VZCZCXRO7185
PP RUEHBC RUEHDE RUEHDH RUEHKUK RUEHROV
DE RUEHLB #0598/01 1521001
ZNY CCCCC ZZH
P 011001Z JUN 09
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC PRIORITY 4999
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCNDT/USMISSION USUN NEW YORK 3849
RHMCSUU/CDR USCENTCOM MACDILL AFB FL
RHEHAAA/NSC WASHDC
RUEKJCS/SECDEF WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 BEIRUT 000598 
 
SIPDIS 
 
DEPT FOR NEA/FO, NEA/ELA, EEB/FO AND EEB/IFD 
ALSO FOR IO A/S BRIMMER 
P FOR DRUSSELL, RRANGASWAMY 
DRL/NESA FOR WHITMAN 
TREASURY FOR U/S LEVEY, DAS BAUKOL 
TREASURY ALSO FOR 
CLARK/PARODI/BLEIWEISS/AHERN/MENDOLSOHN/DOUCE TTE 
STATE PASS USTR FRANCESCKI 
STATE PASS USAID LAUDATO/NANDY/SCOTT 
USUN FOR WOLFF/GERMAIN/SCHEDLBAUER 
NSC FOR SHAPIRO, MCDERMOTT 
DOD/OSD FOR FLOURNOY/KAHL/DALTON 
OVP FOR HMUSTAFA 
 
E.O. 12958: DECL: 06/01/2019 
TAGS: EFIN ETTC PREL PGOV PTER PINR LE IR
SUBJECT: LEBANON: TREASURY U/S LEVEY DISCUSSES HIZBALLAH, 
IRAN AND REPUTATION OF BANKING SECTOR WITH LEBANESE BANKING 
SECTOR 
 
REF: A. BEIRUT 469 
     ¶B. STATE 37028 
     ¶C. BEIRUT 422 
 
Classified By: Ambassador Michele J. Sison for reasons 1.4 (b) and (d). 
 
SUMMARY 
-------- 
 
¶1. (C) Treasury Under Secretary for Terrorism and Financial 
Intelligence Stuart Levey, accompanied by the Ambassador, 
reaffirmed to Lebanese interlocutors at the Central Bank of 
Lebanon, the Banking ControlCommission, Ministry of Finance, 
and private sectr bankers that the U.S. valued its 
cooperative rlationship with Lebanon to protect the 
integrity of the international financial system and combat 
terrorist financing and other illicit finance during his 
one-day visit to Lebanon on May 15.  Levey cautioned that 
despite the divergence of political opinion between the U.S. 
and Lebanon vis-a-vis Hizballah, a May 13 Financial Times 
article in which Hizballah admitted to providing full support 
to Hamas -- a designated terrorist organization in both the 
U.S. and Europe -- was a clear signal that the GOL should not 
look the other way but instead remain vigilant to deny 
Hizballah access to the banking system. 
 
¶2. (C) On Iran, Levey discussed with his interlocutors the 
threat posed by Iran to the international financial system 
because of its deceptive financial practices and use of the 
banking system to facilitate proliferation and terrorism.  He 
noted that, because major financial institutions had cut off 
their Iran business based on the high risk associated with 
it, Iran was now seeking to partner with financial 
institutions outside of Iran where Iranian entities could 
obtain a controlling interest in banking institutions, create 
joint ventures, or purchase banks to improve its access to 
the international financial system. 
 
¶3. (C) Levey's interlocutors concurred with Levey's 
assessment that Lebanon's political and security stability 
depended on the level of confidence in the banking sector. 
The bankers emphasized that they were professionals and were 
charged with maintaining the integrity of the system, yet 
several expressed concern about a possible negative reaction 
from the U.S. if the Hizballah-led March 8 alliance were to 
win a majority in the June 7 parliamentary elections.  End 
summary. 
 
¶4. (U) U/S Levey and his Chief of Staff and Senior Advisor, 
Christy Clark, visited Beirut May 15.  Accompanied by the 
Ambassador and Poloff, they met with the four Vice Governors 
of the Central Bank (Raed Charafeddine (Shia), Saad Andary 
(Druze), Mohammad Baasiri (Sunni), and Haroutian Samuelian 
(Armenian Orthodox)); head of the Banking Control Commission 
(BCC) Walid Alameddine; Minister of Finance Mohamad Chatah; 
and 16 representatives of Lebanese and international 
commercial banks. 
 
HIZBALLAH ADMITS 
TO SUPPORTING HAMAS, 
WHAT WILL THE GOL DO? 
--------------------- 
 
¶5. (C) U/S Levey pointed to a May 13 Financial Times article 
in which Hizballah Deputy Secretary General Naim Qassem 
admitted Hizballah provides full support for Hamas as a clear 
sign of Hizballah's illicit financial and terrorist activity. 
 Levey noted that Hizballah's support for Hamas, which is 
recognized not only by the United States but also the 
Europeans as a terrorist organization, could result in the 
Europeans treating financial interaction with Hizballah 
 
BEIRUT 00000598  002 OF 004 
 
 
differently.  He offered that Hizballah's open support for 
Hamas may resonate in Europe, and this is something worth 
thinking about in terms of Lebanon's own banking sector. 
Levey warned the GOL representatives that it was also their 
responsibility to adhere to agreed upon international codes 
of conduct to combat terrorist financing, irrespective of 
Hizballah's participation in the government. 
 
¶6. Acting Central Bank Governor Raed Charafeddine said the 
CBL was "very clear about the operating practices" of the 
commercial banks and did not want to expose Lebanon's system 
to any "shadow of a doubt."  Charafeddine added that although 
he is Shia, he is a professional first; it is the job of the 
Central Bank "to protect the banking system," he said. 
Mohammad Baasiri, one of four Vice Governors and concurrently 
head of Lebanon's Financial Intelligence Unit-equivalent, the 
Special Investigation Commission (SIC), strongly emphasized 
the GOL's commitment to international financial practices, 
despite the divergence in the U.S. and GOL positions 
vis-a-vis Hizballah. 
 
¶7. (C) Walid Alameddine, head of the Banking Control 
Commission, concurred with his Central Bank colleagues and 
added that Hizballah's financing does not come through the 
formal banking system in Lebanon.  The commercial bankers 
disclosed that they take the international standards one step 
further by refusing even to open accounts for any person or 
entity related to Hizballah.  Vice Governor Raed Charafeddine 
gave an example, later confirmed by Fransabank (where 
Charafeddine was formerly Deputy General Manager), whereby 
the bank denied, recently, the application of a Hizballah-run 
school to establish a banking domicile to pay the salaries of 
its teachers. 
 
IRAN'S FINANCING OPTIONS 
CONSTRAINED, NEW TACTICS 
UNDER CONSIDERATION 
------------------------ 
 
¶8. (C) Turning to Iran, U/S Levey told his interlocutors that 
there was evidence that Iran was actively searching for new 
outlets to access the international financial system. 
Iranian entities, he said, sought to partner with financial 
institutions abroad to obtain a controlling interest in 
banking institutions, create joint ventures, or purchase 
banks.  U/S Levey encouraged the GOL to implement 
countermeasures to protect the Lebanese banking system from 
the terrorist financing and money laundering risks posed by 
Iran, as called for by the Financial Action Task Force (FATF) 
at its plenary session in February. Although there has been a 
recent increase in economic cooperation between Lebanon and 
Iran (ref C), the Central Bank governors were not as 
concerned about Iranian manipulation of Lebanon's banking 
system. They requested, however, that the U.S. "communicate 
in full transparency and full faith" to the CBL and SIC if it 
had specific concerns. 
 
¶9. (C) Baasiri and the other CBL governors argued that the 
threat from Iranian banking entities was very small in 
Lebanon, with only one Iranian bank -- Bank Saderat -- 
operating there.  Bank Saderat (also designated by the U.S. 
under its terrorism Executive Order, E.O. 13223), has five 
branches in Lebanon with total assets amounting to 
approximately USD 100 million, less than 0.011 percent of 
Lebanon's banking sector, Alameddine said.  Bank Saderat was 
a "very small but irritating" institution for the GOL because 
of the U.S.-designation and the international attention 
focused on Iran, he added. 
 
¶10. (C) U/S Levey explained that the United States had acted 
against Bank Saderat for facilitating Iran's support to 
 
BEIRUT 00000598  003 OF 004 
 
 
terrorism and that, as a result no U.S. person can do 
business with it.  He noted Paragraph 10 of UNSCR 1803, which 
calls on states to exercise vigilance over the activities of 
financial institutions in their territories with all Iranian 
banks, particularly Banks Melli and Saderat.  Furthermore, 
U/S described the restrictive measures that the European 
Union had put in place in response to this provision and 
noted that European banks have largely stopped doing business 
with Iran.  He cautioned the Lebanese financial authorities 
about Saderat's conduct and also the possibility that Iran 
could attempt to enter Lebanon's banking system through the 
use of front companies or hidden identities and affiliations 
with Iranian entities.  In addition, U/S Levey offered U.S. 
assistance to the GOL, if requested, to investigate whether 
certain individuals or entities had ties to Iran's designated 
banks. 
 
¶11. (C) The case of the reactivation of a loan from the 
Export Development Bank of Iran (EDBI) to the GOL (reftels) 
was also a concern, U/S Levey said.  Minister of Finance 
Mohamad Chatah, Alameddine and the CBL governors reiterated 
their belief that the signing of the reactivation was 
"probably a mistake," but the original loan was initiated in 
2003 before EDBI's designation.  Chatah also explained that 
the loan is a government to government transaction, rather 
than through the commercial banks, and could be a viable 
source of funding for development projects.  However, Chatah 
said the issue was under review in the cabinet and would be 
studied carefully. 
 
LEBANON'S STABILITY 
DEPENDS ON CONFIDENCE 
IN BANKING SECTOR 
--------------------- 
 
¶12. (C) Treasury U/S Levey emphasized to the Central Bank 
Governors, the Banking Control Commission, Minister of 
Finance and commercial bankers the value of the U.S.-Lebanon 
banking sector relationship.  In these turbulent economic and 
financial times, Levey said, Lebanon is an exceptional 
example of a regional economy that has weathered the global 
financial crisis relatively well.  He continued, however, 
that concerns exist about Lebanon's ability to avoid a 
"crisis of reputation" and a lack of confidence from 
international investors, should Hizballah become more active 
in the formal banking sector.  He noted again Hizballah's 
support for another terrorist organization, Hamas, and the 
fact that Hamas was recognized as a terrorist organization in 
Europe.  The commercial bankers, especially, were the most 
adamant that until now the Lebanese banking sector "was 
successful avoiding toxic assets and toxic activities," said 
Dr. Joseph Torbey, former President of the Association of 
Banks in Lebanon (ABL).  They were committed to maintaining 
this vigilance, he said, for the sake of the whole system. 
 
¶13. (C) Alameddine, on the other hand, was less optimistic 
and characterized the Lebanese banking system was vulnerable. 
 Although financially Lebanon's banks are overcapitalized, he 
said, they are still vulnerable.  Alameddine, seconded by 
others, said that should anything happen to shake confidence 
in Lebanon's banking sector, the political stability of the 
country would fall by the wayside. 
 
¶14. (C) In a coffee reception following the roundtable with 
the commercial bankers, several expressed their private 
concerns to U/S Levey about a negative U.S. reaction to the 
outcome of the June 7 parliamentary elections if the 
Hizballah-led opposition were to win the majority.  A 
negative U.S. reaction, the bankers opined, could contribute 
to a lack of confidence in the banking system and undermine 
Lebanon's financial sector. 
 
BEIRUT 00000598  004 OF 004 
 
 
 
¶15. (C) The bankers also raised grievances about the 
discrepancies between the U.S.-designations lists and the 
UN-designations lists.  The more identical the two lists are, 
the easier it was for Lebanon to take action against the 
designated individuals or organizations, the bankers said. 
The bankers also sought U.S. assistance to help alleviate 
"reputation risk."  They reported that it was not uncommon 
for other countries, especially in Asia, to delay receipt of 
outgoing transfers from Lebanon because of a perception that 
all transactions out of Lebanon were inherently linked to 
Hizballah.  U/S Levey offered to use his office to sensitize 
other countries to this issue and provide an accurate 
explanation of UN Security Council Resolution (UNSCR) 1701 -- 
which calls on all states to take necessary measures to 
prevent the provision of assistance, training, or weapons, to 
any entity not authorized by the GOL -- because that 
resolution does not preclude countries from financial 
dealings with Lebanon. 
 
¶16. (U) U/S Levey has cleared this message. 
SISON