TURKISH BANK REPRESENTATIVES PLEDGE HEIGHTENED

UNCLAS SECTION 01 OF 02 ISTANBUL 001052 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON EFIN IR PGOV PREL PTER TU SUBJECT: TURKISH BANK REPRESENTATIVES PLEDGE HEIGHTENED VIGILANCE ON IRANIAN BANKS REF: A. A) STATE 148604 ¶B. B) STATE 149648 ¶C. C) ANKARA 2777 (NOTAL) ¶1. (SBU) SUMMARY: Representatives of several Turkish banks told Istanbul Iran Watcher on November 29 that they are acting with "extreme vigilance" against the risks posed by the Iranian financial sector and scrutinizing all transactions with Iranian banks, including those designated by the USG on October 25. END SUMMARY ¶2. (SBU) On November 29, Istanbul Iran Watcher met with compliance officers from three of the largest banks operating in Turkey -- IsBank, Fortis Bank, and TEB -- as well as from the Banks Association of Turkey, to brief them on ref A and B information on the recent USG designation of several Iranian banks and the FATF statement on Iran. The three banks visited represent a sample of the diverse ownership structure of Turkish banks; with one majority Turkish-controlled, one wholly foreign-owned, and one partially foreign-controlled. Approximately 30% of IsBank shares are publicly traded, with the remainder controlled by the IsBank employee pension fund (42%) and the Republican People's Party (CHP) (28%). Fortis Group (Belgium) acquired full ownership (93.3% of shares) of DisBank in July 2005. As of February 2005, BNP Paribas controls 42% of TEB shares, 15% of shares are publicly traded and the remainder are privately held. ¶3. (SBU) The Turkish bank representatives were aware of both developments and asserted that their banks were acting accordingly by complying fully with "all international and domestic laws and standards": -- The IsBank representative claimed that his bank, Turkey's largest private bank, was well aware of the reputational risk of conducting business with Iran's financial sector, and with the Iranian banks that have been accused by the U.S. and EU of links to WMD proliferation or terrorism. He noted that IsBank had ended its cooperation with Bank Sepah following the UNSC's designation of Sepah in UNSCR 1747. IsBank is following guidance from MASAK -- Turkey's financial intelligence unit -- regarding dealings with Iranian banks (he did not share that specific guidance, but described it as urging extreme caution and extra vigilance in any dealings with Iranian banks). -- The Fortis Bank representative said Fortis has no current deals with any Iranian banks, and applies "enhanced due diligence" relating to any "high-risk" contacts. -- The TEB representative said the bank had decided not to pursue any new business with Iranian banks, was exercising vigilance regarding any current business with Iranian banks, and was fully complying with Turkish banking regulations requiring that it report any suspicious requests from Iranian banks to MASAK. ¶4. (SBU) The Turkish Banking Association representative said that Turkish banks are required by regulation to "pay attention" to the U.S. Treasury Department's OFAC list, as well as to the EU's "black list" of banks and companies. He said the association, working with the GOT, supports and encourages Turkish banks to "know your customer". He added that in late October, shortly following the FATF statement on the risks posed by Iran's financial sector, MASAK circulated a communique to Turkish banks underscoring the threat and instructing banks to protect themselves against the risk of association with anti-money-laundering or terrorism finance activities. ¶5. (SBU) On the other hand: Several of the bank representatives pointed out that Iran is Turkey's largest neighbor, with a long and deep history of commercial ties to Turkey, making it impossible to cut off all financial contacts with Iran. Indeed, the presence of three Bank Mellat branches in Turkey (incorporated as legal Turkish banking entities) allows Bank Mellat to participate as a full member of the Turkish Banking Association. The banking representatives noted that Turkish banks do not have the legal authority to freeze assets of foreign banks or companies under their control, unless Turkey's Council of Ministers decrees it. The GOT, they indicated, furthermore does not currently have executive authority similar to the USG's authorities under E.O. 13382 or 13224, but rather must rely on the legal obligation imposed by Chapter VII UNSC resolutions such as 1267, 1373, 1737 and 1747. Following issuance by the UNSC of such resolutions, Turkey's Council of Ministers circulated those decisions to all Tur kish banks, with orders to comply. However, in at least one case the Council of Ministers took a very long time to circulate the decision, muting the impact of the UNSC resolution. ISTANBUL 00001052 002 OF 002 ¶6. (SBU) All three bank representatives added that if the USG has further information regarding Iranian banks in Turkey (i.e. Bank Mellat) being involved in support for WMD proliferation or terrorism, the USG should share that information with the GOT, which would then advise Turkish banks to take appropriate action. They also advised that the USG might consider asking MASAK directly to issue a public statement cautioning Turkish banks about the risks of doing business with Iran's financial sector, a step that MASAK has not yet taken. ¶7. (SBU) COMMENT: The bank representatives welcomed the opportunity to meet with a USG official and to emphasize how seriously they view the risks posed by Iran's banks and financial sector. They were well-informed about FATF's October 11 statement of concern on Iran and the USG's October 25 designations, but they appreciated receiving the ref A fact sheet. Per their suggestions in para six and ref C, should Washington develop further information regarding Iranian banks that impact Turkey, clearing such information for public release/release to Turkish banks would help reinforce these banks' growing awareness of the risks posed by Iran's financial sector. END COMMENT. WIENER