IRAN & HIZBALLAH: U/S LEVEY DISCUSSIONS IN ROME

S E C R E T SECTION 01 OF 04 ROME 003050 SIPDIS SIPDIS TREASURY FOR U/S STUART LEVEY; STATE EB/ESC, PAUL SIMONS; STATE EUR/WE, AYOUNG AND KOPSTRUP E.O. 12958: DECL: 11/09/2016 TAGS: ECON EFIN PTER IR LE IT SUBJECT: IRAN & HIZBALLAH: U/S LEVEY DISCUSSIONS IN ROME WITH GOI OFFICIAL AND BANKERS REF: A. ROME 2622 ¶B. ROME 1892 ROME 00003050 001.2 OF 004 Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 b AND d. -------------- SUMMARY -------------- ¶1. (S/NF) In October 26 meetings with Government of Italy (GOI) officials AND bankers, Treasury Under Secretary for Terrorism AND Financial Intelligence Stuart Levey pressed the GOI to ensure that its financial system was performing due diligence to prevent Iranian front companies engaged in WMD proliferation from operating in Italy; to secure GOI views on possible UN sanctions against Iran; AND ascertain whether the GOI would assist in classifying Hizballah as a terrorist organization at the EU. On proliferation finance, GOI officials cited internal GOI coordination problems AND would not share a Bank of Italy investigation into possible WMD proliferation support by Iranian Bank Sepah's Rome Branch. As for UN sanctions against Iran, the GOI will probably hesitate to cooperate fully with the United States until there is an EU or UN legal framework in place. Such sanctions would have a negative impact on the Italian economy AND also be difficult to enforce on the private sector without legal cover. In the meantime, GOI officials promised continued cooperation with the USG on preventing Iranian WMD proliferation AND action, if evidence of such activity was found in the Italian financial system. On Hizballah, a senior official stated that classifying the group as a terrorist organization was not in Italy's interest because of Italian troops in Lebanon. End summary. -------------- MFA: ITALY IS A "PLUS, NOT A MINUS" ON IRAN -------------- ¶2. (C) U/S Levey met first with MFA's Political Director Giulio Terzi; Director of the Office for Disarmament AND Non-proliferation Filippo Formica; Director of the Office for G8 AND Global Issues Giampaolo Cantini; AND Vice Director of the Office of Multilateral Economic AND Financial Cooperation Claudio Spinedi. ¶3. (S/NF) Terzi began the meeting "frankly" by voicing a strong complaint over the fact that the GOI had just received a draft copy of prospective Iranian sanctions from a non-member of the UNSC. Terzi noted that this put the GOI in a difficult position, given that the Council "is already in end game," AND Italy is "in the dark." He asked that Italy be included, given its prospective place on the Council. Terzi argued that any forthcoming sanctions package, given Italy's economic position in Iran, would likely be much more palatable to the public, if it were to know that Italy had been consulted. Additionally, any expectation of "rapid action" was cautioned against, with the Italians flagging the need for EU consensus on decisions that might go beyond earlier UN resolutions. (Comment: Potentially more problematic for our position was the view of Terzi's economic staff, who warned against trying to unwind past bank contracts -- presumably even on activities extending into the present -- without a specific legal framework for "breaking a legal contract." End comment.) ¶4. (S) Formica stated that the GOI believes the G7 should play an important role in moving the international financial community forward to implement UN sanctions against IRAN AND prevent Iranian WMD proliferation. Spinedi added that the GOI needed to move cautiously to obtain Italian banks' ROME 00003050 002.2 OF 004 cooperation. Terzi added, "We need to put proliferation on the same level as terrorism finance AND money laundering." Terzi suggested that a "general UN resolution on proliferation" would enable the GOI to cooperate better with the United States. ¶5. (S/NF) U/S Levey passed to Terzi materials documenting Iranian Bank Sepah's Rome branch's involvement with North Korea AND Iranian weapons proliferators AND underscored USG concern about IRAN using its banks for proliferation. "This is an opportunity for Italy to act," U/S Levey emphasized. Cantini made reference to the Bank of Italy's investigation into Bank Sepah's activities in Italy, but offered no details. ¶6. (S/NF) U/S Levey explained that Bank Sadarat funded not only Hizballah, but terrorist organizations, such as Hamas and Islamic Jihad. U/S Levey presented Terzi with additional materials regarding Bank Sadarat's involvement with WMD proliferators. Terzi stated that the GOI would work to move the EU forward on action against Bank Sadarat. "We are politically engaged in blocking AND tracking proliferation activities," Terzi concluded, "but within existing law. The Government of Italy is a plus, not a minus, in your efforts against Iran." -------------- -------------- BANK OF ITALY: WOULD NOT SHARE REPORT ON BANK SEPAH -------------- -------------- ¶7. (S/NF) During U/S Levey's meeting with Giovanni Carosio, Head of Banking Supervision at the Bank of Italy (BoI), Carosio provided a guarded, formal, AND very procedural explanation of the Central Bank,s review of Iran,s Bank Sepah branch in Rome. Carosio acknowledged that as a result of information U/S Levey provided to Finance Ministry Director General Vittorio Grilli on June 21 (ref B),the BoI undertook a review of Bank Sepah. Declining to discuss the substance, Carosio indicated that the review was finished AND had been submitted to the inter-ministerial Financial Security Committee (FSC). Carosio stated the BoI was still deciding whether to transmit information from the Bank Sepah review to judicial authorities. -------------- -------------- PRIME MINISTER'S OFFICE: "IRAN IS UNDER CONTROL" -------------- -------------- ¶8. (S/NF) Enrico Micheli, Under Secretary at the Presidency of the Council of Ministers at Palazzo Chigi AND President Napolitano's special advisor on security AND intelligence matters, asked that the USG understand Italy's "important commercial relationship" with Iran. "We know the Iranians," Micheli said. "They won't fool us easily." U/S Levey replied that the Iranians had, indeed, fooled the international community in developing a nuclear program AND asked what the GOI had done to monitor Iranian proliferation activity. "We're distancing ourselves from North Korea AND Iran, because of their actions," Micheli replied, without offering details. He also mentioned that Italy is monitoring all financial flows AND has stopped some instances of what he called &dangerous trade.8 ¶9. (S/NF) U/S Levey asked Micheli for the GOI's assistance in classifying Hizballah as a terrorist organization at the EU. Micheli replied that the GOI did not want to "openly interfere" on the question of Hizballah's status AND actively press to recognize Hizballah as a terrorist organization, because doing so could endanger Italian troops in Lebanon. -------------- - BANKERS: IRANIAN BUSINESS COMMUNITY IS THE KEY ROME 00003050 003.2 OF 004 -------------- - ¶10. (C) The DCM hosted lunch for U/S Levey at her residence, with the following members of the Italian banking community: Federico Cornelli, Director of Market Risk for CONSOB (Italy's equivalent to the Securities AND Exchange Commission); Dr. Antonello Biagioli, Vice Director at the Ufficio Italiano dei Cambi (UIC); Ambassador Ferdinando Salleo, Deputy Chairman of Mediocredito Centrale; AND Antonio Conti, Middle East Account Manager at Banca Nazionale del Lavoro (part of BNP Paribas). ¶11. (S/NF) Conti spoke at length about what the Italian banking community has witnessed in IRAN under Ahmadinejad's rule. "Iranian importers are hurting," Conti stated AND noted that the cost of doing business had increased considerably since Ahmadinejad came to power. "Right now, the business community in IRAN is weak -- it was stronger under Rafsanjani," Conti added. "It's too soon to tell what kind of pressure traders AND importers can put on Ahmadinejad and the clerics." ¶12. (S/NF) Amb. Salleo noted that without export credit insurance provided by entities such as SACE (Italy's Export-Import Bank),"no producer would dare sell anything to Iran." Conti added that while SACE was trying to reduce its exposure to the Iranian market -- which Conti reported at 30 percent overall SACE exposure (ref A describes SACE exposure in detail) -- SACE was having difficulties finding other business that guaranteed similar profits as its IRAN portfolio. Moreover, Conti claimed, increased risk AND scrutiny of Iranian business activity by European banks had led many to halt all business with Iran. -------------- -------------- FINANCE: UN LIST NEEDED TO PRESSURE ITALIAN BANKS -------------- -------------- ¶13. (S/NF) Ministry of Finance DG for Financial Crimes Giuseppe Maresca apologized to U/S Levey for not being able to share the Bank of Italy report on Bank Sepah, due to "a problem of coordination." Maresca claimed that he had "heard" from the BoI that Bank Sepah was active with proliferators, but had no further details. ¶14. (S/NF) Maresca attempted to reassure U/S Levey that if "it was clear" that an Italian bank was involved with an Iranian front company illegally on WMD procurement efforts, the MOF would engage law enforcement. However, Maresca added, an "internationally approved UN list" of Iranian front companies would allow the GOI to act more quickly. Maresca explained that the MOF was concerned that, if it approached Italian banks without precise guidance on what is considered "dangerous business" with Iran, Italian banks might misinterpret AND not act on the MOF message. Thus, Maresca repeated, a UN list was needed to help the MOF in its push with Italian banks. ¶15. (S/NF) U/S Levey replied that, even with a UN-approved list, Iranian front companies would simply change their names and work under new ones. Therefore, asking Italian banks to exercise due diligence was simply good business practice. -------------- -------------- INTERIOR: GOI DISCUSSIONS WITH RADICALS KEEPS THEM CLOSE -------------- -------------- ¶16. (S/NF) During his discussion with Deputy Interior Minister Marco Minniti, U/S Levey conveyed U.S. concerns about Milan-based radical cleric Abu Imad AND his mosque AND solicited GOI views on the case. Minniti replied by ROME 00003050 004.2 OF 004 discussing MOI efforts to engage all Islamic groups in Italy in a dialogue under the MOI public (and controversial) "Consulta Islamica" program -- including radical groups that might advocate a violent agenda. Minniti explained, "We need to keep radical groups even closer to us than the weaker, more moderate groups. Like a boxer, we believe the farther you are from your opponent, the easier it is for him to hit you." ¶17. (S/NF) U/S Levey suggested that the GOI make an example of those who advocate violent jihad in Italy. Minniti replied that MOI had seen no evidence of "extreme" preaching and concluded that, given the "excellent" cooperation among Italian law enforcement agencies AND the MOI, "We are reasonably certain that this situation with the mosques is under control." -------------- COMMENT -------------- ¶18. (S/NF) On proliferation finance, GOI officials tempered promises of continued cooperation by their stated inability to share the details of a Bank of Italy investigation into possible WMD proliferation-related activities of Iranian Bank Sepah's Rome branch. ¶19. (U) This cable has been cleared by Under Secretary Levey. SPOGLI