TREASURY U/S LEVEY DISCUSSES DPRK, IRAN WITH

C O N F I D E N T I A L MOSCOW 012396

SIPDIS

SIPDIS

STATE FOR P, E
STATE FOR EB/ESC/TFS
STATE FOR EUR/RUS, NEA/FO, EAP/FO
TREASURY FOR U/S LEVEY, RACHEL LOEFFLER, BAKER AND GAERTNER
NSC FOR GRAHAM AND MCKIBBEN

E.O. 12958: DECL: 11/09/2016
TAGS: KTFN EFIN ETTC ECON PTER PREL RS
SUBJECT: TREASURY U/S LEVEY DISCUSSES DPRK, IRAN WITH
RUSSIAN OFFICIALS

REF: MOSCOW 12322

Classified By: ECON M/C Pam Quanrud, Reasons 1.4 (b/d).


1. Summary. (C) In meetings October 23 and 24 with Treasury
Under Secretary Levey, officials from the Central Bank (CBR),
Finance Ministry and private Russian banks downplayed the
possibility that North Korean and Iranian entities are
actively using the Russian financial system to launder money
and to access foreign capital. Russia's Central Bank Deputy
Chairman requested that the USG present the evidence of such
activity in writing, with a request for Russian authorities
to conduct an investigation. The Russians promised a timely
response. End Summary.


2. (U) Reftel A reports on a meeting with the Foreign
Ministry. The meeting with the Federal Financial Monitoring
Service (FFMS) will be reported septel. End Summary.

Using Russia's Financial System
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3. (C) In meetings on October 23 and 24 in Moscow, U/S Levey
shared information outlining how North Korean banks and
entities identified as proliferators of WMD may attempt to
use Russian banks to store and launder proceeds from their
illicit activities; to access foreign capital; and to
transfer money to and from Pyongyang. Russia is becoming
increasingly attractive to these entities since their access
to financial markets in China, Hong Kong, and other Asian
countries, has been largely shut down. Levey pointed to the
specific case of North Korea's Tanchon Bank and its
relationship with a Russian bank. Although the volume and
value of transactions with North Korean entities may not be
significant, the accounts would not need to be substantial to
fund or support illicit proliferation or other destabilizing
operations. Raising similar concerns about Iranian entities,
U/S Levey described action the USG had taken to disrupt the
ability of one Iranian banks to support terrorist activities.
Iran has been employing deceptive financial tactics, and U/S
Levey urged working toward our common interest of preventing
Iran's abuse of the international financial system.

Central Bank
--------------


4. (C) Central Bank Deputy Chairman Viktor Melnikov asked
that U/S Levey formally pass the list of entities designated
pursuant to E.O. 13382 so that he could investigate the
relationships and provide a full response within two weeks of
receiving the official request.

Russian Banks: Alfa, Vneshtorgbank-24 (VTB),and Sberbank
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5. (C) VTB's CEO Mikhail Zadornov, Sberbank's Deputy
Governor Boris Govorunov, and Alfa Bank's Chief Operating
Officer Miroslav Boublik downplayed the possibility of any
business relationship between their banks and North Korean
entities. Prior to the meeting with U/S Levey, Zadornov said
he explicitly asked his bank to investigate whether there
were any such financial transactions being conducted; and
turned up nothing. Sberbank's Govorunov maintained that his
bank was above all else focused on the domestic market. If
there were transactions, which he believed there were not,
they would be of an insignificant amount. Boublik responded
that Alfa Bank had no relationship with North Korean
organizations and would likely determine that the risks of
such a relationship outweighed any benefits. (Note: Sberbank
is Russia's largest bank, with 54 percent of retail deposits
and 26 percent of Russia's banking sector assets. VTB is the
second-largest with 3 percent of retail deposits and 7
percent of assets. Alfa Bank is Russia's largest privately
held bank but occupies 5th place overall, with 1.2 percent of
retail deposits and 2.3 percent of assets. End Note.)


6. (C) The bankers urged that if evidence existed, such
information should be passed immediately to the Federal
Financial Monitoring Service (FFMS),Russia's Financial
Intelligence Unit (FIU). They explained that only the FFMS
has the authority to order an investigation of suspicious
activity or individual(s) and to suspend/freeze an account or
transaction. Any transaction above USD 20,000 is
automatically forwarded to the FFMS for evaluation, but the
FFMS can review any transaction regardless of monetary amount.



7. (C) When asked by U/S Levey whether banks have discretion
to sever a business relationship with a client, Zadornov
noted "there is Russian law; and there is Russian practice."
Boublik clarified that Russian banks face difficulties in
forcibly terminating an account if the client is not on the
FFMS blacklist. Boublik acknowledged that Alfa Bank uses the
OFAC list, despite Russian law that banks can only use
GOR-approved lists to scan transactions and make decisions
about client relationships. Zadornov said that VTB is
concerned about maintaining a positive reputation; the bank
frequently conducts additional due diligence regarding
prospective clients or existing customers of a suspicious
nature. He implied that few other Russian banks have such an
aggressive "know-your-customer" stance and many may not even
comply with the requirements of Russian law. When pressed by
U/S Levey whether VTB would use this discretion when dealing
with North Korean and Iranian entities, Zadornov obliquely
replied in the affirmative, but also maintained that such
business relationships did not exist with his bank.


8. (C) In response to U/S Levey's concerns about Tehran,
Zadornov touched briefly upon the different perspectives the
U.S. and Russia hold on Iran, acknowledging that Russia has
business interests that the U.S. does not. Boublik echoed
this and encouraged the USG to provide information of concern
to the Central Bank and the FFMS for action. Govorunov said
that unquestionably Russian banks would comply with the
requirements of any UNSC resolution on Iran.

Comment
--------------


9. (SBU) Under Secretary Levey's visit resonated with the
Central Bank and the Federal Financial Monitoring Service,
which are interested in formalizing information sharing as it
pertains to illicit financial flows. We understand that
earlier this year, Andrey Kozlov, the deputy chairman of the
Central Bank who was assassinated in September, sent letters
to his counterparts in the Federal Reserve and the Office of
the Comptroller of the Currency seeking such formalized
information exchanges. Despite Kozlov's death, the Central
Bank remains interested in such a partnership. End Comment.


10. (U) This message held for Under Secretary Levey's
clearance.
BURNS