TREASURY DEPUTY SECRETARY KIMMITT'S MARCH 19

C O N F I D E N T I A L SECTION 01 OF 04 BERLIN 000555

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/18/2017
TAGS: EFIN ETTC PREL SENV ENRG EAIR MARR GM IZ PK
AF
SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT'S MARCH 19
MEETING WITH FOREIGN MINISTRY STATE SECRETARY SILBERBERG

REF: BERLIN 484

Classified By: Charge d'Affaires John M. Koenig for reasons
1.4 (b) and (d).


1. (C) Summary: Treasury Deputy Secretary Kimmitt and German
MFA State Secretary Reinhard Silberberg discussed the need to
maintain political unity within the international community
on Iran and to work together to ensure effective
implementation of multilateral agreements. They also
discussed North Korea, Chancellor Merkel's transatlantic
economic initiative, energy and climate change, Afghanistan,
Missile Defense, Sudan/Darfur, and German plans regarding the
future of Economic Recovery Program funds. End Summary.

Iran Sanctions and Export Credits
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2. (C) On Iran, Kimmitt told Silberberg the Bush
Administration had focused recently on making more effective
use of multilateral frameworks. In order to avoid
reinforcing the views of some that such frameworks are
ineffective, Kimmitt said, we need to work to ensure UNSC
resolutions and other multilateral agreements are implemented
effectively. He noted recent GAERC conclusions on Iran have
been helpful, but expressed concern about the EU's failure to
act quickly to implement UNSCRs 1695, 1718, and 1737. With
regard to UNSCR 1737 and the next UN resolution on Iraq,
Kimmitt said it is important for the international community
to continue to speak with one voice, noting international
political unity had increased domestic pressure on the
Iranian president. Kimmitt said concern within the
legitimate Iranian business community about losing access to
financing was beginning to cause pressure on Ahmadinejad to
back away from confrontation in order to help the Iranian
people.


3. (C) Silberberg agreed on the need to maintain
international unity. The fact that the second UNSC
resolution on Iran will be passed after Ahmadinejad's
appearance before the Security Council is an opportunity to
show Iran that Ahmadinejad is completely isolated.
Silberberg said it is increasingly clear that Ahmadinejad's
domestic position is weakening. Kimmitt noted positively the
continuing downward trend on German export credit guarantees
to Iran, but stressed the importance that Germany not allow
use of the Hermes program to compensate for the risk created
by Iran's illegal behavior, which had caused Iran's
investment risk rating to worsen. Silberberg explained that
Germany's Hermes program does not give export credits to
Iran, but provides guarantees for German SMEs. While the
program's intent might be to help German companies, Kimmitt
said, it is important to ensure the export credit program
does not compensate for risk created by Iran's illegal
activities. German firms that wittingly or unwittingly
engage in business with Iranian front companies may also
jeopardize access to U.S. markets. Silberberg said the
German government cannot restrict legal business activities
of German companies. Kimmitt said the USG is not concerned
about the companies doing legitimate business in Iran, but
stressed those companies have to be fully aware of the high
risk of doing business there and be sure they're not doing
business with Iranian front companies. (Note: During the
meeting, Silberberg received word that Spain and the UK had
reached agreement (related to Gibralter) on wording of an EU
regulation to permit implementation of UNSCRs 1695, 1718, and

1737. Silberberg said the agreement should facilitate more
rapid EU action on the next UNSC resolution. End Note.)


4. (C) Kimmitt expressed concern about the EU's ability to
take all necessary steps against Iranian or other entities
engaged in illicit activity in a way that can withstand legal
challenges. He asked whether the EU had considered making it
possible for governments to use sensitive law enforcement
and/or intelligence information to support a decision that is
challenged in court. He described U.S. success with the
Classified Information Protection Act, noting a top priority
for Treasury AML/CFT regulators is to be sure a decision will
stand up in court.

North Korea
--------------


5. (C) Kimmitt described U.S. efforts to engage major banks
around the world on the risks of doing business with Iran,

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North Korea, and other countries of concern. He encouraged
Germany to adopt similar practices in order to help make
implementation of multilateral agreements more effective.
Kimmitt said the USG and Germany enjoy the greatest leverage
with foreign banks that operate in New York and Frankfurt,
respectively. He said the DPRK is moving further west in its
outreach to banks. Kimmitt said the USG is cautiously
optimistic on the recent breakthrough in the Six Party Talks
and described the separate bilateral working group process on
financial measures imposed by the USG. Kimmitt said the
business-like discussions with the DPRK had confirmed U.S.
suspicions about North Korea's illegal conduct. Silberberg
expressed appreciation for the update and offered assurances
Germany would take steps, if necessary, to prevent the export
of an intaglio printing press to North Korea (reftel).

Economic Recovery Program
--------------


6. (C) Kimmitt said the Treasury Department remains concerned
that a German decision to transfer Economic Recovery Program
(ERP) funds to the Kreditanstalt fuer Wiederaufbau (KfW)
could pose a major political problem. He urged the German
Government to address U.S. concerns: that the funds transfer
would result in a competitive imbalance and cause a market
distortion related to commercial activities that are
controversial between Germany and the United States; or that
ERP funds might be used to support business with Iran.
Silberberg noted that the European Commission is the key
regulatory authority on this matter and urged the USG to
raise any concerns with the Commission. He also claimed the
KfW is no longer seriously engaged in lending for or to Iran.
Charge said the Embassy is involved in consultations with
ministries and the Bundestag and noted that language in the
bilateral agreement might require the Administration to
notify Congress, a development that would lead to a request
to suspend temporarily Bundestag action pending the results
of a Congressional discussion/review. Kimmitt noted the need
to anticipate questions Congress might ask, including
providing convincing evidence that European state-owned
companies will not benefit from the shift of funds.
Silberberg agreed to provide the information to Embassy.

Transatlantic Economic Relationship
--------------


7. (C) Kimmitt said the USG welcomes Chancellor Merkel's
transatlantic economic relationship. Sending a clear signal
on the importance of the economic relationship, he said, will
also help with occasional turbulence that might arise in the
transatlantic political relationship. He noted the ongoing
U.S.-EU dialogue on financial markets has been a success and
suggested the initiative could focus on products and services
in pharmaceuticals, transport, and energy security. Kimmitt
stressed the importance of EU Council endorsement on March 22
of the Air Transport Agreement, as well as the need to
develop a structure to sustain political momentum on the
Merkel Initiative over the long-term. Kimmitt said the
financial markets dialogue has been effective because of its
informal nature and the fact that clear leads have been
appointed on each side. He suggested the EU designate a
single point of contact on the Merkel initiative and work to
set up a framework where leads are required to monitor and
report progress from summit to summit.


8. (C) Silberberg agreed on the need to set up a multi-year
program and acknowledged the inherent difficulty of the EU
negotiation process, including of designating a single EU
lead. Kimmitt and Silberberg discussed Commissioner
Verheugen's efforts to reduce regulatory and bureaucratic
burdens within the EU and agreed his work might provide an
opening for dialogue with OMB. Silberberg also noted impetus
from the outside would help to energize Verheugen's efforts
to reduce government regulation. Silberberg expressed
concern that U.S. pressure to designate a single lead would
create competition among Commissioners and could prompt
Barroso to appoint External Relations Commissioner
Ferrero-Waldner. Kimmitt noted that it was the German side
that had proposed a complex structure for oversight that
included a single EU lead and a "Wise Men's Group". He
stressed the need to develop a structure with a light touch
that would nonetheless facilitate dialogue at the
Commissioner/Department level, where it is most needed.

Energy/Climate

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9. (C) Kimmitt said the USG is pleased Chancellor Merkel has
included energy/climate in her transatlantic economic
initiative and put it on the agenda for the G-8 Summit. He
said both sides recognize the issues we face and essentially
agree on similar goals, but differ on how to get there. He
stressed the U.S. preference for a market-based solution,
noting the strong response from U.S. energy technology
companies and venture capital firms. Kimmitt briefly
described the U.S. climate/energy dialogue with Asian
countries and noted the U.S. strategic economic dialogue with
China includes an energy/climate component. Silberberg
characterize the March 8-9 European Summit conclusions on
climate/energy as a breakthrough, but noted much work remains
to be done to achieve the targets set in Brussels. Both
Kimmitt and Silberberg agreed on the importance of engaging
India and China. Kimmitt suggested more work might be done
in the G-20, particularly in light of recent discussion on
the effect energy shocks have on financial markets.

Afghanistan
--------------


10. (C) Silberberg noted Afghan President Karzai identified
energy as a top priority in his meeting with Chancellor
Merkel earlier that day (March 19). Karzai said Afghanistan
needs energy more than it needs highways. He focused on
renewable energy sources, especially hydro-electric projects.
According to Silberberg, Karzai told Merkel that
counternarcotics efforts had been most successful in areas
with more advanced development projects and had resulted in a
decline in poppy cultivation. Karzai identified Helmand
province as the most problematic area. Silberberg said
Karzai was optimistic about development in Afghanistan, but
told the Chancellor it is crucial to bring refugees back to
Afghanistan. If not, Karzai said, there will always be a
reservoir from which the Taliban can recruit. Silberberg
said Merkel was considering possibilities to increase
support, either through the UNHCR or on a bilateral basis.
Noting Karzai's frustration with Pakistan, Silberberg said
Germany would invite foreign ministers from Pakistan and
Afghanistan to meet with G-8 foreign ministers in May. The
focus of the discussion will be on cross-border cooperation
and overcoming lingering distrust.

Missile Defense
--------------


11. (C) Charge expressed concern about the use of "arms race"
rhetoric by some political figures, including in the
Government and the MFA, in public discussion of Missile
Defense (MD). While LTG Obering's March 15 briefings for
German officials had been helpful, Silberberg said, more work
needs to be done to overcome long-held German sensitivities.
He said German public reaction on MD was spontaneous, adding
that the growing public debate points to a need for more
discussion at the political level. The German Government
agrees NATO -- not the EU -- is the appropriate forum for
further discussion. He said consultations with Russia should
continue to take place in the NATO-Russia Council. Kimmitt
said NATO members need to recognize that communiqus like the
Riga Declaration matter and have to be honest about what has
been discussed and said in the past. He said European
governments also have an obligation to point out the
disproportionate resources Iran has invested in developing a
missile delivery system and to make sure the public is fully
aware of the risks they face. Silberberg said MD is the
subject of ongoing debate within the German Government and
said he would be in touch with Charge after a series of
internal, interministerial meetings had taken place.

Sudan/Darfur
--------------


12. (C) Kimmitt asked whether Germany has information about
the Sudanese oil program, saying the USG was interested in
finding ways the international community could exert pressure
more effectively. He said Treasury will soon make another
set of sanctions designations and is considering steps to
disallow cover payments through front companies. Silberberg
described Germany's bilateral trade with Sudan as marginal,
noting there are no major German commercial interests in
Sudan. He said African solidarity was crucial to achieving a
solution in Darfur.

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13. (U) Deputy Secretary Kimmitt has cleared this message.
KOENIG