AMBASSADOR RAISES RUE/RAIFFEISEN WITH FINANCE

S E C R E T SECTION 01 OF 02 VIENNA 000664

SIPDIS

E.O. 12958: DECL: 03/03/2016
TAGS: PREL EFIN AU ENGR
SUBJECT: AMBASSADOR RAISES RUE/RAIFFEISEN WITH FINANCE
MINISTER KARL-HEINZ GRASSER

REF: A) VIENNA 515 B) VIENNA 309 C) 05 STATE 220738

Classified By: Ambassador Susan R. McCaw for reasons 1.5 (b) and (d)

Summary
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1. (S) During a February 28 meeting with Finance Minister
Karl-Heinz Grasser, Ambassador McCaw raised continuing USG
concerns over the non-transparent RUE gas deal and the key
involvement of an Austrian bank, Raiffeisen Investment
Holding AG (RIAG),in the RosUkrEnergo (RUE) joint venture.
The Ambassador urged the GoA to help the U.S. obtain
additional information regarding RUE's structure and possible
links to organized crime. According to Grasser, given that
the joint venture was established in Switzerland, the GoA had
no legal basis to force RIAG to reveal the unidentified
beneficiary, who controls 50% of the RUE joint venture.
Grasser noted that Raiffeisen compliance officials had
visited Washington the week of February 21 to discuss the RUE
gas deal. Raiffeisen officials subsequently told the Embassy
that, based on their DoJ meeting, they believe they have
addressed all outstanding U.S. concerns. Grasser said the
GoA would continue to discuss USG concerns with Austrian
banks, but noted that the GoA was still waiting on a promised
one-page information sheet for use with the banks. Grasser
also expressed frustration with USG attempts to "undercut"
Raiffeisen's expanding relationship with the EBRD, without
consulting with Austrian authorities. End Summary.

Lack of Transparency in RUE Gas Deal
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2. (S) During a February 28 meeting with Finance Minister
Karl-Heinz Grasser, Ambassador McCaw raised the USG's
continuing concerns regarding the role of Raiffeisen
Zentralbank's (RZB) subsidiary, Raiffeisen Investment Holding
AG (RIAG) in RosUkrEnergo (RUE). She noted especially RUE's
lack of transparency and its apparent links to Russian
organized crime. The Ambassador highlighted that she had
recently asked both MFA State Secretary Hans Winkler and MFA
Secretary General Johannes Kyrle for assistance in getting

SIPDIS
more information about the RUE deal. The Ambassador
emphasized that, as the U.S. and Austria began preparations
for a U.S.-EU Summit, it was imperative to address lingering
negative perceptions about the RUE deal and other concerns
about RZB banking operations (ref C). RZB/RIAG must either
deal directly with identifiable problems or provide
sufficient reassurance that it has resolved the outstanding
questions.


3. (S) Grasser replied that the GoA understands the RIAG
role in RUE is that of a trustee, holding RUE shares on
behalf of an unidentified beneficiary. Given that the joint
venture was established in Switzerland, Grasser argued
strenuously that the GoA had no legal basis to request RIAG
to reveal the beneficiary's identity. Grasser opined that
the USG would be in a similar situation if a U.S. bank served
as a trustee for an unidentified beneficiary.


4. (S) Grasser noted that RZB/RIAG compliance officials had
visited Washington last week to discuss the RUE deal with USG
officials. Grasser said it was his understanding that
RZB/RIAG had produced all the information requested. Grasser
asked if there was now additional information that the USG
wanted. (Embassy Note: RZB compliance officials subsequently
confirmed to us that their only meeting in Washington was
with DoJ officials to discuss the RUE joint venture. RZB
officials also maintained that, based on their DoJ meeting,
they believed they have responded to all outstanding USG
concerns. End Note)


Grasser: GoA Welcomes More Specifics to Engage With Banks
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5. (S) Grasser pointedly contrasted the GoA's engagement
with Austrian banks with the USG's inability to produce a
promised one-page background paper (ref B) for use with RZB
and Bank Austria/Creditanstalt (BA/CA). How could the U.S.
now expect him to go back to RZB with another set of general
suspicions regarding RUE without any further specifics?
Nevertheless, Grasser promised that he would once again raise
USG concerns during a March 2 meeting with RZB officials.
Grasser added that the GoA also was frustrated with USG
attempts to "undercut" RZB's expanding relationship with the
EBRD, without any consultation with Austria, at the same time
the GoA was working to address USG concerns.


6. (S) Alongside issues related to RUE, Grasser also
underscored that the GoA had taken the original concerns
about dubious practices by Austrian banks very seriously, and
had stressed to U/S Levey (ref B) that the GoA would not
condone Austrian banks' relationships with North Korean or
Iranian WMD proliferators. Grasser said he had personally
met with BA/CA CEO Erich Hampel, who assured Grasser that
BA/CA would stop its business relations with North Korean
entities (ref A).


Chancellor's Diplomatic Advisor on RUE
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7. (S) In a March 1 meeting with the DCM, the Chancellor's
Diplomatic Advisor, Hanz-Peter Manz, said he had stressed to
Austrian banks the importance of maintaining their
international reputations in the course of expanding business
in Eastern Europe. Manz added that Chancellor Schuessel
himself is keenly aware of this issue and the implications
for the reputations of Austrian banks. Manz also said that
RZB compliance officials reported that their Washington
meeting with DoJ had satisfactorily answered all USG
concerns. Manz stressed that, if the RZB assessment was not
correct, the GoA would like to know.

McCaw