SALE OF FAST BOATS TO IRAN

S E C R E T NOFORN SECTION 01 OF 02 ROME 000059

SIPDIS

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

E.O. 12958: DECL: 01/08/2014
TAGS: PARM ETTC PREL EIND IR IT EXPORT CONTROLS
SUBJECT: SALE OF FAST BOATS TO IRAN

REF: A. ROME 5680


B. ROME 5552

C. STATE 338477

D. ROME 5202 AND PREVIOUS

E. STATE 348141

CLASSIFIED BY: CHARGE D'AFFAIRES EMIL SKODON FOR REASONS 1.5 (A) (B) AN
D 1.6X6.


1. (S) ON JAN. 7 ECON COUNSELOR CALLED ON GABRIELE CHECCHIA,
DIPLOMATIC ADVISOR
TO MINISTER OF PRODUCTIVE ACTIVITIES (INDUSTRY) MARZANO, TO
CONTINUE REFTEL A
DISCUSSION OF FB DESIGN'S EXPORT TO IRAN OF FOUR FAST BOATS.
ECON COUNSELOR SAID
WE UNDERSTOOD TWO BOATS WERE ALREADY IN IRAN, AND THAT THE
THIRD BOAT, DUE TO HAVE
BEEN SHIPPED FROM VENICE DECEMBER 19, WAS NOW REPORTEDLY TO
BE SHIPPED JANUARY 15.
SHE STRESSED THERE WAS NOW WIDE-SPREAD INTEREST IN WASHINGTON
IN WHAT STEPS THE GOI
COULD TAKE TO HALT SHIPMENT OF THE REMAINING TWO. THERE WERE
ONLY EIGHT DAYS REMAINING TO THE NEXT SHIPMENT DATE.


2. (S) CHECCHIA AGAIN SAID THE GOI HAD NO LEGAL AUTHORITY TO
SEIZE THE BOATS OR HALT SHIPMENT. IMMEDIATELY FOLLOWING ECON COUNSELOR'S
PREVIOUS CALL, HE HAD BRIEFED MINISTER MARZANO OF THE USG CONCERNS OVER FURTHER
EXPORTS. HOWEVER, BOTH HE AND THE MINISTER CONCLUDED THAT CHECCHIA'S SUGGESTION
OF A DECREE LAW (REF A),WHICH THE COUNCIL OF MINISTERS COULD PASS QUICKLY TO
PERMIT IMMEDIATE HALT OF THE EXPORT, WOULD BE MORE DIFFICULT THAN CHECCHIA
ORIGINALLY THOUGHT. SPECIFICALLY, MARZANO (AND CHECCHIA) THOUGHT THAT MINISTERS
MUST ALSO CAREFULLY CONSIDER THE DOMESTIC REPERCUSSIONS OF FORCIBLY HALTING
FURTHER EXPORT. CHECCHIA SAID HE THOUGHT SUCH A STEP WOULD BANKRUPT FB DESIGN
AND POSSIBLY A SECOND FIRM PROVIDING COMPONENT PARTS, NOTABLY, ENGINES FOR
THE FAST BOATS (ISOTTA FASCHINI MOTORI, S.P.A. IN BARI, ITALY). CHECCHIA
ALSO SAID, WITH RESPECT TO COMPENSATION, THAT IN ADDITION TO THE COSTS OF THE
BOATS (AND POSSIBLY A PENALTY FOR NOT MEETING THE CONTRACTUAL OBLIGATION
WITH IRAN),ONE MUST ALSO CONSIDER UNSPECIFIED "LABOR COSTS." ON ISOTTA
FASCHINI MOTORI, HE SAID ITS CORPORATE PLANS WERE BASED ON SALES PROCEEDS FROM
THE BOATS AND THAT THE "OPPORTUNITY COSTS" OF LOSING THESE REVENUES MUST BE PART
OF ANY COMPENSATION PLAN.


3. (S) TO DRIVE HOME THE POINT, CHECCHIA REPEATED THAT EVEN
IF THE GOI COULD SOLVE THE LEGAL PROBLEM OF HOW TO HALT SHIPMENT, THERE STILL
REMAINED THE DOMESTIC PROBLEM OF COMPENSATING BOTH FIRMS. HE WONDERED
ALOUD THREE TIMES WHETHER THE USG COULD HELP ON THIS SCORE. CHECCHIA INITIALLY
SAID MINISTER MARZANO HAD AGREED TO MEET WITH "CONCERNED MINISTRIES" WITHIN THE
NEXT WEEK ON THE ISSUE. PRESENTED WITH THIS NEWEST INFORMATION THAT THE THIRD BOAT
WAS NOW DUE TO BE SHIPPED JANUARY 15, CHECCHIA SAID HE WOULD SEEK TO HAVE THE MEETING
MOVED FORWARD. HE SAID HE WOULD CALL ECON COUNSELOR WITH A REPORT OF THAT MEETING,
WHENEVER IT TAKES PLACE.

COMMENT AND RECOMMENDATIONS:

ROME 00000059 002 OF 002

TION THAT THE GOI WILL ACT QUICKLY ENOUGH TO HALT SHIPMENT OF THE TWO REMAINING
BOATS. IF ANYTHING, SENIOR ITALIAN OFFICIALS APPEAR TO HAVE CONCLUDED
THAT THEY ARE CONSTRAINED FROM ACTING NOT ONLY BY THEIR LACK OF LEGAL
AUTHORITY, BUT ALSO BY THE POSSIBLE FINANCIAL AND LABOR IMPLICATIONS FOR THE TWO ITALIAN
FIRMS INVOLVED. FOR WELL MORE THAN ONE YEAR, EMBASSY ROME HAS RAISED THIS
ISSUE REPEATEDLY AND AT EVERY LEVEL, FROM THE AMBASSADOR ON DOWN,
WITH FM FRATTINI, THE PRIME MINISTER'S SENIOR ADVISORS, AND AT OTHER SENIOR
LEVELS IN THE MINISTRIES OF FOREIGN AFFAIRS AND PRODUCTIVE ACTIVITIES. THE
SECRETARY HAS ALSO RAISED THE ISSUE WITH FM FRATTINI. AT THIS JUNCTURE, WE

SIPDIS
BELIEVE OUR BEST REMAINING SHOT AT GETTING THE ITALIAN GOVERNMENT TO INTERVENE AND STOP
THE EXPORT OF THE LAST TWO BOATS, WOULD BE EITHER ANOTHER DIRECT COMMUNICATION
FROM THE SECRETARY TO FM FRATTINI, OR ALTERNATIVELY, A MESSAGE FROM NSA RICE TO
HER ITALIAN EQUIVALENT, GIOVANNI CASTELLANETA, SENIOR DIPLOMATIC ADVISOR
TO THE PRIME MINISTER. THERE IS NO GUARANTEE, HOWEVER, THAT EVEN THESE
STEPS WILL SUCCEED, GIVEN THE OBSTACLES PERCEIVED BY THE ITALIANS.


5. (S) WITH RESPECT TO THE LONGER TERM QUESTION OF
ADDRESSING THE DEFICIENCIES IN
ITALY'S EXPORT CONTROL REGIME IN A MANNER THAT ALLOWS US TO
DEAL WITH CASES LIKE FAST BOATS MORE EFFECTIVELY IN THE FUTURE, WE WOULD
SUGGEST THAT "QUICK" ACTION IN THE ABSENCE OF CLEAR LEGAL AUTHORITY" BE MADE AN
AGENDA ITEM FOR THE NEXT ROUND OF BILATERAL DUAL-USE EXPORT CONTROL DISCUSSIONS,
DUE TO BE HELD THE FIRST QUARTER OF THIS YEAR. WE SUGGEST ALSO THAT AN UPDATED
INTELLIGENCE BRIEFING BE ARRANGED FOR APPROPRIATE GOI OFFICIALS ON THE LARGER PICTURE
OF IRANIAN PURCHASES IN EUROPE (CASTELLANETA'S PROPOSED WASHINGTON TRIP AT THE END OF
JANUARY MAY PROVIDE THE OPPORTUNITY FOR SUCH A BRIEFING). FINALLY, SINCE OTHER
COUNTRIES MAY FACE SIMILAR EXPORT CONTROL DEFICIENCIES, WE WOULD SUGGEST ADDRESSING THE
ISSUE AT THE DEFENSE TRADE CONTROLS MEETING PROPOSED FOR MARCH IN
WASHINGTON (REF E). END COMMENT
AND RECOMMENDATIONS.

SKODON
SKODON

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2004ROME00059 - Classification: SECRET NOFORN