Identifier
Created
Classification
Origin
04MANAMA402
2004-03-24 12:14:00
CONFIDENTIAL
Embassy Manama
Cable title:  

BAHRAIN NOT TRANSFERRING OLD IRAQI ACCOUNT FUNDS

Tags:  BA EFIN IZ PREL 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L MANAMA 000402 

SIPDIS

E.O. 12958: DECL: 03/24/2014
TAGS: BA EFIN IZ PREL
SUBJECT: BAHRAIN NOT TRANSFERRING OLD IRAQI ACCOUNT FUNDS
TO U.N.'S DFI - AT LEAST, NOT YET

REF: A) MANAMA 187 B) STATE 61794 C) FORD-HEFFERNAN

EMAILS 3/16 AND 3/17

Classified By: Robert S. Ford, reason 1.5 B AND D.

C O N F I D E N T I A L MANAMA 000402

SIPDIS

E.O. 12958: DECL: 03/24/2014
TAGS: BA EFIN IZ PREL
SUBJECT: BAHRAIN NOT TRANSFERRING OLD IRAQI ACCOUNT FUNDS
TO U.N.'S DFI - AT LEAST, NOT YET

REF: A) MANAMA 187 B) STATE 61794 C) FORD-HEFFERNAN

EMAILS 3/16 AND 3/17

Classified By: Robert S. Ford, reason 1.5 B AND D.


1. (C) Bahrain will not promptly transfer approximately USD
47 million in funds from old Iraqi-owned bank deposits to the
United Nations Development Fund for Iraq (DFI),Finance
Minister Saif told Charge on March 20. Charge had urged Saif
that the issue had been outstanding since the summer of 2003.
He noted that previously Saif had informed us that the funds
would be transferred. The Bahraini Government's credibility
would suffer just as the American and Bahraini governments
are trying to finish negotiations on a free-trade agreement,
Charge warned.


2. (C) Saif understood the argument, but said transferring
the funds would be difficult legally. He said that the two
Bahraini banks (Gulf International Bank (GIB) and Arab
Banking Corporation) which had held the deposits had had
large, uncollectible claims against the Iraqi Government.
These two banks years ago had laid claim to the Iraqi
deposits to off-set losses on the loans they had extended to
the Iraqi government. Charge reminded Saif that per UNSCR
661 of August 1990, the GoB was to have frozen all Iraqi
funds in Bahrain. Saif did not dispute this. He observed,
however, that the fate of the Iraqi deposits was now a quote
legal issue unquote in Bahrain. As such, the Finance
Ministry had asked the Bahrain Monetary Agency (the BMA -
Bahrain's central bank) for a complete study and report.


3. (C) BMA Governor Sheikh Ahmed had told Charge on March
16 that transferring the funds was not a simple matter.
Bahraini banks had already counted these deposits against
larger losses stemming from bad loans made to Iraq.
Transferring the assets now would, he said, require the two
Bahraini banks to revise their balance sheets and ultimately
their shareholders' profits and capital.


4. (C) Deputy Bahraini Finance Minister and Gulf
International Bank board member Sheikh Ibrahim al-Khalifa
asserted to Charge over dinner March 20 that the banks had
taken the offsets in 1992 or 1993. Charge observed that the
Bahrain banks' action apparently came after UNSCR 661, but
Ibrahim claimed not to know about that resolution.


5. (C) Charge followed up on March 24 with the BMA Governor
who said that lawyers from the BMA and the two banks will
meet next week. He underlined that UNSCRs have legal
precedence in Bahrain; the GoB will meet its obligations, he
stressed. Charge noted that the USG perceives that
obligation to be the transfer of the assets. Sheikh Ahmed
reiterated that Bahrain would meet its obligations, but the
first step was having the central bank's legal team meet with
the banks to determine what exactly was done to the banks'
accounts.


6. (C) Comment: The Deputy Finance Minister confided that
in view of the banks' actions from more than ten years ago,
aides to Saif in Bahrain's Finance Ministry had cautioned
Saif not to pledge that Bahrain would transfer the funds as
he did to us (ref A). Saif did not want a confrontation with
the USG then and he assured CDA that he does not now. The
Central Bank Governor made the same affirmation.
Protestations of goodwill aside, we do not expect quick
resolution of this now old issue. It is not clear to us yet
what kind of Iraqi loan-loss provisions the banks made in the
early 1990s and what the exact legal status of the disputed
accounts at the Bahraini banks now is. Above all, we don't
yet sense here a willingness at the Finance Ministry or the
BMA to compel the two banks to go to their shareholders (Gulf
state governments mostly) and tell them they will have to
absorb a USD 47 million loss. It would be easier for the
Bahrainis, we think, if we had an authoritative
interpretation of what UNSCR 661 required exactly of the
Bahraini Government with respect to Iraqi bank accounts at
GIB and Arab Banking Corporation back in 1991. End Comment.
FORD