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FM AMEMBASSY LONDON
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 4777
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 LONDON 000177

NOFORN SIPDIS

E.O. 12958: DECL: 01/25/2020

TAGS: ECON ETTC IR UK

SUBJECT: UK SUPPORTS CUTTING IRAN OFF FROM CORRESPONDENT BANKING

Classified By: ECON COUNSELOR KATHLEEN DOHERTY FOR REASONS 1.4 B&D

1.(C/NF) Summary: Andrew Cummings, a UK Cabinet Office official (NSC director equivalent) with responsibility for Britain's Iran policy told us on January 25 the UK agrees with the USG goal of cutting Iran off from correspondent banking relationships. This position, as communicated to U.S. Treasury the week of January 18th, is a key part of HMG's posture in the current round of UN and EU sanctions considerations. The Cabinet official told us HMG generally supports any action that targets the Iranian banking sector. The UK is hesitant, however, to go ahead with broad-brush measures that would affect the Iranian population in general, or to undertake unilateral measures. In addition, the British government does not believe that denying Euro-clearing banking facilities to Iran would be feasible or effective. End summary

2.(C/NF) Iran is one of the top three issues on the Prime Minister's agenda, Cummings told us. PM Brown has requested a "robust" menu of UN, EU and domestic sanctions to press Tehran to give up its nuclear weapons program. Peter Mandelson, Deputy Prime Minister and Secretary of Business Innovative Skills, however, is opposed to any unilateral implementation of sanctions which would harm UK businesses to the advantage of those of other nations. Mandelson is also reportedly not eager to see broad sanctions applied which would harm the average Iranian, and thereby be used against the West, as has happened with past sanctions.

3.(C/NF) There are six key target areas on the UK list: financial, energy, trade, transportation, the nuclear program, and diplomatic/travel measures. The UK believes financial measures are key, Cummings told us. They are effective, and results are visible. HMG fully supports the USG proposal to cut Iran off from correspondent banking relationships (the act of one bank accepting deposits and performing services on behalf of another bank.) The UK does not, however, believe it possible to effectively shut down Euro-clearing (processing of Euro-based transactions through and between banks) with Iran. In addition, they fear that one idea, banning the direct provision of all financial services to Iran, would violate the "proportionality" test as set out by the House of Lords, which until recently was the highest court in the UK. A ban across the financial sector would not fit the policy goals of "smart and targeted" sanctions, as they would affect all of Iran; nor would that be effective, the Cabinet representative told us. However, HMG believes the threat of a total cutoff of financial services should remain on the list as a way to show the Iranians the seriousness of our thinking.

4.(C/NF) Cummings further explained the UK would support a ban on doing business with all Iranian banks, but would not prohibit its financial sector from doing business with Iranian companies in general. The UK would look specifically at taking action against the Iranian insurance sector, and hopes to target both branches and subsidiaries of Iranian banks. Comment: The latter action would fill a hole in the UK Counter Terrorism Act of 2008 which we have urged the UK to plug. End comment.

5.(C/NF) A broad energy sanction would also be difficult for the UK to adopt, and its implementation would be tough to implement short of a full embargo, the British official said. PM Brown wants to target the Iranian hydrocarbon sector, but through the UN, not through unilateral action, and is opposed to any USG legislation which is extraterritorial. In addition, "we need to be careful not to incur the wrath of the general public by 'externalizing'" a problem that Ahmadinejad himself has created, Cummings told us.

6.(C/NF) The Iranian Revolutionary Guard Corps is a fertile ground for additional sanctions, HMG believes. The U.S. and UK need to be more creative and think about how to pressure the interests of the key decision-makers, particularly those involved in the telecommunications and telecom sectors, which are controlled in large part by the IRGC. For instance, Cummings suggested we designate the companies that provide material goods to designated companies. This will require greater enforcement efforts by all countries.

7.(C/NF) The British government is eager to learn U.S. thinking for a sanctions timetable; officials have heard both late February and late March as goals for rolling out a new UN resolution, and would urge us to move quickly. Now is the time to pressure Iran on all fronts: trade, financial, human rights, etc., the UK official told us. The West should be prepared with a strong message after expected violence in LONDON 00000177 002 OF 002 Iran surrounding the upcoming 31st anniversary of the revolution on February 11. The Iranian regime is sensitive to pressure on human rights and we should begin to apply it again, Cummings urged.