NEED TO RESOLVE ARBIFT ISSUE SOONEST

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