U/S LEVEY TALKS IRAN WITH UAEG

S E C R E T SECTION 01 OF 03 ABU DHABI 001388

SIPDIS

NOFORN
SIPDIS

STATE FOR NEA/IR, NEA/ARP
STATE FOR ISN/CPI, EEB/TFS
TREASURY FOR U/S LEVEY
NSC FOR DAVID STEVENS

E.O. 12958: DECL: 08/19/2017
TAGS: ETTC KTFN PARM PREL ECON PTER AE IR
SUBJECT: U/S LEVEY TALKS IRAN WITH UAEG

Classified By: CDA Martin Quinn for reasons 1.4 (b),(d).



1. (S/NF) Summary: On August 13, UAE Central Bank Governor
Al-Suwaidi told U/S Levey the Central Bank had seen an
increase in outflows from Iran in April and May and then a
drop. He stated that this movement appeared to reflect
capital flight from ordinary business people and not
government funds. He speculated that the GoI would seek a
safe harbor for its funds, suggesting China and Russia as
likely destinations. He responded negatively to the
suggestion that UAE financial institutions, such as Emirates
Bank International, would increase their Iranian business,
pointedly asking whether the USG intended to damage the UAE's
financial system. He reaffirmed the UAE's willingness to
take whatever actions were necessary under international law,
but stressed the need for the UAE to consider all aspects
before taking broader financial actions. In a separate
meeting, Yousef Al-Otaiba later told Levey that having the
U.S. list 3rd country businesses dealing with Iran would help
Abu Dhabi's efforts to cut business dealings with Iran, by
placing the onus on the company to decide whether to do
business with Iran or with the U.S. End Summary.


2. (S/NF) On August 13, Under Secretary of Treasury for
Terrorism and Financial Intelligence Stuart Levey met
separately with UAE Foreign Minister Sheikh Abdullah bin
Zayed Al-Nahyan (AbZ),UAE Central Bank Governor Sultan
Nasser Al-Suwaidi, Yousef Al-Otaiba, Director of
International Affairs for Abu Dhabi Crown Prince Sheikh
Mohammed bin Zayed Al-Nahyan, and representatives from
Emirates Bank International and Dubai Islamic Bank. (AbZ
meeting and bank meetings septel.)

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Iran: As European banks close off, looking elsewhere
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3. (S/NF) Levey provided Al-Suwaidi with an overview of
recent actions to cut off Iranian access to funds. Major
financial institutions, such as Deutsche Bank, Commerzbank,
HSBC, and Standard Chartered were all cutting off their
business with Iran. This action was leading to a
displacement of Iranian banking activities to other regions
and an active Iranian effort to evade sanctions and pressure.
Levey presented Al-Suwaidi with a paper outlining Iranian
activities to evade sanctions, including deceptive business
practices by the Iranian Central Bank (Bank Markazi) and Bank
Melli. He also handed Al-Suwaidi a copy of an Iranian
invitation to bid for two nuclear power plants in Iran,
giving an Austrian Bank account number. When Levey checked
with the Austrian bank, he discovered that the Iranian MFA
had opened the account for its diplomats at the International
Atomic Energy Agency.


4. (S/NF) Al-Suwaidi noted that the Central Bank had seen an
increase in capital flows out of Iran in April and May and
then a drop-off. He noted that it appeared to be capital
flight by ordinary Iranian business people, who were "running
away." The UAE was not seeing official money flowing. He
added that the UAE was seeing trade finance and satisfying
open letters of credit. He stated that Iranian Central Bank,
Bank Markazi, had no accounts in the UAE, except, possibly,
indirect accounts with Iranian banks. Levey questioned that
assumption, noting that Bank Markazi had relationships with
commercial banks in other countries and took efforts to
disguise its operations. Al-Suwaidi promised to look into
the issue, but thought "it would be surprising." Al-Suwaidi
also stated that "it would be natural" for the GoI to try and
avoid sanctions and move its money "from where it would be
confiscated or frozen" to safer locations, speculating that
China and Russia would be the "most secure places" for
Iranian money.

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Emirates Bank International
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5. (S/NF) Levey explained USG concern that Iranians would
seek to divert their financial activities to the UAE, given
the historical trade ties between the two countries. He

ABU DHABI 00001388 002 OF 003


added that the USG had information that Emirates Bank
International (EBI) was increasing its business with Iran.
He wanted to share this information with the governor, not
because we had information on any illegal EBI activities, but
because of the reputational risk this would pose to the UAE
banking system as other financial institutions cut back their
exposure to Iran. The governor first expressed surprise,
noting that EBI had the least exposure to Bank Sepah.
Al-Suwaidi then reacted as if he interpreted Levey's remarks
as a threat. He pointedly asked whether the USG wanted to
"damage our financial institutions and the UAE economy?" He
warned that such action would blow back on U.S. interests,
especially since the UAE ran a significant ($8 billion) trade
deficit with the U.S. Levey stressed that the USG did not
want to damage the UAE economy, but was trying to work
together to meet a mutual threat. Al-Suwaidi said he would
try to convince EBI to be careful.


6. (S/NF) Al-Suwaidi later explained that the UAE shared
concerns about a nuclear armed Iran, but that the UAE needed
to weigh its financial actions "from all angles" before
deciding how to react. In a subsequent meeting, Al-Otaiba
urged Levey to continue sharing information about Iranian
efforts to use the UAE financial system with the Governor and
the MFA "as early as possible." He asked about the status of
potential U.S. legislation sanctioning third-parties dealing
with Iran. He argued that it would be much easier for the
UAE, if the U.S. put together a list of companies doing
business with Iran. The government could then approach UAE
companies on that list and give them the choice of access to
the Iranian market or the U.S. market. (Comment: Al-Otaiba's
suggestion that the USG list UAE companies dealing with Iran
runs somewhat counter to the UAEG's oft-stated preference for
dealing with issues quietly. It does, however, fit in with
the UAE's concern about having "cover" to take actions
against Iran, whether UNSCR cover or something else. If the
USG threatened to "name and shame" UAE companies, neither the
Iranian, nor the companies could blame Abu Dhabi. End
Comment.)

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Upcoming UNSC Actions
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7. (S/NF) Al-Suwaidi asked about the status of any future
UNSCR increasing sanctions on Iran. He was particularly
interested in any potential impact on Bank Melli, which has
branches in the UAE. Levey replied that this would be a UNSC
decision, but that should an action be taken against Bank
Melli, it would likely be more significant, since Bank Melli
had a larger international presence than Bank Sepah.
Al-Suwaidi said that should the UN designate Bank Sepah, the
UAE would act in accordance with its international
obligations.

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Will Pressure Work on Iran?
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8. (S/NF) Levey separately asked both Al-Suwaidi and
Al-Otaiba for their thoughts about the impact of sanctions on
Iran. Al-Suwaidi stated that he thought the pressure would
force Iran to change its policy and "retrench." Al-Otaiba
commented that Iran was opaque, but that it was possible to
see increasing dissatisfaction, such as with recent gasoline
riots. Al-Otaiba also commented that the bilateral USG
approach and the multilateral UNSCR approach complemented
each other.

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North Korea
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9. (S/NF) Al-Suwaidi asked for an update on USG actions
against North Korea. He noted the UAE has still frozen the
accounts of Tanchon Commercial Bank and asked whether the UAE
was "liable" (to law suit). He expressed concerns that the
USG would lift sanctions for political purposes. Levey noted
that money laundering designations were based on a financial
institution's actions and were designed to change the
conduct.

ABU DHABI 00001388 003 OF 003



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MENA/FATF
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10. (SBU) U/S Levey asked Al-Suwaidi about the UAE's upcoming
presidency of the MENA/FATF organization. Al-Suwaidi
expressed his hope that the UAE would be a strong leader, but
put in a request for U.S. assistance in organizing training
events for the region. If the U.S. could provide "experts,"
it would make the coming year "exciting" for the MENA/FATF
members. Levey committed to being a "good partner" and
supporting the MENA/FATF.

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Cash Couriers
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11. (SBU) U/S Levey asked Al-Suwaidi about the status of the
USG-proposed joint cash courier operation. Al-Suwaidi segued
into a brief discussion of the "gaps" between the U.S. system
and the UAE system, noting that the UAEG had more
sophisticated detection equipment. He then asked for a "team
of experts" to meet to discuss the operation. Econchief
replied that there had been several expert-level meetings and
that the program had been modified to respond to UAEG-stated
concerns. U/S Levey again pushed for an answer. Al-Suwaidi,
noting that most members of the National Anti-Money
Laundering Committee were out of the UAE, said he would
endeavor to get a response by early September.

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Sovereign Wealth
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12. (C) In a separate August 13 meeting, Al-Otaiba asked
Levey about the current U.S. focus on "Sovereign Wealth
Funds." He noted that the UAE was receiving "mixed messages"
from the U.S. regarding foreign investment, with the
administration welcoming it and Congress sending a "more
protectionist" message. He noted that the UAE wanted to
avoid a repeat of its DP World experience. He solicited
Levey's thoughts about how the UAE could plan for any
potential future risk to its investments. He stressed that
Abu Dhabi's investments were "purely commercial" and "not
political," and that the Emirate wanted to be sure its
investments would not be "collateral damage" in any efforts
to deal with potential problems from other investors. Levey
noted that Treasury DAS Ahmed Saeed would be visiting the
region in September with Treasury's experts on the issue and
urged Al-Otaiba to consult with him.


13. (U) Treasury has cleared this message.
QUINN