IRAN - GERMAN FINANCE MINISTRY SUPPORTS THIRD

S E C R E T BERLIN 002192

SIPDIS

SIPDIS, P, T, E, NEA, ISN, EUR, EEB

E.O. 12958: DECL: 12/11/2017
TAGS: KNNP MNUC PARM EFIN ETRD ECON PREL IR EU GM
SUBJECT: IRAN - GERMAN FINANCE MINISTRY SUPPORTS THIRD
UNSCR, EXPRESSES CONCERN ON AUTONOMOUS MEASURES

REF: A. BERLIN 1981


B. BERLIN 2027

Classified By: EMIN Robert A. Pollard for reasons 1.4
(b) and (d).


1. (S) SUMMARY: Post-NIE, the German Finance Ministry agrees
with the Chancellery, MFA, and Economics Ministry assessment
that Iran's enrichment- and missile-related activities
continue to pose a threat. The Finance Ministry supports
work toward a strong third UNSCR but also remains sympathetic
to German business concerns that other countries, e.g. China
and Russia, would "undercut" EU or German autonomous efforts.
Officials also emphasize that unless an Iranian bank is the
subject of UN or EU listings, German Government regulators
require evidence of wrongdoing - e.g., involvement in
proliferation-related activities - in order to revoke a
bank's operating license or otherwise limit a bank's
activities. While German regulators have stepped up their
oversight of Iranian banks and related financial activity,
Ministry officials emphasize that a bank's decision to limit
Iran-related exposure should be driven by its own in-house
cost-benefit analysis and assessment of risk. Finance
Ministry officials also report new export credit guarantees
have been limited to small, short-term transactions and
suggested that MinFin would not support a unilateral
termination of credit guarantees for Iran. END SUMMARY.


2. (S) ECONCOUNS and ECONOFFs met December 11 with German
Finance Ministry Deputy Director General for International
Economic and Financial Affairs Rolf Wenzel and Financial
Crimes Division Desk Officer Wilfried Etmann to discuss the
new U.S. National Intelligence Estimate on Iran (NIE) and to
get an update on implementation of UNSCRs 1737 and 1747, as
well as autonomous financial measures the German Government
has taken to prevent Iranian proliferation efforts in
Germany. Because the German Government views Iran as
primarily a foreign policy problem, Wenzel explained, the
Finance Ministry's role in interagency discussions has been
limited to providing an assessment of the financial
implications of measures under consideration. He noted that
the Chancellery and the MFA have had the lead on the issue.


3. (S) ECONCOUNS expressed appreciation for Chancellor
Merkel's strong statements on Iran in the wake of her
November visit to Crawford and noted the German Government's
ongoing moral suasion efforts with German banks and
exporters. Wenzel said the Chancellery had not yet provided
the Finance Ministry with an "authoritative interpretation"
of what the Chancellor had in mind when she called for
Germany to "take a closer look" at business ties with Iran.
He noted that German industry representatives continue to
express concern about expanding economic sanctions to sectors
and/or entities that are not as clearly linked to Iran's
proliferation-related efforts.


4. (S) Wenzel said German exporters continue to reject the
notion that they should cut long-standing business ties with
Iran when other countries are "undercutting" German efforts
by not going beyond measures stipulated in UNSCRs 1737 and

1747. In addition to China and Russia, Wenzel also described
a lingering perception among German exporters that U.S.
companies are using subsidiaries in third countries to bypass
U.S. sanctions. ECONCOUNS stated that U.S. law prohibits
U.S. companies from engaging in such practices and provided
Wenzel with additional information about U.S. legislation and
related law enforcement actions.


5. (S) Wenzel said the German Government concurs with the NIE
assessment that Iran's enrichment- and missile-related
activities continue to pose a threat, but speculated that the
timing of the NIE's release had lowered the probability of
getting China and Russia to agree to a strong third
resolution. Nonetheless, Wenzel said, Germany continues to
prefer UN action over autonomous measures. Globalization, he
continued, has made it easier for countries to evade economic
and financial sanctions. Wenzel expressed particular concern
that Swiss banks might undermine possible EU autonomous
measures. He also noted that Iran has begun to "diversify"
its trading relationships, pointing to the recent Sinopec
deal to develop Iran's Yadavaran oil field.


6. (S) In response to a question, Wenzel stated that, unless
an Iranian bank is the subject of UN or EU listings, German
Government regulators would need evidence of wrongdoing -
e.g., involvement in proliferation-related activities or

other action in violation of UN or EU sanctions - in order to
revoke a bank's operating license or otherwise suspend a
bank's activities. Under German law, Wenzel said, banks and
affected exporters have legal recourse to challenge a
government decision and to sue the Government - and
responsible government officials - for compensation and
damages. As a result, German authorities would require
evidence suitable for possible presentation in a court of law
in order to take autonomous action against Iranian banks
operating in Germany, Wenzel said.


7. (S) NOTE: Wenzel's assessment is shared by Economics
Ministry experts. Economics Ministry Foreign Trade Law
Division Deputy Director Ernst Roeder-Messel told ECONOFF
December 7 that Germany's Foreign Trade and Payments Act
(FTPA) only permits the Government to suspend foreign
trade-related transactions on a temporary basis, i.e. for a
period of up to six months. In order to suspend a bank's
activities beyond six months, the German Government would
need to draft a new regulation subject to the approval of the
EU Council (see ref A). In the absence of evidence of
continued support for proliferation-related activities,
Roeder-Messell said, German regulations would also preclude
the German Government from suspending entirely the activities
of Bank Sepah, which is permitted under UNSCR 1747 to fulfill
old contracts as long as it notifies the UN Sanctions
Committee. Roeder-Messell quickly offered assurances that
Sepah's activities are closely monitored by German
authorities. END NOTE.


8. (S) Wenzel noted that the German Federal Financial
Monitoring Authority (BaFin) had stepped up its oversight of
Iranian banks operating in Germany in the wake of UNSCRs
1737/1747. He added, however, that German regulators need to
demonstrate cause to conduct audits and, in many cases, have
hesitated to do so in order to prevent shifting of funds.
Asked about the German Government's moral suasion efforts
with German banks, Wenzel noted that the Finance Ministry had
instructed BaFin to disseminate the FATF statement on Iran in
order to stress the need for extra due diligence (ref B).
Ultimately, however, German banks' decision to limit their
Iran-related exposure was driven by the banks' own risk
assessment and cost-benefit analysis, he said. In some
cases, banks have concluded that additional due diligence
would make business with Iran too costly and/or not worth the
reputational risk. He noted it is difficult for the German
Government to talk to banks about the issue, primarily
because most banks instinctively inquire about government
compensation. Banks follow the news closely, Wenzel stated,
and "will make their own informed decisions."


9. (S) Turning to export credits, Wenzel said that Hermes
export credit guarantees for Iran are already categorized as
"high risk." He noted that "business is down," explaining
that new export credit guarantees are limited to small,
short-term contracts. German exporters are well aware that
"now is not the time to do business with Iran." (NOTE: The
MFA and Economics Ministry have made similar observations in
our ongoing discussions on this topic. In addition, the
Economics Ministry's Roeder-Messell pointed out that Hermes
scrutinizes applications carefully. In red-flag cases -
i.e., where there is a risk that proliferation-related
entities and/or goods/services might be involved - Hermes
officials will either deny the application outright or
consult with experts in the Federal Office of Economics and
Export Controls (BAFA),MFA, BaFin, and security services on
a case-by-case basis. Roeder-Messell noted that special
attention is given to screening for front organizations for
UN/EU-listed entities. END NOTE.)


10. (S) COMMENT: Wenzel approached the meeting with
considerably more caution and trepidation than other German
interlocutors, providing numerous arguments against
autonomous sanctions and offering little with regard to next
steps. The interaction highlighted the Ministry of Finance's
worries that autonomous sanctions coupled with increased
government pressure on German companies with trade ties to
Iran would result both in the permanent loss of long-term
business relationships and expose the government to legal
uncertainty. The strong impression left was that in any
German interagency discussions on next steps, the Ministry of
Finance will sound a strong note of caution on Germany
stepping ahead of the UN. END COMMENT.
TIMKEN JR