* Kenyan army denies UN Monitoring Group's allegations
* UN Security Council banned Somali charcoal exports
* UN monitors: AMISOM commander lied to Somali president
* Al Shabaab still getting revenue from charcoal trade
A confidential report by U.N. monitors accuses Kenyan soldiers in the African Union peacekeeping force in Somalia of facilitating illegal charcoal exports from the port city of Kismayu, a business that generates millions of dollars a year for Islamic militants seeking to topple the government.
The case of the failed ban on Somali charcoal outlined in the report highlights the difficulty of cutting off al Shabaab militants' funding and ensuring compliance with U.N. sanctions when there is little appetite for enforcing them on the ground.
The Kenyan military denied the allegations in the U.N. Monitoring Group's latest annual report to the Security Council's sanctions committee on Somalia and Eritrea.
The report was completed before recent clashes in Kismayu.
In that fighting, rival militias battled for control of the strategic port city after Ahmed Madobe, leader of the Ras Kamboni militia and a former Islamist warlord, became leader of the Jubaland region, which includes Kismayu, in May.
The situation remains tense though the Mogadishu government, which initially opposed Madobe, is letting him stay on as interim leader.
Kismayu is a lucrative prize for clan leaders, bringing with it generous revenues from charcoal exports, port taxes and levies on arms and other illegal imports.
The Security Council banned the export of charcoal from Somalia in February 2012 to cut off one of the main sources of income for al Shabaab, which has been fighting for control of Somalia for years and enforces a strict version of sharia law in the areas it occupies.
Kenyan forces in the African Union's AMISOM peacekeeping mission, which has a U.N. Security Council mandate and receives funding from the European Union and United States, helped the Somali government retake control of Kismayu when the al Qaeda-aligned militants fled in September 2012.
Afterwards, the AU almost immediately urged the Security Council to lift the charcoal export ban, at least temporarily.
Kenya supported the idea, arguing that Kismayu's angry charcoal traders could undermine the security of its troops. The Monitoring Group, which reports on compliance with the Somalia/Eritrea sanctions regime, disputed Nairobi's analysis.
"The argument that a group of charcoal traders constituted a greater threat to the KDF (Kenya Defence Force) than al Shabaab that had just been routed in Kismayu, was difficult to appreciate," the group said in an annex to its annual report, which was seen by Reuters.
"Instead, it was far more likely that exporting charcoal would exacerbate clan tensions and resource interests, leading to much broader conditions of conflict," the group said in its report, which is nearly 500 pages with all its annexes. "And this is precisely what subsequently occurred."
U.N. CHARCOAL EXPORT BAN FLOUTED
The Monitoring Group's report is likely to elicit new criticism of Nairobi from Somalia's government, which has accused Kenyan troops of taking sides against it in the recent clashes in Kismayu and suggested they should be replaced by a more neutral force. Kenya denied the charge.
The group said Somali President Hassan Sheikh Mohamud asked AMISOM in October 2012 to keep Kismayu port closed to commercial traffic, including charcoal. But it said he was unaware that former Prime Minister Abdiweli Mohamed Ali Gaas had already asked the Security Council's sanctions committee to review the ban.
The group said an AMISOM commander lied to the president.
"As late as 26 October 2012, the AMISOM Deputy Force Commander for Operations and Plans, Major General Simon Karanja (of Kenya), assured the President that the port was closed and there was no shipping traffic, while he knew otherwise," the Monitoring Group said.
The Kenyans did not hide the fact that they wanted to ease the charcoal ban because they feared it could make their job of keeping the peace in Kismayu that much more difficult.
When it became clear that the Security Council would not lift the charcoal export ban, the "the KDF (Kenyan forces), Madobe and his Ras Kamboni forces took the unilateral decision to begin the export of charcoal from Kismayu port," the report said.
Once that decision was made, the charcoal export business in Kismayu, which the Monitoring Group said is known to have the highest-quality charcoal in Somalia, resumed in earnest.
Colonel Cyrus Oguna, a spokesman for the KDF, which has been battling al Shabaab in Somalia since October 2011, said Kenya was not aiding the charcoal exports in any way.
"The KDF is not at the sea port. The port is being managed and supervised by a committee put in place by the administrators of Jubaland," Oguna said in Nairobi.
AMISOM did not respond to a request for comment.
Although the Kenyan AMISOM contingent and Madobe's Ras Kamboni militia took over Kismayu after al Shabaab left, the U.N. monitors said al Shabaab retained a share of the charcoal business after it lost control of the city.
"The nature of the business enterprise forged by al Shabaab continues with al Shabaab, its commercial partners and networks still central to the trade," the Monitoring Group said.
"Essentially, with the changeover of power in Kismayu, the shareholding of the charcoal trade at the port was divided into three between al Shabaab, Ras Kamboni and Somali Kenyan businessmen cooperating with the KDF (Kenyan army)."
Not only did the charcoal export business continue in spite of the U.N. Security Council ban, but it saw a dramatic increase, the U.N. monitors' report said.
"In fact, its shareholding in Kismayu charcoal, in combination with its (al Shabaab's) export revenues at Barawe (town) and its taxation of trucks transporting charcoal from production areas under its control are likely exceeding the revenue it generated when it controlled Kismayu," it said.
In the 1990s the Horn of Africa country imploded amid clan warfare after the overthrow of a dictator and became virtually lawless for two decades. AMISOM was created in 2007 to support efforts to restore order in Somalia, and today the mission's troops are mostly from Uganda, Burundi, Djibouti and Kenya.
'KING OF CHARCOAL'
The Monitoring Group estimated that al Shabaab, which has been driven out of many parts of Somalia but remains a potent force, exported some 9 million to 11 million sacks of charcoal from the country in 2011, raking in more than $25 million.
"At the rate of export since November 2012, the Monitoring Group estimates that this number is rising to 24 million sacks per year and represents an overall international market value of $360-384 million USD, with profits divided along the charcoal trade supply chain, including for al Shabaab," the report said.
The group said it estimated charcoal exports from Kismayu alone were worth $15 million to $16 million per month. It noted that traders in Dubai say the actual export amount is probably much higher.
The group said there was also charcoal exporting from Barawe, the al Shabaab-controlled town north of Kismayu, bringing the militants $1.2 million to $2 million per month in taxes.
One Kismayu charcoal trader with strong links to al Shabaab is Hassan Mohamud Yusuf, alias Awlibaax, from the Mareehan clan and chairman of the Juba Business Committee, the group said. He is also linked to Dubai's key charcoal businessman, Saleh Da'ud Abdulla, who himself has connections to al Shabaab, it added.
Another is Ali Ahmed Naaji, from the minority Cawro-maleh clan, who "arranges or provides loans to al Shabaab, and makes investments for them in South Sudan," the report said.
It said Yusuf and Naaji alone account for around 32 percent of charcoal exports from Kismayu, most of which go to Dubai.
The largest purchaser of charcoal in Dubai is Al Qaed International General Trading, owned by Baba Mansoor Ghayedi, alias Haji Baba, an Iranian living in Dubai who described himself to the Monitoring Group as the "King of Charcoal."
The report said Haji Baba denied importing Somali charcoal in violation of the Security Council ban and that the paperwork shows his charcoal comes from Kenya and Djibouti, both of which have banned charcoal exports.
The Monitoring Group included in one annex what it said were examples of false bills of lading certifying Somali charcoal as coming from Kenya.
The United Arab Emirates has been aware of the illegal Somali charcoal shipments, the monitors said. In September 2012 it notified the Monitoring Group that it had impounded a shipment of 100,000 sacks of Somali charcoal.
The monitors said charcoal traders in Dubai informed them that the impounded shipment eventually reached the market. Some 10,000 bags of charcoal were unloaded in Dubai and the rest in Saudi Arabia. The consignee of that shipment was Haji Baba.