Wednesday, November 15, 2017

Qatar stand-off raises wider Gulf terrorist financing questions

The five month-long diplomatic and commercial dispute between Qatar and the so-called ‘anti-terror quartet - ATQ’ of Saudi Arabia, Bahrain, the United Arab Emirates (UAE) and Egypt - revolves around Doha’s alleged financial support for terrorist groups. Evidence of such financing has been drawn up by both sides, with Qatar claiming its opponents have pushed money into the hands of terror groups. But as the Gulf impasse persists, it is Qatar that’s under the spotlight.

To read the article go to Money Laundering Bulletin

Monday, November 13, 2017

After the war: Who’s going to pay for Syria’s reconstruction?

Russia and the US, Turkey and Iran, China and the EU: all have played a part in the Syrian conflict. But will they help it rebuild?
The seven-year conflict in Syria is still unresolved. Millions of Syrians now live outside its borders, often in refugee camps. Fighting continues across the country. The infrastructure has been wrecked, with an estimated cumulative cost to Syria of $226bn.
But there is widespread international belief that at some point the government of President Bashar al-Assad and its allies will claim victory – and begin rebuilding.

To read more go to Middle East Eye

Behind the Saudi Troublemaking

Saudi Arabia’s monarchy is bombing Yemen, locking up domestic rivals and stirring up trouble in Lebanon, while a slow-burning confrontation continues against Qatar which could split the Gulf Cooperation Council, says Paul Cochrane.

To read the rest go to Consortium News

Thursday, November 09, 2017

ANALYSIS: This is just the start of the Saudi crackdown's financial ripple effect

After sweeping arrests, investments inside - and outside - the kingdom are in question. Will the events draw investors - or scare them away?

Click on the link to read the article in Middle East Eye

Tuesday, October 31, 2017

Yemen - Combating Financial Crime in a War Zone

The Central Bank of Yemen (CBY) is struggling to operate amid the conflict that has been wracking the country for the past seven years. The institution’s base, but not all its the staff, were moved from the capital Sana’a - currently not under the control of the internationally-recognised government - to Aden, while much of the country is off-limits to regulators. Paul Cochrane managed to talk with a senior CBY official, who offered rare insight on combating financial crime in a war zone.

To read more go to Money Laundering Bulletin

Tuesday, October 03, 2017

Accounting for NGOs in conflict areas

This article was first published in the October 2017 international edition of Accounting and Business magazine.

Vetting of local staff and suppliers is a further complication. Vetting is required by donors, particularly government bodies such as USAID.

Non-governmental organisations (NGOs), international aid agencies and charities are under increased pressure to abide by international and domestic regulations to demonstrate their financial probity. But while there is often effective oversight in their home countries, in the field, NGOs can struggle to adapt and navigate local rules to ensure appropriate procedures are in place.

To read more go to:

Thursday, September 28, 2017

China and Counter-terrorism

International Link (Hong Kong)
October 2014
Terrorism in China is starting to look more like what is seen elsewhere in Southeast Asia and the Middle East,” said Andrew Small, a Transatlantic Fellow at the German Marshall Fund of the United States.

Such a statement would have been unheard of a decade ago, even a year ago, especially outside of Chinese officialdom. But over the past year the frequency of terrorist attacks, albeit low level, has increased in the country, particularly in Xinjiang province in the far West. Police stations have been attacked, officials stabbed, and there was a double-suicide bombing at the Urumqi railway station on the final day of President Xi Jingping's visit to Xinjiang – where he was focusing, ironically, on counter-terrorism – in April, 2014. There have also been attacks in cities around the country, with one of the most high profile in Tiananmen Square in October, 2013.

Such attacks have a commonality – they have been carried out by Uighers, the ethnic, predominantly Sunni Muslim minority from Xinjiang. As a result, Beijing has stepped up its counter-terrorism, or counter-insurgency (COIN), policies in Xinjiang, with President Xi calling for “nets spread from the earth to the sky” as part of a year-long crackdown to curb terrorism.

(The situation) has turned from a local threat to a more State stability threat over the last year, which is what has been so significant. It is raising a lot of fundamental questions on Chinese foreign policy and counter terrorism strategies. There is a lot that was taken for granted about how they did these things, and these are up for grabs now,” said Small, who is also a contributor to the European Union Institute for Security Studies. “China wants to import counter-terrorism experts from elsewhere to re-think approaches, as they see they are dealing with a different problem (from the past), and have not figured out yet if it is a regular low-level insurgency campaign, or a subset of Uighers connected to a wider (Sunni) Jihadi network and a qualitatively different threat to the last few decades.”

Until this past year, external observers and Western states downplayed attacks by Uighers, being almost dismissive of China facing terrorism threats, evidenced by the stance of the US, which has not blacklisted organizations deemed terrorist groups by China, and provided minimal cooperation despite the overarching international support for Washington's “global war on terrorism.”

As the attacks have increased, it has become apparent that China is facing an issue not confined to Xinjiang alone, perhaps reflecting what is happening globally. As Raffaelo Pantucci, a senior researcher on counter-terrorism and Chinese diplomacy at Britain's Royal United Services Institute (RUSI), has observed, China faces “a dual track problem.” There is disenfranchisement within Xinjiang towards Beijing that erupts in occasional violence on one hand, notes Pantucci, and on the other external Uigher communities that are pursuing a radical Sunni Jihadist agenda. The fear is that such elements have already carried out terrorist activities within China, and that external support will push the Uigher issue, or elements of the Uigher community, into becoming a Jihadist one.

I think Uigher grievances are the regular ones: the loss of identity, homeland, and to elevate Uigher Islam identity over Chinese communist identity. However, militant operations have been less about these grievances but people from outside providing the ideology and the means to attack,” said Jacob Zenn, an analyst of Eurasian affairs at the Jamestown Foundation and an expert on Islamic terrorism.

It is the uncertainty as to whether external factors were directly involved in attacks that the West has not labeled them as terrorism, Islamic terrorism in specific, implying solely domestic Chinese issues.

China itself shoulders some of the blame for this. If the Chinese do a better job to distinguish between legitimate political activities and terrorist activities, there would be greater scope of cooperation with the United States, the United Kingdom and the EU on these issues. Because China blurs the lines so much, it creates a problem for countries that might be more helpful on the issue,” said Small.

That said, while Western states have reportedly had a high degree of success at preventing terrorism domestically, further afield COIN efforts have not been as successful, notably in Afghanistan and particularly in Iraq, as seen with the rise of the Islamic State in Iraq and the Levant (ISIL) in the wake of the US withdrawal in 2011, and in Syria, where Western states and Gulf allies backed “moderate” rebels against Damascus that morphed into the militant Jihadist variety. The same can be said of Libya following Western intervention to overthrow the regime of Muammar Gaddafi.

Indeed, it is predominantly countries with significant Muslim populations in the Middle East, Africa, Central and Southeast Asia that have cumulatively been the main targets and victims of radical Islamic terrorism, rather than the West itself. As such, Beijing would do well to look at the successes and failures of states that are dealing with terrorism on a more regular basis with similar circumstances, such as Pakistan, India, Indonesia and Arab states.

External support?

While China is ramping up its domestic COIN strategies, it is also focusing on external influences, such as cracking down on Uigher language websites to prevent Uighers from being ideologically radicalized and recruited online.

What has shifted in thinking has been more of a focus on propaganda support and the ideological influence of the Jihadi groups. Chinese counter-terrorism experts are now placing more weight on the international dimension, to squash some of the external support that is actually accessible, such as the Turkistan Islamic Party (TIP) in Pakistan,” said Small.

Beijing pressured ally Islamabad to ban certain Central Asian Jihadist groups, such as the Islamic
Movement of Uzbekistan (IMU), the Islamic Jihad Union, the East Turkestan Islamic Movement and TIP. According to reports from Reuters, there are an estimated 400 Uigher fighters in Pakistan and 250 in Afghanistan. In May, the Pakistani military struck targets connected to the Uigher-led TIP.

Preventing neighboring Central Asia from providing safe areas for Uigher militants to operate from is slated to become a top priority for Beijing. Pakistan and Afghanistan are hell holes right now, and these extremists thrive in such basket cases. China needs to do more outreach to Central Asia to not let it become a sanctuary for these guys. The other thing, if it doesn't want to help the US, China needs to do something about shoring up Afghanistan and Pakistan,” said Ahmed Salah Hashim, Associate Professor at the military studies program at the Rajaratnam School of International Studies in Singapore.

The Pakistani 'badlands' of the Federally Administered Tribal Areas (FATA) and North Waziristan have been the refuge for TIP and other Uigher-linked groups. But it is not just Uigher Jihadists that consider China a target. The TIP is linked to the IMU, which is pushing for the jihad to go beyond Pakistan and Afghanistan into China, and its mufti, Abu Zar al-Burmi, has reportedly become a prominent Jihadi leader in Pakistan with an anti-China message that is gaining in popularity, according to Zenn.

Last year, in a speech called “A Lost Nation”, al-Burmi said the “mujahideen should know that the coming enemy of the Ummah (the Islamic community) is China, which is developing its weapons day after day to fight the Muslims.” In the speech, al-Burmi stated Muslims should kidnap and kill Chinese people and target Chinese companies, and blasted the Pakistani-Chinese relationship.

Who is funding the Uighers in Central Asia is not clear. “External support is a very sensitive topic, but it is clear that several hundred militants in Pakistan and Afghanistan are receiving funding from Saudi Arabia, or whoever funds the Taliban, which is trickling down to Uighur militants, and they have an increasing sophisticated internet presence to recruit. There are some seriously anti-Chinese organizations in Turkey that don't avow militancy, but know about who the militants are in Pakistan,” said Zenn.

China and the Islamic State

In many ways, China is starting to reap what was sown by the West and its Gulf Arab allies in Central Asia and the Middle East. Islamic terrorism has become a Trojan horse on China's periphery that is being steadily assembled like a gigantic Lego statue, brick by small brick, to be rolled into the mainland.

While contemporary radical Islam has developed over the past 50 years, and gained traction over the past 30 years following US-backed support for the Afghan Mujahideen against the Soviet Union, Syria and Iraq have become the new centers for radical, militant Islam, and have attracted Uigher and Chinese Muslim fighters to their ranks.

Chinese Muslims and Uighers have shown up in videos in Syria, although it is unclear where they come from, from China or from the Uigher diaspora, which lives in Turkey, while Syria is a huge magnet for Muslims across the ethnic divide,” said Pantucci.

The rise of ISIL, or the Islamic State, over the past two years, in particular this year as the group gained international notoriety through taking huge swathes of Northern Iraq and North-West Syria, is fueling a global Jihadist resurgence.

ISIL has really caught the attention of a lot of young, angry, unemployed types, what I call 'Boutique Jihad',” said Hashim. “Although ISIL is supplanting Al Qaeda, they haven't said much on the Uigher situation. Given their ambitions, and the map of the Islamic State caliphate from Andalusia to beyond the Persian empire, to China, they may say something about this. And given their successes, if maintained, this will gain traction with Uighers; that is a potential scenario. The Uigher situation has become more center stage for Jihadists.”

While analysts consider the risks to the Chinese mainland from Uigher Jihadists minimal, in part due to the difficulties of getting back into China, it is the ideology of ISIL and other Jihadist groups that is of concern at both the internal and external level.
The most dangerous thing for China from ISIL is the ideology, which is breaking down borders and identity by religion and not nationality. That idea is already catching on in West Africa, with militants going to Boko Haram to destroy colonial era boundaries and create a new political system based on Islam as a common denominator. In Central Asia this idea has not caught on, but could, especially if ISIL is rich and starts funding militants in Central Asia or proxies in Pakistan or Afghanistan,” said Zenn.

COIN approaches

At the domestic level, Beijing does not want to give impetus to Uigher grievances by enabling the uprising to turn towards radical Islam, slight though this risk may currently be. It is worth bearing in mind that the initially peaceful uprisings in secular Syria in 2011 for instance became more militant and Islamic - it was co-opted - as did the militant opposition to the US occupation of formerly secular Iraq. Significantly, this did not require huge numbers of Jihadists, with ISIL for example having an estimated 30,000 fighters.

China would do well to study COIN strategies in countries that have struggled to contain insurgencies that were supported internally and externally, such as in India. India is similar in population size to China and also has diverse minorities.

India's COIN approach was characterized by Sameer Lalwani in West Point's CTC Sentinel, as “a strategy of attrition with the deployment of 'raw state coercion' and 'enemy-centric' campaigns to suffocate an insurgency through a 'saturation of forces.'”

In Indian Kashmir this heavy-handed approach has not worked, and neither for other ongoing insurgencies, such as the Naxalites, given that both are decades old conflicts. In part this is due to the lack of a soft policy approach alongside economic development, with brutal crackdowns keeping the conflict going. China should not imitate India's approach.

China has a lot of resources to deal with the outbreak of terrorism, but it has not been particularly subtle in its approach. A problem is that China does not send crack units to Xinjiang, which cannot provide order without a brutal approach, so keeps the area quiet for a while but feeds into the rage. An effective counter-terrorism approach requires both a soft policy as well as a hard policy approach, and China has not calibrated that properly. A learning process, and the issue is if China can learn faster than the Uighers can,” said Hashim.

Furthermore, there needs to be a strong understanding of what causes terrorism and adjust soft policy accordingly. So far, Beijing has focused on economic development over other issues.

I think that while a key focus is on heavy economic investment, in reality there is a third way, which is people's sense of alienation. It is not monetary, but cultural, about a sense of belonging, and a lot of people feel they don't have a stake in modern China. They are not going to be swayed by houses, cars and jobs. Look at the UK's four pillar counter-terrorism strategy: Pursue, Prevent, Protect and Prepare, and they've not figured out the preventative side - the social disenfranchisement - and that is what China has also not addressed, the cultural aspect of it, and why people are drawn to these ideas,” said Pantucci.

Ultimately, Beijing needs to develop approaches to its dual track problem of domestic grievances and external Jihadists, and not add fuel to the fire through the two becoming increasingly connected. It is essential, therefore, that Beijing works closer with Central Asian states to contain the problem in these countries, but also pressure the West and Arab Gulf states on counter terrorism issues, including counter terrorism financing.

By themselves the Uighers cannot cause mayhem; they can cause problems like they've been doing lately - episodic hit and run incidents which are a nuisance rather than a security problem. Right now, China's capacity in Xinjiang is very strong. If (militant) Uighers have a chance of anything, they will have to rely on external sanctuary and support,” said Hashim. “But if relations with China and the West go down hill there is the possibility of using the Trojan horse phenomenon to cause trouble.”

Tuesday, September 26, 2017

Hard as diamond - Money Laundering

Money Laundering Bulletin

The diamond trade remains one of the launderers’ best friends, write Paul Cochrane (Beirut) and Ed Zwirn (New York), the precious stone’s high value to mass ratio, akin to the highest value banknotes obtainable. Indeed, it is harder to trace diamonds than numbered banknotes - there is no reliable means by which the point of origin of a particular gem can be ascertained just by examining it. 

To read the rest of this article go to:

Monday, July 31, 2017

The big Lebanese thirst

Fierce competition among bottlers

Executive Magazine


Not many consumer product segments have steady year-on-year growth regardless of the economic environment. Nor are there many products that are the same price as they were a decade ago. But as the marketing saying goes, water is life, and there is plenty of competition for consumers of bottled water. 

"You can consider bottled water in Lebanon as a basic good. You don’t have any alternative for drinking water, so we’ve never really been affected by the political situation, nor the economic situation,” says Merched S. Baaklini, deputy general manager of Bev Holding, producer of Rim.

According to a 2016 Blominvest Bank report, the sector grew in volume by 2 percent in 2013 and 2014, and 5 percent in 2015. In value terms, it averaged 6 percent growth in 2013, 10 percent in 2014, and 6 percent in 2015. 

Sector players attribute the rising demand for bottled water to both the healthy lifestyle trend, with consumers increasingly opting for water over soft drinks, and government mismanagement of the water sector. This ranges from health scares related to the lack of oversight of water companies — especially unlicensed bottlers, — to shortages in government supply. When the taps run dry, consumers are left unsure about the quality of water delivered by truck to their apartments. 

The trash crisis of summer 2015 caused another spur in business according to bottlers, fueled by mounting public concern about the government’s inability to deal with waste and environmental degradation. Tests carried out by the Lebanese Agriculture Research Institute (LARI) showed that, in March 2016 — nine months after the trash crisis started — leachate from dumpsites across the country entered the groundwater, with bacteria levels reaching 2,000 trillion per milliliter (ml) the accepted norm being less than 200 per ml. 

The Class A bottlers — established brands licensed by the Ministry of Public Health (MoH) — account for an estimated 30 percent of the market, according to industry insiders, valued at around $160 million a year. The remaining 70 percent are more localized in distribution terms and unregulated, with just 42 out of some 1,000 bottlers licensed.

The surge in bottlers is most evident in the supply of 10 liter containers, which, other than the water stores typically found in the suburbs and countryside that fill up 10 and 20 liter jerry cans, are the most economical, costing from LL1,000 to LL1,750. “The big companies never had the 10 liter bottles as part of their portfolio, typically having the 330ml, 500ml, and the 1, 1.5 and 2 liter bottles, then jumping to the 18.9-22 liter size [known as the ‘gallon’]. Today, these companies are tackling the 10 liter market, as it’s an attractive and growing market,” says Roy Hage, manager of Petform, one of the country’s top three manufacturers of consumer grade plastic bottles. Petform produces some 70,000 bottles per hour, and Hage estimates that there are over 250,000 10 liter bottles produced in Lebanon each day.

Minimal plastic is recycled in Lebanon, ending up in garbage dumps and on beaches, like here in Costa Brava, south of Beirut.

The water knife

While bottlers have largely dismissed concerns about depleting water tables and the unreliability of snow melt (the source of over 50 percent of the country’s water) Roland Riachi, visiting assistant professor at the Political Studies and Public Administration department at AUB, says that demand will rise due to the depletion of water resources, and that the number of wells has risen from 3,000 in 1970 to 80,000 today, or eight wells per square kilometer. “This will lead to a drop in tap water supply, so there’ll be more demand for water delivery, for drinking, and domestic use,” he adds. LARI estimates that the average depth of groundwater across the whole country has dropped on average by 70 to 80 meters, and projects it will fall further.

The problem is the lack of regulation in the water sector, be it from agricultural use, to tapping wells for drinking water. By law, water companies pay the government LL1,000 for every 1,000 liters extracted, and are limited to withdrawing 100,000 cubed meters a day from a depth of less than 150 meters. Most water companies stated that they pay according to a metered system, but others, such as Tannourine, said the water was free.

The lack of oversight of the overall sector and depleting water resources are already causing logistical issues for companies. Some bottlers concede that they stockpile during the winter months due to shortages in the summer, and even buy water off other bottlers when supplies run low.

“Most water companies are seeing a reduction in water availability. The illegal bottlers are about to cause a catastrophic disaster, as they’re drilling near the shorelines and emptying aquifers,” says Marcel Hage, chairman and CEO of Talaya. “If more people favor natural drinking water, and the supply is short, prices will eventually go up. But if the situation continues as it is now, of ‘water as water,’ no matter where from, prices will remain stable.”

Economics 101 teaches us that with demand outstripping supply, prices should go up. But the theory does not yet apply to local bottlers due to the low cost of extraction, the lack of government oversight, and high competition. “Prices haven’t changed because the price is the cost of the bottle, not the water inside. This is why you see different brands with the same price,” says Reine Berbery, marketing manager at Tannourine.

The number of new entrants into the market is difficult to quantify due to the number of unlicensed bottlers. But, at the higher end, there are still new entrants, such as a $7 million bottling facility in Bekaa’s Yammouneh, announced in May.

Just as Nestle shook up the sector when it bought Sohat and introduced Nestlé Pure Life, Pepsi’s launch of its global brand Aquafina in July 2015 has triggered what players call a price war. “Aquafina has made it harder for everyone, as they have the distribution model, and gave it out for free with Pepsi when they launched,” says Alain Tabourian, chairman and CEO of Interbrand, which owns Sannine.

According to SMLC Pepsi-Cola’s Executive General Manager, Bassem Ali, Aquafina has had “strong double-digit growth” due to the “largest distribution network in the country.” The top seller is the 500ml bottle, but the company is mulling entering the gallon market, which industry insiders estimate at around 25 to 30 percent of the licensed market. 


Competition to get on supermarket shelves is fierce, as that is where consumers have the most choice, and the best prices for licensed brands. This is down to distribution costs, with home delivery costing more, albeit ensuring more consumer loyalty. Industry players estimate distribution at 30 to 40 percent of operating costs. 

“As long as consumers can easily switch brands, and can’t tell the difference between one water brand and another, the higher the competition,” says Riwa Daou, a research analyst at Blominvest Bank.

Such competition extends to imported and sparkling waters. Nestlé had dominated the sparkling water segment with brands Perrier and San Pellegrino, but Rim introduced its own sparkling water brand in 2016, and Tannourine introduced San Benedetto earlier this year. The brands have also ventured into glass bottles to appeal to higher-end consumers, especially at restaurants.
“We consider selling under cost as part of marketing. This is the competition in the market, even to give the bottle for free (to restaurants) as it’s good for our image,” says Tannourine’s Berbery.

Other brands have also introduced glass bottles, but  only market newcomer Talaya has glass gallons, one of only three companies worldwide to do so. Talaya’s CEO and Chairman, Marcel Hage, says glass gallons have reached 25 percent of their overall sales in less than six months, with overall growth of 50 percent compared to 2016.

Glass gallons are only expected to appeal to a small number of consumers due to the high costs, at LL7,500 for 15 liters, and a $15 deposit fee, compared to LL6,000 for 18.9 liters in plastic gallons, and a similar deposit. Costs are high due to the cost of glass itself, imported from Europe, with the 300,000 gallons estimated to cost over $3 million. 

Bad mouthing

Competition is so acute that nearly every bottler had something negative to say about their competitors, ranging from illicit practices and mislabeling, to exposing plastic bottles to the sun, to burning trash during the 2015 crisis.
Sannine was accused of requesting the removal of the manufacturing date on gallon bottles to not be constrained by longevity issues. Tabourian denies this. “There’s no law that states you have to put the date on the container, only for production. We were asking to amend our traceability code in case there’s a problem with a specific lot of orders. It has nothing to do with the consumer, but was blown out of proportion,” he stated in an interview with Joe Maalouf on LBC.

Nestlé Pure Life was accused of not being correctly licensed, but Nestlé says that both Sohat and Nestlé are licensed by the MoH under the name Société des Eaux Minerales Libanaises, under Natural Mineral Water and Drinking Water respectively.

Such competition among players will continue as consumer demand continues to rise amid ongoing mistrust and mismanagement of public water sources. What may happen is consolidation, whether or not the government clamps down on the several hundred illegal bottlers. “There are enough players in the market, so there will be consolidation. The name of the game is distribution, and moving a lot of product at a low cost,” says Tabourian.

Photos by Paul Cochrane.

Tuesday, July 11, 2017

Gulf crisis and gas: Why Qatar is boosting output

Economic power is gradually shifting away from oil to gas-rich nations, which favours Qatar in its dispute with Saudi Arabia and UAE

Middle East Eye

Qatar may be under economic siege but it pulled an ace from up its sleeve on 4 July by announcing that it will bolster liquid natural gas production by some 30 percent.
The move will secure Doha's position for years to come as the world's top exporter of LNG.
Naser Tamimi, a Qatari energy analyst, told MEE: "It is a very significant announcement as it will put huge pressure on the LNG projects underway in countries with higher extraction costs. It is also signals that Qatar is fighting for market share."
The announcement is also seen as a shot across the bows of Saudi Arabia and the UAE, the leads in the embargo, that Qatar is not buckling under the pressure.
Roudi Baroudi, the chief executive of Energy & Environment Holding, an independent consultancy in Doha, said: "The bottom line is this was a business decision. If politics had an impact, it was in the timing: it's possible that the move was accelerated in order to signal the country's resolve and ensure that if the siege persists, more revenues will be available to help soften the blow."

To read more go to:

In French, Gaz et crise du Golfe : comment le Qatar pourrait prendre le dessus:

In Arabic,ضربة موجهة للمحاصرين: لماذا تعزز قطر إنتاجها من الغاز؟

In Spanish: Crisis del Golfo y gas: ¿Por qué Qatar aumenta la producción?

Troubled Oasis - Jordan AML and CFT

Money Laundering Bulletin 

The Hashemite Kingdom presents as a haven of calm in a region beset by conflict but all is not as financially clean as the image suggests, reports Paul Cochrane from Beirut. 

WHILE Jordan usually has a reputation for reliability, security and stability, the truth is that the Hashemite Kingdom is behind the compliance curve as regards anti-money laundering (AML) and combating the financing of terrorism (CFT) compared to many of its Middle Eastern peers. Jordan’s government only upgraded outdated anti-money laundering and counter terrorist financing legislation in 2015. Better late than never but the country faces numerous problems, ranging from regional instability and economic malaise, to smuggling, money laundering and corruption. Furthermore, up to 4,000 Jordanians are fighting with the Islamic State group in neighbouring Syria and Iraq, a fact which brings serious terror financing risks in its wake.

Jordan has garnered minimal critical attention from the Financial Action Task Force (FATF) thus far; it is not considered ‘a jurisdiction of primary concern’ by the US, nor is it included in the US State Department’s 2017 International Narcotics Control Strategy Report (INCSR), despite its location in a difficult neighbourhood.(1) The Hashemite Kingdom borders two countries in conflict, Iraq and Syria, while its other three neighbours - Saudi Arabia, Egypt and Israel/the Occupied Palestinian Territories - also have serious terrorism and money laundering problems.

It may be a surprise, therefore, that Jordan only amended its AML/CFT law in January 2015. The last evaluation report, in 2013, by regional FATF-style body, the Middle East and North Africa Financial Action Task Force (MENAFATF), found the country to be non-compliant and partially compliant with 36 of FATF’s 40 Recommendations and 9 Special Recommendations (overall 12 were non-compliant). (2)

In part, Jordan has escaped the spotlight by virtue of not being a major regional banking centre, unlike the Gulf countries, Lebanon or Egypt. But it is not a minnow – the country has 16 commercial and Islamic banks and nine foreign banks, and the financial sector is closely tied to Saudi Arabia. The country’s leading bank, Arab Bank, dominates the sector, with assets exceeding USD46 billion out of a USD68.2 billion total at the end of 2016, according to Central Bank of Jordan data. (3)

“If you control Arab Bank, you control the [Jordanian] financial sector. The whole banking sector is owned by Saudi interests, which runs the public debt,” said Tariq Tell, a Jordanian professor of politics at the American University of Beirut, in Lebanon.

Strategic allies

Such linkages have led experts to conclude that while Jordan is not a high risk ML/TF jurisdiction, neither is it low risk. The 2016 Basel Anti-Money Laundering (AML) Index ranked Jordan third in the Arab world and 35th internationally. As such, it is a middle risk jurisdiction, but somehow, when it comes to many global banks, Jordan still is not a particularly high concern from a sanctions and AML perspective, noted Eric Lorber, a lawyer at the Financial Integrity Network in Washington DC, who advises financial institutions on US Office of Foreign Assets Control (OFAC) matters. “It doesn’t raise that many red flags, certainly for European or East Asian banks,” he said. “Compared to the United Arab Emirates or other jurisdictions, Jordan presents a lower risk, but also because Jordan is a close ally of the United States, like being part of the coalition against the Islamic State (IS) or being supportive of Israel, so there is a political component at play there.”

Riad al Khouri, director - Middle East at political risk adviser GeoEconomica GmbH in Amman, agrees that geopolitics is one reason why Jordan gets something of an AML pass. Jordan has no energy reserves, with its USD38.7 billion economy dependent on mining, tourism, services and manufacturing. To ensure its survival, Jordan has had to rely on the political and financial support of the Arab Gulf countries and the US, with the latter providing USD$1.25 billion in bilateral aid in 2016.

“The American empire inherited Jordan (from the British) and regards Jordan as a strategic asset, in particular for the defence of Israel. As long as Jordan is supportive, it can get away with many things, including money laundering,” said al Khouri.

Legislation but selective application?

The upgraded AML law has improved compliance within banks, said Oraib Rantawi, director of the Amman-based Al Quds Centre for Political Studies. “There are serious restrictions now with money transfers, and a serious verification process [of clients] under the authority of the Central Bank of Jordan (CBJ),” he explained. The amended legislation is designed to bring Jordanian law into line with FATF standards, such as controls on politically exposed persons (PEPs) and terrorist financing. It also insists that AML/CFT reporting entities adopt a risk-based approach. The new laws also requires all civil society, charitable and non-governmental organisations (NGOs) to make suspicious transaction reports to Jordan’s financial intelligence unit (FIU), the Central Bank of Jordan’s Anti Money Laundering and Counter Terrorist Financing Unit, which operates under the authority of a National Committee for Anti-Money Laundering and Terrorism Funding, headed by the CBJ governor. 

A representative of the Jordan Anti-Corruption Commission now sits on the national AML/CFT committee. The FIU is able to conduct investigations into suspicious transactions, in cooperation with Jordanian law enforcement. The law means that civil society organisations “have to declare where they get money from,” Rantawi remarked.

But while due diligence obligations have been reinforced by the new legislation, corruption and cronyism linked to the royal family and its circle remains less regulated, claimed Khouri. “If, today, you want to transfer USD5 million to a newly opened account in Amman, you’d have questions you may not have had 20 years ago, but to send a large amount of money to government officials, you can cross the border with a suitcase,” said Khouri.

And such problems have been noticed. Jordan dropped five points in Transparency International’s 2016 Corruption Perceptions Index from 2015, ranked 57 out of 176 countries, with an overall score of 48 out of 100 points. Tariq Tell was not surprised, commenting: “It is a garrison state because of kleptocracy, massive corruption and 30 years of major economic crisis.”

Number crunching

Meanwhile, there have been few convictions for money laundering. While the number of suspicious transaction reports (STRs) increased by 48 percent in 2015 compared to the previous year, there were no prosecutions for money laundering in the 12 months; it is not known if there were any in 2016. The CBJ’s Anti Money Laundering and Counter Terrorist Finance Unit has not yet released STR filing data for 2016.

Despite the lack of official data, money laundering is considered to be pervasive in Jordan: “Everyone thinks there is massive money laundering going on as we’ve no idea where a lot of money comes from,” said Tell. “There are a lot of secondary networks through the Gulf and from Iraq to Jordanian banks. Jordan is a staging post to cash in on deals.”

Indeed, Jordan became a hub for Iraqi cash in the 1990s due to the US and United Nations (UN) sanctions on Iraq, and the UN’s Oil-for-Food Programme, which began in 1996. The programme ended with the US invasion of Iraq in 2003, while a UN investigation accused nearly half of the 4,500 companies involved of paying illegal kickbacks and surcharges to get contracts.(5)

The networks established during this period have remained in place, especially with the autonomous Kurdistan Region in northern Iraq, bolstered by the influx of Iraqi refugees from 2003 onwards.

“Since the 1990s, money laundering has been important in financing Jordan’s economy. I’d say the single most important source is Iraq, then Russia. Since 2011, there is Syria,” said Khouri.

Jordan is currently hosting some 655,399 Syrian refugees registered with the UN. Adding in unregistered refugees, Syrians currently account for an estimated 10% of the 8 million population. Jordan has banned its residents and companies from using the Syrian banking sector and applies restrictions on Syrians opening bank accounts.

Cross-border trade

Smuggling is also a problem, increasing Jordan’s exposure to money laundering with smugglers utilising tribal networks with the Iraqi, Saudi and Syrian borders, and over the Red Sea onto Egypt’s Sinai Peninsula. “We have long borders and desert, so there’s many ways to smuggle, but the good news is there’s limited opportunities to use this cash at a larger scale as it draws the attention of the authorities,” said Rantawi.

Reports that Yemeni Houthis, which are fighting against Saudi-backed Yemeni forces, were using Jordan in 2015 to launder money have been dismissed by the government, however. Flights between the two countries have stopped, said Rantawi, adding: “We have our own security concerns”.

And yes, despite its comparative stability, the conflicts in Iraq and Syria have impacted Jordan, with six terrorist attacks linked to the Islamic State in 2016. The most high-profile was in December, when 10 people were killed in a shootout with Jordanian members of an IS affiliated cell at Kerak Castle, a crusader fortress south of Amman. “It was the worst year for the past decade. At the end of the day we’re in the midst of a chaotic region with Al-Nusra Front and the Islamic State surrounding Jordan,” said Rantawi.

Foreign fighters – return risk

Independent Jordanian reports estimate that between 2,000 to 4,000 Jordanians have joined the Islamic State since 2013, the second highest participation of foreign fighters by nationality after Tunisia. (6)

With Jordan part of the US-led coalition against IS, Amman is concerned about repercussions within the kingdom, especially if IS fighters return home. “There will be huge blowback. Jordan is on the front line of the war on terror, and there’s a problem in their own backyard,” said Tell.

And while IS is heightening terrorism concerns, there is a long presence of Islamic extremism in the country, which dates back to the 1980s, while Abu Musab al-Zarqawi, a Jordanian, was the alleged founder of Al Qaeda in Iraq. “Al-Zarqawi was a rock star of Islamic terror and he had very strong support [here]. ISIS has complicated the picture,” said Khouri.

There are also concerns about terrorist financing connected to Palestinian political parties such as Hamas. The Arab Bank was found liable in 2014 under the US Anti-Terrorist Act for knowingly providing assistance to Hamas, which the US considers a terrorist organisation. A full settlement is still pending.

“The Palestinian angle makes [Jordan’s] compliance picture more vulnerable,” added Khouri. “The overall situation is not good. There is terrorist financing, certainly money laundering, and finally compliance is not as strong as the US or Jordan wants.”


3) A consortium of Arab and Jordanian investors acquired a 20% stake in the Arab Bank Group for USD1.12 billion from Oger Middle East Holding, part of Lebanon’s political-business dynasty, the Hariri family, in February 2017. The bank has assets of more than USD46 billion and 600 branches on five continents. -

4) Jordan: Background and U.S. Relations, Congressional Research Service, January 25, 2017

Photo credit: Ahmed Telfah via Wikicommons

Monday, July 03, 2017

New Cars Increasingly Rare as Syrian Civil War Rages


Due to the tanking economy and widespread violence, more than 4 million people have left Syria, either taking their cars with them to neighboring countries or selling them. The automobile sector slowly has morphed into a used-car market. 

Bureaucrats avoid using official cars in the areas still under government control, instead using yellow cabs, typically Chinese or Iranian brands.

BEIRUT - The Syrian car sector has been hit hard by the country's ongoing civil conflict, now into its sixth year.

From nearly 90,000 vehicles being imported into Syria annually before the rebellion against the rule of President Bashar al-Assad started in 2011, imports have plunged to about 1,000 a year. But despite a burgeoning used-car market and rampant smuggling of stolen cars, an agreement was signed this year to locally manufacture China’s Dongfeng Motor DFM brand. Production started in February in the city of Hama, north of Homs, well within the government-controlled zone of Syria.

The country’s once-burgeoning car market had seen sales surge after the government reduced import duties in 2005, from 255% to 60% for cars above 1.6L, and from 145% to 40% for those with smaller engines. Indeed, in 2010, Syria imported some 87,000 cars, double that of neighboring Lebanon, although small on a per-capita basis, given Syria’s population of 18 million compared with Lebanon’s population of 4 million at the time.

European, Japanese, South Korean, Iranian and Chinese cars were selling well, while American models not built in the U.S. also were available in the market (Syria had imposed high customs duties on U.S.-made products).

When anti-Assad demonstrations broke out in March 2011, sales started to plunge due to political instability. “The new-car market has taken a nosedive, as no one is willing to buy a car in case the window is blown in by an explosion or it’s taken at a (military or militia) checkpoint,” says a former car dealer now living in Beirut, Lebanon, who asked to remain anonymous.

Even many bureaucrats avoid using new and official cars in the areas still under government control, instead using yellow cabs, typically Chinese or Iranian brands.

The sanctions imposed on Syria in 2011 by the European Union and the U.S. cut the country out of the Society for Interbank Worldwide Financial Telecommunication transaction network and from using U.S. dollars and euros.

With the Syrian government burning through its foreign reserves, in the fall of 2011 a ban on automobile imports was announced, with the Central Bank of Syria’s governor saying the import ban would save $4.5 billion in scarce foreign currency. The decision was overturned following pressure from car dealerships, says Jihad Yazigi, editor of the Syria Report financial newsletter.

Instead, the government raised tariffs on vehicles, duties that remain in place today – although with sales dwindling they do not raise much revenue. These are now 50% on all cars with engines of 1.6L and under; cars with engine sizes of 1.6L-3.0L, 80%; cars with engines above 3.0L, 120%; and above 4.0L, 150%.

At the same time, the Syrian pound started to depreciate, eventually reaching SYP520:$1 in 2015, from SYP47:$1 in 2011. The pound remains weak, with black-market rates being the key rate given that formal international trading in the currency largely HAS ceased, making imported cars prohibitively expensive for Syrians still earning and using the local currency.

As the conflict spread around the country, sales dropped even further. According to Syrian newspaper Al Watan, about 1,000 cars were imported each year in 2013, 2014 and 2015. Figures for 2016 are not yet available and those statistics cover government-controlled areas only, although the government does officially run the largest population centers, including most of Damascus and Aleppo.

Due to the tanking economy and widespread violence, more than 4 million Syrians have left the country, either taking their cars with them to neighboring countries or selling them.

The automobile sector slowly has morphed into a used-car market. “The used market has been growing the most, and the stolen-car market,” the dealer says. “A lot get stolen in the country and then shipped out, but many are stolen in Lebanon, Turkey and Europe that end up in Syria.”

He adds that his dealership sold just six cars in 2016, all from 2012 inventory. “There’s no way we’d spend hard currency to ship cars to Syria that would sit in a lot waiting to be sold, as anything could happen. The risk is way too high.”
The Syrian government last September banned the importation of cars until the end of the year. No reason was given, but Yazigi believes it was to further reduce imports and retain much-needed foreign currency.

Data on locally produced cars is minimal but is believed to be in the low thousands for Iranian brands Khodro and SAIPA, manufactured through Iranian-Syrian joint ventures in Damascus and Homs. In February, Syrian company Khallouf Trading announced it was starting the production and sales of two new locally assembled cars under license from China’s DFM brand: the S50 sedan, which will be priced at SYP9 million ($18,000), and the all-wheel-drive AX7, priced at SYP13 million ($26,000).

Sales of the new vehicles are expected to be driven by the import ban, bolstered by the availability of spare parts and aftersales service, as spare parts are hard to import into the country due to sanctions.

There is demand for high-end cars from a rising class of war profiteers. “There is a nouveau riche (clientele) buying supercars. It is surprising in a conflict to see a $1 million Bugatti with Syrian license plates,” the dealer says.

Photograph: Damascus, 2008, by Paul Cochrane

Wednesday, June 21, 2017

Gas and the Gulf crisis: How Qatar could gain the upper hand

Asian markets, military allies and a crucial pipeline all offer Doha leverage against its adversaries amid the current crisis

Middle East Eye

The blockade of Qatar, led by Saudi Arabia and the United Arab Emirates, has already had an economic impact.
Qatar, the world’s second largest producer of helium, has stopped production at its two plants as it cannot export gas by land. Qatar Airways can no longer fly to 18 destinations. Qatari banks are feeling the pinch, particularly the Qatar National Bank (QNB), the region’s largest by assets, and Doha Bank: both have extensive networks across countries which are members of the Gulf Cooperation Council (GCC).
Ratings agency Standard & Poor's (S&P) downgraded Qatar’s credit rating from AA to A- on 8 June. It could put it on credit watch negative, a sign that the crisis could impact investment and economic growth. Moody’s followed suit, placing Qatar’s AA long-term foreign and local currency Issuer Default Ratings (IDRs) on rating watch negative.
Doha is unlikely to buckle soon. It has plenty of financial muscle, not least in its sovereign wealth fund, the Qatar Investment Authority (QIA), which holds an estimated $213.7 billion, according to the Institute of International Finance. The seed capital for that fund comes from Qatar’s oil and gas exports.
Energy receipts account for half of Qatar’s GDP, 85 percent of its export earnings and 70 percent of its government revenue. The crisis may affect the emirate's medium- to long-term energy contracts, as buyers diversify their imports to be less reliant on Qatari gas.

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Monday, May 29, 2017

The 'Pipelineistan' conspiracy: The war in Syria has never been about gas

 The pipeline hypotheses do not stand up to the realities of how energy is transported through the Middle East in the 21st century

Middle East Eye

Six years into a conflict that has killed at least 400,000 people, there is a widely held belief that the bloodshed in Syria is simply another war over Middle Eastern energy resources.
The bloodshed, so the theory goes, is a proxy battle about two proposed pipelines which would run across the country and on to Turkey and Europe.
While neither pipeline has left the drawing board, or indeed was ever realistic, this has not dampened the theory's popularity as a core reason for the Syria conflict.
The first pipeline is allegedly backed by the US and runs from Qatar through Saudi Arabia and Jordan to Syria. The second is a supposedly Russia-backed pipeline that goes from Iran, via Iraq, to Syria.
Syrian President Bashar al-Assad, it is claimed, rejected the Qatari pipeline in 2009, at the request of Moscow, to ensure that European reliance on Russian gas would not be undermined.
As a result, some commentators claim, the US and its European and Gulf allies, including Qatar, decided to orchestrate a rebellion against Assad to ensure that their pipe dreams became a reality rather than the Iranian option. Russia, in turn, backed Syria to ensure its own energy interests prevailed. Iran is also an ally of the current regime in Damascus.
These claims have been promoted in several quarters: the Qatari-based Al Jazeera first floated the concept of a "Pipelineistan war" in 2012.
Even US establishment journal Foreign Affairs and the Guardian newspaper picked up on the theory, which gained further traction in 2016 in an article by Robert Kennedy Jr, and was flagged by, among others, Jill Stein of the Green Party, a former US presidential candidate.
The idea was floated again after the US bombing of Syria in April. This, it was claimed, was further "proof" of Washington's desire to oust Assad and enable Europe to diversify its gas dependency away from Russia.
While the US has been covertly working with Gulf allies against the Assad regime, controlling Syria's energy resources and pipeline networks was not a primary concern. If so, it would be a very low priority for regime change.
Why? Firstly, the timeline is wrong. Covert action against Syria started under the George W Bush administration, in 2005, well before the alleged Qatari offer to Damascus in 2009.
"We can see US action against the Syrian regime well before the notion of this pipeline came into existence," says Justin Dargin, an energy scholar at Oxford University.
Secondly, the pipeline hypotheses do not stand up to the realities of how energy is transported through the Middle East and the obstacles faced by pipeline proposals, many of which fail to come to fruition. Even the Arab Gas Pipeline, whose second phase came online in 2005, has been mired in problems.
Robin Yassin-Kassab, author of Burning Country: Syrians in Revolution and War, says the Pipelineistan theory also ignores how the conflict started and the early months of the revolution.
"Like all conspiracy theories, it thrives on the absence of content and in-depth knowledge of the country," he says.


Monday, April 03, 2017

The Gulf in terrorist finance control

Arab Gulf governments are repeatedly accused of aiding terrorist financing on and, more often, off the record. Calls to get tough on these states have been side-lined by political and economic expediency, while Gulf moves to curb such funding have been lacklustre, with risks in prospect, reports Paul Cochrane, from Beirut.

Terrorist financing is continuing in the Middle East, highlighted by the devastating attack in Istanbul over the new year. Radical Islamic groups still operate in Iraq and Syria, notably the Islamic State, or ISIL (also known as ISIS), and their source of funding is a contentious issue.
Currently the issue is tied up with the Syria conflict due to the number of armed actors involved. On one side is the Syrian regime, backed by Moscow and Tehran. Iran, being a Shia Muslim republic, supports Hezbollah, the Shia Islamist militant group and political party based in Lebanon, which is deeply involved in the Syrian conflict. On the other side are the rebels, which include radical Sunni Muslim groups such as ISIL, Jabhat al Nusra (renamed Jabhat Fatah al-Sham in July 2016) and Al Qaeda, which are also under international sanctions.

The pro-regime Syria group claims Sunni terrorist organisations are funded by the six Gulf Cooperation Council (GCC), especially Saudi Arabia and Qatar – the other four being Bahrain, Kuwait, Qatar, Oman and the United Arab Emirates (UAE) and their allies, the United States, the UK and Turkey. But the GCC states deny any terrorism funding, although openly supporting rebel groups wanting to oust Syrian President Bashar Assad: so has the US government, which has joined Saudi Arabia in openly support Syrian rebels, along with the UK.

But while Syria and Iran have been labelled ‘state sponsors of terrorism’ by Washington, countries judged by the US Secretary of State to repeatedly support terrorist acts, with the US Senate on 1 December 2016 extending the Iran and Libya Sanctions Act of 1996 (ISLA) for another 10 years, the GCC states have not been rapped over the knuckles by the US or other international bodies over terrorist financing.

In private, however, more forthright opinions have been expressed: “We need to use our diplomatic and more traditional intelligence assets to bring pressure on the governments of Qatar and Saudi Arabia, which are providing clandestine financial and logistic support to ISIL and other radical Sunni groups in the region,” reads a leaked email between Secretary of State Hilary Clinton and John Podesta, a Counselor to President Barack Obama, dated 17 August 2014.

In 2009, another leaked Clinton memo stated: “Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.” It also said that the UAE was “a strategic gap” that terrorists can exploit, Qatar was “the worst in the region” on counterterrorism, and Kuwait “a key transit point”.

The US Treasury has kept quiet on the matter, with the emphasis on individual funders, not GCC governments. “The top US official for terror finance said in 2015 that Arab Gulf monarchies are the largest source of donations to Al Qaeda,” said Dr David Andrew Weinberg, Senior Fellow at the Foundation for Defense of Democracies in Washington DC.

He said the likely reasons were “the high concentration of millionaires and billionaires in that area, and “the intense religious currents in the region. Putting those two together seems a higher risk for terrorist financing incidents”.
This position is echoed by Dr Theodore Karasik, Senior Advisor at Dubai, UAE-based consultancy Gulf State Analytics (GSA). “The (GCC) governments do an excellent job of trying to halt (terrorist financing) activity but because of sympathies and also the inability for 100 percent border control, there are going to be leaks. These gaps need to be filled with more proactive action instead of reaction,” he said.

Meanwhile, the US Department of State’s March 2016 International Narcotics Control Strategy Report (INCSR) cites private individuals and charities as potential terrorist financers. Saudi Arabia, Qatar, Bahrain and Kuwait were all labelled a “Jurisdiction of Concern’, while the UAE was deemed a ‘Jurisdiction of Primary Concern’ and Oman a ‘Monitored Jurisdiction’ (lower risk).

Selective vision

Cynics say the unwillingness to act against the GCC states over terrorist financing is due to political expediency. GCC states, while hosting US and UK military facilities, are not only seen as long-standing allies, there is the allure of petrodollars (revenue from petroleum exports). “An important element of not seeing Gulf leaders put to task is that they are influential... and have a great deal of money,” the FDD’s Dr Weinberg said.

But ignoring GCC activities is counter-productive, David L. Phillips, Director of the Programme on Peace-building and Rights at Columbia University’s Institute for the Study of Human Rights, told MLB: “When you politicise the decision around sanctions you undermine the whole effort against terrorist financing. If it is [GCC] government policy [to support terrorism] then the US needs to react bilaterally,” and individual views also need considering, said Mr Phillips, a former senior adviser to the US State Department in Iraq.

Questions over US support for Syrian rebel groups finally led to a bill, introduced on 29 June 2016, to create the ‘Stop Terrorist Operational Resources and Money Act’ (STORM), aimed at “prohibit(ing) the US government from using American taxpayer dollars to provide funding, weapons, training, and intelligence support to groups like the Levant Front, Fursan al Ha and other allies of Jabhat Fateh al-Sham, al-Qaeda and ISIS, or to countries who are providing direct or indirect support to those same groups,” said the legislative text.

The Act, proposed by Democratic Senator Bob Casey (Penn.), if adopted, could change existing policy. “STORM would basically create new statutory penalties for countries in the gray zone - sins of omission. That might create new incentives in GCC-US relations to address current issues,” said Dr Weinberg.

Independent will

Meanwhile, the GCC states have certainly acted as if they are addressing CFT (combating the financing or terrorism) issues. In November 2014, they adopted the Manama Declaration on CFT, and were part of the 34-state Islamic coalition that signed the Jeddah Communique to fight terrorism – on 11 September 2014. 
But critics say these moves and anti-money laundering (AML) regimes over the past 16 years have not been overly proactive. “I kept pounding the table over a decade ago to pay attention to the Gulf but little traction was taken. Since 2001, the region started to get its act together. The problem is, I have no sympathy any more as the infrastructure is there but what is lacking is enforcement and initiative. If the US or Britain goes to Saudi Arabia or Kuwait and says, ‘look into this’, they will, but will not do so from their own initiative,” said Board Adviser for the FDD’s Center on Sanctions and Illicit Finance ( C SIF), John Cassara.

The Jeddah Communique has also not been well enforced, argue experts: “The Gulf states pledged to combat terrorist financing and repudiate the ideology that underpins violent extremist groups but many have failed to follow up on this. I don’t believe Qatar and Kuwait have convicted anyone on the US on UN designation lists, which seems a clear violation of the Jeddah Communique,” said Weinberg.

GSA’s Dr Karasik points out a different mindset towards enforcing international regulations. “You don’t see it manifested in convictions but in a resignation or early retirement, or some action done on their terms, not dictated by outside,” he said. “Having said that, it does have an impact, as their continued move to compliance and transparency helps Arab states perform their (regulatory) transformation.”
A further challenge is that only three GCC states - Bahrain, the UAE and Saudi Arabia - have issued lists of terrorist organisations, Dr Weinberg said. “That further exacerbates the problem of identifying which groups are OK to be funded out of these jurisdictions.” 

Risk to reputation?

The banking sector has also fallen foul of terrorist financing. Six Arab banks have lost their correspondent (deposit) banking relationships with the US in recent years, the first a Saudi Arabian bank in 2013 the Al Raji Bank. But this is less related to CFT regime concerns and more to do with increased compliance requirements on a range of AML-CFT rules laid down by the Financial Action Task Force (FATF) and the US government.

An Arab Monetary Fund study, published in September 2016, found that foreign banks were de-risking due to (in order of importance): lower overall risk appetite, legal and regulatory changes, lack of profitability in correspondent banking, sovereign credit risk ratings, and concerns about AML and CFT risks in Arab countries.

“Reputational risk was already a concern when foreign investors look at new investment opportunities in the GCC. Because of heightened US requirements for transparency and compliance, this type of action helps to illuminate potential terrorist financing in the region,” said Dr Karasik.

Moreover, given the ongoing good relations between the West and the GCC, there is not, at least yet, any major reputational risk concerns for foreign institutions dealing with the Gulf. “There will be pressure on de-risking but also ongoing pressure to seek money from GCC institutions. After the economic shocks in the US and Europe, and currently the refugee crisis, I don’t think de-risking is necessarily going to happen to the extent it should,” said Weinberg.

The FDD’s Mr Cassara, a former US Treasury special agent, agreed: “Right now I think there is nothing to worry about. Big banks in the region are doing what they need to do to adhere to international norms from FATF and the US. Could I see a shift? Yes. But nobody knows what is going to happen with the new (Donald) Trump administration.”

Photo by Paul Cochrane (Manama, Bahrain)