(S/NF) G7 CONFERENCE ON WMD PROLIFERATION FINANCING

S E C R E T PARIS 007269

SIPDIS

SIPDIS

STATE FOR T, ISN/CPI, EUR/PGI, EUR/PRA, EUR/WE AND
EB/ESC/TFS
TREASURY FOR LEVEY, CCLARK, O,BRIEN, SZUBIN
NSC FOR TOBEY, STEPHENS, HERRO

E.O. 12958: DECL: 10/25/2016
TAGS: EFIN PARM PGOV FR
SUBJECT: (S/NF) G7 CONFERENCE ON WMD PROLIFERATION FINANCING

REF: A. PARIS 4443 (NOTAL)

B. PARIS 4441 (NOTAL)

C. PARIS 2662 (NOTAL)

Classified By: Econ M/C Thomas J. White, Reasons 1.4 b and d


1. SUMMARY: (C/REL France, UK, Germany, Italy, Japan, Canada)
France hosted an experts-level meeting on October 25 with G7
partners and the EU to discus how to implement the G8
Gleneagles commitment to develop financial measures to combat
WMD proliferation. Participants exchanged information on
their countries, respective national laws and programs
related to WMD proliferation financing, and discussed
progress on developing financial measures at the EU level.
They agreed on the utility of targeted financial measures in
combating WMD proliferation and the importance of further
multilateral work in this area. The group agreed to
reconvene in the near future to develop a more detailed G7
consensus prior to convening a higher-level meeting. It was
also agreed that while a variety of international fora will
be useful to raise international awareness of targeted
financial sanctions in the context of WMD proliferation,
detailed technical work on the subject should begin
immediately within the Financial Action Task Force (FATF).
for the France agreed to cosponsor a U.S.-drafted proposal
on the issue that could be presented prior to the FATF
plenary in February.. Richier noted he would circulate a
Chairman,s Statement based on the results of the meeting.
END SUMMARY.


2. (SBU) Participants:
FRANCE
Foreign Affairs:
Francois Richier, Deputy Director for Strategic Affairs,
Security and Disarmament
Philippe Errera, DAS for Disarmament and Nuclear
Non-Proliferation
Patrick ALLARD, Policy Planning,
David Bertolotti, Desk Officer, Disarmament and Nuclear
Non-Proliferation
Nicolas de Larusse, Economic Affairs
Economic Ministry
Ramon Fernandez, DAS for International Financial Affairs
Stephanie Talbot, G7 Summit Preparation & International
Monetary Affairs
Marie-Pierre Padovani, Customs and Indirect Rights
Roland Augustin, Customs Investigations
Bernard Cukier, Customs Intelligence
Defense Ministry
Michel Miraillet, Director of International and Strategic
Affairs, SGDN
Herve Auffret, SGDN
Francois Gudin, Ministry of Defense
Interior Ministry
Jean-Rene Chaux, Commissioner, DST

USA
Daniel Glaser, Treasury DAS Terrorist Financing and Financial
Crimes
Anthony Ruggiero, State ISN/CPI Defensive Measures Team Chief
Otto Van Maerssen, TFCO, U.S. Embassy
Jennifer Fowler, Terrorist Financing and Financial Crimes
Policy Advisor

CANADA
Mark Gwozdecky, Director for Disarmament and
Non-proliferation, MFA
Michael Blackmore, Disarmament and Non-proliferation, MFA
Shannon Grainger, Principal Financial Economist, Treasury
Emi Furuya, Canadian Embassy, Paris

ITALY
Cristina COLLURA, Director for Terrorist Financing, Treasury
Department
Filippo FORMICA, Director for Disarmament and
Non-Proliferation, MFA

JAPAN

Takuji Kinkyo, Director of International Financial Affairs,
Finance Ministry
Teppei Kanda, Deputy Director for non-proliferation, science
and nuclear energy, MFA
Ryuji Sakaue, Japanese Embassy

GERMANY
Dr. Ursina KRUMTHOLZ, Deputy Director for International
Economic Law, Ministry of Economics and Technology
Joachim HACKER, Econ Counselor, German Embassy

UNITED KINGDOM
Paul Arkwright, Department Chief for counter-proliferation,
Foreign and Commonwealth Office
Eleanor Petch, Counter-proiferation, FCO
Kingsley Greene, Minstry of Defense
Max Maxwell, Treasury
Hamish COWELL, British Embassy

EUROPEAN UNION
Jean-Claude Brunet, Council SecGen, PESC High Rep
Lars-Erik Lundin, Security Director, DG Relex, EC



3. (C/REL France, UK, Germany, Italy, Japan, Canada) France
on October 25 in Paris hosted an experts-level multilateral
meeting to discuss the development of financial measures to
disrupt WMD proliferation. The agenda included presentations
by some countries detailing national authorities and programs
applicable to WMD proliferation financing, as well as
discussion of strategies for multilateral efforts to address
the issue.

BILATERAL MEETINGS

4. (S/REL France) Before the G7 meeting, the USDEL met
bilaterally with France. Richier stressed France,s desire
to keep a lid on the meeting, citing worries that leaks might
endanger discussions with Russia and China at the UN in New
York on possible Iran sanctions. He also said France would
be cautious about focusing the meeting discussions on the
need to implement specific UNSC resolutions, such as UNSCR
1718 on North Korea, as it viewed resolution of the WMD
finance issue as likely to move on a separate track.
Instead, Richier preferred to focus the meeting on the
longer-term effort to develop a more &generic8 authority
for financial measures to target WMD proliferation. France
has considered drafting a UNSC resolution to create this type
of legal framework specific to WMD proliferation, but is also
considering other forums. France continues to have
reservations about including proliferation financing in the
Proliferation Security Initiative, since it could give
countries reservations about joining PSI. Moreover, neither
France nor the UK have involved their Treasury Departments in
PSI. Richier recommended using PSI as a forum to discuss
proliferation financing, and not as a tool to take action
against it. If the G7 is the key forum, the big question is
how to move to the G8, that is, bring Russia into the
discussion. He suggested Germany might wish to play a part
with its G8 presidency. He added he would act as Chair, and
Errera would speak for France.



5. (S/REL Japan) The USDEL also met bilaterally with Japan
before the G7 meeting, which proved useful given the limited
intervention from the Japanese delegation during the meeting.
Kinkyo said Japan was looking to brainstorm, and discuss how
to make information-sharing with the private sector easier.
Japan hopes to create better incentives for the private
sector (legal, economic, or moral),and is open to involving
credit rating agencies in the process of defining a higher
cost of doing business with proliferators. Working with a
smaller group might be preferable, or academics, to reach a
G7 consensus on next steps. Kanda noted that the concept of
proliferation finance needs to be clarified, and the world
has two test cases with the DPRK and Iran. Japan is a bit
cautious about the UNSC, since UN delegates do not have
enough information about proliferators and their networks.
Japan also has doubts about broadening the scope of the PSI
framework, since PSI has not yet acquired an adequate level

of participation, especially in Asia.

MULTILATERAL MEETING

6. (C/REL France, UK, Germany, Italy, Japan, Canada) After
making a bid to maintain the confidentiality of the meeting
and suggesting a Chairman,s summary be prepared, the Chair
was interrupted by Canada, which questioned the purpose,
origin, and G7 format of the meeting. In Canada,s view,
after US Treasury Under Secretary Levey had briefed the G8
Political Directors in New York in September, there had been
no consensus on follow-up activities. After a confused
back-and-forth, the Chair made clear that the mandate for the
meeting arose from G7 declarations and the G7 meeting held at
the US Embassy in Moscow (without Russia) earlier in the
year. Subsequent events in Iran and North Korea have served
to lend greater urgency to the non-proliferation effort.

PARTICIPANT PRESENTATIONS

7. (S/REL France, UK, Germany, Italy, Japan, Canada) The
USDEL presented its analysis of the effectiveness and impact
of using financial measures to target WMD support networks,
followed by the UK and France, who provided overviews of
proliferation-related financial operations and transactions.
For the UK, Kingsley Greene from the MOD discussed how
proliferation networks usually procure dual-use goods on the
open market. The networks generally go to great lengths to
make the transaction appear as innocent as possible, and use
banks all over the world. The difficulty of targeting
specific transactions suggests countries should move away
from transaction-based controls to entity-based controls.


8. (S/REL France, UK, Germany, Italy, Japan, Canada) Chaux
said the French Interior Ministry intelligence service (DST)
has mostly observed transactions to Iran, Pakistan, and
Syria, which have followed a lawful and classical commercial
pattern with Banks Saderat, Sepah, etc. It has been easy to
identify the origin of goods, not so easy to follow their
destination. Operations usually try to conceal the
description of the goods, not disguise the payments. Most
transactions go through front companies, many of which are in
Dubai, UAE. DST,s mission is to prevent the delivery of the
goods, which is hard to do before the financial settlement
unless there is a down payment. He outlined a transaction
for UAVs for ballistic programs, initiated by Iran through a
Dubai front company with payments from Bank Saderat to a
Swiss bank on a previously-agreed timeline. Augustin
discussed three cases investigated by the French Customs
authorities, tracing payments through a Pakistan buyer, a UAE
front company, a US supplier, via Dutch, Spanish, French and
US banks.


9. (C/REL France, UK, Germany, Italy, Japan, Canada)
Delegates had many questions and comments on the
presentations. Canada asked for the criteria countries use
to identify front companies, noting the importance of
understanding the beneficial ownership of front companies.

Both Germany and Canada demonstrated confusion over
&entity-based8 approach of targeted financial sanctions,
which differs from the &transaction-based8 approach of
export control. For example, Canada noted that not all
proliferation-related transactions are illegal, and that
countries are not prohibited from pursuing missile programs
or civilian nuclear programs. (The Canadian delegate also
went on to express his personal view that the USG action on
the Macau bank contributed to the paranoia that led the DPRK
to test a nuclear device. He noted, however, that this did
not represent the position of Canada. The Chair reminded the
Canadian delegate that this meeting was not the place to
discuss politics and the matter was not discussed again.) To
attempt to clarify the &transaction8 vs. &entity8
confusion, the U.S. analogized to terrorism-related targeted
financial sanctions, emphasizing that these sanctions are
preventive measures aimed at cutting the targeted entity off
from the international financial system, and that any access
to the international financial could be restored only after
the entity had been rehabilitated. The U.S. used charities
as an example, noting that many designated charities do in
fact provide real charitable services but are nevertheless
cut off from the international financial system due to
involvement in terrorist financing. For its part, Italy
reaffirmed the point made in all of the formal presentations
that an effective approach to targeted financial sanctions
must be multilateral solutions. This was uniformly agreed.
Canada noted that it has trade with Iran of around 400
million dollars in imports, and only 162 million in exports.
It asked for all countries around the table to inform them of
their domestic evidentiary standard for implementing targeted
financial sanctions.

INFORMATION-SHARING

10. (C/REL France, UK, Germany, Italy, Japan, Canada) The
Chair opened discussion on how to enhance intelligence
sharing. France raised three points: even though most
transactions go through banks in G7 countries, what kind of
outreach is needed for third countries should national points
of contact be established on this matter; and third, whether
existing institutions, such as Financial Investigatory Units
(FIUs) could be used for proliferation finance-related
information sharing. Canada suggested using Egmont Group for
this type of information exchange, though this suggestion was
not supported by other countries. The U.S. noted the
difficulty involved using FIUs to engage in classified
information exchange, and emphasized that intelligence
liaison and embassies would likely have to be used for those
purposes. .As a more general matter, France and Japan noted
that proliferation finance is a cross-cutting issue, and that
to this point non-proliferation experts have had a good grasp
on the flow of goods, but not financial flows. This point
was widely accepted, and Italy noted repeatedly that it would
therefore be appropriate to focus on this issue within the
multidisciplinary Financial Action Task Force (FATF). The UK
thought it might be useful to do a paper on how the financial
sector might get involved. The USDEL agreed the private
sector should be involved, pointing to US efforts have banks
WMD proliferation concerns into their risk-based analyses.


11. (C/REL France, UK, Germany, Italy, Japan, Canada) Japan
noted that North Korea presents a clear and imminent threat
to international peace, requiring mobilization of all means
to respond. Japan has banned all transactions with North
Korean entities. In September it introduced measures to
prevent transactions with designated individuals, and found
it very helpful that Australia and the USG had made
designations. Japan has legislation that can target any
country, since its foreign exchange law allows its Council of
Ministers to act to comply with the UNSC, international law,
or as needed for international peace and security.

NO NATIONAL AUTHORITY

12. (C/REL France, UK, Germany, Italy, Japan, Canada) The
European countries and Canada noted that at this time they
lack sufficient authority to set up and implement a targeted
financial sanctions regime related to WMD proliferation
outside the context of a Chapter VII UN Security Council
Resolution. They did acknowledge, however, that they had
some flexibility with respect to less powerful financial
tools. The UK and Canada, for example, noted that they could
issue bank advisories. Likewise, the French DST reported it
engages in conferences for the main French financial
institutions regarding WMD proliferation, and has raised the
issue with the French Central Bank and the Banking
Commission. In 2005, DST gave around 750 such lectures,
which helps companies with their threat assessments. The
financial industry is keen to engage in self-regulation.
Ramon Fernandez said for the French Treasury, the lack of a
legal framework is a problem, but the Treasury has increased
its outreach to banks and plans to invite representatives of
French banks, including compliance officers, to meet with
them by the end of the year to discuss the issue of
proliferation financing. France hoped to learn from
compliance officers, experiences and suggested that those
discussions might support an effort to develop proliferation
finance-related typologies.


13. (C/REL France, UK, Germany, Italy, Japan, Canada) The EU
Council representative reported that work has begun in CONOP


to assess the need for a supplementary legal instrument on
WMD finance. Its work began in 2003, but had not gotten far.
North Korea has helped provide an impetus. In addition, the
EU is preparing a draft common position to be supplemented by
draft legislation pursuant to EC competencies to implement
UNSC 1718 - a Council regulation is needed for anything that
would restrict trade, and any procedure needs to be able to
survive judicial scrutiny. The EU Commission representative
said that the EU is considering what legal mechanism could be
used with respect to proliferation financing and that the EU
is keen to find best practices in this regard. The
representative commented that industry had positive reactions
to efforts to be vigilant about proliferation in the context
of global business.

NEXT STEPS

14. (C/REL France, UK, Germany, Italy, Japan, Canada) All
delegations agreed that FATF was the appropriate forum for
further technical work in this area, and that the G7 should
drive that effort. The USDEL offered to prepare a paper to
present to the FATF policy group and to circulate it to the
G7 beforehand. France offered to cosponsor such a paper. To
ensure strong G7 coordination, it was also agreed that a
further meeting of this group should be held in the near
future. It was also agreed that other fora ) such as the
Bush-Putin Global Initiative to Combat Nuclear Terrorism and
the PSI -- should be used for awareness-raising. The USDEL
pressed for a more vigorous role for the PSI, but other
delegations felt that it was premature for PSI to take on
more than an awareness raising role in this area. Richier
committed to circulate a Chairman,s Statement based on the
results of the meeting.

Please visit Paris' Classified Website at:
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STAPLETON