VZCZCXYZ0002
OO RUEHWEB

DE RUEHC #5441 3311744
ZNR UUUUU ZZH
O 261736Z NOV 08
FM SECSTATE WASHDC
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UNCLAS STATE 125441 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN KNNP MNUC IR GM
SUBJECT: INCREASING FINANCIAL PRESSURE ON IRAN 
 
REF: A. A) BUCK-SAINT-ANDRE EMAIL 
     ¶B. 11/21/08 
 
¶1.  (U) This is an action request.  Please see paragraphs 
three and four. 
 
------- 
SUMMARY 
------- 
 
¶2.  (SBU)  The United Kingdom, France, Germany, Italy, and 
the U.S. (E4 1) have agreed to pursue additional national 
measures to increase the pressure on Iran to end its 
proliferation-sensitive nuclear activities and ensure 
effective implementation of UNSC and EU sanctions.  After 
meeting on October 9, the EU4 1 identified Iran's deceptive 
practices as a threat to the international financial sector 
and a conduit for Iran's proliferation activities.  The E4 1 
agreed to a joint demarche as a way to inform governments 
about the risks that Iran poses to the financial industries 
in their jurisdictions.  Posts are requested to coordinate 
the delivery of the attached nonpaper to host governments 
with the local representatives of the United Kingdom, France, 
Germany, and Italy. 
 
 
------------------------- 
OBJECTIVES/ACTION REQUEST 
------------------------- 
 
¶3.  (SBU)  Washington requests Posts deliver the talking 
points in paragraph 5 to appropriate host government 
officials in the foreign and finance ministries, as well as 
Central Banks, to host governments.  To maximize the impact 
of this demarche, delivery should be coordinated with the 
local representatives of the United Kingdom, France, Germany, 
and Italy.  For Bern: Washington defers to Post with respect 
to the logistics of this demarche and coordination with 
French, German, Italian, and UK Posts in Bern; Washington, 
however, concurs with Post suggestion in REF A that one of 
the European likeminded would be best for scheduling the 
meeting.  For GCC posts: other GCC countries in addition to 
Oman and the UAE will be approached by our EU4 partners. 
 
¶4.  (SBU)  Posts are requested to deliver the non-paper in 
paragraph 6 as a U.S. paper on Iran's deceptive financial 
practices at the same time as the delivery of the talking 
points in paragraph 4.  Post should pursue the following 
objectives: 
 
--  Remind host governments that full implementation of UN 
Security Council Resolutions (UNSCRs) concerning Iran by all 
members of the international community is critical to 
addressing the proliferation threat posed by Iran and that 
many European countries and firms have determined that the 
risk of doing business with Iran is too great and, as a 
result, have reduced their business with Iran. 
 
-- Note that Iran's use of front companies and other 
deceptive practices in commercial and financial activities 
makes it difficult to know who is involved in a transaction, 
or the final end user or ultimate use of any goods. 
 
-- Note that within the scope of UNSCR 1747, States are 
required to take measures to prevent the provision to Iran of 
any financial assistance, or services related to the transfer 
of prohibited items. 
 
-- Urge host governments to ensure that their financial 
institutions do not provide services to any entities that are 
engaged in proliferation-related activities, specifically 
individuals and entities designated under UNSC resolutions 
1737, 1747 or 1803, as well as those designated by the USG 
under Executive Orders 13224 and 13382. 
 
-- Call upon host governments to implement UNSCR 1803's call 
for vigilance over the activities of their financial 
institutions with Iranian banks, including by adopting 
concrete financial vigilance measures, such as those adopted 
by the European Union (Common position 2008/652/CFSP of 7 
August 2008, Regulation 2008/1110/EC of 10 November 2008), 
and/or those recommended by the Financial Action Task Force's 
(FATF) in its October guidance on UNSCR 1803. 
 
-- Encourage host governments to warn their financial 
institutions about the risks of doing business with Iran, 
such as the Iranian regime using its state-owned firms to 
support proliferation-related activities.  The Iranian 
state-owned banks also use deceptive financial practices to 
support this illicit activity. 
 
-------------- 
TALKING POINTS 
-------------- 
 
¶5.  (SBU) BEGIN TALKING POINTS 
 
-- Full implementation of UN Security Council Resolutions 
(UNSCRs) concerning Iran by all members of the international 
community is critical to addressing the threat posed by Iran. 
 UNSCR 1737 (2006) requires States to take measures to 
prevent the provision to Iran of any financial assistance or 
services (including brokering) related to the transfer, 
manufacture, or use of prohibited items. UNSCR 1747 (2007) 
calls upon States and international financial institutions 
not to enter into new commitments for providing financial 
assistance to the Government of Iran, except for humanitarian 
and developmental purposes. UNSCR 1803 (2008) calls on States 
to exercise vigilance over the activities of financial 
institutions in their territories with all banks domiciled in 
Iran and in providing financial support for trade with Iran, 
including insurance, in order to avoid contributing to Iran's 
nuclear and missile programs. Finally, UNSCRs 1737, 1747 and 
1803 require States to freeze the assets of and ensure that 
no economic resources are provided by their nationals or from 
their territories to individuals or entities designated 
pursuant to these resolutions for their involvement in Iran's 
nuclear or ballistic missile programs. 
 
-- We have been discussing with the international banking 
sector the importance of implementation of the Iran-related 
UNSCRs, as this sector is vulnerable to the risk of 
unwittingly facilitating Iranian proliferation activities. We 
draw your attention to the reputational risk involved as well 
as the existing penalties in case of illicit activities. 
 
-- Financial vigilance measures are extremely important to 
defend against such risks. Key examples of measures targeted 
specifically against proliferation finance and Iran, 
including the EU Common position 2008/652/CFSP of 7 August 
2008, Regulation 2008/1110/EC of 10 November 2008, and FATF 
guidance on implementation of financial measures contained in 
¶1803. 
 
-- We are concerned that the financial sector is being 
exploited and used to facilitate activities prohibited by the 
UN, or that Iranian entities designated by the UN are using 
deceptive practices to evade sanctions or mask other 
activities of concern. 
 
-- To avoid providing financial services prohibited by the UN 
Security Council, we ask that you encourage your financial 
institutions to review among other things, services they may 
provide to Iranian companies and projects in Iran, as well as 
correspondent banking relationships with Iranian banks and 
financial institutions controlled by Iranian entities (cf. in 
the EU: Common position 2008/652/CFSP of 7 August 2008, 
Regulation 2008/1110/EC of 10 November 2008). 
 
END TALKING POINTS 
 
--------- 
NON-PAPER 
--------- 
 
¶6. (SBU) BEGIN NON-PAPER 
 
Iran has a history of using deceptive techniques to evade 
sanctions, including by obscuring the involvement of 
designated Iranian entities in transactions or accounts. 
 
-- Using non-UNSC sanctioned entities:  Entities not 
currently subject to UN sanctions have acted on behalf of 
UNSC-designated entities. 
 
-- Leading up to the adoption of UN Security Council 
Resolution 1747 (March 2007), which requires States to freeze 
assets of Iran's Bank Sepah, the Central Bank of Iran abused 
its relationships with reputable financial institutions to 
shield Bank Sepah's assets from the impact of impending 
sanctions. 
 
-- Other Iranian banks also helped Bank Sepah evade sanctions 
subsequent to its Security Council designation.  Following 
Bank Sepah's designation, Bank Melli took precautions not to 
identify Bank Sepah in transactions. 
 
-- We have information indicating that Bank Mellat has 
facilitated the movement of millions of dollars for Iran's 
nuclear program since at least 2003. 
 
-- Use of front companies: Entities associated with Iran's 
nuclear and missile programs utilize an extensive network of 
front companies to conceal the true ownership of funds and 
end-use of commercial goods.  The UN Security Council 
designated several entities in UNSCRs 1737, 1747, and 1803 
explicitly because of their role as front companies in 
support of Iran's nuclear or missile programs. 
 
-- Through its front companies, the U.S.-designated Islamic 
Revolutionary Guard Corps (IRGC) is involved in a diverse 
array of activities, including petroleum production and major 
construction projects across Iran. 
 
-- These front companies enable the regime to obtain dual-use 
technology and materials from suppliers that would not 
typically ship to designated entities. 
 
-- Mizan Machine Manufacturing Group is one of several front 
companies utilized by Iran's Aerospace Industries 
Organization (AIO) in commercial transactions.  In 
particular, Mizan Machine Manufacturing Group has been used 
by AIO to acquire sensitive material for Iran's ballistic 
missile program. It has also acted on behalf of the Shahid 
Hemmat Industrial Group (SHIG), a subordinate entity of the 
AIO, which is listed in UNSCR 1737 for its direct role in 
advancing Iran's ballistic missile program. 
 
Role of Iranian Banks 
 
-- Transactions for proliferation entities: Iranian banks 
process transactions for U.S. - and UNSC-designated entities. 
 
 
-- We have information indicating that entities owned or 
controlled by the IRGC or IRGC Qods Force use Bank Melli for 
a variety of financial services.  We have information 
indicating that from 2002-2006, Bank Melli was used to send 
at least $100 million to the Qods Force.  The IRGC was 
designated by the U.S. in October 2007 as an entity of 
proliferation concern, and numerous IRGC entities and 
individuals have been designated in Iran-related UNSCRs for 
their involvement in Iran's nuclear or ballistic missile 
programs. Bank Melli has been designated by the US and EU, 
and was identified as being of potential concern in UNSCR 
¶1803. 
 
-- We have information indicating that Bank Mellat services 
and maintains Atomic Energy Organization of Iran (AEOI) 
accounts, mainly through AEOI's financial conduit Novin 
Energy Company. Novin Energy Company was designated in UNSCR 
¶1747. 
 
-- Removing identifying information: Iranian state-owned 
banks have requested that references to Iran be removed from 
international transactions. 
 
-- The Central Bank of Iran and Iranian commercial banks have 
requested that their names be removed from global 
transactions in order to make it more difficult for 
intermediary financial institutions to determine the true 
parties in the transactions. 
 
-- When processing the transactions for the IRGC and IRGC 
Qods Force, Bank Melli requested that its name be removed 
from financial transactions. 
 
Expanding Iran's global banking presence and financial 
networks 
 
As major banks worldwide withdraw or reduce their banking 
ties to Iran, Tehran is looking to expand existing 
relationships, establish new ones, and develop new techniques 
to disguise its involvement in transactions. 
 
-- New banking networks: Iran has recently attempted to 
establish new branches of Iranian banks, joint banking 
ventures, and private Iranian banks.  Iran is attempting to 
replace lost banking operations overseas and may judge that 
U.S. and foreign actors are less likely to scrutinize banks 
not directly owned by the Iranian government in order to 
circumvent U.S., EU and UN sanctions.  As a result, companies 
that do business with Iranian banks may unwittingly 
facilitate proliferation-related transactions. 
 
-- In March 2008, the Export Development Bank of Iran 
established a branch in Venezuela. 
 
-- In June 2008, Iran and Venezuela agreed to establish a 
joint bank. 
 
-- The Germany-based Iranian-owned bank Europaisch Iranische 
Handelsbank (EIHB) opened branches in Tehran and Kish Island 
in June 2008. 
 
-- In May 2008, Iran and Belarus signed a memorandum to raise 
economic contacts, which included increasing banking ties. 
 
New techniques: Designated entities are developing other 
techniques to adapt their business practices to hide their 
involvement in transactions. 
 
-- The Islamic Republic of Iran Shipping Lines (IRISL) has 
employed the use of generic terms to describe shipments so as 
not to attract the attention of shipping authorities and 
created and made use of cover entities to conduct official, 
IRISL business. 
 
-- For example, in 2007, IRISL transported a shipment of a 
precursor chemical potentially destined for use in Iran's 
missile program.  The end user of the chemical was Parchin 
Chemical Industries, an entity designated in UNSCR 1747 as a 
subordinate of Iran's Defense Industries Organization (DIO). 
 
In summary, Iran's failure to suspend its proliferation 
sensitive nuclear activities in violation of UN Security 
Council Resolution 1737, coupled with Iran's use of deceptive 
financial practices to evade sanctions, puts responsible 
financial institutions at risk of unwittingly facilitating 
proliferation-related financial transactions or transactions 
that are in violation of multilateral sanctions. 
 
Recommended actions: 
 
In order to protect their financial institutions, countries 
should take steps to implement the Financial Action Task 
Force's guidance for the implementation of UNSCR 1803's call 
on States to exercise vigilance over activities of financial 
institutions in their territories with banks domiciled in 
Iran, and their branches and subsidiaries abroad. 
 
As highlighted in this guidance, steps to increase vigilance 
over these activities, should include requirements for 
financial institutions to gather additional information when 
conducting transactions involving Iranian banks and to 
carefully review and re-assess their correspondent 
relationships with Iranian financial institutions. 
 
END NON-PAPER 
------------------ 
REPORTING DEADLINE 
------------------ 
 
¶7.  (U) Posts should report results within seven business 
days of receipt of this cable.  Please slug replies for ISN, 
T, TREASURY, and NEA.  Please include SIPDIS in all replies. 
 
---------------- 
POINT OF CONTACT 
---------------- 
 
¶8.  (U)  Washington points of contact for follow-up 
information are Anthony Ruggiero, ISN/CPI, (202) 647-5181, 
ruggieroaj@state.sgov.gov and Kevin McGeehan, ISN/CPI, (202) 
647-5408, McGeehanKJ@state.sgov.gov. 
 
¶9. (U) Department thanks Post for its assistance. 
RICE