This record is a partial extract of the original cable. The full text of the original cable is not available.

"S E C R E T SECTION 01 OF 03 TEL AVIV 001981 
 
SIPDIS 
 
TREASURY FOR SZUBIN 
 
E.O. 12958: DECL: 05/18/2016 
TAGS: EFIN IS PREL PTER KPAL KTFN ISRAELI PALESTINIAN AFFAIRS ECONOMY AND FINANCE
SUBJECT: FM LIVNI PROMOTES FINANCIAL PRESSURE STRATEGY 
AGAINST HAMAS 
 
Classified By: Ambassador Richard H. Jones for reasons 1.4(b) and (d). 
 
 ------- 
SUMMARY 
------- 
 
¶1. (S) In separate meetings with Ministry of Foreign Affairs 
(MFA) officials on May 2, the GOI requested that the Treasury 
Department warn the Misr Bank in Cairo against making 
electronic fund transfers (EFT) to individual Palestinian 
accounts at the Bank of Palestine in Gaza.  Foreign Minister 
(FM) Livni proposed a strategy of pressuring Hamas with a 
financial siege for three to four months to see how Hamas 
would respond.  She asked Treasury Under Secretary (U/S) for 
Terrorism and Financial Intelligence Stuart Levey for USG 
assistance in preventing Electronic Funds Transfer (EFT) from 
international banks into Palestinian accounts.  Livni also 
sought USG agreement to impose new conditions on 
international donations through UNRWA, similar to those 
already in place for Palestinian assistance provided through 
USAID.  End summary. 
 
------------------------------------------- 
MFA RELAYS EUROPEAN FEARS ON IRAN SANCTIONS 
------------------------------------------- 
 
¶2. (S) At the Tel Aviv offices of the MFA, U/S Levey met 
briefly with members of the MFA's Strategic Affairs Bureau. 
Non-Proliferation and Counterterrorism (CT) Department 
Director Yehuda Yaakov related details from his recent 
discussions with European diplomats on the situation with 
Iran.  Yaakov said that the Europeans had confided to him 
that their elected officials are reluctant to publicly 
support sanctions against Iran, because the European public 
is fearful that sanctions are merely precursors to war.  He 
remarked that a UN Security Council Resolution, even a 
""toothless"" one, would nonetheless be a positive step against 
Iran. 
 
------------------------------- 
GOI OPPOSED TO BRITISH PROPOSAL 
------------------------------- 
 
¶3. (S) Project Manager for Economic and Humanitarian Aid to 
the PA Eli Avidar took issue with a British proposal to 
create a mechanism for the international community to donate 
to the Palestinian people.  According to Avidar, the GOI 
agrees in principle to the establishment of an 
internationally monitored fund or NGO to channel donations to 
Palestinians not involved with Hamas.  He stressed that the 
GOI would not support any plan, including the current British 
proposal, to pay Palestinian salaries with such a fund.  He 
reported that British diplomats had recently told him that a 
British delegation would soon travel to Washington to brief 
the USG on their proposal. 
 
--------------------------------------------- - 
MISR BANK COMPLETED TEST RUN TO GAZA ACCOUNTS? 
--------------------------------------------- - 
 
¶4. (S) Avidar reported that on May 1, Misr Bank in Cairo 
attempted a few electronic fund transfers (EFT) into 
individual Palestinian accounts at the Bank of Palestine in 
Gaza.  He characterized this action as a ""test run"" to gauge 
GOI and international reactions before conducting large scale 
EFT into individual accounts.  Avidar asked U/S Levey to warn 
Misr Bank against such activity by declaring that they are 
not operating according to FATF regulations.  U/S Levey 
advised that it was not such a simple matter, and that Hamas 
was not a designated terrorist organization in most parts of 
the world.  U/S Levey asked MFA officials what they 
envisioned as the strategic &end-game,8 but did not receive 
a specific answer. (Comment.  On May 17, NSC Counter 
Terrorism Finance Director Udi Levi told Econoff that Misr 
Bank had not/not attempted the ""test run"" EFT that Avidar 
described above.  Levi said that the GOI was closely 
observing Misr Bank and that he would have been the first 
person in the GOI to be notified if, in fact, such an attempt 
had occurred. End Comment.) 
 
-------------------------------------------- 
LIVNI CONCERNED ABOUT RUSSIAN STANCE ON IRAN 
-------------------------------------------- 
 
¶5. (S) In a free-flowing discussion that at times resembled a 
brainstorming session, FM Tzipi Livni, flanked by the 
Directors General of the Foreign and Justice Ministries, met 
with the Treasury delegation in her Tel Aviv office.  U/S 
Levey briefed the Foreign Minister on the Treasury 
Department's plan to include private financial institutions 
in a diplomatic campaign to financially isolate the 
government of Iran, starting with targeted financial measures 
aimed at individuals or entities supporting terrorism and 
proliferation.  Levey said that the USG intended to highlight 
Iranian regime &bad conduct8 to governments and financial 
institutions and underscore the risk to their professional 
reputation from doing business with Iran, particularly given 
the Government of Iran,s history of cloaking its activities 
behind front-companies. FM Livni asked if the Treasury 
efforts would occur in parallel to the U.S.-led action 
against Iran at the UN or separately.  She suggested that 
Treasury's offensive could be a trial balloon for political 
action at the UN, or a fallback tactic should the UNSC not 
adopt a resolution against Iran.  Livni said that she was 
""not optimistic about the international community""  and was 
""very concerned"" about the Russians' behavior regarding 
Iran's nuclear threat.  She revealed that the Russian Foreign 
Minister had told her last week that the GOR would not allow 
the UNSC to give the U.S. permission to go to war against 
Iran. 
--------------------------------------------- - 
LIVNI PROPOSES PRESSURE STRATEGY AGAINST HAMAS 
--------------------------------------------- - 
 
¶6. (S) FM Livni expressed her fear that Hamas will gain 
legitimacy as both a channel for international funding to the 
Palestinians and as a political partner for future 
negotiations with the GOI.  To counter the legitimization of 
Hamas, she proposed a pressure strategy for the next three to 
four months, during which time the USG and GOI should ""draw a 
very hard line"" against foreign funding of Palestinian 
activities.  U/S Levey asked, &what is our end game?  To put 
a noose around Hamas, neck?8  Livni claimed that it would 
take two to three months before any humanitarian crisis would 
emerge, and that the best policy for now was to apply 
pressure and ""wait and see"" how Hamas responds.  Concerned, 
U/S Levey asked, &where will we be three months from now? 
Will there be violence and chaos or are we going to figure 
out a way to avert a humanitarian crisis?8  MOJ Director 
General Abramovich suggested an international funding 
mechanism to be vetted by the international community to 
ensure that funds go to the Palestinian people and not to the 
Hamas-led PA.  (The Israeli officials noted that they would 
not encourage international donors to donate even food to the 
PA because food is as fungible as money, and might also 
create the perception that Palestinians are starving.)  FM 
Livni admitted that the plan is ambitious and noted there is 
international consensus that funds need to go to the 
Palestinian people, and encouraged continued dialogue to find 
an internationally acceptable solution.  Continuing the 
brainstorming session, FM Livni mentioned that the PA medical 
and education systems are extremely problematic and wished 
that the international community,s resources could replace 
these PA systems.  She expressed her disdain for the 
Palestinian education system, and alluded to the sharp 
increase in religious extremist ideology in the curriculum. 
Moreover, she added that she did not want to keep the 
Palestinian system going, but that basic services were needed 
to support the population, &it is not good to chose between 
bad options.8  Finally, she suggested that the future be 
divided into phases of action, and that the next three months 
should be used to create pressure on the Hamas-led PA before 
coming up with a longer-term plan -- &Let,s keep the money 
out.8 
 
---------------------------------------- 
LIVNI ON MAY 9 QUARTET MEETING AND UNRWA 
---------------------------------------- 
 
¶7. (S) FM Livni remarked that the May 9 meeting of the 
Quartet will likely include a discussion of using the United 
Nations Relief and Works Agency (UNRWA) to transfer funds to 
the Palestinians.  Since the UN does not consider Hamas to be 
a terrorist organization, she insisted that money donated 
through UNRWA must have new conditions placed upon it, such 
as those that apply to assistance provided through USAID. 
She said that she will attend the World Economic Forum (WEF) 
meeting at Sharm el Sheikh on May 20-22, and had heard that 
Treasury Secretary Snow will also attend.  She suggested that 
the WEF meeting might be an opportunity for further 
discussion of international donations to the Palestinians. 
The Ambassador remarked that PM Olmert was also scheduled to 
be in Washington on May 23. 
 
¶8. (S) Israel Money Laundering and Terrorist Financing 
Prohibition Authority (IMPA) Director Yehuda Shaffer then 
explained that small banks and money-changers in the 
Palestinian territories do not deal with U.S. banks and would 
not be affected by U.S. Treasury Department actions.  He felt 
that an international financial intelligence unit (FIU) must 
monitor those banks.  MOJ DG Abramowitz suggested that the 
USG could help the GOI by setting up an FIU in the PA that 
would be monitored by an international body.  U/S Levey 
responded that he was very wary of setting up such an FIU 
that Hamas could use as an example of its compliance with 
international demands. 
 
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ATTENDANCE 
---------- 
 
¶9. (S) Attendees at the first meeting with MFA officials 
included: 
Strategic Affairs Bureau Director Ambassador Miriam Ziv 
Nonproliferation and CT Department Director Yehuda Yaakov 
Nonproliferation and CT Department member Avivit Bar-Ilan 
North America Desk Director Dan Arbell 
PA Economic/Humanitarian Affairs Project Manager Eli Avidar 
Treasury U/S Stuart Levey 
Senior Advisor Adam Szubin 
Policy Advisor Kristen Hecht 
Financial Analyst Matt Epstein 
Regional Treasury Attach Brian Grant 
Econ Counselor and 
Econoff. 
 
The following Israeli and American officials attended the 
second meeting in the Foreign Minister's office: 
FM Tzipi Livni 
MFA DG Ron Prosor 
MOJ DG Aharon Abramowitz 
Ambassador Miriam Ziv 
IMPA Director Yehuda Shaffer 
Treasury U/S Stuart Levey 
Ambassador Richard H. Jones 
Senior Advisor Adam Szubin 
Policy Advisor Kristen Hecht 
Financial Analyst Matt Epstein 
Regional Treasury Attach Brian Grant 
Econ Counselor and 
Econoff. 
 
¶10. This cable was cleared by Under Secretary of the Treasury 
Stuart Levey. 
 
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"