STOPPING ITALIAN FAST BOAT TRANSFERS TO IRAN

S E C R E T ROME 003977

SIPDIS


STATE FOR EUR/WE, EUR/PRA, NP/ECNP, INR/SPM, NEA/NGA,
PM/RSAT

E.O. 12958: DECL: 09/02/2013
TAGS: PARM PREL PGOV ETTC IT IR EXPORT CONTROLS
SUBJECT: STOPPING ITALIAN FAST BOAT TRANSFERS TO IRAN

REF: A. ROME 3613


B. SECSTATE 230222

C. ROME 3386 AND PREVIOUS

Classified By: Economic Minister-Counselor Scott Kilner for Reasons 1.5
(b),(c) and (d)


1. (S) Summary. Italian fast boat manufacturer FB Design has
given the GOI new assurances that it will not export more
fast boats or boat molds to Iran as long as the security
situation in the Persian Gulf remains volatile. MFA export
control coordinator de Mohr told us this means the hold is
indefinite. FB Design claims that its continuing contacts
with Iranian entities are necessary to keep the company from
being declared in breach of contract. The company further
reports that its existing contract provides for the delivery
of four more boats to Iran, two of which are partially built,
while manufacture of the other two boats has yet to be
started. De Mohr maintained that the "catch-all" provision
of Italian export control law (and the related "catch-more"
provision) does not give the GOI the ability to formally
impose a permanent halt on this export. Nevertheless, he
stated firmly that the GOI's informal persuasion has been and
will continue to be effective. Separately, DCM also raised
the fast boats issue with MFA Secretary General Baldocci, who
promised to convey our message to FM Frattini. End summary.


2. (S) Following up on our discussion with MFA Deputy DG for
Economic Affairs Leggeri (ref A),Ecmin and econoff exchanged
views on ref B points in further detail with MFA
Nonproliferation Coordinator Ugo de Mohr on August 29. The
two-hour session, which commenced with de Mohr reading
through the points carefully, focused on the latest
information de Mohr had received from the Italian firm FB
Design regarding the status of its contracts to sell fast
boats to Iran, as well as on the legal means available to
Italy to formally impede such exports. Ecmin initiated
discussion by stressing the persuasive nature of information
we had seen recently that indicated the company continues to
do business with Iranian entities. The U.S. believes that
stopping these fast boat exports remains of critical security
concern, given the large U.S. military presence in and near
the Persian Gulf.

GOI Contact with FB Design
--------------


3. (S) De Mohr told us that FB Design recently (since ref C
discussion) informed him that the four fast boats originally
intended for delivery to Iran in September 2003 remained
uncompleted, with construction of two of the four boats not
having even begun yet. De Mohr said the firm, in response to
GOI pressure, has agreed to continue to suspend delivery of
any boats, when/if they are completed, as long as the
security situation in the Persian Gulf remains precarious. De
Mohr characterized this as an indefinite hold. De Mohr has
asked for, and expects to receive, written assurances from FB
Design that it will maintain this suspension. The company
also assured him that no more boat molds would be delivered
to Iran. De Mohr added that the company has told him that it
has no intention of signing any future contracts with Iran.


4. (S) According to de Mohr, FB Design is in a legal quandary
due to its decision to comply with the GOI's informal request
to suspend further boat exports. The company has a legally
valid existing contract with Iranian entities, and, according
to de Mohr, maintains contact with those entities in order to
forestall Iranian efforts to force the company to comply with
its contract or declare a breach of contract. The company
thus has not formally announced that it will not comply with
its contract, but rather has resorted to delaying maneuvers
in order to avoid having to pay a financial penalty. As part
of its stalling tactics, FB Design continues to allow a few
Iranian technicians to visit its Italian facilities. However,
the company limits their activity, inhibiting their access to
significant technology, according to de Mohr.


5. (S) To further stall delivery, for example, FB Design has
asked its Iranian clients to postpone the terms of an
existing letter of credit under which it would be obliged to
proceed with the export of boats, de Mohr told us. Despite

its efforts to maintain the semblance of open channels with
the Iranians, the company remains concerned that its clients
may seek to legally enforce its contract to finish and
deliver the vessels, exposing FB Design to breach of contract
and financial penalties.

Italian Legal Authority to Control Fast Boat Exports
-------------- --------------


6. (S) Picking up on ref B points regarding the GOI's ability
to use "catch-all" provisions to formally halt shipment of
fast boats and boat molds to Iran, de Mohr went into further
detail on the limits of GOI legal authority than he has in
the past. De Mohr stated that "catch-all" authority could be
invoked for an export only if it could be established that
the item might reasonably be diverted for military use to
further WMD proliferation. Absent the WMD connection,
"catch-all" could not be used to stop delivery simply because
the end-user was of a military nature.


7. (S) De Mohr added that the EU's (and Italy's) so-called
"catch-more" provision could subject an export to licensing
if the item could be the object of diversion towards
conventional military use, but this provision would apply
only if the end-user is in a country subject to an embargo by
the UNSC, the OSCE, or the EU (which is not the case for
Iran). "Catch-more," de Mohr continued, could also be
invoked by an EU member for exports with conventional
military significance to a country that has been formally
criticized by the UNCHR for human rights abuses - which was
the case for Iran until last year.


8. (S) Lastly, de Mohr raised an additional provision of EU
(and Italian) dual use export control law that provides any
EU member state the opportunity add any item to national
control lists based on a "general public interest"
determination. However, taking this step would require that
EU country to control the item "universally," i.e. to all
destinations. This was a step that de Mohr could not foresee
Italy taking in the case of patrol boats. Nevertheless, he
said that the spirit of this "general public interest"
provision would continue to permeate the GOI's efforts to
impede exports, on an informal basis, to regions of
particular tension.


9. (S) De Mohr noted that the ongoing assessment exercise
within the Wassenaar Arrangement has a task force considering
counter-terrorism proposals, which could perhaps take a
closer look at the potential threat by fast boats. In theory,
categories of items of potential terrorist use could be
established, and could include patrol boats. De Mohr noted
that controlling such a common vessel would prove difficult,
however, and would likely impose a significant burden on the
global motorboat industry.

DCM's Meeting with MFA SecGen Baldocci
--------------


10. (S) DCM took advantage of a September 2 meeting with
Secretary General Baldocci to emphasize the importance we

SIPDIS
place on de Mohr's latest assurances and the need to ensure
that the arrangement sticks. DCM also asked the GOI to guard
against technology transfer to Iran through the visits by
Iranian technicians to FB Design. Baldocci said he would
convey our message directly to Foreign Minister Frattini.
SEMBLER


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2003ROME03977 - Classification: SECRET