ARAB BANK GLOBAL HEAD OF REGULATORY COMPLIANCE

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002388 SIPDIS STATE PLEASE PASS TO USAID E.O. 12958: DECL: 04/04/2016 TAGS: EFIN KPAL KWBG KTFN ECON JO SUBJECT: ARAB BANK GLOBAL HEAD OF REGULATORY COMPLIANCE DISCUSSES DEALING WITH THE PA, JORDAN'S AML Classified By: Ambassador David Hale, Reason 1.4 (d). ¶1. (C) Summary: Arab Bank, Global Head of Regulatory Compliance Michael Matossian requested USG guidance on Palestinian Authority (PA) accounts at Arab Bank, expressed his support for Jordan's draft Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) law, and provided additional information on Arab Bank's credit exposure to the PA. Matossian also expressed his desire to catalyze a private sector lobbying campaign to help secure passage of the AML/CFT law. End Summary. -------------- -------------- Request for Guidance on USG position on HAMAS-controlled PA -------------- -------------- ¶2. (SBU) Matossian began his March 30 meeting with the Ambassador by requesting guidance on how the USG would interpret its already-existing sanctions on HAMAS in light of its assumption of control over the PA government. The Ambassador indicated that guidance from Washington on this subject should be forthcoming in the near future, and that the Embassy would pass along new information as soon as possible. As a potential solution, Matossian suggested that given U.S. support for Palestinian President Mahmoud Abbas, the USG might prefer that Arab Bank establish an account in his name through which humanitarian and other aid could flow without coming under the control of HAMAS-led ministries. -------------- Arab Bank Support for AML/CFT law -------------- ¶3. (SBU) Matossian expressed Arab Bank's support for the GoJ's draft AML/CFT law, noting that Arab Bank, which has recently bolstered its internal AML/CFT compliance capacity, is at a competitive disadvantage vis-a-vis other Jordanian banks. Customers seeking less scrutiny of their affairs engage in "compliance arbitrage" whereby they direct their business to other, less vigilant banks. He also observed that the Central Bank of Jordan (CBJ) does not seem prepared to "take the next step" to enforce AML/CFT regulations at least in part because of lack of enforcement staff. Matossian expressed doubt that CBJ will be capable of vigorously enforcing the AML/CFT law once it is passed by Parliament. ¶4. (SBU) In response to Matossian's expression of support for the draft AML/CFT law, the Ambassador noted that it would be helpful for Jordanian banks with an interest in the law's passage to make their support known to the GoJ. Matossian suggested that Arab Bank could help organize a conference of Jordanian bank CEO's to discuss the importance of implementing sound AML/CFT compliance programs. NOTE: In subsequent conversations with TREASATT, Matossian indicated that he will try to secure a joint letter from the major Jordanian banks to Parliament urging passage of the law. END NOTE. -------------- Arab Bank Credit Exposure to PA -------------- ¶5. (C) During the March 30 meeting and in subsequent conversations with TREASATT, Matossian provided a breakdown of Arab Bank's credit exposure to the PA. According to him, the PA maintains six lines of credit with Arab Bank, four of which are fully collateralized, and two of which are in overdraft status. One $85 million line of credit, collateralized by $250 million worth of PA shares in Orascom Telecom (an Egyptian telecommunications company which trades on the London stock exchange) was recently transferred from Arab Bank's Ramallah branch to the London branch in order to facilitate collateral recovery in the event of default. The other collateralized loans consist of an account with a balance of $80 million fully secured by stock and cash, another with a balance of $70 million (previously $100 million) secured by $100 million in cash, and another loan of $20 million secured by the personal guarantee of a Palestinian Minister (NOTE: no further information is available on this Minister's identity nor whether this guarantee is still valid given the recent change in government). The two accounts that are in overdraft status include one with a current balance of $39 million, and a General Petroleum Corporation (a PA parastatal corporation) account with a balance of $15 million. He indicated that Arab Bank is hoping that anticipated donations from Saudi Arabia, Kuwait, Algeria, Japan, and Russia will cover the overdrafts. According to Matossian, there are a number of other deposit relationships that the PA maintains with Arab Bank, the details of which he will provide to Post in the near future. He also indicated that he will obtain additional clarifying information on the aforementioned credit facilities. ¶6. (C) Comment: Arab Bank finds itself in a difficult position as it seeks to improve its relationship with the USG in the wake of the last year's Treasury Department enforcement action against its New York branch, while still maintaining its traditional position as the dominant bank in the Palestinian territories. Matossian relayed the Bank's desire to avert a humanitarian crisis in the territories should it stop granting credit to the PA which, he noted, is used for civil service payrolls and humanitarian aid. Matossian's efforts to catalyze a pro-AML private sector lobbying campaign directed at Parliament is not simply in our interest as he noted, but it deserves our support nonetheless. Arab Bank itself has done some lobbying, but a broader campaign as envisioned by Matossian is certainly needed. Regarding his concerns that the CBJ lacks sufficient enforcement capacity to vigorously implement the AML/CFT law once it is passed, Post notes that the Treasury Department has recently inaugurated a financial enforcement program in Jordan to provide technical assistance to the CBJ and other GoJ agencies in this area. HALE