UK WORRIED ABOUT IRAN, THEY TELL TREASURY A/S

S E C R E T SECTION 01 OF 04 LONDON 003571

SIPDIS

NOFORN
SIPDIS

TREASURY FOR A/S O'BRIEN, HECHT

E.O. 12958: DECL: 09/10/2017
TAGS: EFIN KTFN PTER IR LY UK
SUBJECT: UK WORRIED ABOUT IRAN, THEY TELL TREASURY A/S
O'BRIEN

Classified By: Acting Economic Minister Counselor Sandra Clark for reas
ons 1.4 b & d


1. (S/NF) SUMMARY: British officials told Patrick O'Brien,
A/S for Terrorist Financing and Financial Crimes, Treasury,
on September 6, that they are very worried about Iran. Both
sides agreed we should continue to turn up the pressure on
Iran within the context of the United Nations Security
Council (UNSC),including the addition of certain banks in
the next UNSC resolution, through EU mechanisms and through
domestic regulatory and licensing tools. O'Brien underscored
that major financial centers, such as London and Paris, could
significantly elevate pressure on Iran if both governments
made public statements about the recent decisions of British
and French financial institutions to cut off Iranian
business, as well as to highlight the general risks of doing
business with Iran. O'Brien passed non-papers to all UK
officials regarding the Islamic Revolutionary Guard Corps
(IRGC) and IRGC-Qods Force extensive use of the Iranian
state-owned banking network and Iranian state-owned Bank
Melli's support for proliferation-related activity.
O'Brien's visit encouraged the UK government to finally look
into two Libyan Islamic Fighting Group (LIFG) individuals to
be listed as supporters of terrorism the UK had placed on
hold on at the UNSC 1267 Committee (Taliban/al-Qaida/UBL);
they came back with ten additional names they fear are more
worrisome, and have begun a dialogue with appropriate USG
agencies. END SUMMARY

Iran: Time for a "Gut-Check"
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2. (S/NF) Antony Phillipson, Iran Coordinator at the Foreign
and Commonwealth Office (a former foreign affairs advisor to
PM Blair and now the UK's point person on Iran issues) told
O'Brien that "we are at the testing point" with Iran. It is
"time for the international community to take a gut-check"
and decide what to do about Iran's defiance of the UNSC's
resolutions, Phillipson said. He relayed a conversation with
Foreign Secretary Miliband who said that continuing on the
same path is not a viable
option; the Iranians won't wake up and pull out of Iraq and
Afghanistan and stop their nuclear program; pressure on the
Iranian regime must be increased." On the recent IAEA
agreement, Phillipson said the EU3 3 (P5 plus 1) collectively
is taking a "naive" approach to Iran.

Next steps for UNSCR: Keep up the pressure
--------------


3. (S/NF) Phillipson argued that international pressure has
had an effect on Iran, but the regime continues to pursue
unsustainable policies that are detrimental to its position
in the international community and unsound economic policies
that create domestic hardship, as witnessed by the rationing
of gasoline this past summer. He reported Prime Minister
Brown's instructions to FS Milliband to "find ways to
increase pressure (on the Iranians) while also describing to
them how a bilateral relationship would play out if Iran
changed its behavior (i.e., gave up its nuclear weapons
program.) The Foreign Secretary is testing a public line
describing his vision of a stable and prosperous Iran that
could play a positive role in the region, while warning that
the UK would not tolerate an Iran with nuclear weapons.
Phillipson told O'Brien that the UK, the US and France should
keep up pressure through a third UNSC resolution by aiming to
include the Islamic Revolutionary Guard Corps (IRGC) to its
Annex, and at a minimum, ensuring that IRGC controlled
entities and IRGC-related individuals are added to the
Annex.


4. (S/NF) Although the UK believes that doing everything
possible through the UN is necessary, Phillipson told O'Brien
that a third UNSCR might be difficult. Nick Gibbons,
Secretary in the Overseas and Defence Secretariat, Cabinet

SIPDIS
Office (separate meeting) acknowledged that getting "buy-in"
from other Europeans would not be easy. France is now
"excellent" on the issue of Iran, but not sure how to go
forward, said Phillipson. Germany is "completely unfocused;"
the fragmented nature of Merkel's coalition makes it tough to
go ahead. Russia and China will not likely be keen on a
resolution. Phillipson suggested the upcoming UN General
Assembly Ministerial level meetings are pivotal to obtain
political commitment to the EU3 3 process.


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EU sanctions difficult
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5. (S/NF) Gibbons suggested it would be hard to get EU
sanctions on Iran. France, under newly-elected President
Sarkozy's leadership, has taken an increasingly aggressive
stance against Iran's pursuit of a nuclear weapons program,
but, Phillipson added, German buy-in at the working level has
yet to be achieved. Sending increasingly mixed signals from
the EU are Italy and Spain, while fearful of a nuclear
weapons armed-Iran, have been undermining the EU3-led policy
of increasing pressure on Iran, as both governments have
engaged the Iranian regime. Phillipson was dismayed that
when Iran's Deputy Foreign Minister Jalili visited Italy
recently, he was received by Prime Minister Prodi, rather
than a junior minister as in other capitals. FS Miliband
will raise the sanctions issue in the next Gymnich,
Phillipson said, commenting that there is a limit as to what
countries can do bilaterally to change Iran's behavior.

Targeting the Islamic Revolutionary Guard Corps (IRGC)
-------------- --------------


6. (S/NF) If a third resolution is not politically possible,
a likely scenario according to Phillipson, the UK suggests
two routes: 1) pursuing it anyway and proposing adding the
IRGC to the Annex; 2) going after IRGC controlled-entities
and IRGC-related individuals by adding them to the previous
two resolutions. Even the public threat of naming
IRGC-related individuals and entities is important, whether
there is a realistic chance of getting them on the list or
not. Gibbons told O'Brien there is an ongoing healthy debate
within HMG about how far to go in the next UNSCR round.
O'Brien complimented the FCO on its excellent economic impact
assessment that FCO officials presented to USG officials in
May 2007. The Assistant Secretary specifically pointed out
the FCO's findings that the USG moral suasion campaign
(private sector outreach) has produced tangible results,
major financial institutions
are cutting off Iranian business due to perceived
reputational risk. Most importantly, O'Brien underscored
that major financial centers, such as London and Paris, could
significantly elevate pressure on Iran, along with the US, if
both governments produced public statements about the recent
decisions of international financial institutions to cut off
Iranian business, as well as to underscore the general risk
of doing business with Iran. Public statements, issued from
HMG, informing the
international financial community about the risks of doing
business with Iran would enhance the USG,s initiative. Such
statements may also be useful in efforts to persuade the U.S.
Congress not to pass legislative proposals to require
divestment of European companies doing business with Iran.


7. (S/NF) Additionally, O'Brien encouraged any other measures
that would help persuade financial institutions and other
companies into reassessing the value of maintaining their
business relationships with Iran. Gibbons regretted that the
UK was not able to apply domestic sanctions against Bank
Saderat Plc. London based on its support of terrorism. He
said the current evidence was insufficient to meet the legal
threshold in the UK, but said the UK would try to go after
Bank Saderat on proliferation. Paul Rankin, Head of the
Financial Crime Team, Treasury (separate meeting),told
O'Brien that HM
Treasury is concerned about Bank Melli's illicit financial
activities in the UK.

Use other tools
--------------


8. (S/NF) O'Brien suggested the UK increase its regulatory
and licensing surveillance against UK-based Iranian banks.
By strictly enforcing bank reserve requirements, and fit and
proper determinations - among other safety and soundness
regulations - UK regulators may be able to further curtail
the activities of Iranian banks and entities. O'Brien also
encouraged the UK to work closely with British companies
doing business with Iran. Phillipson said major UK banks and
firms understand the associated reputational risk and have
pared back their activities, albeit quietly so as to not
incur the wrath of
either Iranian authorities or their own shareholders who
would question any disengagement without the cover of a UN
resolution; oil and gas companies, however, have put off

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making the big decision of disengaging, though. O'Brien also
mentioned and encouraged the Financial Action Task Force's
efforts to name Iran to its International Cooperation Review
Group for lack of sufficient anti-money
laundering and counter terrorist finance (AML/CTF) controls
and compliance with AML/CTF international standards.
Phillipson agreed to talk to HM Treasury to increase
regulatory pressure, and to consider a public statement
reinforcing the risk of doing business with Iran.

Do not let the IAEA timetable interfere with ours
-------------- --------------

9. (S/NF) Phillipson, concerned about the IAEA's recent deal
with Iran, told O'Brien that it was important to not permit
the IAEA's workplan to slow down or interfere with the
EU3 3's own agenda. For instance, bowing to pressure to put
off submission of a resolution pending some IAEA report or
visit would weaken our efforts.

Terrorist finance: LIFG - A-Q merger
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10. (S/NF) O'Brien pressed the UK to dampen effects of an
impending announcement of the Libyan Islamic Fighting Group's
imminent merger with Al-Qaeda. Gibbons agreed on the need to
"take the sting out" of the merger announcement. Gibbons
said A-Q is feeling strong and looking to increase its reach.
Simon Manley, Director for Defence and Strategic Threats,
FCO told O'Brien in a separate meeting that the merger
creates a stronger group in some ways, i.e. ability to reach
into North Africa, but also weakens A-Q's command and control
capacity. British Security Services (BSS) are monitoring an
increase in travel to Pakistan and increased links between
the two groups. Overtly, the UK is trying to sow
dissension and doubt into the community as the merger nears;
covertly they are trying to disrupt efforts, said Manley.

Shaking loose additional LIFG names
--------------


11. (S/NF) Gibbons told O'Brien his visit stimulated the BSS
to complete an investigation (started in June) into two LIFG
names the UK had placed on hold at the UNSC 1267 Committee in

2005. O'Brien presented UK officials with unclassified
statements of the case on Khalid Salim Muftah Salamah and
'Isam Al-Din Ahmad Subaita to assist UK efforts to lift the
hold. Gibbons said BSS had come up with
an additional ten names that they felt warranted increased
investigation and possible listing to the UNSC 1267
committee, in addition to Khalid Salim Muftah Salamah. BSS
did not have enough information at present to have similar
concerns about 'Isam Al-Din Ahmad Subaita, but would begin
conversations with its USG counterpart to assess the
evidence. O'Brien offered USG assistance either through a
Secure Video Teleconference or other information sharing in
order to get closure on these and other LIFG names. Gibbons
promised to follow up immediately with BSS and others. The
UK has not seen any re-emergence of the sanctioned LIFG
company Sanabel, said Patrick Guthrie of HM Treasury.

Interpal
--------------


12. (S/NF) The Charity Commission opened another
investigation, which is now law enforcement-based, into
whether one of Interpal's trustees had links to Hamas and
whether they are properly carrying out
their duties. British law enforcement, including Security
Services, will likely ask for their U.S. counterpart's
assistance in this investigation. The UK government hopes to
finish its investigation by early 2008; they could suspend
the trustee, freeze accounts, or in a drastic move, transfer
the funds to another charity.

UK re-organizes counter TF infrastructure - UK Charities
Commission
--------------
--------------


13. (S/NF) The Cabinet Office and HM Treasury are
re-organizing and beefing up their counter-terrorist finance
capabilities. Gibbons will be taking on proliferation as
well as TF issues in the Cabinet, and HM Treasury has created
a small OFAC-like office, following a December 2006 visit
between OFAC and HM Treasury officials, and has doubled the

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budget for asset-freezing and designations. Rankin pointed
to nine asset freeze actions in the past few weeks as
evidence of the success of the
recent increase in attention and funding to TF.
Complimenting the UK on its efforts to upgrade its CTF
capabilities, O'Brien turned to the issue of the UK Charities
Commission and its lack of CTF implementation. O'Brien
underscored that not only the fraudulent diversion of funds
is detrimental to the integrity of the charitable sector, but
the possibility of a foreign terrorist organization (FTO)
operating a charity poses a severe threat to the
international community because it provides a recruiting and
operational base to a FTO.


14. (S/NF) Rankin told O'Brien that HM Treasury and the Home
Office have been conducting a year long study into the UK
Charities Commission's activities. The final study will be
available at the end of September. Rankin further explained
that in May 2007 HM Treasury and the Home Office issued a
consultation document "Review of safeguards to protect the
charitable sector in England and Wales from
terrorist abuse," which provided the UK Charities Commission
with key recommendations to shore up its CTF capabilities.
Rankin acknowledged that effective oversight of the
charitable sector required appropriate access to law
enforcement and intelligence information. Additionally, HM
Treasury has allocated the UK Charity Commission with
additional funds to increase its ability to police its own
sector, Rankin described a current desire within the Charity
Commission to improve its awareness and capabilities to
address the threat of terrorist abuse in the charitable
sector.

This cable was cleared with A/S O'Brien and his staff.

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