Identifier
Created
Classification
Origin
07BERLIN1450
2007-07-25 08:02:00
SECRET//NOFORN
Embassy Berlin
Cable title:  

TREASURY UNDER SECRETARY LEVEY DISCUSSES NEXT STEPS AGAINST IRAN WITH GERMAN OFFICIALS

Tags:  ECON EFIN GM IR PARM PREL 
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VZCZCXRO1728
OO RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHRL #1450/01 2060802
ZNY SSSSS ZZH
O 250802Z JUL 07
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8882
INFO RUCNIRA/IRAN COLLECTIVE IMMEDIATE
RUEHLO/AMEMBASSY LONDON IMMEDIATE 8375
RUEHFR/AMEMBASSY PARIS IMMEDIATE 8922
RUCNDT/USMISSION USUN NEW YORK IMMEDIATE 0489
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
S E C R E T SECTION 01 OF 04 BERLIN 001450 

SIPDIS

NOFORN

STATE FOR ISN, EUR, NEA/IR
TREASURY FOR U/S LEVEY
SIPDIS

E.O. 12958: DECL: 07/25/2032
TAGS: ECON, EFIN, PARM, PREL, GM, IR
SUBJECT: TREASURY UNDER SECRETARY LEVEY DISCUSSES NEXT
STEPS AGAINST IRAN WITH GERMAN OFFICIALS

Classified By: Ambassador William R. Timken, Jr., for reasons 1.4 (b) a
nd (d).

S E C R E T SECTION 01 OF 04 BERLIN 001450

SIPDIS

NOFORN

STATE FOR ISN, EUR, NEA/IR
TREASURY FOR U/S LEVEY
SIPDIS

E.O. 12958: DECL: 07/25/2032
TAGS: ECON, EFIN, PARM, PREL, GM, IR
SUBJECT: TREASURY UNDER SECRETARY LEVEY DISCUSSES NEXT
STEPS AGAINST IRAN WITH GERMAN OFFICIALS

Classified By: Ambassador William R. Timken, Jr., for reasons 1.4 (b) a
nd (d).

1. (S) Summary: Treasury Under Secretary for Terrorism and
Financial Intelligence Stuart Levey and Assistant Secretary
of State for International Security and Nonproliferation John
C. Rood presented to German officials July 11 and 12 in
Berlin the USG case for listing Iran's Islamic Revolutionary
Guard Corps (IRGC) and its "special operations" arm, the Qods
Force (QF),in the next UNSC resolution on Iran for violating
mandates of UNSCRs 1737 and 1747. U/S Levey also briefed the
German officials on the activities of Iran's Bank Melli and
Bank Mellat in support of the IRGC and QF and the rationale
for sanctioning them too. U/S Levey and A/S Rood also
signaled that the U.S. is considering additional designations
under U.S. domestic authorities related to Iranian support
for terrorism. German reaction included grudging
acknowledgment of the IRGC's and QF's violations of UNSCRs
1737 and 1747 and arguments for focusing on nuclear and
missile activities of Iran as opposed to these violations of
UNSCRs and support for terrorism. Nevertheless, the German
Government expressed no negative reaction to potential U.S.
action against Iranian entities for their support for
terrorism, nor did the Germans disagree with the importance
or legitimacy of acting against Iran for its support for
terrorism. German Ministry of Economics and Technology
officials raised concerns about the effects of halting export
credits and said actions against Iranian banks could lead to
a de-facto trade embargo. Officials in other ministries
echoed their objections.

2. (S) Summary continued: In sum, German officials argued
that: 1) the IRGC, including QF, should not be sanctioned in
its entirety in the next UNSC resolution, because not all of
its activities (e.g., owning and operating legitimate
business enterprises like grocery stores) violate UNSCR
sanctions; 2) the USG should provide proof acceptable in a
court of law that the IRGC is violating UNSCRs 1737 and 1
747;
3) sanctioning Banks Melli and Mellat could lead to a
de-facto trade embargo on Iran; 4) if export credits were
banned in the next UNSCR, Iranian debtors might default on
their debts to German creditors, compelling the German
Government to bear the burden of paying upwards of 5 billion
euros in credit insurance indemnities to German debt holders;
5) German exporters to Iran are already losing business to
foreign competitors that are not so particular about Iran's
defiance of the UN; and 6) if actions against Iran are too
strong, then the Iranian Government will be able to garner
more support from the population. Despite the criticisms,
the German officials in all the meetings agreed that the
German Government shares the USG goal of preventing Iran from
developing a nuclear weapon and said they would discuss the
USG proposals internally and with their EU3 partners. End
summary.

3. (S) U/S Levey, A/S Rood and a joint Treasury/State
delegation met with senior officials at the Federal
Chancellery, the Ministry of Finance, the Federal Foreign
Office, and the Ministry of Economics and Technology. The
Ambassador participated in the meetings at the Federal
Chancellery and Ministry of Finance.

-------------- --------------
German Skepticism Over Sanctioning IRGC, Bank Melli
-------------- --------------

4. (S//NF) U/S Levey and A/S Rood briefed German government
officials on the Islamic Revolutionary Guard Corps (IRGC) and
Qods Force (QF) violations of UN Security Council Mandates.
U/S Levey and A/S Rood pointed out that UNSCR 1737 sanctioned
the leaders of the IRGC; therefore, all entities owned and
controlled by the designated individuals -- including the
IRCG, the QF, and their affiliated companies -- should also
be sanctioned. U/S Levey also shared information linking the
IRGC and the Qods Force to their banks of choice, Bank Melli,
Bank Mellat, and the Central Bank of Iran, suggesting that
the UN should designate one of these banks in the next round
of measures.

5. (S) In the first meeting, Jens Weidmann, Chancellery
Minister Director of the Department for Economic, Financial,
and Labor Policy, set the tone for the skepticism that
followed in every other meeting. He questioned the rationale
for sanctioning the IRGC at the UN in its entirety when not

BERLIN 00001450 002 OF 004


all of its activities violated UNSCRs 1737 and 1747.
Weidmann also asked the USG to provide evidence to the UN
that Bank Melli and Bank Mellat were involved in WMD
proliferation-related financing. Otherwise, he said, to
sanction them would amount to a trade embargo, which Germany
does not support. Using the analogies of organized
crime-affiliated companies or charitable organizations
supporting terrorists, U/S Levey pointed out that the legal
response in these cases is often to shut down the
organizations entirely -- even though some of their activity
might be legitimate. Christoph Heusgen, Chancellery Minister
Director of the Department for Foreign and Security Policy,
acknowledged that the IRGC should be considered for sanctions
because of its oversight of Iran's ballistic missile program,
but cautioned that Russia might be difficult to convince. As
an example of Russia's skepticism, Heusgen observed that
Russian experts did not agree with the U.S. assessments of
the potential range of Iran's Musudan IRBM.

6. (S) At the Finance Ministry, State Secretary Thomas Mirow
made a plea for the negotiators to consider carefully the
consequences of designating another Iranian bank in the next
UNSC resolution. Mirow echoed Weidmann's view that
sanctioning another Iranian bank would be tantamount to a
full embargo because of the impact that such a designation
would have on the business world's view of Iran. He said the
German Embassy in Iran has observed that financial sanctions
are having an impact and the Iranians are clearly concerned
about what lies ahead, but stressed that targeted measures
remain the most effective.

7. (S) In the Federal Foreign Office, Minister Director Fritz
Groening, Commissioner of the Federal Government for Arms
Control and Disarmament, questioned the rationale behind IRGC
support to the Taliban. According to German government
analysis, Groening said, the Iranian Government had no
interest in helping the Taliban. NEA/I Director Barbara Leaf
suggested that the Iranian Government supported the Taliban
via the IRGC in the calculation that U.S. troops in the
region would be too occupied in Afghanistan and also in Iraq
to act militarily against Iran, which Groening acknowledged
as a possibility. He suggested that the German Federal
Intelligence Service (BND) discuss the issue with U.S.
counterparts.

8. (S) Hellmut Hoffmann, office director of the Federal
Foreign Office's Division of Disarmament and Arms Control
Basic Issues, Security Policy, and WMD Nonproliferation,
questioned the rationale for including Bank Melli on the next
UNSCR Annex. He asked whether the USG proposed sanctioning
Bank Melli for financing WMD proliferation activities or for
financing the IRGC. Groening said he expected some Iranian
bank to be listed in the next UNSC resolution on Iran, partly
because the USG had earlier signaled its intention to include
one. Not to exclude a bank on the next resolution would be
interpreted by the Iranian Government as a lack of cohesive
will in the UNSC, Groening added.

9. (S) Hoffmann raised another issue concerning sanctions on
Iranian entities. After citing a German Federal Chancellery
report of 30 new Iranian front companies being formed to
procure WMD materials after the passage of UNSCR 1737, he
asked how the USG would deal with the IRGC if it could form
new front companies so readily. U/S Levey responded that
although the international community could not prevent the
formation of Iranian front companies, it could target the
financing system that Iran uses for missile-related
procurement, i.e., imposing sanctions on Bank Melli, for
instance.

10. (S) In the meeting at the Economics Ministry, Ursina
Krumpholz, office director of the Foreign Trade Law and Law
of the Sea Division, claimed that the U.S. information about
the IRGC's provision of arms to the Taliban and control over
Iran's ballistic missile program was insufficient to support
a designation in the next UNSCR. Krumpholz argued that the
UN should only designate those entities directly linked to
Iran's nuclear or missile programs.

--------------
Concern that Sanctions Harm Germany's Economy
--------------

11. (S) In every meeting, German officials voiced concerns

BERLIN 00001450 003 OF 004


over the impact of stronger sanctions on Iran on Germany's
economy. In the Chancellery, Weidmann made the point that
the German Government may be liable for 5 billion euros in
indemnities to German firms which received government-backed
export credit guarantees if the major Iranian banks are
unable to pay. Officials in the Economics Ministry, although
acknowledging that sanctions on Bank Sepah were effective
because they were carefully targeted, nonetheless complained
about the potential negative impact on the German economy.
Christoph Herfath of the Economics Ministry's Export Finance
and Export Credit Insurance Division, said that German
exporters use six major commercial banks in Iran to finance
bilateral trade. Since the designation of Bank Sepah, the
German firms that financed trade through Bank Sepah are
having difficulty collecting from their Iranian debtors.
Herfath argued that sanctioning other Iranian banks, such as
Melli or Mellat, would make it even more difficult for
Germans firms to collect their debts in Iran.

12. (S) Karl Brauner, Minister Director of the Economics
Ministry's Foreign Trade Policy Department, complained about
the "collateral damage" caused by the designation of Bank
Sepah. Brauner claimed that some German municipalities had
assets in Bank Sepah, and are now facing a budget crunch
because they had counted on those assets to fund municipal
projects. U/S Levey explained that UNSCR 1747 allows Bank
Sepah to fulfill prior contracts, so the municipalities may
be eligible to obtain their funds. Nevertheless, U/S Levey
agreed with the need to protect innocent third parties and
noted that the G-7 is working to resolve such issues before
negotiations begin on the next resolution.

13. (S) Officials in the Economics Ministry also expressed
concern that as German trade with Iran declines, so does
German influence. Michael Kruse, Deputy Minister Director of
the Export Finance, Investment, International Finance, and
Foreign Economic Cooperation Division, said German firms were
already losing contracts to competitors outside the EU,
notably in Russian and China. As an example, he said Iran
recently decided to purchase a petroleum refinery from China
instead of from Germany, and Iranian President Ahmadi-nejad
has instructed Iranian entities to buy from Russia and China.


14. (S) German officials also complained about the move
within the U.S. Congress to strengthen the Iran Sanctions Act
and to sanction companies in third countries that continue to
do business with Iran. Viktor Elbling, Commissioner for
Energy Policy, Globalization, and Sustainable Development in
the Federal Foreign Office, said the German public perceives
that the USG is trying to make the rest of the world pay the
same price that the U.S has paid since its 1979 trade embargo
on Iran. Krumpholz in the Economics Ministry argued that
German firms abide by UNSC resolutions and EU regulations,
which permit legitimate trade with Iran, but are not obliged
to follow U.S. law. Echoing these concerns, Groening in the
Federal Foreign Office cautioned that a U.S. initiative to
punish any firm in the EU for investing in Iran would harm
the international coalition on Iran and benefit the Iranian
Government.

-------------- --------------
Admadi-nejad Willing To Exploit External Pressure
-------------- --------------

15. (S) German officials expressed concern that more
stringent sanctions on Iran might play into the hands of the
Iranian leadership. According to Elbling in the Federal
Foreign Office, the German Embassy in Tehran reported
recently that Ahmadi-nejad expects stronger sanctions and
will use them to blame the West for the economic pinch that
Iranians feel. Groening suggested that the right amount of
pressure is the key to dealing with Iran; the UNSCR should
not give Tehran a pretext to abandon negotiations altogether
by being too harsh. Groening also asked whether the U.S. had
considered the Iranian public's perception of a designation
of the IRGC. The IRGC is considered by many Iranians,
according to Groening, as the savior of the country during
the Iran-Iraq war in the 1980s. To sanction the institution
that saved Iran from Iraq might turn the people further away
from the West.

-------------- --------------
U.S. Concern over Continued German Business Ties with Iran

BERLIN 00001450 004 OF 004


-------------- --------------

16. (S) U/S Levey raised some concerns about German banks and
companies that continue to conduct business as usual in Iran.
At the Ministry of Finance, U/S Levey shared some
information about Commerzbank's continued ties to Iranian
banks. Mirow said he was in close contact with Commerzbank
CEO Klaus-Peter Mueller and would be sure to consider the
information carefully, but encouraged U/S Levey to pursue his
personal dialogue on Iran with Mueller as well. Mirow also
confirmed an Iranian press report that Deutsche Bank had
decided to cut off all business with Iran in all currencies,
and noted that Deutsche Bank's decision had created quite a
stir in Iran, according to the German Embassy in Tehran.

17. (S) At the Economics Ministry, U/S Levey asked about the
German Government's stance on Siemens' decision to pursue new
business with and expand investment in Iran. Kruse referred
only to a Siemens project to sell locomotives to Iran and
argued that the transaction is perfectly legal, since diesel
engines are not included on any sanctions list. U/S Levey
observed that Siemens' decision to support Iran's
infrastructure, given the current political context, is
unhelpful, but Kruse maintained that Siemens is fully
justified in continuing this kind of business with Iran.

18. (U) Post will report any additional German response
septel.

19. (U) This cable was coordinated with U/S Levey and A/S
Rood subsequent to the delegation's departure.
TIMKEN JR