NEED TO RESOLVE ARBIFT ISSUE SOONEST

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001128 SIPDIS STATE FOR E - USEC ALAN LARSON, EB - A/S TONY WAYNE, NEA/FO, NEA/ARP - JONES AND HEFFERNAN, NEA/RA - GRAPPO AND SUTPHIN, EB/ESC/ESP AND INL/C - CASSARA TREASURY FOR OGC - AUFHAUSER TREASURY ALSO FOR NILMINI GUNARATNE TREASURY PASS OFAC FOR NEWCOMB DOJ FOR TED GREENBERG NSC FOR JOSEPH MYERS E.O. 12958: DECL: 03/10/07 TAGS: EFIN ETTC PREL PGOV LY TC SUBJECT: NEED TO RESOLVE ARBIFT ISSUE SOONEST REF: A) 02 ABU DHABI 5714 (NOTAL) B) ABU DHABI 3406 ¶1. CLASSIFIED BY AMBASADOR MARCELLE M. WAHBA FOR REASONS 1.5 (B,D). ¶2. (C) SUMMARY AND COMMENT: That OFAC continues to hold more than than 120 million USD which belongs to the UAE is a matter which we need to resolve soon. De facto Foreign Minister Hamdan bin Zayid raised the matter in the context of last Fall's bilateral Strategic Dialogue, and our strongest partner here in the Global War on Terrorist Financing, UAE Central Bank Governor Sultan bin Nasser Al-Suweidi, has on several occasions noted that our lack of response on this key issue is incomprehensible to the UAE leadership given their strong cooperation across the board in the GWOT -- the Governor has explicitly stated that our lack of action reduces his credibility and capacity to advocate for even closer partnership with us on terrorist financing issues. The Arab Bank for International Finance and Trade (ARBIFT) has since the early 1990s been listed by OFAC as a Specially-Designated National of Libya (SDN), because of Libya's 42.5 percent equity stake in the bank (the UAE owns 42.5 percent and Algeria 15 percent). The funds seized by OFAC, however, are almost all payments to or from UAE entities -- no Libyan money is involved at all. ¶3. (C) In an effort to remove the SDN status, the UAEG has already replaced the Libyan General Manager -- effectively eliminating any Libyan role in the day to day running of the bank -- and developed a UAE-focused business plan which leaves no role for Libya. Al-Suweidi says the UAE will oust the last vestige of Libyan influence, the Chairman of the Board, at the next Board meeting this Spring. The UAE will then be prepared to dilute Libyan equity in the Bank, but notes that nobody will buy shares as long as OFAC designation tarnishes the reputation of the bank and prevents any dollar-denominated business. The Emiratis seek an agreement whereby the SDN status is lifted in return for their written commitment to substantially lower, or eliminate, Libyan equity. We believe the time has come to end this long- running bilateral irritant -- it is no longer consonant with our partnership with the UAE, particularly on terrorist financing issues. We would ask that the Department engage actively with the appropriate authorities to move this matter to a satisfactory resolution. END SUMMARY AND COMMENT. ¶4. (C) Central Bank Governor Sultan bin Nasser Al-Suweidi told Econchief March 8 that the UAE plans to replace the Libyan Chairman of the Board of the Arab Bank for International Finance and Trade (ARBIFT) at the next board meeting scheduled for later this Spring. Al-Suweidi said this approach had already been approved and coordinated with de facto Finance Minister Dr. Muhammad Khalfan bin Khirbash, and reflected an ongoing effort by the UAE to ensure that the Libyan role in managing and overseeing ARBIFT is eliminated. The UAE, the Governor noted, had earlier removed the Libyan responsible for day to day management of the bank and replaced him with an Emirati. ¶5. (C) According to Al-Suweidi, discussions with OFAC Director Richard Newcomb on the margins of last November's bilateral Strategic Dialogue in Washington had given the UAE hope that it might be possible to reach a settlement of the long-running ARBIFT issue. (Note: The bank has been listed by the USG as a Specially-Designated National (SDN) of Libya since the early 1990s owing to Libya's 42.5 equity share -- the UAE also owns 42.5 percent and Algeria the rest. More than 120 million usd of the bank's assets are currently frozen in the U.S. End Note.) The UAE approach will be to remove any Libyan involvement in running the bank (this has already been done but for the largely symbolic move of replacing the Libyan Board Chairman),and to then present OFAC with an action plan or draft MOU whereby the USG would drop the SDN listing in return for an agreement by the UAEG to dilute substantially or entirely Libya's stake in the bank. Al-Suweidi observed that the UAE recognizes that it must take the next step on ARBIFT before approaching OFAC again; that said, he hoped that positive action by the UAEG would receive fair consideration from the USG. Wahba