VZCZCXRO5408
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0041/01 1560923
ZNY SSSSS ZZH
P 050923Z JUN 07
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0135
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0128
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0119
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0085
RUEHLB/AMEMBASSY BEIRUT PRIORITY 0001

S E C R E T SECTION 01 OF 02 IRAN RPO DUBAI 000041 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  6/5/2017 
TAGS: ECON EFIN EINV PTER IR
SUBJECT: IRAN:  MAKING ITSELF UNATTRACTIVE TO FOREIGN INVESTMENT 
 
REF: RPO DUBAI 0035 
 
RPO DUBAI 00000041  001.2 OF 002 
 
 
CLASSIFIED BY: Jillian Burns, Director, Iran Regional Presence 
Office - Dubai, Department of State. 
REASON: 1.4 (d) 
 
1.(S) Summary.  An Iranian businessman who was involved in 
Dubai-based Al Aqili Group's tobacco distribution network in 
Iran discussed how it lost distribution rights with IRPOffs. 
The businessman said Al Aqili lost its $300 million/annual 
tobacco distribution network in Iran after a bid to purchase 
Iran Khodro's shares of Parsian bank went sour.  The businessman 
predicted that international banks would not invest in Iran due 
to the government's forced lowering of interest rates.  He said 
there is currently a run on private banks in Tehran by account 
holders who believe the banks will not survive with the lower 
rates.  The businessman said Al Aqili's tobacco business in Iran 
has gone to JTI (Note:  JTI is a Japan Tobacco and RJRI - the 
international operation of RJ Reynolds - conglomerate.  Endnote) 
 He claimed that JTI's operations in Iran are controlled by the 
"Lebanese mafia" and that its tobacco profits are funding 
terrorism in Iraq.  He did not offer any proof to back up this 
claim, only advising that we should follow the network of JTI's 
distributors, claiming they were all Iraqis.  In general, the 
businessman claimed that corruption is on the rise in Iran in 
response to political uncertainty.  While this is an unconfirmed 
single source cable -- from an individual who would naturally 
have an axe to grind with JTI -- Al Aqili's saga demonstrates 
that the Iranian government continues to deter foreign 
investment through its own actions.  End Summary. 
 
Al Aqili's business in Iran 
---------------------------- 
 
2.(S) IRPOffs met June 3 with an Iranian businessman who said 
that he was involved in managing UAE-based Al Aqili Group's 
tobacco distribution network in Iran for six years.  The 
businessman said Al Aqili faced multiple challenges when it 
initially began distributing tobacco in Iran as it was the first 
foreign distributor in the IRI.  In the beginning, police 
regularly arrested the company's local distributors and seized 
Al Aqili shipments, as it was not widely known that a foreign 
operator could legally distribute cigarettes.  After a few rough 
years, the businessman said tobacco distribution in Iran turned 
into an annual $300 million industry for Al Aqili. 
 
3.(S) The company's prospects in Iran took a negative turn 
roughly six months ago.  According to the businessman, Al Aqili 
apparently alienated itself when it purchased Iran Khodro's 25% 
share of Parsian Bank, a private Iranian bank.  The businessman 
claimed that while Al Aqili was in negotiations to buy the 
shares, former Intelligence Minister Mohammad Reshahri 
approached Parsian Bank about purchasing the shares.  The 
managing director of Parsian Bank reportedly told Reshahri to 
"go away," saying he should have approached Iran Khodro and not 
the bank if he had wanted to negotiate the price of the shares. 
The businessman inferred that Reshahri must have used his 
influence against Al Aqili, since soon thereafter; Ahmadi-Nejad 
publicly criticized foreign investment in Parsian Bank. 
 
4.(S) After Ahmadi-Nejad's criticism, Al Aqili was forced to 
return its shares of Parsian Bank to Iran Khodro, according to 
the businessman, although it is still waiting for its initial 
$60 million investment to be returned.  In addition, Al Aqili 
reportedly lost its license to distribute tobacco in Iran.  An 
April 16, 2007 Baztab article referred to the annulment of the 
"biggest private sector transaction at Tehran Stock Exchange" to 
date in which 28.8% of Parsian shares - a $320 million 
investment -- were transferred from a "government affiliated 
auto-making company" to private-buyer Mohammad Rostami Safa and 
a "Dubai-based Iranian partner."  According to the Baztab 
article, "a stock exchange official told the press that the 
transaction had been annulled because of administrative 
irregularities." 
 
5.(S) When asked if Al Aqili spoke to Ahmadi-Nejad about the 
issue during his May 13 visit to Dubai (reftel), the businessman 
said Al Aqili did not get the meeting it requested with 
Ahmadi-Nejad.  He believed, however, that UAE officials likely 
raised Al Aqili's case in their own bilateral discussions with 
Ahmadi-Nejad. 
 
6.(S) According to the businessman, Al Aqili still retains a 
presence in Iran --  two tobacco manufacturing facilities, a 
cement factory, and a smaller-scale foodstuff and consumable 
distribution network -- although the foodstuff and distribution 
network is operating at a loss.  The businessman said Al Aqili 
 
RPO DUBAI 00000041  002.2 OF 002 
 
 
hopes to eventually export out of Iran, but he did not specify 
which products.  He also mentioned that Al-Aqili does 
significant business distributing tobacco in Iraq and has a 
presence in 22 cities. 
 
JTI's business profits funding terrorism? 
--------------------------------------------- --- 
 
7.(S) When asked who made up for the tobacco demand previously 
met by Al Aqili, the businessman said "JTI."  (Note:  JTI was 
created in 1999 when Japan Tobacco purchased RJRI - the 
international operation of RJ Reynolds.  Endnote)  The 
businessman claimed that JTI in Iran is controlled by "Lebanese 
mafia;" he alleged that the company's Iraqi directors in Iran 
are funneling the company's profits to support terrorism in 
Iraq.  When asked to specify which groups JTI was allegedly 
funding in Iraq, the businessman merely said "trace the history 
of their distributors."  He acknowledged that the IRGC likely 
also had a hand in smuggling cigarettes into Iran but indicated 
that JTI controlled a much more significant share of the tobacco 
market. 
 
Iran's investment climate 
----------------------------- 
 
8.(S) When asked by IRPoffs about the contradictory nature of 
Ahmadi-Nejad's condemnation of  foreign investment in Parsian 
Bank, and other more recent statements by Iran's Money and 
Credit Council encouraging foreign investment in the banking 
sector, the businessman snidely remarked that with the lowering 
of interest rates, foreign banks "would not invest in Iran 
anyway."  (Note:  Ahmadi-Nejad recently forced all public and 
private banks to set borrowing rates at 12%.  State banks had 
been set at 14% and private banks were offering rates of 17-28%. 
 End note)  He said that the government order to lower interest 
rates has scared the customers of private banks, who worry that 
the banks won't remain solvent.  This has reportedly led to a 
real "run" on the banks.  The businessman also predicted another 
spike in real estate prices as individuals pull their money out 
of banks.  He maintained that corruption is on the rise in Iran, 
due to the current uncertainty in Iran.  He said that because 
people do not know if they will still have their jobs tomorrow, 
they are "looking to get the most of their positions today." 
 
9.(S) Comment.  This is a single source cable from a new IRPO 
contact and the veracity of the statements cannot be verified. 
His comments about JTI are noteworthy but should be caveated as 
coming from the company's direct business competitor.  What Al 
Aqili's saga does demonstrate, however, is that the Iranian 
government is often more effective than any kind of external 
pressure in scaring off foreign investment. 
BURNS