VZCZCXRO9290
PP RUEHDE RUEHDIR
DE RUEHMK #0747/01 2141332
ZNY SSSSS ZZH
P 021332Z AUG 07
FM AMEMBASSY MANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 7121
INFO RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0009
RUCNDT/USMISSION USUN NEW YORK PRIORITY 0095
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY

S E C R E T SECTION 01 OF 03 MANAMA 000747 
 
SIPDIS 
 
SIPDIS 
 
ISN/CPI, T, NEA/ARP, EEB 
 
E.O. 12958: DECL: 07/26/2017 
TAGS: KNNP PREL PARM MNUC ECON IR BA REGION
SUBJECT: AMBASSADOR'S MEETING WITH CENTRAL BANK GOVERNOR 
AND AHLI UNITED BANK 
 
REF: A. BAGWELL-SIMPSON JULY 31 EMAIL 
 
     ¶B. MANAMA 714 
     ¶C. MANAMA 692 
 
Classified By: Ambassador William T. Monroe, reasons 1.4(b) and (d). 
 
------- 
SUMMARY 
------- 
 
¶1. (S) The Ambassador July 31 cautioned Central Bank of 
Bahrain (CBB) Governor Miraj and Ahli United Bank (AUB) CEO 
El-Labban regarding the inherent risks associated with 
Iranian banking relationships.  The Ambassador also noted 
that Treasury Undersecretary Stuart Levey intends to visit 
Bahrain in August to engage Miraj and El-Labban on this 
issue.  Miraj and El-Labban responded that a Future Bank 
branch to be opened in Iran's Kish Island Free Zone would not 
contravene UN Security Council Resolutions directed against 
financial institutions supporting Iran's nuclear weapons 
program.  Bahrain remained in full compliance of UNSCRs 1737 
and 1747.  El-Labban said that while Future Bank fit with 
AUB's stated strategic vision and offered AUB a foothold in 
Iran's lucrative financial market, it represented a small 
percentage of AUB's interests.  The Kish Island branch was a 
smaller element still.  AUB would divest itself of its 1/3 
Future Bank interest before jeopardizing its access to the 
dollar clearing system.  He said AUB does not seek random 
Iranian business.  Subsequently, a CBB official clarified 
that AUB was seeking approval for a separate transaction 
involving the acquisition of an Iranian bank; this 
transaction was not raised in the discussion.  Meanwhile, the 
International Bank of Qatar may be preparing to acquire a 
controlling interest in AUB.  End Summary. 
 
---------------------------- 
UNSCR COMPLIANCE HIGHLIGHTED 
---------------------------- 
 
¶2. (S) The Ambassador called on CBB Governor Rashid Al Miraj 
and AUB Group Chief Executive Officer Adel El-Labban July 31 
to engage in follow-up discussions on Ahli United's 
participation in the prospective opening of a Future Bank 
branch in Iran's Kish Island Free Zone.  Miraj said he felt 
that after his last meeting with the Ambassador, it would be 
useful to allow El-Labban to clear up any U.S. concerns.  The 
Ambassador delivered Ref. A points, emphasizing the inherent 
risks associated with Iranian banking relationships. 
 
¶3. (C) The Ambassador informed Miraj and El-Labban of U.S. 
Treasury Undersecretary for Terrorism and Financial 
Intelligence Stuart Levey's intention to visit Bahrain in the 
coming month to meet with them.  Miraj welcomed the visit and 
said he would be available throughout the month of August. 
El-Labban replied that he would be abroad but said an 
appropriate executive should be available to represent him. 
 
¶4. (C) Miraj said that for his part, he was satisfied that 
Bahrain was in full compliance of UNSCRs 1737 and 1747.  "We 
implement such resolutions immediately.  Based on our regular 
communication with our institutions, we are in compliance." 
Miraj added that Bahrain could not allow anything to 
jeopardize the country's standing as a well-regulated, 
respected financial jurisdiction.  "We in Bahrain cannot 
afford and will not tolerate anything that will compromise 
our standing.  We will not tolerate any mistakes.  That is 
clear for us and we make it clear to all of our institutions." 
 
----------------------------------------- 
AUB SHOWS MOST, BUT NOT ALL IRANIAN CARDS 
----------------------------------------- 
 
¶5. (C) El-Labban said AUB had been established seven years 
ago with the intent of developing a regional financial 
presence, seeking to establish itself in countries 
overlooking the Gulf.  "We stated our intentions openly."  In 
line with AUB's regional vision, he noted that the bank has 
branches in Oman, Kuwait, Qatar, The United Arab Emirates and 
Iraq.  Referring to Iraq he added, "We're glad to be there 
and hoping to be able to keep a presence there under such 
difficult conditions." 
 
¶6. (C) El-Labban said that AUB's stated ambition to be a 
regional bank is what prompted the Bahrain Monetary Agency 
(BMA - now CBB) to approach AUB over three years ago with the 
news that Bank Melli and Bank Saderat, both of which had 
branches in Bahrain, wished to establish a joint venture in 
 
MANAMA 00000747  002 OF 003 
 
 
Bahrain.  El-Labban said Future Bank was conceived as a 
bridge between Bahrain and Iran.  "Iran is a prime market. 
Before the Revolution, Citibank, Deutsche Bank, many major 
institutions were there.  After things turn around and Iran 
eventually opens up, they'll all be in line to come back." 
He said that AUB would also wish to enter, but would normally 
be unlikely to merit immediate consideration.  However, 
Future Bank presented a practical entree.  He reasoned that 
since banking in Iran is owned or dominated by the public 
sector, Iran would be inclined to grant expanded 
opportunities to banks already operating there. "The BMA had 
selected AUB as the local partner in the joint venture 
because of the bank's regional vision.  Bank Melli, Bank 
Saderat, and AUB each hold 1/3 interest.  The "Future Bank" 
joint venture, including five Bahraini branches and the Kish 
Island branch, was approved in 2004, though it was not until 
May 2007 that the Central Bank of Iran (CBI) had approved 
Future Bank's Kish Island branch.  CBI would act as the 
branch's local regulator, while the CBB would serve as the 
parent regulator. 
 
¶7. (C) (Note: Following this meeting, Econoff consulted 
Central Bank of Bahrain Banking Supervision Advisor to the 
Governor Richard Ellis to clarify the status of the CBB's 
approval of the Kish Island branch.  Ellis had previously 
indicated that AUB's acquisition of an Iranian financial 
institution was currently pending Prime Ministerial approval 
(Ref. C).  However, El-Labban clearly indicated that the 
Future Bank Kish Island branch had been approved in 2004. 
Ellis clarified that AUB's application to acquire an Iranian 
bank was a separate transaction and that the bank in question 
was either wholly or largely controlled by the Iranian 
Government.  He said the information continued to be closely 
held and that he doubted that Miraj or El-Labban had raised 
it during the Ambassador's meeting.  Shortly thereafter, 
Ellis contacted Econoff to relay that Miraj had ordered that 
any further inquiries regarding AUB be directed exclusively 
to Miraj himself.  End Note.) 
 
--------------------------------------- 
FUTURE BANK A SMALL, EXPENDABLE HOLDING 
--------------------------------------- 
 
¶8. (C) El-Labban said the Kish Island branch was a small 
branch, and held a branch capital requirement of just two 
million dollars.  It would be staffed by just 10 employees, 
one or two of which had already been hired.  He said that 
despite being located in a free zone, the branch's rather 
isolated island location would limit its prospects.  (He 
noted that the CBI had also granted approval for Standard 
Chartered Bank to open a branch there.)  He also observed 
that, given the Kish Island branch's relatively small size, 
any untoward transactions would be readily apparent.  In any 
event, a real-time data link would allow Future Bank branches 
in Bahrain to see the Kish Island branch's activity. 
 
¶9. (C) El-Labban said that although AUB exercises a high 
level of management control over its other holdings, this was 
not the case with Future Bank.  AUB was not a managing 
partner.  He acknowledged serving as a director on Future 
Bank's board, which he said also held another director and a 
deputy director from AUB.  He added that Future Bank 
maintains $120 million in standing capital, compared to AUB's 
$1.2 billion in total assets, making the point that Future 
Bank represents but a fraction of AUB's business.  He also 
observed that the Future Bank joint venture had forced a 
contraction of Bank Saderat's holdings in Bahrain.  Saderat 
typically books very large transactions, but any position 
Future Bank takes is required to be a certain percentage of 
capital. 
 
¶10. (C) El-Labban said Future Bank was principally involved 
in the financing of businesses and pointed to Iran 
Petrochemical and enterprises supporting Iran's pistachio 
industry as typical examples.  Future Bank's 2006 net profits 
were $16 million, compared to AUB net profits of $200 
million.  "AUB's involvement with Future Bank is not mission 
critical," said El-Labban.  He added that even if it were, no 
business line would be worth harming AUB's reputation, ethics 
and standards.  El-Labban then added that AUB would sacrifice 
its ties to Future Bank before losing its access to the 
dollar clearing system.  "This is not just a management 
position, it's a board position." 
 
¶11. (C) El-Labban said AUB did not seek or market for random 
Iranian business.  AUB was currently holding $20 to $30 
million in Iranian commercial deposits and $68 million in 
 
MANAMA 00000747  003 OF 003 
 
 
debt from a high of $106 million in January 2006.  He said 
that as the result of loan repayments, this figure would drop 
to between $30 and $35 million by April 2008, with the 
balance coming due over the next 12 to 18 months.  Most of 
the Iranian debt had been in the form of sovereign bonds or 
loans to the Iranian oil industry.  "It's not trade finance 
and hasn't been for a while.  Those lines were never really 
very active."  El-Labban compared these figures to the size 
of Iranian loans and deposits booked by Germany and the UAE. 
"They're running balances ten times this size." 
 
----------------------- 
QATARIS MAY ACQUIRE AUB 
----------------------- 
 
¶12. (C) On speculation that the International Bank of Qatar 
(IBQ) might soon acquire a controlling interest, El-Labban 
said there had, as yet, been no official developments.  He 
said Kuwaiti shareholders had opened their books to IBQ, but 
that there had been no formal due diligence.  "But there is 
strong interest.  Things could progress further." 
 
 
********************************************* ******** 
Visit Embassy Manama's Classified Website: 
http://www.state.sgov.gov/p/nea/manama/ 
********************************************* ******** 
MONROE