(C) JORDANIAN BANKERS CITE UNEXPLAINED,

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 001722

SIPDIS

NOFORN

TREASURY FOR QUARLES, ZARATE, MILLS, MCDONALD

E.O. 12958: DECL: 03/07/2014
TAGS: EFIN PREL PINR JO UNSC IAZ
SUBJECT: (C) JORDANIAN BANKERS CITE UNEXPLAINED,
LAST-MINUTE REVERSALS IN IRAQ

REF: AMMAN 1453

Classified By: CDA DAVID M. HALE. REASONS: 1.5 (B,D).


1. (C) SUMMARY: At the request of respective bank
managers, the Ambassador met separately with representatives
of the Export & Finance Bank (EFB) and the Arab Bank. Both
banks raised concerns that they were being treated
arbitrarily by Iraqi authorities and questioned how they
might resolve their problems. EFB had concluded an agreement
in early January to acquire 49 percent of the National Bank
of Iraq, only to see a decree published some three weeks
after the fact being applied retroactively to annul the deal.
Arab Bank PLC (AB) was invited by the CPA to consider
re-establishing its presence in Iraq by applying for a branch
license. All indications were that Arab Bank was among four
finalists recommended for the licenses, until the Central
Bank of Iraq (CBI) announced only three banks had been
approved. The leadership of the two banks has expressed
concern at these sudden, inexplicable reversals. This report
summarizes what they say about their situation. END SUMMARY.

Export & Finance Bank Deal: Moving the Goalposts
-------------- --------------


2. (C) Ali K. Al-Husry, Chairman of the Board and CEO of
the Export & Finance Bank (EFB),called on the Ambassador
February 29 to detail a strategic partnership agreement EFB
had signed January 4 with the National Bank of Iraq (NBI)
whereby EFB acquired 49 percent of NBI's paid up capital in
return for USD 7.3 million. The agreement gave EFB
management control of NBI, according to the bank's
proprietary chronology that Embassy is faxing to NEA/ARN
(protect). Al-Husry said that the deal had been approved by
the Central Bank of Iraq and also by the Central Bank of
Jordan. After the deal was consummated, the Iraqi Finance
Minister issued a letter on January 28 declaring all such
agreements void unless they had the prior approval of the
Governing Council Finance Committee. The letter explicitly
stated the decree was retroactive, applying to any agreement
made "before this date."


3. (C) Al-Husry said that he wanted to know where EFB
stood. Iraq needed an improved banking sector, he noted, and
two CPA advisors had encouraged EFB to enter into the
arrangement: "They were very, very keen, very supportive,"
he added. The sudden reversal sent a mixed message to
investors, he noted. Other potential investors in the
banking sector will ask about what will happen to them, he
averred, and they will wonder what to do in an environment
without a finalized legal situation. Al-Husry said that he
had his suspicions about who upset the apple-cart but was
careful not to make any allegations about the source of EFB's
problems in the GC, although he said that it was self-evident
to anybody who understood the situation.


4. (C/NF) Al-Husry revealed that his father-in-law had been
the Government of Jordan official to issue the order to close
Ahmed Chalabi's Jordan-based Petra Bank in the early 1990s.
(NOTE: Chalabi was convicted in absentia in Jordan's courts
for bank fraud in 1992 in connection with the failure of
Petra Bank. END NOTE.)


5. (C) Al-Husry wanted to know what EFB could do. He said
that he had informed GOJ Foreign Minister Marwan Muasher and
that Muasher had advised him to brief the Ambassador while
Muasher would inform King Abdullah. He stressed that he did
not wish to cause friction in Iraq, rather he wanted to
proceed with the bank partnership in accordance with the
signed agreement.

Arab Bank Invited to Return: "If not Welcome, Why go?"
-------------- --------------


6. (C) Abdel Hamid Shoman, Deputy Chairman and CEO of Arab
Bank PLC called on the Ambassador March 2 to recount the
history of Arab Bank and the CPA last fall. At the time, he
said, AB was not contemplating moving into Iraq so quickly
but had considered the move as a distant prospect in the
future. One compelling reason for staying out was the fact
that AB's assets had been seized when the Iraqi regime
nationalized AB in 1963-64 and AB had never been compensated,
he said. However, a letter from CPA Administrator L. Paul
Bremer to King Abdullah II and a visit from the CPA's Peter
McPherson and Tom Foley had convinced AB to send a team to
Baghdad. The AB group met with the CBI and other parties,
Shoman recounted, to determine if the Arab Bank would be
welcome. If they did not want AB to go in, that was fine
said Shoman. "If we are not welcome, why go?"

Reputation on the Line
--------------


7. (C) AB filed the application with what it believed was a
strong proposal. When only three banks were chosen, they
were surprised that Arab Bank was not among them, said
Shoman. Shukry Bishara, COO of the bank, added that Arab
Bank had even received unofficial congratulations from
individuals in Baghdad for being one of four finalists. "At
the eleventh hour, our name was pulled out." Bishara stated
that he later learned CG member Ahmed Chalabi "stood in the
way" of Arab Bank's obtaining a license. Bishara said that
he believed Chalabi acted as he did because of his poor
relations with Jordan. The decision was not good for the
reputation of Arab Bank, he continued, so AB made a decision
to see what it could do to continue advancing its application
for a license. Hence the subsequent letters to the CPA and
the CBI (Ref),he concluded. Because Arab Bank was asked to,
it applied, interjected Shoman. "Now we are told 'No' though
we are among the best banks that applied," said Shoman.


8. (C) Bishara added that AB accedes to the "highest level"
of international banking conduct. "AB respects both the
spirit and the letter of the law on money laundering," he
noted, adding that AB had long adopted stringent criteria
regarding "know your customer" guidelines. Regarding
transactions in the Gulf and Jordan, AB has a clean
reputation, he said. AB regularly turned away
suspicious-looking transactions, he noted. Giving another
example related to Iraq, he said that AB had refused to
conduct transactions if they appeared to be outside the
oil-for-food (OFF) protocol when that UN program was in
effect. Washington is aware of Arab Bank's credentials
because Arab Bank New York offices are subject to the U.S.
system, he continued. Since opening in the U.S. in 1981, the
Office of the Comptroller of the Currency (OCC) has regularly
visited the bank, he said, and the bank is guided by OCC
rules.


9. (C) Regarding recent Israeli Defense Force raids on AB's
Palestinian bank branches, Shoman said that the AB was
willing to work with the Palestinian Finance Minister to
block any transactions for those designated as terrorists
through regular mechanisms. Furthermore, AB was willing to
share with the Palestinian FinMin all of its bank account
records for the last two years, he said. For payments
greater than USD 10,000 the bank followed a policy of
reporting the amount, holding the money, and paying it out
only after is was declared to be clean by authorities, he
noted.

AB Follows Standards, Will Cooperate
--------------


10. (C) When asked if AB ever had any of the entities
listed by the UN (UNSCR 1267 committee) on its account
records, Bishara responded that not even CitiBank could avoid
a few accounts like that slipping through. But the bank did
not knowingly tolerate such accounts. By intent, standards,
and procedures of governance the Arab Bank was taking every
possible step to avoid abuses, he said. Shoman said that the
Arab Bank would be cooperative and respond to questions.


11. (C) In both cases, the Ambassador said that he would
report what he had heard from the bank leaders and would see
what might be done.
HALE