Identifier
Created
Classification
Origin
06DAMASCUS1217
2006-03-21 07:38:00
CONFIDENTIAL
Embassy Damascus
Cable title:  

SARG PUBLICLY DISMISSES 311 SANCTIONS, WHILE

Tags:  ECON EFIN ETRD EINV SY 
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OO RUEHBC RUEHDE RUEHKUK RUEHMOS
DE RUEHDM #1217/01 0800738
ZNY CCCCC ZZH
O 210738Z MAR 06
FM AMEMBASSY DAMASCUS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7800
INFO RUEHEE/ARAB LEAGUE COLLECTIVE IMMEDIATE
RUEHTV/AMEMBASSY TEL AVIV IMMEDIATE 0844
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RHMFISS/HQ USCENTCOM MACDILL AFB FL IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 001217 

SIPDIS

SIPDIS

NEA/ELA
TREASURY FOR GLASER/SZUBIN/LEBENSON
NSC FOR ABRAMS/DORAN/SINGH
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 03/16/2016
TAGS: ECON EFIN ETRD EINV SY
SUBJECT: SARG PUBLICLY DISMISSES 311 SANCTIONS, WHILE
EFFECTS BEGIN TO TAKE HOLD

REF: A. DMS 1157

B. DMS 1014

Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 001217

SIPDIS

SIPDIS

NEA/ELA
TREASURY FOR GLASER/SZUBIN/LEBENSON
NSC FOR ABRAMS/DORAN/SINGH
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 03/16/2016
TAGS: ECON EFIN ETRD EINV SY
SUBJECT: SARG PUBLICLY DISMISSES 311 SANCTIONS, WHILE
EFFECTS BEGIN TO TAKE HOLD

REF: A. DMS 1157

B. DMS 1014

Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d


1. (C) Summary: Through government media and public
appearances, SARG officials are attempting to reassure their
domestic audience that the USG's March 9 decision to impose
USAPATRIOT Act Section 311 sanctions against the Commercial
Bank of Syria (CBS) was purely political and that the
government successfully defended Syria's financial system
from the US action. Behind the campaign, however, contacts
in the private banking sector report that the sanctions
already are having an effect on the CBS's ability to conduct
business. Most are concerned that the private banks likewise
will be affected, and point to at least one example in which
the CBS may be spreading the consequences of sanctions to the
fledgling sector in a further attempt to paint the US action
as unfair. End summary.

--------------
Dismissing the Sanctions
--------------


2. (U) Since the imposition of Section 311 sanctions on March
9, the SARG has attempted to dismiss the US action as
politically motivated and without merit. Minister of Finance
Mohammad al-Hussein challenged the USG at the opening session
of a conference on Islamic banking on March 13 to present its
evidence against the CBS, claiming that the US action lacks
legal justification. Syria's Grand Mufti, Sheikh Ahmad Badr
Eddin Hassoun used the same platform to state that Syrians
should view the sanctions as a "medal" highlighting the
injustice of US financial hegemony (ref A). In a further
effort to paint the action as political, journalist Haytham
Yahya Mohammed, who visited the US on a PD-funded Foreign
Press Center tour in 2004, asserted in a March 13 editorial
that he met USG officials from different departments during
his visit who were conflicted about the strength of the
evidence against the CBS. He concluded that
"neo-conservatives" pushed the decision through in their

ideological vendetta against Syria.


3. (C) The SARG also has used its control of the local media
to discount the potential economic impact of Section 311
sanctions. Samir Seifan, an influential, independent Syrian
economist, informed us that the state-controlled press
severely edited an interview he gave on March 13, removing
numerous references to the possible deleterious effects of
sanctions on the economy. Duraid Durgham, General Director
of the Commercial Bank of Syria, claimed in an interview that
he was not surprised by Treasury,s decision to impose
sanctions, and that the switch to euros for public sector
transactions in February successfully preempted the US goal
of cutting the CBS off from the international financial
system. Although contacts in the private banking and
business sectors continue to state that the switch to euros
has more rhetorical than economic value (ref A),the SARG
announced on March 12 that it would begin to denominate its
budget in euros instead of dollars indicating its commitment
to further disengage from the US currency.

--------------
Immediate Effect
--------------


4. (C) Despite the SARG's energetic campaign to discount any
potential negative effects flowing from 311, contacts in the
private financial sector contend that the designation of the
CBS as an institution of primary money laundering concern
restricted the bank's activities in the international
financial system even before the final rule was imposed (ref
A). Contacts report that in the immediate aftermath of the
imposition of the final rule, it appears that the sanctions
have created additional problems for the CBS. Basel Hamwi,
General Manager of Bank Audi Syria, stated that his bank has
witnessed an increase in business from foreign clients who
say that they have decided not to engage in any future
relationship with the CBS. Hamwi, whose bank holds no
dollar-denominated accounts in the CBS, previously decided to
restrict his interations with the public bank because of its
poor services, a point echoed by others in the sector and
among private business people. Hamwi believes that the

DAMASCUS 00001217 002 OF 002


sanctions, combined with the bank's poor management, will
cause more clients to leave the CBS in favor of Syria's
private banks. However, other contacts suggest that the CBS
is having no trouble making money, and that continued
government support and guaranteed public sector clients will
allow the CBS to weather these business losses in the short
term.


5. (C) There are indications that the CBS may be attempting
to spread the difficulties associated with the US action to
the private banks in a further attempt to paint US sanctions
as politically motivated and ultimately hurting Syria at
large. At least one contact in the private banking sector
claims that the CBS recently has slowed, and in some cases
stopped, transfering dollar-denominated accounts to foreign
banks, using the excuse of 311 to hold up the transfers.
Soltan al Zobi, General Manager of the International Bank for
Trade and Finance (IBTF),which was the third private bank to
open in Syria, claimed that the CBS still has not fulfilled
his two-week old request- made just before the imposition of
sanctions- to transfer $8.5 million in dollar-denominated
customer deposits, equaling almost 25% of IBTF's capital, to
one of IBTF's correspondent accounts in a foreign bank. Zobi
claimed that the delay already has cost him almost $16,000
since he is making no interest on the account at the CBS. In
an indication that the SARG's strategy may be working, Zobi
pinned the blame for the stalled transfer and his lost income
on US sanctions, adding that even after the CBS releases
IBTF's money he anticipates further delays when the
transaction originating from the CBS attempts to clear New
York. Zobi further complained that there is no way in Syria
to avoid doing business with the CBS because of its huge
market share, and that he and his board are at a loss
regarding how to proceed in the post-sanction environment.


6. (C) Comment: It is too early to gauge the full impact of
311 on the Syrian banking system. At a recent dinner, the
general managers of Syria's private banks reiterated to us
their concerns that sanctions will hurt their business as US
and European institutions perform due diligence on third
party institutions that may be suspected of conducting
transactions on behalf of the CBS because of their physical
proximity and continuing correspondent relations. They
contend that the sanctions have implicated the entire Syrian
financial system, regardless of the USG's intention to target
the CBS. This gives credence to the SARG's campaign to paint
all US sanctions as unfair- a campaign that resonates with a
domestic audience increasingly predisposed to see US action
as politically motivated and indifferent to the negative
effects on the broader Syrian population.
SECHE