US TREASURY DELEGATION DISCUSSES SYRIAN 311

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 001840

SIPDIS

STATE FOR EB/ESC/TFS, S/CT, INL/C, IO/PHO, NEA/ARPI, EUR/PGI
TREASURY FOR JZARATE, DGLASER, AND OFAC

E.O. 12958: DECL: 12/09/2014
TAGS: ECON EFIN ETTC PREL PTER KTFN BA
SUBJECT: US TREASURY DELEGATION DISCUSSES SYRIAN 311
DESIGNATION AND IRAQI ASSETS

REF: (A) STATE 242449

Classified By: JZARATE

(C) Summary. On the margins of the inaugural meeting of the
Middle East/North Africa Financial Action Task Force,
Treasury A/S Juan Zarate met with Syrian Minister of Finance
Dr. Mohamed Al-Hussain and Dr. Douraid Dergham, the chairman
of the Commercial Bank of Syria (CBS). They discussed the
steps the Syrians need to take for the removal of the Section
311 designation of the CBS as a "primary money-laundering
concern". Most of the discussion eventually focused on the
condition that Syria transfer Iraqi assets frozen in CBS to
the Development Fund for Iraq (DFI). Minister Al-Hussain
committed to work with Iraq and again called for an Iraqi
delegation to come to Damascus to resolve the issue. This
discussion was followed by two separate "trilateral" meetings
between Minister Al-Hussain, A/S Zarate, and representatives
from the Iraqi Finance Ministry and Central Bank who were
present in Bahrain. The Iraqis initially insisted that all
Iraqi funds at CBS be immediately transferred to the DFI
pursuant to UNSCR 1483. Eventually, the Syrians and Iraqis
agreed that a meeting in Damascus would occur following the
transfer of a relatively small amount ($3-6 million) from CBS
to DFI. The Syrians asserted that this transfer could be
effected within a week. End Summary

(C) Syria Responds to Action Items

(C) On November 29, 2004, on the margins of the MENA FATF
inaugural meeting, a US delegation led by Treasury A/S Juan
Zarate with representatives from Treasury, OFAC, FinCEN, FBI,
and State, met with a Syrian delegation headed by Dr. Mohamed
Al-Hussain the Syrian Minister of Finance, and including Dr.
Douraid Dergham, the chairman of the Commercial Bank of Syria
(CBS). The meeting focused on a Treasury Department list of
Action Items that Embassy Damascus presented to the Syrians
in November (Ref A). The Syrians must address and correct
these action items in order to continue the postponement of
the issuance of the final rule implementing the Section 311
designation of the CBS and for the eventual lifting of the
Section 311 designation. (Note. Section 311 refers to a
section of the Patriot Act that gives the Treasury the
ability to designate a foreign entity or country as a
"primary money-laundering concern" and to require U.S.
financial institutions to terminate correspondent
relationships with the designated entity or country.
Endnote.)

(C) Al-Hussain stressed the Syrian willingness to work with
the USG on these issues and wanted to bring back positive
results to Syria. He also wanted a definite time frame and
closure to the issue if the Syrians accomplished the US
requests. Zarate explained that the USG would need to see
real progress and good faith on issues of concern in order to
be in a position to reconsider the 311 designation. Zarate
also stated that the US expects Syria to act as a partner in
these issues and there may be more lists of requests in the
future. For example, establishing FIU to FIU relations
involves an ongoing and evolving relationship and mutual
information exchange.

(C) Al Hussain then laid out the steps the Syrians have taken
in reference to the Treasury,s list of sixteen Action Items
(Note: For ease of reference the action item number will
follow the item discussed. Endnote). Al Hussain addressed
eight of the action items and said that not all the Action
Items required new legislation but could be enacted through
decree. Al Hussain stated that: the Money Laundering
Commission is being reviewed to remove both private and
publicly-owned banks from the Commission (#3); private banks
working in the free trade zones were subject to the Central
Bank (#5); the Ministry of Finance was working with the
Central Bank to refine the rules and control the money flow
(#6); Customs is tightening its rules on money crossing the
border. They have had incidents of money smuggling (into
Lebanon) but he reported they weren,t money laundering or
terrorism financing (#7); they will extend an invitation to
the IMF/World Bank for an AML/CFT assessment (#8); charitable
organizations can now only send "in-kind" contributions for
humanitarian aid and not money (#10); the Ministry of Foreign
Affairs is examining the International Convention on the
Suppression of Terrorist Financing for ratification (#12).
Finally, Al-Hussain stated that they were collecting the
specific account information requested (# 16) and would
provide it once they worked out the legal issues with the
Ministry of Finance, the Central Bank and other Ministries.
(Comment: Al Hussain did not address items 1, 2, 4, 9, 11,
13-15 directly during the meeting. End Comment)
(C) Al Hussain expressed disappointment that A/S Zarate
characterized the cooperation by the Syrians as "weak" in Mr.
Zarate,s testimony to Congress and stressed the Syrian
willingness to work together on these issues.

(U) Technical Assistance Request

(U) Al-Hussain expressed a need for technical assistance on
customs and banking issues. Mr. Zarate said he would explore
options for technical assistance with Customs and other
appropriate agencies back in Washington.

(C) Iraqi Assets: Syria still waiting for Iraqi delegation
to Damascus

(C) Al Hussain reiterated the Syrian position, on Iraqi
assets in Syria, that they would be willing to discuss the
issue with the proper Iraqi delegation in Damascus - but so
far no one has come. The Syrians would like to meet with the
Iraqi Minister of Finance, Oil Minister, General Manager of
SOMO, and the Central Bank Governor. Mr. Zarate stated that
the Jordanians had already released the assets back to Iraq.
To this Al-Hussain reiterated that they wouldn,t accept any
official unless they come with the proper authority and
credentials to disperse funds to the right people.

(C) After the bilateral meeting two trilateral meetings were
held among the Iraqi delegation (Dr. Sabah Awny, from the
Ministry of Finance and Ms. Hanna Ibraheem Alkhafiaji, from
the Central Bank),the Syrians and the US. The Iraqi
delegation initially insisted that all funds that had been
located in Syria as of May 2003 (the date of the passage of
UNSCR 1483) should be immediately transferred to the DFI.
After much discussion of cash versus trade accounts, the
requirements of UNSCR 1483, and the magnitude and nature of
Syrian commercial claims, Dr. Sabah agreed that he would
gather the appropriate delegation to come to Damascus. Dr.
Dergham (Chairman of CBS) stressed his confidence that an
overall resolution could be reached within 2-3 weeks of the
arrival of an Iraqi delegation in Damascus. Minister Al
Hussain in turn agreed to transfer the funds (approximately
USD3.5 million) in the non-protocol accounts to the DFI quote
next week unquote.



MONROE