ZURCHER KANTONALBANK REPORTS IT IS 98% OUT OF THE

C O N F I D E N T I A L BERN 001096

SIPDIS

SIPDIS

STATE PLEASE PASS TO TREASURY

E.O. 12958: DECL: 11/20/2017
TAGS: PTER KFIN KFTN IR SZ
SUBJECT: ZURCHER KANTONALBANK REPORTS IT IS 98% OUT OF THE
IRANIAN BUSINESS

REF: BERN 808

Classified By: C. Buck, Pol/E; reasons 1.4(b) and (d).


1. (C) Summary: Emboff met November 19 with Juerg Reichen,
Head of International Banking for Zurcher Kantonalbank (ZKB),
who traveled to Bern for the meeting, to discuss the bank's
Iranian relationships. Reichen explained that ZKB had
reduced its Iran portfolio by about 98% since its management
decision to extricate the bank from its Iran relations. He
reiterated that the senior leadership made the decision
because of the high due diligence costs and the threats to
the bank's reputation. Reichen explained that the bank's
remaining business is in keeping with the "spirit of the
Iranian Sanctions Act" and is focused entirely on
pharmaceuticals (Novartis and Roche) and agriculture
(Monsanto). Regarding the terminated relationships, Reichen
believes Bank Markazi and ZKB's other clients have moved to
Russia and China for their banking needs. End Summary.

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Zurcher Kantonalbank 98% Out of Iranian Market
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2. (C) Juerg Reichen traveled to Bern to meet with Emboff on
November 19 to update the USG on Zurcher Kantonalbank's
efforts to end its relationships with Iran. Reichen
explained that ZKB has ended 98% of its Iranian relationships
and the remaining exposure is 100% concentrated in export
credits for pharmaceuticals (cancer drugs) and agriculture
(soybeans). These relationships are insured by Swiss Export
Risk Insurance (SERV) and are in line with the spirit of the
Iran Sanctions Act. The current level of exposure is a
significant reduction over August's (REFTEL) and ZKB
believes, according to Reichen, that it is now on solid
footing regarding risk and exposure to Iran.

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Iran Getting Desperate?
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3. (C) Reichen said he believes the sanctions regime is
having the intended impact and that the mood in Iran is
turning desperate. He explained, by way of circumstantial
evidence, that ZKB's actions to end its relationships
resulted in "unusual" outreach from Tehran. The governor of
Bank Markazi called Reichen on "holy Friday" pleading that
its account not be closed. Reichen rebuffed the appeal and
closed the account, but believes that this is an indication
that the UNSCRs are having the desired impact. He added that
the money in ZBK's possession appears to be heading to Russia
and China, although he could not provide the exact banking
destinations. He also believes that there are some small
private banks in Switzerland with active Iranian
relationships. These relationships are small in value and
are concentrated on legitimate business such as the
diplomatic missions and the national flag carrier, but there
could be others.

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COMMENT: Working to Repair its Image and to be Constructive
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4. (C) Embassy Bern believes that Zurcher Kantonalbank is
turning the page on its winter 2006 to spring 2007 activities
with Iran and is making best efforts to end all business of
any question with Iran. As the leadership explained in
August (REFTEL),ZKB is trying to return to its core
business. Its willingness to meet with USG officials in
Zurich or Bern should be taken as an indication that it wants
to repair its image and wants to be a constructive partner.
END COMMENT.
CONEWAY