is a loophole in the law that says that when a child is engaged in family farming they can work from the age of 10 onwards. We are working with General Security on closing this loophole,” says Nazha Shalita, Director of the Child Labor Unit at the Ministry of Labor.

Minimal enforcement

But with minimal enforcement of the Decree at the national level, children are openly working in the agricultural sector. “As children are working freely, and can be filmed doing so, it shows they are not worried about being caught,” says Adada.

An issue is that the inspection department at the Ministry of Labor has just 90 staff, while there are only around 45 inspectors to monitor labor practices nationwide. To Adada, such inspectors need to be bolstered not only in number but also at the technical training level to properly assess child labor practices, while they should be backed-up during inspections by the General Security. This is considered crucial to take on the shawish.

Forced labor

“We asked General Security to enforce the law, to have a reason to tell the shawish that it is not us (requiring no children to be employed) but the law. We need to show them the law is being enforced, and to get more inspectors for the ministry,” says Elie Massoud, Head of the Agriculture Department at the Chamber of Commerce, Industry and Agriculture in Beirut.

The shawish used to organize Syrian farm hands that came to Lebanon on a seasonal basis before the 2011 uprising. Once the Syrian conflict started, and the number of refugees rose to the government estimated 1.5 million today, the shawish moved into the informal refugee camps to capitalize on an abundance of cheap labor and their agriculture contacts.

“Those living in the agricultural camps pay no rent, and they are obliged to work for the shawish. If they don’t work, they have to leave,” says Riad Jaber, Co-Founder of civic organization Beyond, at the Fayda camps outside of Zahle.

“There are 15,000 refugees there – it’s about 10 camps grouped together, and each group has its own shawish. If there are at least 100 women and children going from their camp, the shawish will be making about $200 a day,” he adds.
Unless greater action is taken by the authorities and public awareness around the issue improves, children will continue to be exploited and exposed to hazardous working conditions while missing out on crucial schooling years.

“There should be a concerted effort by the Lebanese government, supported by international donors, to eliminate child labor in agriculture, among refugees as well as Lebanese host communities. Unless it is addressed, it will contribute to a ‘lost generation’ in terms of education and human development,” says Frank Hagemann, Deputy Regional Director of the ILO Regional Office for Arab States.


Photo by Tabitha Ross/ILO