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C O N F I D E N T I A L SECTION 01 OF 03 KUALA LUMPUR 001127 
 
SIPDIS 
 
FOR EAP, NEA, AND INR 
 
E.O. 12958: DECL: 12/30/2018 
TAGS: PREL PARM EFIN ECON ETRD ENRG ETTC MUNC KNNP
IR, MY 
SUBJECT: PM ABDULLAH GOES TO IRAN, ANNOUNCES GO-AHEAD FOR 
IRANIAN BANK IN MALAYSIA 
 
REF: A. A. KUALA LUMPUR 1105 -- AMB MEETS MFA PRIOR TO 
        IRAN VISIT 
     ¶B. B. KUALA LUMPUR 1045 -- PM TO VISIT IRAN 
 
Classified By: Political Counselor Mark D. Clark for reasons 1.4 b and 
d. 
 
Summary and Comment 
------------------- 
 
¶1. (SBU) Malaysian Prime Minister Abdullah Badawi conducted a 
four-day visit to Iran December 21-24.  The public reporting 
of the visit exclusively highlighted and at times exaggerated 
Malaysia-Iran trade and economic partnerships.  The PM and 
his entourage, which included a number of cabinet ministers, 
MPs, and trade officials, met with Iranian President Mahmoud 
Ahmedinejad and Foreign Minister Manuchehr Mottaki and other 
senior officials.  Noticeably absent from any official 
statements or media reports were discussions regarding 
controversial topics, such as Iran's ongoing nuclear program. 
 The Malaysian and Iranian leaders trumpeted increasing 
bilateral trade and investment, along with expanding tourism 
and growth in the Iranian student population in Malaysia. 
The leaders announced several Memoranda of Understanding 
(MOUs) and the go-ahead for Iran's Bank Mellat to operate in 
Labuan, Malaysia's offshore financial center. 
 
¶2. (C) Comment:  Abdullah's visit to Teheran appeared to be 
the latest installment in the outgoing Prime Minister's 
efforts to bolster Malaysia's trade and investment ties with 
Muslim-majority nations, including Iran.  The Malaysian 
delegation kept the public focus on commercial gain and 
largely avoided wading into controversial issues.  The 
apparent approval for Bank Mellat to open in Labuan stands 
out as the most significant development stemming from 
Abdullah's visit.  Prior to the trip, the Ambassador had 
urged senior Foreign Ministry officials to use the visit to 
convey to Iran the international community's expectations 
regarding its nuclear development program, but we have no 
indication yet whether Abdullah addressed this subject or in 
what manner.  Our MFA contacts did not have any additional 
information from this visit, as the delegation members were 
unavailable due to the holidays.  We will seek further 
information on PM Abdullah's visit to Iran in future 
meetings.  End Summary and Comment. 
 
 
Promoting Trade and Tourism 
--------------------------- 
 
¶3. (U) PM Abdullah originally committed to visiting Teheran 
during the Iran-Malaysia Economic Commission held in November 
in Malaysia.  Foreign Minister Rais Yatim, speaking to the 
press prior to departure, said that the primary objective of 
the December 21-24 visit was to strengthen bilateral ties and 
explore joint venture opportunities between the corporate 
sectors in the two countries. "Sanctions imposed on (Iran) by 
the UNSC coupled with the political developments in the U.S. 
make it necessary for Malaysia to see from near what 
businesses can be explored without causing any 
misunderstanding," he added. 
 
 
¶4. (U) Upon arriving in Tehran, Prime Minister Abdullah noted 
in his official statement the increase in trade volume 
between Iran and Malaysia.  He said that Iran was Malaysia,s 
third largest trading partner in Middle East, with bilateral 
trade in 2007 amounting to USD 1.042 billion, up (modestly) 
from USD 1.022 billion in 2006. (Note:  According to 
Malaysian trade statistics, Iran is the 33rd largest export 
destination for Malaysia, with exports of USD 1.23 B, or 0.29 
percent of total Malaysian exports.  Iran is the 27th largest 
import source for Malaysia, with imports of USD 1.75 Billion, 
or 0.49 percent of total Malaysian imports. Exports to Iran 
consist mostly of palm oil, rubber, cars, consumer 
electronics, and other manufactured goods.  Imports from Iran 
are mostly crude oil.  End Note.) 
 
 
KUALA LUMP 00001127  002 OF 003 
 
 
 
¶5. (SBU) Abdullah also pointed out the significant increase 
in the number of tourist arrivals from Iran to Malaysia.  He 
said that in 2007, a total of 27,215 Iranians visited 
Malaysia compared to 9,419 in 2002.  (NOTE:  An estimated 21 
million tourists arrived in Malaysia in 2007, thus Iranians 
constitute approx 0.12 percent of all arrivals.)  He also 
said that Malaysia would streamline the visa application for 
Iranian applicants, as Malaysia has done for other countries. 
(Note: Iranians can visit Malaysia visa free for up to 14 
days for tourism and social visits, and can obtain business 
visas for up to 14 days upon arrival.  End Note.) 
 
 
"Malaysia and Iran Share Common Views" 
-------------------------------------- 
 
¶6.  (SBU) Abdullah and the Malaysian delegation avoided 
statements on controversial issues, spoke only vaguely on 
political/security matters, and did not touch on Iran's 
nuclear program in any public comments.  Abdullah also did 
not distance Malaysia from any of Iran's positions.  Sticking 
to generalities, Abdullah used his joint press conference 
with Ahmedinejad to state, "Malaysia and Iran share common 
views on many international issues affecting the peace and 
security of the world.  We have pledged to work closely 
together especially in multilateral forums such as the United 
Nations for global stability, progress and prosperity." 
 
 
Three MOUs 
---------- 
 
¶7. (SBU) Abdullah's visit to Iran featured the signing of 
three MOUs covering, respectively, establishment by 
Malaysia's national car maker Proton of a vehicle assembly 
plant in Iran, counter-narcotics efforts, and cooperation in 
science and technology.  The Proton agreement appeared to be 
the most tangible of the three MOUs.  Iran already imports 
Protons for use as taxis in Tehran.  In the area of science 
and technology cooperation, Abdullah mentioned the "sharing 
of experience and expertise" between the Malaysian Multimedia 
and Development Corporation and the Masshad and Khorsan 
Provincial Governments in Iran to build information 
technology parks. 
 
¶8.  (SBU) In addition to the MOUs, the PM also noted 
Malaysian investments in Iran's construction sector, 
specifically in housing and road construction, and in Iran's 
oil and gas sector.  Prime Minister Abdullah stated that 
Petronas, the national oil/gas company and the leading 
Malaysian investor in Iran, "would continue to consolidate 
its operations in Iran."  Abdullah also noted the activities 
of SKS ventures in the oil/gas sector.  (Note:  SKS Ventures, 
a private company owned by Malaysian tycoon Syed Mokhtar, 
signed an MOU in 2007 to develop Iran's Gulshan and Ferdoz 
gas fields, but little information has surfaced since then. 
Following press reports of the SKS deal, Embassy requests 
from 2007 to meet with representatives of SKS Ventures went 
unacknowledged.  End Note.)  PM Abdullah's visit did not 
produce more information on proposals to build Iranian 
refineries in Malaysia, which have made no visible progress. 
 
 
Bank Mellat Conditionally Approved for Offshore Center 
--------------------------------------------- --------- 
 
¶9. (U) In his opening address after arriving in Teheran, PM 
Abdullah stated, "I am aware of the interest of the Mellat 
Bank of the Islamic Republic of Iran to open its offshore 
branch in Labuan, Malaysia's international offshore financial 
sector (sic).  When this project becomes reality, it will be 
another milestone in the area of financial cooperation 
between our two countries."  Subsequently, at a joint press 
conference with Ahmedinejad on December 23, PM Abdullah was 
more definite and stated, "An Iranian bank will be opening an 
offshore branch in Labuan...." 
 
 
KUALA LUMP 00001127  003 OF 003 
 
 
¶10. (SBU) A contact at the Malaysian central bank told 
econoff on December 30 that Bank Mellat had not applied for a 
license to operate in Malaysia proper, but had submitted its 
application to the Labuan Offshore Financial Services 
Authority (LOFSA) to open an offshore branch in July and had 
recently been granted "conditional approval."  He was unable 
to identify the "conditions" involved, or to speculate as to 
a time frame before Bank Mellat would open its doors in 
Labuan.  While the central bank has the authority to grant or 
deny licenses for Malaysia proper, offshore companies are 
under the supervision and regulation of LOFSA directly.  In 
line with previous demarches, Post has conveyed concerns over 
the opening of Iranian bank offices to both the central bank 
and to LOFSA, and we continue to press LOFSA for further 
details. 
 
Background on Labuan's Offshore Banking Center 
--------------------------------------------- - 
 
¶11. (U) The Labuan International Business and Financial 
Center (IBFC) is a jurisdiction "that offers a liberal 
operating environment and low rates of tax as well as ensures 
confidentiality of investors' information," according to the 
LOFSA website, www.lofsa.gov.my.  A total of 58 banks, nine 
of which are investment banks, maintain offices in Labuan. 
Having an offshore license in Labuan does not authorize a 
company to do business elsewhere in Malaysia or to conduct 
transactions in Malaysian Ringgit, but an offshore bank 
licensed in Labuan is permitted to open a "marketing office" 
in Kuala Lumpur. 
 
¶12. (U) Offshore businesses are governed by a separate set of 
offshore legislation, including the Offshore Banking Act of 
1990 (available at www.lofsa.gov.my).  Offshore financial 
service providers are also subject to the same anti-money 
laundering and counter-financing of terrorism (AML/CFT) 
legislation in place throughout Malaysia, and are required to 
report suspicious transactions to Malaysia's Financial 
Intelligence Unit (FIU), seated in the central bank. 
 
¶13. (U) The Labuan IBFC was established to bring 
international players to Malaysia, and typically serves 
businesses operating in the region.  Malaysia continues to 
strive to become a global hub for Islamic Finance, a goal 
highlighted on LOFSA,s website as well. 
KEITH