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PP RUEHAG RUEHBC RUEHBW RUEHDE RUEHDIR RUEHFL RUEHKUK RUEHKW RUEHLA
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DE RUEHVT #0168/01 1160514
ZNY CCCCC ZZH
P 250514Z APR 08
FM AMEMBASSY VALLETTA
TO RUCNMEM/EU MEMBER STATES  PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 1505

C O N F I D E N T I A L SECTION 01 OF 02 VALLETTA 000168 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPARTMENT FOR EUR/WE; TREASURY FOR CHRISTINE CLARK 
 
E.O. 12958: DECL: 04/23/2018 
TAGS: KTFN PTER IR EFIN PARM MT
SUBJECT: MALTA RESPONDS POSITIVELY TO U/S LEVEY'S MESSAGE 
ON IRAN 
 
REF: VALLETTA 89 
 
Classified By: MCummings for reasons 1.4 (b) and (d) 
 
¶1. (C) Summary.  In meetings with senior Maltese Government 
officials on April 16, 2008, Treasury Under Secretary for 
Terrorism and Financial Intelligence Stuart Levey urged Malta 
to protect its financial system from abuse by Iran, including 
through implementation of paragraph 10 of UNSCR 1803 
(requiring states to exercise vigilance over the activities 
of financial institutions in their territories with all banks 
domiciled in Iran).  He expressed concern about a particular 
bank in Malta, the First International Merchant Bank.  He 
also urged Malta to support EU implementation of UNSCR 1803 
and further EU action against Iran, including designation of 
Iran,s Bank Melli. U/S Levey's GoM interlocutors appeared to 
clearly understand the dangers and downsides of doing 
business with Iran and were receptive to his message.  End 
summary. 
 
LEVEY MESSAGE:  VIGILANCE, ON IRANIAN BUSINESS TRANSACTIONS 
--------------------------------------------- -------------- 
 
¶2. (C) U/S Levey met a number of senior GOM officials: the 
Foreign Minister, Tonio Borg; Leonard Callus, from the Office 
of the Prime Minister (OPM); David Pullicino, Deputy Governor 
of the Central Bank; Andre Camilleri, Director-General of the 
Malta Financial Services Authority (MFSA), Sylvio Camilleri, 
Attorney General and chair of the Financial Intelligence 
Analysis Unit (FIAU); and Alan Caruana, Head of Secretariat 
at the Ministry of Finance.  Throughout the day,s meetings, 
Levey emphasized the importance of GOM vigilance in 
monitoring Iranian business and financial activity in Malta. 
GOM officials responded positively and raised their own 
concerns about Iran,s attempts to exploit their financial 
system. 
 
IRAN,S CREATIVE USE OF EUROPEAN FINANCIAL INSTITUTIONS 
--------------------------------------------- --------- 
 
¶3. (C) Levey explained that Iranian banks pose a risk to the 
international financial system, as Iran, particularly through 
its state-owned banks, employs deceptive techniques to evade 
the controls of responsible institutions.  Levey pointed out 
that as major European banks scale back their business with 
Iran, the banks that continue to do business with Iran bear a 
disproportionate risk of getting tied up in potentially 
illicit activity. 
 
4.(C) In each of his meetings, Levey emphasized the risks of 
doing business with Iran.  He noted the two advisories by the 
Financial Action Task Force warning of those risks.  He also 
cautioned about Iran,s use of its banks to pursue 
proliferation and terrorism activities and pointed to the UN 
Security Council,s recognition of that with its designation 
of Bank Sepah in UN Security Council Resolution (UNSCR) 1747. 
 He also noted the new UNSCR 1803, requiring governments and 
regulators to &exercise vigilance8 over the activities of 
financial institutions in their territories with all banks 
domiciled in Iran, in particular Banks Melli and Saderat, and 
their branches and subsidiaries abroad.  Taken together, 
these international steps warrant extreme caution in dealing 
with Iran. 
 
¶5. (C) In meetings with OPM, Ministry of Finance, MFSA and 
the Central Bank, U/S Levey raised concerns about an increase 
in the volume of Iranian activity at the First International 
Merchant (FIM) Bank of Malta.  He said that FIM Bank appeared 
to be establishing itself as a niche bank for the kind of 
business that other banks around the world are rejecting. 
Camilleri at MFSA said that this information called for 
further scrutiny and MFSA would evaluate the link; he added 
that with Malta being such a small community, the MFSA had 
open channels of communication with the FIM Bank board. In a 
subsequent meetings, Caruana said it appeared that the 
information on increased business with Iran was based on 
growth that had occurred a couple of years ago in FIMBank 
branches in northern Africa, but that the MFSA would examine 
the bank's position and activity anew and report back. 
 
¶6. (C) Maltese officials responded positively to Levey,s 
requests for vigilance, saying that they understood the risks 
involved and the impact it could have on the reputation of 
Malta,s financial services sector, which represents about 
12% of GDP, a number the GoM hopes will grow to 20% by 2015. 
The concern for Malta,s reputation was echoed throughout the 
 
VALLETTA 00000168  002 OF 002 
 
 
day,s meetings, and it was clear that Maltese officials had 
considered the implications of business dealings with Iran. 
Andre Camilleri informed Levey that MFSA routinely circulated 
lists of UN and EU sanctions information to all financial 
institutions and license holders; MFSA has taken an 
&unequivocal8 stance on being in &clear compliance8 with 
all UN and EU sanctions. 
 
¶7. (C) A recent attempt by Iranian banks to use Malta,s Euro 
payment system prompted discussion of the risks within the 
government. As reported reftel, Minister of Finance Tonio 
Fenech told Ambassador Bordonaro that the GoM would use any 
mechanism necessary to prevent Iranian banks from accessing 
their Euro payment system.  This message was echoed by the 
Deputy Governor of the Central Bank David Pullicino, who has 
direct responsibility for ensuring the integrity of Malta,s 
Euro payments clearing system. Pullicino hinted that the 
issue had likely come up because London banks would on May 16 
be "pulling out of Target," the existing mechanism for making 
euro payments, thus forcing London-based banks who needed to 
process euro payments to find new means of doing so. 
 
¶8. (C) Pullicino and Camilleri at MFSA voiced concern about 
the possibility of Iranian banks licensed for operations in 
the UK or Germany attempting to establish branches in Malta. 
Pullicino informed U/S Levey that there had been one 
application from an Iranian bank to open a representative 
office in Malta, and that this had been rejected outright. 
Camilleri, MFSA, indicated that the bank seemed to be 
&testing the waters8 to gauge Malta,s response to the 
application.  Maltese officials were specifically concerned 
that Banks Melli and Mellat, Iranian state-owned banks, have 
subsidiaries in London and under EU rules such subsidiaries 
had automatic branching rights in the EU. While there is no 
indication that these banks were looking at Malta for 
expansion, in the event that a bank operating in the UK or 
Germany were to decide to open a branch in Malta, it would be 
regulated by the home office and Malta would not have 
jurisdiction.  The MFSA would not even be able to monitor 
transactions out of such branches. 
 
 
 
SCREENING OF IRISL CARGO SHIPMENTS 
---------------------------------- 
 
¶9. (C) Levey also noted Malta's commitment under UNSCR 1803 
to screening Islamic Republic of Iran Shipping Lines (IRISL) 
any cargo for which there is a (reasonable suspicion) that it 
might be illicit.  IRISL uses Malta as its hub in the 
Mediterranean and has 9 Maltese-flagged ships.  Leonard 
Callus at OPM thanked the USG for its assistance in providing 
scanning equipment and promised cooperation on political and 
other levels.  This message was echoed by FM Borg and Charles 
Inguanez, MFA Director General for Economic Affairs and 
Chairman of Malta,s Sanctions Monitoring Board.  Malta aims 
to strike the right balance between protecting the flow of 
goods through its Freeport and stringently upholding the 
spirit of the UNSCR(s) that call for monitoring IRISL cargo 
for shipment of goods prohibited by the UNSC sanctions. GOM 
interlocutors made it clear they would continue to welcome 
tips from the USG regarding suspicious cargo shipments that 
need to be inspected; after the meeting with FM Borg, 
Inguanez pulled Levey aside to tell him that while the 
inspections of IRISL cargo had so far been limited, GOM 
officials were willing to conduct more frequent inspections; 
they just need to be pointed in the right direction.  (Note: 
With the entry into force of the Proliferation Security 
Initiative Ship Boarding Agreement (PSI-SBA), channels have 
been established to share pertinent information with respect 
to shipments on Maltese flagged carriers. End Note.) 
 
COMMENT 
------- 
 
¶10. (C) Across the board, GOM officials clearly understood 
that it was in Malta's interest to ensure careful scrutiny of 
Iranian financial activity in Malta.  GOM officials had 
already approached the Embassy with their concerns regarding 
the request by UK-based Iranian banks to use Malta's Euro 
payments system.  When it comes to countering Iran's abuse of 
the international financial system, we have a willing partner 
in Malta, albeit one with somewhat limited resources. 
BORDONARO